Wade Clark Mulcahy LLP

<p style="text-align: justify;">The Supreme Court of New Jersey recently found an ‘escape clause’ in a garage policy issued to a car dealership that eliminated coverage to a class of the dealership’s customers void on public policy grounds even though the driver of the vehicle had personal auto insurance that met the statutory minimum. <em><a href="https://www.wcmlaw.com/wp-content/uploads/2021/10/Huggins.pdf">Huggins</a> v. Aquilar,</em> 246 N.J. 75 (2021).</p>
<p style="text-align: justify;">Mary Aquilar left her car with Trend Motors, Ltd. (Trend) to be serviced for several days. Trend in turn gave Aquilar a loaner vehicle. Aquilar signed a loaner-vehicle agreement which stated Aquilar was not covered by any insurance held by Trend. While driving the loaner vehicle, Aquilar was involved in an accident with Tyrone Huggins in Hoboken. Huggins suffered serious injuries. Aquilar and Huggins both had personal auto insurance that met the statutory minimum, and Trend had up to $1,000,000 in liability coverage under its garage policy. But Trend’s policy excluded coverage for customers unless they were uninsured or underinsured. Aquilar was a customer who was not underinsured and therefore Trend’s policy refused coverage.</p>
<p style="text-align: justify;">The Supreme Court of New Jersey stated that ‘the legislative policy in this area is straightforward’ and cited the plain language of N.J.S.A. 39:6B-1(a) which provides “[e]very owner or registered owner of a motor vehicle registered or principally garaged in this State shall maintain motor vehicle liability insurance coverage.” The Court also noted this requirement is foundational to the permissive user rule, which extends coverage under an owner’s policy for anyone driving an automobile with the owner’s permission. Therefore, the Supreme Court of New Jersey declared insurance policy provisions that “disclaim whole classes of drivers are problematic, and often found violative of public policy, when they exclude categories of permissive users from the policy’s mandatory minimum liability coverage.” Huggins at 83.</p>
<p style="text-align: justify;">Because the Trend policy did not merely limit the first-party coverage provided by Trend to already-insured drivers of the loaner vehicles who carried $15,000 in their own personal auto insurance, but rather excepted coverage involving an owned vehicle used by permissive users completely, the Court categorized this an impermissible escape clause. The court went further and stated that just because Huggins could recover the statutory minimum from Aquilar’s personal automobile policy, it does not relieve Trend of its duty, as the owner of the loaner vehicle, to provide compulsory liability insurance on the vehicle when it is being driven by Aquilar as a permissive user of Trend’s vehicle. Even though there would be a potential doubling of the available minimum statutory coverage, this is irrelevant because N.J.S.A. 39:6B-1(a) does not allow for any escape in coverage by such an owner.</p>
Thanks to Brendan Gilmartin for his contribution to this post. Please contact <a href="mailto:Haquino@wcmlaw.com">Heather Aquino</a> with any questions.