Title: RUTGERS CASUALTY INSURANCE COMPANY V. VASSAS

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). Argued November 7, 1994 -- Decided January 18, 1995 GARIBALDI, J., writing for a unanimous Court. On January 15, 1989, Chris Vassas was involved in an automobile accident with a vehicle driven by Andre Vold. Vold was insured under a policy issued by Allstate Insurance Company, providing the statutory minimum liability limits of $15,000/$30,000. Vassas was insured by Rutgers Casualty Insurance Company (Rutgers). That policy included an endorsement for underinsured motorist (UIM) coverage in the amounts of $100,000/$300,000. Vassas sued Vold for the injuries he sustained in the accident. That suit proceeded to mandatory arbitration. Vassas accepted the arbitration award of $15,000 plus interest, which was Vold's policy limit, and confirmed the award as required by Court Rule. Judgment was entered on October 2, 1990. Vassas then filed a warrant of satisfaction of that judgment on October 15, 1990. On January 8, 1992, Vassas asserted, for the first time, a claim against Rutgers for UIM benefits. Although Vassas had notified Rutgers of the collision damage to his car, he had never informed the insurer of his personal injuries, his lawsuit against Vold, the arbitration award, his acceptance of that award, the entry of judgment, and the issuance of a warrant of satisfaction. Rutgers filed this declaratory judgment action, seeking to deny coverage. Rutgers argued that Vassas' confirmation of the arbitration award, entry of judgment, and issuance of the warrant of satisfaction destroyed its subrogation rights against Vold, the tortfeasor. The trial court, on cross-motions for summary judgment, dismissed the declaratory judgment action and ordered Rutgers to enter into arbitration with Vassas regarding his UIM claim. The trial court held that only the issuance of a general release, as opposed to a warrant of satisfaction of judgment, would destroy a UIM insurer's subrogation rights against the third-party tortfeasor, and that the confirmation of an arbitration award does not preclude a UIM insurer from filing a subrogation claim. Rutgers moved for reconsideration of that decision, arguing that because Vassas delayed in seeking UIM benefits, the two-year statute of limitations on the underlying action had already run, thereby preventing Rutgers from instituting a subrogation suit against Vold. The trial court denied the motion, finding that Rutgers had failed to make that argument earlier. In any event, the court also held that the statute of limitations had not begun to run until the arbitrator had determined the amount of the arbitration award. The Appellate Division reversed, concluding that the motion to confirm an arbitration award, the entry of judgment, and the execution of the warrant of satisfaction in favor of Vold had the same preclusive effect against the UIM insurer as did the issuance of a general release. The court did not address the statute-of-limitations argument. The Supreme Court granted Vassas' petition for certification and Rutgers' cross-petition. HELD: An insured who receives an arbitration award, enters judgment on that award, and issues a warrant of satisfaction of that judgment - all without notice to his or her underinsured motorist (UIM) carrier - may not subsequently assert a claim against that UIM carrier for UIM benefits. In addition, the Court adopts the procedures set forth by the Appellate Division in Longworth v. Van Houten for insureds and insurers to follow when making UIM claims. 1. According to the insurance contract between Vassas and Rutgers, Vassas was under a contractual duty to: 1) notify Rutgers promptly of how, when, and where the accident had occurred; 2) cooperate with Rutgers in defense or prosecution of any action by or against Vold; 3) to forward to Rutgers any "legal papers" filed or received in connection with any litigation arising from the accident; and 4) preserve and not prejudice Rutgers' rights to recover any payments made under the policy in a subrogation action. (pp. 4-6) 2. In this case, Vassas did not inform Rutgers of his personal injury lawsuit against Vold, the arbitration award, its acceptance, the reduction of the award to judgment, and the execution of the warrant of satisfaction until January 8, 1992, three years after the accident had occurred and fifteen months after the trial court had entered judgment based on the arbitration award. This delay constituted a breach of the duties imposed by the insurance contract. Furthermore, because the limitations period for a subrogation action begins to run at the same time as the limitations period for the underlying action, Rutgers' cause of action against Vold accrued at the time of the accident and expired on January 15, 1991. By failing to notify Rutgers of the suit, Vassas unfairly prejudiced Rutgers' subrogation rights against Vold in violation of the requirements of his insurance policy. That failure to comply with the provisions of the contract are sufficient to bar Vassas' UIM claim against Rutgers. (pp. 6-8) 3. The Court adopts the procedures set forth in Longworth v. Van Houten because those procedures serve the legislative purpose of protecting insureds from financially irresponsible motorists while protecting the subrogation rights of insurers. Thus, when an insured covered by an automobile-insurance policy providing UIM benefits is involved in an accident and sues the tortfeasor, the insured must notify the UIM carrier of that action. If, during the pendency of the claim, the tortfeasor's insurance coverage is insufficient to satisfy the insured's damages, then the insured should promptly notify his or her UIM carrier. If the insured receives a settlement offer or arbitration award that does not completely satisfy the claim because the tortfeasor is underinsured, the UIM insurer then has two options: to pay the insured the amount of the third-party tortfeasor's settlement offer or the arbitration award in exchange for subrogation of the insured's right against the tortfeasor; or, allow the insured to settle. While promptness ultimately is to be decided by the circumstances, thirty days is to be considered the presumptive time period if the insured notices his or her carrier prior to assignment of a trial date. If the insured does not receive a response from his or her insurance carrier, he or she may seek an immediate declaratory ruling from the trial court on order to show cause. Furthermore, UIM carriers may choose to honor demands from their insureds to proceed to arbitration of the UIM claim prior to disposition of the claim against the tortfeasor. (pp. 9-11) 4. The thirty-day notice requirement is a presumptive one and may be extended by the court in extraordinary circumstances. Such extensions are to be granted sparingly and guided by the same principles relied on in granting relief from an order or judgment under Rule 4:50-1. Requiring insured victims to advise their UIM carriers promptly of their personal-injury lawsuits will lessen the burden of the time constraints imposed by Longworth. (pp. 11-15) 5. Vassas' failure to comply with the provisions of his insurance contract by waiting three years before notifying Rutgers of his personal-injury-lawsuit and award, as well as the dictates of Longworth, bar Vassas' action to recover UIM benefits from Rutgers. (p. 15) Judgment of the Appellate Division is AFFIRMED. CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN and STEIN join in JUSTICE GARIBALDI's opinion. JUSTICE COLEMAN did not participate. RUTGERS CASUALTY INSURANCE COMPANY, Plaintiff-Respondent and Cross-Appellant, v. CHRIS VASSAS, Defendant-Appellant and Cross-Respondent. Argued November 7, 1994 -- Decided January 18, 1995 On certification to the Superior Court, Appellate Division. Steven L. Kessel argued the cause for appellant and cross-respondent (Drazin and Warshaw, attorneys). Susan L. Moreinis argued the cause for respondent and cross-appellant. The opinion of the Court was delivered by GARIBALDI, J. This appeal raises several questions concerning underinsured motorist (UIM) coverage. We consider whether an insured who receives an arbitration award from his tortfeasor, moves to confirm that award, enters judgment on that award, and issues a warrant of satisfaction of that judgment--all without notice to his UIM insurer--may subsequently assert a claim against his UIM carrier for UIM benefits. We also consider the procedure set forth in Longworth v. Van Houten, 223 N.J. Super. 174 (App. Div. 1988), addressing the competing interests of insureds and insurers, in respect of the insured's third-party claim, the insurer's subrogation rights, and the resolution of the UIM claim. notify Rutgers of the collision damage to his car, he never notified it of his personal injuries, his suit against Vold, the arbitration award, his acceptance of that award, the entry of judgment, and the issuance of a warrant of satisfaction. Rutgers immediately filed this suit for declaratory judgment to deny Vassas coverage. Rutgers argued that Vassas's confirmation of the arbitration award, entry of judgment, and issuance of the warrant of satisfaction destroyed its subrogation rights against the tortfeasor, Vold. The trial court, on cross-motions for summary judgment, granted Vassas's motion and denied Rutgers's motion. The court dismissed Rutgers's complaint and ordered it to enter into arbitration with Vassas regarding his UIM claim. The court held that only the issuance of a general release, as opposed to a warrant of satisfaction of judgment, would destroy a UIM insurer's subrogation rights against the tortfeasor, and that the confirmation of an arbitration award does not preclude a UIM insurer from filing a subrogation claim against the tortfeasor. Rutgers filed a motion for reconsideration under Rule 4:49-2, arguing that because Vassas delayed in seeking UIM benefits, the two-year statute of limitations on the underlying tort had already run, which prevented Rutgers from instituting action against the tortfeasor. The trial court denied Rutgers's motion, asserting that Rutgers had no excuse for its failure to make the statute-of-limitations argument earlier. Moreover, the trial court held that, in any event, the statute of limitations had not commenced running until the arbitrator had set the amount of the arbitration award. Rutgers appealed to the Appellate Division, which reversed the Law Division in an unreported opinion. The appellate panel held that the motion to confirm an arbitration award, the entry of judgment, and the execution of the warrant of satisfaction in favor of the underinsured tortfeasor, Vold, had the same preclusive effect against the UIM insurer, Rutgers, as did the issuance of a general release. Because the Appellate Division reversed the trial court on this point, it declined to address Rutgers' statute-of-limitations argument. Vassas moved for reconsideration, and the Appellate Division issued a supplemental opinion reaffirming its earlier determination. Vassas filed a petition for certification to this Court, and Rutgers filed a cross-petition. We granted both petitions. 137N.J. l65 (1994). under the motor vehicle insurance policy held by the person seeking that recovery. A motor vehicle shall not be considered an underinsured motor vehicle under this section unless the limits of all bodily injury liability insurance or bonds applicable at the time of the accident have been exhausted by payment of settlements or judgments. The limits of underinsured motorist coverage available to an injured person shall be reduced by the amount he has recovered under all bodily injury liability insurance or bonds. Although the Legislature made uninsured motorist (UM) coverage mandatory, it determined that insurers only need offer UIM coverage to each motorist; purchase of this additional protection is optional. The purchase of UIM coverage is "a matter of contractual agreement." Longworth, supra, 223 N.J. Super. at 178. Vassas's insurance policy with Rutgers contained the following pertinent provisions: PART E - DUTIES AFTER AN ACCIDENT OR LOSS We [Rutgers] have no duty to provide coverage under this policy unless there has been full compliance with the following duties: A. We must be notified promptly of how, when and where the accident or loss happened. Notice should also include the names and addresses of any injured persons and any witnesses. B. A person seeking coverage must: 1. Cooperate with us in the investigation, settlement or defense of any claim or suit. 2. Promptly send us copies of any notices or legal papers received in connection with the accident or loss. . . . . C. A person seeking Uninsured Motorist Coverage must also: . . . . 2. Promptly send us copies of the legal papers if a suit is brought. . . . . PART F - GENERAL PROVISIONS OUR RIGHT TO RECOVER PAYMENT A. If we make a payment under this policy and the person to or for whom payment was made has a right to recover damages from another we shall be subrogated to that right. That person shall do: 1. Whatever is necessary to enable us to exercise our rights; and 2. Nothing after loss to prejudice them. Vassas was under a contractual duty to notify Rutgers promptly of how, when, and where the accident had occurred. He had a duty to cooperate with Rutgers in defense or prosecution of any action by or against the tortfeasor. Vassas was further required to forward to Rutgers any "legal papers" filed or received in connection with any litigation arising from the accident. Finally, he was under an obligation to preserve and not prejudice Rutgers's rights to recover any payments made under the policy in a subrogation action. Nevertheless, Vassas did not inform Rutgers of his personal-injury suit against Vold, the arbitration award, his acceptance of the award, the reduction of the award to judgment, and his execution of the warrant of satisfaction to Vold, until January 8, 1992, when he filed his demand for UIM coverage. That date was approximately three years after the accident had occurred and fifteen months after the trial court had entered judgment based on the arbitration award. His delay in reporting those events constituted a breach of the duties imposed by the insurance contract. More important, Vassas did not advise Rutgers of any of the aforementioned acts until three years after his accident. Rutgers claims that Vassas's failure to advise it of his personal-injury claim against Vold until three years after the accident bars any subrogation claim against Vold under the two-year statute of limitations for personal injuries, N.J.S.A. 2A:14-2. The limitations period for a subrogation action begins to run at the same time as the limitations period for the underlying action: As the right of subrogation turns on the obligation or duty that the third party itself owes the subrogor, subrogation is wholly dependent on the merits of the subrogor's claim against the third party. The subrogee, which succeeds to the position of the subrogor, may recover only if the subrogor likewise could have recovered; the subrogee gains no additional rights and is subject to all defenses that were available against the subrogor. Courts therefore have generally recognized that the cause of action for subrogor and subrogee accrues at the same time. [Holloway v. State, 125 N.J. 386, 396 (1991) (citations omitted).] See also Craig & Pomeroy, New Jersey Auto Insurance Law, 25:3, at 293-94, 28:3, at 328-33 (1994) (discussing subrogation principles under both UM and UIM policies); Unsatisfied Claim & Judgment Fund v. Gonzalez, 227 N.J. Super. 609 (Law Div. 1988) (holding that two-year statute-of-limitations period under N.J.S.A. 2A:14-2 for UCJF's subrogation action to recover judgment entered against UCJF after automobile accident commenced running at time of accident rather than when UCJF agreed to entry of judgment against itself); Glass v. Spaits, 221 N.J. Super. 643 (Law Div. 1987) (holding that two-year statute-of-limitations period under N.J.S.A. 2A:14-2 for workers' compensation insurer's subrogation action commenced running at time of injury rather than at time insurer paid benefits to claimant). Since the causes of action for subrogor and subrogee accrue at the same time, Rutgers's cause of action against Vold accrued at the same time that Vassas's cause of action against Vold accrued: the time of the accident. That accident occurred on January 15, 1989. Pursuant to N.J.S.A. 2A:14-2, the two-year limitations period for any suit against Vold, including a subrogation claim by Rutgers, expired on January 15, 1991. Rutgers, therefore, cannot file suit against Vold for any UIM benefits that it might pay to Vassas. Vassas knew at the time of his suit against Vold, or shortly thereafter, that the claim for his injuries would exceed Vold's coverage. Yet he waited nearly three years, without offering any justification or excuse, to inform his UIM carrier of his personal-injury suit and award against Vold. By so doing, Vassas unfairly prejudiced Rutgers's subrogation right against Vold, contrary to the requirements of his insurance policy. Vassas's failure to comply with those contractual provisions are sufficient to bar his UIM claim against Rutgers. in authorizing UIM coverage. 223 N.J. Super. at 184. Exhaustion clauses required an insured to exhaust the tortfeasor's insurance limits before making a claim on his own UIM carrier. Id. at 182. For an insured whose damages exceeded his tortfeasor's insurance coverage, exhaustion could most expeditiously be achieved by settling with the tortfeasor for, or close to, the policy limits. Id. at 183. However, the tortfeasor's insurer would usually settle only upon the execution of a general release of liability. Id. at 184. Yet under the insured's UIM policy, the insured could not execute a general release without violating the subrogation rights of the UIM carrier. Ibid. "Consequently, the victim cannot simultaneously give a release to the tortfeasor and protect his UIM insurer's right to subrogation." Ibid. The panel in Longworth found that the consent-to-settle and subrogation clauses combined to violate public policy. 223 N.J. Super. at 185. Relying on the Minnesota Supreme Court's decision in Schmidt v. Clothier, 338 N.W.2d 256 (1983), the Appellate Division suggested a procedure for insureds and insurers to follow when making UIM claims that would both serve the Legislature's "purpose of providing maximum and expeditious protection to the innocent victims of financially irresponsible motorists," and protect the subrogation rights of insurers. The court observed: [A]s a matter of future conduct, an insured receiving an acceptable settlement offer from the tortfeasor should notify his UIM carrier. The carrier may then promptly offer its insured that sum in exchange for assignment to it by the insured of the claim against the tortfeasor. While promptness is to be ultimately decided by the circumstances, 30 days should be regarded as the presumptive time period if the insured notices his carrier prior to assignment of a trial date. In any event, an insured who has not received a response from his carrier and who is in doubt as to whether acceptance of the tortfeasor's offer will impair his UIM rights may seek an immediate declaratory ruling from the trial court on order to show cause on such notice as is consistent with the circumstances. We further hold that UIM carriers may, if they choose, honor demands from their insureds to proceed to arbitration of the UIM claim prior to disposition of the claim against the tortfeasor. award (which usually equals the tortfeasor's policy limit) in exchange for the insured's subrogation right against the tortfeasor. Depending upon the complexity of the case and the caseload of the insurer, thirty days may be a constrictive time period. We note, however, that Longworth merely established thirty days as a "presumptive time period" for notifying a UIM insurer of a settlement offer, noting that "promptness is to be ultimately determined by the circumstances." Ibid. Although the thirty-day time period for rejection of the arbitration award and demanding a trial de novo is statutorily mandated, it "is not jurisdictional" and may be extended by the court in "extraordinary circumstances." Mazakas v. Wray, 205 N.J. Super. 367, 370-71 (App. Div. 1985); see Sprowl v. Kitselman, 267 N.J. Super. 602 (App. Div. 1993) (approving easier standard for relaxation of fifty-day limit for confirmation of arbitration award, to avoid dismissal); Gerzsenyi v. Richardson, 211 N.J. Super. 213 (App. Div. 1986) (filing of motion for trial de novo one business day late constituted "extraordinary circumstances" justifying relaxation of thirty-day limit); DeRosa v. Donahue, 212 N.J. Super. 698 (Law Div. 1986) (holding that notice mailed six days prior to expiration of thirty-day period but which arrived two days after period expired due to postal delay constituted "extraordinary circumstances" for relaxing time limit). Extraordinary circumstances can include a showing of the unusual complexity of the case, with extensions guided by the same principles relied upon in granting relief from an order or judgment under Rule 4:50-1. Mazakas, supra, 205 N.J. Super. at 372. To comply with both the letter and spirit of the arbitration statute and the court rules promulgated in conformity thereto, we emphasize, however, that a trial court should sparingly exercise its power to grant any such time extensions. Ibid. We expect that cases requiring deviation from the time limits would be rare. Moreover, requiring insured victims to advise their UIM carriers promptly of their personal-injury suits will ameliorate considerably the time constraints imposed by Longworth. Thus, since the Longworth decision was first published in March of 1988, the approach it suggests has been followed almost universally by the bar and insurance industry. [Craig & Pomeroy, supra, 28:3, at 332]. Accordingly, when an insured under an automobile-insurance policy providing UIM benefits is involved in an accident and undertakes legal action against the tortfeasor, the insured must notify the UIM insurer of that action. If, during the pendency of the claim, the tortfeasor's insurance coverage proves insufficient to satisfy the insured's damages, then the insured should again notify the UIM insurer of that fact. If the insured receives a settlement offer or arbitration award that does not completely satisfy the claim, because the tortfeasor is underinsured, the UIM insurer then has two options: offer to pay the insured the amount of the tortfeasor's settlement offer or the arbitration award, usually the tortfeasor's policy limit, in exchange for subrogation of the insured's rights against the tortfeasor; or, allow the insured to settle. In either case, the UIM insurer must further allow the insured the benefit of the UIM coverage. If the insurer does not respond within the time allotted for rejection of the award or settlement offer, the insured victim may, consistent with Longworth, supra, move for a declaratory ruling on order to show cause concerning the parties' rights and responsibilities. In this manner, the insured victim is afforded the protection and benefits of the tortfeasor's insurance coverage in addition to the insured's own UIM coverage. As well, the UIM carrier is able to weigh the relative merits of allowing its insured to settle and paying the difference in UIM benefits compared with paying its insured the settlement offer plus UIM benefits and itself Chief Justice Wilentz and Justices Handler, Pollock, O'Hern, and Stein join in this opinion. Justice Coleman did not participate. NO. A-43/44 Plaintiff-Respondent and Cross-Appellant, v. CHRIS VASSAS, Defendant-Appellant and Cross-Respondent. DECIDED January 18, 1995 Chief Justice Wilentz