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Longworth v. Houten3/1/1988
These appeals, which we have consolidated on our own motion, raise novel and complex questions not heretofore decided by the appellate courts of this state respecting underinsured motor vehicle coverage (UIM). Implicated here are the so-called exhaustion clause, the consent-to-settle clause, and the subrogation clause of typical UIM coverage. We are called upon to consider the interrelationship of these clauses and the extent, if any, to which they are enforceable.
Underinsured motorist coverage came into the statutory law with the passage of L. 1983, c. 65, § 5 and L. 1983, c. 362, § 1, which amended N.J.S.A. 17:28-1.1. Prior to these amendments, that statute, adopted in 1968, required every automobile
liability policy to provide uninsured motorist coverage (UM) in the aggregate amount of $15,000/30,000. See, generally, Riccio v. Prudential Property & Cas. Ins. Co., 108 N.J. 493, 499 (1987), explaining that the mandated UM coverage was "designed to afford maximum protection to a state's residents, and to fill gaps in compulsory insurance plans," by creating a contractual right in the insured to recover from his own liability insurer at least a portion of the damages he sustained as a result of the negligence of the uninsured tortfeasor. The statute, however, then made no provision at all for UIM coverage although we understand that some carriers were in fact offering that protection to their insureds on a voluntary basis.
The predicate of the 1983 amendments was the Legislature's evident perception that in terms of obtaining an adequate recovery from a negligent driver, the victim, especially one sustaining serious injuries, is placed at financial risk not only by uninsured drivers but also by underinsured drivers, typically drivers with the minimum liability coverage of $15,000/30,000 permitted by the statute. The approach adopted by the Legislature was to require each insurer issuing an automobile liability policy not only to provide $15,000/30,000 of UM coverage but also to offer its insured the option of purchasing additional protection up to limits of his liability coverage but not exceeding $250,000/500,000 against the risk of underinsured as well as uninsured tortfeasors. The effect of the coverage is to
require the insurer, as a matter of contractual agreement, to pay its insured, to the extent of the coverage purchased, the liability damages which the insured is entitled to from the negligent uninsured or underinsured tortfeasor less, in the case of the underinsured tortfeasor, the amount of the tortfeasor's coverage. The essential distinction between UM and UIM coverage is that if an uninsured tortfeasor is involved, his victim is able to seek initial and primary recourse from his own liability carrier. If an underinsured tortfeasor is involved, however, his victim may not pursue his contractual UIM right against his own liability insurer until he has first recovered the tortfeasor's liability limit by settlement or judgment. That recovery is then offset against the maximum UIM coverage provided for by the policy. Thus, the UIM, but not the UM, coverage has essential attributes of excess rather than primary protection. It is this distinction which creates the conceptual and practical problems presented by these cases.
We consider the facts of the cases before us against the background of this statutory development. The Longworth case arises out of an automobile accident which occurred on June 7, 1983. Plaintiff Zenta Longworth sustained serious injuries when her car, which she was
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