KHALID SANDERS, Plaintiff–Respondent, v. JASMIN REYES, YILENI D. MARTES CABRERA and EVELINA E. NINGARCIA, Defendants, CITIZENS UNITED RECIPROCAL EXCHANGE, Defendant/Intervenor–Appellant.
Intervenor, Citizens United Reciprocal Exchange (“CURE”) appeals from two orders of the trial court: the first, the January 11, 2013 order denying its motion for summary judgment, and the second, the April 5, 2013 order compelling it to commence arbitration proceedings. We affirm both orders.
The facts are not in dispute. On November 22, 2008, plaintiff Khalid Sanders was a passenger in a motor vehicle operated by Jasmin Reyes involved in a motor vehicle accident from which he sustained injuries. On October 15, 2010, Sanders filed a complaint against Reyes and others seeking to recover damages for injuries he allegedly sustained from the accident. At the time of the accident, Reyes's vehicle was covered by a standard policy issued by CURE. Sanders separately maintained a basic automobile insurance policy, which did not include uninsured motorists (“UM”) coverage. When Sanders filed a claim for UM benefits, CURE denied the claim advising his attorney in correspondence dated April 11, 2012, “[b]ecause Sanders['s] own policy offered no liability coverage, he [could] not collect uninsured motorist benefits from the CURE policy.”
CURE intervened 1 in the litigation and participated in the action as a party. Upon completion of discovery, CURE moved for summary judgment arguing that Sanders was not a “named insured” under its insured's policy but an “insured,” and, as such he was subject to the step-down provisions of the policy. Under CURE's step-down provision UM coverage was stepped down to the amount of coverage maintained under Sander's policy. Because Sanders's policy did not include UM coverage, CURE maintained that Sanders was entitled to zero UM coverage.
Judge Anthony J. Graziano rejected this argument and agreed with plaintiff that to construe Reyes's policy as CURE urged would be contrary to public policy. He found “[t]he overriding public policy seems to be in favor of coverage” and that “[t]o permit the carrier to step down to zero would subvert that public purpose.” The judge concluded that he believed “the greater requirement is that the step[-]down is permitted but not to the point of zero such that the uninsured motorist coverage would be [un]available to an injured plaintiff under the circumstances of this case.”
Thereafter, the parties appeared before Judge Thomas F. Brogan, Civil Presiding Judge, for a settlement conference during which the audio recording of the earlier summary judgment motion was played. After listening to the tape, Judge Brogan concluded the coverage issue had been resolved and that the only remaining issue was damages. CURE disagreed and would not consent to binding arbitration. Plaintiff moved for an order compelling arbitration. CURE opposed the motion contending the coverage issue remained unresolved. Judge Brogan granted plaintiff's motion and ordered CURE to submit to arbitration. The present appeal ensued.
On appeal, CURE contends that under the clear terms of its insured's policy, coverage disputes may not be resolved through binding arbitration and plaintiff is not entitled to UM benefits. We reject these arguments.
The critical issue raised in this appeal requires our interpretation of contractual provisions and the applicability of those provisions to New Jersey Automobile Insurance Cost Reduction Act (AICRA), N.J.S.A. 39:6A–1.1 to –32, in particular, N.J.S.A. 39:6A–3.1 and the mandatory auto insurance provisions contained in N.J.S.A. 17:28–1.1 to –1.9, specifically, N.J.S.A. 17:28–1.1. Accordingly, in our de novo review, we owe no special deference to the trial court's interpretation of the law and the legal consequences that flow from established facts. Manalapan Realty v. Manalapan Twp. Comm., 140 N.J. 366, 378 (1995).
The basic automobile policy, which insured Sanders at the time of the accident, is an alternative to the mandatory coverage provided in sections 3 and 4 of P.L.1972, c.70 (C.39:6A–3 and 39:6A–4). Basic policy holders are exempt from carrying uninsured motorist coverage required under N.J.S.A. 17:28–1.1, which provides in pertinent part:
a. Except for a basic automobile insurance policy, no motor vehicle liability policy or renewal of such policy of insurance, including a standard liability policy for an automobile as defined in section 2 of P.L.1972, c.70 (C.39:6A–2), insuring against loss resulting from liability imposed by law for bodily injury or death, sustained by any person arising out of the ownership, maintenance or use of a motor vehicle, shall be issued in this State with respect to any motor vehicle registered or principally garaged in this State unless it includes coverage in limits for bodily injury or death as follows:
(1) an amount or limit of $ 15,000.00, exclusive of interest and costs, on account of injury to, or death of, one person, in any one accident․
The UM endorsement in Reyes's policy defines an “insured” as “any other person ‘occupying’ ‘your covered auto[.]’ ” It additionally states that if the “ ‘insured’ is not the named insured under this policy,” but “is a named insured under one or more other policies providing similar coverage[,]” and “[a]ll such other policies have a limit of liability for similar coverage which is less than the limit of liability for this coverage;” then the “maximum limit of liability for that ‘insured’, ․ shall not exceed the highest applicable limit of liability under any insurance providing coverage to that ‘insured’ as a named insured.” (Emphasis added).
Clauses in policies containing language limiting liability for UM coverage to the highest amount available under other insurance, are known as “step-down” clauses. A step-down clause in an insurance policy provides different levels of coverage to different insureds based on their status or the existence of other insurance. Pinto v. N.J. Mfrs. Ins. Co., 183 N.J. 405, 412 (2005); Seabridge v. Discount Auto, Inc., 393 N.J.Super. 327, 330 (App.Div.2007). Step-down clauses are enforceable and have been held not to run afoul of N.J.S.A. 17:28–1.1. See Christafano v. N.J. Mfrs. Ins. Co., 361 N.J.Super. 228, 237 (App.Div.2003) (rejecting the contention that a step-down clause in a personal auto policy runs afoul of the provisions of N.J.S.A. 17:28–1.1 as written at that time). However, “[o]ur courts have made it clear that a policy exclusion may not override statutory mandates to provide insurance coverage.” Pontenzone v. Annin Flag Co. 191 N.J. 147, 155 (2007) (citing Ryder/P.I.E. Nationwide, Inc. v. Harbor Bay Corp., 119 N.J. 402, 407 (1990).
To interpret the absence of UM coverage in Sanders's basic policy when such coverage is not statutorily mandated in a basic policy, as meaning that the UM coverage afforded to Sanders from Reyes's policy is stepped down to zero amounts to providing no coverage. UM coverage, however, is statutorily mandated for standard policies such as was issued for the Reyes's vehicle. See also Rider Ins. Co. v. First Trenton Cos., 354 N.J.Super. 491, 500 (App.Div.2002) (“If the Legislature wanted to ․ allow standard policies to eliminate UM coverage in certain situations, it could easily have done so. It did not.”). The step-down provision contained in Reyes's policy clearly states that it applies to insureds who are “named insureds” in other “policies providing similar coverage.” Reyes's policy contains no separate definition for the word “similar.” In the absence of a specific definition for a word in an insurance policy, the ordinary definition ascribed to the word “similar” will be utilized in construing its meaning. Fairlawn Indus., Ltd. v. Gerling Am. Ins., 342 N.J.Super. 113, 117–18 (App.Div.2001) (citing Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 174–75 (1992)). “Similar” is defined as: “Resembling though not completely identical.” Webster's II New College Dictionary 1053 (2005). Sanders's policy, which provides no UM coverage is not “similar” to Reyes's policy, which provides UM coverage. Therefore, Judge Graziano correctly concluded Sanders was entitled to coverage and, therefore, did not err in denying CURE's summary judgment motion.
In light of our conclusion that Sanders is an insured and entitled to coverage under Reyes's policy, Judge Brogan did not err in entering an order directing the parties to binding arbitration.
1. FN1. It is unclear when CURE became a party to the action and whether a motion to intervene was filed. However, the parties refer to CURE as an “intervenor.”