Uninsured and underinsured motorists coverage involves first-party coverage under a contract of insurance. The insured’s entitlement to coverage and the procedures for pursuing a claim are governed primarily by the contact, and those rights differ substantially from carrier to carrier. Some UM/UIM carriers, for instance, now include provisions permitting the carrier at its option to try UM/UIM matters in court rather than by way of arbitration. Therefore, as with any issue arising in auto litigation, it is absolutely essential to review the UM/UIM provisions of the particular policy before proceeding with a claim.

Uninsured Motorists Claims

Uninsured Motorist or “UM” coverage is first-party coverage that provides compensation to an insured under his or her own automobile policy for personal injury and other losses caused by an uninsured tortfeasor. New Jersey requires minimum UM coverage of $15,000/$30,000 for all motor vehicles, N.J.S.A. 17:28-1.1, with the exception of those covered by a “basic” policy, or a “special” policy, L.2003, c.89, under which UM is not available. N.J.S.A. 39:6A-3.1. Self-insured vehicles are deemed to provide minimum UM coverage. Insurers may not limit coverage to the statutory minimum and are required to offer additional UM coverage up to $250,000 per person/$500,000 per accident for bodily injury, $100,000 property damage, or $500,000 single limit per accident. An insured may not, however, purchase UM or UIM coverage that exceeds his or her liability limits. N.J.S.A. 17:28-1.1.

A tortfeasor’s vehicle is considered “uninsured” triggering a right to coverage in four situations: (1) when it is not covered by a policy of insurance on the date of the accident; (2) when the tortfeasor’s carrier disclaims coverage; (3) when the tortfeasor’s carrier becomes insolvent or declares bankruptcy; (4) when the vehicle is a “hit and run” vehicle; or (5) when the vehicle is covered by a “special” automobile policy pursuant to 545 of L.2003 c. 89. N.J.S.A. 17:28-1.1(e)(2). Underinsured vehicles, uninsured vehicles owned by the claimant, self-insured vehicles, vehicles covered by a “basic” policy, and publicly owned vehicles are not considered uninsured. Id.

A vehicle is uninsured when the tortfeasor’s liability carrier denies coverage. Common reasons for a liability carrier’s disclaiming coverage include the insured’s vehicle being used without permission, the insured’s failure to cooperate with the carrier may dispute the validity of the disclaimer, potentially impeding a claimant’s ability to proceed to the resolution of the UM claims. In that circumstance, the courts have held that a claimant need not await the resolution of the disputed disclaimer, but may proceed to UM arbitration, leaving the UM carrier later to pursue its subrogation rights against the liability carrier. See Parks v. Colonial Penn Ins. Co., 98 N.J. 42, 49 (1984); Schecter v. Selective Ins. Co., 264 N.J. Super. 299, 303-304 (App. Div. 1993)

A hit and run vehicle is one as to which “the identity of the motor vehicle and of the operator and owner thereof cannot be ascertained or it is established that the motor vehicle was, at the time said accident occurred, in the possession of some person other than the owner without the owner’s consent and that the identity of such person cannot be ascertained[.]” N.J.S.A. 39:6-78. In order to assert a UM claim based on an accident caused by a hit and run driver, the claimant must demonstrate that he or she made reasonable efforts to determine the identity of the vehicle, its owner and its operator. Scheckel v. State Farm Mut., 316 N.J. Super. 326, 332-334 (App. Div. 1998). “Hit and run” vehicles include “phantom” vehicles, or vehicles that force the claimant off the road without making physical contact with the claimant’s vehicle.

An insured’s entitlement to UM benefits and the procedures for enforcing UM coverage are governed by the contract with the UM carrier. The standard UM endorsement requires the submission of UM disputes to binding arbitration, usually before three arbitrators. The endorsement permits either party to reject an arbitration award and demand a trial of the issues if the arbitrators’ damage award exceeds the statutory minimum limits of $15,000 per person and $30,000 per accident for bodily injury and $5000 for property damage.

The standard UM endorsement provides that UM arbitration may be sought to resolve disputes concerning whether the insured “is legally entitled to recover damages under the endorsement” and regarding “the amount of damages.” Issues of coverage, such as the validity of an insurer’s disclaimer of coverage based on lack of permission or whether the insured made reasonable efforts to ascertain the identity of a hit and run driver, are generally not arbitrable and must be litigated in court. See, e.g., O’Connell v. New Jersey Mfrs. Ins. Co., 306 N.J. Super. 166 (App. Div. 1997), certif. granted, 153 N.J. 405, appeal dismissed, 157 N.J. 537 (1998); Travelers Indemnity Co. v. Mongiovi, 135 N.J. Super. 452, 459 (App. Div. 1975). Where a coverage issue arises in the course of an arbitration, the party objecting to its consideration by the arbitrator from deciding the issue or object to its inclusion in the UM proceeding, thereby preserving a right to subsequent judicial review of the coverage question. See In re Matter of Arbitration Between Grover, 80 N.J. 221 (1979). The question whether the plaintiff has satisfied the tort threshold has been held arbitrable. See Cutitta v. Selective Ins. Co., 255 N.J. Super. 748 (App. Div. 1992).

A plaintiff invokes his or her right to UM by sending a written demand to the UM carrier. The plaintiff and the UM carrier each designate a “partial” arbitrator and the two partial arbitrators select a third “neutral” arbitrator. The designation of an arbitrator is typically included in the letter demanding arbitration. The demand letter ordinarily sets forth a time limit, usually 30 days, for a response. A declaratory judgment action may be initiated to compel compliance with the UM endorsement where the carrier fails to respond, or if the two partial arbitrators have not or cannot agree on a neutral.

The UM endorsement governs the pre-hearing discovery to which the carrier is entitled. The discovery may include a statement under oath, the provision of medical releases and authorizations to submit a physical examination, and the provision of all legal documents from related suits against third parties.

The arbitration hearing is located in the county where the insured lives, unless otherwise agreed, and takes place at one of the arbitrators’ offices. Each party bears its own expenses and split the expense of the neutral arbitrator. Standard fees for arbitrators are $300-400 per arbitrator. At the hearing, all relevant evidence is considered and the formal evidence rules do not apply. Thus, for instance, reports from the plaintiff’s treating physicians and defense examiners may be considered and no personal appearance by the doctors is required.

A decision by two of the arbitrators is binding if the damages do not exceed the statutory minimum limits of $15,000/$30,000/$5000. If the damage award does exceed the statutory minimum, either party may within 60 days demand a trial. Absent a demand for trial, the arbitration award is binding.

Either party within 90 days of delivery of the award may ask for court to confirm, vacate, modify or correct the arbitration award. Judicial review of the arbitrators’ decision is, however, extremely limited. An award may be vacated only where (1) the award was procured by corruption, fraud or undue means, (2) there was evident partiality or corruption in the arbitrators, or any thereof, (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon good cause being shown therefor, or in refusing to hear the evidence, pertinent and material to the controversy, or any misbehaviors prejudicial to the rights of any party, or (4) the arbitrators exceeded or so imperfectly executed their powers that a mutual, final and definite award upon the subject matter was not made. N.J.S.A. 2A:24-8.

Underinsured Motorists Claims

Underinsured Motorists or “UIM” coverage is first-party coverage that provides compensation to an insured under his or her own policy when the tortfeasor’s liability coverage is insufficient to cover the insured’s losses. UIM coverage is optional so not every policy provides it. N.J.S.A. 17:28-1.1(b). Purchasers of a “basic” policy do not have the option to carry UIM coverage.

A tortfeasor’s vehicle is considered “underinsured when

the sum of the limits of liability under all bodily injury and property damage liability bonds and insurance policies available [to the tortfeasor] is, at the time of the accident, less than the applicable limits for underinsured motorist coverage afforded under the motor vehicle insurance policy held by the person seeking … recovery.

[French v. New Jersey School Bd. Assoc. Ins. Group, 149 N.J. 478, 484 (1997); N.J.S.A. 17:28-1.1e.]

In order to determine whether UIM coverage is triggered, it is thus necessary to compare the liability limits of any policies that the tortfeasor may look to for coverage (including his or her personal policy, the policy of a host vehicle, or any umbrella or general liability policies) with the UIM limits of any policies purchased by pr providing coverage to the injured party (including his or her personal policy, the policy of a family member residing in the household, or the policy of a host vehicle). See Magnifico v. Rutgers Casualty Ins. Co., 153 N.J. 406 (1998) (holding passenger “held” and was entitled to recover UIM benefits under $250,000 policy issued to the driver of host vehicle); New Jersey Manufacturer’s Insurance Co. v. Breen, 153 N.J. 424 (1998) (holding daughter of named insureds under business auto policy, who was injured in an auto accident while operating her own vehicle, “held” and was entitled to receive benefit of UIM coverage included in her parents’ business auto policy that would not have been available pursuant to her personal policy); Grant v. Amica Mutual Ins. Co., 153 N.J. 433 (1998) (holding motorist who was injured in a car accident while driving his own car “held” and entitled to recover UIM benefits under automobile policy issued to his brother, with whom motorist lived ).

Although an injured party may look to several different policies both to establish underinsured status and for recovery, the limits of those policies may not be added or “stacked” to create coverage in the combined amounts. N.J.S.A. 17:28-1.1(c).

It should be noted that AICRA created a new “basic” policy under which a purchaser may opt to carry no bodily injury liability coverage at all. Notwithstanding that, a “basic” policyholder is not considered uninsured, even when he or she has no liability coverage. N.J.S.A. 17:28-1.1. Therefore, a plaintiff must resort to UIM coverage when injured at the hands of a basic policyholder.

A vehicle is not considered underinsured “unless all the limits of bodily injury liability insurance or bonds applicable at the time of the accident have been exhausted by payment of settlements or judgments.” N.J.S.A. 17:28-1.1(e)(1). The UIM carrier is entitled to a credit against the amount that was recovered against the tortfeasor’s liability policies. Id.

If, for example, the tortfeasor has $15,000/$30,000 liability limits, and the injured party carries $15,000/$30,000 in UIM, the tortfeasor would not be underinsured with respect to the injured party’s policy and no UIM would be available. If, on the other hand, the tortfeasor has $15,000/$30,000 liability limits and the injured party has $100,000/$300,000 in UIM, then UIM coverage would be triggered and the injured party could seek an additional $85,000 in UIM benefits after exhausting the tortfeasor’s policy limits.

UIM Arbitration

Assuming “underinsured” status is established, the next question is how to pursue a claim for UIM benefits. In order to assert a UIM claim, a plaintiff must provide proper notice to the UIM carrier at various stages in the litigation. Specifically, the plaintiff must notify the UIM carrier when (1) when suit is initiated against the tortfeasor, (2) when it is clear that the tortfeasor’s liability coverage is insufficient, and (3) when the plaintiff receives an offer of the tortfeasor’s policy limits. Rutgers Ins. Co. v. Vassas, 139 N.J. 163, 172 (1995); Rivers v. Allstate, 312 N.J. Super. 379 (App. Div. 1998). The UIM carrier is entitled to intervene in the third-party action if it wishes to, but failure to provide notice of suit may result in the UIM claim being barred. See Zirger v. General Accident Ins. Co., 144 N.J. 327 (1996). Although verbal notice has been deemed sufficient where there is no prejudice to the UIM carrier, Walsh v. State Farms Ins. Co., 301 N.J. Super. 619, 624-625 (Law Div. 1997), it is obviously far preferable to provide the UIM carrier with written notice of an offer to settle. Notice must be provided to all UIM carriers potentially liable to provide coverage.

Because the UIM carrier has a right of subrogation against the tortfeasor that would be extinguished by the claimant’s insurance of a general release to the tortfeasor’s carrier, the plaintiff cannot settle the underlying case against the tortfeasor without the permission of the UIM carrier. Longworth v. Van Houten, 223 N.J. Super. 14, 184 (App. Div. 1988). Once the plaintiff notifies the UIM carrier of the tortfeasor’s carrier offer of its policy limits in settlement of the plaintiff’s claims, the UIM carrier has two options. The carrier may consent to the settlement thereby waiving its subrogation rights. Alternatively, the UIM carrier may preserve its subrogation rights by tendering to the plaintiff the full amount of the tortfeasor’s policy limits in exchange for an assignment of plaintiff’s rights against the tortfeasor. Id. At 193-94.

If the UIM carrier within thirty days fails to respond to plaintiff’s request for permission to settle, the plaintiff may fail a declaratory judgment action seeking a determination of the issue. Id. At 194-94.

The procedures for initiating arbitration, choosing arbitrators, and paying the costs of arbitration are the same as those discussed above in the UM context.

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