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Ferrante v. New Jersey Manufacturers Insurance Group

Supreme Court of New Jersey

April 11, 2018

ROBERT FERRANTE, Plaintiff-Respondent,
v.
NEW JERSEY MANUFACTURERS INSURANCE GROUP, Defendant-Appellant.

          Argued January 3, 2018

          On appeal from the Superior Court, Appellate Division.

          Daniel J. Pomeroy argued the cause for appellant (Pomeroy Heller & Ley, attorneys;

          Daniel J. Pomeroy and Karen E. Heller on the briefs).

          Joseph P. Grimes argued the cause for respondent (Joseph P. Grimes, Esq., attorney; Joseph P. Grimes on the brief).

          FERNANDEZ-VINA, J., writing for the Court.

         In this appeal, the Court considers what impact a driver's failure to inform his auto insurance carrier about litigation against an underinsured tortfeasor has on the driver's later ability to collect on his underinsured motorist ("UIM") policy. Specifically, the Court addresses to what extent a carrier is required to pay a UIM claim when its subrogation rights are totally nullified.

         Plaintiff Robert Ferrante was involved in an automobile accident in 2006 where the other motorist ("the tortfeasor") caused the collision. Without informing his auto insurance carrier, defendant New Jersey Manufacturers Insurance Group ("NJM"), Ferrante initiated a negligence lawsuit against the tortfeasor, who had a liability limit of $100,000 on his insurance policy. The parties participated in mandatory arbitration, which set Ferrante's damages at $90,000. Again, without informing NJM and allowing it to exercise its subrogation rights, Ferrante rejected the award, and sought a trial de novo. He also refused a $50,000 settlement offer without notifying NJM.

         Prior to the trial, Ferrante entered into a high-low agreement with the tortfeasor, which set the range of damages between $25,000 and $100,000, notwithstanding a jury verdict. Ferrante did not communicate this agreement or the trial itself to NJM, either. Following the trial, a jury awarded plaintiff $200,000 in damages, but the Law Division entered a judgment of $100,000 based on the high-low agreement.

         For the first time in 2011, Ferrante sent NJM a letter required by Longworth v. Van Houten, 223 N.J.Super. 174 (App. Div. 1988), stating that he was seeking UIM benefits. In the letter, Ferrante wrote that the tortfeasor was willing to settle for $100,000. However, Ferrante failed to mention the arbitration, high-low agreement, completed trial, or jury verdict. Based on this information, NJM told Ferrante to accept the offer.

         NJM and Ferrante proceeded to litigation over UIM coverage in the Law Division. Only during a pretrial discovery exchange did Ferrante finally disclose his past dealings with the tortfeasor. NJM moved to dismiss the complaint, and the Law Division granted the motion, finding that Ferrante violated Longworth by not notifying NJM of any of the proceedings with the tortfeasor. On appeal, a split panel of the Appellate Division reversed. The majority held that because the trial court did not consider if NJM was actually prejudiced by the lack of notice, a remand was needed to determine if NJM sustained any prejudice.

         In a dissent, Judge Accurso disagreed that NJM must demonstrate prejudice in order to void the UIM claim. Rather, she found that Ferrante's failure to provide any notice to NJM during the initial suit and his later omission of the trial proceedings and high-low agreement caused NJM's subrogation rights to be "irretrievably lost."

         NJM filed its appeal as of right under Rule 2:2-1(a)(2). The Court's review is limited to the issue raised by Judge Accurso.

         HELD: Due to the complete absence of notice by Ferrante to NJM at any point over years of litigation, including the lack of notice about the high-low agreement or completed jury trial during the UIM process, NJM may refuse to pay the UIM benefits.

         1. New Jersey case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim. The relationship between an insurer and the insured is contractual, but the obligation to offer UIM coverage is derived from statute. In Zirger v. General Accident Insurance Co., 144 N.J. 327 (1996), the Court outlined the right of UIM carriers to intervene in trials against tortfeasors as a way to avoid relitigating a plaintiff's claim and as a method of binding them to the issues at trial. Id. at 340-42. Thus, plaintiffs are affirmatively obligated to provide their carriers with notice "of the institution of suit against the tortfeasor." Id. at 340-41. This duty to notify in the UIM context is intended to protect a carrier's right of subrogation. (pp. 10-13)

         2. In Longworth, the Appellate Division grappled with an insured's initial obligation to attempt to recover from a tortfeasor prior to pursuing UIM benefits from his carrier. 223 N.J.Super. at 177-78. The court recognized that the carrier's pursuit of subrogation against the wrongdoer has an "adverse effect . . . on the statutorily-accorded competing and paramount right of the insured victim to seek as full a recovery as possible from the combined resources of the tortfeasor's liability carrier and his own UIM carrier." Id. at 183. Longworth noted the tension in this process, as the insurer would inevitably seek to keep the damages low, thus providing the insured with minimal recovery for his injuries. Ibid. Regardless of those conflicts, the court determined that when the insured received "an acceptable settlement offer" from the tortfeasor, he must notify the UIM carrier. Id. at 194. Then, the carrier may decide either to allow the insured to accept the offer or provide the insured with the same amount in exchange for the assignment of the subrogation right against the tortfeasor. Ibid. (pp. 13-14)

         3. The Court sought to balance the tensions of UIM subrogation cases in Rutgers Casualty Insurance Co. v. Vassas, 139 N.J. 163, 171-72 (1995), in which it identified the occasions when the insured must notify the carrier: (1) when he or she takes legal action against the tortfeasor; (2) "[i]f, during the pendency of the claim, the tortfeasor's insurance coverage proves insufficient to satisfy the insured's damages"; and (3) if the insured is seeking UIM benefits because he or she "receive[d] a settlement offer or arbitration award that does not completely satisfy the claim, because the tortfeasor is underinsured," id. at 174. The Court ratified the Longworth holding. Id. at 174-75. In Vassas, the insured filed a suit against the tortfeasor without informing the carrier, and, after later receiving an award from an arbitrator, he again failed to notify the carrier. Id. at 175. The Court held that his failure "to comply with the provisions of his insurance contract and the dictates of Longworth" barred him from recovering UIM benefits. Id. at 176. (pp. 14-16)

         4. Unlike in Green v. Selective Insurance Co. of America, 144 N.J. 344, 346 (1996), where the carrier had the opportunity to exercise its subrogation rights after the initial settlement offer and chose not to, NJM here was never told about the arbitration, high-low agreement, jury verdict, or judgment until after the events occurred. A prejudice determination here is not needed unlike in Green, where the carrier waived its subrogation rights, because NJM never had the opportunity to exercise its rights. Due to the numerous landmarks where Ferrante could have, and should have, but did not notify NJM, the Court does not address his state of mind or weigh any potential prejudice to the carrier. By delaying notice to NJM, Ferrante violated the terms of his policy, Longworth, Vassas, and Zirger, which required him to inform NJM as soon as the lawsuit was brought-not after arbitration, a high-low agreement, or a jury trial. Those requirements seek to protect NJM's right to subrogation, which was clearly extinguished by Ferrante's actions, irrespective of his state of mind. (pp. 16-19)

         The judgment of the Appellate Division is REVERSED and the trial court's order is REINSTATED.

          CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, PATTERSON, SOLOMON, and TIMPONE join in JUSTICE FERNANDEZ-VINA's opinion.

          OPINION

          FERNANDEZ-VINA JUSTICE

         In this appeal, we consider what impact a driver's failure to inform his auto insurance carrier about litigation against an underinsured tortfeasor has on the driver's later ability to collect on his underinsured motorist ("UIM") policy.

         Specifically, we address to what extent a carrier is required to pay a UIM claim when its subrogation rights are totally nullified.

         Plaintiff Robert Ferrante was involved in an automobile accident in 2006 where the other motorist ("the tortfeasor") indisputably caused the collision. Without informing his auto insurance carrier, defendant New Jersey Manufacturers Insurance Group ("NJM"), Ferrante initiated a negligence lawsuit against the tortfeasor, who had a liability limit of $100,000 on his insurance policy. The parties participated in mandatory arbitration, which set Ferrante's damages at $90,000. Again, without informing NJM and allowing it to exercise its subrogation rights, Ferrante rejected the award, and sought a trial de novo. He also refused a $50,000 settlement offer without notifying NJM.

         Prior to the trial, Ferrante entered into a high-low agreement with the tortfeasor, which set the range of damages between $25,000 and $100,000, notwithstanding a jury verdict. Ferrante did not communicate this agreement or the trial itself to NJM, either. Following the trial, a jury awarded plaintiff $200,000 in damages, but the Law Division entered a judgment of $100,000 based on the high-low agreement.

         For the first time in 2011, Ferrante sent NJM a letter required by Longworth v. Van Houten,223 N.J.Super. 174 (App. Div. 1988), stating that he was seeking UIM benefits. In the letter, Ferrante wrote that the tortfeasor was willing to settle for $100,000. However, Ferrante failed to mention the arbitration, high-low agreement, completed trial, or jury verdict. Based on this information, NJM told Ferrante to accept the offer. NJM and Ferrante proceeded to litigation over UIM ...


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