Aubrey v. Harleysville Ins. Companies

• Court: New Jersey Supreme Court
• Writing for the Court: POLLOCK
• Citation: Aubrey v. Harleysville Ins. Companies, 658 A.2d 1246, 140 N.J. 397 (N.J. 1995)
• Decision Date: 08 June 1995
• Parties: Theresa AUBREY, Plaintiff-Respondent, v. The HARLEYSVILLE INSURANCE COMPANIES, Defendant-Appellant.

Page 397

140 N.J. 397

658 A.2d 1246

Theresa AUBREY, Plaintiff-Respondent, v. The HARLEYSVILLE INSURANCE COMPANIES, Defendant-Appellant.

Supreme Court of New Jersey.

Argued Jan. 31, 1995.

Decided June 8, 1995.

J. Robert McGroarty, Deptford, for appellant.

Robert A. Porter, Cherry Hill, for respondent (Friedman, Bafundo & Porter, attorneys).

The opinion of the Court was delivered by

POLLOCK, J.

The issue is whether plaintiff, Theresa Aubrey, a purchaser under contract of an automobile from Chris Koch Toyota (Koch), is covered under the underinsured motorist (UIM) provisions of a garage policy issued to Koch by defendant, The Harleysville Insurance Companies (Harleysville), for injuries Aubrey sustained while operating a loaned automobile with Koch's permission. The Law Division granted Harleysville's motion for summary judgment, finding that "the step-down" clause in the liability section of the Harleysville policy denied coverage to Aubrey. The Appellate Division reversed, holding that Aubrey was covered under the UIM provision of the Harleysville policy and that the step-down clause did not apply. 274 N.J.Super. 237, 643 A.2d 1043 (1994). We granted Harleysville's petition for certification, 138 N.J. 266, 649 A.2d 1286 (1994). We reverse the judgment of the Appellate Division and reinstate that of the Law Division.

I

On January 5, 1991, Aubrey signed a contract with Koch to purchase a new 1991 Toyota Tercel. As part of the agreement, Aubrey traded in her 1989 Hyundai. Koch retained title to the Toyota, but gave Aubrey permission to drive it pending approval of her application for a car loan.

Aubrey was insured under an automobile liability policy issued by the Policy Management Corporation Insurance Company PMC). The PMC policy provided UIM limits of $15,000 and liability limits of $15,000 for injury to one person and $30,000 for injuries to more than one person.

Aubrey's loan application was rejected on January 9, 1991, but Koch told her to "keep using the car" while it tried to find another lender. On January 11, 1991, while driving the Tercel, Aubrey sustained serious personal injuries in a three-car accident. The insurers for the other drivers settled Aubrey's claim by paying their policy limits, $25,000 and $15,000, respectively, or a total of $40,000.

N.J.S.A. 17:28-1e states in part that a motor vehicle is underinsured when the "sum of the limits of liability ... available to a person against whom recovery is sought ... 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." The $40,000 that Aubrey received from the insurance carriers of the other drivers exceeded her $15,000 UIM limits. Hence, she was not "underinsured" under N.J.S.A. 17:28-1e and could not recover UIM benefits under her own policy. Her damages, however, exceeded $40,000. Consequently, Aubrey sought recovery under the UIM provisions of the Harleysville policy, which insured Koch for $1,000,000 in liability and UIM coverage.

In a letter to Aubrey's lawyers, Harleysville denied coverage:

It is the position of this company that UIM coverage is personal to the claimant and the tortfeasor's coverage is measured against the UIM coverage which the claimant has purchased in the policy held by the claimant personally. Since in this case, [the tortfeasor's] policy was $25,000.00 and your client's UM/UIM coverage was $15,000.00, it follows that the [tortfeasor] was not underinsured as that term is defined in the New Jersey Statute.

Section 11(a) of the Harleysville policy, dealing with liability coverage, generally excludes car-dealership customers from coverage. The "step-down" clause in subsection 11(a)(2)(d), however, provides liability coverage for customers to the minimum required by law. It provides higher coverage limits for the Koch dealership and its employees, but reduces coverage for Koch's customers.

The liability section of the policy states in relevant part:

WHO IS AN INSURED

a. The following are "insureds" for covered "autos:"

(1) You for any covered "auto."

(2) Anyone else while using with your permission a covered "auto" you own, hire or borrow except:

* * * * * *

(d) Your customers, if your business is shown in the Declarations as an "auto" dealership. However, if a customer of yours:

(i) Has no other available insurance (whether primary, excess or contingent), they are an "insured" but only up to the compulsory or financial responsibility law limits where the covered "auto" is principally garaged.

(ii) Has other available insurance (whether primary, excess or contingent) less than the compulsory or financial responsibility law limits where the covered "auto" is principally garaged, they are an "insured" only for the amount by which the compulsory or financial responsibility law limits exceed the limit of their other insurance.

In contrast, the Harleysville UIM endorsement does not contain a "step-down" clause. That endorsement defines "insured" to include any person "occupying a covered auto." The parity provision of N.J.S.A. 17:28-1.1b, however, states that an insured's UIM coverage "shall not exceed the insured's motor vehicle liability policy limits...." Thus, the question arose whether Aubrey's right to recover, if any, would extend to the $1,000,000 limit of the UIM clause or would be limited, because of the parity provision and the step-down clause, to $15,000.

To resolve that question, Aubrey instituted an action in the Law Division seeking, in part, a determination that under the Harleysville UIM clause she was a "covered person." Harleysville filed a cross-motion seeking dismissal.

The Law Division granted Harleysville's cross-motion, stating that the step-down clause in the liability section of the Harleysville policy limited Aubrey's UIM claim "to the amount of insurance required by the state wherein the vehicle is garaged or operated, the minimum amount which is 15/30 in New Jersey."

In reversing, the Appellate Division held that the UIM clause, not the liability clause, governed. 274 N.J.Super. at 241, 643 A.2d 1043. It concluded that under the UIM endorsement Aubrey was entitled to recover up to $1,000,000.

The Appellate Division reasoned that the UIM endorsement explicitly states that "anyone ... occupying a covered auto" is insured. As the court stated, "[Harleysville] admitted that the Toyota was a 'covered auto.' Thus, [Aubrey] is an insured." Id. at 240, 643 A.2d 1043.

For two reasons, the court found that the step-down clause in the liability section did not apply. First, the court emphasized that the step-down clause is "contained solely in the liability provisions of the policy. It is neither repeated in the UIM endorsement nor cross-referenced thereto in anyway." Id. at 241, 643 A.2d 1043. The court noted that Harleysville could have limited its UIM exposure by including a step-down clause in the UIM endorsement; "it simply did not do so and the step-down clause in its liability provisions do not apply to [Aubrey]." Id. at 243, 643 A.2d 1043.

Second, the court held that even if the step-down clause could limit the UIM coverage, the limitation did not apply to Aubrey "on its face." Id. at 241, 643 A.2d 1043. According to the court, the step-down clause applied only to those customers who had no insurance or inadequate insurance. The court reasoned that Aubrey was insured and that her policy limits satisfied the statutory minimum. Thus, the step-down clause did not apply to her.

Lastly, the Appellate Division dismissed Harleysville's claim that UIM coverage is personal to the insured and that Aubrey could seek recovery only under her PMC policy. The court relied on two statutory provisions. First, it looked to N.J.S.A. 17:28-1.1b, which states that UIM coverage shall not "exceed the insured's motor vehicle policy limits for bodily injury and property damage." Second, it turned to N.J.S.A. 17:28-1.1e, which states that whether a vehicle is underinsured depends on determining the "applicable limits for underinsured motorist coverage afforded under the motor vehicle insurance policy held by the person seeking that recovery." The court construed "held by the person" to include "policies pursuant to which the person is an insured, regardless of who may have purchased the policy." 274 N.J.Super. at 243, 643 A.2d 1043.

II

Stated in full, the UIM statute, N.J.S.A. 17:28-1.1e, provides:

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.

In effect, the statute states that the determination whether a vehicle is underinsured requires ascertaining whether the liability limits of the person "against whom recovery is sought" are "less than" the amount of UIM coverage "held by the person seeking that recovery."

Unlike the Appellate Division, we conclude that UIM coverage, which is limited to the amount contained in the insured's policy, is "personal" to the insured. Coverage is linked to the injured person, not the covered vehicle. Fernandez v. Selected Risks Ins. Co., 82 N.J. 236, 241, 412 A.2d 755 (1980). UIM coverage provides "as much coverage as the insured is willing to purchase, for his or her protection subject only to the owner's policy liability limits for personal injury and property damages to others." Prudential Property & Casualty Ins. Co. v. Travelers Ins. Co., 264 N.J.Super. 251, 259-60, 624 A.2d 600 (App.Div.1993); see also Clegg v. New Jersey Automobile Full Underwriting Ass'n, 254 N.J.Super. 634, 638, 604 A.2d 179 (App.Div.1992) (stating that UIM coverage...