Two New Jersey Supreme Court auto insurance cases to watch in 2021

Two appeals pending before the New Jersey Supreme Court this year concern availability of automobile insurance coverage when the driver is insured under another insurance policy.  The Court’s decisions on these cases are anticipated to provide guidance on Underinsured Motorist (“UIM”) benefits, the validity of certain exclusions and step-down provisions, and the statutory mandatory minimum limits for car dealerships pursuant to N.J.S.A. §39:6B-1 and N.J.A.C. 13:21-15.2. Oral argument in Huggins was held before The Supreme Court of New Jersey on January 20, 2021, a decision is pending.  There is no hearing date set yet for Deras,

Deras v. Hamwi, 2020 WL 634933 (N.J. Super. Ct. App. Div. Feb. 11, 2020), cert. granted, 241 N.J. 516 (2020)

The issue before the Court is whether Allstate properly denied coverage on an exclusion in an auto policy that precluded UIM coverage to a resident relative because the resident relative already recovered UIM benefits as an insured under another policy.

Ms. Ana S. Deras suffered injuries in an automobile accident. At the time of the accident, the vehicle Ms. Deras rode in as a passenger was insured by GEICO. The other vehicle was insured by Plymouth Rock. 

Ms. Deras sought UIM coverage from Allstate, as a resident relative living in the household of her deceased husband’s family. Allstate insured the family’s vehicles. Allstate denied coverage based on an exclusion in its policy, which prohibits coverage for resident relatives who are not occupants of a car insured under the policy, and who are insured under another policy. 

The GEICO policy defined “insured” as “any other person while occupying an owned auto.” As an occupant in the vehicle insured by GEICO at the time of the accident, Ms. Deras qualified as an “insured” under the plain language. Therefore, Allstate denied coverage.

Ms. Deras sued the drivers, GEICO, Plymouth Rock, and Allstate. GEICO and Plymouth Rock settled with Ms. Deras. Allstate filed a motion for summary judgment, seeking dismissal because Ms. Deras was not covered under the policy. Ms. Deras filed a cross-motion for summary judgment, seeking UIM coverage. The trial judge agreed with Allstate, granting Allstate’s motion for summary judgment and denied Ms. Deras’s cross-motion. 

On appeal, the Appellate Division employed the two-step approach outlined in Di Ciurcio v. Liberty Mut. Ins. Co. 299 N.J. Super. 426, 429 (App. Div. 1997). This approach requires that “[f]irst, the court must determine whether a UIM claimant . . . qualifies for UIM benefits,” and then, the court must determine “whether plaintiff is entitled to the benefits of more than one policy in light of the relevant policies’ terms.” Id.  The parties did not dispute the first step – that Ms. Deras was underinsured and qualifies for UIM benefits because the damages associated with Ms. Deras’ injuries were greater than the limits of both the GEICO and the Plymouth Rock policies. As a result, the court turned to the language in Allstate’s policy. 

The court affirmed the trial court’s holding, reasoning that “[t]he plain language of Exclusion C states UIM coverage is not available for any resident relatives who (1) ‘are not occupants of the insured auto described on the Policy Declarations,’ and (2) ‘who are insured under another auto policy.’” Therefore, “[a]bsent a statutory prohibition, Allstate has the right to relieve itself of liability, as in this situation, by imposing conditions prior to assuming an obligation.” The Appellate Division affirmed the trial court’s decision to grant summary judgment noting that Plaintiff’s coverage under the GEICO policy prohibited coverage under Allstate’s policy as it triggered the Exclusion, as indicated by Allstate. 

Tyrone A. Huggins v. Mary E. Aquilar, cert. granted 242 N.J. 512 (2020)

The issue before the Court is whether a policy issued by the Federal Insurance Company (“Federal”) contains a permissible step-down provision or an unlawful escape clause. The policy provides coverage in the minimum amount required by law only if the driver of the vehicle has no other coverage or if the driver has coverage in an amount less than the statutory minimum.

Plaintiff Huggins was injured when his vehicle was struck by Aguilar, who was operating a loaner vehicle owned by her car dealer, Trend Motors. Aguilar had insurance with statutory minimum limits for autos of $15,000. Huggins pursued coverage for his injuries via the UIM coverage in his automobile policy with NJM. NJM denied coverage contending that Trend Motors’ insurance with FIT should provide coverage.  Federal denied coverage based on the step-down provision in its policy because Aguilar had coverage for the statutory minimum.[1] 

The trial court granted NJM’s motion for summary judgment and denied Federal’s motion for summary judgment. On appeal, the Appellate Division affirmed the trial court’s decision, finding the step-down provision in the Federal Policy constituted an impermissible escape clause because “[i]nstead of creating different limits of insurance for the different class of potential drivers, Federal’s policy entirely eliminates a collection of drivers from coverage.”  Federal filed a Petition for Certification, which the Supreme Court of New Jersey granted.

On January 20, 2021, the Supreme Court of New Jersey heard oral argument. At the argument, counsel for Federal urged the Court to follow its ruling in Aubrey v. Harleysville Ins. Cos., 140 N.J. 397 (1995), in which the Court found the step-down provision in the policy at issue was valid and enforceable.  

In the alternative, at oral argument, Federal took the position that if the step-down provision is determined to be invalid and stricken from the policy, the trial court incorrectly applied the $1 million limit. Federal contends that the Court should reform the policy to apply the statutory minimum limits, which Federal contends should be $15,000 pursuant to N.J.S.A §39:6B-1 and not $100,000 pursuant to N.J.A.C. 13:21-15.2.                          

Federal takes the position that the Motor Vehicle Commission did not have the authority to increase the mandatory statutory minimum in N.J.A.C. 13:21-15.2(l) from $15,000 to $100,000 for auto dealers. Rather, Federal contends that only the Department of Banking and Insurance can promulgate such limits and, therefore, the proper minimum limits are $15,000. 

At oral argument, NJM countered this argument, stating that the Motor Vehicle Commission has the authority to implement higher statutory minimums for dealers. NJM asserted that the $15,000 statutory mandatory minimum was the floor, not the ceiling, as indicated by the higher mandatory minimums on certain types of vehicles driven in the State.

Comment

It is anticipated that the Supreme Court of New Jersey’s decision in Deras, will provide guidance to the automobile industry regarding the validity of certain exclusions and the scope of UIM benefits.  Similarly, it is anticipated that the Supreme Court’s decision in Huggins, will provide guidance on the validity of step down provisions in garage policies where a class of drivers have other insurance that exceeds the statutory minimum and whether the Motor Vehicle Commission had the authority to increase the mandatory statutory minimum for auto dealerships from $15,000 to $100,000 in promulgating N.J.A.C. 13:21-15.2(l).

[1] Under New Jersey’s Financial Responsibility Laws, an individual like Aguilar is only required to have a statutory minimum of $15,000.  N.J.S.A §39:6B-1. Maintenance of motor vehicle liability insurance coverage. Car dealers such as Trend Motors are required to have a statutory minimum limits of $100,000. N.J.A.C. 13:21-15.2.  The Federal Auto Policy issued to Trend Motors had liability limits of $1 million.