The New Jersey Automobile Insurance Freedom of Choice and Cost Containment Act of 1984, L. 1983, c. 362, provides for a statutory right of recovery of personal injury protection (PIP) benefits paid by an automobile liability carrier. See N.J.S.A. 39:6A-9.1. The stated purpose of the statute is to bring about long sought after reductions in premiums for New Jersey motorists. The statutory scheme is aimed at reducing the cost of insurance for automobile owners by allowing automobile insurers to recover PIP payments by seeking reimbursement from the insurers of non-PIP-covered tortfeasors, such as commercial vehicles or taverns.
In its original form, N.J.S.A. 39:6A-9.1 operated for close to three decades to allow PIP carriers to be made whole even though reimbursement from the responsible tortfeasor could potentially reduce the pool of available insurance coverage to which the claimant or injured person might look for recovery. The Supreme Court of New Jersey was then faced with a situation where the value of the damages to the injured claimant and the amount of PIP expenses paid exceeded the tortfeasor’s insurance coverage. In Fernandez v. Nationwide Mut. Fire Ins. Co., 199 N.J. 591 (2009), the Supreme Court confirmed that “the insurer of the responsible party, and not the injured victim’s insurer, was liable for the expense of PIP benefits for the victim,” and in a divisive 3–3 split decision, gave priority to the PIP carrier’s claim over that of the injured claimant. In essence, the ruling provided that the PIP carrier had the right to seek reimbursement at the expense of injured insured.
In 2011 and shortly after the controversial decision in Fernandez, the state legislature took corrective action by amending N.J.S.A. 39:6A-9.1 to ensure that the cost of PIP benefits would be borne by the victim’s insurer to avoid diminishing the total amount available to the victim from the tortfeasor’s policy of insurance. In other words, the statute, as amended, gave priority to the claims of the injured party over that of the PIP carrier.
The New Jersey Supreme Court is now set to decide whether state lawmakers intended for the application of the 2011 amendment to be retroactive. Specifically, the Supreme Court will be deciding the case of Johnson v. Roselle EZ Quick LLC, 2014 N.J. Super. Unpub. LEXIS 2089, (App. Div. Aug. 25, 2014). The court’s decision will determine whether an Essex County man, left paralyzed from the waist down after a car accident, will have to reimburse his PIP carrier $250,000 for medical expenses out of a one million dollar settlement.
Plaintiff Karon Johnson was injured in December 16, 2009. According to court documents, he bought a bottle of vodka from a liquor store owned by Roselle EZ Quick in Roselle, even though he was 20 years old and underage at the time. After drinking the vodka, he lost control of his mother’s car and drove into a tree, sustaining injuries. Johnson filed for PIP benefits in August 2010, from GEICO, his mother’s PIP carrier, and the $250,000 in coverage was soon exhausted. Johnson subsequently filed a lawsuit against the liquor store and its owners, alleging that they negligently served him alcohol, being that he was underage at the time of the purchase. The liquor store’s insurance carrier settled the case for $1 million, and GEICO filed a claim seeking reimbursement for the $250,000 it paid in PIP benefits from the liquor store’s carrier, pursuant to the statute. The plaintiff received a settlement of the full $1 million limit of the liquor store’s liability insurance, out of which he would receive only $750,000 since GEICO, under the former iteration of the statute, was entitled to receive reimbursement of $250,000 in PIP payments.
The trial judge ordered that the $250,000, covering the PIP payout, be paid into escrow while the parties litigated the question of whether the 2011 amendment to N.J.S.A. 39:61-9.1 applied retroactively. The question of retroactivity was put to the Appellate Division and the majority sided with GEICO, holding the amendment was not meant to apply retroactively. However, because the dissent found that the amendment should be applied retroactively, the split ruling pretty much guaranteed the Supreme Court would hear the case.
What It Means to You
If the Supreme Court decides that the legislature intended for the 2011 amendment to be applied prospectively, the decision would act to bar PIP carriers’ claims for reimbursement in any case where
1) the injured claimant’s application for PIP benefits was made after the date of the amendment, and
2) the tortfeasor’s policy was only enough to satisfy the injured claimant’s damages.
In essence, the Supreme Court would be affirming the determination that because GEICO’s claim for reimbursement pre-dated the statutory amendment, it has a right to reimbursement to the exclusion of the injured claimant’s right to recovery for his pain and suffering.
However, if the Supreme Court decides that the legislature intended for the amendment to apply retroactively, a number of interesting legal questions might arise. For example, in the Johnson case, the money placed in escrow would be awarded to the plaintiff instead GEICO. A narrow field of other injured claimants could benefit from this ruling. For active, pending cases where the reimbursement claim was made prior to the amendment, the tortfeasor’s carrier must first satisfy the claims of the injured individual before any reimbursement could be made. A question also arises as to whether in any case where a PIP carrier sought, and succeeded, in recouping PIP benefits from a tortfeasor’s policy at the expense of the insured, would give rise to an independent cause of action by those claimants to recover the damages they should have been paid but for the PIP carrier’s reimbursement.
Although no one can predict how the Supreme Court will rule, we anticipate that the court will likely find the statute to be prospective, as there appears to be a limited number of cases affected by the operation of the law as it existed prior to 2011.