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Donna Hand v. Philadelphia Insurance Co


July 25, 2012


On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. 1738-07.

Per curiam.


Argued December 6, 2011

Before Judges Messano, Yannotti and Espinosa.

This case is before us for a second time. We quote at length from our prior opinion to place the current appeal in proper context:

On January 19, 2005, an SUV owned and operated by Leroy Gorman crossed the median of State Highway 42 and collided with a car owned by Steininger Behavioral Care (Steininger), the employer of plaintiff Donna Hand, a passenger in the vehicle. Plaintiff was seriously injured as a result. Steininger's car was insured under a commercial automobile policy issued by defendant Philadelphia Insurance Company that provided uninsured/underinsured motorist (UM/UIM) coverage in the amount of $1 million. Named "insureds" on the declarations page of the policy included Steininger, SCBS Supportive Housing I, Inc., and Guidance Center of Camden County, Inc. The policy further provided that "[i]f the

[n]amed [i]nsured" was "[a] partnership, limited liability company, corporation or any other form of organization," then additional "insureds" under the policy included [a]nyone 'occupying' a covered 'auto' . . . ." The policy included a step-down provision that expressly limited the amount of UM/UIM coverage if

(1) An insured [wa]s not the individual named insured under th[e] policy;

(2) That "insured" [wa]s an individual named insured under one or more other policies providing similar coverage; and

(3) All such other policies ha[d] a limit of insurance for similar coverage which [wa]s less than the

[l]imit of [i]nsurance for th[e] coverage[.]

Under these circumstances, "the most [defendant] w[ould] pay for all damages resulting from any [] 'accident' with an 'uninsured' . . . or 'underinsured motor vehicle'" would be limited to "the highest applicable limit of insurance under any coverage form or policy providing coverage to that 'insured' as an individual named insured."

Gorman's insurance limit was $100,000. After receiving notification from plaintiff pursuant to Longworth v. Van Houten, 223 N.J. Super. 174 (App. Div. 1988), defendant authorized settlement with Gorman for the full policy amount. Plaintiff then made a claim for UIM benefits under Steininger's policy and demanded arbitration.

Defendant denied plaintiff's claim, contending that because plaintiff's personal automobile insurance policy, issued by third-party defendant AAA Mid-Atlantic Insurance Company (AAA), contained a UM/UIM limit of $100,000, the step-down provision in Steininger's policy became operational. As a result, the available UIM limit under the policy was $100,000, thus, Gorman's vehicle was not underinsured, and plaintiff had no claim for UIM benefits.

On April 2, 2007, plaintiff filed her complaint seeking to compel arbitration. On April 27, 2007, defendant filed its answer asserting the step-down provision as a defense. Thereafter, on September 10, 2007, the Governor signed S-1666, the so-called "Scutari Amendment" (the Amendment), ultimately codified as N.J.S.A. 17:28-1.1(f)

Defendant and plaintiff both filed motions for summary judgment. . . .

In an oral opinion placed on the record, the motion judge concluded the Amendment should be applied retroactively, and accordingly, granted summary judgment in favor of plaintiff. [Hand v. Philadelphia Ins. Co., 408 N.J.

Super. 124, 131-33 (App. Div.) (alterations in original) (footnotes and parallel citations omitted), certif. denied, 200 N.J. 506 (2009).]

We concluded that although the Legislature intended to apply the Amendment retroactively, id. at 141, "retroactive application . . . to the facts of this case would work a manifest injustice to defendant." Id. at 143. As a result, we reversed the grant of summary judgment to plaintiff. Id. at 146.

However, the motion judge denied without prejudice defendant's motion for summary judgment "on the issue of whether [plaintiff] had UM/UIM coverage on the day of the accident." We noted "[p]laintiff denied that the AAA policy was in effect on the day of the accident; however, in its answer to the third-party complaint, AAA admitted its policy with plaintiff was effective on that date." Id. at 132 n.2. Therefore, we concluded:

Since the motion judge viewed the other aspect of defendant's motion for summary judgment, in which it sought a declaration that plaintiff was covered by the AAA personal insurance policy, as moot, we remand the matter for further proceedings to resolve that issue. [Id. at 146.]

After our remand, the Law Division denied defendant's motion for summary judgment and granted plaintiff's cross-motion for summary judgment. This appeal followed.


The following facts are essentially undisputed. Plaintiff purchased the AAA policy, with an effective date of September 29, 2002, and renewed it thereafter. On June 10, 2005, less than five months after the accident, plaintiff's counsel sent defendant's claims examiner a letter advising that Gorman's insurer had tendered the full policy limits and invoking the procedure set forth in Longworth, supra, 223 N.J. Super. at 194-95. On June 13, defendant advised it was "currently investigating" plaintiff's UIM claim and requested all medical reports and bills.

Plaintiff forwarded a copy of her AAA policy declaration page to defendant; however, shortly thereafter, on July 11, plaintiff's counsel wrote to defendant advising that "was done . . . inadvertently." Counsel explained:

Prior to this date of accident, [plaintiff] attempted to pay her car insurance premium through her . . . checking account. This payment involved a direct electronic transfer of funds. Despite the fact that [plaintiff] had a confirmation . . . of the transfer of money, AAA . . . forwarded a cancellation notice dated January 5, 2005. At that time apparently not having automobile insurance, [plaintiff] took her car off the road and refused to operate it until such time as she was able to clarify this insurance issue. It was during that period of time that she was involved in this accident . . . . Thereafter[,] she was able to establish that the appropriate transfer of funds had taken place and her policy was reinstated. However, during that several week period of time, until she was able to establish coverage, she did not and had no intention of operating her own personal vehicle.

Accordingly, at the current . . . time it appears that there will be no coverage afforded to [plaintiff], either by way of PIP benefits or underinsured motorist coverage.

Counsel reiterated his request that defendant consent to plaintiff's acceptance of Gorman's policy limits.

Defendant responded on July 14, noting that the affidavit of no insurance previously executed by plaintiff "does not apply to this situation," and requesting that plaintiff "attest[] to the fact that she took her vehicle off the road while it [was] uninsured and also to the fact that there was no other automobile insurance available to her." Defendant was conducting an "asset check" of Gorman and sought more time to "respond to [plaintiff's Longworth] letter."

The affidavit furnished by plaintiff on July 29 indicated that she had no "automobile insurance in place on [the date of the accident], nor was there any other available automobile coverage in [her] household." It contained no representation regarding plaintiff's use of her vehicle. One month later, on August 30, 2005, defendant authorized plaintiff's acceptance of Gorman's policy limits.

The record does not specifically disclose what transpired thereafter, but, on January 8, 2007, plaintiff notified defendant that she had elected to "litigate this matter" because of defendant's failure to settle her UIM claim. On January 30, defense counsel advised that plaintiff's demand for arbitration was being denied because of "outstanding coverage questions." On March 5, plaintiff's counsel forwarded to defense counsel "documentation received from AAA . . . evidencing the steps that [it] took to properly cancel [plaintiff's] automobile insurance policy." Enclosed was a February 2007 letter from AAA advising plaintiff that "[t]he policy lapsed for non-payment of premium on six occasions," including "from 1/05/2005 to 01/26/2005." The letter included a copy of the cancellation notice issued on January 10, 2005.

However, on March 7, defense counsel responded by noting "a number of inconsistencies" in plaintiff's version of events. He observed that in the July 2005 letter from counsel, plaintiff claimed she made her premium payment by electronic transfer but AAA nonetheless forwarded a cancellation notice. Defense counsel concluded:

Quite clearly, . . . AAA['s] . . . cancellation of [plaintiff's] policy was improper. Unfortunately, from the perspective of [defendant], the alternative would be that [plaintiff] was operating her vehicle uninsured so as to preclude her from recovery under New Jersey law in this matter.

Plaintiff filed her complaint against defendant on April 2. Defendant answered and asserted a third-party complaint against AAA. In its answer, AAA admitted "that the automobile insurance policy issued to [plaintiff] was in effect at the time of the alleged loss." In October 2007, before the original cross-motions for summary judgment were decided, defendant and AAA entered into a stipulation dismissing the third-party complaint without prejudice.

After our remand, plaintiff deposed Deborah Colomy, an underwriter employed by AAA. Colomy testified that plaintiff's AAA policy lapsed for non-payment on January 5, 2005. Identifying various documents in AAA's file, Colomy testified that plaintiff called AAA on January 10, 2005 to see if a payment she made the prior week "went [through]." AAA's documents indicated that several "attemp[t]s" at payment were "declined," and plaintiff was advised to "check with her bank." The policy was reinstated on January 26 when plaintiff called AAA and made a payment using her credit card. An amended declarations page was issued.

On July 26, 2005, AAA notified plaintiff that her policy was not going to be renewed after the September 29 expiration date. Colomy testified this was an "underwriting" decision based upon plaintiff's payment history. On July 28, plaintiff called AAA. The documents reveal she was "still disputing [the] declined payment in January." According to Colomy, it was the first time that plaintiff advised AAA she had been involved in the January 19, 2005 accident.

Jill Neumayer, a "project manager" with AAA, testified in her deposition that she decided in May 2007 to retroactively provide coverage for the January 19, 2005 accident. This was apparently based upon an email from Billmatrix, a payment service used by AAA, indicating that plaintiff had indeed tried three times to make a premium payment using her credit card on January 2, 2005, but failed due to a "system glitch."

Neumayer further testified that "the decision was made to afford [plaintiff] coverage for the loss in question since there had, in fact, been a system problem that was beyond her control, and the decision was made not to obtain premium for that lapse

[of] time because . . . so much time had passed." Neumayer testified that the review of plaintiff's situation began when "the suit papers came in." She believed plaintiff was seeking "coverage . . . for the loss in question which is what prompted . . . review of the circumstances to begin with."

On September 30, 2010, defendant again sought summary judgment, arguing that plaintiff was covered by the AAA insurance policy on the day of the accident, and, alternatively, she was excluded from UIM coverage by the UM/UIM endorsement in defendant's policy, which stated:

C. Exclusions:

This insurance does not apply to . . .

10. "Bodily injury" . . . sustained by any "insured" who is an owner of a motor vehicle: a. . . . ; or

b. Required to be insured in accordance with New Jersey law or regulation, but not insured for this coverage or any similar coverage.

On November 14, plaintiff cross-moved for summary judgment arguing that defendant was estopped from asserting the AAA policy was in force on the date of the accident because of our decision in Boritz v. New Jersey Manufacturers Insurance Company, 406 N.J. Super. 640 (App. Div. 2009). Plaintiff also argued that the policy exclusion did not apply under the facts of the case, or, that the exclusion was ambiguous and should not apply.

After initially reserving decision, Judge Robert G. Millenky determined that defendant was estopped from claiming the AAA policy was in force at the time of the accident, the exclusion clause was ambiguous and defendant was estopped from asserting it as a basis to deny plaintiff UIM benefits. Specifically, the judge concluded:

[T]here is an estoppel that prevents the retroactive reinstatement, and the assertion of estoppel derives from the [principles] enunciated in Boritz . . . .

. . . [Defendant], much like the insurer in Boritz, had a duty and an obligation to refine and to understand its position with respect to the operation of a step-down provision that it thought might be applicable or potentially applicable at the time that it authorized the Longworth settlement . . . .

To allow a retroactive implementation of this policy would create the very prejudice that the Boritz Court talks of. In other words, had it been the position of [defendant] at the time of the Longworth letter that there was insurance in place or, alternatively, that there should have been insurance in place, at the very least the obligation of [defendant] would have been to alert the plaintiff to that fact, and the plaintiff then would have been in a position to make the reasoned determination as to whether or not they would wish to settle with the tortfeasor or, alternatively, preserve their rights to seek a judgment in excess of the tortfeasor's insurance.

With regard to the exclusion, the judge concluded:

The principles are no different. . . . Boritz stands for the proposition that a settling defendant [sic] . . . must be advised of all that is reasonably known or knowable by the insurance company, and the implications of that for purposes of its impact upon the plaintiff and the potential prejudice to the plaintiff.

[Defendant] was not misled by the plaintiff . . . .

I, therefore, find and conclude that [defendant] may not now rely because of the estoppel principles that I've described on that exclusion for purposes of barring the plaintiff from a recovery under the [defendant's policy's] UIM provisions.

Judge Millenky also reasoned that if he was "incorrect" in the above analysis, the language of the exclusion was ambiguous.

Because defendant's policy required binding arbitration as to the amount of underinsured motorist benefits due plaintiff, the order of February 7, 2011, granting plaintiff summary judgment, stated that defendant was "required to provide underinsured motorist coverage . . . in an amount up to $1 million, minus the $100,000 credit, in an amount to be determined by the trier of fact."


Before us, defendant presents a number of procedural and substantive arguments. It contends: plaintiff was procedurally-barred from contesting any issue regarding the AAA policy because she never brought a direct action against her insurer; since AAA made a business decision in admitting the policy was in force on the day of the accident, that decision is not reviewable by the motion judge and plaintiff is collaterally estopped from denying that the AAA policy was in force; and, the judge exceeded the scope of our remand. Substantively, defendant contends that the exclusion applies even if the AAA policy was not in force on the day of the accident, and that the motion judge erred by concluding that defendant was estopped under Boritz from asserting either the step-down provision or the exclusion to deny plaintiff's arbitration claim.

When reviewing a grant of summary judgment, we "employ the same standard [of review] that governs the trial court." Perrelli v. Pastorelle, 206 N.J. 193, 199 (2011) (alteration in original) (quoting Henry v. N.J. Dep't of Human Servs., 204 N.J. 320, 330 (2010)) (internal quotation marks omitted). Where "there is no genuine dispute of fact the trial court's ruling on the legal question is 'not entitled to any special deference.'" Ibid. (quoting Manalapan Realty, L.P. v. Twp. Comm., 140 N.J. 366, 378 (1995)). The issues presented on appeal are solely legal in nature. The parties do not contend otherwise. Having considered defendant's arguments, we affirm substantially for the reasons set forth by Judge Millenky in his comprehensive oral opinion.


In Boritz, supra, 406 N.J. Super. at 643-44, the plaintiff was injured while a passenger in a car stopped at a red light and struck from behind. The tortfeasor's policy limits were $15,000, the plaintiff's personal UIM policy limits were $25,000 and the host vehicle, insured by New Jersey Manufacturers Insurance Company (NJM), maintained a policy with UIM limits of $100,000/$300,000 and a step-down provision. Ibid. The plaintiff presented a claim for UIM benefits under NJM's policy. Id. at 644.

NJM's claims representative requested medical reports and the declaration page from the plaintiff's personal policy. Ibid. "Without mentioning the step-down provision, [she] confirmed . . . that the NJM policy coverage was primary, with limits of $100,000 per person . . . ." Ibid. Two months later, the plaintiff's counsel sent NJM a Longworth letter requesting permission to settle her case for the limit of the tortfeasor's policy, and NJM consented. Ibid. The plaintiff negotiated with NJM without success for the next five months and thereafter forwarded her declaration page to NJM. Id. at 645. When NJM discovered the UIM limits in the plaintiff's policy, it notified the plaintiff that it was exercising its rights under the step-down provision to limit her claim. Ibid.

The plaintiff filed suit, arguing that NJM was estopped from enforcing the step-down clause because she would not have settled with the tortfeasor if she knew NJM would invoke the clause and limit her recovery to $10,000, i.e., the difference between the tortfeasor's policy and her personal policy. Id. at 643. The Law Division rejected the argument and granted NJM summary judgment, finding that plaintiff had "not detrimentally rel[ied] on NJM's consent to settle." Id. at 645-46. We reversed. Id. at 643.

We noted that estoppel is "designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Id. at 647. "[E]stoppel arises when the plaintiff justifiably relies on the UIM carrier's consent to settle and releases the tortfeasor in return for the tortfeasor's policy limits." Id. at 649.

"The Longworth notice gives the UIM carrier an opportunity to weigh the relative merits of allowing its insured to settle and paying the difference in UIM benefits compared with paying its insured the settlement offer plus UIM benefits and itself maintaining a subrogation action against a tortfeasor." Id. at 650-51 (citation and quotation marks omitted). We concluded:

In weighing the merits of an injured party's Longworth request to settle with a tortfeasor, a carrier is, or should be, aware of its coverage limits. When a step-down clause is implicated, the carrier, like NJM here, should know that its UIM coverage limits are constrained by that provision. And just as coverage limits are important to the carrier, they are perhaps even more critical to an injured party's decision whether to settle for the tortfeasor's policy limits in exchange for releasing the tortfeasor from liability. From an injured party's perspective, knowing the UIM policy limits may have as significant an influence upon that party's decision to settle as knowing whether the insurance carrier provides UIM coverage in the first instance. Applying these principles here, NJM is estopped from invoking what is otherwise a valid step-down provision. [Id. at 651.]

We specifically rejected NJM's claim that it was not in a position to invoke the step-down clause until the plaintiff forwarded her declaration page.

[W]e reject the argument because, as we have determined, NJM was in a position to inform plaintiff that the $100,000 UIM limit could be reduced depending upon whether plaintiff had her own UIM coverage. Had plaintiff received that information, she would have known that the maximum available UIM coverage would be $25,000, less the tortfeasor's policy limits, and would have been able to make an informed decision whether to release the tortfeasor in return for the tortfeasor's $15,000 policy. [Ibid.]

The facts presented in this case are not significantly different than those in Boritz. On June 10, 2005, plaintiff sent defendant her Longworth notice and sought permission to accept the tortfeasor's policy limits in settlement. Three days later, defendant advised it was "currently investigating" plaintiff's UIM claim and requested all medical reports and bills. Within one month thereafter, plaintiff had forwarded the declaration page of her AAA policy, along with an explanation that AAA had taken the position that the policy was not in effect because of a lapse. Defendant was advised "there will be no coverage afforded to [plaintiff], either by way of PIP benefits or underinsured motorist coverage." During the next month, defendant sought clarification of coverage and required that plaintiff execute another affidavit regarding her personal policy. Without mention of either the step-down clause or the exclusion, on August 30, 2005, defendant authorized plaintiff's acceptance of Gorman's policy limits.

It was not until January 30, 2007, that defense counsel advised plaintiff that her demand for UIM arbitration was being denied "[p]ursuant to . . . outstanding coverage questions." Plaintiff's counsel's letter of March 5, 2007 to defense counsel noted that in a "recent conversation," defendant "indicated that [Steininger's policy] contained a step[-]down clause." Plaintiff's counsel sought an amicable resolution "[i]n light of the significant time that has passed as well as these issues which have only recently surfaced." In reply, on March 7, 2007, defense counsel noted "a number of inconsistencies" in plaintiff's version of events and opined that "AAA['s] . . . cancellation of [plaintiff's] policy was improper," or, alternatively, plaintiff "was operating her vehicle uninsured so as to preclude her from recovery under New Jersey law in this matter." Defendant did not, even at that late date, assert the applicability of the policy exclusion.*fn1

Defendant argues that, because counsel's first contact with defendant indicated an intention to settle with Gorman, plaintiff cannot demonstrate she detrimentally relied upon defendant's Longworth consent. However, "[a]lthough a party seeking to invoke estoppel must demonstrate reliance to his or her detriment or prejudice, . . . under certain circumstances, prejudice may be presumed." Boritz, supra, 406 N.J. Super. at 647 (citations omitted). "Reliance may take the form not only of the expectancy of receipt of UIM benefits, but also of foregoing the opportunity to pursue a recovery from the tortfeasor in excess of the insurance company's settlement offer. . . . That loss of opportunity itself constitutes prejudice." Id. at 649 (internal citation and quotation marks omitted). The record is clear that plaintiff followed the Longworth procedure, awaited defendant's response, provided additional information as requested and did not settle the claim with Gorman until she received defendant's assent.

We also reject the claim that this case is factually distinguishable from Boritz because "the situation concerning plaintiff's personal coverage was murky, and . . . not truly resolved until 2007." As noted, plaintiff advised defendant's representative of the situation in July 2005. Plaintiff furnished an additional affidavit as requested. Defendant thereafter continued to conduct its investigation before issuing its Longworth consent at the end of August 2005. Defendant never advised plaintiff that it intended to assert the step-down provision (if the AAA policy was in effect), or that the exclusion applied (if plaintiff's policy lapsed). We conclude, therefore, that defendant was estopped from asserting either provision to bar plaintiff's UIM claim under the Steininger policy.*fn2


We also reject the various procedural arguments defendant makes regarding application of Boritz to this case.

Defendant asserts that Judge Millenky's "application of Boritz fell outside the limited scope of remand and was therefore improper." It is axiomatic that our instructions to the trial court are binding on remand. See Pressler & Verniero, Current N.J. Court Rules, comment 2 on R. 2:9-1 (2012) (collecting cases). "A trial court must implement both the letter and spirit of the mandate [of the appellate court], taking into account [its] opinion and the circumstances it embraces." Casey v. Planned Parenthood of Se. Pa., 14 F.3d 848, 857 (3d Cir. 1994) (quoting Bankers Trust Co. v. Bethlehem Steel Corp., 761 F.2d 943, 949 (3d Cir. 1985)). This rule, however, only applies to issues decided by the appellate court. Ibid. On remand, the trial court may "make any order or direction in further progress of the case, not inconsistent with the decision of the appellate court, as to any question not settled by the decision." Ibid. (emphasis added) (quoting Bankers Trust Co., supra, 761 F.2d at 950). We have recognized that in appropriate circumstances, a party may assert new claims or legal theories on remand. Bubis v. Kassin, 353 N.J. Super. 415, 427 (App. Div. 2002).

Our prior opinion determined only one issue -- whether the step-down provision in defendant's policy was retroactively reformed by the Scutari amendment. Hand, supra, 408 N.J. Super. at 146. Our remand asked Judge Millenky to decide defendant's claim that the AAA policy insured defendant at the time of the accident, thereby triggering enforcement of the step-down clause. Ibid. The conclusion that defendant is estopped from asserting the step-down clause or the exclusion is not inconsistent with our decision and involves consideration of an issue that we never addressed. Judge Millenky did not exceed the scope of our remand.

Defendant also asserts that applying Boritz retroactively is inequitable because it reasonably relied upon past practices and defendant's adjusters "had no reason to expect that they would see their policy provisions invalidated if they did not advise the claimant of all exclusions."

The Court has said:

"Generally, judicial decisions are applied retroactively to all civil matters that have not reached final judgment." Frazier v. New Jersey Mfrs. Ins. Co., 142 N.J. 590, 606 (1995). However, "prospective application is appropriate when a decision establishes a new principle of law by overruling past precedent or by deciding an issue of first impression." Montells v. Haynes, 133 N.J. 282, 295 (1993). In deciding whether to apply a decision prospectively, we also consider whether retroactive application "could produce substantial inequitable results." Ibid. [Henderson v. Camden Cnty. Mun. Util. Auth., 176 N.J. 561-62 (2003) (parallel citations omitted).]

Boritz, supra, 406 N.J. Super. at 646-49, was clearly premised upon well-established precedent. An insurer's duty to scrupulously act in good faith toward its insured is a principle recognized in New Jersey for decades. Id. at 650 (citing Bowers v. Camden Fire Ins. Ass'n, 51 N.J. 62, 79 (1968)). There is nothing inequitable in enforcing this duty by estopping defendant's assertion of the step-down provision or policy exclusion under these circumstances, regardless of its prior business practices.


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