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New Jersey Supreme Court Year in Review - 2004 to 2005


In this article published in the New Jersey Law Review, Attorney Ronald Grayzel reviews cases decided by the New Jersey Supreme Court during the 2004-2005 calendar year which impact the practice of tort law.

These decisions range from the “serious injury” requirement of auto accident law, to sovereign immunity and assigning blame after a parking lot collapse.

Court overrules James, finding threshold requirement was not part of AICRA
By Ronald Grayzel

Tort law was center stage in the Supreme Court’s agenda for the 2004-2005 term. The 21 decisions covered a wide range of issues, from cases that will have a significant impact on the practice to interpretations of esoteric areas of the law.

The highlight was the high court’s decision to excise the “serious life impact” standard from automobile injury cases. The bar had eagerly awaited the Court’s determination of whether it would strictly interpret AICRA and overrule the James decision. The Court did not disappoint.

A great deal of the justices’ time and energy was devoted to resolving important problems in insurance law regarding the scope of coverage available for victims of motor vehicle accidents and businesses with liability problems.

Other areas of focus included common law doctrines, statutory causes of action, and procedural requirements for proper verdicts.

The Supreme Court’s newcomer, Justice Roberto Rivera-Soto, staked out a position as a new conservative voice on tort issues, writing opinions advocating restrictive applications of res ipsa and the scope of insurance coverage.

AICRA Victory
The constant barrage of political attacks on the civil justice system has taken its toll. Special interest legislation has steadily eroded the rights of injured parties to seek compensatory damages in jury trials. The number of civil cases filed annually has declined significantly. The impact on courthouse culture has been dramatic. In some counties, civil assignment offices are finding it difficult to keep all the judges busy. Even in the big urban counties, the number of cases on the trial list is way off. Courthouse traffic is diminished everywhere. The personal injury trial practice appears to be withering on the vine.

Nothing sapped the trial bar’s morale more than the judicial implantation of the “serious life impact” standard onto AICRA, James v. Torres, 354 N.J. Super. 586, 588 (App. Div. 2002). The validity of claims was routinely assessed in summary judgment motions and cases were dismissed in droves. Trial judges across the state have made inconsistent subjective judgments about plaintiffs’ claims without ever hearing a word of testimony. Some counties were tougher on plaintiffs than others. Some judges in the same courthouse were more inclined to grant summary judgment than others. The appellate docket was flooded with appeals. The patchwork of decisions that emerged from this chaotic process failed to achieve a workable standard for general application. As a result, some carriers stopped settling verbal threshold cases. Many more cases were tried because carriers were confident about winning. The legislative decision-making in James accomplished exactly what it set out to do: there was a marked decline in the number of automobile negligence cases filed.

The problem created by James was that the “serious life impact” standard was not part of AICRA. You can search the text line by line and you will not find a single reference to it. This was not one of the goodies the powerful insurance lobby worked to obtain. The insurance industry’s benefit of the legislative bargain was the reduction in the number of categories of injuries that plaintiffs could recover for under the verbal threshold, the additional requirement of a physician’s certification and tighter controls over PIP.

The courts’ guiding principle is that legislative intent should be gleaned from the plain language of a clearly worded statute. This golden rule did not dissuade the appellate judges in James from grafting the “serious life impact” standard onto AICRA. The activist judges in James felt that the intent of the act was to reduce the number of litigated claims and the “serious life impact” standard was the way to do it.

A lone voice of reason was Judge Thomas Lyons, Superior Court, Union County, who laid out a classic rationale for strict construction of AICRA in Compere v. Collins, 352 N.J. Super 200 (Law Div. 2002). As Judge Lyons wrote:

“This court finds that the AICRA statute is clear. AICRA does not require a plaintiff to prove the injury had a serious impact on the plaintiff and the plaintiff’s life. AICRA sets forth six categories which must be met before a person may sue for non-economic damages. With respect to the sixth category, the one at issue here, it not only sets forth the category type but provides a definition of ‘permanent’ as well. As the language in the AICRA statute is clear and unambiguous, there is no need to look at the legislative history.”

It was not untilSerrano v. Serrano, 367 N.J. Super 450 (App. Div. 2004), and DiProspero v. Penn, unpublished, N.J.L.J. DDS No. 23-2-5677, App. Div. (Jan. 30, 2004), that any appellate judges seriously questioned the flaws in the James decision. Both plaintiffs had automobile cases dismissed on summary judgment for failure to meet the second prong of the verbal threshold test. Each plaintiff took the position that AICRA did not require proof that their injuries had serious life impact. Two appellate judges inDiProspero affirmed the dismissal. A dissent by Judge Harvey Weissbard adopted Judge Lyon’s reasoning, forcing the Supreme Court to examine the issue on an appeal as of right. In Serrano the Appellate Division affirmed the dismissal but on different grounds. Judge Jack Lintner and his colleagues formulated a new “serious injury test” that did not require proof of “serious life impact” to clear the verbal threshold. The Supreme Court granted plaintiff’s petition for certification. The battle lines were drawn.

In Serrano and DiProspero, the Supreme Court, in unanimous opinions, surgically excised the “serious impact” tumor from the body politic. DiProspero v. Penn., 183 N.J. 477 (2005); Serrano v. Serrano, 183 N.J. 508 (2005). The author, Justice Barry Albin, concluded that a review of the plain language of the statute, a comparative analysis of the old and new threshold and a survey of the legislative history led to the compelling conclusion that the Legislature did not intend to “engraft” the Oswin language onto the verbal threshold in AICRA.

Regarding James, Justice Albin wrote: “There is a fine line between interpreting statutory language and engrafting a judicial standard over that language. In this case, we conclude that the appellate panel created a judicial standard not intended by those who wrote and enacted the statute.” Serrano, 183 N.J. at 518. The Justice concluded his analysis in DiProspero by writing that “[T]he plain language does not contain a serious life impact standard. Nothing in AICRA’s preamble, its legislative history, or its policy objectives suggests that the Legislature intended this court to write in that standard. We will not torture the legislative history in this case to create an ambiguity in an otherwise clear statute.” DiProspero, 183 N.J. at 506.

To recover under AICRA, a plaintiff need only prove that her injuries satisfy one of the six following statutorily defined threshold categories in the act: death; dismemberment; significant disfigurement or significant scarring; displaced fractures; loss of a fetus; or a permanent injury. N.J.S.A. 39:6A-8. InDiProspero, the justices rejected the new “serious injury” test.

These two decisions will have an immediate procedural impact. Appeals in the pipeline will be remanded for trial.Beltran v. Delima, Docket No. A- 6056-03T2, 2005 N.J. Super. LEXIS 225. The huge torrent of summary judgment motions that flood the trial courts will recede. Now, a physician’s certification, coupled with objective proof of a permanent injury and a supporting expert opinion will create a fact issue on the verbal threshold for a jury to resolve. Pungitore v. Brown, Docket No. A-5662-03T1, 2005 N.J. Super. LEXIS 223.

The cases will be much easier for plaintiffs to try. The law will focus the jurors’ attention on the permanency of the plaintiff’s injury and not the subjective impact on her lifestyle. There will be one jury question instead of two. “Life impact” testimony made plaintiffs look like contestants in a game show called “Stretching for Dollars.” The credibility problem this created is gone. There will certainly be more verdicts for plaintiffs, but not necessarily higher ones.

The first prong, permanent injury, is still a formidable obstacle for plaintiffs at trial and the defense is extremely adept at raising serious questions about the nature and extent of a plaintiff’s injury. The strategy of attacking the test, the doctor and the plaintiff has already won the defense many verbal threshold victories. Able defense counsel will now hit the issue even harder.

Whether carriers will be more willing to settle threshold cases is an open question. The long-term impact on the volume of automobile cases filed is also uncertain. Carriers will be surveying the new scene carefully to see if the plaintiffs’ bar has the dollars and the fortitude to go in and try the cases. Over the last few years, carriers have shown a willingness to spend the dollars for defense and take their chances with juries.

Victory is sweet!

Physician Certifications
AICRA requires plaintiffs with the verbal threshold to file certifications executed by their treating physicians attesting to the fact that the injuries meet the prerequisites of the statute within 60 days after an answer was filed. The ink was not dry on the legislation when defendants filed motions to dismiss plaintiff’s complaints with prejudice because the certifications were not filed in a timely fashion. The appellate courts held that the only appropriate remedy was a dismissal without prejudice. Watts v. Camaligan, 344 N.J. Super 453 (App. Div. 2001).

What drove the appeal in Casinelli v. Manglapus, 181 N.J. 354 (2004), was that the dismissal for the plaintiff’s untimely physician’s certification would have been entered after the statute of limitations for the accident case had expired. The impact of the dismissal would be a termination of the cause of action. Since the plaintiff served the certification before the return date of the motion, the lower courts refused to dismiss the case.

In Casinelli, the Supreme Court agreed and refused to impose mandatory dismissal for the late service of a physician’s certification. It instructed courts to treat the late submission like any other violation of the discovery rules: subject to other remedies depending upon the facts, the willfulness of the noncompliance and the prejudice to the defendant. The plaintiffs’ bar was greatly relieved that this sword of Damocles is no longer lurking above its head.

Res Ipsa
Res ipsa loquiter was designed to provide a relatively simple method for plaintiffs to prove defendant’s negligence through the use of circumstantial evidence. The requirements for its application are:

The doctrine may be applied to multiple defendants who exercised joint control. The instrumentality of the injury need not be in the possession of the defendant at the time of the accident if the evidence discloses that the negligent acts occurred during the time defendant had control. The possible existence of other causes of the accident that may exonerate the defendant does not preclude application of the doctrine as long as plaintiff can show that it is more probable than not that the defendant’s negligence was a proximate cause of the accident. A plaintiff may attempt to prove negligence the conventional way and also claim “that the thing speaks for itself.”

An application of res ipsa loquitur is a determination that the facts permit a reasonable inference that it is more probable than not that the defendant was negligent. The burden of proof does not shift. The defendant is given the opportunity to offer a contrary explanation about the causative circumstances of the accident or say nothing at all. Res ipsa does not require that common knowledge be sufficient to conclude that the accident would not ordinarily happen without negligence. The plaintiff may choose to bolster its proofs with experts or it may be compelled to offer expert opinion testimony if the subject matter is beyond the common knowledge of the fact finder. Once res ipsa is established, the case goes to a jury unless defendant’s evidence is so strong that the fact question can be decided as a matter of law.

Common examples of its application include the fall of a building or structure falling objects, merchandise falling from store displays, derailments and explosions. Commentators have offered the following rationale for the doctrine:

“The particular force and justice of the rule, regarded as a presumption throwing upon the party charged the duty of producing evidence, consists in the circumstance that the chief evidence of the true cause, whether culpable or innocent, is practically accessible to him but inaccessible to the injured person. John Henry Wigmore,Evidence, Sec. 2509, page 507 (Vol. 9 1981)”

When the plaintiff’s case commenced in Szalontai v. Yazbo’s Sports Cafe, 183 N.J. 386 (2005), it looked like another textbook case for the ready application of res ipsa. Plaintiff was leaving defendant’s restaurant when the asphalt in the parking lot suddenly gave way, causing plaintiff to fall in up to his hip. Photographs taken the next day depicted a hole six inches wide by twelve inches long. The owner repaired the area shortly after the accident. On the face of it, plaintiff had every reason to believe that he could rely on res ipsa. Defendant controlled the location, parking lots don’t normally open underneath pedestrians unless there is a significant problem, and plaintiff had nothing to do with causing the accident. The defendant had superior knowledge and had observed the defect it repaired.

Nothing is as simple as it seems. Plaintiff believed that the collapse had occurred above an underground storage tank that had been excavated and repaired. The defendants in the lawsuit included the owner of the premises; the prior owner and the contractor who did the tank work. Only very limited discovery was taken: answers to form interrogatories and six supplemental questions. There were no depositions, no inspections, and no experts. Defendants pursued a very smart strategy: they did absolutely nothing. The complaint was filed in December of 2000. The original discovery end date of December of 2001 was extended until April of 2002.

Two months before the arbitration, the contractor’s attorney served an Arbitration Statement on the parties, asserting that the fall did not occur anywhere near where its work was done. At the arbitration hearing, the contractor produced testimony to support this position. The contractor also testified that he did the work properly and left the area in good repair. The owners of the property testified that regular inspections of the parking area had revealed no problems, there had been no complaints and that no repairs had ever been done. The arbitrator found that the defendants did not have notice of the condition and entered a decision in favor of the defendants. Plaintiff filed a de novo appeal.

The plaintiff scrambled. Plaintiff’s counsel served an expert engineering report and filed a motion to extend discovery. Plaintiff cited his “recent discovery” of the fact that the fall may not have occurred in the area where the tank had been as a basis for reopening discovery. The defendants successfully opposed the motion and persuaded the court to bar the expert report. The trial court noted that the information was easily obtainable before the discovery end date and that plaintiff had not demonstrated exceptional circumstances.

Four months later, plaintiff filed a motion to reconsider the discovery order barring his expert. Plaintiffs also moved to bar defendants from producing expert testimony about the cause of the mishap, and to declare res ipsa applicable to the case. The court denied the first application; granted the second and denied the third without prejudice. The contractor obtained summary judgment, leaving the owner and the prior owner as the defendants.

Plaintiff’s trial evidence on liability consisted of the plaintiff’s testimony about the accident and proof about the defendant’s involvement in the ownership and operation of the premises. At the close of plaintiff’s case, defendants moved for involuntary dismissal. Plaintiff opposed the motion and argued that he had established a prima facie case under res ipsa. The trial court disagreed, finding that all the plaintiff had done was to prove the occurrence of “an unexplained accident for which a defendant might plausibly be responsible” and dismissed the case. The Appellate Division affirmed the trial court’s decisions. Plaintiff’s petition for certification was granted.

There were two separate and distinct issues for the Supreme Court to resolve in this case. One: should the trial court have allowed the plaintiff to reopen discovery and use the engineering expert? Two: should the case have gone to a jury under res ipsa? The high court defined its mission as “examining the boundaries that delimit the application of the doctrine of res ipsa loquitur, within the confines of the discovery deadlines that are part of Best Practices requirements.” Id. at 389. Coupling these different issues is incongruous because common law precedent has always provided that the plaintiff’s failure to avail himself of discovery does not bar the application of res ipsa. Menth v. Breeze Corp., 4 N.J. 428, 437(1950); Stuart M. Speiser,Res Ipsa Loquitur, Sec. 2:28, p. 87 (1972).

The decision not to re-open discovery was left in place because the plaintiff’s application was made after the arbitration. Courts in today’s day and age are not going to find exceptional circumstances because a harried attorney recognizes the deficiency of his case when he sees it unfold during an arbitration hearing. However, this has nothing to do with whether or not res ipsa applies. Unfortunately, the two became inextricably linked in the Court’s analysis.

The high court’s opinion, authored by Justice Roberto Rivera-Soto, stated over and over again that the plaintiff’s proofs were deficient because very little discovery was taken. The fact that plaintiff raced to obtain an expert shortly after the arbitration clearly influenced the court into believing that one was necessary. The Court conceded that two elements of the doctrine were easily satisfied: defendant’s control of the premises and the plaintiff’s freedom from fault. What was surprising was the justices’ leap to the conclusion that the parking lot collapse did not “bespeak negligence.” Why not? A parking lot that opens up under a pedestrian is an extraordinary deviation from the norm, just like the collapse of a stairway or a structure. Isn’t this situation like dozens of other reported cases where the unique facts of the accident call for an explanation by defendants why negligence does not exist?

In this case, there was no need for the defendants to provide an explanation because the courts supplied it for them. Both appellate decisions state that there are several reasons why this could have happened in the absence of the defendants’ negligence: “the ground could have settled, the water table could have risen or perhaps a water pipe broke in the vicinity.” Szalontai, 183 N.J. at 395. The problem is that these reasons were not offered by the defendants. There is nothing in the trial record to substantiate this. Remember that the case was dismissed at the close of plaintiff’s case and there was no testimony by the defendants. In fact, a pretrial order barred them from offering an explanation by an expert.

A business invitee swallowed up in a hole while walking in a parking lot quickly repaired by the defendant is a classic res ipsa case. The defendants should have been given the opportunity to explain or go to the jury silently. The case should never have been dismissed.

What the court was really doing was punishing the plaintiff under best practices for failing to develop stronger evidence by taking discovery. This is clear from the court’s admonition that “in addition to that absence of proof, and relying exclusively on his res ipsa loquitur claim, plaintiff took no steps to prove his claim: no depositions were taken, no site inspections were conducted, no soil borings were requested and most tellingly, no proofs were tendered from the person or entity that repaired the hole as to its genesis, characteristics or repair requirements. In short, plaintiff undertook no meaningful discovery to shore up his claim.” Id. at 401.

The Supreme Court opinion missed the critical points. Plaintiffs do not have to take prescribed discovery to make out a prima facie case under res ipsa. The doctrine requires the defendant to fill in the blanks in a case like this. It is not the function of the appellate courts to supply it. Not even a venerable common law doctrine that has stood the test of time is safe from the ravenous appetite of the Best Practice beast.

Consumer Fraud
The retailer’s first mistake inFurst v. Einstein Moomjy, Inc., 182 N.J. 1 (2004), was to sell a defective carpet for $1,199. The second mistake was not placating the aggrieved customer. The defendant only offered the consumer a refund or a replacement product at an additional cost. This is a “deceptive practice” under the Consumer Fraud Act, N.J.A.C. 13:45A-5.1 et seq. The final nail in the defendant’s coffin was getting involved in a consumer fraud lawsuit resulting in a summary judgment for plaintiff on liability and a jury award of $1,199 trebled, costs of $1,055.55 and $28,050 in counsel fees, pursuant to N.J.S.A. 56:8-19. The seller’s failure to recognize that the “customer is always right” was a costly mistake.

The parties had a fundamental disagreement over how to measure the “ascertainable loss” under the Consumer Fraud Statute The label on the product featured a regular price of $1,499, marked down to $1,199. At trial, plaintiff argued that his damages were the replacement cost proven by introducing the full price on the label. Defendant persuaded the trial court that the “ascertainable loss” was only the out-of-pocket purchase price. Defendant argued that the trial judge’s award of counsel fees in response to plaintiff’s motion was excessive and that a plenary hearing should have been conducted.

Defendant compounded the problem by appealing the award of counsel fees, which invited a cross-appeal on how damages were measured. While the retailer won the battle to remand the case to assess the fees, it lost the war. The victorious party now faces another trial with a potential for increased damages for replacement cost and a renewed application for fees featuring the additional time plaintiff’s counsel expended pursuing two appeals.

The Supreme Court held in Furst that the damages for the deceptive delivery of merchandise was the replacement cost and that the price on the tag was admissible for this purpose as a statement of a party-opponent, N.J.R.E. 803(b(1 ); 803(b)(4). Justice Albin established a rebuttable presumption that the regular price displayed on the merchandise constituted the replacement value. He shifted the burden to the knowledgeable retailer to produce the alternate evidence. The plaintiff is not limited to using the sticker price to prove replacement value and the evidence is not conclusive against the defendant.

Justice Albin gave a detailed description of the procedure trial courts must follow when awarding counsel fees to the prevailing party in a consumer fraud case. The decision can be made on a motion with supporting certifications. A plenary hearing is not necessary unless the papers raise a genuine factual dispute that requires testimony to resolve. The first task is to compute the lodestar – the reasonable hourly rate multiplied by the time expended in the “pursuit of the interests to be vindicated.” The hourly rate is determined by reference to rates “for similar services by lawyers of reasonably comparable skill, experience, and reputation in the community.” The certification of services is scrutinized by the judge to assure that the hours claimed are reasonable and what a “competent counsel reasonably would have expended to achieve a comparable result,” and to eliminate excessive and unnecessary hours. The judge has to make a record of the reasons for the award with special references to the requirements of the case law.

The lodestar is reduced if the prevailing party was not completely successful on all of the claims. There does not have to be proportionality between the damages recovered and the counsel fee award. If plaintiff’s counsel pursued the case under a contingency fee agreement, a trial court may decide whether the attorney is entitled to a fee enhancement. The factors to be considered include the result achieved, the risks involved and the relative likelihood of success in the undertaking. One can only hope that an enhanced fee is in your future.

No Sale
In Thiedemann v. Mercedes-Benz USA, 183 N.J. 234 (2005), class action lawyers undertook a valiant battle for truth, justice and the American way; fighting for the rights of the downtrodden: Mercedes-Benz owners. It appears that the hi-tech gadgetry that controls the gas gauge on the vehicles malfunctioned, preventing the dr iver s from knowing when they were running low on fuel. The class representatives had to endure the cruel hardship of trips to the dealer for repairs, trying days driving around a loaner car and the social stigma of owning a flawed luxury vehicle. The plaintiffs were stricken with “daunted expectations.”

The dealers repaired the cars without charge, there were no out-of-pocket costs for the plaintiffs and there was no recurrence of the problem. There was no proof of diminution of value in the luxury sedans. These are not cases a bread and butter practitioner would pursue because the “damages” would invite ridicule in small claims court.

But class action lawyers saw potential profit in multiplying the “damages” by the number of models sold because the vehicles were impaired to a “measurable, if presently unknowable degree.” The imaginative plaintiffs’ lawyers also claimed the cost of the repairs but the problem was that the manufacturer paid for them voluntarily under its warranty program.

The trial court didn’t buy it and dismissed the case on grounds that plaintiffs had not shown any “ascertainable loss” as required by the Consumer Fraud Act The Appellate Division reversed on the grounds that there was a possibility that the replacement parts might be defective and that the history of the malfunctioning parts might cause the vehicle to lose value.

The Supreme Court punted the Appellate Division decision through the uprights and reinstated the trial court’s summary judgment. Justice Jaynee LaVecchia, writing for a unanimous court, buried the plaintiffs’ claims of “daunted expectations” in sardonic prose, finding the contentions too frivolous even for “New Jersey’s consumer friendly skies.” If you want to recover under the Consumer Fraud Act, you need some cold, hard evidence of “objectively verifiable damages,” like out of pocket expenses or diminution of value. A manufacturer of an automobile does not run afoul of consumer protection laws merely because a defect arises if the warranty program successfully redresses the problem without cost to the consumer.

The Supreme Court is simply not going to broaden the Consumer Fraud Act to create a field of dreams for class action lawyers.

Article I, paragraph 9 of the New Jersey Constitution requires assent from at least five-sixths of a civil jury for a valid verdict. A statute and court rule provides flexibility for parties to agree to less than that. N.J.S.A. 2B:23-17 provides that “in any civil trial by jury, at least five-sixths of the jurors shall render the verdict unless the parties stipulate that a smaller majority of jurors may render the verdict.” R. 1:8-2(c) authorizes a verdict by less than five-sixths if the parties agree and place the stipulation on the record.

In LaManna v. Proformance Insurance Co., Docket No. A-101 2005 N.J. LEXIS 819, eight jurors deliberated and returned a defense verdict by a count of 6-2. The parties did not formally endorse an eight person jury or a three-quarter plurality verdict on the record but no exceptions to the procedure were made by counsel.

Plaintiff argued for the first time on appeal that the verdict did not conform to the requirements of R. 1:8-2 because the parties failed to stipulate on the record that eight jurors would decide the case and that a verdict of less than five-sixths was acceptable.

A two-thirds majority of the Appellate Division upheld the verdict on grounds that plaintiff had waived her objection to the procedure. The dissenting judge found that the trial court committed plain error by failing to require agreement to a three-fourths verdict on the record as required by R. 1:8-2. The same opinion also raised a constitutional question by expressing the view that N.J.S.A.2B:23-17 was in conflict with the New Jersey Constitution.

The poor defense lawyer who had won his case fair and square now looked on with dismay as the Attorney General, The New Jersey State Bar Association, the New Jersey Defense Association and ATLA were invited to argue a constitutional issue raised for the first time by a dissenting judge in the Appellate Division.

The Supreme Court upheld the constitutionality of N.J.S.A.2B:23-17 and sustained the verdict. The decision was grounded on the principle that constitutional rights may be waived. Silence from an attorney is sufficient when it appears that the retrospective complaint is deployed for strategic gain. “Just as the parties in a civil action may waive their right to a jury trial, they may waive their right to a jury verdict of five-sixths majority.” Id. at *23. The justices reminded their brethren in the Law Division that stipulations to accept less than a five-sixths jury verdict should be noted on the record.

Justices Albin and Virginia Long dissented. They believed that the New Jersey Constitution meant what it said: five-sixths, and nothing less. The two Justices did not believe that the Legislature and/or the parties have the right to “rearrange the structure of a civil jury trial within our halls of justice.” Id. at *32.

Quotient Verdicts
In an ideal world, jurors would deliberate conscientiously and return a just verdict. In the trenches, problems arise when jurors make individual judgments regarding percentages of liability and amounts of money damages and a verdict is forged by averaging each individual number. A quotient verdict “is a preliminary agreement or understanding among the jurors that each will select a figure as representing his opinion of value or damage and that the sum of said amounts divided by the number of jurors, will be accepted by each as his or her verdict, and is in fact so accepted.” Marks v. State Road Dept., 69 So. 2d 771, 773 (Fla. 1954).

What makes a quotient verdict unlawful is the prior agreement by the jurors to be bound by the result.Pushcart v. New York Shipbuilding Co., 85 N.J.L. 525, 527-528 (Sup. Ct. 1914). The courts do not absolutely prohibit jurors from an averaging methodology as long as it was the product of discussion and debate without a prior agreement to be bound. When there is a reason to believe that a quotient verdict may have been reached, it is incumbent upon counsel to request that the trial court conduct follow-up questioning to determine if the verdict was the by product of prior agreement to be bound or the result of collective discussion. Cavallo v. Hughes, 235 N.J. Suprer. 393 (App. Div. 1989).

A “quotient verdict” in a significant personal injury case entered on a Friday evening resulted in an appeal by the aggrieved plaintiffs in Shankman v. State of New Jersey, Docket No. A 76/77, 2005 N.J. LEXIS 818.

A husband and wife were traveling southbound on a major state highway late one evening when a contractor working in the area drove his backhoe right across the lane of travel, causing a horrific collision. The contractor’s machine operator ignored all of the basic safety precautions in place to prevent hazardous operations of equipment on the highway. The backhoe operator pleaded guilty in municipal court to obstructing traffic. The husband and wife filed a complaint against New Jersey and the owner and operator of the backhoe. The wife also included her husband as a defendant. The wife settled the case against her husband before trial for $400,000. Plaintiff then proceeded to roll the dice against the contractor.

The deliberations began on a Friday morning. Nine jurors deliberated. Late in the afternoon on the get-away day, the judge asked the jury whether they wanted to continue deliberations or go home for the weekend. The jury foreman stated they should come back Monday but then another juror suggested that they continue. The jury foreman agreed and the jury resumed deliberations. A short time later, the jury came back with a verdict.

The jury found the contractor to be 42 percent negligent and the husband to be 58 percent at fault. The jury award the wife $1,644,000. This resulted in a no cause for the husband. When one of the jurors was asked if this was the way he voted, he said no. At that point the jury foreman blurted out that: “What we had done was we voted, each nine of us what we saw the percentage to be and then we averaged so we came up with a consensus.” Id. at *22.

Counsel for the wife went to sidebar and requested that the trial judge question the jurors to determine if they had reached their verdict improperly “by taking an average of their individual calculations of percentages.” The trial judge refused to do so because he believed case law prohibited his inquiry into the jury’s deliberations. The law clerk had probably left for the weekend, making quick research out of the question. The jury was excused and judgment was entered.

The Appellate Division ordered a new trial on liability for both plaintiffs because of the trial court’s failure to question the jurors to determine if the quotient verdict was a consequence of a prior agreement to be bound. The appellate court refused to disturb the wife’s damage award because plaintiff did not appeal it.

The Supreme Court affirmed the Appellate Division decision to take away the defense verdict in a unanimous opinion authored by Justice LaVecchia. The Justices believed that the exchange between the jurors and the trial judge on the record created an “uneasy uncertainty” about whether the quotient verdict was entered into after careful deliberation or a prior agreement. Justice LaVecchia admonished the court that “having been confronted by a specific request from counsel to inquire further, the trial court was duty bound to engage in further inquiry and to remove doubt about an illegal quotient verdict from the record for a reviewing court.” Id. at *34. The Supreme Court ordered a new trial on liability and damages because it was believed there was a strong possibility that the improper method had been used on all issues.

The only problems with the Court’s decision is that it fails to give any instruction of how to avoid the problem from arising in the first place, and the solution given may come too late to save the trial. What was unusual in this case was the jury foreman’s extraordinary Friday afternoon revelation. Under normal circumstances, there is no way to know whether a jury uses and/or misuses this procedure. The standard jury charge should be revised to outline the fact that averaging is not encouraged and that a prior agreement to be bound by this process is strictly prohibited.

Another critical issue on appeal was the revelation to the jury of the settlement between the husband’s insurance carrier and the wife and the defendant’s tactical use of that fact to defend the contractor. Defense counsel for the contractor saw little to gain from trying to dispute the fact that his client was negligent when he drove a backhoe across a busy highway at night without taking necessary precautions. The best defense is a good offense. The defense strategy was to prove that the husband was driving at an excessive rate of speed and to push up his percentage of negligence. The defendant’s accident reconstructionist opined that the husband was traveling over 60 m.p.h. at the time of the collision and that the husband would have been able to avoid the collision at a lower speed. The final piece of the strategy was to use the settlement between the husband and wife as a hammer to drive home the fact that the husband was negligent.

Plaintiff’s counsel sought an in limine ruling precluding any mention of the settlement between the wife and husband and to preclude defense counsel from arguing it as a basis of the husband’s liability. The motion was denied. During the course of the trial, defense counsel argued that the settlement sprang from the wife’s recognition that her husband was liable. Defense counsel also used the wife’s complaint, over objection of plaintiff’s counsel, to cross-examine the wife on the allegations she made against her husband. The pleading alleged that the husband was driving at an excessive rate of speed. The wife attempted to explain away the pleading by stating she included her husband on the advice of her prior attorney. Denying the accuracy of the complaint allegations only made the plaintiff look duplicitous to the jury. The trial court also charged the jury that it could consider the wife’s pleading as evidence of the husband’s negligence. The tactic proved successful.

Plaintiff appealed, arguing that the settlement should never have been revealed, that defendant should never have been allowed to use it to argue the husband’s liability and that the trial judge should not have charged the jury that the complaint was evidence of the husband’s negligence.

A component of the Appellate Division’s decision to reverse was its view that the wife’s pleading was not evidential and that defense counsel could not argue that the allegations and the settlement constituted evidence of the husband’s negligence. The appellate judges also found that the trial court’s instruction that the wife’s pleading was evidence of the husband’s negligence was reversible error. The higher court did not believe that the revelation of the wife’s settlement with the husband was erroneous because it showed the wife’s “bias.” The Appellate Division thought that the settlement explained the wife’s reasons for pointing the finger at the contractor and not her husband.

The case went to the high court on cross petitions for certification. The Supreme Court specifically affirmed the appellate court’s determination that a complaint with its alternate allegations of liability against multiple parties may not be used as an admission against the pleader. It disapproved of the trial court’s charge that the allegations in the wife’s pleadings regarding the husband could be used in its deliberations on liability. The Justices found that the allegations in the complaint “did not provide probative and relevant evidence to be weighed with the rest of the evidence; instead, they were extraneous and confusing.” Id. at *42.

The high court also held that defense counsel’s arguments about the settlement “strayed into prohibited terrain.” R. Ev. 408 prohibits the introduction of evidence about a settlement to show liability. The Justices emphasized that revelation of the fact of settlement for another relevant reason required an assessment if the prejudicial impact outweighed its probative value. R. Ev. 403 In this case, the Justices strongly suggested that it “is a risk that is better avoided.” Id. at *45.

This decision offers important guidance from the Supreme Court on how trial courts should handle the fact of settlement. Plaintiff’s counsel should be cautious when approaching the decision to settle in multiple party cases. This case involved a settling tortfeasor that was still in the case. Where the party is absent, the circumstances may be different. Shankman clearly instructs trial courts that settlements may not be used to argue liability or undermine the credibility of the plaintiff. Notifying a jury about a settlement is done only to explain to a jury why it is assessing the legal responsibility of an absent party.

Statute of Limitations
The Discovery Rule is frequently applied in medical malpractice cases because the complexity of the issues makes it difficult for plaintiffs to recognize that they have been injured by a provider’s negligence. In such cases, the Supreme Court has tolled the running of the statute statute until the plaintiff receives reasonable medical support that there was a causal connection between the patient’s condition and a defendant’s conduct. Mancuso v. Neckles ex rel. Neckles, 163 N.J. 26 (2000).There are situations where the clock on a medical negligence case will start running when there are sufficient facts for a lay person to suspect that the health care provider is negligent without reasonable medical support or an expert opinion. Szczuvelek v. Harborside Healthcare, 182 N.J. 275 (2005) is one of those cases.

The plaintiff’s decedent was hospitalized for two months for the surgical treatment of an aneurysm. Due to the insertion of a tracheotomy tube, plaintiff was unable to speak. The patient also suffered from a variety of other maladies and complications. Upon discharge, the patient was transferred to a nursing home. The medical order from the hospital directed that the patient be suctioned every four hours. The nursing home issued instructions to the nursing staff to suction the patient once a shift and as needed.

A close friend came to visit the patient at the nursing home. The patient gave his friend a note stating that “you have to get me out of here. They’re going to kill me. They left me in my own waste for three hours. They won’t suction me. Please get me out of here.” The visitor pressed the nurse’s button and got no response. Later, the friend left the room looking for help and met with a social worker. The social worker read the note and promised immediate assistance. When the friend returned to the room, a nurse told him that she had just suctioned the patient. When pressed by the skeptical friend, the nurse admitted she had not done it because the physician had left orders not to suction. The friend attempted to secure a hospital transfer, without success.

The patient was rushed to the hospital the next day in critical condition. A family member observed the patient’s deteriorating condition. A hospital nurse told the relative that the patient was not suctioned at the nursing home because of a fire drill. The patient died shortly afterwards due to a heart attack brought on by respiratory complications.

Plaintiff consulted with a lawyer three weeks later “because he suspected something was wrong with the medical care.” The patient’s medical records were obtained. Six months later, a complaint against the nursing home was filed with a state agency. Sixteen months after the decedent’s death, plaintiff consulted with a second attorney.

The suit was not filed until two years and nine days after the decedent’s death. Two months later, plaintiff’s counsel received an expert report that pointed the finger of blame at the nursing home and the hospital.

The defendants moved for summary judgment based on the failure to file the wrongful death and survivorship cases within two years of the date of the incident and the death. Plaintiff opposed the motion, arguing that the clock did not begin running until he consulted the first lawyer and obtained the medical records. Plaintiff also contended that the nurse’s misleading remarks at the nursing home about not suctioning the patient was a justification for not proceeding until the plaintiff received an expert report.

The trial court granted the defendants’ motions based upon a finding of fact that the patient’s note, the events and conversations at the facilities, along with the cause of death, were sufficient to have alerted the plaintiff to a possible cause of action against the nursing home. The Appellate Division affirmed. Plaintiff’s petition for certification was granted.

The high court split three to three, leaving the Appellate Division decision in place. Chief Justice Deborah Poritz, Justices John Wallace Jr. and Rivera- Sota voted to affirm. Justices James Zazzali, Long and Albin voted to overturn the decision.

According to the concurring justices, the statute of limitation begins to run when a reasonable person knows or has reason to know of a possible claim. They also agreed with the lower courts’ conclusion that the starting gun went off with the friend’s nursing home visit and the patient’s subsequent death.

The concurring opinion did not believe that this was a complicated medical case calling for the application of the discovery rule. The three prevailing justices saw this as “a simple case where a plaintiff is aware of facts that suggest the fault of a third party may have caused the death of the victim.”

These three jurists did not want to embrace the plaintiff’s argument that the statute is tolled until the plaintiff receives the patient’s medical records because it would inevitably impact every case.

The dissent believed that the statute did not begin to run until there was some medical support for the suspicion that someone was at fault. In this case, the three dissenters believed that occurred when the plaintiff obtained the medical records with the assistance of counsel. Justice Zazzali scanned the record and concluded that the patient’s medical history was far too complicated for a lay person to conclude that the patient’s death was caused by negligence without an opportunity to review the medical records. The justice noted that a defense medical expert had proffered an entirely different opinion on the cause of death. The dissenting justices concluded that the discovery rule should be applied and toll the statute until the medical records were obtained.

The case was remanded to the trial court because the opinion did not contain specific findings of fact regarding when the cause of action accrued against the hospital.

Repose Is Not Forever
The Statute of Repose, N.J.S.A. 2A:14-1.1, bars a lawsuit against any “persons performing or furnishing the design, planning, supervision of construct or construction of such improvement to real property” after 10 years elapse from the completion of the work regardless of the date of the plaintiff’s injury. This does not operate like a conventional statute of limitations because it prevents what might otherwise be a cause of action from ever arising once the decade has passed. The law confers complete immunity. O’Connor v. Abraham Altus, 67 N.J. 106, 121-122 (1975). The statute was passed to protect architects and builders from open-ended liability after the judicial adoption of the “discovery rule” and the abolition of the so-called “completed and accepted” rule. Injured plaintiffs still had their remedy against the owners who have the obligation to maintain and repair their properties. The cause of action cannot be saved by the discovery rule. The protection provided by the Statute of Repose was designed to be ironclad.

Repose finally met its match this year when it encountered the mightier John Doe. In Greczny v. Colgate- Palmolive, 183 N.J. 5 (2005), the plaintiff slipped and fell on a staircase in a nine-year-old building. One month before the 10-year deadline, plaintiff filed a complaint against the owner of the building and several unknown defendants, identified as designers and builders of the staircase. A year later, plaintiff amended her complaint, adding the designer of the staircase under the fictitious party practice, R. 4:4-5. The designer obtained summary judgment due to the statute of repose and the decision was upheld on appeal. Plaintiff petitioned for certification, hoping to save the cause of action by arguing that the injury and the filing of the complaint happened before the deadline and could be saved by designating the designer fictitiously.

Plaintiff prevailed. The Supreme Court decided that when the plaintiff’s injury and the lawsuit occur before the decade elapses, proper use of the fictitious party procedure will preserve the claim against the unknown designer or builder added after the expiration date as long as the plaintiff acted diligently. If the injury and/or the lawsuit happened after the 10-year period, it is barred. The Court allowed this limited exception to the statute of repose because it did not believe that it was violating the Legislature’s intent to provide overall temporal immunity and the additional exposure of the builder or designer was “finite and circumscribed.”

New Jersey courts have traditionally monitored litigation involving insurance companies to ensure that policyholders are treated fairly and receive entitled benefits. The reason for such vigilance is the Court’s recognition that carriers and consumers do not have equal bargaining power and policies are contracts of adhesion. The Supreme Court has imposed a duty of good faith and fair dealing on insurance companies to level the playing field. In Bowler v. Fidelity & Casualty Company of New York, 53 N.J. 313, 331 (1969), Justice Francis set forth the following raison d’etre for the Court’s decision making:

“It must not be forgotten that the primary function of insurance is to insure. When claims are honestly made care should be taken to prevent technical forfeitures such as would ensue from an unreasonable enforcement of a rule of procedure unrelated to the merits.”

In the past, New Jersey courts have also employed liberal principles of contract interpretation to provide consumers and businesses with the broadest possible protection. When jurists are evaluating the scope of insurance coverage, the starting point is always the language of the policy. It is the insured’s reasonable expectation that governs the decision. Justice Jacobs sounded this theme in Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 483 (1961), when he wrote that: “[w]here particular provisions, if read literally, would largely nullify the insurance, they will be severely restricted so as to enable fair fulfillment of the stated policy objective.” Any ambiguity in the policy language is always construed against the carrier in favor of the beneficiary. SeeKievit v. Loyal Protective Life Ins. Co, 34 N.J.475 (1961); Owens Illinois v. United Ins. Co.,264 N.J. Super. 460 (App. Div. 1993).

The courts have never tolerated fraud. Coverage has also not been provided in extreme circumstances. In situations where our courts believe the carrier is seeking leverage in the insurance transaction, the courts have not hesitated to take action to protect the consumer. New Jersey courts frequently function as the regulator of last resort.

The temper of the times has changed. Carriers are now arguing forcefully that they are entitled to the benefit of the limitations set forth in the contract of insurance approved by the regulators. The insurance industry is pressing the courts for a new laissez-faire approach. When the carrier clearly sets forth its intent to limit coverage in the policy language that was approved by the Commissioner of Insurance, it is not the place of the courts to intervene and provide a better contract. In years past, this would have been considered blasphemous. No more.

The industry legions have invaded the Citadel and are pressing their attack. During this term, the high court continued its tradition of liberally interpreting policies to provide liability coverage to businesses and homeowners. However, the Supreme Court diverged sharply from this approach in two cases by restricting underinsured motorist coverage for corporate employees. The formula applied was to enforce the terms of the policy regardless of the expectations of the policyholder.

Pollution Exclusion
In the ’80s and ’90s, insurance companies began writing liability policies with exclusion clauses to eliminate indemnity for corporate customers with huge clean-up- costs associated with pollution from industrial operations pollution from industrial operations. After fits and starts, “absolute pollution exclusion” clauses prohibiting coverage for “bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, seepage, migrations, release or escape of pollutants” gained broad acceptance.

Success bred arrogance and carriers sought to expand the scope of the exclusion to preclude coverage for property owners and contractors for personal injury claims filed by plaintiffs injured by toxic exposures. Underwriters tinkered with the policy language and eliminated coverage for “pollution hazards” where “the injury or damage results from an actual discharge or release beginning and ending within a single forty-eight hour period.” A 30-day notice provision was also provided. This industry “sleight of hand” created conditions that no toxic exposure could possibly meet.

Our appellate courts split on whether these pollution exclusions applied to toxic tort cases. While two panels refused to recognize the limitation, See Golden Estates Inc. v. Continental Casualty Company, 293 N.J. Super. 395 (App. Div. 1996); Byrd v. Blumenreich, 317 N.J. Super. 496 (App. Div. 1999), another did inHaus v. Selective Insurance, 353 N.J. Super. 67 (App. Div. 2002).

Our Supreme Court faced this issue head on in Nav-Its, Inc. v. Selective Ins. Co. of America, 183 N.J. 110 (2005). The plaintiff was a contractor applying sealer to a floor in a mall when fumes allegedly injured one of the occupants. The carrier refused to defend and indemnify the contractor in the lawsuit filed by the injured party due to the pollution exclusion in the policy. A declaratory judgment action ensued.

Cross motions for summary judgment were filed by the parties. The trial court ruled in favor of the contractor, concluding that the insured had a reasonable expectation that liability arising out of normal contracting operations would be covered. The Appellate Division reversed, finding that the exclusion applied. The case was remanded to determine if the time constraints laid out in the policy precluded coverage and/or the contractor gave the proper notice. The contractor’s petition for certification was granted.

The Supreme Court, in a unanimous decision, written by Justice Wallace, reinstated the decision of the trial court and held that the plaintiff was entitled to indemnity and a defense under the policy. The justices determined that the exclusion clause in the policy applied only to traditional environmental pollution claims and not toxic tort cases.

Nav-Its is a brilliant decision that scrutinizes the record to determine what the industry representatives were telling the regulators about their new exclusion. Justice Wallace surveys the case law to determine why the carriers were writing the new language. His litigation review reveals that the pollution exclusion was born out of the insurance industry’s disastrous experience with claims for environmental pollution. The record before New Jersey regulators was devoid of any expression of intent by insurance industry representatives to exclude toxic exposure cases and there were specific assurances given by industry representatives that it was not trying “to sweep too many potential non-environmental liabilities within its reach.” Id. at 122. The time limit and notice provisions were now irrelevant since the exclusion did not apply to an exposure case.

Justice Wallace admonished the industry that “it may not seek approval of a clause restricting coverage for the asserted reason of avoiding catastrophic environmental pollution claims and then use that same clause to exclude coverage for claims that a reasonable policyholder would believe were covered by the insurance policy.” Id. at p. 123-124.

Employee Dishonesty
In Auto Lenders v. Gentilini Ford, 181 N.J. 245 (2004), an automobile dealer had a Commercial Package Insurance Policy with an employee dishonesty provision providing coverage for “direct loss or damage to business, personal, property and money and securities resulting from dishonest acts committed by any of your employees acting alone or in collusion with other persons. with the manifest intent to cause you to sustain loss or damages.” Each occurrence was subject to a maximum limit of $5,000. One of the dealer’s salesmen provided fraudulent credit applications to a finance company resulting in customer loans financing automobile purchases.

After a series of defaults alerting the finance company to the defective applications, it filed a legal action against the dealer seeking to repurchase all of the outstanding installment contracts. The demand for judgment was over $800,000. The car dealer impleaded his carrier seeking a defense and indemnity. The car dealer and the finance company settled the main claim for $215,000.

The carrier took the position that coverage should not be provided because the employee’s “manifest intent” was not to cause loss or damage to the dealer but to provide a benefit by selling cars. The insurance company also argued that the dealer had not suffered a “direct loss” because the fraud was committed against the finance company.

The trial court granted summary judgment to the auto dealer, finding that the employee’s actions were “dishonest acts” causing a “direct loss” to the auto dealer. The trial court also found that 27 different fraudulent loan applications were each an “occurrence” under the policy and not a single act of fraud.

A divided Appellate Division reversed. Two judges agreed with the carrier’s position that the employee intended to defraud the lender but not his employer. The majority also found that the employer had not suffered a “direct loss.” The dissent agreed with the trial court’s decision. The case was appealed as of right to the Supreme Court by the car dealer.

The Supreme Court reversed by finding that the car dealer did sustain a “direct loss” and that each act of dishonesty was a separate “occurrence.” The matter was remanded for a trial on whether or not the employee had the “manifest intent” to harm his employer and to assess damages.

The Court applied a proximate causation test to ascertain whether there is a “direct loss” in an employee-dishonesty policy. Causation exists if the dishonest conduct sets other causes in motion which, in an unbroken sequence and connection between the act and final loss, produced the result for which recovery is sought. Under this test, the justices concluded that the fraudulent acts exposed the car dealer to the risk of default that eventually materialized.

An employee has “manifest intent” if he desires to harm the employer or if he knew the loss was substantially certain to result from his conduct. In other words, there is coverage when the employee defrauds the employer but not when he acts dishonestly for its gain. In this case, the justices believed a trial was required for a fact finder to determine if the employee was aware of the adverse impact his conduct would have on the employer.

Carriers are understandably concerned about paying benefits for employee theft that actually result from bad business practices. Coverage is available to employers victimized by employee theft but not when the worker does something dishonest for the benefit of his company. Credibility can be a linchpin of a legitimate claim and this can only be resolved with testimony in a plenary hearing.

The Outer Limits
Purveyors of home insurance do not want to provide coverage for “bodily injury which is expected or intended by the insured.” Nevertheless, courts have required home owners’ carriers to defend and indemnify homeowners for “intentional conduct” unless the facts show that the actor had a subjective intent to cause some injury and/or the conduct was so reprehensible that intent can be inferred. Foolhardy or reckless acts are not excluded from coverage. Voorhees v. Preferred Mutual Ins. Co.,128 N.J. 165 (1992);SL Industries Inc.v. American Motorists Ins. Co., N.J.88(1992).

This case-by-case approach is not acceptable to an industry that prefers more certainty in calculating the potential risk and benefit of its products. The following clauses were drafted to deny benefits for:

None of this terminology is defined in the policies. Unfortunately, the carriers’ draftsmen seem incapable of writing clear, unambiguous language to layout the limits of coverage. The only predictable destiny for this tortured prose was litigation.

The first New Jersey test for these new clauses came in Cumberland Mutual Fire Ins. Co., v. Timothy Murphy,183 N.J. 344 (2005). A group of teenagers shots their BB guns at passing vehicles and seriously injured motorist. The shooter pleaded guilty to aggravated assault with a civil reservation in juvenile court. After the injured plaintiff filed suit against the shooter and his parents, the homeowner’s carrier sought a declaratory judgment that it was not required to provide coverage.

Discovery revealed that the boys were shooting from a platform on private property a significant distance from the roadway on a rainy evening. The BB penetrated the cloth roof on the Jeep and wounded the plaintiff. The record included the teenagers’ deposition testimony that they were engaged in recreational activity designed to “ding” passing cars and that they did not intend to injure anyone. The shooter admitted that he knew what he was doing was wrong and “illegal,” but “he was just having fun with his friends.”

Cross motions for summary judgment were filed in the declaratory judgment action. The carrier vigorously argued that its new exclusions for “willful harm, knowing endangerment” and “knowing violation of the penal law “applied and that the defendants were not entitled to coverage. Even under the old case law, the carrier argued that defendant’s conduct was so reprehensible that the intent to injure should be presumed.

The insured invoked the “stupid teenager” defense, i.e. that the conduct was reckless but not intentional. The homeowner also argued that the new policy language was ambiguous and that the policy should be interpreted in accord with existing case law requiring coverage where the tortfeasor did not intend to injure.

The trial judge relied on precedent and entered summary judgment for the insureds by finding that the defendant’s abject stupidity did not reflect a subjective intent to injure. The Appellate Division affirmed. The Supreme Court granted the carrier’s Petition for Certification.

The six voting justices split down the middle, leaving the Appellate Division decision in place. The three affirming jurists, Long, Poritz and Zazzali, accepted the trial judge’s findings of fact and conclusions of law. They believed that existing precedent applied because the new exclusionary clauses were undefined and ambiguous. These justices also believed that the penal exclusion only applied to an adult’s violation of a criminal statute.

The three dissenters, Wallace, LaVecchia and Rivera-Soto, recognized that the new clauses were drafted to move beyond the case law and exclude coverage for intentional conduct regard-less of the actor’s subjective intent. Justice Wallace employed the dictionary definition of “willful” and found that since the defendant’s conduct was “voluntary, knowing and deliberate,” there was no coverage. Justice Rivera-Soto also believed that the successful criminal prosecution invoked the penal exclusion. It’s back to the drawing table for the insurance company draftsmen.

Shame on You
In August of 1995, the plaintiff in Price v. New Jersey Mfrs. Ins. Co., 182N.J. 519 (2005), was struck and injured by an uninsured motorist while walking across a street. He filed suit against the driver. Approximately two and a half years after the accident, plaintiff’s counsel advised the UM carrier in writing of an intent to file a claim. The policy had an arbitration clause triggered by a written demand to arbitrate.

Over the next few years, there was a regular exchange of correspondence between plaintiff’s counsel and the UM carrier about the claim. Plaintiff provided regular updates on the lawsuit and plaintiff’s medical condition. Plaintiff also underwent a physical arranged by the UM carrier.

Approximately nine days before the six-year statute of limitations elapsed, the UM carrier sent a written request to plaintiff’s counsel for additional information that was provided about a month later. In September of2002, plaintiff’s counsel requested that the UM carrier “fish or cut bait.”

In November of 2002, plaintiff filed an order to show cause, demanding that the carrier arbitrate the UM claim. The carrier opposed the application on grounds that it was time-barred because written demand for arbitration had not been made within six years of the date of the accident.

The trial court, the appellate court and the Supreme Court invoked an estoppel and ordered arbitration. The courts found that the carrier had lulled the plaintiff’s attorney into a false sense of security by proceeding to handle the claim without indicating that a demand for arbitration had to be filed before the statute ran.

Plaintiff’s lawyers must recognize that this opinion does not stand for the proposition that the UM carrier must advise their insured of its intent to rely on the statute of limitations. The relief in Price was provided in response to a very unusual and compelling procedural history. A timely and written demand for arbitration should be filed in each case.

Stepping Down
Companies owning fleets of vehicles frequently have insurance policies with high UM/UIM limits of $1 million. When employees are seriously injured in motor vehicle accidents with negligent uninsured or underinsured drivers, the employer reasonably expects his workers will be adequately compensated. The employer is able to provide this benefit with pretax dollars and also reduce the experience factor in worker’s compensation. However, in an attempt to limit their exposure, carriers devised “step-down clauses” restricting the employee’s recovery of UIM benefits from the commercial policy to the limits of UIM coverage in the employee’s own automobile insurance policy or that of a resident family member.

Almost every employee owns a car, or lives in a household with someone who does, with policies that have much lower UM/UIM limits. How many truck drivers have you encountered with personal limits over $100,000? The carriers’ underwriters were very aware of the fact that these step-down clauses would eliminate most employees’ UIM claims because their personal policies would typically not have limits larger than the tortfeasor’s liability policy. If the employee qualified for benefits, it would typically be for far less than $1million. Abracadabra: $1 million in benefits disappear.

The artful draftsmen created two categories of beneficiaries on these commercial policies: “the named insured” and “the insured.” A “named insured” had to be identified by name in the policy to be entitled to the maxi-mum UIM benefit listed in the face sheet of the policy. The lesser “insured” by definition is made up of anyone else that “is not an individual named insured under this policy.” Under the step-down provisions, “the most the policy will pay for all damages resulting from anyone accident with an uninsured motor vehicle or an underinsured motor vehicle shall not exceed the highest applicable limit of insurance under any cover-age form or policy providing coverage to that insured as an individual named insured,” or insured as a family member under a policy in the household.

The “step down” provisions work to exclude most claims because a typical policy only identifies the corporate entity as the “named insured.” This devious sleight of hand by the insurance industry was a bold attempt to eviscerate UIM coverage while simultaneously providing the illusion of generous bene-fits to their business customers. While the carrier collects a premium for a policy with the higher limit listed prominently on the face sheet, little does the unsuspecting businessman know that the actual coverage provided is sharply circumscribed by the arcane language in the body of the policy. Due to the fact that UIM benefits are not controlled by statute, judicial resolution of the scope of coverage is strictly a matter of contract interpretation.

The problem erupted when injured truck drivers and their passengers began seeking UIM benefits up to the full limits of their employer’s policies and the carriers refused to provide it. The considerable hurdle the carriers had to clear was to persuade New Jersey’s consumer-friendly courts that the designation of the corporation as a “named beneficiary” in the policies would not be interpreted to include the flesh and blood employees driving around in the company vehicles. Much to everyone’s surprise, the Supreme Court ruled in favor of the companies and recognized the operation of the “step-down” clauses. Pinto v. New Jersey Manufacturers Ins. Co., 183 N.J. 405 (2005); Murawski v. CNA Ins. Co., 183 N.J. 423(2005).

The plaintiff truck driver in Pinto, and a truck passenger in Murawski, were seriously injured in the course of their employment in accidents with underinsured drivers. The insurance policies on the fleets had $1 million pol-icy limits for UM/UIM listed right on the face sheets. Each employee sought access to the full amount of the cover-age and the carriers refused to provide it.

The carrier in each case only named the corporate entities as “named insureds.” In both policies, “Drive Other Car” endorsements provided coverage to the principals and their wives as “named insureds” for their automobiles. Pinto had his own personal auto-mobile policy with UM/UIM limits of$100,000. Murawski did not own a car but allegedly resided part time with his mother, who had a policy with a $100,000 limit. Each carrier took the position that the employees were only “insureds” limited to $100,000 in coverage.

Both plaintiffs argued that they were “implied insureds” as members of the cohort exposed to the risk the policy protected against. The drivers argued that a literal interpretation of the policy language would preclude application of the $1,000,000 benchmark to virtually all of the employees since they were all likely to be a beneficiary of a personal policy with lower limits. Plaintiffs also contended that the designation of the corporation as a “named insured” created an ambiguity that should be interpreted in favor of coverage for their employees. The carriers simply pointed out that the “step down” clauses approved by the Commissioner of Insurance were clear, the employees were not “named insureds,” and as “insureds,” plaintiffs were restricted tithe limitations of their own personal policies.

The trial courts ruled in favor of the plaintiffs holding that naming the corporate entities as “named insureds” should be interpreted broadly to cover all of the employees for the full limits listed in the face sheets of the policies. The Appellate Division accepted the carriers’ position in both cases and reversed the trial courts’ decisions.

By identical 4-2 votes, the high court found the step-down provisions in both policies enforceable. Justice LaVecchia, author of the majority opinions, joined in by Chief Justice Poritzand Justices Wallace and Rivera-Soto, noted that the Court had previously signaled its approval of step down clauses in automobile policies in Magnifico v. Rutgers Cas. Ins. Co., 153 N.J. 406(1998). The majority was not offended by the idea that the policies provided lower amounts of coverage than the amount designated in the face sheet. The majority was not persuaded by the argument that the policy may not actually provide $1 million in coverage to most employees because it was still available to anyone to did not own a car or live with someone who owned a car. According to Justice LaVecchia, “This hardly constitutes illusory coverage.”

The majority believed that business owners could still obtain the maximum coverage for any of their employees “provided appropriate language is added stating such an intention.” Justice LaVecchia warned insurance companies, brokers and their agents that they had a duty to inform their customers about the need to list individuals as “named insureds” so that informed decisions could be made. This consolation prize means very little in a real world where affordable UM/UIM coverage for employees will simply not be available anymore. This was the real goal the carriers set out to accomplish.

The dire impact of these rulings on employees like Pinto is immediately apparent. In Pinto, there were multiple claimants in the underlying tort case and the plaintiff only received a $30,000 share out of the tortfeasor’s $300,000 policy. When the employer’s policy steps down to Pinto’s $100,000 personal UIM limit, the employee receives nothing because he is no longer uninsured. That’s right: Nothing.

A vigorous dissent by Justice Zazzali, joined by Justice Albin, identified the fatal flaw in the reasoning of the majority opinion. The dissent examined the issue from the traditional perspective of the reasonable expectations of the policyholder: “Who, one can fairly ask, did the employer intend to insure if not the driver of its vehicles?”

According to the dissent, the business owner had reason to believe that designating the company as a named insured was a “shorthand” description for all of the employees, as it was difficult to keep a running, accurate list of who these hourly employees might be at any point in time.

The dissenters pointed out that the designation of the corporation as the “named insured” could be interpreted literally to mean only the legal entity. In the alternative, it could be seen to encompass all of the employees who were at risk driving on the highways in the course of their employment. This created an ambiguity. When this occurs, the minority believes that the language must be resolved against the insurer and in favor of coverage.

Justice Zazzali also believed that extending maximum UIM benefits to all of the employees was the only logical explanation for the existence of the coverage. The record established that Pinto’s employer paid a substantial premium for coverage. “As a matter of business judgment, an employer would be unlikely to spend substantial capital to receive almost no benefit in return. If the employees are not named insureds, and the step-down provision applies to them, employees would be eligible for the $1 million benefit only in the rare circumstance in which they do not have their own insurance.” Id. at 421.Because New Jersey requires drivers to maintain a minimal amount of insurance, the likelihood that one of the purchaser’s employees would be uninsured is so small as to render the coverage purchased by the employer virtually illusory. Thus, almost no one will benefit from the insurance contract – except the insurer.”

Both opinions failed to take note of a significant factor presented to the court by plaintiff’s counsel inMurawski. There was an important rea-son for not listing individual employees as “named insureds” in the policies. Doing so would provide each employee with portable coverage in any accident they were involved in while outside the workplace. This is well beyond the scope of coverage any carrier would provide or any employer would pay for. Designating the corporation as the “named insured” provides the mechanism to compensate the employee for work-related accidents only without creating the problem of increasing the risk for the carrier of covering the employees everywhere. The majority’s observation that the problem could be fixed by adding the employees as “named insureds” is a nonstarter. Carriers will never write it.

The divide between the majority and the minority in Pinto and Murawski is ominous. The New Jersey courts have always “stepped up” to protect the insurance consumer from the unfair tactics of the insurance industry that violate the tenants of the protective common law principles. For the first time, a majority has “stepped down” and expressed a willingness to defer to the commercial wishes of the insurance industry as long as the intent to do so is apparent to regulators and judges. Until now, this has never been the vantage point of the high court when interpreting insurance contracts.

Quite surprisingly, in light of the Pinto and Murawski holdings, the Supreme Court took an entirely different track in Skeete v. Dorvius, 180 N.J.456 N.J. (2005). In this case, an automobile policy on a host vehicle with $100,000 in UIM limits stepped down to $15,000 for an unrelated, nonresident passenger injured in an accident who did not own an automobile. The named insured had been a Prudential policy-holder for many years and the step-down was incorporated in the policy in the year before the accident. The$100,000 policy limit was emblazoned on the face sheet and the details of the new step-down procedure were incorporated in the body of the policy and explained in the voluminous Policy Booklet and Buyer’s Guide. The injured party was not related to the insured, and did not own a vehicle, or reside with someone who did. The plaintiff obtained a verdict in excess of the defendant’s $25,000 policy and then proceeded against the UIM carrier.

The injured party sought the full amount of the $100,000 UIM coverage on the host vehicle on the grounds that the reasonable expectation of the policyholder was that the full coverage listed in the face sheet was available to the universe of eligible claimants. In the alternative, plaintiff argued that the defendant violated its duty of good faith and fair dealing in the truncated manner in which it advised its customer of the change. The carrier responded that there was no ambiguity in the policy and that it had complied with all regulations in the manner in which it advised the insured of the changes. The trial court agreed and dismissed the plaintiff’s complaint.

The Appellate Division reversed on the grounds that the carrier had not provided the insured with reasonable notice of the change by explaining the changes in the midst of large, unintelligible documents while retaining the $1million policy limit listed on the face sheet. The appellate courts held that the policy holder’s reasonable expectation was formed by the limits listed on the declaration sheet.

In a 4-3 decision, the Supreme Court upheld the Appellate Division. Writing for the majority, Justice Long noted that “the notice of the addition of the step-down was insufficient because of its presentation as part of an essentially undifferentiated passel of two hundred documents.” The majority also included Justices Ablin, Zazzali and Wallace. In a concurring opinion, Justice Albin expressed the view that the failure to note the change in the declaration sheet was fatal. Lehrhoff v. Aetna Cas. & Sur. Co., 271 N.J. Super340, 346 (App. Div. 1994).

Justice LaVecchia disagreed and was joined in her dissent by Chief Justice Poritz and Justice Rivera-Soto. A critical factor in this opinion is sup-port for the regulatory apparatus that approved the changes in policies. The dissenting justice notes that the changes were submitted to the Commissioner of Insurance and approved. The explanations were noted in the specified documents provided for in the regulations and were adequately explained. Justice LaVecchia was clearly frustrated by the inconsistency in the Court’s ruling in Skeete with the Court’s decisions in Pinto and Murawski. The dissenting Justice pointedly criticized the majority opinion because it failed to provide any real guidance on how carriers complying with regulations could avoid the pit-falls of adverse judicial rulings. It is extremely difficult to reconcile the pro-industry ruling in Pinto and Murawsky with the consumer friendly result in Skeete. The “step down” clauses operated in a similar fashion and all of the face sheets failed to disclose the problem. All the policyholders were clueless. Pinto and Murawski looked at the policies from an industry perspective and Skeete was analyzed the old-fashioned way. Future cases will clearly hinge on whether the consumer protection approach holds sway over the new industry position of laissez-faire.

Permissive Use
The Omnibus Clause in motor vehicle liability policies provides coverage for named insureds and anyone else using the vehicle with the owner’s consent. The carrier must defend and indemnify the driver even though the owner is not legally responsible under the doctrine of respondeat superior. Problems arise when a driver goes on an unauthorized “frolic and detour” with the owner’s vehicle and gets into an accident. Coverage will exist if there was “initial permission” or “implied permission” to use the vehicle.

Under the “initial permission” rule, “if a person is allowed to use a motor vehicle in the first instance, any subsequent use short of theft while it remains in the driver’s possession, even if not in the contemplation of the parties, is a permissive use within the terms of the omnibus clause.” Matits v. Nationwide Mutual Ins. Co., 33 N.J. 488 (1960). A third person using the owner’s car with the blessing of the first permissive user gets coverage even though the owner had no idea the vehicle was transferred to a third person. The rule is liberally construed to provide the broadest possible protection for accident victims.

You can begin your evening with the owner’s consent to use his vehicle for a specific, limited purpose and give the car to an old buddy for a pit stop at his favorite tavern for some libations. If he gets in an accident and injures some-one on the way home, he is covered under the owner’s policy. For the rule to apply, the owner or his delegate must remain in continuous possession of the vehicle. Justice Hall referred to the rules as the “hell or high water doctrine.” Matits v. Nationwide Mutual Ins. Co., 33 N.J. 488 (1960); Small v. Schuncke,42 N.J. 407 (1964).

The “implied permission” doctrine arises out of “a course of conduct or relationship between the parties in which there is mutual acquiescence or lack of objection signifying consent. “The doctrine has been defined as “actual permission circumstantially proven.” A key question to be answered is whether or not there is a pattern of per-mitted use. The rule can be invoked even if the permitted use was not continuous before the accident. This rule is also broadly construed to provide coverage. State Farm v. Zurich Am. Ins. Co., 62 N.J. 155, 167-168 (1973).

The outer limits of these doctrines were drawn by the Supreme Court in French v. Hernandez, Docket No. A-58, 2005 N.J. LEXIS 816. Plaintiff was an unlicensed, illegal immigrant employed seasonally in a landscaping business. From time to time, the worker would drive the owner’s truck on his private property during work hours but never on the roadway. On a Sunday evening, the worker went on a drinking binge, gained access to the employer’s garage with a key, took the truck, and got into an accident, seriously injuring another motorist. In a statement to the investigating police officer, the driver admitted that he did not have permission to use the truck. The driver disappeared and was never deposed in the personal injury case.

Plaintiff got an uncollectible default judgment against the dead-beat driver. The case against the business owner went by the wayside because there was no proof that the driver was acting in the course of his employment. Plaintiff filed a legal action against the employer’s liability carrier hoping the permissive use doctrine would allow him to collect his compensatory dam-age award. The plaintiff’s UM carrier intervened to protect its interests.

The parties filed cross motions for summary judgment. The trial court granted the plaintiff’s motion, finding that coverage should be provided to the driver under the initial permission rule because the employer had allowed his employee to park the vehicle on private property. The Appellate Division affirmed the trial court’s ruling but on different grounds. The appellate court did not believe that the initial permission rule applied because the driver did not have continuous possession of the vehicle at the time of the accident. The ruling was sustained under the “implied permission doctrine” because the driver had used the vehicle on prior occasions on private property and did not intend to steal the vehicle. The Supreme Court granted the liability carrier’s petition for certification.

The Supreme Court agreed that the “initial permission” rule did not apply because the driver was not in continuous possession of the vehicle after per-mission was granted. The justices unanimously concluded that the facts did not meet the requirements of the “implied permission” rule. After examining the totality of the circumstances, the high court concluded that no reasonable factfinder could find that the driver was authorized to use the vehicle on the night of the accident. The key factors considered included the very limited authorization to use the vehicle during working hours on private property and the lack of permission to use the vehicle on off-hours or on a public roadway. If an unlicensed driver takes the vehicle without permission and goes where he is not supposed to go, coverage may not be provided. This case is a classic example of an extreme fact pattern that the Court will not sanction for coverage.

Title 59
In Coyne v. State, Dept. of Transp.,182 N.J. 481 (2005), the N.J. DOT was cleaning the shoulder of a highway with a slow-moving crew using equipment that partially blocked the fast lane of travel that had been left open for traffic. Plaintiff was driving a van boxed in by two tractor trailers. When the truck in front of him suddenly shifted to the center lane, plaintiff’s vehicle impacted the rear of a DOT dump truck in the caravan. Defendant contended that one of its vehicles was carrying a flashing warning sign alerting motorists of their presence down the road. Plaintiffs contended that defendant’s highway was a dangerous condition of public property The DOT contended that its operation exceeded the safety requirements set forth in its safety manual and that it was immune.

The public entity filed a motion for summary judgment. It argued that following the prescribed procedures in the safety manual conferred immunity under N.J.S.A. 59:2-3 (a) which pro-vides that “a public entity is not liable for an injury resulting from the exercise of judgment or discretion vested in the entity.” Defendant also argued that its actions were not “palpably unreasonable.” The trial court agreed and dis-missed plaintiff’s case. A two-to-one majority of the Appellate Division agreed and affirmed the trial court. A dissenting opinion expressed the view that there were fact issues requiring a trial. The case advanced to the Supreme Court when the plaintiff took his appeal as of right.

The Supreme Court reversed because it did not believe that the safety manual the road crew relied on provided immunity from suit. The high court noted that the manual contained provisions instructing its supervisory employees to take additional safety pre- cautions if field conditions warranted. Discretionary immunity is only provided for actual, high-level policy making decisions involving the balancing of competing considerations. To the justices, this language clearly signaled that the actions in question were not solely the product of policy makers, which is what is required to trigger discretionary immunity. Title 59 does not provide immunity for negligence arising out of acts or omissions of its employees in carrying out their ministerial functions. N.J.S.A. 59:2-3(d) The Court also remanded the case for further findings of fact on the issue of whether the defendant’s conduct was palpably unreasonable as a matter of law.

The plaintiff in DelaCruz v. Borough of Hillsdale, 183 N.J. 149(2005), was in the wrong place at the wrong time and was arrested for a crime he did not commit. The plaintiff’s modest physical and emotional injuries were the basis for a legal action brought against the officer and municipality for false arrest/false imprisonment. There was no proof of a significant, permanent injury that would clear the threshold of a “permanent loss of a bodily function, permanent disfigurement or dismemberment,” N.J.S.A. 59:3-3. Plaintiff argued that the claim was exempt from the threshold because N.J.S.A.59:3-3specifically delineated that liability for false arrest or false imprisonment survived the act.

The Supreme Court held that the Title 59 threshold also applied to false arrest/false imprisonment claims. The statutory reference to an exemption only eliminates the objective good faith defense to a claim of false arrest/false imprisonment. The high court was cognizant of the fact that plaintiffs in these situations retain their right to pursue federal civil rights claims under U.S.C.A. Sec. 1983.

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