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Appellate Division Revisits Contract and Insurance Policy Interpretation

The Appellate Division on January 22, 2019 decided an interesting case regarding insurance coverage which has been approved for publication. The matter is Katchen v. GEICO et al., No. A-5685-16T4, 2019 WL 272926 (App. Div. Jan. 22, 2019).

In December 2015, Plaintiff Katchen was injured in a motor vehicle accident. Significantly, at the time of the accident, he was operating a Harley-Davidson motorcycle which he owned. Before settling with the other driver or that driver’s $25,000 policy limit, Katchen submitted a UIM claim under three separate insurance policies he maintained:

1. A motorcycle policy issued by Rider Insurance Company;
2. A commercial automobile policy issued by Farmers Insurance Company of Flemington; and
3. A personal auto policy issued by GEICO.

GEICO “disclaim[ed] coverage” pursuant to an exclusion in Section IV of its policy, which addresses both uninsured motorist, or “UM,” and underinsured motorist, “UIM,” coverages.  That provision stated:

“LOSSES WE PAY.

We will pay damages for bodily injury and property damage caused by an accident which the insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle or underinsured motor vehicle arising out of the ownership, maintenance[,] or use of that vehicle.”

However, Section IV also contained an exclusion of coverage for “bodily injury sustained by an insured while occupying a motor vehicle owned by an insured and not described in the declarations and not covered by the Bodily Injury and Property Damage liability coverages of this policy.”

Because while the motorcycle was owned by Plaintiff Katchen, it was not listed on the policy issued and GEICO determined that it did not constitute an “owned auto,” which the policy defined as a “vehicle described in this policy for which a premium charges shown for these coverages.”  As a result, GEICO denied the claim.

Plaintiff Katchen then filed a declaratory judgment action naming the three carriers, seeking a declaratory judgment that the UIM coverage of all three carriers applied to the subject accident. GEICO responded by filing a motion urging the court to find its “owned motor vehicle exclusion” to be “valid, unambiguous and enforceable.” The Motion Court denied that motion, finding that the language of GEICO’s policy was ambiguous.

The parties subsequently came to an agreement that Rider and Farmers would pay their respective pro rata share of the total of $975,000.00 in UIM coverage owed to Plaintiff Katchen, and GEICO would pursue this appeal. If GEICO did not prevail, it would pay its pro rata share as well. Plaintiff, Rider and Farmers all opposed GEICO’s appeal.

Accordingly, the Appellate Division indicated that “in this appeal, we consider whether an auto insurance form may combine uninsured (UM) and underinsured motorist (UIM) coverage in a single section and include exclusions not listed on the policy’s declaration page. We also consider if an insurer may exclude UIM coverage for an accident involving a vehicle owned by the insured but not covered under the subject policy.”

The Appellate Division accordingly held that “Because we find the exclusion does not violate public policy or result in ambiguity, we reverse.”

On appeal, contract interpretation is de novo.  Manalapan Realty, L.P. v. Twp. Committee of Manalapan, 140 N.J. 366, 378 (1995).  When an insurance contract terms are clear and unambiguous, the Court interprets the policy as written, using the “plain, ordinary meaning” of the words used.  Zacarias v. Allstate Insurance Co., 168 N.J. 590, 595 (2001).  But where an ambiguity arises, the policy is interpreted in favor of the insured and against the insurer. President v. Jenkins, 180 N.J. 550, 562-63 (2004).

An ambiguity exists when “the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage.”  Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 247 (1979).

Insurance policies are to be interpreted narrowly, but the provisions within are presumed valid and effective if “specific, plain, clear, prominent and not contrary to public policy.”  Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997).

The Respondents argued that GEICO’s policy, which addressed both UM and UIM coverage in the same section, violated various statutory mandates. GEICO responded that the exclusion unambiguously bars UIM coverage for loss sustained by Plaintiff while operating a motor vehicle he owned but did not insure under GEICO’s policy.

The Appellate Division agreed with GEICO, finding that the policy was not ambiguous.  For example, the Court observed that any ordinary reasonable person understands that a motorcycle is a type of motor vehicle.

While acknowledging that the exclusions did not appear on GEICO’s declaration page, the Appellate Division noted that requiring such would result in even more “fine print” and run the risk of making insurance policies more difficult for the average insured to understand, and would also “eviscerate the rule that a clause should be read in the context of the entire policy.”

Thus, the Appellate Division stated that “The failure to list the exclusion at issue on the declaration page does not automatically render the contract ambiguous. Reading the GEICO policy in its totality, we conclude the exclusion is clear and unambiguous. The fact that the exclusion is not mentioned on the declaration sheet does not bar its enforcement.”

Accordingly, the Katchen opinion is a very instructive recent summary by the Appellate Division of the procedure that will be utilized in analyzing contracts and insurance policies.

Plaintiff Unable to Meet Permanency Threshold of Tort Claims Act Despite Knee Surgery

By: Chris Carlson, Esq.

The New Jersey Tort Claims Act (“TCA”), N.J.S.A. 59:1-1 to 59:13-10, requires that a Plaintiff seeking to recover damages from a public entity must prove as a threshold requirement that he or she sustained a “permanent loss of body function.”  N.J.S.A. 59:9-2(d). The Appellate Division of the Superior Court of New Jersey on January 3, 2017 issued an opinion, not yet approved for publication, which addresses this requirement in the matter of Moore v. Frucci, 2017 N.J. Super. Unpub. LEXIS 1 (App. Div. Jan. 3, 2017).

The fact pattern is fairly unusual in that, on December 1, 2013, Plaintiff John Moore was standing on a Camden sidewalk observing police activity at a crime scene. Plaintiff alleged that Defendant Detective Christopher Frucci drove an unmarked Camden City Police vehicle onto the sidewalk, and the vehicle struck Plaintiff in the rear of the right leg, causing Plaintiff to lose his balance, but not fall to the ground. Defendant Frucci denied that the vehicle struck Plaintiff, but liability was not an issue raised in Defendants’ Motion for Summary Judgment.  Rather, Defendants claimed that Plaintiff failed to meet the threshold to recover under the TCA.

Plaintiff sought treatment at an emergency department approximately 40 minutes after the incident.  X-rays of the right lower extremity were essentially negative. Plaintiff was also noted to be ambulating without difficulty. However, four days later, on December 5, 2011, Plaintiff commenced a course of physical therapy and chiropractic treatment, alleging injuries to his knee and ankle, as well as severe lower back pain. He continued this treatment for approximately six months.

On February 1, 2012, Plaintiff underwent an MRI of the right knee. The MRI report noted no fracture or contusions, but a “chronic appearing partial tear of the proximal ACL” and “small joint effusion.”

Plaintiff also came under the care of a board certified orthopedic surgeon on February 29, 2012. This doctor indicated that Plaintiff had suffered “aggravation of chronic lumbosacral sprain and strain” and a “right knee contusion with high-grade partial versus full thickness tear of the ACL.” Plaintiff was recommended to continue chiropractic treatment and physical therapy, and was fitted for a knee brace.

After periodic follow-ups with the surgeon and Plaintiff’s claims of persistent tenderness in the right knee, arthroscopic surgery was performed on August 30, 2012. The operative report describes the procedure as “diagnostic arthroscopy of right knee, partial synovectomy medial joint, lateral joint, notch, and suprapatellar pouch, and chondroplasty of patella.”  Plaintiff thereafter attended several post-surgical follow-up visits with the surgeon, as part of what the surgeon described as continuing “aggressive therapy,” which included two injections of the knee with Depo-Medrol and the lidocaine.

The surgeon also ultimately provided a permanency evaluation in which he stated that Plaintiff “has had an insult to his anterior cruciate ligament. There was a partial tear. He did have posttraumatic changes with chondromalacia patella and synovitis of the right knee.” The doctor also opined that Plaintiff might require knee replacement surgery in the future.

In his deposition, Plaintiff, who was employed as a public adjuster, claimed that he had difficulty climbing onto roofs, and when climbing stairs he experienced a “little bit” of pain in the knee. Plaintiff also testified that, given his condition, he paid more attention to his activities due to his knee.  He also claimed that given the right knee soreness and swelling, he was required to ice the knee three to four times per week. He claimed the problems with his knee limited his ability to participate in other activities of daily living, including hunting, riding dirt bikes and a motorcycle which he owned, and caused him pain and difficulty when he remained in the same position for an extended period of time.

The trial court ruled that the proofs set forth above were insufficient to create a triable issue as to whether Plaintiff had met the threshold of the TCA.  Accordingly, Defendants’ Motion for Summary Judgment was granted.

On appeal, the Appellate Division set forth the specific language of N.J.S.A. 59:9-2(d), which indicates that:

“No damages shall be awarded against a public entity or public employee for pain and suffering resulting from any injury; provided, however, that this limitation on the recovery of damages for pain and suffering shall not apply in cases of permanent loss of a bodily function, permanent disfigurement or dismemberment where the medical treatment expenses are in excess of $3,600.00.  For purposes of this section medical treatment expenses are defined as the reasonable value of services rendered for necessary surgical, medical and dental treatment of the claimant for such injury, sickness or disease, including prosthetic devices and ambulance, hospital or professional nursing service.”

Therefore, in circumstances where a Plaintiff has incurred in excess of $3,600.00 in medical expenses, the Appellate Division noted that “to recover pain-and-suffering damages against a public entity the plaintiff must also prove: (1) an objective permanent injury, and (2) a permanent loss of a bodily function that is substantial.”  Toto v. Ensuar, 196 N.J. 134, 145 (2008).”  Further, Plaintiffs “may not recover under the TCA for mere subjective feelings of discomfort.  Brooks v. Odom, 150 N.J. 395, 403 (1997).”  In Brooks, although Plaintiff Brooks had ongoing pain and permanent restrictions of motion in the neck and back, her claims were still dismissed due to the fact that she could function in her employment and as a homemaker.  Id. at 406-407.  The Appellate Division also referenced the opinion in Ponte v. Overeem, 171 N.J. 46 (2002), in which even though Plaintiff in that matter sustained a knee injury which required surgery, the same still was determined not to meet the threshold.

Given all of the foregoing, in Moore the Appellate Division held that Plaintiff did not meet his burden of proof to establish the objective evidence that he had as a result of the incident sustained a permanent substantial injury to his knee. The Court relied heavily upon the fact that following the surgery, plaintiff remained “fully capable of performing in his employment and none of his avocational pursuits were significantly impaired. The discomfort he experienced while performing such activities was insufficient to meet the TCA threshold. Further, (the surgeon’s) suggestion of the possibility of future surgery was insufficient to establish a permanent loss of bodily function that was substantial.”

Thus, this recent Appellate Division opinion stands for the proposition that Plaintiff’s burden to meet the threshold of the TCA is a significant one, as even surgery may not be found sufficient to meet the same. This case shows that, even with objection evidence of a permanent injury, if a plaintiff is unable to show that the loss is substantial with respect to a limitation of his ability to work or his recreational or daily activities, it may be subject to dismissal based upon the TCA’s permanency defense.