Rutgers Casualty Insurance v. Ohio Casualty Insurance

Citations: 299 N.J. Super. 249; 690 A.2d 1074

Court: New Jersey Superior Court Appellate Division; April 1, 1997; New Jersey; State Appellate Court

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Ten consolidated cases present a legal issue regarding the right of contribution among automobile insurance carriers for Personal Injury Protection (PIP) benefits. Each case involves individuals insured under a Rutgers Casualty Insurance Company policy who were injured as pedestrians or passengers in vehicles not owned by them. The defendants—Ohio Casualty, West American, Keystone, Prudential, and HCM Claim Management Corporation—insured the vehicles involved in the accidents and had their insureds classified as “other insureds” under the defendants’ policies.

After Rutgers paid PIP benefits to its insureds, it sought contribution from the defendant insurers under N.J.S.A. 39:6A-11, which allows insurers to recover an equitable pro-rata share of benefits paid when multiple insurers are liable. The defendants declined to contribute, citing exclusions in their policies, referred to as "follow-the-family" exclusions. For instance, the Keystone policy excludes coverage for bodily injury to individuals entitled to PIP benefits under another policy, which was echoed in the policies of Ohio Casualty, West American, Allstate, and HCM.

Prudential’s policy does not include a typical "follow-the-family" exclusion but denies contribution based on a clause that prioritizes coverage for named insureds and their relatives under other policies. It stipulates that claims for PIP benefits must first be made against the primary insurer, and benefits under Prudential’s policy are contingent upon the other insurer’s insolvency. The court interprets Prudential's provision as effectively equivalent to the "follow-the-family" exclusion.

Rutgers’ insurance policy includes a “follow-the-family” exclusion, stating that bodily injury coverage does not apply to any individual other than the named insured or relatives who are entitled to personal injury protection (PIP) under another policy. The policy also outlines a contribution provision for multiple applicable policies, allowing the insurer to recover an equitable pro-rata share of benefits paid if an injured person is eligible under multiple policies. Most relevant insurers, including Ohio Casualty, West American, Keystone, HCM, and Allstate, have similar contribution provisions, while Prudential’s policy lacks one. After defendants denied Rutgers’ requests for contribution, Rutgers filed for a declaratory judgment and an order to compel arbitration in March 1994. The Law Division ruled in favor of Rutgers, ordering pro-rata share contributions from the defendants on PIP claims.

The New Jersey Automobile Reparation Reform Act, established in 1972, aims to provide an efficient and cost-effective system for settling tort claims from automobile accidents, thereby reducing court congestion. The Act requires every automobile liability insurance policy to include mandatory PIP coverage for medical expenses, income continuation, and death benefits, irrespective of fault. It ensures PIP coverage for the named insured and their household members for injuries sustained in various circumstances involving an automobile. Additionally, the Act mandates insurers to offer optional PIP coverage for named insureds and resident relatives. An amendment in 1983 clarified which PIP policy is primary, stating that the named insured’s PIP coverage is primary for them and any resident relative not covered under their own policy.

Insurers are allowed to deny Personal Injury Protection (PIP) benefits under specific conditions, such as when a claimant's actions contribute to their injuries or death while committing a serious crime or attempting to evade arrest, or when the claimant intentionally causes harm to themselves or others (N.J.S.A 39:6A-7(a)). Additionally, exclusions apply if the claimant owns or operates a vehicle registered in the state without PIP coverage, or does so without the owner's permission (N.J.S.A. 39:6A-7(b)). The statute does not provide for other exclusions. 

The issue at hand involves the validity of the "follow-the-family" exclusion regarding contribution transfers after PIP payments within the no-fault system. Defendant insurers argue that this exclusion would increase efficiency and reduce costs by allowing each carrier to settle with their insured without inter-company contribution claims. This arrangement is asserted to be beneficial for the public, as it would lower administrative costs without reducing benefits to insured individuals. 

The Law Division judge noted an implicit agreement among many insurers to refrain from seeking contribution as per N.J.S.A. 39:6A-11, though not all insurers complied. The judge equated the follow-the-family exclusion to an industry consensus, supported by evidence such as Allstate’s correspondence indicating a collective decision among insurers not to pursue contribution claims. There is no formal written agreement among insurers to avoid contribution for PIP claims, despite this apparent understanding.

The "follow-the-family" exclusion does not violate the PIP statutory scheme, as it only limits contribution claims from insurers covering named insureds or their resident relatives when the injury involves a vehicle not insured by that insurer. This exclusion is consistent with N.J.S.A. 39:6A-7, which delineates permissible exclusions related to criminal activities or uninsured vehicles, while prohibiting any other true exclusions of benefits to injured parties to uphold public policy. The injured party remains eligible for benefits, and once compensation is received under the "primacy of coverage" provision, only contribution claims are excluded. Historical cases, such as Selected Risks Ins. Co. v. Allstate Ins. Co. and Federal Ins. Co. v. Liberty Mutual Ins. Co., illustrate that insurers cannot impose provisions that dilute statutory obligations, as they must share PIP costs per N.J.S.A. 39:6A-11. Attempts to undermine these statutory mandates by insurance companies are contrary to public policy.

Federal filed a third-party complaint against Liberty and Ellmers while also claiming benefits directly from Liberty. The court ruled that Federal's coverage must be exhausted before Liberty is responsible for any unpaid Personal Injury Protection (PIP) benefits. The distinction between first-party and second-party insurance was clarified, with PIP coverage classified as first-party coverage, which pertains to an insured's own losses, as opposed to second-party coverage, which relates to liability for third-party injuries. The court addressed a regulation and policy provision indicating that Liberty's coverage was secondary to that of the named insured and resident relatives, finding these provisions in conflict with N.J.S.A. 39:6A-11, which does not suggest legislative intent to differentiate classes of insureds regarding PIP loss sharing. The court concluded that Federal was entitled to seek contribution from Liberty, invalidating conflicting regulations and provisions.

In 1983, the Legislature enacted N.J.S.A. 39:6A-4.2, which established that the PIP coverage of the named insured is primary for themselves and any resident relatives not covered by their own insurance. The issue of primary vs. secondary coverage was revisited in Cokenakes v. Ohio Casualty Ins. Co., where Ohio Casualty claimed to be the primary insurer after the plaintiff was injured in a leased vehicle insured by Liberty. The court considered whether N.J.S.A. 39:6A-4.2 was applicable retrospectively or prospectively, concluding that the new law aimed to resolve disputes between co-equal insurers regarding PIP benefits. The judge noted that the law preserves insurers' rights to seek contribution while designating the primary payer for PIP benefits.

The Legislature established a remedy for individuals injured in automobile accidents when multiple insurers cannot agree on PIP contributions, emphasizing the No-Fault Law's intent for prompt payment of benefits. Victims are no longer forced to wait for insurers to resolve disputes before receiving crucial PIP benefits. In the case of United States Fidelity Guaranty Co. v. Industrial Indemnity Co., the court examined the interpretation of “primary” in relation to N.J.S.A. 39:6A-4.2. Here, USF.G sought to compel Indemnity to participate in arbitration for PIP contributions after an employee was injured in an accident while using her employer's vehicle. Indemnity claimed its coverage was "primary" and thus not obligated to share PIP costs. The court confirmed that N.J.S.A. 39:6A-11 mandates contribution among insurers liable for PIP benefits, determined through arbitration based on an equitable share of benefits. The court rejected Indemnity's interpretation that would minimize the applicability of N.J.S.A. 39:6A-11, reinforcing that the primary insurer must initially cover PIP benefits and can seek contributions thereafter. This interpretation aligns with existing regulations ensuring timely payment to insured individuals without delays from insurer disputes. Subsequent cases further affirmed this principle, clarifying that a primary insurer can still seek contribution even if policy limits have not been exceeded.

The validity of the "follow-the-family" exclusion in relation to N.J.S.A. 39:6A-11 is upheld, as it does not conflict with the statute, which applies only when multiple insurers are liable under specific sections. The exclusion means that the defendant carriers are not liable for PIP benefits, and Rutgers' claim for contribution is likened to the outdated concept of subrogation, which was abolished in 1974. N.J.S.A. 39:6A-11 remains relevant for situations where multiple PIP coverages exist, particularly when a minor resides with multiple insured parents or siblings. In such cases, the statute allows for contribution if only one insurer pays benefits. The effectiveness of the "follow-the-family" exclusion aligns with legislative intent to streamline the handling of automobile accident claims, reduce court congestion, and promote efficiency. The court acknowledges the rationale behind the exclusion and reverses prior decisions that denied PIP contribution, affirming that it effectively supports the overall objectives of the no-fault insurance system.

The 1990 amendment to N.J.S.A. 39:6A-4.2 established a prohibition against duplicate personal injury protection (PIP) benefits for injuries from a single accident, stating that individuals cannot recover PIP benefits under multiple automobile insurance policies. N.J.A.C. 11:3-7.4 initially required that PIP benefits be provided by the insurer of the injured party, but this regulation was deemed ambiguous by a federal court and is now obsolete. Current regulation N.J.A.C. 11:3-37.12(c) allows an automobile insurer that pays PIP benefits for medical expenses to seek equitable pro rata contributions from other applicable automobile PIP plans if the insured is covered by multiple policies. This regulation, while included in a subchapter concerning the order of benefits between automobile PIP and health insurance, applies more broadly and is not restricted to instances where PIP coverage is secondary to health coverage, as noted in the court's reference to USF. G, 264 N.J. Super, at 383 n. 4, 624 A.2d 1014.