Opinion
DOCKET NO. A-3680-13T4
09-19-2016
ROBERT FERRANTE, Plaintiff-Appellant/Cross-Respondent, v. NEW JERSEY MANUFACTURERS INSURANCE GROUP, Defendant-Respondent/Cross-Appellant.
Joseph P. Grimes argued the cause for appellant/cross-respondent (Grimes & Grimes, L.L.C., attorneys; Mr. Grimes, on the brief). Anthony Young argued the cause for respondent/cross-appellant (Parker Young & Antinoff, L.L.C., attorneys; Mr. Young, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Sabatino, Accurso and O'Connor (Judge Accurso dissenting). On appeal from Superior Court of New Jersey, Law Division, Salem County, Docket No. L-252-12. Joseph P. Grimes argued the cause for appellant/cross-respondent (Grimes & Grimes, L.L.C., attorneys; Mr. Grimes, on the brief). Anthony Young argued the cause for respondent/cross-appellant (Parker Young & Antinoff, L.L.C., attorneys; Mr. Young, on the brief). PER CURIAM
Plaintiff Robert Ferrante appeals the dismissal of his complaint that sought to compel defendant New Jersey Manufacturers Insurance Group ("NJM") to appoint an arbitrator and proceed to underinsured motorist ("UIM") arbitration. After carefully reviewing the record and applicable legal principles, we remand this matter for further proceedings consistent with this opinion. We also dismiss NJM's cross-appeal, which sought the amendment of an order entered by the trial court.
I
In October 2006, plaintiff was injured when his car was struck by a car driven by a party who, for simplicity, we refer to as the tortfeasor. It is not disputed the tortfeasor was at fault for the collision. At the time of the accident, the tortfeasor was insured under a policy issued by Allstate Insurance Company with liability limits of $100,000/$300,000. Also at that time, plaintiff and his spouse had a NJM policy that provided UIM coverage with a combined single limit of $300,000.
We were advised during oral argument plaintiff had a standard automobile policy.
In October 2008, plaintiff and his spouse filed a complaint against the tortfeasor for the injuries he suffered and the damages she sustained per quod. In May 2010, the parties participated in mandatory arbitration conducted pursuant to Rule 4:21A-1(a)(1). Although both parties asserted the arbitrator awarded plaintiff $90,000 for his injuries and $10,000 to his spouse on her consortium claim, the arbitrator's decision indicates plaintiff received $90,000 and an award of "$10,000 for wage loss and unpaid medicals." It is unclear to whom the latter amount was awarded. Presumably, the $10,000 was awarded to plaintiff, but the parties and the trial court apparently concluded the $10,000 was awarded to plaintiff's spouse. In any event, the tortfeasor rejected the arbitration award and filed for a trial de novo. See R. 4:21A-6(b)(1).
In August 2010, plaintiff and his wife rejected the tortfeasor's offer to settle the case for $50,000, but just before trial on January 10, 2011, agreed to the tortfeasor's suggestion the parties enter into a high-low agreement, with a floor of $25,000 and a ceiling of $100,000 for both plaintiff and his spouse collectively. Plaintiff was amenable to the high-low agreement because he had determined the tortfeasor was assetless or "judgment proof," and reasoned the most he could realistically recover from the tortfeasor was the limit of his $100,000 liability policy. However, the fact plaintiff was willing to cap the high-low agreement at $100,000 was not an admission that he believed the value of his damages was limited to $100,000. As plaintiff's counsel stated during oral argument before the trial court about his client's decision to enter into the high-low agreement:
"A high-low agreement is a device used in negligence cases in which a defendant agrees to pay plaintiff a minimum recovery in return for plaintiff's agreement to accept a maximum sum regardless of the outcome of the trial. Any outcome between the agreed limits is to be accepted by the parties." Benz v. Pires, 269 N.J. Super. 574, 578-79 (App. Div. 1994) (citing Shafer v. Cronk, 220 N.J. Super. 518, 519 n.1 (Law Div. 1987)).
The [high-low agreement] is not a stipulation that says "We agree that our — that the value of damages is only $100,000." The stipulation is that in the event there is a verdict in excess of $100,000, we accept — we agree to accept the tortfeasor's policy limits for the same reason that [NJM] waived subrogation, because the — [one], the likelihood of collecting, chasing an underinsured person is slim; and two, that's why we have underinsured motorist coverage.
As liability was not in dispute, the issues at trial were limited to damages, although plaintiff's automobile insurance policy contained a verbal threshold provision, which necessitated he prove he had sustained a permanent injury to a body part or organ as a result of the accident. See N.J.S.A. 39:6A-8(a). On January 11, 2011, the jury found in plaintiff's favor on this latter issue and awarded him $200,000 in damages. His spouse was awarded $50,000 in damages on her per quod claim.
On January 12, 2011, plaintiff's counsel faxed a letter to NJM notifying it for the first time about plaintiff's lawsuit against the tortfeasor and that he was seeking UIM benefits. Plaintiff's spouse did not seek UIM benefits. The letter indicated that the "date of loss" was October 2, 2006, the date of the accident. Plaintiff's counsel advised that the tortfeasor's carrier was willing to tender the tortfeasor's policy of $100,000 to him in exchange for the execution of a release in the tortfeasor's favor. Plaintiff's counsel requested NJM's consent to settle the matter and permit his client to execute the release.
Plaintiff's counsel also provided some limited information about the tortfeasor to facilitate NJM's search of the tortfeasor's assets. Finally, he demanded UIM arbitration and indicated he would advise of his selection of an arbitrator and send copies of plaintiff's medical package. Plaintiff's counsel did not advise NJM that the matter had been tried to a conclusion or of the high-low agreement.
Within two weeks, NJM forwarded a letter to plaintiff's counsel, in which it did not voice any complaint that it had been deprived of an opportunity to intervene in the underlying matter. In fact, NJM advised it had completed an assets investigation of the tortfeasor, authorized plaintiff to accept the tortfeasor's settlement offer "as NJM will waive subrogation rights in this matter," and requested that he forward to NJM a copy of the executed release. NJM also requested information concerning plaintiff's injuries.
Thereafter, discovery pertaining to the UIM matter progressed between the parties. However, because NJM failed to appoint an arbitrator, plaintiff filed a complaint in the Law Division seeking the entry of a declaratory judgment compelling NJM to appoint an arbitrator and proceed to arbitration or, in the alternative, award plaintiff damages in the amount of $200,000.
Although the UIM policy limit was $300,000, because plaintiff received $100,000 from the tortfeasor, he sought a total of $200,000 from NJM.
Just before trial in the UIM case, the parties filed Pretrial Information Exchanges pursuant to Rule 4:25-7(b). In its submission, NJM included a motion in limine in which it noted plaintiff had not advised it of any potential UIM claim at a time when NJM could have intervened and participated in the underlying automobile negligence action. However, NJM did not articulate that it had been prejudiced as a result of plaintiff's omission. In fact, NJM merely requested that the court find plaintiff was limited to recovering, at most, $50,000 from his UIM policy, because "[j]udgment has already been rendered in this case in the amount of $250,000, and [thus] the only remaining policy limits for the plaintiff to recover in this case is $50,000 since [NJM] would get credit [out of its $300,000 policy] for the amount of the Judgment."
For reasons not pertinent here, the UIM trial was adjourned several weeks and, in the interim, NJM amended its motion to alter the relief it was seeking. Specifically, NJM reported it had recently learned of the high-low agreement between plaintiff and the tortfeasor, and claimed plaintiff's counsel had stipulated on the record in the underlying action that the maximum value of plaintiff's case was $100,000. NJM argued that because plaintiff had already received what he deemed was the full value of the case from the tortfeasor's liability policy, plaintiff was barred from recovering any UIM benefits, warranting the dismissal of his complaint.
NJM did not append a copy of a transcript of the proceeding in which plaintiff's counsel allegedly represented the value of the case was $100,000.
NJM again mentioned plaintiff had failed to notify it of any potential UIM claim until after the verdict in the automobile negligence action, but it did not assert it had been prejudiced by or was seeking any remedy as a result of plaintiff's omission. Rather, NJM's contention was that plaintiff had stipulated the maximum value of his case was $100,000, and thus was not entitled to UIM benefits.
During oral argument on the motion, NJM contended it was prejudiced, but the basis for its argument was that, by entering into the high-low agreement, plaintiff "waived any excess verdict, and . . . surprised he got an excess verdict, '[determined] to go back, [and] hit the UIM carrier.' Certainly we'd be prejudiced by that." In other words, NJM did not assert it was prejudiced because of plaintiff's failure to provide it with a timely Longworth notice. NJM argued it was prejudiced because plaintiff was seeking UIM benefits when, according to NJM, he had waived those benefits by entering into the high-low agreement.
In a written response to the motion, plaintiff's counsel certified his client had agreed to a ceiling of $100,000 in the high-low agreement, but for the reason such sum matched the tortfeasor's policy limit. As previously mentioned, during oral argument on the motion, plaintiff's counsel represented there was never any agreement or stipulation that the actual value of plaintiff's damages was limited to $100,000. Plaintiff's counsel further argued that even if his client had failed to provide timely notice of the underlying action to NJM, there was no evidence NJM had been prejudiced by that delay.
The trial court granted NJM's motion and dismissed the complaint. The court found the "Longworth notice" plaintiff provided to NJM regarding the underlying action was both untimely and deficient under the standards set forth in Longworth v. Van Houten, 223 N.J. Super. 174, 193-94 (App. Div. 1988). But the court granted NJM's motion for the reason plaintiff waived his right to any UIM benefits above $100,000 when he entered into the high-low agreement. The court stated:
[After the verdict], a Longworth notice [was] sent to the UIM carrier, giving the UIM carrier first notice of the UIM claim, and that's about a week after the verdict. But the notice doesn't say anything about the . . . the verdict or the high-low that was rendered. So it was an obviously incomplete, grossly incomplete notice that was given. It didn't fairly put the UIM carrier on notice of what had happened.
It strikes me as being woefully deficient in that regard, to put the carrier, the UIM carrier on notice that you are asserting a Longworth claim in a case where the case had already gone — the underlying case had already gone to trial and you had a verdict, and a molded verdict is put into place pursuant to a high-low agreement . . . .
I don't think it's fair; I don't think it's appropriate to give that type of incomplete notice to the UIM carrier and not tell them, "Oh, by the way, we've already gone to trial and got our verdict, and then it was molded in accordance with a high-low agreement that we entered into."
More importantly, more fundamentally, I believe and find and hold that by entering into the high-low agreement, [plaintiff] waived any claims above the high. You didn't have a claim for UIM at that point. You're bound by the high-low. That the effect of the high-low agreement is that the plaintiff waived any claims above the high of $100,000, and therefore you don't have a valid UIM claim against NJM at that point. That's the whole purpose of a high-low.
Particularly in circumstances where the UIM carrier is not being [in] on the agreement as that high-low is being reached . . . . You're bound by [the high-low agreement]. It waives the claims against — above and beyond 100,000. I don't think there's a viable claim for UIM coverage under these circumstances.
Summary judgment is granted to NJM, dismissing plaintiff's UIM claims in their entirety.
Despite its ruling, the court signed the form of order NJM had submitted when it initially filed its motion in limine and was seeking other relief. The order states "the only underinsured motorist limits available to the plaintiff is $50,000, and as such since this amount has already been offered to the plaintiff, it is Ordered that the trial in this case be hereby dismissed with prejudice[.]" The court later realized it had signed the wrong form of order, but declined to correct the order because plaintiff had filed a notice of appeal and the court assumed it no longer possessed jurisdiction over the matter.
II
On appeal, plaintiff's principal argument is that the high-low agreement did not affect, let alone preclude, his right to UIM benefits. He further contends NJM waived the defense that plaintiff had failed to provide a timely Longworth notice, as evidenced by NJM relinquishing its subrogation rights within weeks of receiving notice of the action against the tortfeasor and by failing to assert this defense during discovery on the UIM matter.
Plaintiff also maintains that even if NJM had not waived this defense, he had not been afforded, as required by the case law, an opportunity to show NJM was not prejudiced by his omission. He further points out that because the tortfeasor was assetless, it is unlikely NJM would have bothered to have brought a subrogation action against that party.
Plaintiff indicated that because NJM did not have notice of the underlying action before that matter was resolved, he did not seek to bind NJM to the jury's finding that his damages are worth $250,000. See Vaccaro v. Pennsylvania Nat. Mut. Cas. Ins. Co., 349 N.J. Super. 133, 143 (App. Div.), certif. denied, 174 N.J. 40 (2002).
NJM cross-appeals, claiming the form of order the trial court entered did not accurately reflect its rulings on NJM's motion in limine. NJM requests we amend the order to reflect that summary judgment was entered in NJM's favor and the complaint was dismissed.
In response to plaintiff's arguments on appeal, NJM contends that by entering into the high-low agreement, plaintiff waived his right to seek additional damages above $100,000 and thus has no right to UIM benefits. NJM also argues plaintiff is not entitled to UIM benefits because he failed to provide it with a timely Longworth notice.
First, we disagree with the trial court's holding that the high-low agreement constituted plaintiff's admission the value of his case did not exceed $100,000 and thus barred him from benefits under his UIM policy. A high-low agreement is a contract, see Malick v. Seaview Lincoln Mercury, 398 N.J. Super. 182, 186-87 (App. Div. 2008), that is merely a form of settlement, albeit one that is partial or contingent in nature. Our courts have long recognized that public policy generally favors settlement. See, e.g., Brundage v. Estate of Carambio, 195 N.J. 575, 601 (2008); Cap City Prods. Co. v. Louriero, 332 N.J. Super. 499, 508 (App. Div. 2000).
Parties enter high-low agreements to protect themselves against verdicts - which generally cannot be predicted to a certainty - that may be unduly harmful. "A high[-]low agreement protects a plaintiff from the danger of receiving less than the floor amount and protects a defendant from exposure to a judgment higher than the agreed ceiling." Benz v. Pires, 269 N.J. Super. 574, 579 (App. Div. 1994). There is no authority supporting the premise that the floor or ceiling amounts in a high-low agreement represent or are an admission of a party's opinion of the value of a case. To the contrary, these agreements are used to insulate a party from a jury's assessment - regarded as the "gold-standard" - of what a case is worth.
Here, there is no evidence plaintiff or his counsel stipulated that the actual value of plaintiff's damages did not exceed $100,000, or that plaintiff agreed to waive his right to UIM benefits by entering into the agreement. Plaintiff was willing to cap the ceiling of the high-low agreement at $100,000 because that was the limit of the tortfeasor's liability policy and plaintiff had determined the tortfeasor was assetless.
The agreement also guaranteed plaintiff would recover at least a modest sum if the jury rejected his claim he had sustained a permanent injury. As for the tortfeasor, the high-low agreement protected him against a verdict greater than his policy limits. There is nothing about the terms of the agreement that constituted an admission of the value of plaintiff's damages or can be construed to mean plaintiff waived his right to pursue UIM benefits if the verdict exceeded $100,000. The agreement was a symbiotic one — it advanced each party's interests, and did not in any way impair plaintiff's right to pursue the UIM benefits to which he was entitled.
On the question of whether plaintiff lost his UIM benefits because of his failure to provide timely Longworth notice to NJM before the underlying matter concluded, we determine the answer lies in whether NJM was prejudiced by that particular omission. In Longworth, we required that:
an insured receiving an acceptable settlement offer from the tortfeasor should notify his UIM carrier. The carrier may then promptly offer its insured that sum in exchange for assignment to it by the insured of the claim against the tortfeasor. While promptness is to be ultimately determined by the circumstances, 30 days should be regarded as the presumptive time period if the insured notices his carrier prior to assignment of a trial date. In any event, an insured who has not received a response from his carrier and who is in doubt as to whether acceptance of the tortfeasor's offer will impair his UIM rights may seek an immediate declaratory ruling from the trial court on order to show cause on such notice as is consistent with the circumstances. We further hold that UIM carriers may, if they choose, honor demands from their insureds to proceed to arbitration of the UIM claim prior to disposition of the claim against the tortfeasor.
[Longworth, supra, 223 N.J. Super. at 194-95.]
Our Supreme Court has endorsed this approach, elaborating that there are in fact three notices an insured must give to an insurer in such circumstances. Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163, 174 (1995). First, the insured must alert the insurer when he commences a legal action against a tortfeasor. Ibid. Second, the insured must advise the insurer when he determines the tortfeasor's insurance coverage is insufficient to cover his damages. Ibid. Third, the insured must notify the insurer of any settlement offer or arbitration award that does not satisfy the insured's damages. Id. at 174-75. It is the third procedure that constitutes the Longworth notice. Ibid.
In Vassas, defendant Vassas, who was UIM insured, suffered injuries in an automobile accident. Id. at 166. Vassas filed suit against the driver in the other car ("driver"), an underinsured motorist. Ibid. Vassas did not advise his UIM carrier, plaintiff Rutgers Casualty Insurance Company ("Rutgers"), of his personal injury lawsuit until after the lawsuit had been resolved. Ibid. Specifically, fifteen months after Vassas received an arbitration award of $15,000, which was the driver's policy limit, and provided to the driver an executed satisfaction of judgment, Vassas notified Rutgers it was asserting a claim against it for UIM benefits. Id. at 169.
The award was received following an arbitration hearing conducted pursuant to Rule 4:21A-1(a)(1). Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163, 166 (1995).
Our Supreme Court found Rutgers had been prejudiced by Vassas's failure to provide a timely Longworth notice. Id. at 169-70. By the time Rutgers received notice of the underlying action, it was precluded from pursuing a subrogation claim against the driver, not to mention the satisfaction of judgment Vassas provided to the driver released him of any liability. Id. at 170. Thus, Rutgers was released of its obligation to provide UIM benefits to Vassas under his policy. Ibid.
However, unlike in Vassas, where the insured did not challenge his UIM carrier's claim that it had been prejudiced by his failure to abide by the notification provisions of Longworth, plaintiff does assert and there is evidence NJM was not prejudiced. After plaintiff notified NJM in 2011 of the underlying lawsuit and date of the accident (which was in 2006), and provided NJM with the information necessary to conduct an asset investigation, NJM advised plaintiff that it was waiving its subrogation rights; NJM then exchanged discovery in connection with plaintiff's claim for UIM benefits. Plaintiff contends that because the tortfeasor had no assets, NJM declined to and never would have pursued a subrogation action against him, even if an action against the tortfeasor were not time-barred.
A UIM claimant's failure to timely provide the requisite Longworth notice to a UIM carrier is not necessarily fatal to recovering UIM benefits. See CNA Ins. Cos. v. Cave, 332 N.J. Super. 185, 190-91 (App. Div.), certif. denied, 165 N.J. 678 (2000) (holding that "settling a case in violation of Longworth and Vassas is not a per se bar to UIM coverage. . . . [A UIM carrier] is entitled to protection against any prejudice it reasonably may have suffered as a result of [an insured's] unauthorized settlement with [an alleged tortfeasor, but a UIM carrier] is not, however, entitled to a windfall."); see also Green v. Selective Ins. Co. of Am., 144 N.J. 344, 355-56 (1996) (where there was a seven-year delay between the date of the accident and the insured's claim for UIM benefits, the question whether the UIM carrier "suffered prejudice on account of [the] late notice must be determined by the trial court on a fuller assessment of the record.").
Thus, merely because the time within which a UIM carrier must file a subrogation action expired, or was otherwise extinguished by an insured's actions, does not mean a UIM carrier has been prejudiced and, thus, excused from providing UIM benefits to its insured.
In Rivers v. Allstate Ins. Co., the plaintiff was an insured under a policy issued by the Allstate Insurance Company ("Allstate") that provided to her $100,000/$300,000 in UIM benefits. Rivers v. Allstate Ins. Co., 312 N.J. Super. 379, 384 (App. Div. 1998). The plaintiff was involved in a car accident, in which the tortfeasor-driver's liability insurance policy had bodily injury limits of $15,000/$30,000. Id. at 380-81. The plaintiff sued the driver and, before that matter settled, forwarded a letter to Allstate which the plaintiff asserted contained the appropriate Longworth notice. Id. at 381. Allstate did not respond to her letter, and the plaintiff and the driver then settled; the plaintiff provided to the driver an executed general release in his favor. Ibid.
Thereafter, the plaintiff sent another letter to Allstate which she also claimed was a Longworth letter. Ibid. Allstate denied benefits because the plaintiff had given a general release to the driver, claiming she had "irrevocably nullified [Allstate's] subrogation rights" before the plaintiff provided to Allstate a proper Longworth letter. Id. at 381-82.
The plaintiff filed a complaint and order to show cause against Allstate seeking a declaration of coverage for her UIM claim. Id. at 382. The trial court found that the second purported Longworth letter, which plaintiff had sent after settling with the driver, contained a proper Longworth notice. Ibid. However, because the first letter did not comport with Longworth, the trial court granted Allstate summary judgment and dismissed the plaintiff's complaint. Ibid.
We affirmed, finding Allstate properly responded to the second letter and the insured failed to show Allstate had not been prejudiced by her failure to send the appropriate Longworth notice to the carrier before she had settled with the tortfeasor. Id. at 382-84. We stated, "an insured [is entitled to] relief if the insured [is] capable of proving 'a lack of prejudice' to the insurer, even though the insurer's subrogation right had been extinguished by the release." Id. at 385 (citing Breitenbach v. Motor Club of Am. Ins. Co., 295 N.J. Super. 328, 334 (App. Div. 1996)). We further commented:
Presumably this means, by way of example, if an insured can demonstrate that the underinsured tortfeasor is assetless, and that it is improbable that an insurer would choose to subrogate against the tortfeasor, UIM benefits should not be withheld from the insured. This is another way of saying that the insured's breach of the contract was not material under the circumstances.
We do not read the Supreme Court's opinion in Vassas to create a bright-line rule that the insured's failure to protect the insurer's right of subrogation amounts to prejudice per se, sufficient under all circumstances to deny the insured UIM benefits and excuse the insurer from its coverage obligation.
. . . .
The Breitenbach court gave an insured the opportunity to prove that his premature release of the insurer's subrogation rights caused the insurer no damage. That issue simply was not raised in Vassas, where the insured apparently did not contend that the tortfeasor's financial condition rendered subrogation worthless. See also Green v. Selective Ins. Co. of Am., 144 N.J. 344, 356, 676 A.2d 1074 (1996) (emphasizing that in Vassas, the insured had "unfairly prejudiced Rutgers's subrogation rights"). The plaintiff in this case, although relying on the holding in Breitenbach, has simply
failed to advance any facts demonstrating a lack of prejudice to Allstate.
[Rivers, supra, 312 N.J. Super. 385-86].
To be sure, the burden is on the insured to prove that its actions or inactions did not prejudice the insurer. Nonetheless, an insured must be accorded relief "if the insured [is] capable of proving a lack of prejudice to the insurer, even though the insurer's subrogation right had been extinguished by the release." Id. at 385 (internal quotation marks omitted).
Here, because the trial court disposed of this matter on the basis the high-low agreement barred plaintiff from recovering UIM benefits, the court did not address plaintiff's assertion that he should be allowed to show NJM had not been prejudiced by his omissions. Under the circumstances, we are constrained to remand this matter back to the trial court to enable plaintiff to demonstrate NJM was not prejudiced by his failure to timely provide a Longworth notice and to permit NJM to respond, accordingly.
We emphasize our decision should not be interpreted to mean that we in any way condone plaintiff's failure to provide a timely Longworth notice to NJM. Plaintiff's failure to give NJM timely notice (and subsequent misreporting to NJM of what had occurred in the suit against the tortfeasor) is certainly troubling. As the dissent emphasizes, the failure to give notice here appears to have been "deliberate." Even so, the Supreme Court has yet to hold that a purposeful state of mind of an insured (or the insured's attorney) in failing to give a UIM carrier timely notice requires forfeiture of the insured's contractual benefits to UIM coverage.
There may well be substantial policy reasons to inject such a state-of-mind element into the UIM coverage analysis. After all, the law generally strives to promote conduct that is forthright and considerate of the interests of others. "[E]very contract in New Jersey contains an implied covenant of good faith and fair dealing." Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396, 420 (1997) (citations omitted). In accordance with those principles, perhaps there should be a "good faith" obligation clearly imposed on all insureds with respect to their duty to provide their UIM carriers with timely notice.
On the other hand, the adoption of a subjective "good faith" standard as a pivotal test could have offsetting disadvantages. For example, it might spawn frequent collateral proceedings to explore whether a particular insured's failure of notice was deliberate or merely an oversight. In addition, it is conceivable that intermediate sanctions short of total forfeiture of UIM coverage might adequately discourage an insured's intentional noncompliance with the duty to provide notice. Given the constraints of the record and the briefs submitted to us, we are not in an optimal position to evaluate the range of such remedial possibilities.
As a separate point of concern, the dissent appears to assume that NJM was materially prejudiced by plaintiff's lack of notice. Although the cases do rightly stress the importance of timely notice, as addressed above, settling a case in violation of Longworth and Vassas is not a per se bar to UIM coverage. See CNA Ins. Cos. v. Cave, supra, 332 N.J. Super. at 190-91. The decisional law has not thus far categorically declared that all deprivations of a UIM insurer's opportunity to intervene and assume the defense of the underlying lawsuit are so inherently prejudicial as to require forfeiture of coverage whenever timely notice has not been provided. Perhaps that should be the governing rule of law, but so far that has not been clearly articulated.
Other variations of a rule might be preferable. As just one example, perhaps the lack of notice in time for a UIM carrier's intervention ought to trigger a rebuttable presumption of prejudice, which the insured would have the burden of overcoming. Indeed, the case law is consistent with recognizing such a presumption, placing the onus on an insured to show that the UIM insurer was not prejudiced by the lack of timely notice. Although the cases do not describe this approach as involving a presumption, that appears to be what they entail.
These important and complex issues are best reserved for the Supreme Court to address and resolve. In the meantime, in the absence of precedent treating deliberate failures of notice as a dispositive basis to forfeit coverage, or treating such failures as per se intolerably prejudicial to the interests of UIM carriers, the appropriate disposition is to remand this matter and develop this record further on the question of prejudice. On remand, the trial court shall consider whether plaintiff's failure of notice actually harmed NJM to such a degree that forfeiture of UIM coverage is the most appropriate remedy.
We dismiss the cross-appeal. Whether the subject order accurately reflects the trial court's decision on the motion in limine is not properly before us, because the trial court has not yet addressed this issue. However, we note that the trial court has the authority to correct the order under Rule 1:13-1, which provides that an order can be corrected at any time, notwithstanding the pendency of an appeal.
The appeal is remanded for proceedings consistent with this opinion. The cross-appeal is dismissed. We do not retain jurisdiction. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION ACCURSO, J.A.D., dissenting.
The majority views this case as one involving a garden variety sort of Longworth violation, as in Cave or Green in which, because of the exigencies of the third-party tort action, the plaintiffs' attorneys failed to give the UIM carrier timely notice of a settlement with the tortfeasor. A plaintiff's entitlement to UIM benefits in such a case turns, in accordance with established rule, on whether the UIM carrier has suffered any actual prejudice by the late notice. See Tonic v. Am. Cas. Co., 413 N.J. Super. 458, 475 (App. Div. 2010).
I do not see this case that way. Instead, I see it as one in which plaintiff, without justification or excuse, failed to give any notice to his UIM carrier of his suit against the tortfeasor until after entry of the jury's verdict and, even then, misrepresented the status of the matter. Because the UIM carrier's rights to subrogation and intervention were irretrievably lost before its first notice of the claim, I believe this case is squarely controlled by the holding in Vassas, and thus I respectfully dissent.
The accident at the heart of this case happened on October 2, 2006. Plaintiff filed suit against the tortfeasor on October 1, 2008, the day before the statute ran. He did not provide NJM notice of his lawsuit as required by Vassas. See 139 N.J. at 174 ("when an insured under an automobile insurance policy providing UIM benefits is involved in an accident and undertakes legal action against the tortfeasor, the insured must notify the UIM insurer of that action") (emphasis in original).
Plaintiff's insurance policy presumably also requires such notice. We, however, have not been provided with anything more than the declarations page of the policy. Notwithstanding the standard nature of a typical UIM endorsement, without the policy, no definitive statement about any of its provisions is possible.
The parties to the tort case participated in mandatory arbitration on May 19, 2010. The tortfeasor stipulated to liability, and the arbitrators awarded plaintiff the tortfeasor's $100,000 policy limit. The tortfeasor's carrier filed a demand for trial de novo on June 3, 2010. On August 26, 2010, over four months before trial in that action, plaintiff rejected the tortfeasor's offer of $50,000 to settle the case and advised he had not yet determined whether to accept the "high-low proposal of $25,000 - $100,000." Just before trial, plaintiff accepted the tortfeasor's offer to try the case with the high-low agreement, again without any notice to NJM, the UIM carrier.
I am not as convinced as the majority that "[p]laintiff was amenable to the high-low agreement because he had determined the tortfeasor was assetless...." Post at 3. Other statements at oral argument could be read to suggest plaintiff did not "realize he had a potential UIM case at the time of trial" and entered into the high-low based on his assessment of the likelihood of a verdict in excess of $100,000 and "the probabilities of trying verbal cases where 9 out of 10 are lost."
After the verdict came in at $250,000, the trial court did not enter judgment for plaintiff on a molded verdict as is typically the case. See, e.g., Malick, supra, 398 N.J. Super. at 190-91. Instead, the court entered its own order setting forth the jury's verdict and marking the matter settled based on "the parties having agreed to settle all claims in the amount of $100,000." In his brief, plaintiff explains that, "[i]n light of the settlement, plaintiff through counsel sent a standard 'Longworth' letter" to NJM's counsel.
I do not view the trial judge's decision to enter an order marking the case settled, as opposed to entering judgment on a molded verdict, as providing plaintiff an opportunity to send a "Longworth letter" post-judgment, as if the jury verdict had never happened. The command of Vassas could not be clearer: "[W]hen an insured under an automobile insurance policy providing UIM benefits is involved in an accident and undertakes legal action against the tortfeasor, the insured must notify the UIM insurer of that action. If, during the pendency of the claim, the tortfeasor's insurance coverage proves insufficient to satisfy the insured's damages, then the insured should again notify the UIM insurer of that fact." Vassas, supra, 139 N.J. at 174 (emphasis in original). Finally, upon receipt of a settlement offer or arbitration award that does not completely satisfy the claim because of the limits of the tortfeasor's policy, the insured must advise the UIM carrier of his intent to accept the settlement and allow the carrier an opportunity to act to protect its rights of subrogation and intervention. See id. at 174-75; see also Zirger v. General Accident Ins. Co., 144 N.J. 327, 340-42 (1996).
Plaintiff did none of these things. Instead, he failed to provide any notice to the carrier of a potential UIM claim until after entry of a jury verdict over the tortfeasor's policy limits. Plaintiff then misrepresented to his UIM carrier that the tortfeasor's carrier had "tendered policy limits" in the apparent hope that the carrier would waive its subrogation rights, allowing him to pursue a UIM claim he had never before asserted.
Plaintiff offered two reasons for "elect[ing] not to invite his insurance carrier to participate in the underlying tortfeasor litigation under Zirger." First,
because, based upon the professional judgment of counsel, plaintiff would likely have additional damages in the form of lost wages and possible additional surgeries including potential knee replacement, not available to be presented at trial in January, 2011 and should therefore utilize all available time under the six (6) year contract statute of limitations to determine his ultimate medical condition.Elsewhere, plaintiff claims no notice was required in advance of trial because his "UIM claim had not yet accrued given that the tortfeasor's policy limits had yet to be exhausted."
The Longworth procedure our Supreme Court adopted in Vassas does not allow an insured to "elect" not to provide notice to his UIM carrier of his suit against the tortfeasor. See Vassas, supra, 139 N.J. at 174. Plaintiff is also incorrect as to when his UIM claim accrued. It has been the law of this State for twenty years "that UM/UIM claims specifically 'arise at the time of the accident.'" James v. N.J. Mfrs. Ins. Co., 216 N.J. 552, 571 (2014) (quoting Green, supra, 144 N.J. at 353). I note in that regard that plaintiff states he filed his complaint against NJM for UIM benefits on October 2, 2012, the sixth anniversary of the accident. Although NJM included among its affirmative defenses that plaintiff's claim was time barred, it apparently determined the claim was timely or elected not to pursue the time bar. Either way, the issue is not before us.
Those subrogation rights, of course, had already been extinguished by the jury's verdict. The other options that should have been available to the UIM carrier under Zirger upon receipt of a Longworth letter — paying plaintiff the sum offered by the tortfeasor's carrier and intervening as a defendant in the third-party action in order to limit its UIM exposure, or arbitrating the UIM claim and taking over prosecution of plaintiff's claim against the tortfeasor to preserve its subrogation rights — had also already been foreclosed by entry of a damages verdict in the third-party action. Zirger, supra, 144 N.J. at 341; see also Connelly v. McVeigh, 374 N.J. Super. 159, 163 n.3, 166, 167-71 (App. Div. 2005).
Having reviewed the transcript of the oral argument, I cannot agree with the majority's statement that the UIM carrier did not argue it was prejudiced by its insured's failure to give notice under Zirger. Post at 6.
In my view, plaintiff's complete disregard of his obligations under Longworth, Vassas and Zirger constitutes a material breach of his contractual obligations under his insurance policy, resulting in appreciable prejudice in the form of the irretrievable loss of the carrier's subrogation rights and its opportunity to intervene in the underlying tort action. See Vassas, supra, 139 N.J. at 174-76; cf. Cooper v. Government Employees Insurance Co., 51 N.J. 86, 93-95 (1968); Hager v. Gonsalves, 398 N.J. Super. 529, 534-38 (App. Div.), certif. denied sub nom. High Point Ins. Co. v. Rutgers Cas. Ins. Co., 195 N.J. 522 (2008). Accordingly, I would affirm the judgment without providing plaintiff the opportunity to prove that the carrier was not likely to have exercised its subrogation rights or intervened in the tort case, even leaving aside his misrepresentation of the status of the case post-judgment.
I do not think, however, that plaintiff's misrepresentation can or should be ignored. As the Court explained in Longobardi v. Chubb Insurance Company of New Jersey, 121 N.J. 530, 539 (1990), "an insured's commitment not to misrepresent material facts extends beyond the inception of the policy to a post-loss investigation."
The majority "emphasize[s] [its] decision should not be interpreted to mean that [it] in any way condone[s] plaintiff's failure to provide a timely Longworth notice to NJM." Post at 20. I have no difficulty condoning an insured's inability to provide his UIM carrier with the thirty days' presumptive notice, as Judge Pressler anticipated that inevitability in Longworth, especially when the insured receives an acceptable offer only shortly before or during trial of the third-party action. Longworth, supra, 223 N.J. Super. at 189-90. What I find unacceptable is plaintiff's failure to provide NJM any notice whatsoever until after a jury verdict, coupled here with the notable omission of that fact in counsel's "Longworth letter" to the carrier.
Plaintiff claims that it advised NJM of the date of loss in its "Longworth letter" and because "the statute of limitations against the underlying tortfeasor had expired by more than two years," NJM "clearly knew of the existence of a pending third-party claim," yet "never inquired as to its status or otherwise requested the opportunity to intervene before waiving subrogation and consenting to execution of the release." Plaintiff further claims that NJM "likewise did not request a statement under oath under its policy."
Plaintiff apparently bases this assertion on NJM's payment of PIP benefits and his post-verdict Longworth notice. In that notice, however, he asks NJM to "accept this letter as authorization for the underinsured motorist unit to review the PIP file in this matter," suggesting that unit could not access the file without plaintiff's authorization. Although the Court in Green found the UIM carrier had "early notice" of the insured's injuries based on its handling of the PIP claim, it also acknowledged the carrier knew of the insured's extensive injuries because the insured had to sue the carrier for PIP benefits. Green, supra, 144 N.J. at 355. Nothing suggests the parties litigated the PIP claim in this case.
I do not think any of that relieves plaintiff or his counsel of their duty of candor in their dealings with plaintiff's UIM carrier. The Longworth/Zirger approach was designed to afford an injured accident victim with reasonably prompt means of obtaining full recovery, while allowing a liability carrier the ability to obtain a general release for the tortfeasor and, at the same time, providing the UIM carrier with the opportunity to protect its subrogation rights and minimize its exposure to its insured's UIM claim. See Craig & Pomeroy, New Jersey Auto Insurance Law, § 28:3 at 512 (Gann 2016). Because the UIM carrier "may have to respond within days, hours or minutes in order for [the] plaintiff to be spared the necessity of continuing to trial despite an acceptable offer," Longworth, supra, 223 N.J. Super. at 190, the efficacy of the Longworth procedure is especially dependent on the candor of counsel in their dealings with one another.
As the Court instructed in Longobardi, "[t]he right rule of law . . . is one that provides insureds with an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant." 121 N.J. at 541-42. In my view, the rationale of Longobardi provides an additional reason why a remand here is not only unwarranted, but unwise. Accordingly, I would follow Hreshko v. Harleysville Insurance Company, 337 N.J. Super. 104, 112-13 (App. Div. 2001), where we held that if Harleysville was induced to approve a settlement between its insured and the tortfeasors "when, in fact, [the insured] had already destroyed its subrogation rights against them," then the insured "is not entitled to receive UIM benefits."
The defining fact of this case in my mind is that plaintiff made no attempt to comply with his Longworth obligations until after entry of the verdict in his action against the tortfeasor. That fact clearly distinguishes this case from Green and Cave, as well as Rivers and Breitenbach, the cases on which the majority relies; as in each of those cases, the UIM carrier had been provided notice of the third-party claim or action against the tortfeasor and that the tortfeasor's policy limits would be insufficient to satisfy the insured's damages. See Green, supra, 144 N.J. at 347-48, 355-57; Cave, supra, 332 N.J. Super. at 188-89; Rivers, supra, 312 N.J. Super. at 380-81, 385-86; Breitenbach, supra, 295 N.J. Super. at 330-31, 334-35.
The unifying theme of those cases is that they all clearly strengthen and preserve the Longworth approach. In contrast, the majority's decision in this case, by failing to differentiate between a plaintiff who completely eschews his Longworth obligations from one who has advised his UIM carrier of the claim and attempted to comply with his remaining obligations, risks its unraveling. The majority's ruling undermines the salutary benefits of requiring the insured to notice his UIM carrier of a third-party action against the tortfeasor, thereby permitting the carrier to intervene as a means of protecting its interests to the end of avoiding relitigation of a plaintiff's claim for damages against the tortfeasor. See Green, supra, 144 N.J. at 353 (stressing that UIM issues should be handled, "to the greatest extent possible," in a manner that attempts "to tie up in one package all of the loose ends that are attendant to automobile-accident claims").
Although I understand and appreciate the concern of my colleagues of the trial court having rested its decision on the high-low agreement, the majority's pronouncement that the agreement "did not in any way impair plaintiff's right to pursue the UIM benefits to which he was entitled," post at 13, has perhaps unstated ramifications for the standard coverage provision of a typical UIM endorsement.
As earlier noted, neither party included the insurance policy in the record. A standard coverage provision in a UIM endorsement, however, typically limits what the carrier will pay to sums the insured "is legally entitled to recover" from the owner or operator of an underinsured motor vehicle. See Zirger, supra, 144 N.J. at 331; see also Craig & Pomeroy, supra, § 19:3 at 351. The trial judge reasoned, logically in my view, that the effect of molding the verdict to the agreed "high" was to cap at $100,000 the sum plaintiff was "legally entitled to recover" from the tortfeasor, thus waiving any UIM claim.
The majority's ruling may have the effect of invalidating the standard coverage provision in a UIM endorsement in cases in which the parties have entered into a high-low agreement in the underlying tort action. When our courts have invalidated provisions of insurance contracts in the UIM context, they have done so for clearly expressed reasons of public policy. See, e.g., Zirger, supra, 144 N.J. at 343 (invalidating contractual arbitration clause in UIM endorsement "only to the extent that it requires an arbitration proceeding that duplicates the underlying litigation of the tort claim").
Although there may be good reason to abrogate the standard coverage provision language to the extent it would prohibit the use of a high-low in underlying tort litigation, it is not something to be undertaken lightly, and in my view, should not be done in the context of this case where the parties have not even provided us a copy of the insurance policy, much less briefed the ramifications of such a move.
The majority does not discuss the effect of its ruling on the language of the standard coverage provision in a UIM endorsement. It also does not explain why collateral estoppel or similar principles of claim preclusion would not act to prevent plaintiff from relitigating the amount it was entitled to recover from the tortfeasor, determined by the jury's verdict and the high-low agreement in that suit, in the UIM action. See Zirger, supra, 144 N.J. at 337-44 (discussing issues of claim preclusion in the UIM context). Because these issues may have broader implications not readily apparent in the circumstances of this case, and the case can be decided on narrower grounds, I would not reach the issue of the effect of a high-low agreement in a typical UIM case, which this case obviously is not.
I think the trial court saw this case clearly for what it was, a flouting of the procedure devised in Longworth, an approach which experience has demonstrated "preserves everyone's best interests in the UIM context," which since the decision "was first published in March of 1988 . . . has been followed almost universally by the bar and insurance industry," Craig & Pomeroy, supra, § 28:3 at 512, without any justification or excuse, except perhaps to secure some perceived advantage for plaintiff in subsequent UIM arbitration at the expense of his UIM carrier. In its understandable concern for ensuring that high-low agreements remain a viable option for UIM claimants in the underlying tort litigation, the majority has let that tail wag the dog.
Plaintiff's reasons for "elect[ing] not to invite his insurance carrier to participate in the underlying tortfeasor litigation under Zirger," a desire to present "additional damages in the form of lost wages and possible additional surgeries including potential knee replacement, not available to be presented at trial in January, 2011" or a mistaken notion of when the UIM claim accrued, are to be distinguished from those cases in which insureds have been found to be excused from or justified in not giving timely notice because they thought the accident so insignificant that no claim would be brought, see, e.g., Cooper, supra, 51 N.J. at 89, 93-95, or believed they had suffered no real injury in the accident, see, e.g., Scheckel v. State Farm Mut. Auto. Ins. Co., 316 N.J. Super. 326, 333-35 (App. Div. 1998).
The central and controlling fact of this case, in my view, is that plaintiff prosecuted the underlying tort suit to verdict without ever notifying the carrier of its existence. That he did so pursuant to a high-low agreement, is not dispositive.
To be clear, I am not suggesting we "inject . . . a state-of-mind element into the UIM coverage analysis." Post at 21. I think the existing rule is clear. If the insured gave the carrier notice of the underlying tort claim and that the tortfeasor's policy will be insufficient to satisfy the insured's damages, but accepted a settlement without giving the carrier adequate time to consider whether it would waive its subrogation rights, then the insured is entitled to the benefit of his UIM coverage so long as he can show the carrier was not prejudiced. Cave, supra, 332 N.J. Super. at 191-93. If, however, the insured, regardless of his state of mind, fails to give the UIM carrier any notice of the UIM claim until after final resolution of the underlying tort action, thereby causing the irretrievable loss of the carrier's rights to subrogation and intervention before the carrier has ever learned of the existence of the claim, coverage is forfeited. See Vassas, supra, 139 N.J. at 175-76; see also Green, supra, 144 N.J. at 357.
The Longworth procedures protect an insured from provisions of his insurance policy that frustrate "the legislative purpose of providing maximum and expeditious protection to the innocent victims of financially irresponsible motorists." Longworth, supra, 223 N.J. Super. at 184. But if an insured never seeks the protection of the Longworth protocol, by providing his UIM carrier with notice of his suit against the tortfeasor and the insufficiency of the tortfeasor's insurance coverage to satisfy the insured's damages, he cannot claim its benefits. The notice provisions are not onerous, but they are the keystone for achieving the goal of "t[ying] up in one package all of the loose ends that are attendant to automobileaccident claims." Green, supra, 144 N.J. at 353. Without the requirement that the insured notify the UIM insurer of an action against the thirdparty tortfeasor, so that the processing of the tort action and UIM claim can start at the same time and proceed on parallel tracks, none of the benefits of a "onestop" proceeding can be realized. Ibid.
Nothing, of course, prevents us from affirming the trial court's sound decision denying UIM benefits to an insured who provides no notice of a third-party tort action to his UIM carrier until after a jury verdict exceeding the tortfeasor's policy limits, while making clear that our decision does not address the use of high-low agreements in a typical UIM case. See State v. Maples, 346 N.J. Super. 408, 417 (App. Div. 2002) (an appeal is taken from the court's order rather than reasons for the order). Because I conclude the holding of Vassas, and not the high-low agreement, controls the outcome here, I respectfully dissent. See Green, supra, 144 N.J. at 357 (explaining that because Selective's subrogation rights were fully intact when Green contacted it before accepting a settlement, "Vassas does not control" and "whether Selective has suffered prejudice on account of late notice must be determined by the trial court on a fuller assessment of the record"). I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION