NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3383-07T13383-07T1

ANTHONY TONIC and

YVONNE TONIC,

Plaintiffs-Appellants,

v.

AMERICAN CASUALTY CO., i/p/a

CNA INSURANCE CO.,

Defendant-Respondent,

and

LUZ MARINA CANON,

Defendant.

_____________________________________________________

Argued December 1, 2009 - Decided

Before Judges Wefing, Messano and LeWinn.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-5499-06.

Manfred C. Gernand argued the cause for appellants.

Jerald J. Howarth argued the cause for respondent (Howarth & Associates, LLC, attorneys; Mr. Howarth and Purnima D. Ramlakhan, on the brief).

The opinion of the court was delivered by

MESSANO, J.A.D.

Plaintiff Anthony Tonic appeals from the dismissal with prejudice of his complaint seeking underinsured motorist (UIM) benefits pursuant to an automobile insurance policy issued to his employer by defendant American Casualty Company, improperly pled as CNA Insurance Co. Having considered the arguments raised on appeal in light of the record and applicable legal standards, we reverse and remand the matter for further proceedings consistent with this opinion.

I.

On January 2, 2006, plaintiff was employed as a bus driver for a shuttle service that operated between Newark Airport and the Hampton Inn in Linden. The bus was owned by his employer, Hersha Enterprises, Inc., and was insured under a policy issued by defendant. As plaintiff was entering the bus at the airport, he was struck by the side mirror of a passing van that drove off without stopping. Plaintiff sustained injuries as a result, and ultimately underwent back surgery.

The following day, plaintiff reported the accident to the Port Authority Police Department. He supplied the police with the license plate number of the van, as well as a description of the driver -- a stocky, Hispanic male with black hair, a mustache and glasses. The police identified the van's owner, Luz Marina Canon of Selden, New York. Plaintiff subsequently learned that Canon maintained insurance on the van through State Farm Insurance Company (State Farm) and that the bodily injury limits of the policy were $25,000 per person and $50,000 per accident.

On July 11, 2006, plaintiff filed a complaint against defendant, Canon and "John Doe 1-3." In the first count, he demanded that defendant "[p]rocess his UM/UIM claim[]" under the policy of insurance issued to his employer, and he sought damages as a result of his injuries. In the second count, plaintiff sought damages caused by the negligence of Canon and/or "John Doe 1-3" identified as the "operator of [the] van." On October 12, 2006, defendant filed its answer and asserted a crossclaim against Canon and the John Doe defendants. Canon also filed an answer, and discovery ensued.

On August 28, 2007, Canon was deposed by defendant. She claimed that on the date of the accident, she was married to Francisco Vasquez and both were in Florida on vacation. Although she and Vasquez had since separated, Canon claimed that he owned his own taxi cab and maintained an insurance policy on it. Also, on the accident date, Canon lived in the same apartment with Everett and Adrina Palasios who owned two cars. After being notified of plaintiff's claim, Canon asked Mr. Palasios if he had driven her van while she was away; he denied that he had. Canon admitted that she regularly left the keys to the van in a drawer in a table in her room. Two months after the accident, Canon sold the van to Oscar Marino, with whom she later entered into a romantic relationship.

On September 19, 2007, defendant moved for partial summary judgment arguing that since Canon was insured by State Farm, plaintiff had no viable claim for uninsured motorist (UM) benefits under its policy. Plaintiff cross-moved for partial summary judgment seeking a declaration that the van was owned by Canon, that he was entitled to UIM benefits under defendant's policy, and he sought appointment of a UIM arbitrator. Defendant did not file opposition to the cross-motion.

While the motions were pending, on October 8, 2007, plaintiff sent a letter to defendant's attorney stating,

This confirms discussions that plaintiff, if offered the $25,000 . . . as settlement for claim against defendant Canon and John Doe, driver of her car, . . . would accept this offer of the . . . policy [limit] . . . if the UIM carrier does not object within 30 days and pursuant to the Longworth doctrine.

On October 12, 2007, plaintiff's counsel sent another letter indicating that State Farm had offered the policy limit in settlement of the claim. He further indicated that "[t]his is [an] additional [Longworth] Notice . . . [and] unless a written objection is received within 30 [days], plaintiff will send releases to defendant Canon."

On October 19, the motion judge entered two orders. One granted defendant's motion for partial summary judgment "as to plaintiff's UM claims only." The second order granted plaintiff's request for declaratory relief "that the vehicle alleged . . . to have caused his injuries was owned by . . . Canon . . . ." It further provided that "plaintiff [wa]s . . . eligible for [a] UIM claim which [wa]s to proceed in due course[,]" and it additionally ordered defendant to "designate their [sic] arbitrator in the UIM claim . . . within (30) days."

On November 5, 2007, defense counsel sent plaintiff's counsel a letter naming an arbitrator. The letter additionally noted,

[W]e will be maintaining that you do not qualify for UIM. A motion on same will be forthcoming. It would appear that you failed to amend the complaint to name the driver. As a result, our subrogation rights have not been protected.

The record does not reveal that defendant had ever previously requested that plaintiff amend his complaint.

On November 7, 2007, plaintiff's counsel responded that despite diligent efforts, he was unable to identify the driver of the van. He further noted that "UIM regulations permit[ted] [defendant] to take over th[e] suit so that no release [would be] given to State Farm." He asked defendant to "provide . . . the facts that would support [its] contention that [Canon's] boyfriend was the driver." Counsel closed by stating his intention to file a motion "to move this claim along." On November 9, plaintiff moved for an "order permitting [him] to send [a] release to [State Farm] or . . . [alternatively] . . . requiring defendant . . . to pay [the] settlement offered by . . . Canon."

For reasons that are never fully explained in the record, however, Canon had already moved for summary judgment. The order granting that motion, dated November 16, reflects that neither plaintiff nor defendant filed opposition. We have not been provided with any of the motion papers. Why the motion was filed in the first instance remains a mystery, since on November 29, State Farm sent a letter to plaintiff confirming the offer to settle the case for Canon's policy limits.

On November 28, defendant cross-moved for summary judgment. In his certification, citing Canon's interrogatory answers that she neither drove the van nor was it "operated on her behalf" on the day of the accident, defense counsel claimed that Canon's motion for summary judgment sought dismissal "based on lack of agency." He failed to explain, however, why defendant had not opposed Canon's motion.

Defense counsel further certified that he had notified plaintiff within thirty days of receipt of the Longworth notice that he "did not qualify for UIM benefits as he failed to amend the complaint to name the driver." Citing Canon's testimony that her husband and Mr. Palasios had access to the keys to her van, defendant claimed both should have been named as defendants. Counsel continued that "no viable tortfeasor" remained in the case because Canon had been granted summary judgment. Citing the policy of insurance, counsel claimed "defendant's [subrogation] rights have been impaired as the [c]omplaint was not properly amended . . . ."

Plaintiff filed opposition to defendant's cross-motion. His attorney certified that he had never received the order granting Canon summary judgment and urged that it be vacated because the case was "settled prior to trial [and] [i]t would interfere with the rights of the UIM carrier should it decide to pay the $25,000 . . . policy to the plaintiff and pursue the case against defendants." He argued that Canon's motion was filed by mistake since he had settled the case directly with State Farm's adjuster. Plaintiff further contended that although the "matter was thoroughly investigated[,]" there was no evidence that either of the Palasioses drove the car on the date of the accident.

On January 3, 2008, after considering oral argument, the motion judge dismissed plaintiff's UIM claim with prejudice, concluding that he had failed to ""d[o] what [he] w[as] obligated to do under the terms of the insurance policy"; he therefore denied plaintiff's request to appoint a UIM arbitrator, or to compel defendant to pay the $25,000 settlement reached with Canon. Without any explanation of reasons, the judge vacated the November 16, 2007 order granting Canon summary judgment, but denied plaintiff's request to send releases to State Farm.

On January 22, plaintiff moved for reconsideration seeking an order "to permit [him] to send a release to State Farm for $25,000 . . . or have [the] UIM carrier pay said amount[,] . . . [and to] [h]ave [a] trial on [the] issue of whether [he] acted reasonably to ascertain [the] identity of [the] hit and run driver . . . ." Plaintiff included the certification of his investigator who tried to interview Marino, but was unable to locate him or the Palacioses. The investigator's certification also included "skip traces" conducted to locate any assets these individuals may have owned, though it is unclear whether they were requested before the grant of summary judgment to defendant. Plaintiff also argued that he had fully complied with the provisions of the policy regarding a claim for UIM benefits. Lastly, plaintiff attached a proposed amended complaint naming Vasquez, Marino, and the two Palacioses as drivers of the vehicle.

Defendant opposed the motion for reconsideration. It argued that plaintiff's failure to amend the complaint before the statute of limitations expired "alone established a breach of contract . . . in failing to protect subrogation rights." It further contended that any attempt to do so now would run afoul of the fictitious party rule, Rule 4:26-4, because plaintiff had not been diligent in discovering the identity of the driver. As to plaintiff's request to "forward a release to State Farm," defendant "took no position" given the judge's prior ruling "that plaintiff d[id] not qualify for UIM . . . ." (Emphasis added).

On February 29, after considering oral argument, the motion judge denied plaintiff's reconsideration motion. He concluded that plaintiff had provided no new legal or factual basis to justify reconsideration. Despite defendant taking no position on the release of Canon, the judge's order denied that request.

On March 6, plaintiff forwarded a release of Canon from any and all claims regarding the accident to State Farm in return for $25,000. On March 18, he filed his appeal. We subsequently granted defendant's request for a limited remand to allow "consideration on the issue of plaintiff's compliance with Longworth requirements" in light of the release of Canon. Defendant then moved before the motion judge for a hearing on the issue.

Defendant argued that after the motion judge had twice denied plaintiff's request to "forward a release and accept the tortfeasor's policy," plaintiff's subsequent release of Canon "[wa]s in violation of Longworth." It further argued that the "sole issue . . . on th[e] limited remand [wa]s whether or not plaintiff fulfilled his contractual obligation as defined by Longworth . . . assuming a valid UIM claim even exist[ed]." After oral argument, the judge determined that

[P]laintiff did not comply with the requirements of Longworth. He may have put [defendant] on notice, but at no time did [defendant] give its consent to force plaintiff to settle with the underlying tortfeasor . . . . [T]here were two motions by plaintiff seeking permission to forward a release . . . to . . . Canon . . . for the policy limits of $25,000, but the Court . . . doesn't have . . . the authority to . . . grant that type of relief . . . .

Plaintiff went ahead and settled the underlying claim without the consent of [defendant], and distributed those funds. This [wa]s in contradiction[] and violation of the provisions of Longworth.

The judge entered an order on November 21 finding that plaintiff "failed to fulfill his contractual obligation as defined by Longworth by failing to obtain permission . . . to settle with the tortfeasor and issue a [r]elase and [this] [wa]s [a] further basis upon which the plaintiff [wa]s not entitled to UIM benefits." Plaintiff's amended notice of appeal also sought our review of this order.

II.

Plaintiff argues that public policy favors a liberal interpretation of insurance contracts to provide coverage; that upon receiving notice of a tentative settlement with the tortfeasor, a UIM carrier is obligated within thirty days to either consent to the settlement and permit plaintiff to forward a release, or pay the settlement amount itself and assume prosecution of plaintiff's complaint; and that plaintiff need only show reasonable efforts to identify the driver of the van and defendant failed to show any appreciable prejudice based upon plaintiff's efforts in this case. In light of the dismissal of his UIM claim with prejudice, plaintiff contends he was free to settle the case with Canon and release her from all claims.

Defendant argues that pursuant to the insurance contract and case law, plaintiff was required to amend his complaint to protect its subrogation rights, and that his failure to do so properly resulted in dismissal of his UIM claim. Defendant also contends that plaintiff further impaired its subrogation rights by releasing Canon from any further liability after the judge twice specifically denied his request to do so.

We briefly state the standards that guide our review. When reviewing a grant of summary judgment, we employ the same standards used by the motion judge. Atl. Mut. Ins. Co. v. Hillside Bottling Co., Inc., 387 N.J. Super. 224, 230 (App. Div.), certif. denied, 189 N.J. 104 (2006). We first determine whether the moving party has demonstrated there were no genuine disputes as to material facts; we then decide "whether the motion judge's application of the law was correct." Id. at 230-31 (citation omitted). In conducting our review of the motion record, we accord plaintiff the benefit of all the favorable evidence and inferences. See R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995). "[W]e owe no deference to the" motion judge's conclusions on issues of law. Atl. Mut. Ins. Co., supra, 387 N.J. Super. at 231.

(a)

A "UIM claim is a contractual one, arising out of the insurance policy issued to plaintiff by his own insurer." Bardis v. First Trenton Ins. Co., 199 N.J. 265, 275 (2009). "Although the relationship of the insurer and insured is contractual, the source of the obligation to offer UIM coverage is statutory." Zirger v. Gen. Accident Ins. Co., 144 N.J. 327, 333 (1996). That statutory obligation is found at N.J.S.A. 17:28-1.1(e)(1), which defines the scope of UIM coverage that must be available to insureds at their option:

'[U]nderinsured 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 . . . .

The statutory definition "excludes . . . only one general category: the uninsured motor vehicle." Craig and Pomeroy, N.J. Auto Ins. Law