Rao v. Universal Underwriters Ins. Co.

• Decision Date: 04 November 1988
• Citation: 549 A.2d 1259,228 N.J.Super. 396
• Parties: Anita RAO and Naveen Rao, Plaintiffs-Respondents, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, Defendant-Appellant, and Open Road Leasing Co. Inc., Lena Paglucci and James Paglucci, Defendants. 1
• Court: New Jersey Superior Court — Appellate Division

Page 396

228 N.J.Super. 396

549 A.2d 1259

Anita RAO and Naveen Rao, Plaintiffs-Respondents, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, Defendant-Appellant and Open Road Leasing Co. Inc., Lena Paglucci and James Paglucci, Defendants. ¹

Superior Court of New Jersey Appellate Division.

Argued Oct. 4, 1988.

Decided Nov. 4, 1988.

Kenneth F. Mullaney, Jr., Montclair, for defendant-appellant (Dwyer, Connell and Lisbona, attorneys, William T. Connell, on the brief).

Eugene J. McTague, Jr., Clifton, for plaintiffs-respondents (Fischer and Kagan, attorneys, Eugene J. McTague, on the brief).

Before Judges PRESSLER, SCALERA and STERN.

The opinion of the court was delivered by

SCALERA, J.A.D.

In issue here is the effect to be accorded to a provision in a liability insurance policy issued to an automobile leasing company which provides automobile liability coverage to its lessees in the amount required by law but only in the event the lessee fails to maintain that coverage.

This declaratory judgment action arises from an automobile accident which occurred when Anita Rao struck Lena Paglucci, a pedestrian, while driving a car leased by her husband, Naveen Rao, from Open Road Leasing Co. Inc. Lena and her husband James filed a complaint against Anita Rao and Open Road seeking compensation for the serious personal injuries suffered by Lena.

Naveen Rao's lease agreement with Open Road required him to obtain liability insurance for the leased vehicle. Rao obtained such a policy from Allstate Insurance which provided coverage in the amount of $100,000/$300,000 and named Open Road as an "additional insured." Allstate has deposited the applicable $100,000 proceeds of this policy into court in the underlying personal injury action by the Pagluccis.

The Raos filed this suit to determine their right to coverage under the automobile liability section of the multiple coverage nationwide insurance policy issued by Universal Insurance Underwriters to Open Road. The parties brought cross-motions for summary judgment at the trial level. Universal argued against coverage because its policy specifically provided that there was no coverage for the Raos in light of their having secured insurance under the Allstate policy. The Raos asserted that the provision relied upon by Universal to escape any insurance liability to them was illegal. The trial court denied Universal's motion and granted the Raos' motion because it determined that Universal's policy contained an invalid "escape clause" and therefore the Raos are entitled to the full coverage afforded to Open Road under the Universal insurance policy.

The parties agree that there is no factual dispute in this matter and that the issue is a legal one involving the interpretation of an insurance contract, rendering it appropriate for summary judgment. Weedo v. Stone-E-Brick, Inc., 155 N.J.Super. 474, 479, 382 A.2d 1152 (App.Div.1977).

On appeal Universal argues that the trial court erred because while its policy otherwise provides a limit of $300,000 to Open Road as lessor, Rao is not entitled to even the statutory minimum $15,000/30,000 in coverage because he had procured his own liability insurance from Allstate. Universal contends that the endorsement which sets forth the limiting language in question lawfully fulfills the purpose of providing the statutory minimum coverage and therefore it should not be deemed an illegal and invalid escape clause.

The so-called "escape clause" at issue in the policy is "Endorsement 038" to the "Auto Lessors Liability" section, which provides in pertinent part:

The portion of THE MOST WE WILL PAY condition pertaining to Insuring Agreement A is replaced by:

Under Insuring Agreement A--Regardless of the number of INSUREDS or AUTOS insured by this Coverage Part, persons or organizations who sustain INJURY, claims made or suits brought, the most WE will pay for any one OCCURRENCE is the limit stated in the declarations subject to this endorsement.

The portion of the limit applicable to persons or organizations required by law to be an INSURED is only the amount (or amount in excess of any other insurance available to them) needed to comply with the minimum limits provision of such law in the jurisdiction where the OCCURRENCE takes place.

The plain import of the parenthetical clause within the third paragraph of this provision constitutes an attempt to provide liability coverage for lessees, such as the Raos, only when they fail to secure sufficient liability insurance to comply with the statutorily mandated minimum in New Jersey. Then and only then is coverage provided but only to the extent of the statutorily minimum requirements of New Jersey law. In other words, while Open Road has secured a higher amount of coverage for vehicles operated by its employees, when a car is leased, a lessee is only covered to the extent of the statutory minimums and that coverage is available only when the described contingency occurs.

The pertinent mandatory omnibus liability coverage provisions of N.J.S.A. 45:21-1 et seq., regarding rental vehicles provide,

45:21-1.

As used in this chapter:

* * *

* * *

"Owner" means any and every person engaged in the business of renting or leasing motor vehicles, without a driver, to be operated by the lessee or bailee, his agent or servant, for purposes other than the transportation of passengers for hire.

45:21-2.

Every owner, as defined in section 45:21-1 of this title, shall file with the clerk of the municipality in which he resides or has his place of business a policy of insurance of a company duly licensed to transact business under the insurance laws of this state, insuring such owner against loss from the liability imposed by law upon such owner for damages on account of bodily injury or death suffered by any person other than a person in the employ of such owner, or a person in, on or about such motor vehicle in the status of a driver, passenger for hire or occupant, as a result of accidents occurring by reason of the negligent maintenance, use or operation of such motor vehicle upon the public highways of this state.

45:21-3.

Such policy of insurance shall provide a limit of liability on the part of the insurer, exclusive of court costs and the expenses of investigating and defending suits, for each motor vehicle covered thereby, in the sum of $10,000.00 for bodily injury to or death of any 1 person, and, subject to the same limit of liability for each person so injured or killed, in the sum of $20,000.00 for bodily injury to or death of more than 1 person in any 1 accident, and for damage to property in the sum of $5,000.00, ² and shall provide for the payment, subject to the aforesaid limits of liability, of any final judgment recovered by any person on account of the ownership, maintenance and use of such motor vehicle by either the owner or the lessee or bailee, his agent or servant, or any fault in respect thereto, and shall be for the benefit of any person suffering loss, damage or injury as aforesaid. Such policy of insurance shall contain a provision for a continuing liability thereunder, subject to the aforesaid limits of liability, notwithstanding any recovery thereon, and shall further provide that nothing contained therein, nor the violation of any of the provisions thereof, shall relieve the insurer, within the limit of liability aforesaid, from the payment of any such judgment; but this provision shall not, as between the insurer and the assured, affect the rights given by the policy to the insurers against the assured because of any such violation or otherwise. The provisions of this chapter, so far as may be requisite, shall be read into and deemed to form a part of any such policy. Amended by L.1959, c. 45, p. 150 § 1, eff. July 1, 1959.

We start by repeating the basic notion that such omnibus liability coverage clauses are statutorily mandated to guard against "the defense that the insured was not operating the vehicle personally or through an agent." 6C Appleman, Insurance Law and Practice § 4353, at p. 29-31 (1979). These provisions have been liberally construed to require that coverage be provided to all potential drivers of a given vehicle to the extent required to conform them to minimum statutory limits. Id. at 35-39.

In Selected Risks Insurance Co. v. Zullo, 48 N.J. 362, 225 A.2d 570 (1966), our Supreme Court reviewed the history and purpose of such omnibus liability coverage clauses in this State, noting that they are mandated by a "strong legislative policy" that automobile tort victims be able to look to "financially responsible persons" from whom to obtain compensation. Id. at 368, 225 A.2d 570. It went on to state categorically that there "may be no departure from the omnibus coverage...." Id. at 374, 225 A.2d 570. The Court held there that an insurance company cannot avoid liability by claiming that a motorist's use of the insured's automobile exceeded the scope of authority granted by the insured. See generally, 24 New Jersey Practice, Motor Vehicle Law and Practice, § 1005-1009 (1986) (Discussing the broad scope of such omnibus liability coverage).

Liability coverage thus is rendered always available to compensate victims of accidents caused by any permissive driver of the insured vehicle. Williams v. American Home Assurance Co., 121 N.J.Super. 351, 360, 297 A.2d 193 (App.Div.1972), certif. den. 62 N.J. 260, 300 A.2d 344 (1973), (citing Matits v. Nationwide Insurance Co., 33 N.J. 488, 497, 166 A.2d 345 (1960)). Williams recognized that such liability coverage is also required of an automobile lessor under N.J.S.A. 45:21-1, et seq. since "[t]here appears to be no reason to distinguish the lessor of a rented automobile from one who loans his private car in determining liability for injuries resulting from the operation of his automobile beyond the scope of initial permission." Williams, supra, 121 N.J.Super. at 361, 297 A.2d 193.

The Legislature obviously...