Flaherty v. Safran,

An injured plaintiff may not collect on a judgment against a tortfeasor whose carrier has been declared insolvent for monies in excess of the limits set forth in the New Jersey-Liability Insurance Guarantee Act; plaintiff's collection is limited here to $300,000 plus post-judgment interest, since the insured tortfeasor is not personally responsible for the difference above the Guarantee Association's obligation.

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Debra Flaherty sustained serious injuries in a motor vehicle accident, and obtained a judgment from a Monmouth County jury totaling $525,000. The Academy Bus Company, the employer of the bus driver responsible for the accident, defendant Jeffrey Safran, had purchased primary auto-liability coverage with limits of $1 million along with excess coverage of $5 million. Unfortunately, the primary carrier, the Reliance National Indemnity Company, was declared insolvent three years after the accident. Plaintiff maintains that Safran is personally responsible for the difference between the $300,000 to be paid by the Guarantee Fund and the verdict. Held: The issue is in some respects close, as there are competing concerns as well as policy reasons pulling in different directions. For reasons not pertinent here, Academy was not made a party to this lawsuit. Clearly, neither Flaherty nor Safran have any responsibility for the financial circumstances they now face. After Reliance was declared insolvent in 2001, the Guarantee Association took over the defense of plaintiff’s claim and has represented Safran since. The Guarantee Act was created to avoid financial loss to claimants or policyholders because of the insolvency of an insurance company. Carpenter Technology Corp. v. Admiral Ins. Co., 172 N.J. 504, 514 (2002). Although no court has been presented before with the issue raised in this case, the Appellate Division has resolved somewhat analogous circumstances, guiding the resolution here. N.J.S.A. 17:30A-51 clearly absolves the Guarantee Association from any obligation to pay prejudgment interest. Carpenter, 172 N.J. at 61. However, no provision or comment is set forth in the act regarding a defendant’s personal responsibility to pay prejudgment interest. When that issue arose, In the Matter of Hendricks v. A.J. Ross Co., 232 N.J. Super. 243 (App. Div. 1989), and In the Matter of Lehmann v. O’Brien, 240 N.J. Super. 242 (App. Div. 1989), ruled that defendants would not be personally responsible for prejudgment interest. In each case, the judgment returned in favor of the plaintiff was less than the statutory maximum. Both Hendricks, 232 N.J. Super. at 247, and Lehmann, 240 N.J. Super. at 248, identified the policy or purpose supporting the act as avoiding the imposition of liability on an insured for claims that could not be pursued against the association. Another part of the Appellate Division, without explaining the statutory language in detail, determined that the individual defendant would be personally responsible for prejudgment interest, except for the 180 days the Guarantee Association was given to conduct its investigation. Wilson v. Cycle Trucking, Inc., 240 N.J. Super. 326 (1989). That case has not been followed, nor is its reasoning as compelling as that in Hendricks and Lehmann. In the Matter of Sandson’s Bakery v. Glover, 162 N.J. Super. 225 (Law Div. 1978), ruled that the plaintiff’s insurer could not exercise its rights of subrogation directly against the defendant, who was represented by the Guarantee Association since her carrier had been declared insolvent. The court found that N.J.S.A. 17:30A- 5(d), as it was then, did not specifically prohibit subrogation directly against the insured herself, but concluded that such a claim could not be maintained, as it would be volative of the statute’s purpose to protect both policyholder and victim. By its terms, the statute is to be interpreted liberally to effectuate its purpose. N.J.S.A. 17:30A-4(a). As further evidence of the legislative purpose to protect policyholders, the statute now, as amended, prohibits any claim for subrogation against the insured himself. N.J.S.A. 17:30A-11. This legislative concern for innocent insureds is reflected in the definition of covered claims, which includes claims for reimbursement of unearned premiums. N.J.S.A. 17:30A-5(d). Since under accepted case law Safran is not responsible for prejudgment interest, nor may a subrogation claim be pursued against him, it would be incongruous to compel defendant now to bear personal responsibility for the amount above the Guarantee Association’s obligation, recognizing that the verdict, although significant, was still within the limits of coverage purchased by defendant’s employer. Clearly, such a result would be violative of the statute’s purpose. Obviously, given the passage of time since the limits were set and the significant increases in the cost of living, medical expenses and the like, some might seek to increase the limits available to be paid to a seriously injured plaintiff such as Flaherty. That, however, is not the court’s responsibility. Plaintiff argues that it is not unusual for defendants to be personally responsible for damage awards exceeding the limits of their liability coverage. It is obvious that the circumstances here are entirely different, given the limits of coverage that defendant’s employer secured through a recognized carrier that, nonetheless, thereafter became insolvent. Impressed with the possibility that innocent, responsible insureds such as defendant might experience such dire financial consequence, the Legislature effected its compromise. Defendant’s application to cap the damages, as it concerns both the Guarantee Fund and defendant, at $300,000 plus prejudgment interest is granted. — Digested by P.R. Chenoweth [The slip opinion is 9 pages long.] For plaintiff — Cornelius W. Caruso Jr. (Tobin, Koster, Oleckna, Reitman, Greenstein & Konray). For defendant — Christopher Carlson (Mintzer, Sarowitz, Zeris, Ledva & Meyers).

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