In 1972, the State of New Jersey enacted a comprehensive system of automobile statutes to provide that automobile accident victims are reimbursed promptly for their first-party medical expenses and to insure that there are financially responsible sources of insurance to compensate them fully for their third-party liability claims. The three pillars of the system are the Compulsory Insurance Law (which requires minimum limits of liability insurance), the No Fault Act (which requires personal injury protection benefits), and the Uninsured Motorist Act (which requires minimum limits of uninsured and underinsured motorist coverage).

Every year since 1992, I have written an Automobile Injury Supplement for the New Jersey Law Journal entitled "A Look at No Fault." The purpose of this supplement is to review every case, rule, regulation or statute that deals with the verbal threshold as well as the most important cases dealing with PIP benefits and UM/UIM coverage.

Since 1988, there have been over 120 published cases that deal with some aspect of the verbal threshold. These cases are listed in chronological order by subject matter in the Verbal Threshold Index included in this supplement.

This year, there was one new case dealing with the verbal threshold (Sanchez: Workers' Compensation Liens). There were two important cases dealing with PIP benefits (Haines: Medical Expenses and Katchen: Insurer Immunity), as well as one important UM/UIM case (Katchen: Motorcycles). In addition, I have written a separate sidebar on the socially important and progressive opinion in Moreland entitled "Familial Relationships: Bigotry or Dignity."

Justice Oliver Wendell Holmes once said that "The life of the law has been experience." I enjoy the "experience" of writing about the law. I hope that you enjoy reading about it.

PIP: Medical Expense Benefits 

The No Fault Act requires every standard automobile liability insurance policy to contain personal injury protection (PIP) benefits including medical expense in an amount not to exceed $250,000 per person per accident. These benefits are paid to the following classes of people who sustain bodily injury as a result of an accident:

1. The named insured and resident family members while occupying an automobile.
2. The named insured and resident family members as a pedestrian sustaining injury caused by an automobile.
3. Other persons while occupying the automobile of the named insured (the host vehicle).

These PIP benefits shall be paid "without regard to fault" (hence, the name "No Fault"). N.J.S.A. 39:6A-4(a).

In addition, the Act provides that the automobile insurer shall offer medical expense benefit options of $150,000; $75,000; $50,000; and $15,000 per person per accident. N.J.S.A. 6A-4.3(e).  While the statistics are not available to me, I would estimate that about 25% of all policyholders have selected the $15,000 medical expense option, with a higher percentage in urban areas.

In order to prevent a double recovery, the No Fault Act provides that evidence of the amounts of PIP benefits "collectible or paid" to an injured person is "inadmissible in a civil action for recovery of damages for bodily injury by such injured person." Nonetheless, "nothing in this section shall be construed to limit the right of recovery, against the tortfeasor, of uncompensated economic loss sustained by the injured party." N.J.S.A. 39:6A-12. The Act defines "economic loss" as "uncompensated expenses, including, but not limited to, medical expenses." N.J.S.A. 39:6A-2(k).

Thus, it is clear that medical expenses paid by PIP are not admissible in evidence in a civil action and are not recoverable as an economic loss from the tortfeasor. Any medical expenses above $250,000 (the maximum PIP limit) are admissible in evidence and are recoverable from the tortfeasor. In Haines v. Taft, 237 N.J. 271 (2017), the Supreme Court considered whether medical expenses between the PIP limit elected by the named insured (in this case $15,000) and the maximum PIP limit ($250,000) are admissible in evidence and are recoverable from the tortfeasor.

The plaintiff, Joshua Haines, was injured in an automobile accident. He sustained soft tissue injuries (no fractures) and incurred medical expenses of $43,000 (billed at the providers' UCR rate, not the medical fee schedule).

Haines did not own a car. However, he resided with his father who did. His father purchased a standard policy with the limitation-on-lawsuit option (the verbal threshold) and medical expense coverage of $15,000. The PIP carrier exhausted the medical expense benefits and Haines was left with $28,000 in unreimbursed medical expenses.

Haines filed a civil action against the defendant, Jacob Taft, for both non-economic loss (pain and suffering) and economic loss (his unreimbursed medical expenses). He dismissed his claim for non-economic loss since he did not meet the verbal threshold. However, he continued with his claim to recover his uncompensated medical expenses.

The defendant filed a motion to bar the admission of medical bills in excess of the PIP limits elected by Haines' father. The plaintiff argued that the "plain language" of the statute permits the recovery against the tortfeasor of "uncompensated expenses" including "medical expenses." Nonetheless, the trial court granted the motion because "a person who chooses a $15,000 PIP plan should not be allowed to recover in excess of that amount because he or she has made an affirmative decision to buy less insurance for less money."

The Appellate Division reversed. The court noted that the No Fault Act (as amended in 1998 by the Automobile Insurance Reform Act) expressly allowed a policyholder to elect lower limits of PIP coverage and did not intend to "bargain" away an injured party's right to recover unpaid medical expenses "in exchange for lower premiums." Thus, the court held that "evidence of medical expenses between $15,000 and $250,000 was not barred" and, therefore, was "admissible and recoverable."

The Supreme Court reversed. At the outset, the court noted that the Legislature "carefully constructed" a regulated "no-fault" first-party PIP system for the payment of medical expenses that would be "offset" by a reduction in a person's right to recover compensatory damages in a "fault based" third-party liability claim against a tortfeasor.

Next, the court recognized that Haines dismissed his claim for non-economic loss. Thus, "we are considering this issue in the context of a stand-alone claim to be able to sue for only uncompensated medial expenses in a case where the limitation on lawsuit policy option prevented a claim for bodily injury."

Finally, the court recognized that both parties had "plausible" arguments: The plaintiff contending that the plain language of the statute should control, and the defendant arguing that the language was ambiguous. The court then embarked on a long thesis about the legislative history of the no-fault act and legislative intent.

Ultimately, the Supreme Court decided that the Legislature did not intend to deviate from the "no-fault-system for the payment of medical expenses," and did not intend to "return to fault-based suits consisting solely of economic damage claims for medical expenses in excess of an elected lesser amount of available PIP coverage." Nonetheless, the court stated that "should the Legislature disagree with our restrained interpretation of its statutory scheme, we invite the Legislature to make its intention to introduce fault-based suits into the no-fault medical reimbursement scheme more explicit."

In a stinging dissent, Justice Albin (joined by Judge Fuentes, t/a) stated that the majority opinion will have "a catastrophic impact on the right of low-income automobile accident victims to recover their medical costs from the wrongdoers who cause their injuries." The decision will bankrupt some innocent automobile accident victims and will "widen the divide" among economic classes in our civil justice system. Justice Albin concluded that this "perverse concept" was not intended by the law.

The Supreme Court opinion was decided on March 26, 2019. On Aug. 15, 2019 (a "flash" on the clock of time in Trenton), the Legislature passed and the Governor signed two bills that would reverse the Supreme Court opinion in Haines and correct the inequity highlighted by Justice Albin.

In S-2432, the definition of "uncompensated economic loss" was amended to clarify that economic loss shall include all uncompensated medical expenses "not covered by the personal injury protection limits applicable to the injured party." In addition, all medical expenses that exceed the injured party's PIP limits "are claimable by any injured party as against all parties."  This amendment takes effect immediately (Aug. 15, 2019) and applies to all causes of action pending on that date or filed on or after that date.

The Supreme Court noted in Haines that the plaintiff's medical expenses were not subjected to the medical fee schedule required for PIP benefits. Accordingly, S-3963 amended the No Fault Act to provide that any uncompensated medical expenses not paid by PIP shall be subject to the automobile medical fee schedule. This amendment became effective on Aug. 1, 2019, and applies to all automobile accidents that occur on or after that date.

COMMENTARY: The No Fault Act provides that every standard automobile liability insurance policy shall contain medical expense benefits up to $250,000 per person. The Act requires the Commissioner of Banking and Insurance to promulgate a medical fee schedule for the reimbursement of health care providers that incorporate the reasonable and prevailing fees of 75% of the practitioners within a region. N.J.S.A. 39:6A-4.6. In addition, the Act provides that medical expenses paid by PIP shall be inadmissible in a civil action except for uncompensated economic loss, which includes uncompensated medical expenses.

The amendments to the No Fault Act clarify two issues. First, for all accidents that occur after Aug. 1, 2019, all medical bills will be subject to the medical fee schedule, whether paid by PIP or in excess of the PIP limits. Second, for all cases pending on Aug. 15, 2019, or filed on or after that date, the medical expenses that exceed the plaintiff's PIP limit shall be admissible in evidence and, therefore, are recoverable from the tortfeasor.

I agree with Justice Albin that "the right to sue a wrongdoer for the costs of injuries caused to an innocent victim is a hallmark of our common law." Likewise, "it is not a fair trade-off, as the majority argues, to deny an insured who can afford only $15,000 in PIP coverage the opportunity to recoup $235,000 in unpaid medical costs caused by a negligent wrongdoer."  Fortunately, the Legislature and the Governor have agreed to "fix the inequity."

Verbal Threshold: Workers' Compensation Benefits

The Workers' Compensation Act (WCA) provides that an employee injured in the course of employment is entitled to certain benefits including medical expenses and lost wages. However, if the employee's injuries were caused by a third party (not the employer or a co-employee), the comp carrier is entitled to seek reimbursement from the tortfeasor. N.J.S.A. 34:15-40(f).

The Automobile Insurance Cost Reduction Act (AICRA, otherwise known as the No Fault Act) provides that a person who is injured in an automobile accident is entitled to receive personal injury protection (PIP) benefits including medical expenses and income continuation. These benefits are payable without regard to collateral sources except for workers' compensation benefits. N.J.S.A. 39:6A-6.

Thus, if a person is injured in an automobile accident in the course of his employment, the primary obligation to pay medical expenses and lost wages rests with the worker's compensation carrier, not the PIP carrier.

In New Jersey Transit Corporation v. Sanchez, 457 N.J. Super. 98 (App. Div. 2018), the court considered the relationship between the Workers' Compensation Act and the No Fault Act with respect to the reimbursement of comp benefits. David Mercogliano, an employee of NJ Transit, was injured in an automobile accident in the course of his employment. NJ Transit's carrier paid comp benefits of $33,625.

Mercogliano was insured by a personal automobile policy that was subject to the loss limitation option. The parties stipulated that his injuries did not satisfy the verbal threshold. Accordingly, he did not sue the defendant, Sanchez, the third-party tortfeasor who caused the accident.

Instead, NJ Transit filed a subrogation action directly against Sanchez for recovery of the workers' compensation benefits paid to its employee, Mercogliano. Sanchez responded that NJ Transit, as subrogee, stands in the shoes of its employee and has no right superior to the employee. Since Mercogliano did not meet the verbal threshold, he could not bring a claim against the tortfeasor and, therefore, NJ Transit would also be barred. In contrast, NJ Transit argued that its right of reimbursement is governed by WCA, not by AICRA. Thus, the verbal threshold does not bar its comp lien.

The court noted that there was nothing in the history of AICRA (which was enacted 87 years after WCA) to suggest that the Legislature intended to treat workers injured in an automobile accident differently from workers injured in any other accident. Thus, the rights of a workers' compensation carrier in a subrogation action against a tortfeasor are governed by WCA, not AICRA.

Under the facts of this case, the court held that NJ Transit is entitled to reimbursement from the negligent tortfeasor even though its employee was barred from pursuing a claim against the tortfeasor.

COMMENTARY:  The court stated that, when an employee is injured in an automobile in the course of employment, there are three potential sources of reimbursement:  The Workers' Compensation carrier, the PIP carrier or the liability carrier.  The relationships between these sources of recovery are complicated.

1. If only workers' compensation and PIP benefits are available, the primary burden is placed on the workers' comp carrier.
2. If only PIP benefits and the liability claim are available, the primary burden is placed on the PIP carrier.
3. If only workers' compensation and the liability claim are available, the primary burden rests with the liability carrier.

Thus, the court held that "where workers' compensation benefits have been paid, but the injured employee has not sought or obtained recovery from the tortfeasor, the primary burden is placed on the tortfeasor."

UM/UIM:  Motorcycles

The New Jersey insurance statutes require every "standard" motor vehicle liability insurance policy to include bodily injury limits of $15,000 per person and $30,000 per accident and uninsured/underinsured (UM/UIM) coverage up to $250/500,000 split limits or $500,000 single limits (not to exceed the liability limits). N.J.S.A. 17:28-1.1. In Katchen v. GEICO, 457 N.J. Super. 600 (App. Div. 2019), the court considered whether an insurance company can exclude UIM coverage for bodily injury sustained by an insured while operating a motor vehicle owned by the insured but not listed on the policy (the "owned-motor vehicle exclusion").

The plaintiff, Robert Katchen, was injured in a motor vehicle accident while operating a Harley Davidson motorcycle owned by him. The motorcycle was insured by Rider with UIM policy limits of $100,000. In addition, Katchen owned a personal automobile that was insured by GEICO with UIM limits of $250,000.

Katchen settled his liability claim with the tortfeasor for $25,000 and submitted a UIM claim to both Rider (the insurance carrier for the motorcycle involved in the accident) and GEICO (the insurance carrier for the personal auto not involved in the accident). GEICO denied coverage.

The GEICO policy provided coverage for bodily injury damage that an insured is legally entitled to recover from the owner or operator of an underinsured motor vehicle. However, the policy excluded coverage if the insured was injured while occupying a motor vehicle owned by him but "not described in the declarations" and not covered in the "liability coverages" of the policy.

Katchen claimed that the GEICO exclusion violated the mandatory insurance requirements of the statute, that the policy language was ambiguous and that the plaintiff had a reasonable expectation of UIM coverage while riding his motorcycle, a vehicle not covered under his auto policy. The Appellate Division disagreed.

At the outset, the court noted that the operation of a motorcycle presents "a far greater risk of injury" than other motor vehicles. The operators and passengers of motorcycles are not protected by the safety features afforded to other vehicles such as airbags and seat belts.

GEICO noted that insurance companies write policies based upon "the risks" such as "the make, model and year" of the vehicle involved. In this case, the declarations page lists only the insured's personal vehicle (a 2007 Dodge Ram) as an insured vehicle, not a 2006 Harley Davidson motorcycle.

Thus, the court held that GEICO's "owned-motor-vehicle exclusion" was valid. As a result, the plaintiff (who was injured while riding his motorcycle) was not entitled to receive UIM coverage under the liability policy that covered his personal automobile.

COMMENTARY: The plaintiff also claimed that GEICO's "owned-motor-vehicle exclusion" should not be enforced because UIM coverage follows the driver, not the vehicle. The court explained that this exclusion (which does not cover losses in an owned vehicle not insured under the policy) does not mean that the policy will only cover losses that occur in an insured vehicle. For example, if an insured was injured while in a rental car, while in a car that he did not own or while a pedestrian, "that exclusion would not apply."

PIP:  Insurers Immunity

The No Fault Act provides that every automobile insurance policy shall be accompanied by a Buyer's Guide and a Coverage Selection Form. N.J.S.A. 39:6A-23. The Buyer's Guide shall contain a description of all available policy coverages and benefit limits. The Coverage Selection Form shall indicate the options elected by the applicant. The form shall be signed and returned to the insurer.

In addition, the Act provides that any insurer or insurance producer shall not be liable for damages "on account of the election of a given level of motor vehicle insurance coverage by a named insured." However, an insurer or insurance producer shall not be granted immunity from suit as a result of "grossly negligent" acts. N.J.S.A. 17:28-1.9.

In James v. State Farm, 457 N.J. Super. 576 (App. Div. 2019), the court considered whether State Farm was entitled to immunity from a policyholder's election of limited PIP coverage. The plaintiff, Lledon James, was injured in an automobile accident. He submitted a claim for PIP benefits under a policy issued to his father, Lynval James, with whom he resided.

GEICO claimed that Lledon's PIP benefits were limited by the coverage selected by his father: $15,000 of medical expenses with a $2,500 deductible and health care primary. State Farm later determined that Lledon was covered by New Jersey Family Care (Medicaid), not private health insurance. Therefore, they applied a deductible of $3,250 (the $2,500 deductible selected by Lynval plus a $750 statutory penalty).

Lledon filed an order to show cause to reform Lynval's policy to provide primary PIP benefits of $250,000. His father claimed he purchased his policy from a local State Farm agent; that he told the agent that he wanted PIP to be his primary coverage; and that he wanted $250,000 of medical expenses with a $2,500 deductible. He gave the agent his private health insurance card that did not cover his wife or son. His wife, Lurline, had her own coverage with United Health, and his son, Lledon, had health insurance with New Jersey Family Care (Medicaid).

Lynval claims that he went to the State Farm office on his lunch break. He signed a blank form because he had to quickly return to work. The agent filled out the form after he left, and he did not review the coverage. The date is not his handwriting.

State Farm rejected these factual allegations. The agent provided a certification that Lynval requested PIP coverage of $15,000 with health insurance primary. He produced the completed coverage selection form and noted that the policy automatically renewed several times before the accident. Lynval never contacted his agent to confirm this coverage or to indicate that the information was incomplete or inaccurate.

The Appellate Division held that State Farm did not have an affirmative duty to investigate whether each member of Lynval's family had private health insurance. Accordingly, the carrier met all of the requirements for immunity and did not act in a grossly negligent manner.

In addition, Lynval, the policyholder, stated that he did not review the policy because he was not "astute" enough to go through the forms. Nonetheless, the court held that "willful blindness" is not a defense. Lynval was expected to act as a "conscientious policyholder." Thus, he had an affirmative duty to review his policy, assure himself as to the coverages, and alert his carrier as to any inconsistencies.

COMMENTARY: This is a bad decision on the facts and the law. As to the facts, the Appellate Division acknowledged that the coverage requested by Lynval "remains in dispute." Nonetheless, the court accepted the certification of the State Farm agent but rejected the certification of Lynval James (which it characterized as "self-serving" and "conclusory").

In my opinion, this is a classic example of "credibility" for the jury to decide, not the courts. Did Lynval James ask the State Farm agent for $250,000 of medical expense coverage and PIP primary. He said he did. The State Farm agent said he did not. Who do you believe? This is a "genuine issue as to a material fact," and State Farm's motion for summary judgment should have been denied.

As to the law, the Appellate Division incorrectly held that the duty to investigate private health insurance coverage rests with the policyholder, not the carrier. Lynval James quite openly admitted that he was not "astute" enough to review the forms. In my opinion, this is a fair characterization for most people who purchase automobile insurance policies.

Many years ago, Judge Pressler noted in Lehrhoff v. Aetna that an automobile policy is a "bulky document, arcane and abstruse in the extreme to the uninitiated, unversed and, therefore, typical policyholder." The court deemed it "unlikely" that the average policyholder "could successfully chart his own way through the shoals and reefs of exclusion; exceptions to exclusions; conditions and limitations, and all the rest of the qualifying fine print."

The court's reliance upon the Buyer's Guide was equally misplaced. The court suggested that the "legislative and regulatory design" behind these documents was "to create a milieu in which New Jersey insureds would inform themselves about available coverage … and make intelligent choices based on that information." It is my experience that most people do not read the Buyer's Guide and, if they did, would not understand its description of insurance coverage, specifically, as in this case, medical expense limits and primary coverage. Thus, the court should not have put the burden to investigate on the policyholder.

Conversely, the Appellate Division found as a matter of law that State Farm did not have a duty to affirmatively investigate whether each member of the family had private health insurance. However, the No Fault Act provides a policyholder with the option that other health insurance coverage shall be the "primary coverage" in regard to medical expenses. N.J.S.A. 39:6A-4.3(d). A named insured who chooses this option "shall provide proof that he and members of his family residing in his household are covered by health insurance." Thus, State Farm did have a legal duty to obtain proof that each family member had health insurance.

Likewise, the Appellate Division held that "the duty to investigate only arises when information is received that would trigger the need for an investigation." Unfortunately, the court incorrectly concluded that "there was no reasonable basis that would have prompted State Farm to investigate plaintiff's health insurance status."

In fact, there was "a reasonable basis" for an investigation. Lynval James gave the State Farm agent his private insurance card which did not cover his wife and son. This information should have prompted the agent to obtain proof that all of the resident members of Lynval's household were covered by health insurance. The agent could have easily determined that Lledon was covered by Medicaid, not private health insurance. Thus, State Farm could not have issued a policy with health insurance primary and, instead, should have issued a policy with $250,000 of medical expense coverage.

Under the facts of this case, the duty to investigate the health insurance coverage of Lynval James and the resident members of his household should have rested with the carrier, not the policyholder.

Gerald H. Baker is counsel to Javerbaum, Wurgaft, Hicks, Kahn, Wikstrom & Sinins in Springfield. He is a certified trial attorney who represents plaintiffs in personal injury and wrongful death casees. He also regularly conducts seminars on automobile insurance including the verbal threshold, UM/UIM coverage and PIP benefits.