French v. New Jersey School Bd. Ass'n Ins. Group

Page 478

149 N.J. 478

694 A.2d 1008

Diana FRENCH, Plaintiff-Appellant, v. NEW JERSEY SCHOOL BOARD ASSOCIATION INSURANCE GROUP, a Corporation; New Jersey School Board Association Insurance Group, an Unincorporated Association; Hudson County Area Vocational-Technical Schools, Defendants-Respondents and John Doe Corp. 1 through 5, Defendants.

Supreme Court of New Jersey.

Argued Feb. 3, 1997.

Decided June 25, 1997.

Alan L. Krumholz, Jersey City, argued the cause for appellant.

Paul G. Witko, Bedminster, argued the cause for respondent (Purcell, Ries, Shannon, Mulcahy & O'Neill, attorneys; David M. Hawkins, of counsel).

The opinion of the Court was delivered by

O'HERN, J.

This appeal concerns the rights and obligations of parties under an insurance endorsement defining an increasingly vexatious subject--underinsured motorist (UIM) benefits. Simply stated, UIM coverage provides to an insured a measure of added protection against the risk of being injured by a negligent driver having an inadequate limit of liability insurance to cover the extent of the insured's injuries. The question here is whether a bus driver from a school district, injured by an underinsured driver while operating a school district bus, may recover UIM benefits under the policy purchased by the school district to cover the bus, or whether she is limited to the amount of UIM coverage purchased under her personal automobile insurance policy.

I

On April 23, 1991, plaintiff, Diana French, was driving a school bus for her employer, Hudson County Area Vocational Technical School (Hudson). A taxi cab struck the school bus in the rear and caused severe injuries to Ms. French. She has undergone multiple surgeries and has been unable to return to work since the accident. She brought an action in the Law Division against the taxi company, which ultimately settled for $25,000, the liability limits of the policy insuring the taxi. Plaintiff then sought benefits under the UIM coverage contained in the insurance policy issued to Hudson by the New Jersey School Board Insurance Group. That policy provided UIM coverage in the amount of one million dollars. At the time, plaintiff had personal automobile insurance through Allstate Insurance Company with UIM coverage in the amount of $25,000. Relying on our decision in Aubrey v. Harleysville Insurance Companies, 140 N.J. 397, 658 A.2d 1246 (1995), the trial court held that any UIM recovery by plaintiff was limited to the $25,000 available under her personal Allstate policy; and that because no UIM coverage was created when that policy was compared with the tortfeasor's liability limit, summary judgment in Allstate's behalf was appropriate. The Appellate Division affirmed in an unreported opinion. We granted plaintiff's petition for certification, 146 N.J. 500, 683 A.2d 202 (1996). In order to qualify for UIM benefits under any UIM policy "insuring" the injured person, that person must demonstrate that the limits of the policy "held" by him or her are greater than the aggregate liability limits insuring the allegedly underinsured tortfeasor. We hold that when an automobile accident occurs in the course of employment, a policy "held" by a regular employee of a business enterprise includes the policy of the enterprise that covers the employee in the course of employment. We therefore reverse.

II

Having been characterized as a "sleeping giant," Green v. Selective Insurance Company, 144 N.J. 344, 349, 676 A.2d 1074 (1996), and a "legal iceberg," Cynthia M. Craig and Daniel J. Pomeroy, New Jersey Auto Insurance Law § 26.1 at 339 (1997) (hereinafter Craig & Pomeroy), UIM insurance has assumed an ever-increasing importance in automobile-claims reparation. It has also proved to be an infinitely complex and troublesome area for the bar and the insurance industry. In Riccio v. Prudential Property & Casualty Insurance Company, 108 N.J. 493, 498, 531 A.2d 717 (1987), the Court observed that the subject of uninsured (and by clear implication, underinsured) motorist coverage, which the parties had characterized as "really quite simple," was anything but that. Having declined the opportunity in Riccio to "plumb the intricacies" of this area of insurance law, ibid., we now undertake to review again the basic principles of UIM coverage. Our discussion of these principles is not intended to be a definitive digest of the law, see Craig & Pomeroy, supra, but only to provide the background for our decision.

UIM coverage is optional first party coverage insuring the policy holder, and others, against the possibility of injury or property damage caused by the negligent operation of a motor vehicle whose liability insurance coverage is insufficient to pay for all losses suffered. The nature of the coverage is defined by N.J.S.A. 17:28-1.1e. The fact that it must be offered by insurers as a mandatory option is dictated by N.J.S.A. 17:28-1.1b. N.J.S.A. 17:28-1.1c prohibits the stacking of UIM benefits on either an intra-policy (i.e., where an "insured" in a single policy that covers many cars may recover under UM coverage of each car) or inter-policy (i.e., recovery from more than one policy for injuries sustained in a single accident) basis. The foregoing are the statutory sources of the coverage.

This coverage was first offered as a mandatory option in connection with the 1983 Legislation that adopted it (Section 1 of L.1983, c. 362). The Appellate Division has described UIM coverage as a "stop gap measure" that essentially creates a framework within which one can purchase as much UIM protection as is desired, given the purchaser's individual situation, that is, what coverage he or she can afford or desires. See, e.g., Bauter v. Hanover Ins. Co., 247 N.J.Super. 94, 96, 588 A.2d 870 (App.Div.) (holding that purpose of N.J.S.A. 17:28-1.1b, c, and e was to offer an insured protection up to limit of UIM coverage purchased, not to guarantee that insured would be made "whole again"), certif. denied, 126 N.J. 335, 598 A.2d 893 (1991); Tyler v. New Jersey Auto. Full Ins. Underwriting Ass'n, 228 N.J.Super. 463, 466, 550 A.2d 168 (App.Div.1988) (holding that tortfeasor is not underinsured relative to UIM insured's damages, or relative to judgment or judgments against tortfeasor, but rather relative to limits of UIM coverage purchased by or for person seeking recovery); Wolfe v. Sperling Agency, Inc., 228 N.J.Super. 428, 434, 549 A.2d 1275 (Law Div.1988) (rejecting argument advanced by UIM claimant that basic legislative intent leading to enactment of N.J.S.A. 17:28-1.1e was to provide blanket, complete coverage to persons injured by motor-vehicle accidents). Thus, the following principle has been found to flow from the 1983 amendments to N.J.S.A. 17:28-1.1, particularly section e: A motor-vehicle tortfeasor is "underinsured" only when all the liability coverage insuring his or her purportedly underinsured vehicle is less than the UIM benefits "held" by the UIM claimant. See N.J.S.A. 17:28-1.1e; Prudential Prop. & Cas. Ins. Co. v. Johnson, 238 N.J.Super. 1, 568 A.2d 1193 (App.Div.1989); Nikiper v. Motor Club of Am. Cos., 232 N.J.Super. 393, 557 A.2d 332 (App.Div.), certif. denied, 117 N.J. 139, 564 A.2d 863 (1989); Craig & Pomeroy, supra, Chapter 27:4-1 at 352.

Once that threshold analysis results in a potential UIM claim (that is, the UIM limits "held" by the injured are in excess of the total liability limits covering the allegedly underinsured tortfeasor), recovery against the UIM coverage results only when the insured demonstrates that his or her damages exceed the liability limits involved. The principle was perhaps best articulated in Tyler, where the court observed:

The plain meaning of [ N.J.S.A. 17:28-1.1e] is that underinsured motorist benefits are available if (and to the extent that) the tortfeasor's liability limits are lower than the limits of the underinsured motorist coverage contained in the plaintiff's policy.

The statute produces the same result if there is one injured claimant or many, or if the amount of damages exceed the tortfeasor's liability limits, or even if multiple claims against one tortfeasor are, because of his liability limits, settled for amounts which are individually less than the underinsured motorist coverage available from the claimants' policy. A tortfeasor is not underinsured relative to plaintiff's damages, or relative to the judgment or judgments against him, but rather relative to the limits of the underinsured motorist coverage purchased by or for the person seeking recovery.

[228 N.J.Super. at 466, 550 A.2d 168.]

See also Calabrese v. Selective Ins. Co., 297 N.J.Super. 423, 688 A.2d 606 (App.Div.1997) (discussing effect of split limits on the analysis).

To those principles we add that when the UIM claimant passes the threshold analysis set forth above but fails to exhaust in settlement the liability policy limits insuring the underinsured tortfeasor, the full policy limits will still serve as the appropriate setoff against the UIM coverage. See N.J.S.A. 17:28-1.1e; Longworth v. Van Houten, 223 N.J.Super. 174, 538 A.2d 414 (App.Div.1988). However, when multiple claimants exhaust all of the liability limits available to an underinsured tortfeasor and when a claimant "holds" a UIM policy that creates coverage when compared with the underinsured tortfeasor's total liability limits, the amount that the injured claimant is able to recover from the liability policy (as opposed to the liability policy limit itself) serves as the appropriate setoff. See Filippatos v. Selective Ins. Co., 241 N.J.Super. 236, 237, 574 A.2d 1002 (App.Div.1990).

With those basic principles in mind, we move to the issues projected by this appeal, which of necessity require that we resort, at length, to the text of N.J.S.A. 17:28-1.1e:

For the purposes of this section, (1) "underinsured motorist coverage" means insurance for damages because of bodily injury and property damage resulting from an accident...