Timely Notice of Underinsured Motorist Claims Not Always a Prerequisite to Recovering Benefits in New Jersey

Recently, a divided Appellate Division panel overturned a trial court’s determination that a plaintiff was barred from seeking underinsured motorist (“UIM”) benefits after failing to provide his insurance carrier with timely notice of a potential UIM claim before settling with the defendant in the underlying case. In Ferrante v. New Jersey Manufacturers Insurance Group, the Appellate Division held that (1) a high-low agreement between parties is not a determination as to the value of a plaintiff’s case and (2) failure to provide timely notice of a potential UIM claim to an insurer does not necessarily preclude an insured from later UIM benefits.

This case arose from a motor vehicle accident in which plaintiff was injured by a tortfeasor with no assets other than a $100,000.00 automotive insurance policy. Prior to trial in the underlying matter, the parties entered into a high-low agreement in which the floor was set at $25,000.00 and the ceiling was set at $100,000.00 (representing the full amount of the tortfeasor’s insurance policy). At the underlying trial, the jury awarded $200,000.00 to the plaintiff and $50,000.00 to the plaintiff’s wife. The next day, the plaintiff sent his insurance carrier, New Jersey Manufacturers Insurance Group (“NJM”), notice of the lawsuit and notice of the plaintiff’s intent to seek UIM benefits. NJM then investigated the case, authorized the plaintiff to settle the case for the tortfeasor’s policy limits, and waived its subrogation rights. Subsequently, the plaintiff filed a declaratory judgment action to compel NJM to appoint an arbitrator and to proceed to UIM arbitration.

NJM argued that plaintiff waived its right to seek damages in excess of the high-low agreement and, further, that the plaintiff could not seek UIM benefits by virtue of his failure to notify NJM of a potential UIM claim at a time when NJM could have intervened in the underlying case. Plaintiff argued that, although he provided late notice to NJM, NJM was not prejudiced because the tortfeasor was judgment proof, having no assets, and because NJM decided to waive its subrogation rights.
The majority held that a high-low agreement is merely a form of settlement used to insulate a party from a jury’s assessment of a case’s worth. It specifically found that the high-low agreement entered by the plaintiff and the tortfeasor was a symbiotic agreement meant to protect both parties from a judgment in excess of the tortfeasor’s insurance policy limits. Noting that settlements are favored by public policy, the majority held that entering into a high-low agreement does not impair a plaintiff’s right to later pursue UIM benefits. Additionally, the majority held that a failure to provide the requisite Longworth notice to a UIM carrier is not necessarily fatal to recovering UIM benefits. Although the majority noted that a plaintiff’s failure to give adequate notice is troubling, it held that a UIM carrier must also show actual prejudice suffered due to the deficient notice. The issue was remanded to the trial court to determine whether plaintiff met its burden of showing the deficient notice did not prejudice NJM. Contrarily, the dissent found that the plaintiff’s disregard of his obligations to provide notice pursuant to controlling case law was a breach of his insurance contract, automatically prejudicing NJM. The dissent further highlighted the risk of the majority’s approach invalidating provisions of an insurance contract setting policy limits when the insured enters into a high-low agreement.
Ultimately, the Appellate Division’s decisions leave it to the New Jersey Supreme Court to decide whether a subjective standard should be adopted to determine plaintiffs’ intent for providing late notice to their insurance carriers. As case law currently stands, plaintiffs already have the fairly light burden of showing whether their insurance carriers were prejudiced by late notice. However, future review of this decision by the New Jersey Supreme Court could result in an increased burden on plaintiffs or other additional protections for insurance carriers that receive either late or deficient notice of their insureds’ intent to seek UIM benefits.