Plaintiff’s Failure to Notify His Auto Insurance Carrier of Litigation Against Underinsured Tortfeasor Bars UIM Claim

Plaintiff Robert Ferrante was injured in an automobile accident in which the other motorist (“the tortfeasor”) caused the accident. Without informing his automobile insurance company, New Jersey Manufacturers (“NJM”), Plaintiff filed a lawsuit against the tortfeasor, participated in mandatory arbitration, rejected the award and asked for a trial de novo, refused a settlement offer, tried the case before a jury, and finally reached a proposed settlement with the tortfeasor. The issue before the New Jersey Supreme Court, in Ferrante v. New Jersey Manufacturers Insurance Group, 2018 N.J. LEXIS 477 (2018), was whether the Plaintiff’s failure to provide any notice of these proceedings to NJM, causing NJM’s subrogation rights to be lost, barred his underinsured motorist (“UIM”) claim against NJM.

The tortfeasor had a $100,000 liability limit on his insurance policy. At arbitration, Ferrante’s damages were set at $90,000. However, he rejected that award and requested a trial de novo. Prior to trial, Ferrante was offered $50,000, which he rejected. He entered into a high-low agreement with the tortfeasor prior to trial with the range of damages set at a low of $25,000 and a high of $100,000. The jury awarded the plaintiff $200,000 in damages and the trial court entered an award of $100,000 based upon the high-low agreement.

Following the judgment, for the first time, Ferrante sent NJM a Longworth letter, stating that he was seeking UIM benefits. Plaintiff had a $300,000 UIM coverage with NJM. (Under the Longworth case, an insured who receives a settlement offer from a tortfeasor must notify his UIM carrier, who can then decide whether to allow the insured to accept the offer or provide the insured with the same amount in exchange for the assignment of the subrogation right against the tortfeasor.)  He advised NJM that the tortfeasor was willing to settle for $100,000. However, Plaintiff failed to mention any of the proceedings. Not knowing what had transpired, NJM told Ferrante to accept the offer and then they proceeded to litigate the UIM claim. During pretrial discovery in the UIM matter, NJM learned for the first time of Ferrante’s past dealings with the tortfeasor.

At that point, NJM sought to dismiss the complaint, arguing that Plaintiff violated Longworth by failing to notify NJM of any of the proceedings with the tortfeasor. The trial court granted the motion. On appeal, the appellate panel split their decision, with the majority reversing, finding that a remand was necessary to determine if NJM was actually prejudiced by the lack of notice. The dissent, however, disagreed that NJM must prove prejudice and found that Plaintiff’s failure to give notice to NJM during the initial suit caused NJM to lose its subrogation rights.

Upon appeal to the Supreme Court, in a published decision, the Court agreed with the Appellate Division’s dissenting opinion. The Court found that due to the complete absence of notice to NJM at any point during years of litigation, NJM may refuse to pay UIM benefits to the Plaintiff. No determination of prejudice need be made because NJM never had the opportunity to exercise its subrogation rights. By delaying notification to NJM, Ferrante violated the terms of his policy, which required him to advise NJM as soon as the lawsuit was filed – not after an arbitration, a high-low agreement, and a trial. His policy also required him to notify NJM of a tentative settlement and give NJM 30 days to pay the insured the tortfeasor insurance carrier’s offer in order to preserve its subrogation rights against the tortfeasor. By failing to do so, Ferrante clearly extinguished NJM’s subrogation rights. At a minimum, Plaintiff should have notified NJM of the trial, permitting it to participate and potentially mitigate its damages. For all of these reasons, the Supreme Court reversed the Appellate Division’s majority decision and affirmed the trial court’s ruling dismissing the UIM complaint against NJM.