KEY TAKEAWAYS

• The N.J. Appellate Division refused to enforce a step-down clause in a personal auto policy based on its conclusion that the insured’s expected UIM coverage was reasonable.

• A trial court, in granting summary judgment, concluded the step-down provision was “clear and unambiguous.” The Appellate Division confirmed.

• The decision underscores the importance placed by N.J. courts on a policy’s declarations in terms of forming the basis of an insured’s expectations of coverage, and that courts won’t “boilerplate” language elsewhere in the policy to contradict declarations.

In a published decision issued April 5, the New Jersey Appellate Division refused to enforce a step-down provision in a personal auto policy issued to a New Jersey husband and wife — which would have reduced the underinsured motorist (UIM) coverage available to the couple’s daughter from $100,000 to $15,000 per person for bodily injuries — based on the court’s conclusion that in light of the policy’s declarations, the insureds reasonably expected $100,000 in UIM coverage for their daughter.

The decision is Britney Motil v. Wasau Underwriters Insurance Co., A-0400-23 (App. Div. April 5, 2024).

In Motil, Wasau Underwriters Insurance Co. (Wasau) issued a personal auto policy to Charles and Louise Motil. The declarations listed among the covered autos a Jeep owned by Charles Motil, and listed UIM limits of $100,000 per person for each of the covered autos, including the Jeep. The declarations also listed the Motils’ daughter, Britney, as a “covered driver” and indicated that the Jeep had an “Alternate Garaging Address” at another identified location in New Jersey.  The declarations also listed a premium charge of $103 per covered auto for uninsured motorist (“UM”) coverage and UIM coverage.

While the Wasau policy was in effect, Britney Motil was involved in an auto accident with the Jeep, and after settling with the tort feasor’s insurer for its policy limits of $15,000, Britney sought UIM coverage from Wasau under her parents’ policy.  Wasau denied the claim by relying on a provision in the Motils’ policy that reduced UIM coverage to $15,000 where the insured seeking coverage is not a Named Insured or a “family member” under the policy and is without any other coverage.

The policy defined the term “family member” to mean a person related to Charles and Louise Motil who is a resident of their household. Wausau argued that the step-down provision limited the maximum amount of UIM coverage available to Britney under the Wasau policy to $15,000, because she did not live in her parents’ household, and because the tort feasor’s auto liability limits were also $15,000, the tort feasor’s vehicle was not an underinsured motor vehicle.

Britney filed suit against Wasau for coverage, and the trial court granted summary judgment to Britney and found she was entitled to $100,000 in UIM coverage, notwithstanding its conclusion that the step-down provision was “clear and unambiguous” because it found that the policy’s declarations — which listed $100,000 in UIM for the Jeep and listed Britney as a covered driver —  could not be contradicted by the step-down provision and created a reasonable expectation of $100,000 in UIM coverage.

The Appellate Division affirmed, and held even a permissible step-down provision will not be enforced when the policy language is ambiguous or the provision conflicts with the policy’s declarations. The Appellate Division ruled that “an objective review” of the Wausau policy’s declarations indicates that because the UIM premiums were the same for each of the covered autos, “the provided UIM coverage would be the same for a named insured, family member, or covered driver.”  The court further noted that the declarations indicated the Jeep had an “Alternate Garaging Address,” but the policy did provide a distinction of UIM coverage for a covered auto with an identified alternate garaging address or warn Britney that should did not qualify as a “family member.”  Notably, the Appellate Division found that the insurer could have included language in the declarations or the policy itself that a covered driver using a covered auto with an alternate garaging address was subject to a step-down in coverage. Ultimately, the court concluded that the declarations gave the policyholder a reasonable expectation that Britney, as a covered driver, was entitled to the same amount of UIM coverage as her parents, the policy’s Named Insureds.

While the decision reaffirms prior New Jersey case law that holds that a policy is not ambiguous simply because its declarations, definition section, and exclusions are separately presented, the decision highlights the continued importance placed by New Jersey courts on a policy’s declarations in terms of forming the basis of an insured’s expectations of coverage and confirms New Jersey courts will not allow “boilerplate” language elsewhere in the policy to contradict the declarations.