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Employees driving company vehicles in New Jersey are eligible for their employers’ uninsured/underinsured motorist coverage, thanks to a new law signed Sept. 10 by New Jersey Gov. Jon Corzine. The law prohibits insurers’ use of “step-down” clauses, which bind employees – unless named as insureds on their employers’ policies – to their personal automobile policies’ UM/UIM limits, which are usually lower. It amends N.J.S.A. 17:28-1.1, the general statute on minimum coverage limits, to add a new paragraph (f), providing that auto policies issued to corporate or business entities “shall not provide less uninsured or underinsured motorist coverage for an individual employed by the corporate or business entity than the coverage provided to the named insured under the policy.” Further, the law automatically deems the corporate or business entity’s maximum UM/UIM policy limits to apply to an employee, regardless of whether the employee has coverage or in what amount. Since the law goes into effect immediately, the deeming provision applies to all existing policies, which may lead to a surge in litigation of the type that led to the law’s enactment. The law was intended to counter the state Supreme Court’s ruling in Pinto v. New Jersey Manufacturers Insurance Co. and prior cases that held step-down clauses enforceable. Raymond Pinto Jr. was hit from behind while driving a truck for his employer, who had a New Jersey Manufacturers Insurance Co. policy with $1 million in UIM coverage. But as Pinto was not a named insured, the policy’s step-down clause held him to his own policy’s $100,000/$300,000 limits, which Pinto’s damages had exceeded. The court, led by Justice Jaynee LaVecchia, held that step-down clauses, if not ambiguous, are enforceable even though they result in “differential treatment of similar plaintiffs.” New Jersey state Sen. Nicholas Scutari, a sponsor of the legislation S-1666 with state Sen. Nia Gill, said he saw a “fundamental unfairness” about step-down clauses, where seriously injured people had no recourse when damages exceeded coverage. The New Jersey State Bar Association supported the measure, saying step-down clauses violate the plain language of insurance statutes, do not fulfill the reasonable expectations of the insured, and give “illusory coverage.” The bill was opposed by the Insurance Council of New Jersey, a nonprofit research, information and advocacy organization for property/casualty insurance companies in the state. The group argued that voiding step-down clauses would lead to premium increases. The bill passed the Legislature by an 80-0 vote on June 21 and the Senate by 39-0-1 on Dec. 4, 2006. Plaintiffs’ lawyer Gerald Baker of Baker Garber Duffy & Pedersen, who appeared on behalf of the amicus state bar, said that with the new legislation, he intends to bring suits seeking UM/UIM coverage under commercial auto policies. Daniel Pomeroy, who argued for the amicus New Jersey Defense Association in Pinto, said the Legislature should have deferred to the court. “The Supreme Court invited the insurance industry to offer these clauses and now the Legislature is saying it’s against public policy,” he said. Pomeroy, of Mortenson & Pomeroy, also pointed out that since UM/UIM insurance is optional, the Legislature should not presume to mandate the terms of coverage. This article originally appeared in the New Jersey Law Journal , a publication of ALM.

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