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Jonathan Klama v. Sandro Zuniga-Elizando

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


March 16, 2011

JONATHAN KLAMA, PLAINTIFF, AND PROFORMANCE INSURANCE CO., PLAINTIFF/INTERVENOR,
v.
SANDRO ZUNIGA-ELIZANDO, ODANIA BLANCO, AND BLANCO'S CONTRACTING, DEFENDANTS. NEW JERSEY MANUFACTURERS INSURANCE COMPANY, PLAINTIFF-RESPONDENT/ CROSS-RESPONDENT,
v.
JONATHAN A. KLAMA, DEFENDANT-APPELLANT, AND FOREMOST INSURANCE COMPANY, DEFENDANT-RESPONDENT/ CROSS-APPELLANT, AND PROFORMANCE INSURANCE COMPANY, DEFENDANT-RESPONDENT/ CROSS-RESPONDENT.

On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-2371-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 4, 2011

Before Judges Yannotti, Espinosa and Skillman.

In this matter, the Law Division determined that Jonathan Klama (Klama) is only entitled to a total of $15,000 in uninsured motorist (UM) coverage under policies issued by New Jersey Manufacturers Insurance Co. (NJM), Proformance Insurance Company (Proformance), and Foremost Insurance Group (Foremost), and that each of the three insurers is responsible for one-third of the $15,000 in coverage. Klama appeals and Foremost cross-appeals from the court's October 23, 2009, order which memorialized the court's decisions. For the reasons that follow, we affirm on the appeal and the cross-appeal.

I.

On October 2, 2005, Klama was operating a motorcycle and collided with a van that was owned by Odania Blanco (O. Blanco) and operated by Sandro Zuniga-Elizando (Zuniga-Elizando). The van had been insured as a commercial vehicle by Johnny Blanco (J. Blanco), the principal of Blanco Construction. However, the coverage on the vehicle lapsed on August 23, 2005, because J. Blanco had not paid premiums for the coverage and did not have general liability coverage for his business.

Klama was the named insured under a motorcycle insurance policy issued by Foremost, which contained policy limits for uninsured motorist (UM), bodily injury coverage, in the amount of $15,000 per person and $30,000 per accident. At the time of the accident, Klama was a resident of the household of his mother and grandfather. Consequently, Klama also was covered under his mother's and grandfather's auto insurance policies.

Klama's mother was insured under a policy issued by NJM, and Klama's grandfather was insured under a Proformance policy.

Both policies provided UM coverage of up to $100,000 per person and $300,000 per accident. However, both policies included "step-down" clauses, which limit the amount of UM coverage available under the policy.

Klama filed a personal injury action against ZunigaElizando, O. Blanco and Blanco Construction. The trial court permitted Proformance to intervene in that action. Thereafter, NJM filed a declaratory judgment action against Klama, Foremost and Proformance, seeking to enforce the step-down clauses of the NJM and Proformance policies and limit UM coverage to the $15,000 provided under the Foremost policy. The trial court consolidated Klama's personal injury action with NJM's declaratory judgment action.

NJM and Proformance filed motions for summary judgment seeking enforcement of the step-down clauses of their policies. Foremost filed a cross-motion, in which it sought to apportion the $15,000 in UM coverage by requiring NJM and Proformance to both pay 46.5 percent of that amount, and requiring Foremost to pay the remaining seven percent.

The trial court considered the motions on October 23, 2009, and placed its decision on the record. The court found that the step-down clauses in the NJM and Proformance polices are valid and enforceable, Klama's UM coverage was limited to $15,000, and the three insurers were each obligated to pay one-third of that amount. The court entered an order dated November 10, 2009, memorializing its findings. Klama's appeal and Foremost's cross-appeal followed.

II.

Klama argues that the trial court erred by enforcing the step-down clauses in the NJM and Proformance policies. We disagree.

All standard personal auto insurance policies issued in New Jersey, with regard to motor vehicles registered or principally garaged in this State, must provide UM coverage of at least $15,000 for injury or death to one person and $30,000 for injury or death to more than one person. N.J.S.A. 17:28-1.1(a)(1) to -(2). Insurers are required to provide the named insured with the option of electing UM coverage for bodily injury of up to $250,000 per person and $500,000 per accident. N.J.S.A. 17:28-1.1(b).

However, N.J.S.A. 17:28-1.1(c) provides that "[i]f the insured had uninsured motorist coverage available under more than one policy, any recovery shall not exceed the higher of the applicable limits of the respective coverages and the recovery shall be prorated between the applicable coverages as the limits of each coverage bear to the total of the limits."

In Christafano v. New Jersey Manufacturers Insurance Company, 361 N.J. Super. 228 (App. Div. 2003), we found that step-down provisions of the sort at issue here were enforceable. In that case, the plaintiff was insured for UM benefits under three policies: a policy issued by State Farm insuring his own vehicle with UM limits of $25,000; his sister's policy from Allstate with UM limits of $100,000 and his mother's NJM policy with UM limits of $300,000. Id. at 231.

The NJM policy in Christafano had a step-down clause which limited the amount of UM coverage. Id. at 232. It provided that:

1. If:

a. An insured is not the named insured under this policy;

b. That insured is a named insured under one or more other policies providing similar coverage; and

c. All such other policies have a limit of liability for similar coverage which is less than the limit of liability for this coverage; then our maximum limit of liability for that insured, for all damages resulting from any one accident, shall not exceed the highest applicable limit of liability under any insurance providing coverage to that insured as a named insured. [Ibid.]

The trial court in Christafano found that the step-down was ambiguous and refused to enforce it. Id. at 233. We reversed the court's judgment, finding that the relevant section of the policy was "clear and unambiguous" and limited NJM's UM coverage to the amount provided under the State Farm policy. Id. at 235.

We stated that all three of the conditions in the step-down clause of the NJM policy had been met because "plaintiff is not the named insured under the NJM policy, but is a named insured under the State Farm policy, which provides UM coverage with lesser limits of liability than the NJM policy." Ibid. We held that the limits on liability under NJM's step-down clause were consistent with N.J.S.A. 17:28-1.1(c). Christafano, supra, 361 N.J. Super. at 237.

A. The NJM Policy

Here, Klama's mother was insured under a private passenger automobile policy issued by NJM. Because Klama resided in his mother's household, he is entitled to coverage under the NJM policy. The policy provides UM coverage for bodily injury in the amount of $100,000 per person and $300,000 per accident. The policy states:

5. Limits of Liability

a. Bodily Injury

The limit shown on the Policy Declarations under Uninsured and Underinsured Motorist Coverage for bodily injury is the maximum amount of coverage for all damages due to bodily injury to one person in any one accident. . . .

c. However, subject to our maximum limit of liability for this coverage, for an insured other than you that is insured as a named insured, spouse, or relative under one or more policies providing Uninsured and Underinsured Motorist Coverage at a limit of liability less than our limit of liability, our limit of liability shall not exceed the highest applicable limit under any policy providing Uninsured and Underinsured Motorist Coverage to that insured as a named insured, spouse or relative. . . .

7. If There Is Other Uninsured and Underinsured Motorist Coverage

a. If the insured sustains bodily injury and other Uninsured and Underinsured Motorist Coverage applies, the total limits of liability under all such coverages shall not exceed that of the coverage with the highest limit of liability for any one vehicle.

b. However, for an insured other than you that is insured as a named insured, spouse, or relative under one or more policies providing Uninsured and Underinsured Motorist Coverage, the total limits of liability under all such Uninsured and Underinsured Motorist Coverage for that insured shall not exceed the highest applicable limit under any policy providing Uninsured and Underinsured Motorist Coverage to that insured as a named insured, spouse, or relative.

Although insurance polices must be interpreted in accordance with the insured's objectively reasonable expectations of the insured, Aubrey v. Harleysville Ins. Co., 140 N.J. 397, 404 (1995), Klama could not have had an objectively reasonable expectation that the step-down clause in the NJM policy would not limit the UM coverage available to him. The relevant provisions of the policy are unambiguous. Therefore, the policy should be enforced as written. Universal Underwriters Ins. Co. v. N.J. Mfrs. Ins. Co., 299 N.J. Super. 307, 312 (App. Div.), certif. denied, 151 N.J. 73 (1997).

Here, all of the conditions for enforcement of the step-down clause in the NJM policy have been satisfied. Consequently, the NJM policy limits UM coverage to "the highest applicable limit" of either the Foremost or Proformance policy, or $15,000.

Klama argues, however, that the trial court erred by enforcing the step-down clause in the NJM policy because the language used is not the same as the language of the policy in Christafano. Klama also argues that the change in language expands the scope of the step-down clause approved in Christafano, rendering it vague and overbroad. We find no merit in these contentions.

We reject the assertion that a step-down clause is only valid if it employs exactly the same language that was considered in Christafano. Furthermore, while the step-down clause in NJM's policy is not expressly limited to "policies providing similar coverage" as was the policy in Christafano, but extends more specifically to any policy that provides UM and UIM coverage, the language employed is unambiguous. As in Christafano, Klama could not have had any objectively reasonable expectations that the step-down clause would not be applied to him, and the relevant provisions of the policy should be enforced as written. Id. at 234-35.

B. The Proformance Policy

Because Klama resided in his grandfather's household, he is entitled to coverage under his grandfather's Proformance policy, which provides UM coverage for bodily injury in the amount of $100,000 per person and $300,000 per accident. The Proformance policy contains a step-down clause, which states as follows:

LIMIT OF LIABILITY

A. The limit of Bodily Injury Liability shown in the Schedule or Declarations for each person for Uninsured Motorists Coverage is our maximum limit of liability. . . .

However, subject to our maximum limit of liability for this coverage

1. If:

a. An "insured" is not the named insured under this policy;

b. That "insured" is a named insured under one or more other policies providing similar coverage; and

c. All such other policies have a limit of liability for similar coverage which is less than the limit of liability for this coverage; then our maximum limit of liability for that "insured", for all damages resulting from any one accident, shall not exceed the highest applicable limit of liability under any insurance providing coverage to that "insured" as a named insured.

The step-down clause in the Proformance policy is the same as the step-down clause considered in Christafano, supra, 361 N.J. Super. at 232. As noted previously, we found the step-down clause in Christafano to be unambiguous and have no reason to reach a different conclusion in this case. Because there is no ambiguity in the clause, Klama could not have an objectively reasonable belief that it would not limit the UM coverage available to him. Id. at 234.

Furthermore, as in Christafano, all of the conditions for application of the step-down clause in the Proformance policy have been met. Accordingly, Klama's UM coverage is limited to the "highest applicable limit of liability" under the Foremost and NJM policies, which is $15,000.

Klama argues that the step-down in the Proformance policy clause does not apply to him because his motorcycle insurance policy does not provide coverage that is "similar" to that provided under the Proformance policy. We reject the assertion that there is no similarity in coverage because one policy provides motorcycle insurance and the other provides automobile insurance. It is undisputed that the Proformance and Foremost policies provide UM coverage for the bodily injuries that Klama allegedly sustained in the motorcycle accident. Therefore, the Foremost policy provides coverage similar to the coverage provided under the Proformance policy.

We therefore conclude that the trial court correctly found that the step-down clauses in the NJM and Proformance policies are enforceable and, as a consequence, Klama's UM coverage is limited to $15,000.

III.

In its cross-appeal, Foremost argues that the trial court erred by finding that each of the three carriers is responsible for one-third of the total $15,000 in UM coverage. Foremost contends that the total coverage should be prorated based on the maximum amount of UM coverage potentially available under the respective policies, without regard to the step-down clauses in the NJM and Proformance policies. Therefore, Foremost argues that Proformance and NJM should each pay 46.5 percent and it should pay seven percent of the $15,000 in coverage. We disagree.

Where, as in this case, an insured has UM coverage under one or more policies, the insured's "recovery shall not exceed the higher of the applicable limits of the respective coverages[.]" N.J.S.A. 17:28-1.1(c). The "applicable" limit of coverage is not the maximum permitted under the policy, but rather the limit as determined after application of the step-down clause.

Under N.J.S.A. 17:28-1.1(c), the "recovery" is "prorated between the applicable coverages as the limits of each coverage bear to the total of the limits." Because the "recovery" is based on the "applicable limits of the respective coverages," the allocation of that "recovery" must be made on the same basis, that is, on the basis of the limits as determined after application of the step-down clauses, rather than the maximum limits of the policies. Ibid.

Foremost argues that the allocation should be based on the maximum limits available under the policy because otherwise the carriers would always be allocated an equal amount of the recovery. We disagree. In our view, the Legislature did not intend that a carrier should pay a percentage of the "recovery" based upon the maximum limits of liability under its policy instead of the actual amount of coverage to which the insured is entitled under the policy.

Foremost also argues that our decision in Christafano mandates allocation of the "recovery" based on the original policy limits. In Christafano, we held that the UM coverage was limited to $25,000, finding that this was the highest applicable coverage limit, and ordered that the plaintiff's "recovery" be prorated pursuant to N.J.S.A. 17:28-1.1(c). Christafano, supra, 361 N.J. Super. at 237-38. Although the trial court had allocated the recovery to NJM based upon the original policy limits of the respective policies, no issue was raised as to the allocation. Thus, we did not endorse the allocation employed and we decline to do so in this case.

Affirmed on the appeal and the cross-appeal.

20110316

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