A Capehart Scatchard Blog

Step-down Provision in Auto Policy as to Spouse Upheld by Court

By on December 7, 2018 in Liability with 0 Comments

Plaintiff Lori-Anne Michel was injured while walking in a crosswalk when she was struck by a car being driven by Rosa Ludena (“Ludena”). Ludena had a basic policy that did not provide any liability coverage. Plaintiff was a named insured under a USAA policy that provided $25,000 in underinsured motorist (“UIM”) coverage and, after submitting her claim to USAA, it paid the entire policy. The issue in Michel v. New Jersey Manufacturers Ins. Co., 2018 N.J. Super. Unpub. LEXIS 2515 (App. Div. Nov. 15, 2018), was whether Michel was entitled to additional UIM coverage under her husband Erich’s insurance policy with NJM which contained higher policy limits.

The NJM policy contained UIM coverage in the amount of $300,000. Plaintiff Lori-Anne contended she qualified as a “named insured” and, hence, should be entitled to UIM coverage in the full amount. NJM, however, contended that she was subject to a “step-down” provision because she was a named insured on the USAA insurance policy.

Erich’s policy with NJM listed only him as the named insured. Plaintiff Lori-Anne did qualify as an “insured” as a “family member” who was a “resident of [the] household.” However, NJM’s policy contained a “step-down” provision which limited liability when:

  • An insured is not the named insured, but is a family member under this policy;
  • That insured is a named insured under one or more other policies providing similar coverage;
  • All such other policies have a limit of liability for similar coverage which is less than the limit of liability for this coverage;


NJM’s “maximum limit of liability for that insured, for all damages resulting from any one accident, shall not exceed the highest applicable limit of liability under any insurance providing coverage to that insured as a named insured.”

Thus, NJM took the position that, per this step-down clause, plaintiff Lori-Anne was limited to the $25,000 limits of UIM coverage in her USAA policy and denied the claim. Plaintiff argued that this step-down provision should not apply because Lori-Anne was identified as a “named insured” under the NJM policy and “despite being married to Erich,” she was not his “family member.”

NJM filed a motion to dismiss the lawsuit, asking the trial court to dismiss the complaint based upon the clear policy language, which subjected Lori-Anne to the step-down provision. The trial court agreed that Lori-Anne qualified as an “insured,” but was not a “named insured.” Thus, the court found that the step-down limits applied to limit her recovery to the $25,000 limit of her USAA policy and dismissed the lawsuit.

The plaintiff appealed, arguing again that Lori-Anne was a “named insured” and was not a “family member.” Because the NJM policy defined “you and your” to include Erich as the named insured and Lori-Anne as the resident spouse, she claimed that both of them should be considered named insureds. She contended that the step-down provision should not be applicable to her as the spouse.

The Appellate Division rejected these arguments and agreed with the trial court. The Court held that Lori-Anne was not a named insured under the NJM policy but was an insured family member and, thus, was subject to the step-down provision in the NJM policy. It found that the “named insured” was clearly only the name that appears in the declaration page, which only contained the name of Erich Michel. The Court noted that there was nothing in NJM’s policy that would create a “reasonable expectation” that both Lori-Anne and Erich should be treated the same for UIM purposes. Erich was indisputably listed as the named insured and Lori-Ann was separately described as his spouse and a resident of the same household.

Further, the Appellate Division stated that Lori-Anne had her own policy with USAA. For that reason as well, plaintiff could not have a reasonable expectation that she would qualify as a “named insured” under the NJM policy.

Because the Court found NJM’s policy to be clear and that the plaintiff could not have a reasonable expectation of qualifying as a named insured under the NJM policy, it held that the step-down provision did apply. Therefore, plaintiff was limited to the UIM coverage in her USAA policy of $25,000 and was not entitled to seek further benefits under NJM’s $300,000 UIM coverage.


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About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 25 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020 and 2021, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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