Clegg v. New Jersey Auto. Full Underwriting Ass'n By and Through Cigna Ins. Co.

• Decision Date: 12 March 1992
• Citation: Clegg v. New Jersey Auto. Full Underwriting Ass'n By and Through Cigna Ins. Co., 604 A.2d 179, 254 N.J.Super. 634 (N.J. Super. App. Div. 1992)
• Parties: F. Carol CLEGG and Robert J. Clegg, husband and wife, individually and t/a Smeltzer Realty Co., Plaintiffs-Respondents, v. NEW JERSEY AUTOMOBILE FULL UNDERWRITING ASSOCIATION, By and Through its servicing carrier, CIGNA INSURANCE COMPANY, both licensed to do business in the State of New Jersey, and Mary Smeltzer, Defendants-Appellants, and Camden Fire Insurance Company Association, Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 634

254 N.J.Super. 634

604 A.2d 179

F. Carol CLEGG and Robert J. Clegg, husband and wife individually and t/a Smeltzer Realty Co. Plaintiffs-Respondents, v. NEW JERSEY AUTOMOBILE FULL UNDERWRITING ASSOCIATION, By and Through its servicing carrier, CIGNA INSURANCE COMPANY, both licensed to do business in the State of New Jersey, and Mary Smeltzer, Defendants-Appellants and Camden Fire Insurance Company Association, Defendant.

Superior Court of New Jersey Appellate Division.

Submitted Feb. 13, 1992.

Decided March 12, 1992.

Yampell, Nicodemo & Caruthers, Haddonfield, for defendant-appellant New Jersey Auto. Full Ins. Underwriting Ass'n (Donald Caruthers, III, on the brief).

Asbell & Kushner, West Collingsword, for plaintiffs-respondents F. Carol and Robert J. Clegg, individually and t/a Smeltzer Realty Co. (Andrew Kushner, on the brief).

Quinlan, Dunne & Higgins, Merchantville, for plaintiff-respondent Mary L. Smeltzer (Timothy J. Higgins, on the letter brief).

Before Judges GAULKIN, ROBERT MUIR, Jr. and LANDAU.

LANDAU, J.A.D.

This appeal requires us to determine an issue respecting proration of underinsured motorist ("UIM") coverage where the insured owner of one car, his spouse and an independently insured passenger suffered damages resulting from an accident with an underinsured vehicle, and each policy required proration of UIM benefits under defined circumstances.

Our opinion affirms a Law Division determination which required that UIM coverage under the owner's policy be applied first against the shortfall in recovery suffered by him and his wife before proration with the passenger's own UIM policy coverage.

On November 18, 1989, plaintiff Carol Clegg ("Carol") was driving a motor vehicle registered in the name of her husband, plaintiff Robert J. Clegg ("Robert"), when it was struck by another vehicle owned and operated by William Kovalski, now deceased. Defendant Mary Smeltzer ("Smeltzer") was a passenger in the Clegg vehicle at the time of the accident. The parties appear to concur that Kovalski's negligence was the sole cause of the accident, although the record does not confirm whether such a determination has been conclusively made. Carol and Smeltzer were seriously injured. Robert was deprived of Carol's services.

Kovalski's automobile insurance policy issued by Liberty Mutual Insurance Company provided for $100,000 combined single limit coverage. The Cleggs and Smeltzer recovered $43,688.33 respectively from the Kovalski policy, representing an equal allocation of the available benefits under that policy after payment to the lessor for damage to the Kovalski vehicle.

At the time of the accident, Robert and Smeltzer each were insured for single limit UIM coverage of $500,000 under their respective automobile policies. Since the institution of this action, an arbitration panel has determined Carol's damages to be $575,000, and Robert's loss of consortium damages to be $75,000. Smeltzer's insurance carrier has stipulated that her damages exceed $500,000.

Robert Clegg, individually and t/a Smeltzer Realty Co., is the insured named on the Declarations sheet of a policy issued by defendant Camden Fire Insurance Association ("Camden"). As we note infra, Carol is treated identically in the Camden policy with the named insured shown in the Declarations, because she is a spouse resident in the same household. By contrast, Smeltzer is an insured person under the Camden policy because of her status as an occupant of a covered auto. Smeltzer's own UIM coverage is written under a policy issued by defendant New Jersey Full Insurance Underwriting Association ("JUA").

The present controversy arose when the Cleggs and Smeltzer presented UIM claims to their own carriers for the full amount of their respective UIM coverages. The claims of each would exhaust their own UIM coverage. Because of proration provisions in the two policies, however, a question arose whether Smeltzer was entitled to share equally in the UIM coverage provided under the Clegg policy.

The Cleggs sought arbitration with Camden pursuant to a clause in their contract of insurance. Unsuccessful in effecting arbitration, the Cleggs filed an Order to Show Cause and Verified Complaint in the Law Division naming as defendants Camden, JUA and Smeltzer. After hearing, the trial judge entered an Order for Judgment which, among other things, compelled arbitration of the Cleggs' claim and declared that JUA was not entitled to pro rata or other contribution from the Camden policy. Finding UIM coverage to be "personal" to the insured, the judge ruled that each policyholder should recover under his own policy and thereby receive what he had bargained and paid for. In the judge's view, the proration provisions were not authorized by statute, legislative intent or interpretive case law, and should not be enforced to reduce the Clegg's recovery for their own injuries to less than the UIM limits they purchased.

JUA then filed this appeal, contending that Smeltzer, as a passenger, was entitled to share equally in the UIM benefits provided under the Cleggs' policy with Camden. ¹ Pending disposition of the appeal, each carrier has paid its own policyholders 50% of their unsatisfied UIM claim and deposited the remaining 50% with the court.

The policies in issue each contain a clause which refers to proration of benefit payments when more than one policy covers a given loss. The Camden policy provides:

HOTHER INSURANCE * * *

For any covered auto you don't own, the insurance provided ... is excess over any other collectible insurance.

When two or more policies cover on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the limit of our policy bears to the total of the limits of all the policies covering on the same basis.

(emphasis supplied). The corresponding provision of Smeltzer's JUA policy reads:

OTHER INSURANCE

If there is other similar insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits.

However, any insurance we provide with respect to a vehicle you do not own ... shall be excess over any other collectible insurance.

(emphasis supplied).

The trial judge's characterization of UIM coverage as "personal" to the insured has some support in that the coverage is linked to the insured rather than to the covered vehicle. See Fernandez v. Selected Risks Ins. Co., 82 N.J. 236, 241, 412 A.2d 755 (1980). UIM furnishes coverage both supplemental and optional, "provid[ing] as much coverage as the insured is willing to purchase," Nikiper v. Motor Club of America, 232 N.J.Super. 393, 399, 557 A.2d 332 (App.Div.), certif. den., 117 N.J. 139, 564 A.2d 863 (1989), for his or her protection subject only to the owner's policy liability limits for personal injury and property damage to others. See N.J.S.A. 17:28-1.1b. The UIM mechanism assures that an insured will receive benefits up to the amount contracted for, whether these come from the tortfeasor's policy or from that policy coupled with his own. See ...