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NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1092-03T3
JOHN RUTHERFORD,
Plaintiff-Respondent,
v.
AIG AMERICAN INTERNATIONAL
INSURANCE COMPANY OF NEW
JERSEY,
Defendant-Appellant.
Argued: October 25, 2004 - Decided: August 24, 2005
Motion For Reconsideration Granted.
Amended Opinion - Decided:
Before Judges A. A. Rodríguez and Hoens.
On appeal from the Superior Court of New Jersey, Law Division, Passaic County, L-639-
03.
Jo Ann Katzban argued the cause for appellant (Garrity, Graham, Favetta & Flinn,
attorneys; Ms. Katzban, of counsel and on the brief).
Joseph A. Massood argued the cause for respondent (Mr. Massood, on the brief).
PER CURIAM
AIG American International Insurance Company (AIG) appeals from a decision following a bench trial, declaring that
John Rutherford was entitled to the maximum uninsured motorist (UM) coverage provided by his mother's auto
insurance policy despite the existence of a step-down exclusion clause. We reverse.
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The facts are undisputed. On June 23, 2001, Rutherford, then age forty-seven and residing in Charlotte, North
Carolina, came to New Jersey to attend a wedding. While Rutherford was driving a Chevrolet Blazer owned by his
mother, Mary Foster, an unknown vehicle cut him off and fled the scene. As a result, Rutherford swerved in an effort
to avoid a collision and hit a curb. He lost control of the Blazer, which rolled into a center divider. Rutherford was
injured.
AIG had issued a standard automobile insurance policy to Rutherford's stepfather and mother, Harold E. Foster and
Mary Foster, who are New Jersey residents. The Fosters are the "named insureds" on the policy. The Blazer is one of
three covered vehicles. The policy provides, among other coverages, UM coverage in the amount of
$500,000/$1,000,000. The UM endorsement to the policy affords UM coverage to the named insureds, "family
members" and any other person "occupying" a covered auto. The policy defines "family member" as "a person related
to you by blood, marriage or adoption who is a resident of your household." (emphasis added). The policy further
explains that such definition applies when the relevant words appear "in quotation marks."
Part C of the policy describes the UM coverage. Pursuant to Part C, the policy defines an "insured" for the purposes of
UM coverage as:
1. You or any "family member."
2. Any other person "occupying" "your covered auto."
3. Any person for damages that person is entitled to recover because of "bodily injury" to which this
coverage applies sustained by a person described in 1. or 2. above.
However, a policy endorsement provides a Limit of Liability as follows:
However, with respect to any "insured" who is not a named insured or "family member"
under this policy, our maximum limit of liability for "bodily injury" is the minimum limit
required by 121 N.J. 530, 537 (1990). Courts "should not engage in a strained
construction to support the imposition of liability" and thus should refrain from writing a
"'better policy of insurance than the one purchased.'" Ibid. (quoting Walker Rogge, Inc. v.
Chelsea Title & Guar. Co., 116 N.J. 517, 529 (1989)). The Supreme Court has explained:
[A]n insurance contract is not per se ambiguous because its declarations sheet, definition
section, and exclusion provisions are separately presented. A rule of construction forcing
insurers to avoid all cross-referencing in policies would require them to reprint the entire
definition section on each page of the policy, or to define each term every time it is used.
That proliferation of fine print would itself demand strenuous study and run the risk of
making insurance policies more difficult for the average insured to understand.
[Zacarias v. Allstate Ins. Co., 168 N.J. 590, 603 (2001).]
When an insurance policy contains unambiguous terms, "it is the function of a court to enforce it as written and not to
make a better contract for either of the parties." Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43 (1960).
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Only "[w]hen the meaning of a phrase is ambiguous, the ambiguity is resolved in favor of the insured … and in line
with an insured's objectively-reasonable expectations." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992).
A "genuine ambiguity" arises where "the phrasing of the policy is so confusing that the average policy holder cannot
make out the boundaries of coverage." Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979).
From our review of the policy language, we find no genuine ambiguity in the policy. With respect to the definition of
"family member" in the step-down clause, Rutherford clearly does not meet the such definition because he does not
reside with the named insureds. The definition of family member is clear and unambiguous. The definition uses
ordinary language to convey its message.
Rutherford argues on appeal that he is an insured by virtue of having been an occupant in the vehicle. We first
note that this argument was not raised during the proceedings before the Law Division and it therefore is not an issue
that we are required to address on appeal. Nieder v. Royal Indemn. Ins. Co., 62 N.J. 229, 234 (1973). Nevertheless, we
have elected to address the alternate contention for the purpose of completeness. Rutherford is correct in his assertion
that he is an insured by virtue of being an occupant in the vehicle. Notwithstanding that, the plain and unambiguous
language of the step-down clause subjects one who is covered as an occupant to its limitations. Therefore, Rutherford
is an insured only by virtue of being an occupant of the Blazer. As such, his UIM coverage is limited to $15,000 by
virtue of the step-down clause.
With respect to the language and enforceability of the step-down clause, as stated above, we find no ambiguity in its
terms. It is written in ordinary language.
AIG also contends that the judge erred by applying the reasonable expectations doctrine because the insurance policy
contained no ambiguous or hidden terms, no fine legal points requiring distinction, and did not require strenuous study
to understand. We agree. It is settled that, when the terms of the policy are clear and unambiguous, the Court need not
engage in a "reasonable expectations" analysis.
"The fundamental principle of insurance law is to fulfill the objectively reasonable expectations of the parties."
Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30, 35 (1988). The Supreme Court has stated:
When members of the public purchase policies of insurance they are entitled to the broad
measure of protection necessary to fulfill their reasonable expectations. They should not
be subjected to technical encumbrances or to hidden pitfalls and their policies should be
construed liberally in their favor to the end that coverage is afforded "to the full extent
that any fair interpretation will allow."
[Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 482 (1961) (quoting Danek v.
Hommer, 28 N.J. Super. 68, 76 (App. Div. 1953), aff'd, 15 N.J. 573 (1954)).]
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Thus, "courts should resort to the doctrine of reasonable expectations only when 'the phrasing of the policy is so
confusing that the average policyholder cannot make out the boundaries of coverage.'" State v. Signo Trading Intern.,
130 N.J. 51, 62-63 (1992) (quoting Weedo, supra, 81 N.J. at 246-47). Stated another way:
[I]n enforcing an insurance policy, courts will depart from the literal text and interpret it
in accordance with the insured's understanding, even when that understanding contradicts
the insurer's intent, if the text appears overly technical or contains hidden pitfalls, cannot
be understood without employing subtle or legalistic distinctions, is obscured by fine
print, or requires strenuous study to comprehend.
[Zacarias, supra, 168 N.J. at 601 (citations omitted).]
Here, the AIG policy's step-down clause was not ambiguous. Therefore, there was no need to engage in a reasonable
expectations analysis.
Summarizing, the judgment for Rutherford is vacated. The matter is remanded to the Law Division solely for
the entry of judgment in favor of AIG.
Reversed and remanded.
(continued)
(continued)
10
A-1092-03T3
October 5, 2005
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