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Jackson v. IFA Insurance Company


April 29, 2010


On appeal from the Superior Court of New Jersey, Law Division, Camden County, L-0803-08.

The opinion of the court was delivered by: R. B. Coleman, J.A.D.


Argued April 20, 2009

Before Judges R. B. Coleman and Simonelli.

Plaintiff Ronald W. Jackson appeals from a September 12, 2008 order granting summary judgment in favor of defendant IFA Insurance Company, Inc. (IFA) and denying plaintiff's cross-motion to compel arbitration of his underinsured motorist (UIM) claim. Based upon our careful review, we affirm substantially for the reasons expressed by Judge Francis J. Orlando, Jr. in his oral opinion following oral arguments on the motions.

The essential facts are not in dispute. Plaintiff was injured in an automobile accident on November 12, 2004 caused by the negligence of Kathryn Evans. Ms. Evans's automobile was insured under an insurance policy issued by Government Employees Insurance Company (GEICO), which had liability limits of $15,000/$30,000. That amount of coverage is alleged by plaintiff to be insufficient to compensate him for his injuries. The vehicle plaintiff was operating was owned by W & W Transportation, whose insurance policy with Liberty Mutual had been cancelled on October 28, 2004. Because plaintiff was living with his son at the time of the accident, he eventually asserted a claim for UIM coverage under the policy issued by IFA to plaintiff's son.

The pertinent sections of the insurance policy regarding subrogation state:


A. If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do:

1. Whatever is necessary to enable us to exercise our rights; and

2. Nothing after loss to prejudice them. . . . .

ADDITIONAL DUTIES A person seeking coverage under this Part must also promptly:

1. Send us copies of the legal papers if a suit is brought; and

2. Notify us in writing of a tentative settlement between the "insured" and the insurer of the "underinsured motor vehicle" and allow us 30 days to advance payment to that "insured" in an amount equal to the tentative settlement to preserve our rights against the insurer, owner or operator of such "underinsured motor vehicle."

Plaintiff never sued the tortfeasor, Ms. Evans, within the two-year statute of limitations, N.J.S.A. 2A:14-2(a). Neither did plaintiff place IFA on notice of the accident or make a claim for UIM coverage under the IFA policy issued to his son until plaintiff's attorney sent a letter to IFA dated January 31, 2007. In that letter, counsel purported to inform IFA, in accordance with the Longworth*fn1 procedure, that he was seeking to determine whether IFA wished to pursue any feasible subrogation interests, in which case, he directed that IFA should forward to his office the sum of $15,000 within thirty days. Otherwise, the letter advised IFA that it would be deemed to have waived any possible subrogation interests.

IFA denied plaintiff's asserted claim for UIM on the ground that plaintiff was barred from recovery for having failed to sue Ms. Evans within the two years permitted by the applicable statute of limitations. IFA contends plaintiff's failure to preserve his claim against the tortfeasor prejudiced, if not extinguished, IFA's right of subrogation.

On February 6, 2008, plaintiff filed a verified complaint and order to show cause against IFA, seeking to compel IFA to provide UIM coverage and to proceed to UIM arbitration. On April 1, 2008, IFA answered the verified complaint and filed its opposition to the order to show cause. Following discovery, IFA filed its motion for summary judgment and plaintiff cross-moved to require UIM arbitration under the terms of the policy issued by IFA to plaintiff's son. At the conclusion of oral arguments, the motion judge ruled that plaintiff's failure to bring a claim against the tortfeasor had extinguished IFA's right of subrogation:

Based upon the foregoing, I find that the --IFA is entitled to summary judgment in this case. I find that, under the -- Vassas that the failure to bring a claim against the tortfeasor by the plaintiff has extinguished the -- IFA's carrier's right of subrogation in violation of their insurance policy and in light of the duty placed upon Jackson by the Rutgers v. Vassas case.

I find that, by failing to make a claim against the tortfeasor within the applicable statute, the tortfeasor's vehicle is no longer underinsured because it is not a person against whom a claim for recovery is sought. There must be a person against whom recovery is sought, and there is no person against whom recovery is sought because a claim cannot be made against Evans, and IFA stands in the shoes of Evans. And, because the plaintiff cannot make a claim against Evans, it cannot make a claim against IFA.

Furthermore, I find that there may be circumstances in which not accepting any sums of money would be reasonable. However, in this particular case, I determined that -- first of all, that the principle out of Revill and Winner*fn2 is that the claims that accepting something less than the full policy limits must pass a reasonableness test.

In this case, there is no reasonable basis for deciding -- that has been offered for not pursuing the claim against the tortfeasor other than there was a misstep on the part of the plaintiff by not filing the suit within the statute of limitations here.

And, finally, there is no evidence before this Court that the tortfeasor Evans is judgment proof.

In Vassas, upon which the motion judge relied, the Supreme Court affirmed our judgment dismissing the plaintiff's suit where the plaintiff had not notified his insurer of a lawsuit he had filed against the tortfeasor. Supra, 139 N.J. at 175-76. The Court's summary of the facts in Vassas reveals circumstances that are strikingly similar to the case at bar. Moreover, the Court's reason for affirming -- the failure to give timely notice -- is particularly instructive:

Vassas was injured in an automobile accident with Vold on January 15, 1989. Vassas filed suit against Vold for his personal injuries. In violation of the explicit requirement in his insurance policy, Vassas did not notify his insurer of the lawsuit. When Vassas was awarded damages from the mandatory auto-arbitration proceeding, he again failed to notify his insurer, contrary to the Appellate Division's holding in Longworth, supra, requiring such notification. Vassas waited almost three years before seeking UIM coverage, and thereby breached his contract and prejudiced Rutgers's subrogation rights, which expired with the running of the two year statute of limitations applicable to the underlying tort. Under those circumstances, Vassas's failure to comply with the provisions of his insurance contract and the dictates of Longworth bars his action to recover UIM benefits from Rutgers. [Ibid.]

In the present case, plaintiff is similarly barred by his failure to comply with the provisions of his son's insurance contract and by the dictates of Longworth, which "balances the interests of insureds, injured victims and tortfeasors." Id. at 175. Plaintiff had a contractual duty not to do anything that would prejudice the subrogation right of the insurer. "[T]he right of subrogation is a common-law equitable remedy customarily included in policies of direct insurance so that an insurer obligated by the insurance contract to pay benefits to its insured is able to seek reimbursement from the tortfeasor whose wrongdoing was the cause of the insured's loss." Longworth, supra, 223 N.J. Super. at 183. An insurer's right of subrogation has been protected "where a UM claimant has failed to give notice in a timely fashion[,]" causing the statute of limitations to run. Brown v. Selective Ins. Co., 311 N.J. Super. 210, 214 (App. Div. 1998) (citing Vassas, supra, 139 N.J. at 169-70).

In his appeal, plaintiff argues that the failure of a claimant to protect the UIM carrier's subrogation interest is "not fatal" to his UIM claim, and that IFA must show prejudice. Plaintiff further asserts that IFA suffered no prejudice as a result of plaintiff's failure to sue the tortfeasor because it most likely would not have pursued subrogation in any event. Finally, plaintiff contends he was not required either to settle with or to obtain a judgment against the tortfeasor because exhaustion of the policy limit of the tortfeasor is not required before the underinsured endorsement carrier has any payment obligation.

We agree that exhaustion of the tortfeasor's policy is not required, but the acceptance of less than the policy must be reasonable. Winner, supra, 382 N.J. Super. at 406; Ohio Cas. Ins. Co. v. Bornstein, 357 N.J. Super. 282, 286 (App. Div. 2003). However, exhaustion is not the issue in this case. Also, contrary to plaintiff's arguments, IFA does not take the position that no claim can be made for UIM benefits unless the tortfeasor's coverage is exhausted. Rather, as IFA clarifies in its respondent's brief, its position is that plaintiff does not have a claim under the policy because he does not present any reasonable explanation for not filing suit or obtaining any recovery from the tortfeasor's carrier. In addition, IFA contends, and we agree, that it is not the insurer who bears the burden of proof on the issue of prejudice; it is the plaintiff who must show that the insurer suffered no prejudice.

This case deals with the simple issue of whether the subrogation rights of the insurer have been materially prejudiced when the insured has failed to bring a claim against the tortfeasor within the two-year statute of limitations period set forth in N.J.S.A. 2A:14-2(a). We have made it clear that "'[w]e do not read the Supreme Court's opinion in [Vassas] to create a bright-line rule that the insured's failure to protect the insurer's right of subrogation amounts to prejudice per se, sufficient under all circumstances to deny the insured UIM benefits and excuse the insurer from its coverage obligation.'" Hutnick v. ARI Mut. Ins. Co., 391 N.J. Super. 524, 532 (quoting Rivers v. Allstate Ins. Co., 312 N.J. Super. 379, 386 (App. Div. 1998)), certif. denied, 192 N.J. 70 (2007). We have found, however, that the burden is on the insured to prove that its actions or inactions did not prejudice the insurer.

Instead, we have held that a plaintiff who defaults on his obligations under Longworth must be allowed "to prove that his premature release of the insurer's subrogation rights caused the insurer no damage." Rivers, supra, 312 N.J. Super. at 386 (internal citation omitted). The Rivers court read Breitenbach [v. Motor Club of Am. Ins. Co., 295 N.J. Super. 328 (App. Div. 1996)] to "allow an insured relief if the insured was capable of proving a lack of prejudice to the insurer, even though the insurer's subrogation right had been extinguished by the release." Id. at 385 (internal citation omitted). [Hutnick, supra, 391 N.J. Super. at 532-33.] According to the framework set forth by the relevant case law, the burden is thus on plaintiff to show that his failure to bring a claim or to notify the insurer within the statute of limitations period did not prejudice the insurer. Customarily, plaintiff would have to show that the tortfeasor has no assets and the release after filing suit did not prejudice the insurer. Here, plaintiff has to prove that its failure to bring any claim whatsoever did not prejudice the insurer.

In that regard, we stated the following in CNA Ins. Cos. v. Cave:

A plaintiff who defaults on his obligations under Longworth must be allowed to prove "that his premature release of the insurer's subrogation rights caused the insurer no damage." In Rivers, we recognized that Breitenbach would apparently . . . allow an insured relief if the insured was capable of proving a "lack of prejudice" to the insurer, even though the insurer's subrogation right had been extinguished by the release. Presumably this means, by way of example, if an insured can demonstrate that the underinsured tortfeasor is assetless, and that it is improbable that an insurer would choose to subrogate against the tortfeasor, UIM benefits should not be withheld from the insured.

This is another way of saying that the insured's breach of the contract was not material under the circumstances. [332 N.J. Super. 185, 191 (App. Div.) (citation omitted) (quoting Rivers, supra, 312 N.J. Super. at 385-86), certif. denied, 165 N.J. 678 (2000).]

Here, plaintiff was unable to show that Ms. Evans was "assetless," or that the failure to bring a claim within the limitation period did not prejudice the insurer. Plaintiff brought forth no evidence. Yet, plaintiff states generally in his appellate brief that "UM and UIM carriers usually do not exercise their subrogation rights because individuals without coverage or with only minimal coverage are impecunious and judgment proof. It is rarely worth the trouble to pursue them." Such generalization about UIM carriers' habits amounts to mere speculation, and "speculation does not meet the evidential requirements which would allow [a party] to defeat a summary judgment." Merchs. Express Money Order Co. v. Sun Nat'l Bank, 374 N.J. Super. 556, 563 (App. Div.), certif. denied, 183 N.J. 592 (2005). The nature of the assertion is even more obvious when plaintiff states that "[p]laintiff suspects that the tortfeasor has no assets," (emphasis added). In the end, these unsupported assertions are not enough to satisfy plaintiff's burden of proving lack of prejudice, and they do not give rise to a genuine issue as to a material fact challenged. R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of America, 142 N.J. 520, 540 (1995).

Finally, plaintiff claims that he should have been allowed to take discovery, that he had requested that plaintiff produce deponents and that request was denied. Significantly, the notice to take depositions did not come until after the motion for summary judgment was filed. Further, defendant explains that "no one attempted to block any efforts by the plaintiff or his representatives to conduct an assets check on Ms. Evans and/or to take her deposition." The asset check or inquiry, not the depositions of defendant's employees, is what would have been necessary to demonstrate a lack of prejudice. Plaintiff could have independently conducted such an inquiry in the two years following the accident. The absence of such an inquiry was not a basis to deny the motion for summary judgment.

We have duly considered all of the arguments raised by plaintiff. To the extent there are any arguments that have not been specifically addressed, they lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).


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