New Jersey Mfrs. v. O'Connell

• Decision Date: 03 April 1997
• Citation: 300 N.J.Super. 1,692 A.2d 51
• Parties: NEW JERSEY MANUFACTURERS, Plaintiff-Respondent, v. Daniel D. O'CONNELL, Defendant-Appellant, and Ann Harpootlian, Jim Curley Pontiac-GMC Truck, ITT Hartford, Parkway Insurance Company (serviced by Material Damage Adjustment New Jersey), Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 1

300 N.J.Super. 1

692 A.2d 51

NEW JERSEY MANUFACTURERS, Plaintiff-Respondent, v. Daniel D. O'CONNELL, Defendant-Appellant and Ann Harpootlian, Jim Curley Pontiac-GMC Truck, ITT Hartford Parkway Insurance Company (serviced by Material Damage Adjustment New Jersey) Defendants-Respondents.

Superior Court of New Jersey Appellate Division.

Argued March 11, 1997.

Decided April 3, 1997.

Joel L. Pitman, Springfield, for appellant (Pitman, Pitman and Mindas, attorneys; Mr. Pitman and Edward H. Lee, on the brief).

Brian G. Steller, Roseland, for respondent NJM (Connell, Foley & Geiser, attorneys; Mr. Steller, on the brief).

Thomas Haluszczak, Jr., Roseland, for respondent ITT Hartford (Henry S. Buchanan, attorney; Mr. Haluszczak, on the brief).

Before Judges MICHELS, MUIR, Jr., and COBURN.

The opinion of the court was delivered by

MUIR, Jr., J.A.D.

On this appeal, we are called upon to resolve the effect Aubrey v. Harleysville Ins. Co., 140 N.J. 397, 658 A.2d 1246 (1995), has on a preexisting agreement between an injured non-owner driver of an automobile and a UIM insurer for the owner where the owner's policy provides greater UIM liability coverage than the driver's policy. Prior to the decision in Aubrey and in reliance on Landi v. Gray, 228 N.J.Super. 619, 550 A.2d 768 (App.Div.1988), which Aubrey overruled, New Jersey Manufacturers (NJM), the UIM insurer for the owner of the vehicle in which the non-owner driver, Daniel O'Connell, sustained injuries, agreed to arbitrate O'Connell's UIM claims for damages arising from injuries he sustained in a two-car accident with an alleged third-party tortfeasor.

Before arbitration commenced, but after the parties satisfied the other terms of their agreement, NJM, relying on Aubrey, filed this declaratory judgment. In its complaint, it alternatively contended the agreement either should be rescinded on mistake of law grounds or should be modified to limit O'Connell's UIM damage recovery claim to the lower liability limits of his automobile insurance policy with Parkway Insurance Company.

On stipulated facts, the trial court rejected the mistake of law-rescission contention but modified the agreement limiting the arbitration to the liability limits of O'Connell's policy. O'Connell appeals from the ensuing judgment.

We conclude the trial court properly rejected the mistake of law-rescission contention, an issue not challenged on appeal. However, we further conclude that, because the agreement was neither unconscionable nor against public policy, the contract cannot be modified by Aubrey. We hold that, unless a contract provides otherwise, the laws in existence at the time and place of making of the contract control, and subsequent decisional law changes are not part of the contract. Accordingly, we conclude the pre-Aubrey agreement between NJM and O'Connell is valid and enforceable according to its terms. We affirm the trial court's order to the extent it sustains the enforcement of the agreement but modify it to the extent it directs the pending arbitration be controlled by Aubrey.

I.

The facts are stipulated. On January 13, 1994, O'Connell was seriously injured in a two-car automobile accident with Ann Harpootlian, the driver of the second car. The accident occurred while O'Connell was road testing a 1987 GMC truck for his employer, Jim Curley Pontiac-GMC Truck. State Leasing Corporation owned the truck and had leased it to Hovson's Incorporated.

At the time of the accident, O'Connell carried automobile insurance for his personal vehicle through Parkway Insurance Company. His policy provided $300,000 in UIM coverage. Curley Pontiac had insurance, but it provided no UIM coverage to its employees. NJM insured the GMC with Hovson's a named insured. The NJM policy provided $1 million UIM coverage. Hartford Insurance Company insured the alleged tortfeasor, Harpootlian, under a policy with $250,000 liability limits.

On April 27, 1995, Hartford offered O'Connell the full amount of Harpootlian's coverage in return for a release of his claims against Harpootlian. O'Connell's counsel then advised NJM in writing of the offer to settle and O'Connell's intention to accept the offer. See Longworth v. Van Houten, 223 N.J.Super. 174, 538 A.2d 414 (App.Div.1988). In pertinent part, the letter provided:

I know that you are aware that your options are to either permit Mr. O'Connell to accept the third party offer [of Hartford], in which case any right of subrogation [NJM] has will be extinguished or in the alternative, [NJM] may pay the $250,000.00 to Mr. O'Connell in return for his right to subrogate to his rights against Harpootlian and Hartford.

On that same date, a similar letter was sent to Parkway Insurance.

On May 25, 1995, O'Connell's counsel had a telephone conversation with Christine McGrath, a NJM claims representative. During that conversation, McGrath indicated that NJM did not wish O'Connell to settle with Harpootlian, as NJM would assume the obligation to pay the $250,000 offered by Hartford and subrogate against Hartford and its insured. McGrath asked O'Connell's counsel to prepare a Release and Trust Agreement to that effect and noted that O'Connell's claim for UIM benefits from NJM would remain open. NJM also directed counsel to prepare and file a complaint against Harpootlian with the intention that NJM would subsequently be substituted as plaintiff. NJM further advised O'Connell's counsel that it, through its discussions with Parkway Insurance, determined that NJM's UIM coverage of O'Connell was primary and Parkway's coverage was secondary. Following this conversation, NJM forwarded a proposed Release and Trust Agreement and Lien Payment Guarantee form to be signed by O'Connell. In return, O'Connell's counsel sent a proposed complaint seeking compensatory damages from Harpootlian.

On June 8, 1995, O'Connell's counsel returned the signed Release and Trust Agreement and a Lien Payment Guarantee to NJM. On that same date, the New Jersey Supreme Court decided Aubrey.

On June 9, 1995, O'Connell advised Hartford Insurance that he would not be settling with their insured as NJM opted to pay the $250,000 in exchange for O'Connell's subrogation of his rights.

On June 20, 1995, counsel for O'Connell received a check for $250,000 from NJM payable to O'Connell and his attorneys. That check was deposited in an attorney trust account and, a short time thereafter, disbursed to O'Connell.

In November 1995, NJM's attorney contacted O'Connell's attorney advising that NJM intended to deny the UIM claim based on the Aubrey decision. NJM's subsequent filing of this action led to the judgment under appeal. The trial court's decision is reflected by the judgment:

1. The agreement entered into by NJM and O'Connell is not rescinded and therefore O'Connell does not have to return the $250,000 to NJM.

2. The court orders that subsequent arbitration is governed by the recent decision of Aubrey....

The agreement between plaintiff, NJM, and defendant, O'Connell, will stand as to the $250,000 payment. However, under the existing law, defendant, Parkway, must assume their obligations under their UIM coverage. Parkway will reimburse NJM for the $250,000 already paid to O'Connell and NJM will then assign their subrogation rights against Harpootlian and ITT Hartford to Parkway. Parkway and O'Connell will then proceed to arbitration with the policy limits of...