November 27, 2009 : Insurer Victorious in UIM 'Step-Down' Appeal
In a victory for the insurance industry, a New Jersey appeals court held on November 25, 2009 that a commercial auto insurer sued for payment of Under-Insured Motorist (UIM) benefits by an employee of the insured business was entitled to a dismissal because the auto policy’s UIM limit “stepped down” to the amount of the driver’s spouse’s policy. The decision in Ruoff v. American Asphalt was especially significant because the insurer first had to overcome the trial court’s procedural holding that the company untimely contested whether the “step-down” clause was to be applied retroactively. The panel’s decision saves the insurer in excess of $900,000.
As a result of a 2005 motor vehicle accident in which he was injured, plaintiff Geremy Ruoff asserted a claim for UIM benefits with Penn National, his employer’s business auto insurer. Under the applicable provision in the employer’s policy, the available limits for UIM coverage for Ruoff “step down” to the UM/UIM limit of his wife’s auto insurance policy with Hanover Insurance Company, which is $100,000. Ruoff disagreed with the insurer’s position and filed a lawsuit seeking, among other relief, an order that the insurer’s position was incorrect and that the applicable UM/UIM limit is $1 million.
Although Penn National originally was dismissed from the action by the trial court in 2007, in February 2008 the trial court reinstated the action. The trial court did so because of then-recently-enacted legislation that prohibited insurers from enforcing step-down provisions against a UM/UIM claimant who is an employee of the insured company. The new law was deemed by the trial court to apply retroactively to this case. The court brought Penn National back into the case with the knowledge that the retroactivity issue was under review in a similar case pending before the Appellate Division. Significantly, the trial court’s orders in February and April 2008, reinstating the complaint against Penn National and finding that the law applied retroactively, respectively, did not dispose of all issues as to all parties.
In July 2008, during the pendency of the case, the Appellate Division ruled that any UM/UIM claim predicated upon an accident that predates the adoption of N.J.S.A. 17:28-1.1(f) - which prohibited the use of step-down clauses - is not applied retroactively and must be governed by the legal principles previously articulated by the New Jersey Supreme Court. Because the accident at issue in this litigation preceded the change in the law, Penn National’s position on the step-down issue was validated by the 2008 Appellate Division decision.
In light of that decision, Penn National filed a motion with the trial court to alter or amend the February and April 2008 Orders seeking a dismissal of Ruoff’s complaint against it. The trial court held that its decision to reinstate the lawsuit against Penn National and to apply the statute retroactively were final orders and, as such, the insurer was out of time to seek relief under R. 4:49-2.
In an 11-page opinion, the Appellate Division concluded that the trial court erred in denying Penn National’s motion to alter or amend its prior orders, given that at no time were all issues as to all parties disposed of. Because those orders were interlocutory, the appeals court held, Penn National properly and timely sought relief of the retroactivity issue. The panel further ruled that the statute was not to be applied retroactively and, therefore, Penn National’s UIM limit dropped down from $1 million to $100,000.
Weber Gallagher partners Laurence T. Bennett and Michael S. Savett represented Penn National in the trial court and Mr. Savett briefed and argued the appeal.
File Under: Results, Insurance, Laurence T. Bennett, Michael S. Savett