Federal Ins. Co., Chubb/Pacific Indem. Co. v. Liberty Mutual Ins. Co.

• Decision Date: 03 August 1983
• Citation: 190 N.J.Super. 605,464 A.2d 1197
• Parties: FEDERAL INSURANCE COMPANY, CHUBB/PACIFIC INDEMNITY GROUP, Defendant-Third Party Plaintiff-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Third Party Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 605

190 N.J.Super. 605

464 A.2d 1197

FEDERAL INSURANCE COMPANY, CHUBB/PACIFIC INDEMNITY GROUP Defendant-Third Party Plaintiff-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Third Party Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued March 15, 1983.

Decided Aug. 3, 1983.

John J. Scanlon, New Providence, for defendant-third party plaintiff-appellant.

John F. O'Donnell, Montclair, for defendant-third party defendant-respondent (Joan B. Sherman, attorney, Freehold, John F. O'Donnell, Montclair, on the brief).

Before Judges BOTTER, POLOW and BRODY.

The opinion of the court was delivered by

BOTTER, P.J.A.D.

This appeal involves a dispute between two insurance companies over the obligation for PIP (personal injury protection) benefits claimed by plaintiff, Dr. Ellmers, who was injured in a one-car accident. At the time, Dr. Ellmers was driving a leased car insured by Liberty Mutual Insurance Company (Liberty). By operation of law, N.J.S.A. 39:6A-2(g), he was also a named insured under the Federal Insurance Company (Federal) policy covering a car owned by his wife. The main issue on this appeal is whether Federal has the primary obligation for PIP benefits owed to Dr. Ellmers under the no-fault law ( N.J.S.A. 39:6A-1 et seq.), or whether N.J.S.A. 39:6A-11 requires that the obligation be shared between Federal and Liberty. On cross-motions for summary judgment brought by the third-party plaintiff and third-party defendant, the trial judge held that the PIP coverage provided under the Federal policy was "primary coverage" and that the PIP coverage under the Liberty policy was "secondary coverage." This appeal followed, ¹ and we now reverse.

The facts in this case are not in dispute. On January 8, 1978, Dr. Ellmers was driving a car which he had leased from Mullane Ford (Mullane) of Bergenfield, New Jersey. The car was covered by Liberty's insurance policy issued to The Ford Motor Company and other insureds, probably including the lessor, Mullane. The record is unclear as to the other named insureds on the Liberty policy but the case was decided on the premise that Dr. Ellmers was not a named insured on that policy. The Liberty policy did contain the "basic" New Jersey PIP endorsement. Dr. Ellmers was a named insured on Federal's policy issued to his wife. N.J.S.A. 39:6A-2(g) defines the term "named insured" to include the person identified in the policy as the insured and "if an individual, his or her spouse."

After the accident, Federal paid Dr. Ellmers approximately $23,000 in PIP benefits and then discontinued payments. ² Dr Ellmers sued Federal for unpaid benefits which he claimed were due him, and Federal asserted a claim against third-party defendant Liberty. By amended complaint, plaintiff made claim against both insurance companies. The Federal policy contained optional additional PIP coverage made available pursuant to N.J.S.A. 39:6A-10. The Liberty policy did not contain such expanded coverage, but as noted above, it did contain the "basic" coverage required by N.J.S.A. 39:6A-4. The effect of the decision below was that Federal's coverage would have to be exhausted before Liberty became obligated to pay any additional unpaid PIP benefits to plaintiff.

Under N.J.S.A. 39:6A-4, every automobile liability insurance policy issued in this state for liability arising out of the ownership, operation, maintenance or use of an automobile must provide for payment of PIP benefits without regard to fault. Coverage is afforded to the named insured and family members residing in his household who are injured in an accident involving any automobile. Also covered are other persons who are injured while occupying or using the named insured's automobile with his permission as well as pedestrians injured by the named insured's automobile or struck by an object propelled by or from that automobile. Thus, under the no-fault law, as the driver of the rented car which was registered in New Jersey, Dr. Ellmers was covered for PIP benefits by Liberty. As a named insured he was also covered by the Federal policy. Nothing in the no-fault law expresses a priority in the order of payment from one insurer or another. ³ On the contrary, N.J.S.A. 39:6A-11 (section 11) provides for a sharing of the obligation for PIP benefits among "two or more insurers who are liable to pay" such benefits. ⁴ N.J.S.A. 39:6A-11 provides in full as follows:

39:6A-11. Contribution among insurers.

If two or more insurers are liable to pay benefits under sections 4 and 10 of this act for the same bodily injury, or death, of any one person, the maximum amount payable shall be as specified in sections 4 and 10 if additional first party coverage applies and any insurer paying the benefits shall be entitled to recover from each of the other insurers, only by inter-company arbitration or inter-company agreement, an equitable pro-rata share of the benefits paid.

This statute has previously been interpreted by this court in Selected Risks Ins. Co. v. Allstate Ins. Co., 179 N.J.Super. 444, 449, 432 A.2d 544 (App.Div.1981), certif. den. 88 N.J. 489, 443 A.2d 705 (1981). There we said that the statute was "clear on its face" and contained "no provisions ... for relegating one insurer to a classification as the primary insurer and another as a secondary insurer." 179 N.J.Super. at 449, 432 A.2d 544. The opinion in Selected Risks reasoned that the Legislature must have known that individuals with their own insurance would be living in family households in which other members had separate automobile insurance, creating multiple coverage for all household family members. As our later discussion will show, such coverage may be referred to as first-party coverage in the traditional sense. The court in Selected Risks concluded that, in the face of such multiple coverage, rather than establish priorities in liability for PIP benefits, the Legislature in section 11 provided for a sharing of losses on "an equitable pro-rata" basis by inter-company agreement or arbitration.

The holding in Selected Risks is quite persuasive. Before discussing the rationale for a different conclusion, we should note that in Selected Risks one insurer paid PIP benefits to its own injured insured and sought a 50% contribution by arbitration from the company whose insurance policy covered the mother of the injured insured who resided with him. This is a typical case of first-party coverage, since the coverage for the injured insured afforded by his mother's policy had nothing to do with any possible liability that the mother would have for such injuries. First-party coverage is said to be coverage for an insured's own loss or injury, including medical expense or property damage, in contrast to third-party coverage which insures against liability of the insured for injury to a third party or his property. Reese v. State Farm Mut. Auto. Ins. Co., 285 Md. 548, 551-552, 403 A.2d 1229, 1231-1232 (Ct.App.1979). PIP coverage is generally referred to as first-party coverage. Garden State Fire & Casualty Co. v. Commercial Union Ins. Co., 176 N.J.Super. 301, 304-306, 422 A.2d 1327 (App.Div.1980) (holding that a carrier providing excess liability coverage without provision for paying "first-party PIP benefits" was not liable to the injured person's "primary carrier" who paid PIP benefits). See also N.J.S.A. 39:6A-10 and -11 which use the term "first-party coverage" in connection with additional limits of PIP benefits which are available on an optional basis.

There is some evidence that conflicts with the view that section 11 intended a sharing of PIP benefits paid to all classes of claimants among all carriers that might be liable. Pursuant to the authority of N.J.S.A. 39:6A-19, the Commissioner of Insurance issued a regulation, N.J.A.C. 11:3-7.4, not discussed in Selected Risks, supra, which states:

The policy form or endorsement providing the personal injury protection benefits shall provide that Section 4 benefits shall be afforded by the insurer of the injured person.

This regulation is not clear, since the "insurer of the injured person" could be any carrier liable for PIP benefits. At most the regulation implies that the insured's own insurer is the primary obligor. Nevertheless, the regulation has been interpreted to mean that the primary obligation for PIP benefits falls upon the carrier issuing a policy in which the injured person is a named insured or a family member of his household, since such persons are covered regardless of the vehicle causing their injury. Mario A. Iavicoli, formerly counsel to the Automobile Insurance Study Commission (Cirelli v. The Ohio Casualty Ins. Co., 72 N.J. 380, 387, n. 4, 371 A.2d 17 (1977)), writes:

An insurer's obligation to make benefit payments on a primary basis or secondary basis has been the subject of regulation by the Commissioner of Insurance. The Commissioner has promulgated regulations which provide that in the event multiple insurance policies extend coverage to an injured individual, the primary coverage will be extended to such injured individual by that insurer whose policy identifies the injured individual in question as the named insured (or his relative) within such insurer's policy [citing N.J.A.C. 11:3-7.4]. Other insurance policies which extend coverage to the injured individual are secondary coverage whenever the injured individualis not a named insured (or his relative) within such other insurance policies. Whenever the injured individual is not a named insured (or his relative) in any of the insurance policies which extend coverage to such injured individual, then in such event such policies extending insurance to such injured individual are primary coverage. [Iavicoli, No Fault & Comparative Negligence in New Jersey, § 10 at 38-39 (1973).]

Referring apparently to endorsements submitted by insurers which have not been disapproved by the Commissioner of Insurance, Mr....