Insurance policy/courtesy photo

Lawyers are citizens and drivers as well as professionals, and should know about the availability and limits of under-insured motorist coverage (UIM), which must be offered to insureds under motor vehicle policies in New Jersey. To that end, the Supreme Court's April 11 opinion in Ferrante v. New Jersey Manufacturers Insurance Group should be of interest to those electing relatively nominal UIM coverage, which is usually sold with the uninsured coverage endorsement that must be included in the policy. UIM provides the difference between the tortfeasor's policy limits and the insured's own coverage at little cost.

Robert Ferrante was involved in an automobile accident and suffered damages resulting in an arbitration award of $90,000. Ferrante rejected the award and sought a trial de novo. Unfortunately, the tortfeasor had only $100,000 liability coverage. Ferrante rejected a settlement offer and entered a “high-low” agreement with the defendant tortfeasor (carrier) precluding a judgment of less than $25,000 or more than $100,000 notwithstanding any verdict. The jury awarded Ferrante $200,000 in damages, but pursuant to the “high-low,” a judgment of $100,000 was entered. From the time the complaint was filed, Ferrante never advised his carrier of the proceedings or developments in the case. The carrier was advised of the $100,000 judgment only after it was entered.

A divided Appellate Division panel split on whether prejudice was necessary to sustain the disclaimed coverage on Ferrante's UIM claim. In her dissent, Judge Allison Accurso found that the failure to notify his carrier of the developments and proceedings, including the “high-low” agreement during those proceedings, precluded Ferrante from pursuing the UIM claim, and the Supreme Court agreed with the dissent. According to the Supreme Court, the absence of any notice to the carrier throughout the litigation precluded recovery on the claim.

In New Jersey, motor vehicle carriers have the right of subrogation and entitlement to notice, and the right to intervene in a case in order to protect its obligations under the policy. There is a tension between the UIM carrier's desire to keep a recovery within the limits of the liability policy and the carrier's obligation of fidelity to its own insured. As a result, the UIM carrier is entitled to permit its insured to accept a settlement, or pay it and take over the claim in order to protect its UIM obligation. Thus, New Jersey law required notice by Ferrante, the insured, of the proceedings, including any settlement offer, so his carrier could exercise its options.

While some cases have talked about prejudice to the carrier, here the carrier never had an opportunity to exercise any rights in the absence of any notice as required by case law, and lost its right of subrogation, and the UIM claim had to be dismissed.

We agree with the holding of the Supreme Court in terms of this case, and remind counsel for plaintiffs in motor vehicle cases about the need for their clients to comply with UIM obligations.