McHugh, United States District Court Judge.
Plaintiffs Tad and Elizabeth Stern bring suit against Defendant AAA Mid-Atlantic
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.
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
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:
Id. (select internal quotations and citations omitted). 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
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 "the case of underinsurance, the carrier is obligated to pay its insured up to the coverage limit less the tortfeasor's coverage limit. Everything else is the same, including the necessity of finding fault on the part of the uninsured or underinsured driver." Id. Because of the unique nature of underinsured coverage, this case should proceed to trial "as if it were a third-party tort action. That is true of all uninsured and underinsured motorist coverage cases. The insured's legal entitlement to damages for the uninsured or underinsured driver's negligence imports into the [uninsured or underinsured motorist's] policy all of the normal rules governing tort liability and damages." 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).
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
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:
359 Fed.Appx. at 350-51; see also Allstate Prop. & Cas. Ins. Co. v. Banks, No. 10-241, 2010 WL 3119987, at *6 (W.D.Pa. Aug. 9, 2010) (following Willet to interpret the phrase "legally entitled to recover" in the UIM context as derivative of the tortfeasor's liability).
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 Financial Responsibility Law (MVFRL), 75 Pa.C.S.A. § 1701, et seq. See Kmonk-Sullivan v. State Farm Mut. Auto. Ins. Co., 567 Pa. 514, 525 n. 5, 788 A.2d 955 (2001) ("UIM coverage applies only where, as here, plaintiffs are `legally entitled' to recover against the subject tortfeasor."); Nationwide Ins. Co. v. Resseguie, 980 F.2d 226, 231 (3d Cir.1992) ("The purpose of underinsured motorist coverage is to protect the insured (and his additional insureds) from the risk that a negligent driver of another vehicle will cause injury to the insured (or his additional insureds) and will have inadequate liability coverage to compensate for the injuries caused by his negligence.") (applying Pennsylvania law). Consequently, my interpretation of the key Policy provision suggests that the New Jersey verbal threshold has no application to the facts of this case.
Defendant argues that regardless of the foregoing, the verbal threshold "limitation on lawsuit" option is incorporated into the Policy by operation of statute, N.J.S.A. 39:6A-8. Specifically, Defendant avers that even if the Policy does not include language setting forth the terms of the verbal threshold limitation, the "LIMITATION ON LAWSUIT OPTION" listed on Plaintiffs' Schedule of Coverages form and elected on Plaintiffs' Coverage Selection Form effectively triggers the statutory protection of N.J.S.A. § 39:6A-8. See Def. Mot. Par. Sum. Judg. at Exhibits A and B (Doc. No. 40). An examination of the statute and pertinent cases construing its terms makes clear that N.J.S.A. § 39:6A-8(a) does not apply to Pennsylvania accidents involving a Pennsylvania tortfeasor. In relevant part, the verbal threshold statute reads
N.J.S.A. § 39:6A-8(a) (emphasis added).
First, the terms of the statute explicitly limit its application to injuries arising out of use of an "automobile in this State." Id. (emphasis added); see also Loftus-Smith v. Henry, 286 N.J.Super. 477, 669 A.2d 852, 855 (1996) ("Because N.J.S. 39:6A-8a provides that the exemption applies only where ... the accident occurs in New Jersey...") (emphasis added); Roghanchi v. Rorick, No. 91-6680, 1992 WL 279350, at *4 (E.D.Pa. Oct. 5, 1992) ("the accident which occurred in Montgomery County, Pennsylvania, happened outside the jurisdiction of [N.J. Stat. Ann. § 39:6A-8]."). Thus, because the underlying motor vehicle accident took place in Pennsylvania, the verbal threshold requirement rooted in N.J.S.A. § 39:6A-8(a) simply does not control.
Moreover, in order to claim the protections afforded by the statute, the defendant tortfeasor has to meet certain statutory requirements. In Zabilowicz v. Kelsey, the Supreme Court of New Jersey explained the prerequisites necessary for a Defendant to seek protection under the statute:
200 N.J. 507, 510, 516, 518, 984 A.2d 872 (2009); see also Loftus-Smith v. Henry, 286 N.J.Super. 477, 669 A.2d 852, 855 (1996) (explaining that whether plaintiff is subject to the verbal threshold requirement of N.J.S.A. 39:6A-8a requires an examination of the status of the defendant, including whether she "is entitled to receive no-fault PIP benefits under N.J.S.A. 39:6A-4").
Here, because Defendant's UIM liability is derivative of a Pennsylvania tortfeasor, the statutory requirements are simply not met. The tortfeasor's Pennsylvania residency status takes him outside the mandates and benefits of New Jersey's required personal injury protection ("PIP") coverage. "Simply stated, an out-of-state defendant who is not eligible to receive New Jersey PIP benefits cannot find shelter under N.J.S.A. 39:6A-8(a) and may be sued for pain and suffering damages
Defendant finally argues that even if it stands in the shoes of the underinsured Pennsylvania driver, Plaintiffs unequivocally agreed to the "limitation on lawsuit" option. Specifically, Defendant relies on Plaintiffs' selections in the Coverage Selection Form, which was electronically signed by Mrs. Stern, as reflected on the Policy's Schedule of Coverages. See Def. Mot. Par. Sum. Judg. at Exhibits A and B. Upon examination of the actual language of the Policy, this argument fails as well.
The Policy, titled, "New Jersey Personal Automobile Policy," includes standard form language set forth in Part C, beginning on page 6. That portion of the Policy is then replaced by an Endorsement, PP 04 80 07 07. See the Policy at 46 ("THIS ENDORSEMENT CHANGES THE POLICY."). The Endorsement obligates the carrier to pay compensatory damages for both "uninsured" and "underinsured" motor vehicle accidents. Id. There is a specific definition for "underinsured motor vehicle," which makes clear that the term "underinsured motor vehicle" does not include
Stated simply, the controlling Endorsement explicitly invokes the tort limitation for uninsured claims, but not for underinsured claims, and the Endorsement takes pains to distinguish between them as a matter of definition. Defendant's argument that Plaintiffs limited their right to collect damages for an underinsured claim is contradicted by the terms of the Policy itself.
At best, Defendant might have an argument that the "Limitation on Lawsuit Option" briefly referred to under the "Bodily Injury" portion of the Declarations Page was meant to signify an acknowledgment by Plaintiffs that their rights to recover damages for underinsured claims would be limited. Such an argument is entitled to little weight, as the explicit language of the Policy itself contradicts it. To the extent that there is ambiguity, it is well-established under both New Jersey and Pennsylvania law that ambiguities must be construed in favor of the insured. See, e.g., Flomerfelt v. Cardiello, 202 N.J. 432, 441, 997 A.2d 991 (2010); Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 589 Pa. 317, 331, 908 A.2d 888 (2006).
Thus, under principles of basic contract interpretation, statutory interpretation, and specific New Jersey and Pennsylvania controlling case law, there is no question that the New Jersey verbal threshold does not apply to Plaintiffs' claims. An appropriate order follows.
