In an effort to “avoid rewarding insureds for omitting key details in a UIM claim,” the New Jersey Supreme Court ruled on Wednesday that an insurance company does not have to pay out on an underinsured motorist claim when the policyholder failed to advise of a separate claim pending against the at-fault driver.
The court, in a unanimous decision, reversed the Appellate Division’s previous split ruling in the case. “Our precedent was not followed here,” and neither were the policy terms, wrote Justice Faustino Fernandez-Vina in Ferrante v. New Jersey Manufacturers Insurance.
Fernandez-Vina said it was clear that Robert Ferrante violated the terms of his policy by not notifying New Jersey Manufacturers Insurance of the pending litigation immediately. Had he properly notified NJM, Fernandez-Vina said, NJM could have taken the opportunity to intervene in the litigation.
“Our case law has routinely emphasized the importance of candor by insureds and the obligation to act in a forthright, open, and honest manner with their carriers throughout the entire process of their claim,” Fernandez-Vina wrote.
“We have provided insureds ‘an incentive to tell the truth. It would dilute that incentive to allow an insured to gamble that a lie will turn out to be unimportant,’” he added, quoting from case law and noting the need “to avoid rewarding insureds for omitting key details in a UIM claim.”
The at-fault driver, referred to by the court only as “the tortfeasor,” had a policy with Allstate Insurance Co. with a $100,000 limit, according to documents. Before trial but following a failed arbitration proceeding, Ferrante’s attorney, Joseph Grimes, and the driver’s attorney entered into a $25,000/$100,000 high-low agreement. At trial, the Salem County jury awarded Ferrante and his wife $250,000 in damages, triggering the high. Allstate paid the $100,000 as required by the agreement.
Earlier on, Ferrante lodged an underinsured motorist claim with his own carrier, New Jersey Manufacturers. It was only after that matter advanced to discovery, well after the verdict against the driver was announced, that Grimes notified NJM of the claim against the driver, according to the court.
NJM at first waived any subrogation rights after Grimes told the carrier that the at-fault driver was judgment-proof. NJM later reversed its position and decided to fight the UIM claim. NJM contended that, had it known of the underlying action, it could have intervened to protect its interests. A trial judge dismissed the UIM action based on Ferrante’s failure to provide NJM with adequate notice of the underlying claim and the high-low agreement.
Ferrante appealed. In September 2016, Appellate Division Judges Jack Sabatino and Amy O’Connor said that while the lack of proper notice was “troubling,” Ferrante should have a chance to show that NJM was not prejudiced by the high-low agreement, especially since Grimes said early on that he believed Ferrante’s damages were worth more than $100,000 and that he agreed to the $100,000 cap because that represented the limits of the at-fault driver’s Allstate policy.
Appellate Division Judge Allison Accurso dissented, saying it appeared that the lack of notice was a deliberate move.
NJM then appealed.
In Wednesday’s reversal, Fernandez-Vina noted that the court’s 1996 ruling in Zirger v. General Accident Insurance, and an earlier 1995 opinion in Rutgers Casualty Insurance v. Vassos, mandated that policyholders have an affirmative obligation to notify their carriers about pending litigation against tortfeasors.
“Due to the complete absence of notice by Ferrante to NJM at any point over years of litigation, including the lack of notice about the high-low agreement or completed jury trial during the UIM process, NJM may refuse to pay the UIM benefits,” Fernandez-Vina said.
“Zirger is not premised on the idea that the insured has to give notice to the carrier only if he thinks the UIM claim will exceed the policy limit,” he added. “The purpose of this notice is to give a carrier the opportunity to pay the insured the settlement proceeds and then try the case itself as if in the insured’s shoes. At minimum, the notice allows the carrier to participate in the trial to whatever extent the trial court allows.”
Fernandez-Vina brushed off Ferrante’s argument that there was a difference between negligently and intentionally violating the duty to notify the insurer. “Our decision here is not rooted in Ferrante’s state of mind, but rather in his actions,” he said.
NJM’s lawyer, Daniel Pomeroy, said the ruling sends a clear message to policyholders in Ferrante’s situation.
“If you’re going to violate Vassos and [1988 Appellate Division ruling Longworth v. Van Houten], there are going to be repercussions,” said Pomeroy, of Pomeroy Heller & Ley in New Providence.
Grimes, of Grimes & Grimes in Cherry Hill, did not return a call seeking comment on the ruling.
During oral arguments in January, Grimes argued, ”There was no effort by me to deceive NJM,” although he acknowledged, when asked by Justice Jaynee LaVecchia, that notice was not provided when the lawsuit against the other driver was filed, or after the failed arbitration.
“I did not,” Grimes replied. “But it was not intentionally misleading,” he told the court at the time.