(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 January 6, 1998 -- Decided May 12, 1998
Stein, J., writing for a unanimous Court.
On February 7, 1991, while driving her own car, Ruth Breen was seriously injured in a car accident
caused by Loni Shulman. Breen's car was insured by Liberty Mutual Insurance Company with a policy that
provided underinsured motorist's (UIM) coverage up to $50,000. Shulman's Allstate Insurance policy had a
liability limit of $100,000. Because Shulman's liability limit was higher than Breen's own UIM coverage,
Shulman's car was not “underinsured” with respect to Breen's personal policy.
Breen lived with her parents, Sally and Walter Pilcher, who ran a family business, Cardinell Products.
Cardinell had a “Business Auto Policy” with New Jersey Manufacturers (NJM) that had a $500,000 UIM limit.
Breen sought access to the NJM policy. NJM contested Breen's status as an operator of the business's vehicles.
The uninsured and UIM coverage under this policy expressly applied to family members of the named insureds.
Cardinell and the Pilchers were listed as named insureds.
On June 8, 1995, the Court issued its decision in Aubrey v. Harleysville Insurance. Relying on that case,
NJM filed a declaratory judgment action seeking to bar Breen from collecting under the Cardinell policy. The
Law Division found for NJM. On appeal, the Appellate Division reversed, concluding that Aubrey did not apply
to Breen because the decision should have prospective effect only. The Appellate Division noted that prior to
Aubrey, Breen would have been entitled to UIM benefits from Cardinell's policy. The Supreme Court granted
NJM's petition for certification.
HELD: A family member living in the household of a named insured is entitled to receive the benefit of
underinsured motorist's coverage included in a business automobile insurance policy. Also, the Court declines
to address the issue of the retroactivity of Aubrey v. Harleysville Insurance Co.,
140 N.J. 397 (1995).
1. As in the companion case of Magnifico and in French v. New Jersey School Board Assn. Insurance Group,
the Court notes that Aubrey has been misunderstood by some courts as restricting claimants seeking UIM
benefits to the coverage provided by their personal policies. In French, the Court made it clear that the critical
factor in UIM coverage is the policy language, which controls the result of this appeal as well. Breen's status
as an employee of Cardinell is irrelevant. Breen resided with her parents as a family member and her parents
were named insureds on the NJM policy. The net result is that Breen “held” UIM coverage on the Cardinell
policy. (pp. 8-11)
2. Although Cardinell's UIM coverage constitutes a policy “held” by Breen for the purpose of determining
whether the tortfeasor's auto is underinsured, insurance policy drafters can attempt to address issues of UIM
coverage by modifications in policy language. (p. 11)
3. The Appellate Division's holding that Aubrey should be applied prospectively was not required to sustain
the result reached by that court. Because the retroactivity of Aubrey is not an issue requiring resolution in this
appeal, the Court declines to address it. (pp. 11-12)
The judgment of the Appellate Division is MODIFIED and AFFIRMED.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI, and
COLEMAN join in JUSTICE STEIN's opinion.
SUPREME COURT OF NEW JERSEY
A-
58 September Term 1997
NEW JERSEY MANUFACTURERS
INSURANCE COMPANY,
Plaintiff-Appellant,
v.
RUTH BREEN,
Defendant-Respondent.
Argued January 6, 1998 --Decided May 12, 1998
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
297 N.J. Super. 503 (1997).
Brian G. Steller argued the cause for
appellant (Connell, Foley & Geiser,
attorneys; Thomas A. Sparno, on the briefs).
Marc C. Saperstein argued the cause for
respondent (Davis, Saperstein & Salomon,
attorneys).
Gerald H. Baker argued the cause for amicus
curiae, The Association of Trial Lawyers-New
Jersey (E. Drew Britcher, attorney; Tommie
Ann Gibney, on the brief).
The opinion of the Court was delivered by
STEIN, J.
This appeal, together with Magnifico v. Rutgers
Casualty Insurance Co., ___ N.J. ___ (1998), and Grant v. Amica
Mutual Insurance Co., ___ N.J. ___ (1998), also decided today,
involves questions of underinsured motorist (UIM) coverage not
specifically resolved by our decision in French v. New Jersey
School Board Ass'n Insurance Group,
149 N.J. 478 (1997). The
primary issue concerns the right of a family member of named
insureds under a business auto policy, who was injured in an auto
accident while operating her own vehicle, to receive the benefit
of UIM coverage included in the business auto policy that would
not have been available pursuant to the family member's personal
policy. A secondary issue is whether our decision in Aubrey v.
Harleysville Insurance Cos.,
140 N.J. 397 (1995), should be
applied only prospectively.
The claimant in this case, Ruth Breen, sought UIM benefits
under a policy issued by New Jersey Manufacturers Insurance
Company (NJM) to a business owned by Breen's parents. Breen
claimed benefits under the business policy because the UIM limit
on her personal policy was lower than the liability limit on the
tortfeasor's policy and the business policy's UIM limit was
higher than the liability limit on the tortfeasor's policy.
Accordingly, Shulman's car was not underinsured with respect to
Breen's personal policy. See N.J.S.A. 17:28-1.1e.
Breen lived with her parents, Sally and Walter Pilcer, who
ran an unincorporated family business, Cardinell Products
(Cardinell). Cardinell had a "Business Auto Policy" with NJM
that had a $500,000 UIM limit. Breen and her mother certified
that Breen was a Cardinell employee, and that they had informed
NJM annually that Breen operated company vehicles and should be
insured under the policy. NJM contested Breen's status as an
employee or as a person identified in the policy as an operator
of the business vehicles. The vehicles covered by the NJM policy
included a 1
989 Honda and 1988 Mazda leased to Cardinell Products
by Breen's mother. The uninsured (UM) and UIM coverage under the
NJM policy expressly applied to family members of the named
insureds. The named insureds included Cardinell Products and Mr.
and Mrs. Pilcer.
After settling with Shulman for $95,000, Breen claimed UIM
benefits under Cardinell's NJM policy and asked to arbitrate the
amount of damages. Before arbitration commenced, NJM offered to
settle for $300,000. Breen rejected the offer. The arbitrators
heard testimony in May 1995 and suspended the proceedings to
allow the parties to submit medical reports.
On June 8, 1995, this Court issued its decision in Aubrey v.
Harleysville Insurance Cos.,
140 N.J. 397 (1995). In July 1995,
NJM filed a declaratory judgment action seeking a stay of the
arbitration and an order barring Breen from collecting under
Cardinell's policy because it was not "personal" to her. In
September 1995, the Law Division ordered arbitration to proceed.
The arbitrators entered a $325,000 award in favor of Breen in
October 1995. In March 1996, the Law Division, citing Aubrey,
determined that Breen was not entitled to UIM benefits under the
Cardinell policy.
The Appellate Division reversed, concluding that although
Aubrey barred Breen's access to the Cardinell UIM policy Aubrey
should have prospective effect only. New Jersey Mfrs. Ins. Co.
v. Breen,
297 N.J. Super. 503, 514-15 (App. Div. 1997). During
oral argument before the Appellate Division, NJM conceded that it
would have recognized Breen as an insured if Aubrey had not
overruled Landi v. Gray,
228 N.J. Super. 619 (App. Div. 1988),
because its policy stated that Breen's parents, and not merely
Cardinell, were named insureds. Breen, supra, 297 N.J. Super. at
506. The Appellate Division agreed with that understanding of
the policy, stating that "[o]nly human beings are entitled to
compensation under an underinsured motorist clause." Ibid.
Because NJM presumably collected premiums for the UIM coverage,
the court observed that the parties reasonably expected that the
policy would be interpreted as though Breen's parents were named
insureds, with the result that Breen would receive coverage as a
family member of named insureds. Id. at 506-07 (citing Werner
Indus. v. First State Ins. Co.,
112 N.J. 30, 35 (1988)).
Acknowledging that the undisputed facts in Breen were analogous
to the facts in Landi, the court noted that, prior to Aubrey,
Breen would have been entitled to UIM benefits from Cardinell's
policy. Breen, supra, 297 N.J. Super. at 511. However, the
court determined that because Aubrey overruled Landi Breen was
not entitled to UIM coverage under the Cardinell policy. Ibid.
The court observed that Aubrey, by overruling Landi,
"effected a substantial change in the law." Ibid. It noted that
prior to Aubrey the UIM form prescribed by the Department of
Insurance indicated that accident victims could recover under
policies purchased by other family members living in the same
household, and that family members were entitled to rely on that
language in planning their insurance purchases. Id. at 512.
"[T]he insurance companies undoubtedly calculated and collected
premiums" based on the understanding that their policies covered
people other than the named insureds. Ibid. The court
determined to limit Aubrey to prospective effect because "buyers
and sellers of automobile insurance should have a reasonable
opportunity to react to the Aubrey decision," and because State
regulators and legislators might also appreciate the chance to
adjust to the change. Id. at 513.
The court concluded that the conditions necessary for
prospective application of Aubrey were met: Aubrey overruled
past precedent on which parties may have relied; giving Aubrey
prospective effect would further, not detract from, the new rule;
and giving Aubrey retrospective effect would threaten to impose
substantial hardship. Id. at 513-14 (citing Coons v. American
Honda Motor Co.,
96 N.J. 419 (1984), cert. denied,
469 U.S. 1123,
105 S. Ct. 808,
83 L. Ed.2d 800 (1985)). We granted NJM's
petition for certification.
149 N.J. 408 (1997).
Preliminarily, we note that our decision in French explained with more specificity the vulnerability of the Landi decision that Aubrey overruled. In Landi, supra, 228 N.J. Super. at 620-21, the plaintiff was seriously injured when a friend driving her brother's vehicle, in which she was a passenger, caused the vehicle to collide with a tree when it veered off the road. The plaintiff collected $15,000 from the liability portion of her brother's policy that insured the driver as a permissive user. Id. at 621. The plaintiff's personal auto policy afforded her UIM coverage of $15,000 and with respect to that policy her brother's vehicle was not underinsured. Id. at 623. However, as a resident of her mother's household, she sought the $100,000 UIM coverage available under her mother's automobile policy. Id. at 621. That policy contained the following exclusion: "Neither 'uninsured motor vehicle' nor 'underinsured motor vehicle' includes any vehicle . . . [o]wned by or furnished or available for the regular use of you or any family member." Ibid. Thus, the policy by its terms did not provide UM or UIM coverage if the vehicle driven by the tortfeasor belonged to a family member. The trial court invalidated the exclusion as contrary to public policy. Ibid. The Appellate Division affirmed, concluding that
as a matter of public policy insurers are not permitted to
restrict the scope of UIM coverage by excluding vehicles owned by
family members from the definition of underinsured vehicles. Id.
at 622-23.
Although Aubrey's disapproval of Landi could be interpreted
to rest on the use of the plaintiff's mother's policy rather than
her own as the standard for determining eligibility for UIM
coverage, we explained in French that the critical analytical
flaw in Landi was its invalidation of the exclusion. French,
supra, 149 N.J. at 490-92. We held that "no public policy or
statute prevents the exclusion of UIM coverage when it is the
underinsured vehicle of the resident family member that causes
the injury." Id. at 492. In the same context, however, we
observed in French that "no public policy or statute should
prevent a parent from providing UIM coverage for a resident-child
greater than the child might have on a personal auto so long as
the risk is understood and accepted by the insurance company."
We also noted the likelihood that a parent would bear the burden
of a child's unreimbursed medical expenses. Ibid. Accordingly,
as amplified by French, our disapproval of Landi should be
understood to refer only to the Landi court's invalidation of the
exclusion of UIM coverage when an underinsured vehicle of a
resident family member caused the claimant's injury. 228 N.J.
Super. at 622.
In Magnifico, supra, ___ N.J. at ___ (slip op. at 11), we
reiterated our observation in French that Aubrey had been
misunderstood by some courts to restrict claimants seeking UIM
coverage only to the coverage provided by their personal
policies:
[W]e note the problem that Aubrey has
apparently been interpreted by some courts as
establishing the UIM policy purchased by the
injured person as not only the policy of
"comparison" (for the purpose of gauging
whether a UIM claim exists in the first
place) but also as the only UIM policy that
the injured person has resort to once that
threshold test is met. That is simply too
broad a reading. Indeed, other portions of
the statute and the standard uninsured/
underinsured motorist endorsement approved by
the Commissioner of Insurance plainly
envision one potentially being able to secure
benefits under more than one UIM endorsement.
[French, supra, 149 N.J. at 486.]
We also noted in French that a policy "held" by the claimant for
purposes of satisfying the statutory standard that determines
whether a tortfeasor's vehicle is underinsured need not
necessarily be the policy purchased by the claimant. Id. at 487.
See also Tyler v. New Jersey Auto. Full Ins. Underwriting Ass'n,
228 N.J. Super. 463, 466 (App. Div. 1988) (noting that a
tortfeasor is underinsured "relative to the limits of the
underinsured motorist coverage purchased by or for the person
seeking recovery") (emphasis added). We also emphasized in
French that once a claimant satisfies the threshold for UIM
coverage
the statute contemplates that the insured is
free to pursue UIM benefits under other
policies under which he or she may be
insured--whether under his or her personal
policy, as the occupant of an employer's
vehicle, the permissive occupant of a motor
vehicle owned by any other insured person, or
as the resident in the household of a
relative possessing his or her own UIM
insurance. Each of those UIM policies is
opened up to the insured once the threshold
test is met.
[149 N.J. at 495 (emphasis added).]
In Magnifico, supra, ___ N.J. at ___ (slip op. at 14), we
also noted that the portion of the New Jersey Auto Insurance
Buyers Guide (Guide), the content of which is prescribed by
regulation, N.J.A.C. 11:3-15.6, states that the coverage provides
benefits to "you [the insured], your passengers or relatives
living with you if a motorist without insurance is legally liable
for injuries to these persons . . . ." We noted that the
reference to coverage providing benefits to "your passengers or
relatives living with you" is included in a paragraph describing
UM coverage, but we concluded that the Guide necessarily should
be understood as indicating that those categories of
beneficiaries also would benefit from UIM coverage purchased by
the insured. Magnifico, supra, ___ N.J. at ___ (slip op. 14-15).
In French, we left no room for doubt that the critical
factor in UIM coverage litigation is the policy language, and
stressed that the ultimate result in Aubrey, Landi, and French
itself was dictated by the literal language of the policy:
In Aubrey, the plain language of the
step-down provisions of the dealer's policy
limited the available liability coverage and
consequently the UIM coverage to the same
amount as Aubrey's policy. Aubrey "held" no
UIM coverage greater than the limits of
liability held by the negligent operator. In
Landi, the plain language of her mother's
policy limited the UIM coverage available to
Dawn when the operation of another family car
caused her injuries. She thus "held" no UIM
coverage greater than the tortfeasor's. In
this case, the plain language of the policy
and the undoubted common intent of the
parties to the UIM contract is that the
policy covers the bus driver as an employee
of the school district. The language of the
policy is unambiguous in this regard. The
UIM endorsement covers anyone "occupying a
covered auto." By whom is a policy of the
fictitious being of a corporation "held" if
not by corporate employees? Diana French
thus "held" UIM coverage greater than the
tortfeasor's liability coverage.
[French, supra, 149 N.J. at 494.]
The policy language controls the result of this appeal as well. We need not attempt to resolve the factual dispute over Breen's status as an employee of Cardinell. But there is no dispute that Breen resided with her parents Sally and Walter Pilcer when the accident occurred, or that the Pilcers were named insureds under the Cardinell policy. That policy's UIM coverage applied expressly to named insureds or any family member of named insureds, and the policy defined "family member" to mean "a person related to you by blood, marriage or adoption who is a resident of your household. . . ." We have no doubt, based on
the unambiguous language of the Cardinell policy, that that
policy's UIM coverage was "held" by Ms. Breen within the meaning
of that term as used in N.J.S.A. 17:28-1.1e. Because Breen
"held" UIM coverage greater than the tortfeasor's coverage, the
UIM coverage under the Cardinell policy was available to
compensate her for her injuries. We note that the Appellate
Division recently reached the same conclusion in a case involving
facts closely analogous to those presented here. See Barnett v.
Prudential Property & Cas. Ins. Co.,
304 N.J. Super. 573 (1997).
Although we hold that the Cardinell policy's UIM coverage
constitutes a policy "held" for Ms. Breen for purposes of
determining whether the tortfeasor's vehicle is underinsured, we
note, as we did in French, supra, 149 N.J. at 494, that policy
drafters can attempt to address issues of UIM coverage by
modifications of policy language. Under the standard form of the
1996 insurance agreement on file with the Department of
Insurance, a vehicle is not considered underinsured
with respect
to a person not named as an insured under the policy in question
but named as an insured under her own policy, unless the
liability limit under her own policy exceeds that of the
tortfeasor's vehicle. Under that formulation the tortfeasor's
vehicle in this appeal would not have been underinsured with
respect to Ms. Breen.
As noted, supra, at ___ (slip op. at 4-5), the Appellate
Division assumed that because Aubrey disapproved the decision in
Landi v. Gray, supra,
228 N.J. Super. 619, Ms. Breen could not
recover UIM benefits under the Cardinell policy. In an effort to
avoid that result in this and other cases, the Appellate Division
determined that Aubrey had effected a substantial change in the
law and that insofar as it overruled Landi it should be applied
only prospectively. 297 N.J. Super. at 513-15. We have now
clarified that "our disapproval of Landi should be understood to
refer only to the Landi court's invalidation of the exclusion of
UIM coverage when an underinsured vehicle of a resident family
member caused the claimant's injury." Supra at ___ (slip op. at
7); accord Barnett, supra, 304 N.J. Super. at 582-84. Thus, the
Appellate Division's holding that Aubrey should be applied only
prospectively was not required to sustain the result reached by
that court.
The Association of Trial Lawyers as amicus curiae
participated in this appeal and urged that we affirm the
Appellate Division's disposition to the extent that it accorded
Aubrey only prospective effect, and asserted that Aubrey should
be applied prospectively only to policies issued or renewed after
June 8, 1995, in order to avoid prejudicing persons covered by
policies issued prior to our decision in Aubrey.
As noted, the retroactive application of Aubrey is not an
issue requiring resolution in connection with this appeal.
Moreover, as clarified by French, we do not foresee that Aubrey's
holding will present significant questions of prospective
application in future cases. Accordingly, we decline to address
the issue.
We disapprove of those portions of the Appellate Division's
disposition that determined that the retroactivity of Aubrey was
germane to the result and that accorded Aubrey only prospective
effect. As modified, we affirm the judgment of the Appellate
Division.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, POLLOCK, O'HERN,
GARIBALDI, and COLEMAN join in JUSTICE STEIN's opinion.
NO. A-58 SEPTEMBER TERM 1997
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
NEW JERSEY MANUFACTURERS
INSURANCE COMPANY,
Plaintiff-Appellant,
v.
RUTH BREEN,
Defendant-Respondent.
DECIDED May 12, 1998
Chief Justice Poritz PRESIDING
OPINION BY Justice Stein
CONCURRING OPINION BY
DISSENTING OPINION BY