Dana v Allstate N.J. Ins. Co.

[*1] Dana v Allstate N.J. Ins. Co. 2009 NY Slip Op 52842(U) Decided on May 13, 2009 Supreme Court, Kings County Partnow, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on May 13, 2009
Supreme Court, Kings County

Morris Dana and Susan Dana, Plaintiffs,

against

Allstate New Jersey Insurance Company, Defendant.



25986/05

Mark Partnow, J.

The following papers numbered 1 to 10 read on this motion:

Papers Numbered

Notice of Motion/Order to Show Cause/

Petition/Cross Motion and

Affidavits (Affirmations) Annexed1 - 2, 3 - 4

Opposing Affidavits (Affirmations)5, 6

Reply Affidavits (Affirmations)7, 8

Affidavit (Affirmation)9, 10

Other Papers

Upon the foregoing papers, defendant Allstate New Jersey Insurance Company (Allstate) moves, pursuant to CPLR4404 (a), for an order setting aside the verdict and judgment entered thereon in favor of the plaintiffs Morris Dana and Susan Dana and entering judgment in favor of Allstate on the ground that Allstate, as the underinsurance carrier for plaintiffs, has no obligation to satisfy the $50,000 verdict rendered in favor of them, as the tortfeasor's insurer previously settled with plaintiffs for an identical amount. Plaintiffs oppose the instant motion on the ground that, under New Jersey Law, the amount of settlement tendered by a tortfeasor's carrier should be subtracted from the total amount of underinsurance coverage available and not from the jury verdict awarded at trial. Allstate also moves, by order to show cause, for an order vacating the severance of plaintiffs' " bad faith" claim as against it and said claim's referral for hearing to a Judicial Hearing Officer (JHO) and, instead, and dismissing such claim based upon Allstate's contention that it did not act in bad faith by failing to settle with the plaintiffs or pay the underinsurance policy limits since it was demonstrated at trial that their damages did not exceed the tortfeasor's available coverage and, therefore, plaintiffs were not entitled to receive underinsurance benefits under [*2]the subject Allstate policy. Plaintiffs primarily oppose said motion on the same ground asserted in opposition to Allstate's motion to set aside the judgment and verdict.

The following background facts and procedural posture of the case are gleaned from the plaintiffs' trial memorandum of law and are largely uncontested:

This is an action by plaintiff Morris Dana (referred to herein as either Mr. Dana or the singular plaintiff)[and derivatively his wife Susan], against his own insurer, ALLSTATE, to recover monetary damages for bodily injuries he sustained in a [motor vehicle accident] on 10/23/03; under the optional SUM endorsement (supplementary uninsured/underinsured motorist coverage) to his insurance policy purchased from ALLSTATE in the sum of $250,000.00 per person

* * *

Mr. Dana's car was struck in the rear by another vehicle while he was stopped. The accident occurred on October 23, 2003, at an intersection in Brooklyn, New York. Thus, plaintiff chose Kings County as the venue; particularly, since most of his treatment was received in Brooklyn.

Plaintiff initially commenced an action against the driver who hit him; who was insured by GEICO. Prior to depositions, GEICO tendered and paid its whole policy of $50,000.00. As mandated by his policy, plaintiff then notified ALLSTATE and requested permission to settle with GEICO for its policy limits. ALLSTATE's examiner . . . granted plaintiff permission and plaintiff received a check for $50,000.00 from GEICO.

Inasmuch as ALLSTATE's examiner then took the position that the $50,000.00 already more than adequately compensated plaintiff for all of his injuries, a direct action as commenced against ALLSTATE under the optional SUM endorsement of plaintiff's policy. Given ALLSTATES's position in addition to the underinsured SUM claim asserted in the plaintiff's complaint, there was also a "bad faith"cause of action [asserted] which addresses ALLSTATE's [alleged] failure to negotiate in good faith and bring this claim to an amicable resolution from its inception to the present time (EMPHASIS ADDED). [Below is the "bad faith" claim as pled in the direct action complaint]:

AS AND FOR A SECOND CAUSE OF ACTION

AGAINST THE DEFENDANT [ALLSTATE]

* * *

That defendant's refusal and/or neglect to pay its policy limits when requested to do so, was not made in good faith in view of all relevant circumstances.

That in refusing and/or neglecting to pay its policy limits, defendant considered only its own interests without also taking into consideration the interests of its insured. [*3]

That the defendant's refusal and/or neglect to pay plaintiff amounted to gross disregard for its insured's interests; by failing to place the interests of its insured on equal footing with its own interests.

(Original paragraph numbering omitted).

Albeit ALLSTATE substantially denied all of the above allegations, ALLSTATE never made a motion to dismiss and/or for summary judgment concerning this cause of action.

As liability had been determined prior to trial, the only issue before the jury was the amount of damages. The jury returned a verdict in favor of plaintiffs, awarding $45,000.00 in damages to Morris Dana and $5,000.00 to Susan Dana.

With respect to the "bad faith" claim, same was severed prior to trial and referred to a JHO for determination.

The salient issue in this case, and the subject of the two pending motions, is whether or not an insured can obtain coverage from his or her underinsured carrier where the amount of damages as determined by a jury at trial does not exceed the limit of the tortfeasor's policy after same has been tendered to plaintiffs. Here, GEICO, the tortfeasor's carrier settled with plaintiffs by tendering the limits of the subject policy to them in the amount of $50,000.00. Plaintiffs brought an action seeking underinsured benefits against Allstate, after Allstate refused to tender any amount to them under the subject underinsured policy. At trial, plaintiffs received a jury award of damages in the amount of $50,000.00, a sum identical to that which they already had received in settlement from the tortfeasor's carrier.

Plaintiffs primarily argue that New Jersey law requires any settlement received from the tortfeasor's insurer or other insurance source to be deducted from the amount of coverage available under the underinsured policy, and not from the jury's damages award. Accordingly, plaintiffs contend that since the underinsured policy in question provides $250,000.00 coverage, such coverage should be reduced by $50,000.00, the amount of the GEICO settlement, leaving $200,000.00 available to pay plaintiffs the $50,000.00 in damages as found by the jury. Allstate contends that since plaintiffs have already received $50,000.00 in compensation from the tortfeasor's carrier, GEICO, they have been wholly compensated for their injuries and, therefore, the underinsured policy is not triggered and no amount can be collected thereunder. Allstate argues, in essence, that if plaintiffs receive $100,000.00 in total - $50,000.00 from their settlement with the tortfeasor and $50,000.00 in underinsurance proceeds from Allstate pursuant to the subject policy - said sum will represent a windfall of $50,000.00 in excess above of the amount of damages determined by the finder of fact at trial.

The court agrees with Allstate that, under the particular facts of this case, plaintiffs are not entitled to received underinsured coverage in the amount of $50,000.00 pursuant to [*4]the subject policy. At trial it was determined, and both parties acknowledge, that New Jersey law applies to the case at bar since the subject underinsured policy was issued and delivered in New Jersey and the vehicle in question was principally garaged and used in New Jersey. Under New Jersey law, underinsured coverage is defined as follows:

e.For the purpose of this section, (1) "underinsured motorist coverage" means insurance for damages because of bodily injury and property damage resulting from an accident arising out of the ownership, maintenance, operation or use of an underinsured motor vehicle. Underinsured motorist coverage shall not apply to an uninsured motor vehicle. A motor vehicle is underinsured when the sum of the limits of liability under all bodily injury and property damage liability bonds and insurance policies available to a person against whom recovery is sought for bodily injury or property damage is, at the time of the accident, less than the applicable limits for underinsured motorist coverage afforded under the motor vehicle insurance policy held by the person seeking that recovery. A motor vehicle shall not be considered an underinsured motor vehicle under this section unless the limits of all bodily injury liability insurance or bonds applicable at the time of the accident have been exhausted by payment of settlements or judgments. The limits of underinsured motorist coverage available to an injured person shall be reduced by the amount he has recovered under all bodily injury liability insurance or bonds . . . .

(N.J.S.A. § 17:28-1.1).

It is well settled that under New Jersey law the fundamental purpose of underinsurance coverage is "to protect the insured up to the UIM [underinsured motorist] limits and not to make an injured person whole again" (Bauter v Hanover Ins. Co., 247 N.J. Super. 94, 96 [1991], cert denied 126 N.J. 335 (1991); accord McShane v New Jersey Mfrs. Ins. Co., 375 N.J. Super. 305, 310 [2005]). As explained cogently by the Superior Court, Appellate Division, in Nikiper v Motor Club of America Cos., 232 N.J. Super. 393, 397-399 [1989], cert denied 117 N.J. 139 [1989]:

The effect of [uninsured motorist coverage (UM) and uninsured motorist coverage (UIM)] is to require the insurer, as a matter of contractual agreement, to pay its insured, to the extent of the coverage purchased, the liability damages which the insured is entitled to from the negligent uninsured or underinsured tortfeasor less, in the case of the underinsured tortfeasor, the amount of the tortfeasor's coverage. The essential distinction between UM and UIM coverage is that if an uninsured tortfeasor is involved, his victim is able to seek initial and primary recourse from his own liability carrier. If an underinsured tortfeasor is involved, however, his victim may not pursue his contractual UIM right against his own liability insurer until he has first recovered the tortfeasor's liability limit by settlement or judgment. That recovery is then offset against the maximum coverage provided for by the policy. Thus, the UIM, but not the UM, coverage has essential attributes of excess, rather than primary [*5]coverage.

* * *

UIM coverage operates as first-party excess coverage as to an underinsured claim. The purpose of the UIM feature is to provide as much coverage as an insured is willing to purchase, up to the available limits, against the risk of an underinsured claim.

* * *

The theory is that there is underinsurance relative to the limits for which the injured party, or her host driver or owner, has contracted for, not that any particular tortfeasor motorist is underinsured.

Therefore, application of the relevant statutory framework relies upon a threshold analysis as to whether all liability coverage available to the motor vehicle tortfeasor is less than the UIM benefits held by the UIM insured (see French v New Jersey Bd. Assn. Ins. Group, 149 N.J. 478, 483 [1997]). "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" (emphasis added) (id.).

Based upon the above-cited case law, and the plain language of the relevant statute itself, the court finds that section 17.28-1.1 (e), creates, in effect, a three-pronged framework for determining the availability of underinsured coverage to a claimant and the applicable limits of same.. First, it must be determined whether the allegedly offending vehicle was underinsured at the time of the accident. Said vehicle will be considered underinsured if "the sum of the limits of liability under all bodily injury and property damage liability bonds and insurance policies available to a person against whom recovery is sought for bodily injury or property damage is, at the time of the accident, less than the applicable limits for underinsured motorist coverage afforded under the motor vehicle insurance policy held by the person seeking that recovery" (section 17:28-1.1[e]). If such threshold test is met, the claimant seeking UIM coverage is not automatically entitled to same. Rather, under the "second prong" of the provision, "[a] motor vehicle shall not be considered an underinsured motor vehicle under this section unless the limits of all bodily liability insurance or bonds applicable at the time of the accident have been exhausted by payment of settlement or judgment" (id.). Accordingly, "[t]he motorist with UIM coverage cannot collect unless his policy limit and, of course, the value of his claim, exceed the limits of bodily injury liability insurance or bonds applicable at the time of the accident and those limits have been exhausted" (Stabile v New Jersey Mfrs. Ins. Co., 263 N.J. Super. 434, 440 [1993][internal quotation marks and citation omitted]). Finally, if the insured has demonstrated the two relevant statutory predicates for underinsured coverage, namely (1) that his or her underinsured coverage is in excess of the tortfeasor's available coverage and (2) that the value of his or her claims exceeds the tortfeasor's available coverage and such coverage has [*6]been exhausted by either settlements or judgments, he or she will be entitled to collect same. The third "prong" of the statute is the determination of the limits of coverage available to the insured. As stated therein, "[t]he limits of underinsured motorist coverage available to a [qualifying] injured person shall be reduced by the amount he has recovered under all bodily liability insurance or bonds" (section 17-28-1.1 [e]).

In the instant case, it is undisputed that the limit of the tortfeasor's available coverage was $50,000.00 and plaintiffs received same in settlement of their claim. It is further undisputed that pursuant to the Allstate policy at issue, the underinsured coverage provided thereunder was $250,000.00, an amount in excess of the tortfeasor's insurance coverage. However, at trial, plaintiffs did not demonstrate that the value of their claim was in excess of the settlement amount or tortfeasor's policy limit. Indeed, the jury awarded plaintiffs $50,000.00, an amount identical to the subject settlement with the tortfeasor.

Accordingly, plaintiffs reliance upon the case Krohn v New Jersey Full Ins. Underwriters Assn, 316 N.J. Super. 477 [1998], is misplaced. In that case, the plaintiff settled one of two automobile cases with the tortfeasor's carrier for the policy limit of $50,000.00. At trial, the jury awarded plaintiff a total of $300,000.00 in damages. Plaintiff's underinsurance coverage was $300,000.00. Judgment was entered against the underinsurance carrier in the amount of $250,000.00, a figure the court arrived at by deducting the $50,000.00 plaintiff had received from the tortfeasor in settlement from the amount of damages found by the jury. Upon appeal, the court, in dicta, addressed the issue of the proper method for determining the available underinsurance policy limits, noting that "[b]ecause of the possibility that [this] issue will recur, we add the following brief comments concerning several of the [underinsured carrier's] contentions (id. at 485). In so doing, the court agreed that the amount of the settlement with the tortfeasor's carrier should have been credited against plaintiff's UIM policy amount, rather than the jury's damages award, in light of section 17:28-1.1e's "crystal clear" mandate that "[t]he limits of underinsured motorist coverage available to an injured person shall be reduced by the amount he has recovered under all bodily liability insurance or bonds" (id.). Accordingly, the court was merely clarifying how the limits of such coverage should be calculated if, upon the ordered re-trial of the matter, plaintiff prevailed and was entitled to underinsurance coverage. Moreover, the underinsured carrier's motivation in raising such issue on appeal is also readily apparent. Given that the jury in the first trial awarded the plaintiff a sizable amount of damages and, upon re-trial, the award potentially could be even higher, it credibly can be inferred that the carrier wanted to insure that its policy limits and potential exposure as a de facto excess carrier were appropriately reduced, as per statute, to reflect the ersatz "primary coverage" already exhausted by the plaintiff's settlement with the tortfeasor's carrier for the policy limits.

Here, plaintiffs are attempting to achieve a double recovery by receiving compensation for their injuries from two separate sources. The only damages amount ever determined in this case is the $50,000.00 jury award. There has never been a determination that the plaintiffs are entitled to $100,000.00 in damages. Nonetheless, plaintiffs seek to [*7]collect $100,000.00: $50,0000.00 from the tortfeasor's carrier (the policy limits) and $50,000.00 from their underinsurance carrier. Plaintiffs, however, never have established an important threshold element to their underinsurance claim; namely, that the value of their claim exceeded the limits of the tortfeasor's bodily injury liability insurance or bonds applicable at the time of the accident (see Stabile, 263 N.J. Super. at 440). Rather, the tortfeasor's policy limits were sufficient to "make them whole" with respect to the adjudicated value of their claim - $50,000.00. It is well settled that "UIM coverage has been described as a gap filler' and likened to first-party excess' insurance" (id. [citations omitted]). In addition, its primary purpose is "to protect the insured up to the UIM limits and not to make an injured person whole again"(Bauter, 247 N.J. Super. at 96). Given the well settled underlying rationale for, and function of, underinsurance coverage pursuant to New Jersey law, this court is hard pressed to find that the relevant statutory framework allows for not only making a plaintiff whole, but for providing him or her with a windfall substantially exceeding the value of his or her claim as determined by a jury. As a result, Allstate is entitled to vacatur of the judgment against it.

Allstate is also entitled to dismissal of the bad faith claim asserted against it by the plaintiffs. Given the court's determination that vacatur of the judgment is warranted, the plaintiffs do not have a cause of action for bad faith (see Peter F. Gaito Architecture, LLC v Simone Development Corp., 46 AD3d 530, 530 [2007]["If the documentary proof disproves an essential allegation of the complaint, dismissal pursuant to CPLR 3211 (a) (7) is warranted even if the allegations, standing alone, could withstand a motion to dismiss for failure to state a cause of action"]). Here, the evidence concerning the relevant insurance policies, claim settlement and amount of damages conclusively disprove the plaintiffs' bad faith claim. An insurance company owes the duty of good faith to its insured in processing a first-party claim and may be liable to a policyholder for its bad faith failure to pay benefits (see Pickett v Lloyd's, 131 N.J. 457, 467 [1993]). However, if a claim is "fairly debatable," bad faith is not established (id. at 473). Here, the plaintiffs' claim for underinsured benefits was not only "fairly debatable," but instead, due to the jury's verdict of $50,000.00, a sum which did not exceed the tortfeasor's tendered policy limits, ultimately untenable. Accordingly, the vacatur of the severance of such claim and its referral to a JHO for hearing is appropriate and the plaintiffs' bad faith shall be dismissed.

As a result, Allstate's motion to vacate the judgment of $50,000 as against it is hereby granted on the ground that said judgment, based upon a jury verdict in the amount of $50,000.00, rendered on or about April 3, 2008 in the instant action, has been satisfied by the plaintiffs' prior settlement of their underlying personal injury and derivative claims with the tortfeasor's carrier, GEICO, for $50,000.00. It is therefore ORDERED that such judgment be vacated by the County Clerk as per this decision and order. In addition, Allstate's motion to vacate the prior order of this court, made on the record before the subject trial commenced, severing the plaintiffs' "bad faith" claim and referring the matter to a JHO for determination is also vacated and said claim is dismissed in its entirety. [*8]

The foregoing constitutes the decision and order of the court,

E N T E R,

J. S. C.