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Baker v. J.J. Deluca Co.


June 9, 2010


On appeal from the Superior Court of New Jersey, Law Division, Essex County, Docket No. L-1393-06.

Per curiam.


Argued February 1, 2010

Before Judges Lisa and Coburn.

By leave granted, Celadon Trucking Services, Inc. (Celadon) appeals from the March 17, 2009 order granting the summary judgment motions of defendants J.J. Deluca Company, Inc. (Deluca), North Wales Millwork, Inc. (North Wales) and Leedo Manufacturing Co., Inc. (Leedo), determining that Celadon is required to provide coverage to defendants. Celadon also appeals from the corresponding amended order of March 26, 2009 to the same effect. The orders also denied Celadon's cross- motion for partial summary judgment, which sought a declaration that Celadon was not required to provide coverage to defendants. Celadon argues that the trial court erred in holding that New Jersey's insurance statutes apply to it. It argues that, because it is an interstate carrier, federal laws and regulations prescribe its exclusive financial responsibility requirements, and that those laws and regulations do not extend its coverage obligations to non-insureds such as defendants. We reject these arguments and affirm.

Plaintiff, John Baker, was a workman at a construction project in West Orange. On December 4, 2004, while at the job site, plaintiff was helping to unload construction materials from a tractor trailer owned by Celadon. Plaintiff claims he was injured when he was struck by a backsplash that fell off the truck.

Deluca was the general contractor for the construction project. Deluca had ordered certain construction materials (e.g. bathroom cabinets, vanities, and backsplashes) from North Wales, which, in turn, subcontracted the manufacturing of those items to Leedo. Leedo manufactured the contracted items at its Texas facility and then retained Celadon's services to transport the items from Texas to the West Orange job site.

Celadon is a New Jersey corporation. It owns approximately 2500 trucks and 8000 trailers throughout the United States and Canada. All of its tractors and trailers, including the one plaintiff was unloading, are registered in Indiana. The driver of the truck in the underlying action in this case was "brought in" by Celadon Trucking Services of Indiana, Inc., an Indiana corporation. The driver was then "leased" to Celadon, and was for all purposes an employee of Celadon with respect to the incident in which plaintiff claims he was injured.

Celadon is self-insured in compliance with regulations of the United States Department of Transportation (USDOT). It does not have a certificate of self-insurance in any particular state. Celadon is self-insured for $2.5 million and has an excess insurance policy with Protective Insurance Company with a limit of $7.5 million per occurrence.

On February 17, 2006, plaintiff sued Deluca, which in turn filed a third-party complaint against North Wales, which then filed a fourth-party complaint against Leedo and Celadon.

On August 25, 2008, Deluca filed a motion to compel coverage from Celadon. Leedo and North Wales then filed similar motions. Celadon filed a cross-motion for partial summary judgment, seeking a determination that it was not responsible for coverage to those co-defendants. At the conclusion of oral argument on February 6, 2009, Judge McCormack granted defendants' motions and denied Celadon's, as memorialized by an order of March 17, 2009. The judge then issued a written opinion on March 26, 2009, with a corresponding amended order that was substantively the same as the March 17, 2009 order.

In his written opinion, Judge McCormack explained his rejection of Celadon's contention that it is not subject to New Jersey's motor vehicle statutes as follows:

N.J.S. 39:6A-3 establishes compulsory automobile insurance coverage. In furtherance of this omnibus coverage, every owner of a motor vehicle registered or garaged in New Jersey must maintain coverage for losses arising from, inter alia, "the use" of a motor vehicle. A person who is in the process of unloading cargo from a motor vehicle is, for purposes of the omnibus coverage, "a user" of the vehicle, Bellafronte v. General Motors, 151 N.J. Super. 377, 382-383 (App. Div. 1977). Thus, under New Jersey law, it is clear that the plaintiff, at the time of this incident, was using the Celadon vehicle and Celadon would be required to provide coverage for such use.

The issue before this Court is whether Celadon avoids this requirement by virtue of the fact that it self-insured under the FMCSA [Federal Motor Carrier Safety Act].

Celadon argues that, since it is self-insured under the FMCSA, it is subject only to the rules and regulations of the [United States] Department of Transportation (DOT) as established by the FMCSA and not the State of New Jersey's insurance law.

It is significant to note that the rules and regulations relied upon by Celadon deal primarily with registration, coverage limits and qualifications for self-insurance. The sole reference to scope of coverage is found in 49 C.F.R. 387.301, which indicates that an interstate carrier must have coverage, or qualifications as a self-insurer, in amounts to pay a judgment for injuries or death "resulting from the negligent operation, maintenance or use" of the subject vehicle. Neither federal regulation nor case law defines "use" as referred to in 49 C.F.R. 387.301.

This Court is satisfied that the case law is clear that, as long as the FMCSA does not explicitly preempt State provisions, states are free to enact laws that supplement or complement a federal statutory scheme. What a state cannot do is to enact a law that would conflict with the federal regulations. In California v. Zook, 336 U.S. 725 (1949), the United States Supreme Court held that "absent Congressional action, the familiar test is that of uniformity versus locality; if a case falls within an area in commerce thought to demand a uniform national rule, State action is struck down. If the activity of one is of predominantly local interest, State action is sustained." Id. at 726. Neither counsel nor this Court could find any authority for the proposition that the FMCSA preempts or usurps a state's rights to regulate insurance.

Celadon further argues that, since it is self-insured under FMCSA and not under New Jersey law (N.J.S. 39:6-52), it is not subject to the requirements of N.J.S. 17:28-1.4, the Deemer statute. Celadon maintains that said statute is only applicable to carriers and not self-insurers.

It is well founded that an entity that is self-insured under New Jersey laws has obligations "co-extensive with the obligations of those possessing liability policies", Ryder/P.I.E. Nationwide Insurance v. Harbor Bay Corp., 119 N.J. 402, 410 (1990). Again, Celadon points to its being self-insured under FMCSA. This Court finds this distinction immaterial. In Liberty Mutual Insurance v. Thomson, 385 N.J. Super. 240 (App. Div. 2006), the Court found an out of state self-insured auto rental company subject to the Deemer statute, holding that said defendant "is subject to mandatory insurance coverage for its rental vehicles while driven in New Jersey, just as if it was an insurance carrier." Id. at 246.

We agree with Judge McCormack's analysis, which we supplement with the following discussion.

Celadon acknowledges that N.J.S.A. 39:6A-3 and N.J.S.A. 39:6B-1 establish mandatory liability insurance coverage requirements in New Jersey. It argues, however, that these statutes are not applicable to it because, by their terms, the statutes apply only to motor vehicles "registered or principally garaged" in New Jersey. The Celadon trailer involved in this incident was registered in Indiana, and it was not principally garaged in New Jersey.

Celadon further argues that the judge erred in concluding that New Jersey's deemer statute, N.J.S.A. 17:28-1.4, applies to it. In general, the deemer statute requires "[a]ny insurer authorized to transact or transacting automobile or motor vehicle insurance business in this State" to provide coverage at least equivalent to coverages required in New Jersey for accidents occurring in New Jersey. N.J.S.A. 17:28-1.4. Celadon argues that the deemer statute does not apply because Celadon is not authorized to transact nor is it transacting motor vehicle insurance business in New Jersey.

Celadon does not have a certificate of self-insurance issued by New Jersey, and there is no indication that it was "authorized" to transact insurance business in New Jersey. However, for purposes of the deemer statute, Celadon's conduct in sending its self-insured truck into New Jersey, where plaintiff was allegedly injured while unloading it, is tantamount to transacting insurance business in New Jersey.

In Liberty Mutual Insurance Co. v. Thomson, 385 N.J. Super. 240, 242 (App. Div.), certif. denied, 188 N.J. 219 (2006), we considered the applicability of the deemer statute in a situation where Liberty Mutual's insured was injured when his car was struck in New Jersey by the driver of a Hertz rental vehicle. The driver of the Hertz vehicle was an Australia resident, the car was registered in New York, it was rented by Hertz to the Australian driver in North Carolina, and the car was to be returned to New York. Ibid. Hertz was self-insured. Id. at 243. We held that whether Hertz was self-insured or purchased a separate policy, it was "required to provide the mandatory coverage set forth in our No-Fault Law while its cars are on New Jersey highways." Id. at 244. We noted that the deemer statute provides that any insurer who issues a policy on an out-of-state vehicle, and who does business in New Jersey, is deemed to have contracted to provide New Jersey mandated coverage to any insured vehicle while on a New Jersey highway.

Id. at 244-45. We concluded as follows:

In sum, Hertz self-insured the rental vehicle driven by Thomson, as it was permitted to do. If an insurance carrier doing business in New Jersey issues a motor vehicle policy covering a car registered in New York, the carrier is deemed to have agreed to provide the minimum required coverage under New Jersey law, including PIP. N.J.S.A. 17:28-1.4. As a self-insured, considered to have issued an insurance policy to itself, see White v. Howard, supra, 240 N.J. Super. at 431, 573 A.2d 513, Hertz is subject to mandatory insurance coverage for its rental vehicles while driven in New Jersey, just as if it was an insurance carrier.

[Id. at 245 (emphasis added).]

Our analysis in Liberty Mutual leads to the conclusion that Celadon is subject to the deemer statute. Although its truck was not registered in New Jersey, Celadon is a self-insurer which drove into New Jersey to conduct business at a New Jersey construction site. An accident then occurred arising out of the unloading of the vehicle, which, under New Jersey law, constitutes "use" of the vehicle within the meaning of New Jersey's mandatory insurance statutes. Ryder/P.I.E. Nationwide, Inc. v. Harbor Bay Corp., 119 N.J. 402, 407-09 (1990); Bellafronte v. Gen. Motors Corp., 151 N.J. Super. 377, 382-83 (App. Div.), certif. denied, 75 N.J. 533 (1977). Thus, plaintiff's alleged accident is one for which he can seek recompense from the motor vehicle insurer of the motor vehicle he was "using."

This is not a case in which an out-of-state insurance company issued a policy to an out-of-state resident with no reason to foresee the vehicle entering New Jersey. Celadon willingly sent its self-insured vehicle into New Jersey to do business. Thus, Celadon is the functional equivalent, for deemer statute purposes, of an "insurer . . . transacting . . . motor vehicle insurance business in this State" within the terms of N.J.S.A. 17:28-1.4. Celadon should not be permitted to take advantage of its self-insurance opportunities, but then escape the requirements of New Jersey law even though it wrote the policy on a vehicle which it then purposely sent into New Jersey to conduct business.

We find unpersuasive Celadon's argument that its lack of a New Jersey self-insurance certificate distinguishes it from cases holding that self-insurers are held to the same requirements as insurance companies under the deemer statute. A motor vehicle owner's failure or ineligibility to obtain such a certificate should not serve to shield it from its obligations under the deemer statute to the public in New Jersey.

Celadon further argues that as an interstate carrier it is insured in accordance with the rules of the USDOT, and as such, it is subject only to USDOT's financial responsibility requirements. According to Celadon, USDOT regulations do not require it to provide coverage to the co-defendants. We do not agree.

Celadon relies upon two sections of the FMCSA and two corresponding USDOT regulations in support of its argument that it is required by the federal law and regulations only to provide self-insurance in an amount sufficient to pay for any final judgment against the interstate carrier. While it is true that the statutes and regulations cited by Celadon contain such language, they also contain other language pertaining to the authority of the states in which the interstate carrier operates. We set forth the relevant portions of the two statutory sections upon which Celadon relies, namely 49 U.S.C.A. § 31139, and 49 U.S.C.A. § 13906:

49 U.S.C.A. § 31139. Minimum financial responsibility for transporting property . . . .

(b) General requirement and minimum amount.

(1) The Secretary of Transportation shall prescribe regulations to require minimum levels of financial responsibility sufficient to satisfy liability amounts established by the Secretary covering public liability, property damage, and environmental restoration for the transportation of property by motor carrier or motor private carrier (as such terms are defined in section 13102 of this title [49 U.S.C.A. § 13102]) in the United States between a place in a State and--

(A) a place in another State;

(2) The level of financial responsibility established under paragraph (1) of this subsection shall be at least $750,000.

(c) Filing of evidence of financial responsibility. The Secretary may require a motor private carrier (as defined in section 13102 [49 U.S.C.A. § 13102]) to file with the Secretary the evidence of financial responsibility specified in subsection (b) in an amount not less than the greater of the minimum amount required by this section or the amount required for such motor private carrier to transport property under the laws of the State or States in which the motor private carrier is operating; except that the amount of the financial responsibility must be sufficient to pay not more than the amount of the financial responsibility for each final judgment against the motor private carrier for bodily injury to, or death of, an individual resulting from negligent operation, maintenance, or use of the motor vehicle, or for loss or damage to property, or both.

[49 U.S.C.A. § 31139 (emphasis added).]

49 U.S.C.A. § 13906. Security of motor carriers, motor private carriers, brokers, and freight forwarders

(a) Motor carrier requirements.

(1) Liability insurance requirement. The Secretary may register a motor carrier under section 13902 [49 U.S.C.A. § 13902] only if the registrant files with the Secretary a bond, insurance policy, or other type of security approved by the Secretary, in an amount not less than such amount as the Secretary prescribes pursuant to, or as is required by, sections 31138 and 31139 [49 U.S.C.A. §§ 31138 and 31139], and the laws of the State or States in which the registrant is operating, to the extent applicable. The security must be sufficient to pay, not more than the amount of the security, for each final judgment against the registrant for bodily injury to, or death of, an individual resulting from the negligent operation, maintenance, or use of motor vehicles, or for loss or damage to property (except property referred to in paragraph (3) of this subsection), or both. A registration remains in effect only as long as the registrant continues to satisfy the security requirements of this paragraph.

[49 U.S.C.A. § 13906 (emphasis added).]

As illustrated by the terms of these provisions, the federal legislation contemplates the applicability of insurance regulation of the carrier's vehicles by the states in which it operates. The provisions also require coverage for "use." That term is undefined in the federal statutes and regulations. There is no basis upon which to conclude that New Jersey's jurisprudence, which holds that loading and unloading of a vehicle constitutes use, thus mandating insurance coverage, was intended by Congress to be precluded under the federal scheme. We therefore conclude, as did Judge McCormack, that the FMCSA has not preempted state insurance regulation in this context.

Finally, we note that Celadon's excess policy with Protective Insurance Company provides a further basis to support our conclusion that Celadon is required to provide insurance to the co-defendants under the deemer statute. Protective Insurance Company is authorized to transact business in New Jersey, and its $7.5 million excess policy covering Celadon includes New Jersey endorsements. Certainly, its coverage, whether explicitly stated or not, is deemed to comply with New Jersey insurance statutes under the deemer statute. Yet, its obligation to indemnify a claimant does not begin until Celadon's $2.5 million self-insured retention is exhausted. It stands to reason that the self-insured must have the same obligations as that of its excess carrier.



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