Should parties be able to settle an insurance coverage case involving a matter of public importance – such as whether a provision in an automobile insurance policy was a lawful step-down provision or an unenforceable escape clause – after oral argument in a state supreme court and have the court dismiss the appeal? That just happened in New Jersey – over the dissent of two supreme court justices.
The Case
Patricia Engrassia, on behalf of the estate of James Maries, sued Erick Uzcategui for damages, alleging that Mr. Maries had died when Mr. Uzcategui struck him while driving a loaner vehicle from an auto dealership.
At the time, Geico Indemnity Company insured Mr. Uzcategui with a family automobile insurance policy having liability limits of $100,000 per person and $300,000 per accident. Geico accepted coverage for this accident and paid the liability limit of its policy, $100,000.
Ms. Engrassia sought to hold Federated Mutual Insurance Company, the dealership's insurer, liable under the dealership's garage policy, which had coverage limits of $500,000.
The garage policy included a provision that excluded the dealership's customers from coverage unless the customer did not have statutorily required minimum insurance coverage. In those instances, customers were insured under the garage policy, but only up to the “compulsory law limits.”
The trial court concluded that the provision was not an “illegal escape clause” because it did not deny coverage; rather, it merely limited coverage to the compulsory minimum in New Jersey. The trial court described the clause as a step-down clause, which was generally permitted under New Jersey law and, therefore, was valid. The trial court held that Mr. Uzcategui was an “insured” under the garage policy subject to the statutory liability limit of $15,000, and ordered Federated to pay Ms. Engrassia that amount.
An appellate panel affirmed the trial court as to its findings that the “insured” provision was an enforceable step-down provision, but reversed the trial court's remedy that required Federated to pay the $15,000 statutory liability minimum. The appellate panel determined that the definition of insured in the garage policy was an enforceable “step-down” provision that allowed Federated to avoid covering the dealership for the minimum compulsory liability limit.
On July 11, 2018, the New Jersey Supreme Court granted certification in the case to determine the legality and scope of the Federated policy's alleged step-down provision.
The issue was briefed and the court held oral argument on January 15, 2019.
Just about two months later – by letter dated March 21, 2019 – Ms. Engrassia notified the court that the parties had “fully and finally resolved all issues,” and requested that the appeal be dismissed as to all parties.
Now, the court – over a dissent by two justices – has ordered the appeal dismissed.
The Dissent
The dissent stated that the court should “not stop the parties from agreeing to settle their private coverage dispute and keep it confidential, but that the “private concerns of the parties” should not prevent the court “from discharging its public duty to decide the issue.”
In the dissent's opinion, the appeal raised issues of “substantial public importance and those legal issues should be resolved now.”
Then, focusing on the legal issue involved, the dissent stated that the appellate court and the trial court had both erred in categorizing the insurance contract's provisions affecting the minimum mandatory coverage for the dealership's cars as an enforceable step-down clause and not an impermissible escape clause.
Whether this view will become the law the next time the issue reaches the New Jersey Supreme Court remains to be seen.
The case is Engrassia v. Uzcategui, No. A-74 Sept. Term 2017 (N.J. March 29, 2019).
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].