Lusby By and Through Nichols v. Hitchner

• Decision Date: 10 June 1994
• Citation: 642 A.2d 1055,273 N.J.Super. 578
• Parties: Dwayne T. LUSBY, a minor By and Through his mother and guardian ad litem, Shiela NICHOLS, Shiela Nichols, individually, and Dwayne Lusby, individually, Plaintiffs-Respondents, v. Edward F. HITCHNER and George & Lynch, Inc., Defendants-Appellants, and The Division of Medical Assistance and Health Services, Intervenor-Appellant, and Liberty Mutual Insurance Company and/or John Doe Inc. (fictitious name), jointly, severally and/or in the alternative, Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 578

273 N.J.Super. 578

642 A.2d 1055

Dwayne T. LUSBY, a minor By and Through his mother and guardian ad litem, Shiela NICHOLS, Shiela Nichols, individually, and Dwayne Lusby, individually, Plaintiffs-Respondents, v. Edward F. HITCHNER and George & Lynch, Inc., Defendants-Appellants, and The Division of Medical Assistance and Health Services,

Intervenor-Appellant,

and

Liberty Mutual Insurance Company and/or John Doe Inc.

(fictitious name), jointly, severally and/or in

the alternative, Defendants.

Superior Court of New Jersey,

Appellate Division.

Argued May 3, 1994.

Decided June 10, 1994.

Burchard V. Martin, for appellants Edward F. Hitchner and George & Lynch, Inc. (Martin, Gunn & Martin, attorneys; Burchard V. Martin and William J. Martin, on the brief).

Eileen C. Stokley, Deputy Atty. Gen., for intervenor-appellant Div. of Medical Assistance and Health Services (Deborah T. Poritz, Atty. Gen., attorney; Joseph L. Yannotti, Asst. Atty. Gen., of counsel; Ms. Stokley, on the brief).

Mark S. Gertel, for respondents Dwayne T. Lusby and Shiela Nichols (Ballen, Gertel & Dicintio, attorneys; Susan P. Drogalis and Mark G. Esposito, on the brief).

Before Judges PRESSLER, DREIER and KLEINER.

The opinion of the court was delivered by

PRESSLER, P.J.A.D.

These consolidated appeals, both taken on leave granted, raise important questions of statutory construction of apparently conflicting provisions of the New Jersey Automobile Reparation Reform Act, N.J.S.A. 39:6A-1 to -35, Medicaid, ¹ the compulsory insurance requirements of N.J.S.A. 17:28-1.4, and statutory collateral source rules, all in the context of the limitations period for assertion of personal injury protection claims (PIP) and the rules permitting amendment of pleadings. Ultimately, the resolution of the issues before us will determine who, as between the insurance industry and the governmentally-funded Medicaid program, will pay the enormous and continuing medical bills resulting from the catastrophic injuries sustained by the infant plaintiff, Dwayne T. Lusby, in a motor vehicle accident. We have concluded that under the applicable federal and state schemes, the financial burden must fall on the insurance industry.

On May 16, 1988, Dwayne T. Lusby, then seven, was riding his bicycle near his home in Salem, New Jersey. He was struck by a truck operated by defendant Edward F. Hitchner and owned by his employer, George & Lynch, Inc., both residents of Delaware. The boy suffered grave injuries and has been in a coma, apparently irreversible, since the accident. The cost of his care to date, paid for in full by Medicaid, exceeds $600,000. It is estimated that another one million dollars will be expended during his remaining lifetime.

The boy's family had no automobile insurance which could be looked to for the payment of PIP benefits. Defendants' vehicle was insured by Liberty Mutual Insurance Company (Liberty). Accordingly, plaintiffs' attorney wrote to a Liberty office in Delaware on July 12, 1988, and to a Liberty office in New Jersey on July 28, 1988, formally demanding PIP coverage under defendants' policy. A Liberty claims supervisor at the New Jersey office responded on August 10, 1988, advising counsel that since the insured vehicle was garaged and registered in Delaware Delaware's no-fault law rather than New Jersey's applied. She also advised counsel that she had been instructed by the Delaware office that under Delaware no-fault law, pedestrian benefits were available only if the accident occurred in that state. The letter concluded with the advice that since "there is no New Jersey No-Fault coverage for this vehicle, we are formally advising you of our denial for No-Fault benefits." As it turned out, this advice was incorrect, but in any event, Medicaid thereafter assumed the payment of the child's medical expenses.

This negligence action against the owner and operator of the truck was commenced on May 14, 1990, by the boy's mother, plaintiff Shiela Nichols, both as guardian ad litem and individually, and by his father, Dwayne Lusby, individually. The complaint was in three counts. The first count, on behalf of the child, sought non-economic damages for his pain, suffering and permanent disability. The second count, on behalf of the mother, sought compensation for the boy's medical expenses and loss of companionship. The third count, on behalf of both parents, sought emotional distress damages.

The first of the motions whose disposition is now before us was made by defendants in early September 1993. Relying on the collateral source statute, N.J.S.A. 2A:15-97, they sought an order barring recovery by plaintiffs of the child's medical expenses. Plaintiffs responded by filing a cross-motion seeking leave to amend their complaint to assert a PIP claim against Liberty, defendants' liability carrier, which they sought to add as a direct defendant. At that point, the Attorney General, on behalf of the Division of Medical Assistance and Health Services (DMAHS), which administers the Medicaid program, moved to intervene to support plaintiffs' motion and to resist defendants'. Following oral argument on the three motions, the trial court permitted DMAHS to intervene, granted plaintiffs' motion for leave to amend the complaint, and granted defendants' motion to bar recovery of medical expenses under N.J.S.A. 2A:15-97. We granted both defendants' ensuing motion for leave to appeal the order allowing the amendment and plaintiffs' and DMAHS's motion for leave to appeal the order barring recovery of medical expenses under the collateral source statute. We affirm the order allowing the amendment and conclude that that affirmance moots the appeal of the order barring recovery under the collateral source rule.

We consider the order permitting the amendment of the complaint in the light of the complex of applicable statutes. Defendants' resistance to the amendment was based on the two-year limitations period prescribed by N.J.S.A. 39:6A-13.1 for the commencement of an action against the PIP carrier. See Ochs v. Federal Ins. Co., 90 N.J. 108, 447 A.2d 163 (1982). As we have noted, the original complaint here was filed within two years following the date of the accident. Thus, the amendment, if permitted to relate back to the date of the filing of the complaint, would be timely. We agree with the trial judge that relation back pursuant to R. 4:9-3 was appropriate here.

We point out at the outset that while Liberty had initially declined PIP coverage in reliance on Delaware law, its objection to the amendment of the complaint was based only on limitations grounds and not on the claim that its Delaware policy did not afford plaintiffs PIP coverage. As now appears, this is so because the original non-coverage position which Liberty took in August 1988 was, as a matter of law, incorrect by reason of the so-called deemer statute, N.J.S.A. 17:28-1.4, enacted by L.1985, c. 520, § 18, and amended for purposes of consistency with the verbal threshold option by L.1988, c. 119, § 1. In essence, that statute provides that every automobile policy issued to an out-of-state insured by an insurer authorized to transact business in this state shall include the PIP coverage required by the law of this state "whenever the automobile or motor vehicle insured under ... [that] policy is used or operated in this State." Moreover, the statute provides that every automobile policy subject to its terms shall be "construed as providing the coverage required herein," that is, the statute eponymously "deems" that the policy includes the required coverage. Finally, we assume that Liberty was promptly aware of the enactment of the deemer statute since the statute also includes the provision that within thirty days of its effective date, every insurer authorized to do business in New Jersey shall "file and maintain with the Department of Insurance written certification of compliance with the provisions of this section." We presume Liberty complied with this mandate.

Plaintiffs' counsel, on the motion to amend, conceded that he was unaware of the deemer statute until advised of its existence by DMAHS shortly before the motion was made. DMAHS was also apparently unaware of it until some time after August 1992 when the first reported opinions were published that construed the statute, sustained its constitutionality, and applied it in statutorily-mandated circumstances. See D'Orio v. West Jersey Health Systems, 797 F.Supp. 371 (D.N.J.1992); Watkins v. Davis, 259 N.J.Super. 482, 614 A.2d 189 (Law Div.1992), aff'd o.b., 268 N.J.Super. 211, 633 A.2d 112 (App.Div.1993). See also Adams v. Keystone Ins. Co., 264 N.J.Super. 367, 624 A.2d 1008 (App.Div.1993). ² Obviously the statute applies here. Thus, had Liberty honored plaintiffs' prompt PIP claim as it was bound to do, the automobile-insurance industry and not Medicaid would have borne the burden of the injured child's medical expenses from the outset. ³ The purpose of this motion to amend the complaint was to achieve that result now by way of affording Medicaid its reimbursement right against the PIP benefits to which plaintiffs are entitled by law.

We note first, as a matter of New Jersey law, that as between Medicaid and no-fault insurance, it is plain that no-fault is primary. As the Supreme Court made clear in Aetna Ins. Co. v. Gilchrist Bros., Inc., 85 N.J. 550, 428 A.2d 1254 (1981), the legislative intent in enacting no-fault was to make PIP benefits the immediate and primary source of medical expense payment except as otherwise provided by N.J.S.A. 39:6A-6, which requires deduction from the PIP obligation of benefits collectible "under workers' compensation insurance, employees' temporary disability benefit statutes, medicare provided under Federal law, and benefits, in fact collected, that are provided under Federal law to active and retired military personnel...." The Aetna Court held that under N.J.S.A. 39:6A-6,...