JOHN RUTHERFORD v. AIG AMERICAN INTERNATIONAL INSURANCE COMPANY OF NEW JERSEY

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-1092-03T3

JOHN RUTHERFORD,

Plaintiff-Respondent,

v.

AIG AMERICAN INTERNATIONAL

INSURANCE COMPANY OF NEW

JERSEY,

Defendant-Appellant.

_______________________________________

Argued: October 25, 2004 - Decided: August 24, 2005

 
Motion For Reconsideration Granted.

Amended Opinion - Decided:

Before Judges A. A. Rodr guez and Hoens.

On appeal from the Superior Court of New Jersey, Law Division, Passaic County, L-639-03.

Jo Ann Katzban argued the cause for appellant (Garrity, Graham, Favetta & Flinn, attorneys; Ms. Katzban, of counsel and on the brief).

Joseph A. Massood argued the cause for respondent (Mr. Massood, on the brief).

PER CURIAM

AIG American International Insurance Company (AIG) appeals from a decision following a bench trial, declaring that John Rutherford was entitled to the maximum uninsured motorist (UM) coverage provided by his mother's auto insurance policy despite the existence of a step-down exclusion clause. We reverse.

The facts are undisputed. On June 23, 2001, Rutherford, then age forty-seven and residing in Charlotte, North Carolina, came to New Jersey to attend a wedding. While Rutherford was driving a Chevrolet Blazer owned by his mother, Mary Foster, an unknown vehicle cut him off and fled the scene. As a result, Rutherford swerved in an effort to avoid a collision and hit a curb. He lost control of the Blazer, which rolled into a center divider. Rutherford was injured.

AIG had issued a standard automobile insurance policy to Rutherford's stepfather and mother, Harold E. Foster and Mary Foster, who are New Jersey residents. The Fosters are the "named insureds" on the policy. The Blazer is one of three covered vehicles. The policy provides, among other coverages, UM coverage in the amount of $500,000/$1,000,000. The UM endorsement to the policy affords UM coverage to the named insureds, "family members" and any other person "occupying" a covered auto. The policy defines "family member" as "a person related to you by blood, marriage or adoption who is a resident of your household." (emphasis added). The policy further explains that such definition applies when the relevant words appear "in quotation marks."

Part C of the policy describes the UM coverage. Pursuant to Part C, the policy defines an "insured" for the purposes of UM coverage as:

1. You or any "family member."

2. Any other person "occupying" "your covered auto."

3. Any person for damages that person is entitled to recover because of "bodily injury" to which this coverage applies sustained by a person described in 1. or 2. above.

However, a policy endorsement provides a Limit of Liability as follows:

However, with respect to any "insured" who is not a named insured or "family member" under this policy, our maximum limit of liability for "bodily injury" is the minimum limit required by N.J.S.A. 17:28-1.1

The minimum limit set by N.J.S.A. 17:28-1.1a(1) is $15,000 for bodily injury.

Rutherford sought the full UM coverage as a "family member" insured. AIG denied coverage because he was not a resident of the insureds' household on the date of the accident. As such, while AIG maintained that he did not come within the definition of a "family member" insured, he was still entitled to UM coverage as an occupant of the Blazer, at the lower limit set by the step-down clause.

Rutherford filed a verified complaint and order to show cause alleging only that he was in fact a "family member" and should be entitled to the full coverage provided by the policy. At a bench trial, the sole witness was Harold Foster who admitted that he "looked through" the policy, and "glanced through" the endorsements. On direct examination, Foster, a financial planner, testified that "[his] understanding was that whoever [he] let use the vehicle would be covered." On cross-examination, the following exchange occurred:

[AIG Counsel]: . . . All right, and could you refer to item F on this first page of the policy? [the step-down clause]

[FOSTER]: Family members means a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child.

Q - Okay. And this definition is on the first page of the written policy, is that correct?

A - Yes, it is.

Q - And so it would be your understanding that this definition makes up part of the policy as well?

A - Yes.

Q - Okay. And by that definition, would you understand that Mr. Rutherford is a family member under this definition?

. . .

Q - Does Mr. Rutherford fit -- John Rutherford, fit this definition?

A - No, he doesn't fit this definition, no.

Q - Okay. All right.

THE COURT: And why not?

A - Because it says on there resident and because he wasn't a resident at that time, then that's the rationale I see here but, you know, that's a lot of writing on that policy there.

The judge found that the auto policy was "ambiguous, confusing and contrary to the reasonable expectations of the insured" and contained "hidden pitfalls and traps, which easily can ensnare and mislead the average insured." Therefore, the judge found that the step-down clause was not enforceable against Rutherford.

On appeal, AIG contends that:

WHERE, ON THE FIRST PAGE, A POLICY DEFINES "FAMILY MEMBER" TO MEAN A RELATIVE WHO IS A RESIDENT OF THE NAMED INSURED'S HOUSEHOLD AND WARNS THE INSURED CLEARLY ON THE POLICY COVER THAT THE ENDORSEMENTS COMPLETE THE POLICY, THE TRIAL COURT ERRED IN RULING THAT A "STEP-DOWN" CLAUSE CONTAINED IN AN ENDORSEMENT TO THE POLICY WAS AMBIGUOUS, CONFUSING AND CONTRARY TO THE REASONABLE EXPECTATION OF THE INSURED.

THE TRIAL COURT ERRED IN HOLDING THAT THE STEP-DOWN PROVISIONS OF THE AIIC POLICY DID NOT COMPORT WITH THE REASONABLE EXPECTATION OF THE INSURED SINCE THE POLICY TERMS WERE CLEAR AND UNAMBIGUOUS.

Thus, the issues on appeal were framed focusing on the definition of a "family member" within the meaning of the step-down clause. We agree with both contentions.

Generally, absent an ambiguity, courts should afford the words of an insurance policy their ordinary meaning. Longobardi v. Chubb Ins. Co. of New Jersey, 121 N.J. 530, 537 (1990). Courts "should not engage in a strained construction to support the imposition of liability" and thus should refrain from writing a "'better policy of insurance than the one purchased.'" Ibid. (quoting Walker Rogge, Inc. v. Chelsea Title & Guar. Co., 116 N.J. 517, 529 (1989)). The Supreme Court has explained:

[A]n insurance contract is not per se ambiguous because its declarations sheet, definition section, and exclusion provisions are separately presented. A rule of construction forcing insurers to avoid all cross-referencing in policies would require them to reprint the entire definition section on each page of the policy, or to define each term every time it is used. That proliferation of fine print would itself demand strenuous study and run the risk of making insurance policies more difficult for the average insured to understand.

[Zacarias v. Allstate Ins. Co., 168 N.J. 590, 603 (2001).]

When an insurance policy contains unambiguous terms, "it is the function of a court to enforce it as written and not to make a better contract for either of the parties." Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960).

Only "[w]hen the meaning of a phrase is ambiguous, the ambiguity is resolved in favor of the insured and in line with an insured's objectively-reasonable expectations." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992). A "genuine ambiguity" arises where "the phrasing of the policy is so confusing that the average policy holder cannot make out the boundaries of coverage." Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979).

From our review of the policy language, we find no genuine ambiguity in the policy. With respect to the definition of "family member" in the step-down clause, Rutherford clearly does not meet the such definition because he does not reside with the named insureds. The definition of family member is clear and unambiguous. The definition uses ordinary language to convey its message.

Rutherford argues on appeal that he is an insured by virtue of having been an occupant in the vehicle. We first note that this argument was not raised during the proceedings before the Law Division and it therefore is not an issue that we are required to address on appeal. Nieder v. Royal Indemn. Ins. Co., 62 N.J. 229, 234 (1973). Nevertheless, we have elected to address the alternate contention for the purpose of completeness. Rutherford is correct in his assertion that he is an insured by virtue of being an occupant in the vehicle. Notwithstanding that, the plain and unambiguous language of the step-down clause subjects one who is covered as an occupant to its limitations. Therefore, Rutherford is an insured only by virtue of being an occupant of the Blazer. As such, his UIM coverage is limited to $15,000 by virtue of the step-down clause.

With respect to the language and enforceability of the step-down clause, as stated above, we find no ambiguity in its terms. It is written in ordinary language.

AIG also contends that the judge erred by applying the reasonable expectations doctrine because the insurance policy contained no ambiguous or hidden terms, no fine legal points requiring distinction, and did not require strenuous study to understand. We agree. It is settled that, when the terms of the policy are clear and unambiguous, the Court need not engage in a "reasonable expectations" analysis.

"The fundamental principle of insurance law is to fulfill the objectively reasonable expectations of the parties." Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30, 35 (1988). The Supreme Court has stated:

When members of the public purchase policies of insurance they are entitled to the broad measure of protection necessary to fulfill their reasonable expectations. They should not be subjected to technical encumbrances or to hidden pitfalls and their policies should be construed liberally in their favor to the end that coverage is afforded "to the full extent that any fair interpretation will allow."

[Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482 (1961) (quoting Danek v. Hommer, 28 N.J. Super. 68, 76 (App. Div. 1953), aff'd, 15 N.J. 573 (1954)).]

Thus, "courts should resort to the doctrine of reasonable expectations only when 'the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage.'" State v. Signo Trading Intern., 130 N.J. 51, 62-63 (1992) (quoting Weedo, supra, 81 N.J. at 246-47). Stated another way:

[I]n enforcing an insurance policy, courts will depart from the literal text and interpret it in accordance with the insured's understanding, even when that understanding contradicts the insurer's intent, if the text appears overly technical or contains hidden pitfalls, cannot be understood without employing subtle or legalistic distinctions, is obscured by fine print, or requires strenuous study to comprehend.

[Zacarias, supra, 168 N.J. at 601 (citations omitted).]

Here, the AIG policy's step-down clause was not ambiguous. Therefore, there was no need to engage in a reasonable expectations analysis.

Summarizing, the judgment for Rutherford is vacated. The matter is remanded to the Law Division solely for the entry of judgment in favor of AIG.

 
Reversed and remanded.

(continued)

(continued)

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A-1092-03T3

October 5, 2005