Click here to download our printable Quick Guide to New Jersey PIP Recovery (Current as of February 5, 2021)**8/7/19 update added information ragarding ride share companies**).
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This is a basic primer on New Jersey law as pertaining to recovery of no-fault (AKA "PIP") payments. It by no means covers all the intricacies of New Jersey law, and therefore should be used as reference only. Some issues of law may be mentioned more than once on this page, where we felt the issue belongs under more than one heading. This document is provided as a reference guide only and is provided subject to this disclaimer. This page is current as of February 5, 2021. If you have been here before and want to look for newly added information please see the update log below.Click on individual terms to see how they are defined in New Jersey PIP Law or to access further discussion of a particular issue (note that many of the definitions and discussions will come up in the frame at the bottom of the page). The best way to view this guide is to browse the table of contents in the top frame. Click on the subject of interest, and you will see the discussion in the bottom frame. CLICK HERE IF YOU DO NOT SEE THE BOTTOM FRAME Note that some terms are left undefined, either because the definitions are intuitive, or because they are beyond the scope of this guide.
OVERVIEW (see "Contents" below for links to each topic and its subtopics):
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In the future, additional information added to this web page will be listed here so that if you check this page periodically, you can easily find updated information.
a. An insurer, health maintenance organization or governmental agency paying benefits pursuant to subsection a., b. or d. of section 13 of P.L.1983, c. 362 (C.39:6A-4.3), personal injury protection benefits in accordance with section 4 or section 10 of P.L.1972, c. 70 (C.39:6A-4 or 39:6A-10), medical expense benefits pursuant to section 4 of P.L.1998, c. 21 (C.39:6A-3.1) or benefits pursuant to section 45 of P.L.2003, c.89 (C.39:6A-3.3), as a result of an accident occurring within this State, shall, within two years of the filing of the claim, have the right to recover the amount of payments from any tortfeasor who was not, at the time of the accident, required to maintain personal injury protection or medical expense benefits coverage, other than for pedestrians, under the laws of this State, including personal injury protection coverage required to be provided in accordance with section 18 of P.L.1985, c. 520 (C.17:28-1.4), or although required did not maintain personal injury protection or medical expense benefits coverage at the time of the accident.
b. In the case of an accident occurring in this State involving an insured tortfeasor, the determination as to whether an insurer, health maintenance organization or governmental agency is legally entitled to recover the amount of payments and the amount of recovery, including the costs of processing benefit claims and enforcing rights granted under this section, shall be made against the insurer of the tortfeasor, and shall be by agreement of the involved parties or, upon failing to agree, by arbitration. Any recovery by an insurer, health maintenance organization or governmental agency pursuant to this subsection shall be subject to any claim against the insured tortfeasor's insurer by the injured party and shall be paid only after satisfaction of that claim, up to the limits of the insured tortfeasor's motor vehicle or other liability insurance policy.
Click here for relevant statutory text, case law references, and further information regarding whether a vehicle is an "automobile" required to carry PIP and therefore exempt from PIP recovery if it carries PIP.
Determining whether a bus is required to have MEB can be tricky A fairly good rule of thumb is provided by
Nebinger v. Maryland Cas. Co. 312 N.J. Super. 400 ( App. Div. 1998), which states:
From the language of the statute and its legislative history it is clear that the Legislature intended to mandate MEB coverage primarily for the protection of passengers of commercial buses which operate regular routes as well as charter buses. In other words, situations where the user of a motor bus pays a fee or fare for the transportation itself, rather than situations where the user pays a fee for a different kind of service which includes transportation thereto. . . .
We also note that the exception to the definition of "motor bus" in N.J.S.A. 17:28-1.5 excludes hotel-to-airport buses, as well as school, camps, and day care, buses. These arrangements are akin to the Senior Care arrangement where clients do not pay a transportation fare. Rather, they pay a weekly fee for multiple services including transportation.
Thus, as a general rule, charter buses and buses operating on a certain route where a fee is charged for the transportation (i.e. the transportation is not provided as part of another service) will require PIP and will be exempt from PIP recovery if they do so. Other buses (school buses, hotel buses, etc.) will not have to carry PIP and will be subject to recovery of PIP if they are the tortfeasor.
Click here for relevant statutory text, case law references, and further information regarding whether a vehicle is an "motor bus" required to carry PIP and therefore exempt from PIP recovery if it carries PIP.
There is a strong argument to be made that the principles of comparative negligence and modified joint and several liability do not apply to a PIP reimbursement claim and that a tortfeasor who contributed, even only minimally, to an accident is liable for 100% of a PIP reimbursement claim if that tortfeasor is the only tortfeasor subject to a PIP reimbursement claim. Both the comparative neglience rule and the modified joint and several liability rules are based on statutes addressing apportionment of fault between parties at trial. When a finder of facts apportions fault, it generally can only do so towards parties to the case. See N.J.S.A 2A:15-5.2. Note, importantly, that, as discussed above, PIP reimbursement claims are not subrogation claims and the insurer does not "stand in the shoes" of its insured, and hence, the insured is not a party to the litigation. In addition, the insured, as a person receiving PIP, is by definition, not liable for PIP reimbursement claims.
The New Jersey Supreme Court's recent decision in Krzykalski v. Tindall, 232 N.J. 525 (2018)(discussed further here) clarified to whom fault may be apportioned in New Jersey law. The Court noted that when a jury apportions fault it should generally include unknown parties, parties lacking sufficient assets, and parties who would not be required to satisfy a judgment, but not parties that are immune from liability (examples in next paragraph).
When other parties that are arguably "to blame" for an accident are immune from liability and therefore don't "make the jury sheet," the remaining liable party or parties are liable for 100% of the damages even if they are only minimally "to blame." Thus, in Bencivenga v. J.J.A.M.M., Inc., where a bar was sued by a patron who was punched by an unknown patron, the bar was not allowed to allocate fault to the unknown patron and thus was 100% liable for the damages (Krzykalski states that it was significant that the bar was in a better position to identify the unknown assailant). 258 N.J. Super. 399, 406-08 (App.Div. 1992). Similarly, where an employee is injured through the negligence of his/her employer (who is immune from suit under the Workers Compensation law) and other tortfeasor(s), the jury may not consider the negligence of the employer, and the other tortfeasor(s) may be held liable for the entire damages even based on a minimal percentage of fault. See e.g. Ramos v. Browning Ferris Industries, Inc., 103 N.J. 177 (1986)(Tortfeasor who was 5% at fault was liable for 100% of damages even though injured party's employer was 95% at fault), and Stephenson v. R.A. Jones & Co., 103 N.J. 194 (1986), compare cases allowing apportionment of fault to parties that, though not legally immune could not be required to satisfy a judgment, e.g. Krzykalski (unknown vehicle involved in an accident), Jones v. Morey's Pier, Inc., 230 N.J. 142, 165 (2017)(public entities dismissed from a case because a tort claims notice had not been filed), Town of Kearny v. Brandt, 214 N.J. 101 (2013)(defendant dismissed on Statute of Repose grounds), Brodsky v. Grinnell Haulers, Inc., 181 N.J. 102 (2004)(defenadant dismissed due to discharge in bankruptcy), Burt v. W.Jersey Health Sys., 339 N.J. Super. 296, 305 (App. Div. 2001) cited with approval in Krzykalski (Doctor whose malpractice claim was dismissed for failure to properly file an affidavit of merit), and Cartel Capital Corp. v. Fireco of N.J., 81 N.J. 548, 569 (1980)(parties that settled with the Plaintiff).
Arguments could be raised in favor or opposed to applying these rules to PIP reimbursement claims. On the one hand, one could argue that N.J.S.A. 39:6A-9.1 is meant to mimic a subrogation claim, which would be subject to reduction based on the liability of the insured and other at-fault parties. On the other hand, the statute deliberately makes certain tortfeasors liable for PIP reimbursement claims and immunizes anyone entitled to PIP benefits from PIP reimbursement claims. Furthermore, the statute is designed to shift costs from PIP carriers on to liability insurance carriers, a goal that would be supported by having liability carriers fully reimburse PIP carriers any time the liability carrier's insured contributed to the PIP claim.
Though no published cases have addressed the applicability of these rules to a PIP reimbursement claim, in the unpublished case of IFA Insurance Company v. American Trucking & Transportation Insurance Company, A-1845-09T2 (App. Div. Mar. 22, 2011)(available online from Justia here - opens in new tab), an arbitrator refused to assess comparative negligence of the injured party, saying that comparative negligence does not apply in PIP recovery. The appellate division upheld the decision. Despite the injured party being partially at fault, the PIP insurer recovered 100% from the other at-fault party.
Therefore, in order to determine who should pay the PIP reimbursement claim, both the TNC policy as well as the driver’s policy may need to be reviewed. However, the most likely scenario is that the TNC’s policy will be responsible for the claim.
For another discursons relevant to rideshare vehicles and PIP in New Jersey, see our discussion of how to determine which insurer(s)(if any) owe(s) PIP when a rideshare vehicle is involved
Note that recovery from tortfeasors other than motor vhicles, if they are insured, should be through arbitration against the insurer as is the case where the tortfeasor is a motor vehicle.
N.J.S.A. 39:6A-11: Pro-rata sharing when more than one PIP policy applies (rare)
If two or more insurers are liable to pay benefits under sections 4 and 10 of P.L.1972, c. 70 (C.39:6A-4 and 39:6A-10) under a standard automobile insurance policy for the same bodily injury, or death, of any one person, the maximum amount payable shall be as specified in those sections 4 and 10 of P.L.1972, c. 70 (C.39:6A-4 and 39:6A-10), section 4 of P.L.1998, c. 21 (C.39:6A-3.1) and section 45 of P.L.2003, c.89 (C.39:6A-3.3), respectively, if additional first party coverage applies and any insurer paying the benefits shall be entitled to recover from each of the other insurers, only by inter-company arbitration or inter-company agreement, an equitable pro-rata share of the benefits paid.
In sum, the "Follow the Family" exclusion comes down to two points. First, if a person is a named insured on any PIP policy (including "Basic" and "Special PIP" policies), s/he may be excluded from coverage on any other policy on which s/he is only a resident relative or might otherwise be entitled to coverage (e.g. as a passenger in a vehicle). Second, if a person is a resident relative of a named insured, s/he may be excluded from coverage on any other policy on which s/he is not a named insured or resident relative, but might otherwise be entitled to coverage (e.g. as a passenger in a vehicle). In other words, if the person is a named insured on a policy, that policy must pay and other policies can exclude. If the person is not a named insured, but is a resident relative on a policy, then the resident relative policy pays, and the policy of the host vehicle can exclude. The only instances in which pro-rata sharing will apply is when the injured person is a named insured on more than one policy or is a resident relative on more than one policy (while not a named insured on any policy).
Under N.J.S.A. 39:5H-10, any coverage required of a TNC vehicle may be provided by the TNC or the driver or a combination of the two. However, N.J.S.A. 39:5H-12 authorizes the TNC driver’s private passenger automobile policy to exclude all coverages whenever the vehicle is connected to a TNC network and N.J.S.A. 39:5H-10(d) requires the TNC’s policy to provide any required coverage that the TNC driver’s policy does not provide. The private policy may choose to provide primary or excess coverage even when its insured vehicle is connected to the TNC.
Therefore, in order to determine who should pay PIP (or if one insurer paid PIP in order to determine if another applicable insurer should make a pro rata reimbursement), both the TNC policy as well as the driver’s policy may need to be reviewed. However, the most likely scenario is that the TNC’s policy will be responsible for the PIP.
An interesting question might arise if a vehicle that would otherwise not require PIP (e.g. a pickup truck or a taxi) happened to log in to TNC network. Would N.J.S.A. 39:5H-10(b)(2) require PIP for that vehicle and if so would that vehicle thus be exempt from liability for PIP reimbursement claims during that time?
As noted, while the TNC vehicle is providing a “prearranged ride," neither the TNC policy nor the driver’s policy is required to provide PIP (the driver’s policy should probably be reviewed to confirm that it carves out PIP coverage for vehicles being used for TNC purposes). A passenger’s PIP policy will also most likely not apply as N.J.S.A. 39:6A-4 only requires PIP coverage when an insured is occupying an “automobile" and N.J.S.A. 39:5H-2’s definition of “Personal vehicle" provides that "A personal vehicle shall not be considered an automobile as defined in …. (C.39:6A-2) while a transportation network company driver is providing a prearranged ride." This is consistent with the fact that taxis are not “automobile"s as discussed here.
N.J.S.A. 39:5H-10(c)(2) requires the TNC have $10,000 in Medpay coverage for the TNC driver only. The TNC driver’s policy is highly unlikely to offer this coverage (since, among other things, most Medpay endorsements do not apply to vehicles owned by the insured) and so in all likelihood the TNC’s policy will have to provide this benefit. In the unlikely event that both the TNC’s and a driver’s policy provide Medpay, those two benefits likely can be “stacked" per Ingersoll v. Aetna Cas. & Sur. Co., 138 N.J. 236 (1994).
Note that many of these insurance requirements will turn on how the vehicle was being used at the time of the accident. N.J.S.A. 39:5H-12(c) requires that TNCs provide, “upon request by directly involved parties or any insurer of the transportation network company driver … the precise times that a transportation network company driver logged on and off … in the 12-hour periods immediately preceding and immediately following the accident." It also requires any insurer providing coverage under N.J.S.A. 39:5H-10 to “disclose, upon request by any other insurer involved in the particular claim, the applicable coverage, exclusions, and limits provided" under its policy. Interestingly, this provision does not require the TNC to provide the times that the driver was providing a prearranged ride.
For another analysis relevant to rideshare vehicles and PIP in New Jersey, see our discussion of when a TNC vehicle is subject to PIP reimbursement claims and our discussion of "how to identify the insurance carrier liable for the PIP reimbursement claim.
Note that, until recently, in general the non-automobile insurer fulfilled its obligation to provide pedestrian PIP by paying into the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA) and therefore the injured party would go to NJPLIGA for PIP benefits. This is per the July 21, 2004 opinion of the Department of Insurance accessible here. However, since risk retention groups (RRGs) cannot be forced to participate in NJPLIGA and thus do not pay into that system, RRGs subject to the NJ non-automobile pedestrian PIP requirement would have to provide those benefits themselves, per American Int'l Ins. Co. v. 4M Interprise, Inc., 431 N.J. Super. 514,(App. Div.), certif. denied, 216 N.J. 366 (2013) and the March 1, 2006 opinion of the Department of Insurance accessible here. Note that American Internaional agreed that RRGs could be left out of NJPLIGA's administrating non-automobile pedestrian PIP claims. The court went out of its way to state that it was not asked to review the legality of NJPLIGA's administrating non-automobile pedestrian PIP claims in the first place. Id. at 516 fn1. More recently, NJPLIGA decided to stop administering pedestrian PIP benefits on behalf of non-automobiles based on the June 30, 2015 order accessible here. All policies issued/renewed on or after April 1, 2016 must include pedestrian PIP. NJPLIGA will continue to handle pedestrian PIP for policies that have not yet renewed after April 1, 2016, all of which should be phased out by March 31, 2016.
Where an automobile insurer paid a pedestrian injured by a non-automobile, it may have a right to recover its payments from the insurer of the non-automobile or NJPLIGA as discsussed in the section below, What if one carrier paid PIP when another policy should have instead?
N.J.S.A. 39:6A-6 Recovery of PIP from Worklers' Compensation and Disability Carriers.
39:6A-6 Collateral source.The benefits provided in sections 4 and 10 of P.L. 1972, c. 70 (C.39:6A-4 and 39:6A-10), the medical expense benefits provided in section 4 of P.L. 1998, c. 21 (C. 39:6A-3.1) and the benefits provided in section 45 of P.L. 2003, c. 89 (C. 39:6A-3.3) shall be payable as loss accrues, upon written notice of such loss and without regard to collateral sources, except that benefits, collectible under workers' compensation insurance, employees' temporary disability benefit statutes, Medicare provided under federal law, and benefits, in fact collected, that are provided under federal law to active and retired military personnel shall be deducted from the benefits collectible under sections 4 and 10 of P.L. 1972, c. 70 (C. 39:6A-4 and 39:6A-10), the medical expense benefits provided in section 4 of P.L. 1998, c. 21 (C. 39:6A-3.1) and the benefits provided in section 45 of P.L. 2003, c. 89 (C. 39:6A-3.3).
If an insurer has paid those benefits and the insured is entitled to, but has failed to apply for, workers' compensation benefits or employees' temporary disability benefits, the insurer may immediately apply to the provider of workers' compensation benefits or of employees' temporary disability benefits for a reimbursement of any benefits pursuant to sections 4 and 10 of P.L. 1972, c. 70 (C. 39:6A-4 and 39:6A-10), medical expense benefits pursuant to section 4 of P.L. 1998, c. 21 (C. 39:6A-3.1) or benefits pursuant to section 45 of P.L. 2003, c. 89 (C. 39:6A-3.3) it has paid.
Note that N.J.S.A. 39:6A-6 refers to situations where the insured has not applied for WC benefits. Where the insured has applied for benefits and the matter ends up in WC court, N.J.S.A. 34:15-15.1 provides for the PIP carrier to be reimbursed if it is found that WC applies. C.f. Hetherington v. Briarwood Coachlight, 253 N.J. Super. 484 (App.Div. 1992), Olivero v. N.J. Mfrs. Ins. Co., 199 N.J. Super. 191, 200 (App. Div. 1985)(“Since the PIP carrier has the right to pursue the remedies of the employee in the Division or Workers' Compensation in default of a petition by the employee, Aetna at 537 then NJM may intervene in the pending workers' compensation proceedings in order to protect its interest ... "), Selective Ins. Co. v. Jones, 244 N.J. Super. 641, 644 (App. Div. 1990)(“These two policies are accommodated by requiring the PIP carrier to respond as quickly as practicable to its coverage obligations, while reserving its right to obtain reimbursement from its insured's employer in proceedings in the Workers' Compensation Division, in which it may either intervene or initiate.").
Note that sometimes insurance requirements apply that are greater than 15/30/5. Examples include the following vehicles that require combined single limit policies with the indicated minimum coverage:
To help determine whether a vehicle was engaged in TNC activities at the time of an accident, N.J.S.A. 39:5H-12(c) requires that TNCs provide, "upon request by directly involved parties or any insurer of the transportation network company driver … the precise times that a transportation network company driver logged on and off … in the 12-hour periods immediately preceding and immediately following the accident." It also requires any insurer providing coverage under N.J.S.A. 39:5H-10 to "disclose, upon request by any other insurer involved in the particular claim, the applicable coverage, exclusions, and limits provided" under its policy. Interestingly, this provision does not require the TNC to provide the times that the driver was providing a prearranged ride.
Pursuant to N.J.S.A. 39:6A-4.3, insurers of "automobiles" must offer the option for certain reduced coverages:
N.J.S.A. 39:6A-4.3 specifies that elections made under this statute apply only to the named insured and to resident relatives of the named insured (except if that resident relative is the named insured on another policy) and not to anyone else eligible for benefits (e.g. guest passengers).
Pursuant to N.J.S.A. 39:6A-3.1, an "automobile" owner may elect a "basic" policy with significantly reduced coverages discussed further here. This coverage includes $15,000 of medical expense benefits coverage, except that $250,000 of coverage is available for certain particularly significant injuries. The election of a basic policy applies to anyone receiving benefits under that policy. As to which PIP policy should apply if the person is qualified under more than one policy, see the above discussion on the "follow the family" exclusion.
Pursuant to N.J.S.A. 39:6A-3.3, an "automobile" owner who qualifies for certain public assistance (basically those qualified for Medicaid) may elect a "special" policy with significantly reduced coverages discussed further here. This policy provides $250,000 in coverage, but only for emergency care, which is defined in the statute, and only for "the named insured and dependent members of his family, as defined by the federal Medicaid program, residing in his household." The policy also includes a $10,000 death benefit.
Note that as discussed above, this rule may not apply in certain situations, for instance claims for PIP reimbursement pursuant to N.J.S.A. 39:6A-9.1, where one tortfeasor has statutory immunity (e.g. an employer with immunity under Workers Compensation laws), or where the identity of one tortfeasor is unknown.
Note that as discussed above, this rule may not apply in certain situations, for instance claims for PIP reimbursement pursuant to N.J.S.A. 39:6A-9.1, where one tortfeasor has statutory immunity (e.g. an employer with immunity under Workers Compensation laws), or where the identity of one tortfeasor is unknown.
Levine v. United Healthcare, 402 F.3d 156 (3d Cir. 2005), held that New Jersey's Collateral Source Rule, N.J.S.A. 2A-15-97, is not a law regulating insurance and therefore was preempted by an ERISA plan's subrogation clause. However, Levine footnotes 2-4 note that subsequent to the NJ Supreme Court's decision in Preirera (discussed immediately above in the section on New Jersey's Collateral Source Rule) N.J.A.C. 11:4-42.10 was amended to prohibit subrogation clauses in health insurance policies. As N.J.A.C. 11:4-42.10 seems to be a "law . . . which regulates insurance," it would seem to be saved from ERISA preemption under 29 U.S.C. 1144(b)(2)(A) and only preempted for self-funded ERISA plans under "deemer," 29 U.S.C. 1144(b)(2)(B). This seems to be confirmed in footnote 5 of Cty. Of Bergen v. Horizon Blue Cross Blue Shield, 412 N.J. Super. 126 (App. Div. 2010):
Roche v. Aetna, Inc., 2016 U.S. Dist. LEXIS 25208, 21-22 (D.N.J. Mar. 1, 2016), particularly footnote 11, agrees that N.J.A.C. 11:4-42.10 is not preempted by fully funded ERISA plans, although the parties did not argue this point.
Based on this analysis, plan language in a self-insured ERISA plans will preempt New Jersey's collateral surce rule as well as N.J.A.C. 11:4-42.10. ERISA disability plan language should apply even for fully-insrued plans, because N.J.A.C. 11:4-42.10 applies to health insurance and not to disaiblity insurance. If one of these plans allows for subrogation/lien rights then those rights will apply (some consideration should also be given to whether the plan has language to override New Jersey's "Made Whole Doctrine" discussed below). Fully-funded ERISA health plans will not be able to subrogate in New Jersey because of N.J.A.C. 11:4-42.10.
Primary, excess, and co-primary coverage.
Uninsured/Underinsured Motorist Subrogation (UM/UIM)
For basic automobiles, the "state minimum" liability coverage that such policies must provide for innocent third parties is 15/30/5 per NJM v. Varjabedian dispite the fact that, technically, New Jersey allows a "basic" policy for automobiles that provides 0/0/5 coverage per N.J.S.A. 39:6A-3.1 (and a 0/0/0 "special" policy is available for certain eligible persons with low income pursuant to N.J.S.A. 39:6A-3.3). In N.J.M., the court found that despite its insured’s misrepresentation regarding her daugthter's driver’s license status, the insurer was required to provide state minimum liability coverage for an injured innocent third party. C.f. Marotta v. New Jersey Auto. Full Ins. Underwriting Assoc. By and Through Liberty Mut. Ins. Co., 280 N.J. Super. 525 (App.Div. 1995) holding state minimum coverage to apply for protection of innocent third parties where the insured had misrepresented the state of residency. In Cure v Perez, 223 N.J. 143 (2015) the New Jersey Supreme Court effectively agreed with the Varjabedian decision indicating that, in general, a rescinded policy will still need to provide 15/30/5 coverage despite the legislature's creation of the "basic" and "special" policies. However, since the policy in question in Cure v Perez was a "basic" policy with the optional $10,000 bodily injury liability coverage, CURE was only required to provide $10,000 in coverage for the innocent third party. In its last sentence, the Supreme Court indicated (in dicta that it refered to as a "holding") that if a policy had no liability coverage at all (i.e. a "special" policy or a "basic" policy without the optional $10,000 in coverage) an insurer rescinding the policy would not owe any liabiilty coverage for an innocent third party.
The "state minimum" PIP coverage to be provided to innocent third policies is $15,000 in standard PIP coverage pursuant to N.J.S.A. 39:6A-4.3(e) (up to $250,000 is avaialble for certain significant injuries). Rutgers Cas. Ins. Co. v. LaCroix, 194 N.J. 515, 532-533 (2008).
Where a policy has an exclusion that would result in no protection of innocent third parties, the exclusion will likely be invalid and at least state minimums will apply, see e.g. Proformance Ins. Co. v. Jones, 185 N.J. 406 (2005)(policy with business use exclusion), Hanco v. Sisoukraj, 364 N.J. Super. 41 (App.Div. 2003)(policy with exclusion for liability of lessor of vehicle), Alvarez v. Norwood, 2012 N.J. Super. Unpub. LEXIS 910 (App.Div. Apr. 25, 2012) Certif. denied 216 N.J. 6 (2013)(unscheduled driver), compare Connecticut Indem. Co. v. Podeszwa, 392 N.J.Super. 480 (App.Div. 2007) approving of a "bobtail" policy which excluded coverage where other valid coverage was in place. As to whether the full policy limits will apply, see discussion below, "If an insurance policy needs to be reformed, the changes may (or may not) only apply to provide the statutory minimum coverage."
Some motor vehicles require more than 15/30/5 coverage. Some such requirements are discussed here. For vehicles subject to these requirements, an unenforceable exclusion will result in the insurer having to pay at least those higher minimums. See Rafanello v. Taylor-Esquivel, ___ N.J. Super ___, 2020 N.J. Super. LEXIS 232, 2020 WL 6833857 (App. Div. Nocember 23, 2020).
We are not aware of any New Jersey authority for whether denial of coverage for lack of cooperation may be asserted against an innocent third party. However, Cowan v. Allstate Ins. Co., 357 S.C. 625 (S.C. 2004) is persuasive authority indicating that such a denial should not be enforceable against an innocent third party and at least state minimums should apply.
An interesting question is whether an insurer of an innocent third party may take advantage of the fact that the tortfeasor's insurance must provide minimum coverage to an innocent third party even when the tortfeasor's insurance rescinds coverage. For instance, if an insurer pays an uninsured motorist claim to its insured because the tortfesaor's insurer rescinded coverage, can the insurer attempt to subrogate against the tortfeasor's carrier? Alternatively, may a UM/UIM carrier reduce its benefits available by the 15/30 coverage that the tortfeasor's insurer must still provide? One might argue that since the purpose of this rule is to make sure that innocent victims do not go unprotected, there is no reason to apply the "inncocent third party rule" if the innocent third party is protected by his or her own UM/UIM coverage. On the other hand, the tortfeasor's carrier contracted for certain risks including the risk that it would have to pay out on a rescinded policy and perhaps the rescinding carrier has some responsibilty for not not investigating its policy prior to the loss. Additionally, a subrogating carrier stands in the shoes of its insured, which is the innocent third party who has a valid claim against the tortfeasor's carrier. We are not aware of any case law on this point, however, some indication of the answer to this question may come from Cure v Perez discussed in this section. In Cure v Perez, CURE argued, 223 N.J at 149, that since it rescinded its policy, the benefits of its obligation to pay an innocent third party "should be provided to only those third parties who do not have first party uninsured/underinsured motorist (UM/UIM) coverage, as the UM/UIM carrier should be the insurer chiefly liable for damages." Although the New Jersey Supreme Court did not directly respond to this argument, it still found that CURE had to provide coverage to the innocent third party even though the injured party had insurance with Progressive, thus suggesting that the tortfeasor's insurer's obligation to pay state minimum coverage takes precedence over the innocent third party's insurer's obligations.
In Proformance Insurance Co. v. Jones, 185 N.J. 406 (2005), the New Jersey Supreme Court found that a policy that excluded coverage for liability arising from using a vehicle in the course of business was invalid. The court, however, held that the reformed policy would apply only to the state minimum required coverage. The court applied the same logic that NJ courts applied in the case where coverage was denied for material misrepresentation. See e.g. Marotta v. New Jersey Automobile Full Insurance Underwriting Assn., 280 N.J. Super. 525 (App. Div.) aff'd, 144 N.J. 325 (1996) and further discussion above. The court reasoned that the innocent third party who was injured in the accident only had the right to presume that the vehicle causing the injury would have 15/30/5 coverage.
On the other hand, in Potenzone v. Annin Flag Co., 191 N.J. 147 (2007), the New Jersey Supreme Court found an exclusion for loading and unloading to be invalid, and held that the full policy limits applied to the reformed policy. The Court was aware of the analysis in Proformance, and decided to "choose a different path here." Id. at 155. The Court argued that the loading-and-unloading exclusion was different, because there was long-standing precedent that such exclusions were unenforceable, and therefore the carrier should have expected that its exclusion would be invalid and its full policy would apply.
Craig & Pomeroy, New Jersey Auto Insurance Law §2:3-4 criticizes the Proformance case. The authors note that Proformance’s reliance on Marotta is misplaced, because Marotta involved a valid disclaimer of coverage due to an insured’s misrepresentation, while the only denial of coverage in Proformance was due to the insurer including an impermissible exclusion in the policy. The authors note that the insured in Proformance ended up exposed to liability above their now 15/30/5 coverage through no fault of their own and after having paid for greater policy limits. Craig & Pomeroy also criticize Potenzone’s attempt to distinguish itself from Proformance. Potenzone argued that there was long-standing precedent that loading-and-unloading exclusions were unenforceable, and therefore the carrier should have expected that its exclusion would be invalid and its full policy would apply. The authors note that this argument ignores the fact that the type of exclusion in the Proformance case, the business use exclusion, had been clearly unenforceable since at least 1990.
Craig & Pomeroy argue that the only valid distinction between these two cases is that in Proformance, where the business use exclusion was stricken, but the policy was reduced to state minimums, the at-fault party was a permissive user of the vehicle, rather than a named insured; whereas in Potenzone, where the loading and unloading exclusion was stricken and the policy remained in full force, the at-fault party was the the named insured. The authors argue that, “First-party insureds have every reason to believe that offending clauses will merely be struck and they will be left in the same position as would have applied without the offending clause. Third-party insureds, on the other hand, could not have formed any expectations as to coverage beyond the statutory minimums. While Craig and Pomeroy’s criticism of Proformance is well placed, the attempt to harmonize Proformance and Protenzone, is perhaps more forgiving than it should be. While the expectations of the parties may be significant, one could easily argue that a permissive user of a vehicle is an intended third-party beneficiary of the insurance contract, and therefore any expectations of insurance that the named insured has should also translate to the permissive user. It may be reasonable to assume that the Supreme Court in Potenzone was not happy with the Proformance decision, and given the opportunity would reverse it in its entirety. Note that in the unpublished case of Mantzouranis v. Pratolongo, 2015 N.J. Super. Unpub. LEXIS 2161, 15-19 (App.Div. Sept. 10, 2015) the Appellate Division declined to distinguish Proformance and Protenzone on the basis of the expectations of the parties, and held that a policy with an exclusion of coverage for a valet-parker must apply its full policy because it was well known for decades that such an exclusion was unenforceable.
A number of other cases are worthy of note on this subject. In Hanco v. Sisoukraj, 364 N.J. Super. 41 (App.Div. 2003), a lessor’s insurance policy excluded coverage for liability of the lessee. The offensive language was stricken, and the policy reduced to state minimums. It seems that this case can be justified, even in light of Protenzone, since a lessee is not an intended beneficiary of the lessor’s policy. Similarly, Alvarez v. Norwood, 2012 N.J. Super. Unpub. LEXIS 910 (App.Div. Apr. 25, 2012) held that a policy excluding unlisted drivers was reduced to state minimum coverage, and noted in distinction to Protenzone that, “[w]e find no comparable grounds to conclude that [the insured] or [the insurer] should have expected that the full policy limits would apply to accidents involving a principal driver of the insured taxi who was omitted from the application and the policy." Here, also, it is significant to note that there was some wrongdoing on the part of the insured, by not listing its driver.
In Kish v. Motor Club of Am. Ins. Co., 108 N.J. Super. 405 (App. Div.), certif. denied, 55 N.J. 595 (1970), an exclusion for liability for injuries to family members was found invalid, and the policy held to remain in for its full value. The court noted, “... N.J.S.A. 39:6-46(a) in specifying the scope of the omnibus coverage to be afforded by an owner's policy, makes no distinction between a policy containing the minimum statutory limits and one embodying higher limits. In either case, a provision limiting the broad omnibus coverage called for by N.J.S.A. 39:6-46(a) would be contrary to law." Id. at 412. The Kish case was recently sited by Khandelwal v. Zurich Ins. Co., 427 N.J. Super. 577 (App.Div.), certif. den. 212 N.J. 430 (2012) which held that a supplemental automobile insurance policy could not exclude coverage for injuries to family members.
In conclusion, although there is some apparently contradictory authority, the weight of authority seems to be that where an insured, through no fault of his or her own, is denied coverage due to an invalid policy exclusion, the full policy will apply. Where the insured engaged in some wrongdoing which triggered the exclusion, or where the insured cannot be said to have a valid expectation for full policy limits to apply, the reformed policy may apply only to minimum state insurance requirements.