Stern v. AAA Mid-Atlantic Ins. Co.
| Decision Date | 25 November 2015 |
| Docket Number | CIVIL ACTION No. 15-0960 |
| Parties | Tad Stern et al., Plaintiffs, v. AAA Mid-Atlantic Insurance Company et al., Defendants. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Norman Perlberger, Perlberger Law Associates PC, Bala Cynwyd, PA, for Plaintiffs.
Andrew P. Moore, Andrew Moore & Associates, LLC, Charles M. Thurmond, Moore & Riemenschneider LLC, Abington, PA, for Defendants.
Plaintiffs Tad and Elizabeth Stern bring suit against Defendant AAA Mid-Atlantic Insurance Company relating to a motor vehicle accident that took place in Philadelphia on September 20, 2011.1 Plaintiffs claim they are entitled to underinsured motorist (“UIM”) coverage under the terms of their “New Jersey Personal Automobile Policy” (hereinafter, “the Policy”), and that Defendant's refusal to pay for their economic and non-economic losses constitutes breach of contract. Defendant counters that it is not in breach of the contract because Plaintiffs' claims for non-economic damages are subject to the limitation on lawsuit provision under N.J.S.A. § 39:6A–8
, also known as the “verbal threshold” under New Jersey motor vehicle law.2
Under the plain terms of the Policy and the controlling statute, I find that the verbal threshold does not apply to a UIM claim arising out of a Pennsylvania accident involving a Pennsylvania tortfeasor. Because Plaintiffs' recovery is properly calculated based on the amount they are “legally entitled” to recover, Defendant stands in the shoes of the Pennsylvania tortfeasor for purposes of UIM liability, and language within the Policy that purports to incorporate the New Jersey verbal threshold is limited to uninsured claims. Moreover, the plain language of N.J.S.A. § 39:6A–8
limits its application to New Jersey motor vehicle accidents, and any ambiguities or contradictions within the Policy must be construed in favor of the insured.
Although Defendant concedes liability, it argues that New Jersey law should control the measure of damages. The parties have engaged in an extensive choice of law analysis, but this needlessly complicates the issue. In the final analysis, this matter is properly resolved by basic contract interpretation, which requires the same result regardless of whether New Jersey or Pennsylvania law is applied.3
The Policy reads, “We will pay compensatory damages which an ‘insured’ is legally entitled to recover from the owner or operator of an ‘uninsured motor-vehicle’ or ‘underinsured motor vehicle.’ ” The Policy at 46 (emphasis added). I interpret these terms to unambiguously provide UIM coverage flowing directly from the obligations of the tortfeasor.4
Turning first to New Jersey law, when presented with a similar factual scenario, the Appellate Division of the New Jersey Superior Court explained that a choice of law analysis was not appropriate because the case presented a “simple question of insurance contract interpretation under New Jersey law.” Hertz Claim Mgmt. , 656 A.2d at 1300
. The underlying tort in Hertz dealt with the tragic death of a 17-year-old New Jersey resident who was killed instantly in a one-car automobile accident while visiting friends in Virginia. Id. at 1298–99. The driver of the vehicle, a Virginia resident, was convicted of driving under the influence. Id. at 1299. The decedent's family settled their action with the tortfeasor for the full amount of his insurance policy, and sought UIM coverage from their insurance company, Hertz. Id. Hertz argued that New Jersey's wrongful death statute, which limited recovery to economic loss, was the proper measure of damages. Id. The decedent's family claimed that Virginia's wrongful death statute controlled, allowing additional “compensation for sorrow and mental anguish.” Id. at 1299.
In concluding that a choice of law analysis was inappropriate because the case presented a simple issue of contract interpretation, the Hertz
Court explained:
New Jersey law requires insurers to offer insureds the option of underinsured motorist coverage. See N.J.S.A. 17:28–1.1(b)
. The purpose of the coverage is to make available insurance protection for accident victims where the tortfeasor did not have adequate insurance coverage. A claim presented under a UIM endorsement is essentially one of contract. Coverage is liberally construed to afford a broad range of protection to accident victims.
The relevant underinsured coverage clause provides: We will pay damages which an “insured” is legally entitled to recover from the owner or operator of an “uninsured motor vehicle” or “underinsured motor vehicle” ...
The policy permits an insured to recover damages that he or she would be “legally entitled to recover” from a tortfeasor. Determining what an insured is “legally entitled to recover” requires determining what legal compensation may be obtained from a particular tortfeasor.... Because the Marchettas would have been “legally entitled to recover” sorrow and mental anguish damages from the tortfeasor, damages must be calculated according to Virginia's wrongful death statute.
(). The Hertz Court's foregoing analysis is consistent with the general treatment of UIM claims under New Jersey law as deriving from the tortfeasor's liability. In fact, in 2009, the Supreme Court of New Jersey classified a UIM action as “essentially a contract-based substitute for a tort action against the tortfeasor.” Bardis v. First Trenton Ins. Co. , 199 N.J. 265, 279, 971 A.2d 1062 (2009)
.
Applying the Hertz
Court's analysis of identical policy language to this case, just as the New Jersey wrongful death statute did not apply to a Virginia accident involving a Virginia tortfeasor, the New Jersey verbal threshold does not limit Plaintiffs' claims arising out of a Pennsylvania accident with a Pennsylvania tortfeasor. UIM damages are properly calculated based on the legal compensation that could be obtained from the particular tortfeasor involved, on these facts a Pennsylvania resident, whose insurance policy failed to fully and adequately compensate Plaintiffs for their injuries. In turn, because Pennsylvania law would have controlled the extent of damages Plaintiffs could have obtained had the underlying tortfeasor's insurance been sufficient, Pennsylvania law continues to control the measure of liability at this later stage of essentially the same case.
Indeed, under New Jersey law, an insured victim's UIM “recovery is, to a greater or lesser extent, a substitute for that which would have been derived from a third-party suit but for the inadequacy of the tortfeasor's insurance.” Stabile v. New Jersey Mfrs. Ins. Co. , 263 N.J.Super. 434, 623 A.2d 252, 256 (1993)
. Specifically, in Id. Because of the unique nature of underinsured coverage, this case should proceed to trial Krohn v. New Jersey Full Ins. Underwriters Ass'n , 316 N.J.Super. 477,720 A.2d 640, 643 (1998) (internal citation and quotations omitted).5
Pennsylvania contract law and UIM insurance principles support the same interpretation of the Policy. The “preliminary inquiry is to determine whether the terms at issue are ambiguous.” In re Stendardo , 991 F.2d 1089, 1094 (3d Cir.1993)
, as amended (June 21, 1993). I find that the terms of the Policy defining UIM liability are clear and unambiguous; Plaintiffs' right to UIM recovery is derivative of the liability of the owner or operator of the underinsured motor vehicle, here being the Pennsylvania tortfeasor. My colleague Judge Jones recently came to a similar conclusion when interpreting nearly identical policy language. Relying on the Third Circuit's unreported decision in Willett ex rel. Willett v. Allstate Ins. Co. , 359 Fed.Appx. 349, 351 (3d Cir.2009)
, Judge Jones explained that the “Third Circuit has found that language like that enunciated in the UIM portion of plaintiff's policy creates a derivative form of liability, binding the UIM insurer to the liability of the tortfeasor.” Renner v. Progressive N. Ins. Co. , No. 12–2570, 2014 WL 1091359, at *3 (E.D.Pa. Mar. 18, 2014).
In Willet , a Third Circuit panel interpreted almost verbatim contractual language reading, “we will pay damages...for bodily injury which an insured person is legally entitled to recover from the owner or operator of an underinsured auto,” as follows:
This phrase clearly and unambiguously states that coverage depends upon the decedent's legal right to damages from Piersiak [the tortfeasor]. If decedent has no right to recover damages from Piersiak, then Allstate has no responsibility under its policy. If decedent has a right to recover only partial damages from Piersiak, then Allstate is required to pay only that amount. In short, Allstate's contractual liability, as established by the provisions of its policy, is derivative of Piersiak's tort liability.
; see also
Allstate Prop. & Cas. Ins. Co. v. Banks , No. 10–241, 2010 WL 3119987, at *6 (W.D.Pa. Aug. 9, 2010) ().
The Willet Court's analysis of this phrase follows Pennsylvania's general treatment of UIM claims and is in line with policy considerations under the Pennsylvania Motor Vehicle...
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