On August 23, 2024, the Appellate Division rendered an interesting unpublished Opinion in the matter of Reid v. McKeon, No. A-2519-22, on the issue of whether an insurance carrier can be forced to pay a jury verdict rendered against insured Defendants who subsequently declared bankruptcy, IF that Plaintiff never filed a claim against the insurance carrier.
On May 10, 2012, Plaintiff Maxine A. Reid (hereafter “Plaintiff”) became injured when Defendant John McKeon, operating a vehicle owned by Defendant Joyce McKeon (John and Joyce McKeon hereafter “Defendants”) and insured by CURE Auto Insurance Company (hereafter “CURE”), struck Plaintiff’s vehicle in the rear. Plaintiff commenced suit which resulted in a trial, at which Defendants stipulated to liability, and the jury returned a verdict in favor of Plaintiff in the amount of $250,000.00. CURE’s relevant insurance policy issued to Defendants had a $100,000.00 policy limit.
After the jury verdict was affirmed on appeal, Defendants sought CURE’s payment of the entire $250,000.00 verdict. However, Defendants subsequently filed for Chapter 7 bankruptcy, listing said injury judgment as a debt. Special counsel then, on behalf of the Trustee, brought a “bad faith” claim against CURE and a legal malpractice claim against Defendants’ counsel retained by CURE. This suit was settled, with a “full dismissal” in exchange for CURE’s payment of $220,000.00 to the Bankruptcy Estate. From this, the Trustee then made payment to Plaintiff in the amount of $111,664.89 and, per 11 U.S.C. Section 727, discharged Defendants’ $250,000.00 debt to Plaintiff.
Nonetheless, thereafter, Plaintiff attempted to recover additional funds from CURE despite that CURE was never a party to the underlying action or any other connected claims.
To those ends, Plaintiff filed a Motion to Enforce Judgment pursuant to Rule 4:42-1, in which Plaintiff’s counsel acknowledged that Plaintiff and CURE had “never achieved” any settlement. Plaintiff further contended that CURE was still obligated to pay Plaintiff the $100,000.00 policy limit, and that any payment received from the Bankruptcy Trustee was regarding the “excess verdict” and to settle the malpractice claim against Defendants’ counsel retained by CURE.
In response, CURE had taken the position that it was not obligated to pay the contractual policy limits and argued that Plaintiff was attempting to enforce a judgment that did not exist against CURE, and to collect a debt already paid and discharged in Defendants’ Chapter 7 bankruptcy. CURE further argued that Plaintiff had no standing to assert a claim against CURE, and that Plaintiff was improperly seeking a “double recovery” in circumvention of the Bankruptcy Code.
Trial Court ruled that CURE was to pay Plaintiff the $100,000.00 policy limit. Notably, though neither side had mentioned or briefed this issue, Trial Court independently found support for its ruling by N.J.S.A. 17:28-2, providing that in event of a bankruptcy, “an action may be maintained by the injured person against the corporation under the terms of the policy for the amount of the judgment in the action not exceeding the amount of the policy.” Accordingly, Trial Court granted Plaintiff’s “Motion to Enforce Judgment”, and CURE appealed.
The Appellate Division found “no support in the plain language of either Rule 4:42-1(b) or (c) for the order entered by the court on plaintiff’s motion,” observing that these provisions do not provide for the enforcement of a judgment or order as requested by Plaintiff, and, in any event, there was never any judgment or order that could be enforced against CURE. (Opinion Pg. 11). While Rule 4:59-1 provides for enforcement of judgments and Rule 1:10-3 provides for enforcement of orders, Plaintiff had not implicated them; again, because no judgments or orders were entered against CURE in the first place.
Emphatically, the Appellate Division further found that Trial Court erred in relying on Rule 4:42-1(b) and (c) because CURE had not been a party to the underlying action, and thus this “denied CURE of all the due process protections that are incorporated in our Rules of Court for individuals or entities against whom a judgment in sought.” (Opinion Pg. 13).
While the Appellate Division did note that N.J.S.A 17:28-2 may provide Plaintiff with a claim against CURE; significantly, Plaintiff had simply never pursued one, and thus the Appellate Division interpreted the “maintenance-of-an-action provision in N.J.S.A. 17:28-2 to require that an injured party seeking relief from an insurance carrier under the statute must first file a complaint… and properly serve the pleading… ” to apply, and accordingly provide “all the procedural requirements, rights, safeguards, and remedies afforded to the parties to a civil proceeding under our Rules of Court. The court’s order depriving CURE of the action required under N.J.S.A. 17:28-2 was therefore entered in error.” (Opinion Pg. 13).
Notwithstanding, the Appellate Division was careful to stress that it offered no opinion on the merits of Plaintiff’s claim or CURE’s defenses. Rather, “(w)e do not foreclose plaintiff from initiating and maintaining an action against CURE based on its claim under N.J.S.A. 17:28-2 or otherwise, but any such action shall be subject to any and all defenses that may be interposed by CURE.” (Opinion Pg. 15).
Accordingly, this unpublished opinion is a useful case study of the respective applicability of Rule 4:42-1 and N.J.S.A. 17:28-2 as to the issue of potential insurance carrier liability in the context of a bankruptcy by an insured subsequent to entry of a verdict.
