DANILO ARIAS v. AVIS RENT-A-CAR SYSTEM INC.

(NOTE: The status of this decision is .)
 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5314-07T15314-07T1

DANILO ARIAS,

Plaintiff,

v.

AVIS RENT-A-CAR SYSTEM,

INC.,

Defendant-Appellant,

v.

NATIONAL GENERAL INSURANCE

COMPANY,

Defendant-Respondent.

______________________________

 

Argued March 18, 2009 - Decided

Before Judges Stern, A. A. Rodr guez and

Ashrafi.

On appeal from Superior Court of New Jersey,

Law Division, Passaic County, Docket No.

L-4334-03.

Sam Rosenberg argued the cause for appellant

(Reiseman, Rosenberg & Pfund, attorneys; Mr.

Rosenberg, of counsel; Nancy Crosta Landale

and Mr. Rosenberg, on the brief).

Matthew S. Slowinski argued the cause for

respondent (Slowinski Atkins, attorneys; Mr.

Slowinski, of counsel and on the brief).

PER CURIAM

This is the second appeal of a dispute between defendant Avis Rent-a-Car Systems, Inc. and intervenor-defendant National General Insurance Company (NGIC) regarding which one is liable to compensate plaintiff for his injuries caused in a motor vehicle accident. Avis owned the vehicle driven by the negligent driver. NGIC issued an auto insurance policy to the injured plaintiff that included underinsured motorist (UIM) coverage. In the previous appeal, we held that New Jersey law, not New York law, governs the circumstances of this motor vehicle accident and that Avis is not vicariously liable for the negligence of the persons who rented and operated its vehicle. Arias v. Figueroa, 395 N.J. Super. 623 (App. Div.), certif. denied, 193 N.J. 223 (2007).

On remand, the trial court dismissed Avis's cross-claim against NGIC because Avis had settled with plaintiff before the prior appeal. Avis now appeals that judgment of dismissal, making several arguments for holding NGIC liable for a portion of the settlement funds Avis paid to plaintiff. We conclude that, even if one or more of Avis's contentions might have otherwise provided a legal basis for its claim against NGIC, the facts of this case provide no ground for Avis to recover any part of its settlement payment from NGIC. Consequently, we affirm dismissal of Avis's cross-claim.

The facts are not disputed. Our standard of review is plenary on questions of law. See Manalapan Realty v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995). It is also plenary with respect to interpretation and construction of unambiguous terms of contracts, Fastenberg v. Prudential Ins. Co. of Am., 309 N.J. Super. 415, 420 (App. Div. 1998); Anthony L. Petters Diner, Inc. v. Stellakis, 202 N.J. Super. 11, 27-28 (App. Div. 1985), here the insurance policy issued by NGIC to plaintiff and the settlement agreement between Avis and plaintiff.

Avis rented a mini-van to defendant Francisco Ramirez in New York State. Under the rental agreement, Avis provided liability coverage to Ramirez with a limit of $15,000. On October 21, 2001, defendant Freddy Figueroa was driving the mini-van in New Jersey when he ran a stop sign and collided with a car driven by plaintiff Danilo Arias.

Arias sued Figueroa, Ramirez, and Avis in New Jersey for injuries caused by the accident. Avis retained counsel, who eventually filed an answer on behalf of all three defendants. Because Avis was self-insured for liability coverage on the vehicle pursuant to its rental agreement, it concedes that it was liable to plaintiff Arias up to the $15,000 limit of coverage and has no right to recover that amount.

Alleging that compensation for his injuries would exceed the limit of Avis's coverage, plaintiff made a claim for UIM benefits under his own auto policy issued by NGIC, which had a limit of $100,000. NGIC denied the claim. NGIC then obtained leave to intervene in this lawsuit and filed an answer and a cross-claim against Avis and the other defendants. In response, Avis filed a cross-claim for contribution and indemnification against NGIC.

NGIC and plaintiff applied to the court to rule that New York law governed the case because New York is where the vehicle was rented and Ramirez and Figueroa were New York residents. Under New York law, Avis would be vicariously liable for the negligence of its renter and the driver of its vehicle. See N.Y. Vehicle and Traffic Law, 388(1) (McKinney 1996). As a self-insured owner of the vehicle, Avis would not have any limit to its vicarious tort liability. NGIC argued that plaintiff could recover for his injuries entirely from Avis and had no UIM claim. The court agreed and held that Avis was vicariously liable under New York law for the negligence of Figueroa and Ramirez, and NGIC had no liability.

Plaintiff's negligence claim was scheduled for trial on Tuesday, September 6, 2005, against Avis, Ramirez, and Figueroa. In the days immediately before the trial, Avis negotiated a settlement with plaintiff for $93,000. As part of the settlement agreement, plaintiff assigned to Avis his claims against NGIC under the UIM coverage of his auto policy. He also agreed he would not oppose Avis's appeal of the ruling that New York law was applicable and that Avis was vicariously liable. In addition, plaintiff executed a release of any claims he had against Avis, Ramirez, and Figueroa. On its part, Avis agreed that the $93,000 payment was not refundable under any circumstances, and that it would indemnify plaintiff against any claim by NGIC against plaintiff in the event that Avis was successful on appeal.

On Thursday, September 1, 2005, plaintiff wrote to NGIC, as required by Longworth v. Van Houten, 223 N.J. Super. 174, 194-95 (App. Div. 1988), to inform NGIC of his intent to settle for $93,000 and to give NGIC the opportunity either to approve the settlement or to pay the settlement amount itself and take subrogation of plaintiff's claims against the defendants. On Friday, September 2, 2005, Avis also wrote to counsel for NGIC stating that it was settling with plaintiff and taking assignment of plaintiff's rights under his UIM policy. On Thursday, September 8, 2005, counsel for NGIC wrote back to plaintiff and Avis stating that NGIC had no UIM liability based on the court's ruling that Avis was vicariously liable under New York law.

As stated previously, Avis did prevail on appeal and we reversed the trial court's ruling that Avis was vicariously liable.

Back in the trial court, NGIC moved for summary judgment dismissing Avis's cross-claim on the ground that the NGIC policy prohibited assignment of plaintiff's rights without the consent of NGIC. Avis cross-moved for referral of the personal injury claim to UIM arbitration between NGIC and Avis as assignee of plaintiff. The trial court heard argument and held that the non-assignability clause of the NGIC policy was enforceable, and that Avis had waived its cross-claim against NGIC by settling with plaintiff rather than going to trial. The court granted the motion of NGIC to dismiss Avis's cross-claim and denied that of Avis for UIM arbitration.

On appeal, Avis makes a series of arguments in the alternative seeking reversal of the trial court's ruling. Avis seeks UIM arbitration in an effort to recoup $78,000 from NGIC out of the $93,000 it paid to plaintiff to settle plaintiff's personal injury claim.

First, relying upon Culver v. Insurance Co. of North America, 115 N.J. 451, 455-56 (1989), Avis argues that the doctrine of equitable subrogation should apply to its cross-claim because the trial court incorrectly had ruled that Avis was vicariously liable and because NGIC was contractually liable to compensate plaintiff for his injuries. Second, relying upon Owen v. CNA Insurance/Continental Casualty Co., 167 N.J. 450, 467 (2001), Avis argues that the assignment of plaintiff's UIM claims to Avis is enforceable as between Avis and NGIC.

Next, citing Johnson v. Cyklop Strapping Corp., 220 N.J. Super. 250, 265-66 (App. Div. 1987), certif. denied, 110 N.J. 196 (1988), Avis argues that its settlement with plaintiff did not extinguish its cross-claim for contribution and indemnification against NGIC. Under the holding of Longworth, supra, 223 N.J. Super. at 189, Avis contends that NGIC should be deemed to have acceded to the settlement because it did not offer to pay the plaintiff and be subrogated to the plaintiff's claims against the tortfeasors.

Finally, citing Foley Machinery Co. v. Amland Contractors, Inc., 209 N.J. Super. 70, 75 (App. Div. 1986), among other cases, Avis argues that NGIC should be equitably estopped from relying on the non-assignability provision of its insurance policy. Equitable estoppel would be based on NGIC's failing to inform plaintiff and Avis of the non-assignability provision when it received notice of the settlement terms in September 2005.

As a continuing theme, Avis argues that it acted responsibly by settling plaintiff's personal injury claim rather than forcing a trial and that NGIC, as the party that should have compensated plaintiff, should not escape liability.

NGIC disputes that the several cases relied upon by Avis apply to the circumstances of this case. It argues that equitable subrogation is not warranted and that the provision of its policy prohibiting assignment should be enforced. It also contends that a personal injury tort claim that has not been reduced to a money judgment may not be assigned to a third party, citing Village of Ridgewood v. Shell Oil Co., 289 N.J. Super. 181, 195 (App. Div. 1996); see also DiTolvo v. DiTolvo, 131 N.J. Super. 72, 79 (App. Div. 1974). Avis responds that the assignment here is not plaintiff's personal injury tort claim but his contract claim against his insurer, citing Kimball Int'l, Inc. v. Northfield Metal Prods., 334 N.J. Super. 596, 612 (App. Div. 2000), certif. denied, 167 N.J. 88 (2001).

The various arguments present interesting legal issues, but they need not be addressed in this appeal because their resolution does not change the result. Because the settlement included a release of the two individual tortfeasors, and because Avis agreed to indemnify plaintiff, Avis will in the end be responsible for the settlement payment even if NGIC should pay.

The consequence of releasing Ramirez and Figueroa from further liability is that NGIC cannot proceed against them to recoup its payment of benefits, as it had a right to do under the UIM provisions of its insurance contract with plaintiff. The UIM coverage provides that NGIC becomes subrogated to the rights and claims of the insured against liable parties upon payment of UIM benefits. As plaintiff's subrogee, NGIC steps into the shoes of plaintiff and has no greater right or claim than plaintiff. Here, NGIC would have no right to pursue Ramirez and Figueroa for recovery of its payments to plaintiff because plaintiff has released them from further liability without the consent of NGIC.

Thus, if NGIC is ordered to pay up to $78,000 as UIM benefits, it will have a breach of contract claim against plaintiff both for releasing Ramirez and Figueroa from further liability and, under Owen v. CNA Insurance, supra, 167 N.J. at 467, for assigning his rights to Avis contrary to the non-assignability provision of the policy. On such breach of contract claims, NGIC's primary damages would be up to the $78,000 that Avis claims. Those damages, however, are the responsibility of Avis pursuant to its indemnification agreement with plaintiff.

The settlement agreement requires Avis to indemnify plaintiff in the event that plaintiff is held liable to NGIC. So, if plaintiff is held liable to NGIC for breaching the insurance contract, Avis would be responsible for whatever damages plaintiff must pay to NGIC. In this way, the liability for the $78,000 payment comes full circle back to Avis, making it liable in the end to repay NGIC the amount that NGIC would have to reimburse Avis. This result is a consequence of the terms of the settlement that Avis voluntarily reached with plaintiff.

If the settlement had been only between plaintiff and Avis, the various arguments and positions of the parties on the issues of assignability and equitable subrogation would likely determine the outcome of this appeal. But the settlement was also between plaintiff and the two individual defendants, Ramirez and Figueroa. In exchange for Avis's payment of the non-refundable $93,000, Avis demanded and plaintiff gave a release of all defendants. As the negligent tortfeasors, Ramirez and Figueroa could make none of the arguments against NGIC that Avis makes on this appeal. Yet, the settlement funds were also paid on their behalf and they were released from further liability. We can discern no rational way to apportion the $93,000 settlement between Avis and the two individual defendants.

Concerning the general fairness argument that Avis makes, Avis settled plaintiff's claims at a time when the court's ruling would have held Avis liable along with Ramirez and Figueroa. Because it was self-insured, there was no limit to Avis's potential liability. Avis avoided the risk of a higher judgment by settling for an amount that through litigation it might not have had to pay, as defendants who settle typically do.

Avis says it should not have been compelled to try the case just to preserve its claim against NGIC. We agree. But Avis put itself into the position of either trying the case or losing its cross-claim by settling on behalf of all three defendants with an agreement to indemnify plaintiff. Avis's argument would have more force if it had not required a release for Ramirez and Figueroa as part of the settlement.

When the trial court erroneously ruled that New York law applied and that Avis was vicariously liable, Avis's defense position came into direct conflict with the defense positions of Ramirez and Figueroa. Avis's interest was in reversal of that ruling and dismissal of plaintiff's claim against Avis beyond the $15,000 limit of its coverage. The interest of Ramirez and Figueroa, on the other hand, was to maintain the ruling so that there would be enough coverage for plaintiff's injuries and Ramirez and Figueroa could avoid a judgment against them personally, either by plaintiff directly or by NGIC as plaintiff's subrogee. At that point, the three defendants needed independent representation. If new, independent counsel for Avis had entered the case and had no obligation to represent the interests of Ramirez and Figueroa, counsel might have been able to settle with plaintiff on behalf of Avis alone while preserving Avis's cross-claim against NGIC. At the same time, plaintiff would have been able to settle his claim without having to release the individual tortfeaors against whom NGIC might proceed. As already said, we need not decide whether a settlement on behalf of Avis alone would change ultimate responsibility for payment to plaintiff.

As it was, counsel represented all three defendants and was compelled to settle on behalf of all and obtain releases in favor of all three. By doing so, plaintiff breached the covenant against assignment contained in his insurance contract with NGIC and gave rise to a claim by NGIC against plaintiff. Having agreed to indemnify plaintiff for such a claim, Avis was in effect agreeing to be responsible in the end for payment of plaintiff's claim.

We have considered whether Avis might avoid this result because NGIC should be equitably estopped from relying on the terms of its policy. We are not persuaded by Avis's assertion that NGIC had a duty to notify Avis and plaintiff that plaintiff's claims could not be assigned without its consent. The insurance policy was available to all parties and could have been examined for terms contrary to the assignment.

Because Avis's cross-claim would result in Avis itself being liable for whatever NGIC could be ordered to pay to Avis, the cross-claim does not state a claim upon which relief can be granted. The trial court correctly dismissed the cross-claim.

 
Affirmed.

(continued)

(continued)

13

A-5314-07T1

June 1, 2009