(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued February 15, 1995 -- Decided June 29, 1995
PER CURIAM
In 1983, Sarasohn & Company (Sarasohn) purchased two insurance policies from Utica Mutual
Insurance Company (Utica). The policies were obtained through Anthony Russo, a broker with Russo
Insurance Agency, Inc. (Russo). One of the policies was an automobile policy providing for $750,000 in
liability coverage, as well as uninsured motorist (UM) coverage and underinsured motorist (UIM) coverage
of $500,000 and $1,000,000. The other policy was a $4,000,000 multi-peril policy. In August 1986, Utica
decided that it would no longer offer the multi-peril policy. Instead, Utica offered to write a primary-liability
policy with a $1,000,000 limit and a $3,000,000 commercial-umbrella policy. After being informed by Russo
of Utica's offer, Sarasohn authorized Russo to obtain the new coverage. The policy was issued by Utica in
August 1986.
Utica reinsured the umbrella policy with General Reinsurance Corporation (General Reinsurance).
As the policy was nearing renewal in 1987, General Reinsurance informed Utica, on July 22, 1987, that it
would not provide UM and UIM coverage in the renewal umbrella policy unless the UM/UIM limits in the
underlying automobile policy were increased to match the liability limits in the auto policy. Russo was
informed of the required increase in coverage. Thereafter, Russo notified Sarasohn of the required change
in the umbrella policy. Sarasohn accepted the $250,000 increase and paid the additional premium. An
endorsement making that change was processed effective August 11, 1987. At the time these policy limits
were changed, Russo believed that the umbrella policy included UM and UIM coverage. Moreover, when
the umbrella policy was renewed in August 1987, Utica had available an endorsement, form 8-UMB-14, that
excluded UM and UIM coverage from umbrella policies. That endorsement was not attached to the
umbrella policy purchased by Sarasohn.
Gerard Doto was an employee of Sarasohn and was a named insured under Sarasohn's commercial-automobile liability policy. On April 18, 1988, Doto was injured as a pedestrian in an automobile accident
while in the course of company business. As a result of that accident, Doto incurred substantial medical
expenses in excess of $750,000. Doto sued the driver of the automobile, whose insurance policy provided
$250,000 in coverage. Because the driver's policy limits were less than Doto's medical expenses, he initiated
a claim for UIM benefits under the automobile policy issued by Utica in which he was a named insured.
Doto recovered $500,000, the full amount of UIM coverage available under the Utica automobile policy less
the amount of liability insurance available under the driver's policy.
Doto's medical expenses still exceeded the amounts recovered from the driver's policy and from
Utica's UIM coverage under the automobile policy. Therefore, Russo contacted Utica to confirm coverage
under the umbrella policy. Employees of Utica that Russo had contacted all confirmed that there was no
exclusion of UM/UIM coverage because endorsement 8-UMB-14 had not been attached to the policy
excluding such coverage. Nonetheless, one-and-one-half years after Russo's initial inquiry to Utica, Russo
was informed, in a letter dated September 17, 1991, that Doto's claim could not be honored because the
umbrella policy did not provide UIM coverage in the state.
In October 1991, Doto sued Russo, alleging professional negligence in failing to procure an umbrella policy that included UM/UIM coverage. Doto also sought declaratory judgment against Utica to determine
his right to recover UIM coverage under the umbrella policy. Russo answered and filed a cross-claim
against Utica demanding judgment declaring that Doto is entitled to UIM coverage under the umbrella
policy.
In June 1993, Russo moved for summary judgment declaring that the Utica policy includes UIM
coverage. Doto joined Russo's motion and Utica filed a cross-motion for summary judgment on the same
issue. The trial court granted summary judgment in favor of Russo and Doto, holding that the conduct of
Utica, its agent, and the insured, both before writing the policy and after the accident, indicated that all
parties had considered the umbrella policy to include UM/UIM coverage.
On appeal, a majority of the Appellate Division affirmed the decision of the trial court, finding that
specific, cumulative circumstances supported the conclusion that the umbrella policy provided UIM coverage.
The majority based its findings on the increase in the primary limits as required by General Reinsurance and
the conduct of Utica both before and after the accident. The dissenting member of the appellate panel
asserted that the umbrella policy was purely a liability policy and that the majority's ruling could not rest on
the basis of "the insignificant and idiosyncratic communications involved here."
Utica appeals to the Supreme Court as of right based on the dissent in the Appellate Division.
HELD: Based on the circumstances evident in the record, Utica Mutual Insurance Co. is estopped from
denying coverage; therefore, Utica is obligated under its commercial-umbrella liability policy to
provide underinsured motorist coverage to its insured.
1. Umbrella policies characteristically do not contain UM/UIM coverage. The purpose of an umbrella policy
is to provide excess liability coverage. In the absence of a statutory requirement that the UM/UIM coverage
be equal to liability coverage, the general rule is that umbrella policies should not be understood to provide
UM/UIM coverage. Nonetheless, other principles of insurance law effect the disposition of this appeal. (pp.
9-14)
2. Insurance policies are contracts of adhesion between parties of unequal bargaining power. Because of the
unique nature of insurance contracts, courts are particularly vigilant in ensuring conformity with public policy
and principles of fairness. To that end, insurance contracts are interpreted in accordance with the objectively
reasonable expectations of the insured. There have been occasions when even an unambiguous contract has
been interpreted contrary to its plain meaning to fulfill the reasonable expectations of the insured. In
addition, insurance companies are equitably estopped from hiding behind the literal language of their policies
when the company's conduct and actions, or that of their agents, causes the insured to act or fail to act based
on that conduct. (pp. 14-17)
3. A review of the record presented compels the conclusion that not only the insured, but also the insurer,
acted on the assumption and expectation that the umbrella policy provided UM/UIM coverage. It is
undisputable that General Reinsurance assumed that the umbrella policy provided UM/UIM coverage.
Equally plain is that Utica also assumed that its umbrella policy provided such coverage. Moreover, the only
reasonable inference supported by the record is that Sarasohn paid the additional premium because the
reinsurer and Utica had insisted that the added coverage was a prerequisite to Sarasohn's securing UM/UIM
coverage in the umbrella policy as well as in the underlying automobile policy. Furthermore, several Utica
employees confirmed post-accident that the umbrella policy contained UM/UIM coverage, noting that the
endorsement excluding coverage had not been attached to the policy. (pp. 17-22)
Judgment of the Appellate Division is AFFIRMED.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI,
STEIN, and COLEMAN join in this opinion.
SUPREME COURT OF NEW JERSEY
A-
111 September Term 1994
GERARD DOTO and MARIA DOTO,
his wife,
Plaintiffs-Respondents,
v.
ANTHONY RUSSO and RUSSO AGENCY,
Defendants-Respondents,
and
UTICA MUTUAL INSURANCE CO.,
Defendant-Appellant.
Argued February 15, 1995 -- Decided June 29, 1995
On appeal from the Superior Court, Appellate
Division.
Robert D. Kretzer argued the cause for
appellant (Lamb, Hartung, Kretzer, Reinman &
DePascale, attorneys).
E. Carter Corriston argued the cause for
respondents Gerard Doto, et al. (Breslin and
Breslin, attorneys; Mr. Corriston and
Lawrence Z. Farber, on the brief).
James A. Vasios argued the cause for
respondents Anthony Russo, et al. (Hurley &
Vasios, attorneys; Mr. Vasios and Joanne O.
McGovern, on the brief).
PER CURIAM
Utica Mutual Insurance Company (Utica) seeks a judgment
declaring that it is not obligated under its commercial-umbrella
liability policy to provide underinsured motorist (UIM) coverage
to its insured. Based on the unique facts present in this case,
the trial court found that Utica is so obligated. A divided
panel of the Appellate Division affirmed in an unreported
opinion. Utica appeals to this Court as of right. See R. 2:2-1(a)(2).
The facts dictate our resolution of this appeal. The matter
arises in the context of cross-motions for summary judgment and
all parties agree that no genuine issue of material fact exists.
In 1983, Sarasohn & Company (Sarasohn) purchased two insurance
policies from defendant Utica. The policies were obtained
through defendant Anthony Russo, a broker with defendant Russo
Insurance Agency, Inc. (Russo). One of the policies was an
automobile policy providing $750,000 in liability coverage as
well as uninsured motorist (UM) and UIM coverage of $500,000 and
$1,000,000. The other was a special multi-peril policy with a
$4,000,000 limit. When the $4,000,000 multi-peril policy was to
be renewed in August 1986, Utica informed Russo that it would not
continue to offer that policy. In place of the multi-peril
policy, Utica offered to write a primary-liability policy with a
$1,000,000 limit and a $3,000,000 commercial-umbrella liability
policy. The $3,000,000 umbrella policy would provide expanded
coverage beyond the limits set forth in the automobile policy.
Russo presented the policy to Sarasohn, seeking the
"approval to go ahead and do it that way." In a letter dated
August 26, 1986, Sarasohn authorized Russo to obtain the umbrella
policy from Utica. Moreover, Sarasohn confirmed its
understanding that the policy would provide $3,000,000 in
coverage above the auto-policy coverage.
Utica initially issued the umbrella policy in August 1986.
The umbrella policy provided that the insurer shall "pay on
behalf of the insured all sums . . . [that] the insured shall
become legally obligated to pay," for personal injury, property
damage, and other specified consequences caused by an occurrence
during the policy period. Utica's Underwriting Procedures Manual
stated that "[b]ecause the Utica Mutual umbrella policy is such a
broad contract, the Company and its reinsurers must be protected
with adequate underlying coverages," and therefore the
"[u]nderlying insurance for automobile liability . . . must be
written" by Utica. (Emphasis omitted).
Utica had an umbrella treaty arrangement with General
Reinsurance Corporation (General Reinsurance), in which Utica
reinsured with General Reinsurance the umbrella policy and
"retain[ed] a portion of the premium and coverages and
Reinsurance all the rest of it." As the umbrella policy was
nearing renewal in August 1987, General Reinsurance informed
Utica senior underwriter Sandra Burleigh on July 22, 1987, that
it would not provide UM and UIM coverage in the renewal umbrella
policy unless the UM/UIM limits in the underlying auto policy
were increased to match the liability limits in the auto policy.
At that time, the underlying auto policy contained liability
coverage in the amount of $750,000 and UM/UIM coverage of
$500,000. The substance of that conversation was confirmed in a
subsequent letter from General Reinsurance to Utica dated
September 14, 1987, which stated, "It is understood that we will
exclude . . . UM if the limits are not increased to equal the
[automobile liability]."
Pursuant to the "instructions from [the] umbrella carrier
[that] specified [that Utica] had to have specific underlying
limits on [the] primary policies to meet the underwriting
requirements," Burleigh informed Russo in a memorandum dated July
23, 1987, that "to meet the umbrella carrier's requirements, the
UM limit must be increased to equal the liability limit. An
endorsement has been processed eff[ective] 8/11/87 making this
change." In turn, Russo apparently informed Sarasohn of the
required $250,000 increase in the limits of the UM/UIM coverage
for the underlying automobile policy. Sarasohn accepted the
change, and paid an additional premium.
Russo did not "know of any other reason" for raising the
limits of UM/UIM coverage in the underlying policy except to
provide for UM/UIM coverage in the umbrella policy. Russo
understood "that the umbrella policy had requirements on limits
of underlying insurance, and the umbrella requirement was now
seven hundred fifty thousand for uninsured motorist, in order
that uninsured motorist coverage on the excess would be
applicable." Russo believed that at the time the UM/UIM policy
limits were raised, the umbrella policy included UM and UIM
coverage.
When the umbrella policy was renewed in August 1987, Utica
had available an endorsement, form 8-UMB-14, that excluded UM and
UIM coverage from umbrella polices. That endorsement stated that
"the insurance provided by this [umbrella] policy shall not apply
to sums which the Insured shall be legally entitled to recover as
damages from the owner or operator of . . . an underinsured
automobile because of personal injury sustained by the Insured."
Utica's Underwriting Procedures Manual provided: "This
endorsement should be used (1) if insured elects not to have
uninsured motorists coverage in the umbrella policy or (2) if
insured's uninsured motorists limits on the underlying auto
policy do not equal the policy's BI limits." Endorsement 8-UMB-14 was not attached to the umbrella policy purchased by Sarasohn.
Plaintiff Gerard Doto (Doto) was an employee of Sarasohn and
was a named insured under his employer's commercial-automobile
liability policy. On April 18, 1988, Doto was injured as a
pedestrian in an automobile accident while in the course of
company business, and incurred substantial medical expenses in
excess of $750,000. Doto filed suit against the driver of the
automobile, whose automobile-liability policy provided coverage
in the amount of $250,000. Because the UIM coverage afforded
Doto under his employer's policy was greater than the liability
limits of the policy held by the driver, Doto initiated a claim
for UIM benefits under the automobile policy issued by Utica in
which he was a named insured. See N.J.S.A. 17:28-1.1e. Doto
recovered $500,000, the full UIM coverage available under the
automobile policy issued by Utica less the amount of liability
insurance available under the driver's policy.
Doto's medical expenses exceeded the amounts recovered from
the driver's policy and from Utica's UIM coverage under the
automobile policy. In a letter dated March 19, 1990, to Gary
LaRouche, the Utica District Claims Manager, Russo stated: "The
insured has requested that we extend his under insured motorist
claim into the umbrella liability policy. I have read the policy
and can't see where his claim is excluded." While awaiting a
response from LaRouche, Russo contacted various persons within
Utica in an attempt to verify that the umbrella policy included
UM/UIM coverage. Richard Gaffney of Utica's Errors and Omissions
Department, whom Russo initially had contacted about the claim
for UIM coverage under the umbrella policy, allegedly had
informed Russo in either 1989 or 1990 "that it's covered unless
there [wa]s an exclusion endorsement." Gaffney's representation
was apparently verified by Cheryl DePaul, a Utica underwriter,
who had informed Gaffney that "our commercial umbrella policy
does not exclude UM/UIM unless we attach an 8-UMB-14
endorsement."
Russo also contacted Bruce Hall, a Utica executive involved
in underwriting commercial policies. On July 17, 1991, Russo
telephoned Hall, telling him that he "also needs [a] statement
that we are covering uninsured/underinsured motorist coverage."
Hall told Russo that he would "send [a] letter stating [that] we
haven't excluded the coverage from our umbrella." On the same
day, Russo sent a letter to Hall, stating, "This will confirm our
phone conversation of today in which you advised me that the
umbrella liability policy does in fact cover $3,000,000. excess
uninsured and underinsured motorist coverage."
On August 1, 1991, Russo again telephoned Hall, who informed
Russo that "there was coverage on the umbrella policy . . .
[b]ased on the fact [Utica] did not . . . put an endorsement on
it excluding the coverage." Hall confirmed the contents of that
conversation in a letter to Russo, also dated August 1, 1991,
stating: "Per our conversation, we have not excluded uninsured
and underinsured motorist coverage from our policy. Therefore,
if it is covered on the primary [automobile policy] it should be
covered on the [umbrella]." Hall indicated that he would not
have sent the letter dated August 1, 1991, confirming UM/UIM
coverage under the umbrella policy to Russo without his
supervisor, Cheryl DePaul, having "agreed with [my]
interpretation at the time." DePaul agreed that "if the
underlying UIM limits match the underlying primary limits that
the umbrella policy could be interpreted to include UIM
coverage," implying that if Utica had intended to exclude UIM
coverage it would have attached endorsement 8-UMB-14 "to make it
expressly clear that UIM coverage was not going to be included in
the umbrella [policy]."
Approximately one-and-one-half years after Russo's initial
inquiry, LaRouche informed Russo in a letter dated September 17,
1991, that "[w]e regret to advise you that we cannot honor your
claim, as the [umbrella] policy in question, does not provide
underinsured motorist coverage in this state." In a complaint
filed October 1991, Doto brought suit against Russo, alleging
professional negligence in failing to procure an umbrella policy
that included UM/UIM coverage. Additionally, Doto sought a
declaratory judgment against Utica to determine his right to
recover UIM coverage under the umbrella policy. Russo answered
the complaint and filed a cross-claim against Utica demanding
judgment "[d]eclaring that plaintiff, Gerard Doto, is entitled to
Underinsured Motorist Coverage under Utica Mutual Insurance
[umbrella policy]." In June 1993, Russo moved for summary
judgment declaring that the "Utica umbrella policy in issue
includes underinsured motorist coverage." Doto joined in that
application. Utica filed a cross-motion for summary judgment on
the same issue.
The trial court granted summary judgment in favor of Russo
and Doto, holding that the conduct of the insurance company, its
agent, and the insured, both before writing the policy and after
the accident, indicated that all parties had considered the
umbrella policy to include UM/UIM coverage.
In affirming, the Appellate Division majority emphasized
that specific, cumulative circumstances supported the
determination that the umbrella policy provided UM coverage:
"[T]he reinsurer of the umbrella policy required an increase in
primary UM[/UIM] limits to equal the liability limit or else
UM[/UIM] would be excluded; the primary UM[/UIM] limits were
increased to equal the liability limit; and there was no
endorsement excluding UM[/UIM] coverage from the umbrella
policy." The majority noted that "the conduct of Utica both
before and after the accident is consistent with this
conclusion." The dissenting member asserted that an "umbrella
policy is purely and simply a liability policy," and that the
majority's ruling could not properly rest "on the basis of the
insignificant and idiosyncratic communications involved here."
Both the dissenting member of the Appellate Division and Utica emphasize that umbrella policies characteristically do not
contain UM/UIM coverage. Because umbrella polices are intended simply to provide comprehensive excess liability coverage, the purpose of umbrella coverage "is fundamentally different from a primary [automobile-]liability policy," Stiefel v. Bayly, Martin & Fay, Inc., 242 N.J. Super. 643, 653 (App. Div. 1990), which also contains personal-injury protection, medical-payment benefits, collision or theft benefits, and UM/UIM coverage. Utica asserts that umbrella polices are therefore not intended to "fall within the definition of automobile liability insurance." 8C John A. Appleman & Jean Appleman, Insurance Law & Practice § 5071.65 (1981); see also Trinity Universal Ins. Co. v. Metzger, 360 So.2d 960, 962 (Ala. 1978) ("[A]n 'umbrella policy,' clearly intended as excess insurance to protect against catastrophic judgments and issued as supplementary insurance to existing primary policies themselves sufficient to meet the requirements of the law, is neither an automobile liability nor motor vehicle liability policy within the scope of the uninsured motorist statute, even though one of the primary policies may itself insure automobiles."); Continental Ins. Co. v. Howe, 488 So.2d 917, 919 n.3 (Fla. Dist. Ct. App.) ("An umbrella policy is fundamentally different from a primary liability policy."), review denied, 494 So.2d 1151 (1986). Typically, umbrella policies are intended to provide liability insurance against claims made against the insured by third-parties, and are not
intended to provide the insured with a first-party source of
recovery.
Courts have recognized the unique characteristics of
umbrella polices in resolving whether such policies are mandated
by the UM statute enacted in their jurisdiction to include UM/UIM
coverage. In states such as New Jersey that statutorily require
only "minimum levels" of UM/UIM coverage, see N.J.S.A. 39:6A-14,
although the insured may elect to purchase greater coverage up to
a defined level, see N.J.S.A. 17:28-1.1b, courts have generally
subscribed to the view that umbrella polices do not provide
UM/UIM coverage. While acknowledging "that there is a general
public policy underlying the UIM statute of increasing and
broadening the public's protection against automobile accidents,"
MacKenzie v. Empire Ins. Cos.,
782 P.2d 1063, 1066 (Wash. 1989),
courts have concluded that the insured "receives the full
protection contemplated by statute when he purchases the
underlying automobile policy." Hartbarger v. Country Mut. Ins.
Co.,
437 N.E.2d 691, 694 (Ill. App. Ct. 1982). Moreover, "[a]ny
other interpretation would distort the actual purpose of the
umbrella policy," Matarasso v. Continental Casualty Co.,
440 N.Y.S.2d 40, 41 (App. Div. 1981), aff'd,
451 N.Y.S.2d 703 (1982),
to provide only excess liability coverage. The Supreme Judicial
Court of Massachusetts noted that courts construing statutorily
mandated "minimal levels" of UM/UIM coverage "have reasoned that
the protection contemplated by the UM statute is satisfied by the
minimum UM coverage provided in the underlying primary auto
polices, and umbrella policies therefore need not provide UM
benefits." Liberty Mut. Ins. Co. v. McLaughlin,
590 N.E.2d 679,
680 (1992). Similarly, the Supreme Court of Montana observed in
Rowe v. Travelers Indemnity Co.,
800 P.2d 157, 159 (1990), that
in those states with minimum-level statutes, the objective "is to
ensure that injured motorists can recover the same amount as
would have been available from an insured motorist who maintained
the minimum statutory limit of bodily injury liability coverage,"
and not to provide full recovery under the terms of any
applicable policies when a person is injured by an uninsured or
underinsured motorist. In Continental Insurance Co., supra, 488
So.
2d at 920, the Florida District Court of Appeal, construing
Rhode Island law, refused to find UM/UIM coverage in an umbrella
policy and determined that the "legislative purpose of ensuring
that an injured motorist can recover up to the minimum limits
required by statute is satisfied by the underlying primary
liability insurance."
On the other hand, those states that require that the
insurer provide UM/UIM coverage equal to automobile-liability
coverage have determined that umbrella polices that provide
excess-liability coverage must therefore provide equal UM/UIM
coverage. See Rowe, supra, 800 P.
2d at 159 ("Most jurisdictions
which have 'full recovery' uninsured motorist statutes have
concluded that since an umbrella policy includes liability
coverage for motor vehicle accidents, an umbrella policy must
offer an equivalent amount of uninsured motorist benefits to the
insured in order to permit full recovery."). The Supreme Court
of Louisiana determined that statutory language mandating UM/UIM
coverage equal to the limits of bodily injury liability provided
by the policy "compels a contrary inference" and requires
"insurance companies doing business in this state to offer
uninsured motorist coverage to an insured under the provisions of
umbrella and excess policies." Southern Am. Ins. Co. v. Dobson,
441 So.2d 1185, 1191-92 (1983); see also Cincinnati Ins. Co. v.
Siemens,
474 N.E.2d 655, 657 (Ohio Ct. App. 1984) (finding that
umbrella policy contained UM coverage when statutory language
"requir[ed] the offering of equivalent uninsured motorist
coverage upon the issuance of automobile liability insurance").
The case law does not suggest that the decisions construing
umbrella policies to provide UM/UIM coverage depend on
differences in the policy language; rather, a fair inference is
that the coverage determination is based on the state statutory
provision requiring UM/UIM coverage to equal liability coverage.
See Southern American Insurance Co., supra, 441 So.
2d at 1191.
To the extent the issue has been addressed in New Jersey,
the Appellate Division in Stiefel, supra, 242 N.J. Super. at 653,
held that an umbrella policy did not provide excess UIM coverage
to the plaintiff when the umbrella policy explicitly disclaimed
all first-party coverage by inclusion of a provision obligating
the insured to indemnify the insurer "for any amount it [might]
be required to pay to plaintiff as an insured." However, that
court also noted that construing an umbrella policy to contain
UM/UIM coverage "ignores the nature of umbrella coverage," and
serves "[n]o public policy purpose." Ibid.
As a general matter, Utica correctly asserts that umbrella
policies serve a purpose qualitatively different from UM/UIM
coverage. In the absence of a requirement pursuant to a UM
statute that UM/UIM coverage be equal to liability coverage, the
general rule appears to be that umbrella policies should not be
understood to provide UM/UIM coverage. However, other principles
of insurance law influence our disposition of this appeal.
An insurance policy is a contract. However, "while insurance policies are contractual in nature, they are not ordinary contracts but contracts of adhesion between parties who are not equally situated." Meier v. New Jersey Life Ins. Co., 101 N.J. 597, 611 (1986). Even the most astute insured might find his or her "bargaining power is necessarily limited." Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304, 320 (1985). Insurance policies are often unilaterally "prepared by the company's experts, [persons] learned in the law of insurance who serve its interest in exercising their draftsmanship art. The result of their effort is given to the insured in printed
form upon the payment of his premium." Mazzilli v. Accident &
Casualty Ins. Co.,
35 N.J. 1, 7-8 (1961). Moreover, insurance
contracts are not typically read or reviewed by the insured,
whose understanding is often impeded by the complex terminology
used in the standardized forms. See Gaunt v. John Hancock Mut.
Life Ins. Co.,
160 F.2d 599, 601 (2d Cir.) ("An underwriter might
so understand the phrase, when read in its context, but the
application was not to be submitted to underwriters; it was to go
to persons utterly unacquainted with the niceties of life
insurance, who would read it colloquially."), cert. denied,
331 U.S. 849,
67 S. Ct. 1736,
91 L. Ed. 1858 (1947).
Because of the unique nature of contracts of insurance,
courts assume "a particularly vigilant role in ensuring their
conformity to public policy and principles of fairness."
Voorhees v. Preferred Mut. Ins. Co.,
128 N.J. 165, 175 (1992).
To further that end, New Jersey courts often have construed
ambiguous language in insurance policies in favor of the insured
and against the insurer. Sears Mortgage Corp. v. Rose,
134 N.J. 326, 347 (1993); Walker Rogge, Inc. v. Chelsea Title & Guar. Co.,
116 N.J. 517, 529 (1989); Sandler v. New Jersey Realty Title Ins.
Co.,
36 N.J. 471, 479 (1962); Matits v. Nationwide Mut. Ins. Co.,
33 N.J. 488, 495 (1960); Hunt v. Hospital Serv. Plan,
33 N.J. 98,
102 (1960). Consistent with that principle, courts also have
endeavored to interpret insurance contracts to accord with the
objectively reasonable expectations of the insured. "Recognizing
the position of laymen with respect to insurance policies
prepared and marketed by the insurer, our courts have endorsed
the principle of giving effect to the 'reasonable expectations'
of the insured for the purpose of rendering a 'fair
interpretation' of the boundaries of insurance coverage." Di
Orio v. New Jersey Mfrs. Ins. Co.,
79 N.J. 257, 269 (1979). The
insured's "reasonable expectations in the transaction may not
justly be frustrated and courts have properly molded their
governing interpretative principles with that uppermost in mind."
Allen v. Metropolitan Life Ins. Co.,
44 N.J. 294, 305 (1965).
Moreover, we have recognized the importance of construing
contracts of insurance to reflect the reasonable expectations of
the insured in the face of ambiguous language and phrasing, see
State, Dep't of Envtl. Protection v. Signo Trading Int'l.,
130 N.J. 51, 62 (1992), and in exceptional circumstances, when the
literal meaning of the policy is plain. See Werner Indus. v.
First State Ins. Co.,
112 N.J. 30, 35-36 (1988) ("At times, even
an unambiguous contract has been interpreted contrary to its
plain meaning so as to fulfill the reasonable expectations of the
insured . . . ."); Sparks v. St. Paul Ins. Co.,
100 N.J. 325, 338
(1985); Gerhardt v. Continental Ins. Cos.,
48 N.J. 291, 297-99
(1966).
Nor have we permitted insurance companies to seek refuge in
the literal language of their policies when the company's conduct
and actions, or that of their agents, causes the insured to act
or to fail to act based on that conduct. See Harr v. Allstate
Ins. Co.,
54 N.J. 287, 304 (1969) ("[E]quitable estoppel is
available to bar a defense in an action on a policy even where
the estopping conduct arose before or at the inception of the
contract, and that the parol evidence rule does not apply in such
situations."). "It is clear that a carrier who has issued a
policy, by its later conduct may, for equitable reasons, be
refused the right to assert an exclusion or the absence of
specific coverage. Our courts, over the years, have repeatedly
so held." American Handling Equip., Inc. v. T.C. Moffatt & Co.,
184 N.J. Super. 131, 139 (App. Div. 1982). When an insurer,
having issued an insurance policy, subsequently modifies that
policy to limit the scope of coverage, that modification must be
accompanied by a clear "repudiation of liability rather than by a
course [of conduct] leading the [insured] to believe he was
protected." Miller v. Motor Club Ins. Co.,
117 N.J.L. 480, 482-83 (E. & A. 1936).
We examine the actions of the parties, necessarily considering as well whether alternative conduct or more precise language by the insurer, if chosen, "would have put the matter beyond reasonable question." Mazzilli, supra, 35 N.J. at 7; see also Kook v. American Sur. Co., 88 N.J. Super. 43, 51 (App. Div. 1965) ("[C]onsideration should be given [about] whether
alternative or more precise language, if used, would have put the
matter beyond reasonable question."). Moreover, we consider not
only the actions of the parties at the time of formation of the
policy, but the conduct both before and after. Meier, supra, 101
N.J. at 616-17. Our review of the record presented compels the
conclusion that not only the insured, but the insurer as well,
acted on the assumption and expectation that the umbrella policy
provided UM/UIM coverage.
That General Reinsurance, the company with which Utica
reinsured the umbrella policy, assumed the umbrella policy
provided UM/UIM coverage is indisputable. General Reinsurance
insisted that the UM/UIM coverage limits in the underlying
liability policy be increased solely for the purpose of reducing
its exposure to UM/UIM claims under the umbrella policy. Equally
plain is that Utica also assumed that its umbrella policy
provided UM/UIM coverage. No other explanation could justify
Utica's communication to Russo, Sarasohn's agent, insisting that
the UM/UIM limits in the underlying liability policy be increased
and informing him that the necessary endorsement had already been
processed.
No party contests the fact that Russo then informed Sarasohn
of the necessary increase in the limits of the UM/UIM coverage
for the underlying auto policy and that Sarasohn accepted the
change and paid an additional premium. The only reasonable
inference supported by the record is that Sarasohn paid the
additional premium because the reinsurer and Utica had insisted
that the added coverage was a prerequisite to Sarasohn's securing
UM/UIM coverage in the umbrella policy as well as in the
underlying automotive policy. "Indeed, if he was not so covered
what justification could the company fairly advance for having
taken that . . . sum from him . . . ." Allen, supra, 44 N.J. at
306. Sarasohn, having paid the premium with the expectation of
UM/UIM coverage in the umbrella policy, "could rightfully rely
upon the retention of this . . . payment as an indication that it
need not look for coverage elsewhere." Englishtown Auction
Sales, Inc. v. Mount Vernon Fire Ins. Co.,
112 N.J. Super. 332,
337 (App. Div. 1970); see also New England Mut. Life Ins. Co. v.
Hinkle,
248 F.2d 879, 889 (8th Cir. 1957) (Woodrough, J.,
dissenting) ("[I]t is such a serious wrong for a company to make
a man believe it has insured him and to take his money therefore
. . . ."), cert. dismissed,
358 U.S. 65,
79 S. Ct. 116,
3 L. Ed.2d 106 (1958).
Of less significance, but nevertheless relevant to the issue
of the parties' assumptions and expectations about the scope of
coverage, is the fact that after the accident several Utica
employees confirmed that the umbrella policy contained UM/UIM
coverage. Assurances to Russo from numerous Utica employees that
the umbrella policy provided UM/UIM coverage would perhaps be
insignificant if the policy specifically excluded such coverage,
and no course of conduct had occurred in connection with the
policy's issuance suggesting that the coverage existed. But in
the context of this record, the affirmation by several
knowledgeable Utica executives that UM/UIM coverage was included
in Sarasohn's umbrella policy assumes added weight, in effect
reinforcing the evidence suggesting that General Reinsurance and
Utica, prior to the accident, regarded the umbrella policy as
providing UM/UIM coverage.
Moreover, Utica possessed a form designed for the express
purpose of excluding the provision of UM/UIM coverage in the
umbrella policy. An exclusion clause serves the purpose of
delimiting and restricting coverage. Capece v. Allstate Ins.
Co.,
88 N.J. Super. 535, 541 (Law Div. 1965). An exclusion that
is specific, plain, clear, prominent, and not contrary to public
policy will be given effect. Catton v. New Jersey Full Ins.
Underwriting Assoc.,
242 N.J. Super. 5, 10-11 (App. Div. 1990);
Capece, supra, 88 N.J. Super. at 541. Utica elected not to
include its own specific endorsement stating that the "insurance
provided by this [umbrella] policy shall not apply to sums which
the Insured shall be legally entitled to recover as damages from
the owner or operator of . . . an underinsured automobile because
of personal injury sustained by the Insured." The decision not
to include the standard exclusion endorsement is consistent with
the actions of General Reinsurance and Utica prior to the
issuance of the renewal policy and with the post-accident
assurances by Utica executives that the policy provided UM/UIM
coverage.
Utica asserted for the first time that the umbrella policy
did not contain UM/UIM coverage in September 1991, over three
years after the accident occurred. We are persuaded, based on
the circumstances evident in the record, that Utica is estopped
from denying coverage. Utica pursued a course of conduct during
the renewal of the umbrella policy in August 1987 that would have
convinced an objectively reasonable insured to believe that the
umbrella policy contained UM/UIM coverage. In effect, Utica told
Sarasohn's agent that the umbrella policy would not provide
UM/UIM coverage unless the UM/UIM limits in the underlying policy
were raised. Abiding by that instruction, Sarasohn authorized
the increased limits and paid the higher premium. Consequently,
Sarasohn must have understood that the umbrella policy included
UM/UIM coverage. That impression was confirmed by the post-accident representations and assurances by several Utica
employees that the umbrella policy provided such coverage. "It
is clear that a carrier who has issued a policy, by its later
conduct may, for equitable reasons, be refused the right to
assert an exclusion or the absence of specific coverage." T.C.
Moffatt & Co., supra, 184 N.J. Super. at 139; see Griggs v.
Bertram,
88 N.J. 347, 355-56 (1982) ("Under certain circumstances
an insurance carrier may be estopped from asserting the
inapplicability of insurance to a particular claim against its
insured despite a clear contractual provision excluding the claim
from the coverage of the policy."); see also Jackson Nat'l Life
Ins. Co. v. Receconi,
827 P.2d 118, 128 (N.M. 1992) (reasoning
that knowledge combined with subsequent acceptance and retention
of premium constitute waiver of condition).
III
The judgment of the Appellate Division is affirmed.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN,
GARIBALDI, STEIN, and COLEMAN join in this opinion.
NO. A-111 SEPTEMBER TERM 1994
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
GERARD DOTO and MARIA DOTO,
his wife,
Plaintiffs-Respondents,
v.
ANTHONY RUSSO and RUSSO AGENCY,
Defendants-Respondents,
and
UTICA MUTUAL INSURANCE CO.,
Defendant-Appellant.
DECIDED June 29, 1995
Chief Justice Wilentz PRESIDING
OPINION BY PER CURIAM
CONCURRING OPINION BY
DISSENTING OPINION BY