Appellate Division Applies Estoppel to Stop Auto Insurer from Asserting Step-Down Provision for UIM Coverage

In Boritz v. New Jersey Manufacturers Insurance Company, the Appellate Division of the Superior Court of New Jersey held that under the equitable doctrine of estoppel, an insurance company providing UIM coverage can be estopped from asserting a step-down provision in an insurance policy where a plaintiff justifiably relies on the UIM carrier’s consent to settle and release the tortfeasor in return for the tortfeasor’s policy limits.  This is a significant victory for plaintiffs in the auto accident context.  Because of the many complicated insurance issues that arise in auto accident cases in New Jersey, anyone who has been injured in an auto accident should contact a New Jersey auto accident lawyer or New Jersey personal injury lawyer for assistance.

In this case, plaintiff Linda Boritz was a passenger in an automobile being owned and driven by Sally Iacono.   Plaintiff was severely injured when the vehicle was struck from behind by another vehicle, driven by Monique Vinson.  Vinson’s vehicle was insured by GEICO under a policy with a $15,000 limit.  Iacono’s vehicle, in which plaintiff Boritz was a passenger, was insured under a policy with NJM with $100,000 in under-insured motorist coverage (UIM).  UIM coverage provides additional coverage to an injured party making a claim under the policy when the tortfeasor’s own policy is not enough to cover the damages suffered by the plaintiff.

An NJM representative advised plaintiff’s counsel that NJM would provide primary UIM coverage.  A few months later, plaintiff’s counsel advised NJM that GEICO had offered plaintiff the entire $15,000 of its policy to Vinson in full and final settlement of the lawsuit.  Plaintiff’s counsel sought consent from NJM to settle the case with Vinson.  Consent from the UIM carrier is necessary because, under established law, the UIM carrier can choose to decline consent to settle with the tortfeasor, pay the plaintiff the policy limit offered by the primary carrier, and then become subrogated to plaintiff’s right to recovery from the tortfeasor.  NJM consented to plaintiff’s settlement with the defendant, and plaintiff consequently accepted $15,000 from Vinson’s insurance carrier and executed a release of liability.

Plaintiff’s counsel then began to negotiate with NJM for UIM benefits.  NJM eventually offered plaintiff up to $32,023 to settle the UIM claim.  However, NJM later found out that plaintiff Boritz had an auto insurance policy with GEICO, with a UIM limit of $25,000.  NJM then sent notice to plaintiff’s counsel that it would limit the amount paid for the UIM claim to $10,000 (the difference between the $25,000 limit in plaintiff’s own UIM policy and the amount paid to plaintiff by the tortfeasor’s policy), citing a step-down provision in the policy to Iacono.  The step-down provision essentially provided that, where the claimant was not a named insured on the policy, UIM coverage would be stepped-down to the limit of any other policy under which the claimant was a named insured that provided similar coverage.  NJM argued that because plaintiff Boritz was not a named insured under Iacono’s policy, and because plaintiff Boritz was a named insured under her own auto insurance policy, the amount of coverage would be stepped-down to the limit for UIM coverage under her own policy.

Plaintiff filed a lawsuit against NJM for coverage.  Plaintiff did not challenge the validity of the step-down provision; rather, plaintiff argued that had she been aware that the NJM UIM limits would be $25,000 and not $100,000, she would not have settled with the tortfeasor, but would have sought satisfaction of any judgment against the tortfeasor from personal assets.  In analyzing this case, the Appellate Division noted that estoppel is an equitable doctrine that is designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment.  In this case, the Appellate Division applied estoppel, and found that plaintiff relied on NJM in two ways: first, plaintiff expected receipt of UIM benefits from NJM; and second, plaintiff chose to forego the opportunity to pursue a greater recovery from the tortfeasor based on NJM’s representations that it would provide coverage. 

In spite of the fact that NJM had a clear contractual provision in its favor, the Court noted that insurance carriers have a duty to act in good faith with an insured, and the Court has always construed the boundaries of good faith in favor of insureds.  The duty to act in good faith requires a UIM carrier to inform a claimant of a potential setoff afforded by a step-down provision before the injured party settles with the tortfeasor.  Accordingly, the Court decided that the UIM limit available to the plaintiff in this case would be $85,000 (the UIM policy limit of $100,000 under the NJM policy less the $15,000 paid to plaintiff by the settling tortfeasor).  As this case evidences, complicated insurance issues arise in the auto accident context; therefore, anyone injured in an auto accident in New Jersey should consult with a New Jersey auto accident lawyer or New Jersey personal injury lawyer.