GREGORY B. FREEMAN v. SHADI M. MAKANASH (L-2463-19, MIDDLESEX COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2177-21
GREGORY B. FREEMAN and
TAMMY FREEMAN, his wife,
Plaintiffs-Respondents,
v.
SHADI M. MAKANASH, TMS
LOGISTICS, NEW JERSEY
MANUFACTURERS INSURANCE
COMPANY, NATIONALEASE,
and LEASE LINE,
Defendants,
and
FEDERAL INSURANCE
COMPANY,
Defendant-Appellant.
______________________________
Argued October 4, 2022 – Decided October 19, 2022
Before Judges Geiger and Berdote Byrne.
On appeal from the Superior Court of New Jersey, Law
Division, Middlesex County, Docket No. L-2463-19.
John M. Bashwiner argued the cause for appellant
(Bashwiner and Deer, LLC, attorneys; John M.
Bashwiner, of counsel and on the briefs).
Mark V. Kuminski argued the cause for respondents
(Levinson Axelrod, PA, attorneys; Mark V. Kuminski,
on the brief).
PER CURIAM
Gregory B. Freeman (plaintiff) was injured in a motor vehicle accident in
the course of his employment while driving a vehicle leased by his employer.
The other driver, who allegedly caused the accident, fled the scene and has not
been identified. Plaintiff and his wife, Tammy Freeman1 (collectively plaintiffs)
sought uninsured motorist (UM) benefits from his employer's vehicle insurer,
Federal Insurance Company (Federal). The vehicle plaintiff was driving was
leased, not owned, by plaintiff's employer. Federal denied coverage for UM
benefits, claiming the policy did not provide UM benefits for leased vehicles.
Plaintiffs brought this vehicle insurance coverage action, contending they
are covered for UM benefits under the policy issued by Federal pursuant to
applicable New Jersey statutes. Federal appeals from two adverse Law Division
orders. The first granted plaintiffs' cross-motion for summary judgment,
1
Tammy Freeman asserts a derivative per quod claim.
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declaring that Federal must provide UM benefits to plaintiffs up to the policy
limits. The second granted plaintiffs' motion to compel submission of their UM
claim to binding arbitration and related relief. We affirm both orders.
We glean the following facts from the record. Plaintiff was employed by
Glenway Distribution (Glenway) as a driver. On May 15, 2017, plaintiff was
seriously injured in a motor vehicle accident while operating a tractor-trailer on
behalf of Glenway. The vehicle plaintiff was driving was struck from behind
by a tractor-trailer operated by defendant Shadi Makanash (Makanash) and
owned by defendant TMS Logistics (TMS). Makanash and TMS claim the
accident was caused by a phantom tractor-trailer that stopped abruptly in front
of plaintiff's truck and left the scene of the accident before it or its driver were
identified.
Glenway leased the tractor-trailer plaintiff was operating from its owner,
defendant Lease Line, Inc. (Lease Line), under a short-term lease agreement
(STLA). A separate entity, NationaLease, brokered the STLA.
The STLA provided that Glenway was responsible for obtaining liability
insurance for the tractor-trailer, not Lease Line. At the time of the accident,
Glenway had a fleet business vehicle policy with Federal. Federal's policy states
that it provides "primary" coverage for "insured contract[s]," which include
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"[t]hat part of any contract or agreement entered into, as part of [Glenway's]
business, pertaining to the rental or lease[] by [Glenway] or any of [Glenway's]
'employees'[] of any 'auto.'" The parties agree that the STLA is an "insured
contract" and therefore covered by the Federal policy. The Federal policy
provides "liability" coverage for "[a]ny" automobile, and "uninsured motorists"
(UM) coverage for "[o]wned" automobiles. The coverage limit for each is
$1,000,000. The owner of the vehicle, Lease Line, did not provide any other
insurance coverage.
At the time of the accident, plaintiffs had a motor vehicle policy with
defendant New Jersey Manufacturers Insurance Company (NJM). The NJM
policy provides $100,000 of UM coverage.
Plaintiffs initially filed a complaint alleging negligence against TMS and
Makanash, the owner and operator of the tractor-trailer that struck plaintiff from
behind. Because the other tractor-trailer left the accident scene, the complaint
also asserted a claim for UM benefits against NJM and Federal. Thereafter, the
trial court granted plaintiffs leave to file an amended complaint that added Lease
Line and NationaLease as additional defendants.
Around that same time, Federal moved for summary judgment. Plaintiffs
cross-moved for summary judgment against Federal, seeking a declaration that
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plaintiffs were insured for UM benefits in the amount of $1,000,000 under
Federal's policy. On August 7, 2020, the trial court denied both motions, finding
them to be premature.
In February 2021, NationaLease filed a motion to dismiss plaintiffs'
complaint, arguing it was not obligated to provide UM benefits to plaintiffs. On
March 1, 2021, plaintiffs' claims against TMS and Makanash were dismissed by
stipulation.
On March 12, 2021, plaintiffs filed a motion "seeking a declaratory ruling
regarding plaintiff's entitlement [to UM] benefits" from Federal, NJM, Lease
Line, and NationaLease. The court granted dismissal of plaintiffs' claims
against NationaLease pursuant to a stipulation of the parties. On July 7, 2021,
the court heard oral argument as to the remaining defendants. At the hearing,
NJM did not contest that it was required to provide $100,000 in UM coverage
to plaintiffs.
Federal opposed plaintiffs' motion, arguing it was required to provide only
liability coverage on the vehicle operated by plaintiff, not UM coverage, because
it provided UM coverage only on vehicles owned by Glenway, not vehicles that
Glenway leased. Recognizing that UM coverage is statutorily required for
vehicles registered in New Jersey, Federal repeatedly referred to the case as an
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"anomaly." Alternatively, Federal argued that if plaintiff was entitled to UM
coverage, it would be limited to the "statutory minimum" amount identified in
N.J.S.A 17:28-1.1(a).
The court rejected Federal's arguments. The court relied upon the
requirements imposed by N.J.S.A 17:28-1.1(f), which provides:
[A] motor vehicle liability policy or renewal of such
policy of insurance, insuring against loss resulting from
liability imposed by law for bodily injury or death,
sustained by any person arising out of the ownership,
maintenance or use of a motor vehicle, issued in this
State to a corporate or business entity with respect to
any motor vehicle registered or principally garaged in
this State, shall not provide less uninsured or
underinsured motorist coverage for an individual
employed by the corporate or business entity than the
coverage provided to the named insured under the
policy. A policy that names a corporate or business
entity as a named insured shall be deemed to provide
the maximum uninsured or underinsured motorist
coverage available under the policy to an individual
employed by the corporate or business entity,
regardless of whether the individual is an additional
named insured under that policy or is a named insured
or is covered under any other policy providing
uninsured or underinsured motorist coverage.
Applying the statute, the trial court found Federal issued a motor vehicle
liability policy to Glenway, a corporate entity, and plaintiff was an employee of
that entity. It further found that the subject vehicle was registered in New Jersey.
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The court also found that the phrase "[u]se of a motor vehicle" was a "catch-all"
that encompassed leased vehicles.
The court explained that language in a policy "can't render any language
in a statute nugatory, meaningless, [or] worthless." The court reasoned that
liability coverage and UM coverage are "tied together" and that Federal was
required to provide the maximum [UM] coverage available under its policy,
which was $1,000,000. Construing N.J.S.A 17:28-1.1(f) to give it its "ordinary
meaning," the court found that subsection (f) covered leased vehicles and
required the policy to provide UM coverage to Glenway's employees in an
amount not less than the maximum coverage available under the policy.
Therefore, the court concluded that Federal was statutorily required to provide
plaintiff with UM coverage in the amount of $1,000,000, on a pro rata basis with
the NJM policy, which provides $100,000 in UM coverage. In reaching that
conclusion, the court rejected Federal's argument that requiring it to provide UM
coverage constituted impermissible reformation of the policy.
The court next addressed Lease Line's responsibility to provide insurance
coverage as the registered owner of the vehicle. Lease Line argued that it had
"one statutory obligation," which was to "maintain liability coverage," and that
Federal satisfied that obligation on Lease Line's behalf. The court again
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disagreed, noting that as the owner of the vehicle, Lease Line must provide
liability coverage. Because it found the requirements to provide liability
coverage and UM coverage were "tied together" under N.J.S.A. 17:28-1.1, the
court found that Lease Line was required to provide UM coverage even though
it leased the vehicle to Glenway. However, since N.J.S.A 17:28-1.1(f) did not
apply to Lease Line, the court concluded that Lease Line was only required to
provide $15,000 in UM coverage, the minimum amount of coverage mandated
by N.J.S.A 17:28-1.1(a).
Under the court's ruling, NJM, Federal, and Lease Line would provide UM
coverage on a pro rata basis. A July 13, 2021 order embodied the court's
decision. Federal moved for leave to appeal the trial court's coverage decision.
We denied the motion.
Following resolution of the coverage dispute, the amount of UM benefits
recoverable for plaintiff's injuries still needed to be determined. Plaintiff,
pursuant to the terms of the Federal policy, sent Federal a written demand for
arbitration of that issue. Federal responded with uncertainty regarding whether
it would submit to arbitration. On July 14, 2021, plaintiffs filed a motion to
compel arbitration.
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On September 8, 2021, the trial court heard oral argument on plaintiffs'
motion to compel arbitration. Federal argued that plaintiffs were not entitled to
arbitration because the policy does not include plaintiff "as an insured." Federal
further argued that the arbitration clause "as written only covers owned
vehicles[.]"
The court again disagreed, finding that "plaintiff is [an] insured under the
[Federal] policy" and "is entitled to all of the benefits of the [Federal] policy,"
including "the arbitration clause." On February 11, 2022, the trial court entered
an order embodying its ruling.
In the meantime, on October 22, 2021, plaintiffs' claims against Lease
Line were dismissed with prejudice pursuant to a voluntary stipulation of
dismissal. On February 1, 2022, plaintiffs' claim against NJM was dismissed
with prejudice by stipulation. This left Federal as the only remaining defendant.
This appeal followed. The trial court granted Federal's motion to stay the
arbitration proceeding pending the outcome of Federal's appeal.
Federal raises the following points for our consideration:
POINT ONE
THE TRIAL COURT COMMITTED PLAIN,
REVERSIBLE ERROR BY MANDATING AN
ENTITLEMENT TO UNINSURED MOTORIST
BENEFITS UNDER THE FEDERAL POLICY BY
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OPERATION OF LAW BEYOND WHAT FEDERAL
WAS CONTRACTUALLY OBLIGATED AND
LEGALLY REQUIRED TO PROVIDE.
A. The Federal Policy Complies with the UM
Coverage Requirements of the STLA.
B. The Federal Policy Complies with New
Jersey's Statutory Requirements for Liability
Coverage.
C. N.J.S.A. 17:28-1.1(f) Does Not Apply in this
Matter.
POINT TWO
THE TRIAL COURT COMMITTED PLAIN,
REVERSIBLE ERROR BY RULING THAT
BINDING UM ARBITRATION WAS MANDATED
BY OPERATION OF LAW AND THE LAW OF THE
FEDERAL POLICY.
As a general principle, "[i]nterpretation and construction of a contract is
a matter of law for the court subject to de novo review." In re Balk, 445 N.J.
Super. 395, 400 (App. Div. 2016) (quoting Fastenberg v. Prudential Ins. Co. of
Am., 309 N.J. Super. 415, 420 (App. Div. 1998)). So too is the interpretation
of an insurance contract. Sealed Air Corp. v. Royal Indem. Co., 404 N.J. Super.
363, 375 (App. Div. 2008).
However, while contract interpretation is a question of law, "[d]e novo
review of a contract is predicated on the absence of a factual dispute." Kieffer
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v. Best Buy, 205 N.J. 213, 223 n.5 (2011) (citing Jennings v. Pinto, 5 N.J. 562,
569-70 (1950)). Here, the parties do not dispute the relevant contractual
provisions. They agree that the STLA obligated Glenway to provide $1,000,000
of liability coverage on plaintiff's vehicle, and that Glenway, through Federal,
provided such coverage. Instead, the parties disagree over the impact of
N.J.S.A. 17:28-1.1 on their contractual agreement.
Because there is no material factual dispute in this case, we owe "no
special deference" to the trial court's interpretation of the insurance policy or
"the legal consequences that flow from [the] established facts." Balk, 445 N.J.
Super. at 400 (quoting Kieffer, 205 N.J. at 223; Manalapan Realty, L.P. v. Twp.
Comm. of Manalapan, 140 N.J. 366, 378 (1995)). We review its analysis de
novo and "look at the contract[s] with fresh eyes." Kieffer, 205 N.J. at 223.
Federal argues the terms of its policy do not provide UM coverage for the
vehicle operated by plaintiff; therefore, it is not obligated to provide UM
coverage to plaintiff. While Federal recognizes this is "unusual" and
"unexpected," it maintains the policy does not violate any New Jersey statute.
Federal contends N.J.S.A. 17:28-1.1(f) was "designed to prevent
corporate executives from insuring their vehicles to a maximum amount of
coverage and then not providing the same coverage to an employee operating
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company vehicles." Asserting this is "not the situation here," Federal claims
that N.J.S.A. 17:28-1.1(f) is not applicable.
Plaintiffs respond by arguing that N.J.S.A. 17:28-1.1(a) requires a liability
insurance policy to provide UM coverage for all vehicles insured under the
policy, regardless of whether a vehicle is owned or leased. Plaintiffs contend
that the statutory scheme governing UM benefits is mandatory, citing Berger v.
First Trenton Indem. Co., 339 N.J. Super. 402, 411 (App. Div. 2001). Plaintiffs
emphasize that pursuant to N.J.S.A. 17:28-1.1(a), all motor vehicle liability
policies, except basic automobile policies, covering a motor vehicle registered
in New Jersey are statutorily required to include UM coverage.
We are unpersuaded by Federal's argument. Under N.J.S.A 17:28-
1.1(e)(2)(c), an "uninsured motor vehicle" includes "a hit and run motor
vehicle." One of the primary purposes of N.J.S.A. 17:28-1.1 is "to protect
insured motorists from uninsured financially irresponsible drivers." Livsey v.
Mercury Ins. Grp., 197 N.J. 522, 534 (2009) (quoting Lundy v. Aetna Cas. &
Sur. Co., 92 N.J. 550, 555 (1983)). To that end, "N.J.S.A. 17:28-1.1 must be
construed liberally to foster the protection UM affords automobile accident
victims." Rider Ins. Co. v. First Trenton Cos., 354 N.J. Super. 491, 497-98 (App.
Div. 2002) (citing State Farm v. Zurich Am. Ins. Co., 62 N.J. 155, 168 (1973)).
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"Policy exclusions that aim to limit the members of the UM statutory class
violate [N.J.S.A. 17:28-1.1's] purposes." Id. at 497 (citing Fernandez v. Selected
Risks Ins. Co., 82 N.J. 236, 242 (1980)); see also Campbell v. Lion Ins. Co., 311
N.J. Super. 498, 507 (App. Div. 1998) ("[I]n UM cases our courts have
frequently struck policy provisions which were more restrictive tha[n] those
mandated by statute."); Berger, 339 N.J. Super. at 411 ("[W]hen a provision in
the endorsement operate[] 'to reduce or take away from the coverage mandated
in N.J.S.A. 17:28-1.1, the contractual provision will almost certainly be found
void and the statutorily required coverage read into the policy as a matter of
law.'" (quoting Craig & Pomeroy, New Jersey Auto Insurance Law, § 19.2, at
270 (2001))).
The trial court correctly determined that the Federal policy was statutorily
required to provide UM coverage on the leased vehicle because it was registered
in New Jersey. Our case law has consistently held that policies insuring vehicles
registered in New Jersey must provide UM coverage. See e.g., Riccio v.
Prudential Prop. & Cas. Ins. Co., 108 N.J. 493, 499 (1987) ("[N.J.S.A. 17:28-
1.1] mandates the inclusion of UM coverage in all motor vehicle liability
policies issued in this state . . . ."); Lundy, 92 N.J. at 553 ("[E]very motor vehicle
registered or principally garaged in New Jersey must be insured with [UM
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c]overage . . . ." (emphasis omitted) (quoting Mario Iavicoli, No Fault &
Comparative Negligence in New Jersey 100 (1973))); Campbell, 311 N.J. Super.
at 507 ("UM coverage must be included in every policy of insurance."); Transp.
of N.J. v. Watler, 161 N.J. Super. 453, 461 (App. Div. 1978) ("The subsequent
legislative history makes it quite clear that N.J.S.A. 17:28-1.1 was intended to
require UM coverage in all insurance policies written for all motor vehicles
registered or principally garaged in New Jersey."), modified on other grounds,
79 N.J. 400 (1979). "Thus, not only must every automobile policy have
uninsured motorist coverage, N.J.S.A. 17:28-1.1, but also every automobile
covered under that policy must have the statutorily required uninsured motorist
coverage." Lundy, 92 N.J. at 553.
We next address the level of UM coverage that is required. Federal argues
that even if it is required to provide UM coverage on the vehicle, the statutory
minimum coverage levels imposed by N.J.S.A 17:28-1.1(a) apply. We disagree.
Our Supreme Court has interpreted N.J.S.A 17:28-1.1(f) to mean:
The level of UM/UIM coverage for a "named insured"
in a policy shall be the same level that is provided to
employees of the corporation or business entity by
operation of law, as directed through the first sentence
of [N.J.S.A 17:28-1.1(f)]. If the corporation or the
business entity is the only named insured, then
employees of that entity must receive under the
commercial policy the maximum available amount of
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UM/UIM coverage by operation of law, as directed
through the second sentence of [N.J.S.A 17:28-1.1(f)].
[James v. N.J. Mfrs. Ins. Co., 216 N.J. 552, 566 (2014).]
Here, Glenway is the "only named insured" in the Federal policy, and
plaintiff is an employee of Glenway. Plaintiff's accident and resulting injuries
arose from the "use of a motor vehicle," and that vehicle was "registered" in
New Jersey. See N.J.S.A 17:28-1.1(f). Therefore, plaintiffs are entitled to "the
maximum [UM] coverage available under the [Federal] policy." James, 216 N.J.
at 562. The policy's coverage limit is $1,000,000. UM coverage in that amount
was required to be applied on a "prorated" basis with other applicable policies.
N.J.S.A 17:28-1.1(c). For these reasons, we affirm the July 13, 2021 order.
Finally, we address whether plaintiffs' UM claim against Federal was
subject to mandatory binding arbitration. The Federal policy contains the
following arbitration clause:
If we and an "insured" disagree whether the "insured"
is legally entitled to recover damages from the owner
or driver of an "uninsured motor vehicle" or an
"underinsured motor vehicle" or do not agree as to the
amount of damages that are recoverable by that
"insured", then the matter may be arbitrated. However,
disputes concerning coverage under this endorsement
may not be arbitrated. Either party may make a written
demand for arbitration. In this event, each party will
select an arbitrator. The two arbitrators will select a
third. If they cannot agree within 30 days, either may
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request that selection be made by a judge of a court
having jurisdiction. Each party will pay the expenses it
incurs and bear the expenses of the third arbitrator
equally.
The UM coverage dispute was resolved by the trial court's ruling. The
remaining issue is the amount of UM benefits plaintiffs can recover under the
Federal policy on a pro rata basis. Federal contends this issue is not arbitrable
because its policy language does not include plaintiffs as insureds. As we have
noted, the trial court disagreed, finding that plaintiff was an insured under the
policy.
The Federal policy defines an "insured" as "any person or organization
qualifying as an insured in the Who Is An Insured provision of the applicable
coverage." In the "Business Auto Coverage Form," the 'Who Is An Insured'
section states that "[a]nyone . . . using with [Glenway's] permission a covered
'auto' [that Glenway] . . . borrow[s]" is an "insured[]." However, in the "New
Jersey Uninsured and Underinsured Motorists Coverage Endorsement," the
"Who Is An Insured" section states that "[i]f the Named Insured is designated in
the Schedule or Declarations as . . . [a] partnership, limited liability company,
corporation[,] or any other form of organization, then the following are 'insureds'
. . . [a]nyone 'occupying' a covered 'auto' . . . [but only if the covered auto is]
out of service because of its breakdown, repair, servicing, 'loss[,]' or
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destruction." The endorsement defines "occupying" as being "in, upon, getting
in, on, out[,] or off" something.
Federal does not dispute that plaintiff was using a "covered" vehicle with
Glenway's permission. He thus satisfies the "Business Auto Coverage Form"
definition of "insured." However, plaintiff was not "occupying" an "out of
service" vehicle at the time of the accident. He thus does not satisfy the "New
Jersey Uninsured and Underinsured Motorists Coverage Endorsement"
definition of "insured." The policy states that "the provisions of the [Business
Auto] Coverage Form [continue to] apply unless modified by the endorsement,"
and endorsement modifications only alter the policy "[w]ith respect to coverage
provided by th[e] endorsement."
Although the endorsement provides a different definition of "insured"
than the coverage form, so that Federal considers plaintiff an "insured" in
relation to liability coverage but not UM coverage, N.J.S.A 17:28-1.1(f) is
controlling. It mandates that Federal provide UM coverage to plaintiff
"regardless" of his status under the policy. As our Supreme Court has stated,
such coverage arises "by operation of law," not by the terms of the policy.
James, 216 N.J. at 568. Since "an insured is any one who is entitled to
coverage," Botti v. CNA Ins. Co., 361 N.J. Super. 217, 226 (App. Div. 2003),
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plaintiff is an "insured" in relation to UM coverage. He thus has standing to
invoke the arbitration clause. The trial court correctly compelled submission of
the amount of UM benefits plaintiffs can recover to mandatory binding
arbitration. See Midland Ins. Co. v. Colatrella, 102 N.J. 612, 616-17 (1986)
("[I]t is the insured's burden in an arbitration proceeding with the insurer to
prove that the hit-and-run driver was negligent."). We vacate the stay of the
February 11, 2022 order and affirm the trial court's rulings in all respects.
Affirmed.
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