Green v. Selective Ins. Co. of America

• Citation: 676 A.2d 1074,144 N.J. 344
• Parties: Robert GREEN, Plaintiff-Appellant, v. SELECTIVE INSURANCE COMPANY OF AMERICA (Selected Risks Insurance Company), Defendant-Respondent.
• Decision Date: 12 June 1996
• Court: New Jersey Supreme Court

Page 344

144 N.J. 344

676 A.2d 1074

Robert GREEN, Plaintiff-Appellant, v. SELECTIVE INSURANCE COMPANY OF AMERICA (Selected Risks Insurance Company), Defendant-Respondent.

Supreme Court of New Jersey.

Argued Jan. 29, 1996.

Decided June 12, 1996.

Gary D. Wodlinger, Vineland, for appellant (Lipman, Antonelli, Batt, Dunlap, Wodlinger and Gilson, attorneys; Donna M. Taylor, on the brief).

Edward J. Tucker, Hammonton, for respondents (Tucker, Latterman & Munyon, attorneys).

The opinion of the Court was delivered by

O'HERN, J.

This appeal presents two issues: (1) whether the statute of limitations on a claim for underinsured motorist (UIM) benefits begins to run on the date of an accident or on the breach of the insurance contract; and (2) whether this claimant has forfeited a right to collect underinsurance benefits by failing to give prompt notice to the insurance company or otherwise having prejudiced the insurance company's subrogation rights.

I

On October 17, 1985, plaintiff, Robert Green, was injured in a three-car automobile accident. One car, driven by Johnnie Tingle, collided with a car driven by Mary Galex. The two then collided with Green's car. The Tingle car had a $15,000 liability insurance policy, and the Galex car had a $250,000 policy. (These were the per person limits.) Green had $100,000 of UIM coverage with defendant Selective Risks Insurance Company (Selective). An oversimplified graphic of the accident scene lends insight into the statute of limitations issue.

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Green reasonably believed that to recover for his serious personal injuries, he would have to make a claim under his UIM policy. Green valued his claim at over $82,000. Selective had early notice of the general extent of Green's injuries. It paid him personal injury (PIP) benefits under the policy. During the course of Green's treatment, Selective refused to continue to pay medical bills that were being incurred. Green had to sue Selective to provide the PIP benefits. That case was ultimately settled by the parties.

In June 1987, Green sued Galex and Tingle. In August 1988, Tingle's insurance carrier paid its $15,000 policy limits into court. Green refused to settle for that amount and wished to proceed with the litigation. Inadvertently, the file was closed without notice to the parties during the pendency of the lawsuit. On August 26, 1992, the court reopened the case, five years after the original complaint was filed. In the interim, Tingle had died.

The court held a settlement conference on February 1, 1993. Galex's insurance company denied that Galex was responsible for the accident, but offered $2,500 to settle any claims against her. Green believed that without Tingle's testimony, he would be unable to prove that Galex was liable for the accident. Therefore he contacted his own insurance company, Selective, by telephone and later in writing, to preserve his underinsurance rights under Longworth v. Van Houten, 223 N.J.Super. 174, 538 A.2d 414 (App.Div.1988). We summarized the Longworth requirements as follows:

[W]hen an insured under an automobile insurance policy providing UIM benefits is involved in an accident and undertakes legal action against the tortfeasor, the insured must notify the UIM insurer of that action. If, during the pendency of the claim, the tortfeasor's insurance coverage proves insufficient to satisfy the insured's damages, then the insured should again notify the UIM insurer of that fact.

[Rutgers Casualty Ins. Co. v. Vassas, 139 N.J. 163, 174, 652 A.2d 162 (1995).]

Selective's representative told Green that it considered its file closed due to the passage of time, and that he should exercise his own judgment as to whether or not to accept the offer. Green decided to accept the settlement.

In February 1993, over seven years after the accident, Green sought arbitration of his claim against Selective for UIM benefits. Selective asserted that the statute of limitations barred Green's claim, and the company denied any duty to arbitrate. In March 1993, Green brought a declaratory judgment action to compel Selective to submit to arbitration. Selective moved for summary judgment on September 28, 1993. After oral argument, the trial court granted Selective's motion and dismissed Green's complaint, holding that the claim was barred by the statute of limitations. It ruled that N.J.S.A. 2A:14-1, the six-year statute of limitations applicable to contract claims, had begun to run on the date of the accident, and that time had therefore expired on the claim more than a year before Green brought suit against Selective.

On appeal, the Appellate Division affirmed the trial court's dismissal but not on the basis of the statute of limitations. Instead, it relied on our recent decision in Rutgers Casualty. Green petitioned for certification, asserting that he had complied with the Vassas guidelines for processing of UIM claims. We granted his petition. 142 N.J. 456, 663 A.2d 1363 (1995). We now reverse the judgment of the Appellate Division and reinstate Green's complaint against Selective.

II

This is not the case in which to "plumb the intricacies" of the law of underinsured motorist coverage. Riccio v. Prudential Property & Casualty Ins. Co., 108 N.J. 493, 498, 531 A.2d 717 (1987). In Riccio, the Court observed that this subject, characterized at oral argument in that case as "really quite simple," was anything but simple. Ibid. One thing that we are certain of, however, is the increasingly important role that UM and UIM coverages play in automobile claim reparations. See generally Gerald W. Scott, Uninsured/Underinsured Motorist Insurance: A Sleeping Giant, 63 J. Kan. B. Ass'n 28 (May 1994); Cynthia M. Craig & Daniel J. Pomeroy, New Jersey Auto Insurance Law (1996) [hereinafter Craig & Pomeroy]. A cursory review of recent rulings confirms the importance of such insurance. Ainsworth v. State Farm Mut. Ins. Co., 284 N.J.Super. 117, 663 A.2d 1365 (App.Div.1995), certif. denied, 143 N.J. 328, 670 A.2d 1068 (1996); Prudential Property & Casualty Co. v. Keystone Ins. Co., 286 N.J.Super. 73, 668 A.2d 92 (Law Div.1995); Coniglario v. Hanover Ins. Co., 233 N.J.Super. 627, 559 A.2d 875 (Law Div.1989), overruled by Hesser v. Harleysville-Garden State Ins. Co., 287 N.J.Super. 47, 670 A.2d 123 (App.Div.1996).

The standard automobile insurance policy does impose specific duties upon policyholders who purchase UIM coverage. These include the obligation to notify the insurance company of the accident, to cooperate with the investigation and defense of any claim, to forward copies of all legal papers if suit is brought, and to preserve the insurance carrier's subrogation rights against the tortfeasor. The standard automobile policy does not, however, set forth a period of limitations within which time a claim for UIM coverage must be brought. In contrast, PIP claims are governed by a special statute of limitations. See Zupo v. CNA Ins. Co., 98 N.J. 30, 483 A.2d 811 (1984).

This is the first time that we have addressed the question of when the statute of limitations begins to run on a UIM claim. Plaintiff argues that the cause of action did not arise until the underlying automobile case had been terminated and the insurance company denied coverage. A number of cases have so held. See, e.g., Allstate Ins. Co. v. Altman, 200 N.J.Super. 269, 275, 491 A.2d 59 (Ch.Div.1984) (explaining that the analogous cause of action under a UM policy does not accrue until breach). A majority of jurisdictions has held that the contractual relationship between the insured and the insurer underlies an action for UIM benefits, not the relationship to the tortfeasor. These courts have concluded that the limitations period for a UIM claim begins to run when the insurance company makes a breach of the policy, not when the accident occurs. Blutreich v. Liberty Mut. Ins. Co., 170 Ariz. 541, 826 P.2d 1167, 1169 n. 2 (1991) (statute of limitations on insured's UIM claim begins to run when insurer breaches insurance contract); Metropolitan Property & Liability Ins. Co. v. Walker, 136 N.H. 594, 620 A.2d 1020, 1022 (1993) (same); Uptegraft v. Home Ins. Co., 662 P.2d 681, 685 (Okla.1983) ("The recovery of the insured is based ultimately upon the policy without which no liability could be imposed upon the insurer for the tort of another."); Safeco Ins. Co. v. Barcom, 112 Wash.2d 575, 773 P.2d 56, 60 (1989) (statute of limitations begins to run against insured on date of breach of UIM contract by insurer).

Selective contends that the statute of limitations for UIM claims should begin to run on the date of the accident. The jurisdictions that favor this approach reason that the right of action against the UIM carrier stems from the plaintiff's right of action against the tortfeasor, and thus the limitations period begins at the same time for both the insurance and the tort actions. State Farm Mut. Auto. Ins. Co. v. Kilbreath, 419 So.2d 632, 633 (Fla.1982); O'Neill v. Illinois Farmers Ins. Co., 381 N.W.2d 439, 441 (Minn.1986); see also Fladd v. Fortune Ins. Co., 530 So.2d 388, 390-91 (Fla.Dist.Ct.App.1988) (applying same rationale to claim for PIP benefits and concluding that cause of action arises at time of accident).

We disagree with the reasoning of those cases (although we may not disagree with the result) because our cases have repeatedly emphasized that the nature of a UIM claim is conceptually different from the recovery in tort. Riccio, supra, 108 N.J. at 499, 531 A.2d 717 (noting that although insured claimant is remitted to common-law tort principles to establish liability of uninsured and nature and extent of damages, the claimant's rights under UM endorsement are governed by contract with UM carrier).

Although we respect the reasoning of the cases that have held that the claim does not arise until there is a breach of the insurance contract, we believe that such a holding...