Intrafamily Exclusion In Auto Policy Ruled Unenforceable (NJ)
On May 6, 2022, a New Jersey appellate panel upheld a policyholder’s win in a coverage dispute with Travelers Insurance Company, holding an intrafamily step-down exclusion acted as a “hidden trap” in a family’s auto policy where not reflected in the policy declarations page. Specifically, in Cristina Dela Vega v. The Travelers Insurance Company, et al., (No.: A-2272-19), the Court ruled that Travelers must pay its policy’s full $100,000 limit in bodily injury coverage as this “clearly worded exclusion” still functioned as a “hidden trap” making the provision thereby unenforceable as it would lead a reasonable policyholder to expect different coverage.
In the underlying accident, plaintiff Cristina Dela Vega (“Dela Vega”), was severely injured while riding in a car driven by her husband who collided with another vehicle pulling out a New Jersey parking lot. A Travelers claims adjuster initially offered Dela Vega her policy’s normal bodily injury limit of $100,000, but later revised that to $15,000, saying there had been an “unfortunate mistake” adding that she had never before dealt with an intrafamily exclusion despite her experience as an auto policy adjuster.
Dela Vega then sued in New Jersey Superior Court, seeking coverage up to the policy’s $100,000 declared limit and asserting claims for bad faith, violation of the Consumer Fraud Act and punitive damages. The trial court ordered Travelers to pay Dela Vega $100,000, finding the step-down exclusion to be ambiguous, “patently unfair” and contrary to public policy.
On anticipated appeal, the New Jersey Appellate Court mostly agreed. Even though the exclusion was technically sound, it went against the average policyholder’s “reasonable expectations” of coverage, the panel held, since the declarations page provided for $100,000 in coverage and didn’t say anything about an exclusion. Furthermore, the claims adjuster’s offer of the $100,000 limits four months after the accident was established as proof plaintiff’s expectation of that coverage was objectively reasonable. However, in a partial win, Dela Vega’s bad faith, punitive damages, and commercial claims were discarded as Traveler’s didn’t display any “unconscionable commercial practice” or malice in issuing the policy or trying to enforce the step-down exclusion.
The New Jersey Appellate Court did not go as far to hold that the step-down exclusion itself was contrary to public policy upon finding a violation of the policyholder’s reasonable expectations. However, the court included a footnote that finding the provision to be “troubling” and “concerning” which indicates that such step-down exclusion will likely face ongoing scrutiny from the New Jersey courts.
Thanks to Kendal Hutchings for her contribution to this article. Should you have any questions, please contact Matthew Care.