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Newsletter -
Summer 2007
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The State of New Jersey requires that every registered owner of a motor vehicle have insurance that provides benefits to innocent accident victims. N.J.S.A. 39:6B-1(a). The statute that mandates insurance coverage is known as the “Omnibus Clause.” In 2005, the New Jersey Supreme Court relied upon the legislative objective of the Omnibus Clause as a reason to void an exclusion in an automobile liability insurance policy, which was triggered if the vehicle was being used in furtherance of a “business pursuit.” Proformance Ins. Co. v. Jones, 185 N.J. 406 (2005).
When public policy is used as the basis for voiding an exclusion, the decisions have characterized such exclusions as “illegal escape clauses.” When an exclusion leaves an innocent injured party (in an auto accident) with absolutely no other source of recovery, it is likely that the exclusion will be held to violate the legislative objectives of the Omnibus Clause and declared void. In fact, it has been argued that all exclusions in an insurance policy seeking to disclaim coverage for innocent third parties should be void as against public policy. Scott v. Salerno, 297 N.J. Super 437, 445 (App. Div. 1997).
A recent New Jersey Appellate Division case has, however, upheld the business pursuit exclusion contained in a bobtail insurance policy. Connecticut Indemnity Company v. Podeszwa, 2007 WL 1223833 (App. Div. 2007). A bobtail insurance policy generally provides coverage to the owner of a truck when the trailer part of the truck is detached and/or the truck is being used for non-business purposes. Similar to the exclusion at issue in Proformance, the exclusion at issue in Podeszwa was dependent upon the use of the vehicle.
In Podeszwa the plaintiff was injured when her vehicle was struck by a truck which was leased by the Allway Company. Allway leased the truck form Euclides Anico. Allway maintained a liability policy but the carrier became insolvent. The plaintiff then filed a claim with the New Jersey Property-Liability Insurance Guaranty Association (“PLIGA”) which is the State-created “safety net” for claimants trying to collect insurance benefits from an insolvent carrier.
PLIGA required the plaintiff to file claims with all insurance policies that could potentially be required to pay benefits. The plaintiff filed a claim with his own automobile carrier for uninsured motorist coverage. Rutgers Casualty was the plaintiff’s carrier and, Rutgers, in turn, asserted that the truck owner’s insurer, Connecticut Indemnity, was obligated to pay benefits to the plaintiff, under Connecticut’s bobtail policy.
Connecticut asserted that its policy excluded coverage because the accident occurred during a business related activity. Rutgers argued that the exclusion was void against public policy because it was an illegal escape clause.
The Appellate Court in Podeszwa, citing past instances where the public policy argument was deliberately avoided, determined that it would finally address the public policy argument in reference to a bobtail policy.
The Podeszwa court was persuaded by federal law which provides that a bobtail policy must be issued in tandem with a policy that covers the truck when it is being used for a commercial or business purpose. The court concluded that the truck in Podeszwa could not be driven in and out of coverage depending upon how the truck was being used because of the federal law. Since PLIGA exists to provide protection to the plaintiff because of Allway carrier’s insolvency, the court found that innocent injured parties are not left without recourse. The clause, therefore, does not violate New Jersey public policy.
David D. Blake, Esq.
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