AMERICAN INTERNATIONAL INSURANCE COMPANY OF NJ v. EDWARD E. BAILEY, JR.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4681-04T54681-04T5

AMERICAN INTERNATIONAL

INSURANCE COMPANY OF NJ,

Plaintiff-Respondent,

v.

EDWARD E. BAILEY, JR.,

Defendant-Appellant.

_____________________________

 

Argued on March 13, 2006 - Decided April 12, 2006

Before Judges Lintner and Gilroy.

On appeal from the Superior Court of New Jersey, Law Division, Salem County, Docket No. L-227-04.

Stephen C. Wolf argued the cause for appellant (Thomas Dempster, III, attorneys; Mr. Wolf on the brief).

Michael T. Novick argued the cause for respondent (Milton W. Brown, attorneys; Mr. Novick on the brief).

PER CURIAM

Plaintiff, American International Insurance Company (AIIC) of New Jersey, appeals from the order of the Law Division entered on April 5, 2005, denying its motion to enforce the step-down provision of its policy with respect to an accident in which defendant, Edward E. Bailey, Jr. (Bailey), was injured. We reverse.

We briefly recite the combined procedural history and undisputed facts. Nancy C. Schade was the owner of an automobile insured by AIIC that provided third-party liability insurance coverage of $100,000 per person and $300,000 per accident, and first party uninsured motorist (UM) and underinsured motorist (UIM) coverages in the same amounts. Although the declarations page of the policy only referenced UM coverage, the insuring agreement for UM coverage found in the four-page endorsement, No. AIG-300NJ (3-99), contained in the policy, provided that the insurer would "pay compensatory damages which an 'insured' is legally entitled to recover from the owner or operator of an 'uninsured motor vehicle' or 'underinsured motor vehicle' because of: 1. 'Bodily Injury' sustained by an 'insured' and caused by an accident." (emphasis added).

On July 10, 2002, Bailey, Schade's son, while operating his mother's automobile, was involved in an accident with an automobile operated by tortfeasor, Scott B. Cox, and suffered personal injuries therein. At the time of the accident, Bailey was not the named insured under the AIIC policy, was not a resident of the Schade household, nor was he a named insured under another insurance policy providing UIM coverage. "Underinsured motor vehicle" is defined in the endorsement, for an individual who is neither the named insured under the policy, nor a spouse or family member insured on another policy providing UIM coverage, as meaning "a land motor vehicle or trailer of any type to which a liability bond or policy applies at the time of the accident but its limit for liability is less than the limit of liability for this coverage."

The tortfeasor was insured for liability coverage through Allstate Insurance Company with limits of $25,000 per person and $50,000 per accident. Bailey instituted suit against Cox, and noticed AIIC of a possible UIM claim. AIIC denied the claim because its policy contained a step-down provision in the "LIMIT OF LIABILITY" section of the endorsement that provided in pertinent part:

LIMIT OF LIABILITY

A. The limit of Bodily Injury Liability shown in the Schedule or Declarations for each person for Uninsured Motorists Coverage is our maximum limit of liability for all damages, including damages for care, loss of services or death, arising out of "bodily injury" sustained by any one person in any one accident. Subject to this limit for each person, the limit of Bodily Injury Liability shown in the Schedule or Declarations for each accident for Uninsured Motorists Coverage is our maximum limit of liability for all damages for "bodily injury" resulting from any one accident.

The limit of Property Damage Liability shown in the Schedule or Declarations for each accident for Uninsured Motorists Coverage is our maximum limit of liability for all "property damage" resulting from any one accident.

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.

[(emphasis added).]

Bailey settled with the tortfeasor for the full amount of his liability coverage of $25,000. On September 13, 2004, AIIC filed a declaratory judgment action seeking an order declaring "that the 'step-down' provision in the UIM endorsement of this policy is enforceable and valid," and that "[AIIC] owes no UIM coverage for this loss where the policy limits of the tortfeasor exceed the UIM policy limits under the [AIIC] policy." AIIC filed a motion for summary judgment arguing that "the language of the step-down provision in the insurance policy issued [by AIIC] is clear, unambiguous and uncontroverted and therefore it should be enforced as written." AIIC contended that the policy only provided UIM benefits to Bailey in the maximum limit equivalent to the minimum limit required for UM benefits pursuant to N.J.S.A. 17:28-1.1, or $15,000/$30,000. AIIC asserted that because the tortfeasor's liability coverage of $25,000 exceeded the minimum single person statutory UM limit of N.J.S.A. 17:28-1.1, the tortfeasor's vehicle was not underinsured as defined in the policy. The motion judge, concluding that the step-down provision only pertained to UM coverage, not UIM coverage, denied the motion.

On appeal, AIIC argues that the trial judge erred in determining that Bailey was entitled to UIM and not finding Bailey subject to the step-down provision of the endorsement. A trial court will grant summary judgment to the moving party "if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); see also Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 523 (1995). "An issue of fact is genuine only if, considering the burden of persuasion at trial, the evidence submitted by the parties on the motion, together with all legitimate inferences therefrom favoring the non-moving party, would require submission of the issue to the trier of fact." R. 4:46-2(c).

On appeal, "the propriety of the trial court's order is a legal, not a factual, question." Pressler, Current N.J. Court Rules, comment 3.2.1 on R. 2:10-2 (2006). "We employ the same standard that governs trial courts in reviewing summary judgment orders." Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998).

"UIM coverage . . . is personal to the insured. Coverage is linked to the injured person, not the covered vehicle." Aubrey v. Harleysville Ins. Cos., 140 N.J. 397, 403 (1995). "UIM coverage provides 'as much coverage as the insured is willing to purchase, for his or her protection, subject only to the owner's policy liability limits for personal injury and property damages to others.'" Ibid. (quoting Prudential Prop. & Cas. Ins. Co. v. Traveler's Ins. Co., 264 N.J. Super. 251, 259-60 (App. Div. 1993)). Because it is linked to the injured party, "[o]ur case law recognizes the legitimacy of step-down provisions even though they may result in differential treatment of similar plaintiffs based on the existence of other available insurance." Pinto v. N.J. Mfrs. Ins. Co., 183 N.J. 405, 412 (2005). Accordingly, where a passenger seeks to recover damages under the UIM provision of the car owner's insurance policy in which the passenger was injured, an insurer "[is] free to modify the insurance policy language to limit the UIM coverage of [the] passenger[] and others who are named insureds under other insurance policies." Id. at 412-13 (citing Magnifico v. Rutgers Cas. Ins. Co., 153 N.J. 406, 418 (1998)). It is against these principles that we consider plaintiff's arguments.

Disputes involving insurance contracts are resolved by looking to the language of the policy. Riccio v. Prudential Prop. & Cas. Ins. Co., 108 N.J. 493, 499 (1987). As contracts of adhesion, insurance policies are subject to special rules of interpretation. Araya v. Farm Family Cas. Ins. Co., 353 N.J. Super. 203, 206 (App. Div.), certif. denied, 175 N.J. 77 (2002). Insurance policies should be construed liberally and in favor of the insured's reasonable expectations of coverage. Gibson v. Callaghan, 158 N.J. 662, 671 (1999). Notwithstanding, words of an insurance policy should be given their ordinary meaning. Zacarias v. Allstate Ins. Co., 168 N.J. 590, 595 (2001). "In the absence of any ambiguity, courts 'should not write for the insured a better policy of insurance than the one purchased.'" Gibson, supra, 158 N.J. at 670 (quoting Longobardi v. Chubb Ins. Co., 121 N.J. 530, 537 (1990)). If the expressed language of the policy is clear and unambiguous, the "'court is bound to enforce the policy as it is written.'" Royal Ins. Co. v. Rutgers Cas. Ins. Co., 271 N.J. Super. 409, 406 (App. Div. 1994) (quoting Flynn v. Hartford Fire Ins. Co., 146 N.J. Super. 484, 488 (App. Div.), certif. denied, 75 N.J. 5 (1977)). "These principles have been applied to enforce step-down provisions in insurance policies, provided the provisions are expressed in clear and unambiguous language." Morrison v. Am. Int'l Ins. Co. of Am., 381 N.J. Super. 532, 538 (App. Div. 2005).

We have reviewed the language of the step-down provision in the AIIC policy, and conclude that it is clear and unambiguous, and should be enforced. Plaintiff was not the named insured, nor resident relative of the named insured, and held the status of "any other insured" under the terms of the policy. Pursuant to the terms of the step-down provision, the individual maximum limit for both UM and UIM benefits is $15,000, the minimum UM limit required by N.J.S.A. 17:28-1.1. Because this limit was below the liability limit contained in the tortfeasor's policy, plaintiff is not underinsured, and therefore, is not entitled to pursue a claim for UIM benefits under the AIIC policy. Pinto, supra, 183 N.J. at 412; Magnifico, supra, 153 N.J. at 418.

Plaintiff, like the motion judge below, interprets the step-down provision as being only applicable to UM claims, not UIM claims, contending that the language contained in the first two paragraphs of the "LIMIT OF LIABILITY" section references UM coverage, not UIM coverage. This issue was recently addressed in Morrison, supra, 381 N.J. Super. at 541, where another panel of this court, addressing the same limit of liability provision, held:

Unlike the first two paragraphs of this section that specifically address uninsured motorist coverage, the third paragraph makes no reference to either uninsured or underinsured motorist coverage. Rather, it simply and clearly states that the insurer's liability as to any insured who is not a named insured or resident family member is the minimum amount contained in this specifically identified statute. Further, although the first page of the four-page endorsement is captioned "Uninsured Motorists," there is reference throughout the endorsement to both uninsured and under insured motorists. Because the step-down provision mentions neither class of drivers, it reasonably follows that the step-down provision applies to underinsured motorists, as well as uninsured motorists.

Further support for this interpretation of the step-down provision contained in the "LIMIT OF LIABILITY" section of the endorsement is found by reference to that section of the endorsement entitled "INSURING AGREEMENT" which defines the types of coverages falling under the umbrella of the "UNINSURED MOTORIST COVERAGE - NEW JERSEY" endorsement, AIG-300 N.J. (3/99). It provides that the insurer "will pay compensatory damages which an 'insured' is legally entitled to recover from the owner or operator of an 'uninsured motor vehicle' or 'underinsured motor vehicle.'" (emphasis added). Because the insuring agreement provides that "UNINSURED MOTORIST COVERAGE" includes both UM and UIM coverage, we conclude that the step-down provision applies equally to both.

This matter is reversed and remanded to the trial court to enter judgment in accordance with this decision.

 

All standard liability automobile insurance policies are required to include UM coverage in the minimum amounts of $15,000/$30,000. N.J.S.A. 17:28-1.1a. The statute, however, does not require that UIM coverage be included in standard liability automobile insurance policies, but rather, UIM coverage is an option which must be offered by the insurer to the named insured. N.J.S.A. 17:28-1.1b; Allgor v. Travelers Ins. Co., 280 N.J. Super. 254, 259 (App. Div. 1995).

(continued)

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A-4681-04T5

April 12, 2006