Doto v. Russo

• Decision Date: 29 June 1995
• Citation: 140 N.J. 544,659 A.2d 1371
• Parties: , 52 A.L.R.5th 873 Gerard DOTO and Maria Doto, his wife, Plaintiffs-Respondents, v. Anthony RUSSO and Russo Agency, Defendants-Respondents, and Utica Mutual Insurance Co., Defendant-Appellant.
• Court: New Jersey Supreme Court

Page 544

140 N.J. 544

659 A.2d 1371, 52 A.L.R.5th 873

Gerard DOTO and Maria Doto, his wife, Plaintiffs-Respondents, v. Anthony RUSSO and Russo Agency, Defendants-Respondents, and Utica Mutual Insurance Co., Defendant-Appellant.

Supreme Court of New Jersey.

Argued Feb. 15, 1995.

Decided June 29, 1995.

Robert D. Kretzer, Jersey City, argued the cause, for appellant (Lamb, Hartung, Kretzer, Reinman & DePascale, attorneys).

E. Carter Corriston, Hackensack, 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, Short Hills, 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).

I

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 policies. 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...