Originally, insurance was intrinsically coupled with marine exploration. Insurance was the means by which a merchant who lost a ship would be able to spread the cost of the loss among his other merchants. Collectively they were able to bear the loss, whereas individually it would have been unfeasible.
Today, insurance has become a multi-billion dollar a year business. Automobile Insurance is one of the more widely purchased forms of insurance, and is concerned with protecting individuals against the all too common risk of loss in the form of car accidents which cause bodily injury and property damage. However, insurance premiums in New Jersey seem to be the undoing of all men who pay their premiums, rather than their saving grace.
Auto Insurance is a niche form of insurance. Unlike other forms of insurance, public policy dictates that everyone who maintains a motor vehicle on public roadways is required to maintain a basic policy with minimum liability coverage limits. N.J.S.A. 39:6A-3.2. You are able to elect a basic or a standard policy, depending on your individual needs, which can be appraised with the aid of a risk advisor, or broker. However, premiums in New Jersey have been skyrocketing and becoming less affordable for the average driver. Therefore, the New Jersey Legislature enacted the No-Fault Act of 1972 in an attempt to combat the increasing cost of automobile insurance.
The enactment of the 1972 No Fault Automobile Insurance Legislation gave rise to Personal Injury Protection (“PIP”), or No-Fault Provisions. N.J.S.A. 39:6A-1 et seq. PIP provides that bodily injury and medical bills, including income continuation and funeral benefits, among other expenses are paid on behalf of the insured regardless of fault. However, the injured party relinquishes her right to pursue personal injury suits for non-economic damages in many scenarios.
The No-Fault act was successful in providing billions of dollars in compensation to victims of automobile accidents that would have otherwise been paid through health insurance, thus controlling health insurance premiums somewhat. N.J.S.A. 39:6A-1.1: Automobile Insurance Cost Reduction Act; legislative findings and declarations. However, the Act was largely unsuccessful in addressing the rising costs of automobile premiums. Therefore, the Legislature enacted the New Jersey Automobile Insurance Freedom of Choice and Cost Containment Act of 1984 again in an attempted to combat increasing automotive insurance premiums. This Act increased the medical expense threshold necessary to pursue a personal injury claim and created two different medical expense thresholds of $200 or $1500. In other words, insured who chose a $1,500 medical threshold had to incur at least that cost in medical expenses for them to have a viable personal injury cause of action. Insureds who elect the higher threshold paid a reduced premium.
However, these thresholds failed to have any noticeable impact on overall automobile insurance premiums. The major consequence was that victims of automobile accidents would seek extensive treatment so as to reach the requisite medical expense threshold, which led to millions of dollars in unnecessary medical treatment. It was only four years later that the Legislature again decided to re-address the issue.
In 1988, the Legislature created the first Verbal Threshold Law, stemming from the old medical expense threshold. The Statute outlined categories of personal injuries which would qualify to satisfy this verbal threshold. The court interpreted the verbal threshold in Owsin v. Shaw, 129 N.J. 290, 318 (1992). In Oswin, the Supreme Court held that a plaintiff had to “demonstrate objective medical proof of a serious injury and a serious impact on one’s life,” in order to pursue a personal injury cause of action. Id.
Interestingly, the verbal threshold also applies to the automobile insurance policy of a foreign resident. Under N.J.S.A. 17:28-1.4 (the “deemer” statute), anyone who uses an automobile in New Jersey that is insured by a company that is authorized to do business in New Jersey will be subject to the verbal threshold. This accomplishes the public policy that suits for non-economic damages must be based on objective clinical evidence.
Then in 1998, the Legislature enacted the Automobile Insurance Cost Reduction Act (AICRA), codified at N.J.S.A. 39:6A-8. The act was designed to “establish an informal system of settling tort claims arising out of automobile accidents in an expeditious and least costly manner, and to ease the burdens and congestion of the state’s courts.” N.J.S.A. 39:6A-24. To achieve this end, the act modified the verbal or limited threshold which limits lawsuits for non-economic damages (pain and suffering) to those cases that are objectively deemed to involve serious injuries.
The new verbal threshold categories include (1) death, (2) disembodiment, (3) significant scarring or disfigurement, (4) loss of a fetus, (5) displacement fractures and (6) permanent physical injury. N.J.S.A. 39:6A-8. As the first five categories occur in less than 5% of all automobile accidents, the last category is most commonly utilized. AICRA created the requirement that these permanent injuries must be supported by a physician’s certification, based on objective clinical evidence and certified to a reasonable degree of medical certainty. N.J.S.A. 39:6A-8. This is the subject of many summary judgments which can quickly dismiss a personal injury case which is unsupported by a physician’s certification.
The verbal threshold has had an enormous impact on the practice of law for personal injury attorneys because it has made it increasingly difficult to obtain compensation for such damages, resulting from automobile accidents. However, it still arguably has not done anything to reduce automobile insurance premiums. The largest impact on reducing insurance premiums is that insureds may elect between levels of coverage custom fit for them and their automobile. The choice comes between a standard policy with minimum mandated levels of coverage, or qualifying individuals may elect a basic policy with even less coverage.
New Jersey mandates that all individuals maintain a standard insurance policy unless they elect a basic policy. N.J.S.A. 39:6A-3.2. The standard insurance policy includes bodily injury liability coverage in the amount of $15,000 per person and $30,000 per accident, and $5,000 in property damage coverage. N.J.S.A. 39:6A-3. Insureds may elect higher levels of bodily injury and property damage coverage at the cost of added premiums.
The standard automobile insurance policy must also include a personal injury protection plan which covers the insured for a minimum of $15,000 per accident, up to $250,000 per accident. N.J.S.A. 39:6A-4. PIP coverage is paid by your insurance company under your own policy. To be entitled to PIP coverage you must first be covered under a valid policy that provides PIP benefits for the named insured. And second, you must be able to prove that the injuries are casually related to the operation of an automobile. Interestingly, a bank teller at TD Bank sitting at her desk who is struck by an SUV that drove through the glass window is not covered under worker’s comp, but rather through the PIP coverage on her automobile policy, strangely enough.
The standard policy holder may, but is not required to elect, uninsured motorist coverage. Underinsured coverage applies to situations in which the tort-feasor has no insurance coverage; this happens most commonly as a result of hit and run accidents, or when one party is without insurance all together or is improperly driving someone else’s vehicle for which there is no insurance. Underinsured motorist coverage expectedly refers to when the dollar amount of a driver’s liability coverage is less than the dollar amount of the victim’s uninsured coverage.
Step-down provisions seek to limit the amount of uninsured and underinsured motorist coverage limits. Pinto v. Manufacturers Insurance Company, 183 N.J. 405 (2005). The court in Pinto upheld the validity of step down clauses. In the event that your policy contains a step-down provisions, your insurance coverage may automatically “step-down” to state mandated levels in the event that someone other than the named insured is driving your vehicle, and in other instances as well. Olkusz v. Brown, 401 N.J. Super. 496 (App. Div. 2008)
The standard policy is not required to, but may encompass collision and comprehensive coverage. This provides coverage in the event you are found liable for an accident which causes damage to your own body or property. Each driver will still be covered for their injuries under the PIP benefits of their own respective policies.
All in all, custom tailoring of an insureds automobile policy is recommended. The policy must conform to mandatory minimum coverage limits and contain PIP benefits in order to satisfy the public policy that all drivers should be covered in the event of bodily injury. However, the overall limits of bodily injury, and property damage may vary among drivers. And drivers can select either a zero or a limited verbal threshold, which determines which injuries they can sue for. Driving without insurance not only leaves you unprotected, but also everyone else on the road. It is important to carry adequate insurance, and PIP, to serve the public policy that everyone on the road is protected immediately following any accident. The insurance companies can battle over reimbursement issues after the fact.
Written by attorney Marvin J. Hammerman | Hammerman Rosen LLP