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Common Law Limits to Residential Covenants

"A Common Sense Approach"

At the beginning of private landownership the government took a laissez-faire approach regarding restrictive covenants amongst private landowners, absent restrictions volatile of the Constitution or other applicable law. As the common law has progressed the Courts have continued to demonstrate an aversion to the enforcement private residential covenants. In a recent decision by the New Jersey Appellate Court, Freedman v. Sufrin, No. A-4942-13T1, 2015 WL 7432100, (N.J. Super. Ct. App. Div. Nov. 24, 2015), the continuing judicial scrutiny on residential covenants that are unclear and ambitious was continued. 

In Freedman, the plaintiffs purchased a two-story single family home pursuant to a written contract that made no mention of a restrictive convent. In 1996 the predecessor in title purchased the property and obtained a deed that subjected the conveyance of the property to several restrictions, including retaining “as many trees . . .as possible.” In the subsequent transfer of the title the restrictive covenant was not memorialized; however, the Court presumed that the plaintiffs had knowledge based on previous title searches.

After the plaintiffs took possession of the property they began to remove trees located on the property. As a result of objections by neighbors the plaintiffs commenced a quite-title action in the Chancery Division and were granted summary judgment. The defendants sought to apply the property test devised in Davidson Bros., Inc. v. D. Katz & Sons, Inc., 121 N.J. 196 (1990), which involved covenants prohibiting commercial property in residentially zoned land or restrictive covenants part of a neighborhood scheme. In rejecting the defendants’ arguments, the Appellate Division held that restrictions on the use of private land require strict construction and must be unambiguously clear.  Further, should there exist any ambiguities in covenants all doubts must be resolved in favor of the owner’s unrestricted use of the land. In finding that the present covenant was ambiguous the Court turned to the interpretation of whether the covenant applied after new owners bought the property. The Court held that the covenant only applied to the original purchases of the property where the covenant was included in the deed. Additionally, the requirement that the owners of the property retain “as many trees . . . as possible” had no quantitative meaning and was wholly subjective. Under the common law’s standard of strict construction the Court is limited to looking at the four corners of the document. Unable to define the meaning of “as many trees . . .as possible” the Appellate Division affirmed the granting of summary judgment in favor of the plaintiffs and declared the restriction null and void.

The effect of the Freedman decision will now require any future covenants to provide for explicit and unambiguous language on any restrictions. The Court has reiterated its discontent for restrictions on private landowners absent clear intentions by the parties entering into the agreement to be bound by them. Unlike contract interpretation, Courts may grant summary judgment in favor of nullifying covenants even where there exists material issues of fact regarding the interpretation of restrictions. For that reason, attorneys faced with clients requesting a covenant in their land, it is of utmost importance that any covenants be detailed and be included in all future transfers of property.

 

Insurers Liable Only For "Basic" Coverage Amount To Innocent Injured Third Parties In Light Of New Jersey Supreme Court Decision

The New Jersey Supreme Court recently unanimously held in Citizens United Reciprocal Exchange v. Perez, 223 N.J. 143, 157 (2015), that when an innocent third party is injured by a driver operating under an automobile insurance policy, which is later voided due to fraud, automobile insurers are liable only for the "basic policy" contracted coverage amount, and not the minimum "standard policy" motor vehicle coverage amount required under New Jersey's standard no fault insurance provisions.

In Citizens United, (not related to the election law decision), the insured elected to add the optional $10,000 "basic policy" coverage for third-party bodily injury. When obtaining the insurance policy, however, the insured failed to include a household resident who was of driving age, the father of her two children, who had a poor driving record. A month after the automobile policy was purchased; the father of the insured's children drove the insured's vehicle and was involved in an accident with an innocent third party. The third party then filed a personal-injury claim against the insured's policy.

The insurer informed the insured that her policy was void from inception due to the misrepresentations made by the insured when she obtained the automobile policy. The insurer sought a declaratory judgment finding that it was not required to cover claims pertaining to the subject accident, including those brought by the innocent third party, due to the voided automobile policy. The New Jersey Supreme Court determined that while the automobile insurance policy could be voided and rescinded due to the plaintiff's fraud, the innocent third party was still entitled to coverage under the insured's policy. The Supreme Court then had to decide the amount that the innocent third party was entitled to from the insurer in accordance with the insured's voided policy, if any.

The Appellate Division in Citizens United Reciprocal Exch. v. Perez, 432 N.J. Super. 526, 528 (App. Div. 2013), held that the insurer was liable to the innocent third party for $15,000, in accordance with the minimum "standard policy" coverage mandated by New Jersey's no fault insurance provisions. The Supreme Court, however, in reversing the Appellate Division's decision, held, contrary to prior case law and New Jersey's standard no fault insurance provisions, that innocent third parties are entitled only to the bargained for $10,000 optional third-party "basic policy." The Supreme Court found that "it would be both unjust and contrary to public policy to invalidate and disregard this minimal amount of liability coverage bargained for by the insured." Additionally, the Supreme Court held that when an insured elects not to add the optional $10,000 "basic policy" coverage for third-party bodily injury, the insurer cannot be held liable to an innocent injured third-party under that contract.

The Supreme Court's decision in Citizens United will serve to clarify for automobile insurers across New Jersey the actual amount owed to innocent third parties for bodily injury payments under voided optional "basic policies."

Florida Supreme Court Rules Evidence of Potential Future Medicare Payments Inadmissible

By: William P. Dilley, II., Esq.

In a 5-2 split decision, the Florida Supreme Court held that the evidence of “social legislation” benefits as an exception to the evidentiary collateral source rule are no longer admissible, receding from its holding in Florida Physician’s Insurance Reciprocal v. Stanley, 452 So.2d 514 (Fla. 1984).

Joerg v. State Farm Mut. Auto. Ins. Co. (October 15, 2015), is a case arising from a motor vehicle v. bicycle accident.  Petitioner, John Joerg, on behalf of himself and as the father and natural guardian of his son, Luke Joerg, brought an action against State Farm for uninsured motorist benefits as a result of Luke, a developmentally disabled adult, being struck by a motor vehicle while riding his bicycle. 

The trial court initially held that State Farm could not introduce evidence of future Medicare benefits available to Luke as a result of his disability.  The Second District Court of Appeals, reviewing the trial court’s decision, reversed the jury’s award of future damages.  The Florida Supreme Court accepted jurisdiction, as the Second District’s ruling was in direct conflict with Stanley, which held that “evidence of free or low cost services from governmental or charitable agencies available to anyone with specific disabilities is admissible on the issue of future damages …. Such evidence violates neither the statutory nor the common-law collateral source rule….”

In receding from Stanley, the Supreme Court noted that Stanley had now become the minority rule in the United States.  The Court further explained that whether or not an individual has directly paid for his or her Medicare benefits, all Medicare beneficiaries who receive an award for future medical damages will be liable to reimburse Medicare, if Medicare makes a conditional payment on their behalf.   Further, the Court stated that “it is absolutely speculative to attempt and calculate damage awards based on benefits that a Plaintiff has not yet received and may never receive, should either the Plaintiff’s eligibility or the benefits themselves become insufficient or cease to continue.”
As a policy justification for its holding, the Court stated that “to consider Medicare, Medicaid, and other similar social legislation benefits as exceptions to the general rule that precludes admission of collateral sources circumvents the purpose of the collateral source rule.  It is a basic principle of law that tortfeasers should not receive a windfall due to benefits available to the injured party, however those benefits were accrued.”

While this case will have a direct effect on how defendants and their insurers limit future damages in Florida for Medicare beneficiaries, the effect of Joerg on cases holding that evidence of past medical damages in excess of the amount paid by Medicare as inadmissible remains to be seen.  The Court in Joerg does not specifically address the line of Florida cases which state that “the appropriate measure of compensatory damages for past medical expenses when a Plaintiff has received Medicare benefits does not include the difference between the amount that Medicare providers agreed to accept and the total amount of Plaintiff’s medical bills.” See Thyssenkrupp Elevator Corp. v. Lasky 868 So.2d 547 (Fla 4th DCA 2003); Cooperative Leasing, Inc., v. Johnson, 872 So.2d 956 (Fla. 2d DCA 2004).

While the reasoning in Thyssenkrupp as in Cooperative Leasing was based largely on the holding in Stanley, the effect of the holdings in Thyssenkrupp and Cooperative Leasing seem to be the proper measure of past damages for Plaintiffs that are also Medicare recipients.  The purpose of compensatory damages is to compensate, not to punish defendants or bestow a windfall on Plaintiffs.  Yet more significantly, while clarifying its intent in one area of the law, the Florida Supreme Court has potentially muddied the waters in another.