April 25, 2012
CAROL ALVAREZ, PLAINTIFF-RESPONDENT,
RAYMOND NORWOOD AND DARLINE DESAMOURS, DEFENDANTS, AND AAA MID-ATLANTIC INSURANCE GROUP, DEFENDANT-RESPONDENT, AND PINELANDS INSURANCE COMPANY, DEFENDANT-APPELLANT.
AAA MID-ATLANTIC INSURANCE GROUP A/S/O CAROL ALVAREZ, PLAINTIFF-RESPONDENT,
RAYMOND NORWOOD AND DARLINE DESAMOURS, DEFENDANTS, AND PINELANDS INSURANCE CO., DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, Docket No. L-2180-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 19, 2012
Before Judges Sapp-Peterson and Ostrer.
This appeal involves a taxi insurance policy that excluded coverage for unnamed and unapproved drivers. The parties conceded before the trial court that the policy's complete exclusion of coverage was unenforceable. The issue on appeal is whether liability coverage for unnamed drivers should be limited to the statutory minimums, or should extend to the policy limits. We conclude that reforming the policy terms to provide the statutory minimum coverage harmonizes the public policy favoring reparations for third parties victims, the contractual agreement of the insurer and insured, and the public interest in encouraging scrutiny of insured drivers of taxicabs. We reverse and remand.
On July 26, 2006, Raymond Norwood was driving a taxicab owned by Darline Desamours (Desamours) when he was involved in an accident resulting in injury to plaintiff Carol Alvarez. Norwood had been driving Desamours's taxicab for about two years, logging about twelve hours a day. Under his oral arrangement with Desamours, Norwood retained fifty percent of the fares he collected after deducting fuel costs. Desamours received the balance of the fares. Aside from supplying the vehicle, she was responsible for insurance, maintenance, and dispatch service. Norwood considered Desamours his employer. It is unclear from the record whether Desamours considered Norwood an employee for tax purposes or in connection with workers compensation law.*fn1
Roughly eight months before the accident, on December 24, 2005, Desamours had obtained a new one-year commercial auto insurance policy for her taxi from Pinelands Insurance Co. (Pinelands), a risk retention group that wrote insurance exclusively for taxis. The policy provided $100,000 in liability coverage, with no deductible, for a $5,728 annual premium.
In an underwriting data form that Desamours signed, she agreed that "NO DRIVER will be afforded coverage that has not been approved[.]" Approval of the application was contingent upon her providing a "Drivers List including approved MVR's [motor vehicle records] for each driver." The schedule of drivers included Jean Desamours*fn2 and Jean Dupont, but not Norwood. Consequently, Pinelands obtained MVRs for Jean Desamours and Dupont, but not Norwood.
The insurance policy included an omnibus clause that generally extended coverage to anyone using the vehicle with the named insured's permission. The clause defined "insureds" to include: the named insured, who was Desamours; "[a]nyone else while using with your permission a covered 'auto' you own, hire or borrow[;]" and "[a]nyone liable for the conduct of an 'insured' described above but only to the extent of that liability."*fn3
However, the policy also included two endorsements, in some respects inconsistent, that excluded coverage when the auto was used by an unnamed driver. A "Scheduled Driver Endorsement" restricted coverage to named drivers, but deemed drivers added upon submission of requisite information. The Scheduled Driver Endorsement stated:
This Endorsement changes the Policy. Please read it carefully!
No Coverage shall be provided under this Policy for any covered auto, which is being used or operated by anyone other than the driver(s) or operator(s) named below.
New Drivers and operators shall be deemed to be added to this Scheduled Driver Endorsement provided the insured reports in writing the driver's name, date of birth, and driver's license number to the insurer within two days from the effective date of use of the auto, or provides the insurer with a current Motor Vehicle Record for each driver or operator to be insured.
Under a heading "Named Driver or Operator Listing" two drivers were listed: Jean Desamours and Jean Dupont. Just before the line where Desamours placed her signature, the endorsement stated, "Special note: All Other Drivers excluded."
The policy also included a "Named Driver(s) Exclusion Endorsement," which predicated coverage not simply upon submission of the names and information of drivers, but the insurer's approval of the driver. The Named Driver(s) Exclusion Endorsement provided: "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY" and "This endorsement modifies insurance provided under the following: Business Auto Coverage Form." The endorsement then provided:
It is hereby understood and agreed that the Company shall not be liable and no liability or obligation of any kind shall attach to the Company for losses or damage sustained while any covered "auto" or any other motor vehicle is driven or operated by: EXCLUDED DRIVER'S NAME(S)
"ANY INDIVIDUAL NOT SUBMITTED TO, AND APPROVED BY, THE COMPANY OR ITS REPRESENTATIVE."
All other terms, conditions and exclusions under the policy are applicable to this endorsement and remain unchanged.
This endorsement is a part of your policy and takes effect on the effective date of your policy unless another effective date is shown below. [(Emphasis added).]
Desamours signed this endorsement as well.
Pinelands used a detailed point system based on driving records to determine whether to approve a driver for coverage. It is undisputed that Desamours neither named Norwood, nor submitted information about him before the accident involving Alvarez. Desamours asked Pinelands to add Norwood to the policy when she applied to renew the policy in December 2006.
Pinelands' underwriter, Jennifer Holmes, testified that if a proposed driver had an unfavorable score on its point rating, Pinelands would decline coverage, as opposed to charging a higher premium. Holmes agreed that if an insured proposed to add a driver during a policy term who was approved, Pinelands would not alter premium, as Pinelands presumed the vehicle would be used intensively. She agreed that the Scheduled Driver Endorsement "states that that person is automatically added by that information provided."*fn4 However, pursuant to the Named Driver(s) Exclusion Endorsement, she stated upon submission of a proposed additional driver, Pinelands applied its underwriting guidelines, and "[i]f they're approved, we add them on. If they're declined, we send the insured a letter that they are declined." Had Desamours provided Norwood's name and driver information before the accident, she agreed Pinelands would have reviewed Norwood's record and determined "whether that driver would have been approved or not."
Alvarez, and her insurer, AAA Mid-Atlantic Insurance Group (AAA Mid-Atlantic), as a subrogee, sought summary judgment for a declaratory order compelling Pinelands to provide the policy limit of $100,000 in coverage. Pinelands cross-moved "for a declaratory order ruling that Pinelands Insurance Company's liability insurance coverage for the subject accident is in the amount of $15,000 per person and $30,000 per occurrence."
Although the parties sought oral argument, the trial court ruled on the papers on April 16, 2010 that Norwood was a covered driver under the omnibus provision of the policy, notwithstanding the Scheduled Driver Endorsement and Named Driver(s) Exclusion Endorsement. The court held "the addition of additional drivers is automatic under the [Scheduled Driver] Endorsement." Citing Potenzone v. Annin Flag Co., 191 N.J. 147 (2007), the court concluded the full policy limits applied because Pinelands failed to include an explicit step-down provision.
The matter thereafter proceeded to trial in January 2011, and Alvarez obtained judgment in the amount of $56,978.26 against Desamours and Norwood. AAA Mid-Atlantic, as subrogee, obtained judgment of $23,206.83 for medical expenses.
Pinelands appeals and raises the following points:
I. THE TRIAL COURT ERRED AS A MATTER OF LAW IN AWARDING SUMMARY JUDGMENT TO RESPONDENT ON THE DECLARATORY JUDGMENT ISSUE OF INSURANCE COVERAGE.
A. THE TRIAL COURT HAD NO REASON TO DECLINE TO APPLY THE UNAPPROVED DRIVER EXCLUSION AND, IN EFFECT, RE-WROTE A BETTER POLICY FOR THE INSURED THAN SHE COULD HAVE REASONABLY EXPECTED UNDER THE CIRCUMSTANCES.
1. The exclusion for unreported and unapproved drivers was specific, plain, clear, prominent and not contrary to public policy; as such it should have been enforced by the trial court.
2. The trial court erroneously held that, without a "step-down" clause in its policy, appellant was obligated to provide coverage up to the full amount of its policy since case law allows for reformation in this type of circumstance.
3. The trial court erroneously re-wrote a better policy for the insured than was bargained for or contemplated.
B. THE TRIAL COURT ERRED IN CONCLUDING THAT MR. NORWOOD WAS AUTOMATICALLY ADDED TO THE POLICY IN THE CASE BEFORE THE COURT.
C. A MATERIAL QUESTION OF FACT REGARDING THE ENDORSEMENT THAT WAS IN EFFECT AT THE TIME OF THE ACCIDENT PRECLUDED SUMMARY JUDGMENT.
II. THE TRIAL COURT ERRED IN DENYING BOTH MOVING PARTIES' REQUESTS FOR ORAL ARGUMENT ON THE SUMMARY JUDGMENT CROSS-APPLICATIONS, WHICH DENIAL PREJUDICED THE APPELLANT.
Our analysis begins with the premise that Pinelands may not enforce against innocent third parties the complete exclusion of coverage for injuries caused by an unnamed and unapproved driver like Norwood who operated the insured vehicle with the owner's permission. Both parties conceded the point before the trial court, and Pinelands sought on its cross-motion only a declaration that its coverage was limited to $15,000 per person and $30,000 per occurrence. Therefore, Pinelands' present argument that the exclusion of unnamed drivers is completely enforceable is not properly before us. See R. 2:5-4(a) (limiting appellate review to the record before the trial court); Nieder v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973) (appellate courts generally will decline to consider issues not properly presented to the trial court).
In any event, a complete bar to coverage for a claim by a third-party victim injured through the use of the taxicab by an unnamed driver would run afoul of the public policy underlying both the general compulsory automobile liability insurance law, N.J.S.A. 39:6B-1, and the law specifically requiring liability insurance for licensed taxicabs, N.J.S.A. 48:16-3.*fn5 See, e.g., Potenzone, supra, 191 N.J. at 155 ("Our courts have made it clear that a policy exclusion may not override statutory mandates to provide insurance coverage . . . ."); Leitner v. Citizens Cas. Co., 135 N.J.L. 608, 611 (E. & A.) (interpreting N.J.S.A. 48:16-3, "It is axiomatic that the statutory rights of the public under such a policy of insurance cannot be impaired by a stipulation between the immediate parties to the contract."). On the other hand, neither party disputes that Pinelands would have been authorized to include an enforceable "step-down" provision expressly reducing coverage to the minimum statutory limits in the event of injuries caused by an unnamed or unapproved driver.
Thus, the issue presented is whether, in view of the unenforceability of a complete exclusion of coverage, and the failure of Pinelands to include an appropriate step-down clause, the court should require coverage at the policy limits, or confine it to the statutory minimums. We conclude that imposition of the statutory minimums satisfies both the expectations of the parties to the insurance contract, and the public interest in compensating injured third parties, and promoting scrutiny of taxicab drivers.
Our Supreme Court has previously held that where an exclusion restricts coverage otherwise required by law, the policy will be reformed to satisfy statutory mandates. "A policy which purports to have a more restrictive omnibus coverage is automatically amended to conform to the statutory standard." Selected Risks v. Zullo, 48 N.J. 362, 373 (1966); see also Allstate Ins. Co. v. Malec, 104 N.J. 1, 6 (1986) ("Whenever an insurance policy and a governing statute are in conflict, the statute controls, and the policy is automatically amended by operation of law to conform to the statutory standard.").
Thus, in Proformance v. Jones, 185 N.J. 406, 421 (2005), the Court found an exclusion barring coverage for use of a vehicle for business purposes to be void as contrary to public policy, but only held the insurer liable for the statutorily required minimum limits. Likewise, in Marotta v. N.J. Auto. Full Ins. Underwriting Ass'n, 280 N.J. Super. 525, 528-33 (App. Div. 1995), aff'd o.b., 144 N.J. 325 (1996), we held that where an insurer is entitled to void a policy for underwriting fraud - the false statement that the insured vehicle was registered and principally garaged in New Jersey - coverage must still be extended to an innocent injured third party, but only up to the statutorily-mandated limits. The injured party in that case, like Alvarez in this one, "ha[d] the right to expect that all other drivers will be insured to the extent required by compulsory insurance[,]" and it was incumbent upon the victim to procure underinsured motorist protection to address the risk of damages beyond that minimum amount. Id. at 532. We also noted that the Marotta victim's insurers, which did provide underinsured motorist coverage, were entitled to expect no more than that the responsible party maintained minimum limits. Ibid.
We have held that reforming a policy to satisfy the statutory limits and no more vindicates both the statutory imperative to compensate third parties who are strangers to the insurance contract, and the intent of the parties who did not bargain for the policy limits. Rao v. Universal Underwriters Ins. Co., 228 N.J. Super. 396, 410-12 (App. Div. 1988).
[W]e see no compelling public policy or other reason mandating a conclusion that because of Universal's unsuccessful attempt to exclude itself entirely from covering the lessee's use of the Open Road vehicle, that the remainder of the provision should become unenforceable and extend its coverage beyond the $15,000/$30,000 which the Legislature has presently established as the minimum coverage required to be carried. Rather than invalidating the entire policy provision, we prefer to treat the invalidated provision as severable, and will enforce the remainder of the insurance contract.
[Id. at 410-11 (internal citations omitted).]
See also Hanco v. Sisoukraj, 364 N.J. Super. 41, 45-46 (App. Div. 2003) (reforming policy to satisfy statutory minimum and not policy limits).
However, plaintiffs rely on Potenzone, supra, for the proposition that where the non-enforceability of a complete exclusion is well-settled, the court should simply treat the exclusion as a nullity, resulting in coverage at the full policy limits for the claim otherwise addressed by the exclusion. We believe plaintiffs misread Potenzone. The Potenzone Court declined to follow the path in Proformance and impose only the minimum limits, where a policy included an unenforceable exclusion of claims arising out of loading and unloading accidents. 191 N.J. at 155. The Court did so because it concluded the result was consistent with the expectations of the parties to the insurance contract, inasmuch as the disapproval of loading and unloading exclusions was settled in Ryder/P.I.E. Nationwide, Inc. v. Harbor Bay Corp., 119 N.J. 402 (1990).
"Following our decision in Ryder, insureds, insurers, and self-insurers should have reasonably expected that the full policy limit for an accident during a loading or unloading operation was required." Potenzone, supra, 191 N.J. at 155.
We find no comparable grounds to conclude that Desamours or Pinelands should have expected that the full policy limits would apply to accidents involving a principal driver of the insured taxi who was omitted from the application and the policy. An insured may reasonably expect a policy to cover the casual, unanticipated use of one's vehicle by a permitted user. See Repossession Specialists v. Geico Ins. Co., 423 N.J. Super. 518, 525-26 (App. Div. 2012). However, the same cannot be said where the insured knows in advance someone will be a principal driver of the insured vehicle, but does not disclose that to the insurer.
This case is more akin to the intentional omission of a member of a household who the applicant anticipated would be a principal operator of a vehicle. In such cases, we have found it appropriate to extend coverage at the minimum limits to an innocent omitted driver, but to deny coverage entirely where the unnamed driver, even if ignorant of the omission, was obliged to be aware of it. See, e.g., Rutgers Cas. Ins. Co. v. LaCroix, 194 N.J. 515 (2008) (extending PIP coverage, at minimum limits, to innocent injured daughter of named insured father who fraudulently omitted her name as a licensed driver in the household); Palisades Safety & Ins. Ass'n v. Bastien, 175 N.J. 144, 151 (2003) (denying PIP coverage for wife, who was "in a unique position to be aware of the other spouse's interactions with the insurer of the household's vehicles[,]" where named insured husband falsely represented no other persons of driving age resided in the household).
We recognize the omissions in Rutgers Cas. Ins. Co. and Palisades Safety & Ins. Ass'n were sufficiently material to justify rescission of the policies. Yet, we need not reach the issue whether Desamours's omission of a twelve-hour-a-day taxi driver was intentional and material so as to justify rescission. We note, however, materiality would not depend on whether or not Pinelands would have issued the policy, even if Desamours named Norwood in the application. See Longobardi v. Chubb Ins. Co. of N.J., 121 N.J. 530, 542 (1990) (materiality of misrepresentation does not depend on whether "a lie will turn out to be unimportant," but instead depends on whether "a reasonable insurer would have considered the misrepresented fact relevant to its concerns and important in determining its course of action.").
Nor is it essential to our decision to harmonize the Scheduled Driver Endorsement, which apparently extended coverage immediately upon submission of a name and required information without any insurer review, and the Named Driver(s) Exclusion Endorsement, which conditioned coverage of added drivers on the insurer's approval. In this case, Norwood was a principal driver at the inception of the policy, but was omitted. Moreover, Desamours never attempted to add him before the accident.
It suffices to recognize here that extension of full limits coverage to an accident involving a regular driver omitted from the insurance application would create "a disincentive . . . to tell the truth." Palisades Safety & Ins. Ass'n, supra, 175 N.J. at 152. And, it would reward the insured for her omission by providing her with a level of coverage for which she did not bargain.
Extending full limits in this and similar cases would also reduce the incentive of both taxi company insureds, and taxi insurers, to scrutinize the persons who may get behind the wheel of taxicabs.
The special duties and high degree of care which a common carrier owes to its passengers are too well known to require listing. The carriage of passengers by taxicabs is in an essentially sensitive area because of the privacy of the vehicle and the passenger's total dependency not only on the driver's skills but upon his protection as well. [Naseef v. Cord, Inc., 90 N.J. Super. 135, 141 (App. Div.), aff'd, 48 N.J. 317 (1966).]
The Legislature recently amended the Taxicab Act to disqualify persons with records of convictions of certain crimes from operating or driving a taxicab. L. 2011, c. 135, §5, codified at N.J.S.A. 48:16-3(b). It would be inconsistent with the public interest in assuring that taxicabs are operated by capable and competent persons to deny a taxicab insurer like Pinelands the ability to require disclosure and approval of regular drivers of the insured taxicab. We therefore decline to treat the exclusion of unnamed and unapproved drivers as a complete nullity, and to permit recovery of the full policy limits in an accident involving an unnamed and unapproved driver.
Reversed and remanded.