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Howard Remmich v. Selective Auto Insurance Company of New Jersey and 21st Century


November 2, 2011


On appeal from the Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-1571-10.

Per curiam.


Argued October 17, 2011 -

Before Judges A. A. Rodriguez and Fasciale.

Defendant Palisades Safety & Insurance (Palisades) appeals from a December 3, 2010 order denying its summary judgment motion, and a December 9, 2010 order requiring that it provide primary underinsured motorist coverage (UIM) to plaintiff. Palisades argues principally that the motion judge erred by (1) reforming an automobile policy issued by co-defendant Selective Auto Insurance Company of New Jersey (Selective), and (2) misconstruing the "Other Insurance" provision contained within the policy issued by Palisades. We disagree and affirm.

On February 17, 2009, plaintiff operated an automobile owned by his wife and sustained injuries in an accident with a truck operated by Antonio Arbaiza (Arbaiza) and owned by Vemar Foods Company (Vemar). Progressive Insurance (Progressive) issued a commercial liability policy to Vemar with coverage in the amount of $100,000 combined single limit (CSL). Plaintiff settled his personal injury claims against Arbaiza and Vemar subject to Longworth*fn1 approval.

Plaintiff then pursued UIM benefits from two insurance companies: (1) Palisades, which issued an automobile insurance policy to plaintiff containing UIM benefits in the amount of $500,000;*fn2 and (2) Selective, which issued an automobile insurance policy to plaintiff's son (the son), with whom plaintiff lived at the time of the accident. Although Selective and the son intended that the Selective policy include UIM benefits in the amount of $300,000, the declaration page omitted any mention of that coverage.

On April 24, 2008, the son applied for automobile insurance with Selective (the application). It is undisputed that the son applied for uninsured motorist (UM) coverage and UIM coverage with a combined single limit of $300,000 per accident, and paid premiums for UIM and UM coverage. Selective discovered that it did not include UIM coverage on the declarations page for the son and other insureds, and issued a letter dated April 30, 2010 to all affected policyholders. The letter stated:

If you had a new personal automobile policy issued by Selective and your coverage first began between October 1, 2007 through August 10, 2008, a computer programming error may have affected your Selective UM/UIM coverage. Due to the programming error your policy did not include a specific form that should have been enclosed with a new policy. And, that form was not listed on your declarations page that accompanied your policy. This form is New Jersey Uninsured and Underinsured Motorists Coverage, form [PP 0480 (09/05)].

The letter enclosed the form and also advised policyholders that "Selective is going to apply the terms of form [PP 0480 (09/05)] that may apply to you if you had a UM/UIM claim that arose under an affected policy beginning on October 1, 2007 through August 10, 2008."

Plaintiff filed a complaint to compel Palisades and Selective to participate in a UIM arbitration.*fn3 Selective then filed a third-party complaint against the son and sought to reform the Selective policy to include the omitted UIM benefits. The parties then filed three motions: (1) Selective filed a motion for summary judgment seeking to reform its policy with the son, based on mutual mistake;*fn4 (2) Palisades cross-moved for summary judgment seeking a declaration that Selective be responsible for a prorata share of any UIM benefits due plaintiff; and (3) plaintiff moved to compel Palisades and Selective to participate in UIM arbitration.

The motion judge conducted oral argument on the cross-motions for summary judgment. On December 3, 2010, the judge granted Selective's motion, reformed the Selective policy to afford UIM coverage to the son in the amount of $300,000, and denied the cross-motion filed by Palisades. He construed the "Other Insurance" provision in the policy issued by Palisades and ordered that Palisades' policy provided primary coverage and the Selective UIM policy provided excess coverage. On December 9, 2010, the judge granted plaintiff's motion and compelled Palisades, as the primary carrier, to participate in the UIM arbitration.

On appeal, Palisades argues that the judge erred by (1) permitting Selective to reform its policy to include terms and conditions to its UIM coverage that did not exist when the accident occurred; and (2) concluding that the Palisades policy provided primary coverage rather than prorata coverage.

When reviewing a grant of summary judgment, we employ the same legal standards used by the motion judge. Spring Creek Holding Co. v. Shinnihon U.S.A. Co., 399 N.J. Super. 158, 180 (App. Div.), certif. denied, 196 N.J. 85 (2008). First, we determine whether the moving party has demonstrated that there were no genuine disputes as to material facts, and then we decide whether the motion judge's application of the law was correct. Atl. Mut. Ins. Co. v. Hillside Bottling Co., 387 N.J. Super. 224, 230-31 (App. Div.), certif. denied, 189 N.J. 104 (2006). In so doing, we view the evidence in the light most favorable to the non-moving party and analyze whether the moving party was entitled to judgment as a matter of law. Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523, 529 (1995). We accord no deference to the motion judge's conclusions on issues of law, Manalapan Realty, L.P., v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995), which we review de novo. Spring Creek, supra, 399 N.J. Super. at 180.

We reject Palisades' argument that because the Selective policy, as issued, did not contain a UIM endorsement, the terms of the endorsement, including the "Other Insurance" clause, do not form part of the contract and cannot now be incorporated. Under the facts of this case, because there was a mutual mistake between Selective and the son, the judge properly reformed the policy to include coverage for UIM benefits and the applicable terms of the endorsement.

Reformation is an equitable remedy that allows the court to conform the contract to the intentions of the parties. Toth v. Vazquez, 8 N.J. Super. 289, 293 (App. Div. 1950) (quoting Santamaria v. Shell E. Petrol. Prods., Inc., 116 N.J. Eq. 26, 29 (Ch. 1934)). Courts may grant reformation on the basis of mutual mistake proven by clear and convincing evidence. Asbestos Fibres, Inc. v. Martin Labs., Inc., 12 N.J. 233, 240-241 (1953) (citing Heuer v. Rubin, 1 N.J. 251, 255 (1949)); see also Dugan Constr. Co. v. N.J. Tpk. Auth., 398 N.J. Super. 229, 243 (App. Div.), certif. denied, 196 N.J. 346 (2008) (quoting Edward D. Lord, Inc. v. Mun. Utils. Auth., 133 N.J. Super. 503, 507-08 (App. Div. 1975)) (stating that "[t]he problem normally arises when the agreement fails to specify correctly the terms that the parties agreed upon").

There is mutual mistake only when "both parties were laboring under the same misapprehension as to [a] particular, essential fact." Bonnco Petrol., Inc. v. Epstein, 115 N.J. 599, 608 (1989) (quoting Beachcomber Coins, Inc. v. Boskett, 166 N.J. Super. 442, 446 (App. Div. 1979)) (emphasis omitted). "[I]n the context of situations where a writing inaccurately reflects the parties' agreement or intentions, 'mutual mistake requires that both parties are in agreement at the time they attempt to reduce their understanding to writing, and the writing fails to express that understanding correctly.'" Id. at 608-09 (quoting St. Pius X House of Retreats, Salvatorian Fathers v. Diocese of Camden, 88 N.J. 571, 579 (1982)) (emphasis omitted). Thus, "the parties must share the erroneous assumption." Id. at 608 (citing Restatement (Second) of Contracts § 152(1)).

We have stated that "a conscientious policyholder, upon receiving the policy, would likely examine the declaration page to assure himself that the coverages and their amounts, the identity of the insured vehicle, and the other basic information appearing thereon are accurate and in accord with his understandings of what he is purchasing." Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J. Super. 340, 346-47 (App. Div. 1994). It is unlikely, however, that the average automobile policyholder will "successfully chart his own way through the shoals and reefs of exclusions, exceptions to exclusions, conditions and limitations, and all the rest of the qualifying fine print, whether or not in so-called plain language." Id. at 347.

Nonetheless, there is no "bright line rule that the declaration page controls where important additional terms of the policy are not included on the declaration page but are reflected elsewhere." Morrison v. Am. Int'l Ins. Co. of Am., 381 N.J. Super. 532, 539 (App. Div. 2005). "[O]rdinarily the company should be bound by the impression as to coverage which the average purchaser would gain from such inspection of the policy as he would be likely to make." Caldwell v. Aetna Cas. & Sur. Co., 107 N.J. Super. 456, 461-462 (App. Div. 1969).

Palisades did not produce any competent evidence that would establish a genuine issue of material fact concerning the mutual mistake. The son has not disputed that (1) Selective made a mistake in not issuing the endorsement with the policy; (2) Selective sold UM/UIM coverage as a package; (3) the son paid a premium for that package; (4) certain other personal automobile insurance policies issued at that time also failed to include the endorsement; and (5) Selective intended to rely on the endorsement.

We agree with the motion judge that "from the submissions the only form that was used in [the] time period that this policy was written was the form that was provided in Selective's moving papers." The judge stated, "I can't see where an insured could give a single hoot whether their own individual policy has a pro rata clause or an excess clause when there's other insurance. They're interested in the bottom line." Here, the benefit of reforming the policy inures to the policyholder in the first instance because reforming the policy provides more coverage.

Finally, we reject Palisades contention that the judge misconstrued the "Other Insurance" clauses by requiring Palisades to provide primary UIM coverage rather than prorata coverage.

It is a well-established principle that "where pro rata and excess coverage clauses appear in concurrently effective policies, the former is disregarded and full effect given to the excess clause." Prudential Prop. & Cas. Ins. Co. of N.J. v. State Farm Ins. Co., 306 N.J. Super. 315, 320 (App. Div. 1997) (citing Cosmo. Mut. Ins. Co. v. Cont'l Cas. Co., 28 N.J. 554, 561-62 (1959)). "Thus, the policy providing pro rata coverage becomes the primary source of recovery." Ibid.

In Magnifico v. Rutgers Cas. Ins. Co., the New Jersey Supreme Court "emphasized the significance of the clear language of applicable insurance policies in resolving cases of UIM coverage." 153 N.J. 406, 416 (1998) (citing French v. N.J. Sch. Bd. Ass'n Ins. Grp., 149 N.J. 478, 493-95 (1997)). The Court stated:

The plain language of the Rutgers "other insurance" clause states, referring to Ms. Magnifico, that "any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible insurance." (Emphasis added.) Applying the clear policy language, the Appellate Division correctly concluded that the [other] policy provides primary coverage and the Rutgers policy excess coverage. [Ibid.]

We have considered the language of "Other Insurance" clauses in comparative policies. See, e.g., Hallion v. Liberty Mut. Ins. Co., 337 N.J. Super. 360, 371 (App. Div. 2001) (concluding that in light of "the clear policy language," the policy of the plaintiff's daughter, whose vehicle plaintiff was operating at the time of the accident, provided primary UIM coverage and plaintiff's policy provided excess UIM coverage); Universal Underwriters Ins. Co. v. N.J. Mfr. Ins. Co., 299 N.J. Super. 307, 314 (App. Div.), certif. denied, 151 N.J. 73 (1997) (citing Royal Ins. Co. v. Rutgers Cas. Ins. Co., 271 N.J. Super. 409, 415 (App. Div. 1994)) (stating that "[t]o determine whether a policy provides primary, co-primary or excess coverage, the court must look to each policy's 'Other Insurance' provisions").

Here, the Palisades policy includes an "Other Insurance" clause that provides, in relevant part:

3. If the coverage under this policy is provided:

a. On a primary basis, we will pay only our share of the loss that must be paid under insurance providing coverage on a primary basis. Our share is the proportion that our limit of liability bears [to] the total of all applicable limits of liability for coverage provided on a primary basis.

The Selective policy, as reformed to include the UIM coverage endorsement, also has an "Other Insurance" clause, which provides, in relevant part:

If there is other applicable insurance available under one or more policies or provisions of coverage that is similar to the insurance provided under this Part of the policy:

2. Any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible insurance providing such coverage on a primary basis.

3. If the coverage under this policy is provided:

b. On an excess basis, we will pay only our share of the loss that must be paid under insurance providing coverage on an excess basis. Our share is the proportion that our limit of liability bears to the total of all applicable limits of liability for coverage provided on an excess basis.

Under the clear language of the Palisades policy, Palisades provides primary coverage. At the time of the accident, the plaintiff was not operating a vehicle owned by the son. This triggered Paragraph 2 of the Selective policy, under which Selective provides excess coverage. In light of the clear language of the companies' respective policies, the motion judge correctly found that Palisades provides primary coverage and Selective provides excess coverage.


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