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Case Law - save on Lexis / WestLaw. Original WP 5.1 Version This case can also be found at 168 N.J. 590.
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in
the interests of brevity, portions of any opinion may not have been summarized).
Argued February 14, 2001 -- Decided July 3, 2001
VERNIERO, J., writing for a majority of the Court.
This appeal involves a declaratory judgment action in which the plaintiff-policyholder (Zacarias) seeks
indemnification from defendant-insurer (Allstate) in connection with a suit brought against him by his wife for
injuries she sustained in a boating accident.
Plaintiff, Joao Zacarias, owned a boat insured by Allstate Insurance Company. The declarations page of
plaintiff's boatowner's policy outlined the coverages and limits of liability and indicated that those coverages and
limits were subject to several endorsements, the first of which was the boatowner's policy. The boatowner's policy
in this case included an intra-family exclusion, which excluded from coverage bodily injury to an insured person or
property damage to property owned by an insured person. The policy definition of “insured person” included the
insured him or herself, as well as any relative living in the insured's household.
On September 3, 1995, Zacarias was operating his boat with his wife on board. During that trip, Zacarias
allegedly operated the boat in a negligent manner, as a result of which his wife suffered injuries. Zacarias submitted
a claim to Allstate in his wife's behalf, but Allstate disclaimed coverage based on the intra-family exclusion in the
policy. Thereafter, Zacarias's wife sued him for the injuries she sustained.
Allstate provided a defense for Zacarias under a reservation of rights. Zacarias then filed this declaratory
judgment action against Allstate seeking to void the intra-family exclusion, or, in the alternative, to compel Allstate
to indemnify him because of its alleged failure to inform him of the exclusion. The matters were consolidated and
both parties moved for summary judgment. The trial court granted summary judgment in favor of Allstate and
dismissed Zacarias's action.
A majority of the Appellate Division affirmed the trial court's disposition, holding that the policy was free
of ambiguity and was to be given its plain and ordinary meaning. The dissenting member concluded that the policy
should be read to conform to the reasonable expectations of the insured, who purchased insurance with the intention
of covering all legally cognizable liability claims arising from the use of his boat.
The appeal is before the Supreme Court as of right, based on the dissent below.
HELD: The terms of the Allstate boatowner's policy, which contained an intra-family coverage exclusion, were
unambiguous and should be enforced.
1. In the absence of any ambiguity, courts should not write for the insured a better policy of insurance than the one
purchased. However, when there is ambiguity in an insurance contract, courts interpret the contract to comport with
the reasonable expectations of the insured, even if a close reading of the written text reveals a contrary meaning.
(pp. 4-10)
2. New Jersey courts, as well as courts in other jurisdictions, have found intra-family exclusions, similar to the one
contained in Zacarias's policy, to be unambiguous. (pp. 10-14)
3. In enforcing an insurance policy, courts will depart from the literal text and interpret it in accordance with the
insured's understanding if the text appears overly technical or contains hidden pitfalls, cannot be understood without
employing subtle or legalistic distinctions, or requires strenuous study to comprehend. However, the plain terms of
the contract will be enforced if the entangled and professional interpretation of an insurance underwriter is not pitted
against that of an average purchaser of insurance. (p. 14)
4. The Allstate policy language in this case is direct and ordinary, and the intra-family exclusion contained therein
does not require an entangled and professional interpretation to be understood. Thus, the terms of the policy, being
unambiguous, should be enforced. (pp. 14-15)
5. An insurance contract is not per se ambiguous because its declarations sheet, definition section, and exclusion
provisions are separately presented. (pp. 15-17)
6. The one page most likely to be read and understood by the insured is the declarations sheet. Thus, insurers are
well advised to explore ways to incorporate as much information as may be reasonably included in the declarations
sheet. (pp. 17-18)
7. Courts should construe insurance policies against the insurer, consistent with the reasonable expectations of the
insureds, when those policies are overly complicated, unclear, or written as a trap for the unguarded consumer. (p.
18)
8. Although the insurance industry is urged to write more discernible policies to avoid future disputes, the policy at
issue here, while not perfect, is sufficiently clear when reviewed under the rules of construction traditionally
employed in this setting. (pp. 18-19)
Judgment of the Appellate Division is AFFIRMED.
JUSTICE LONG filed a separate dissenting opinion in which JUSTICE ZAZZALI joined. Justice Long
concluded that the boatowner's policy purchased by Zacarias was not unambiguous and would require a great effort
on the insured's part to discern the coverage provided. Thus, Justice Long would have applied the reasonable
expectations doctrine and would have ruled in favor of the plaintiff to afford coverage in this case. CHIEF JUSTICE PORITZ and JUSTICES STEIN and LaVECCHIA join in JUSTICE VERNIERO's opinion. JUSTICE LONG has filed a separate dissenting opinion in which JUSTICE ZAZZALI joins. JUSTICE COLEMAN did not participate. SUPREME COURT OF NEW JERSEY A- 1 September Term 2000
JOAO ZACARIAS,
Plaintiff-Appellant, v.
ALLSTATE INSURANCE COMPANY and
GEORGE D. SINCOX,
Defendants and Third-Party
v.
MARIA ZACARIAS,
Third-Party Defendant.
Argued February 14, 2001 -- Decided July 3, 2001
On appeal from the Superior Court, Appellate
Division, whose opinion is reported at
330 N.J. Super. 231 (2000).
Gary Alan Blaustein argued the cause for
appellant.
John G. Tinker, Jr., argued the cause for
respondents (Leary, Bride, Tinker & Moran,
attorneys).
The opinion of the Court was delivered by
VERNIERO, J.
The boatowner's policy is written in regular and bold type. On page three, the definitions page, the policy reads, “' Insured person' -- means you and, if a resident of your household: a) any relative; and b) any dependent person in your care.” On page twelve, there is a heading “ Losses We Do Not Cover.” On the next page, still under that heading, the policy includes an intra- family exclusion that reads: “ We do not cover bodily injury to an insured person or property damage to property owned by an insured person.” On September 3, 1995, plaintiff was operating his boat with his wife on board. During that trip, plaintiff allegedly operated the boat in a negligent manner and, as a result, his wife suffered injuries. Plaintiff submitted a claim to Allstate on behalf of his wife, but the carrier disclaimed coverage based on the intra-family exclusion in the policy. Thereafter, plaintiff's wife sued plaintiff for her injuries. Allstate provided a defense for plaintiff under a reservation of rights. Plaintiff then filed this declaratory judgment action against Allstate seeking to void the intra-family exclusion. In the alternative, plaintiff sought to compel the carrier to indemnify him because of the insurer's alleged failure to inform plaintiff of the exclusion. The underlying injury case and the declaratory action were consolidated. Both parties filed motions for summary judgment. The trial court denied plaintiff's motion and granted defendant's motion, thereby dismissing plaintiff's action. With one member of the panel dissenting, the Appellate Division affirmed the trial court's disposition. Zacarias v. Allstate Ins. Co., 330 N.J. Super. 231 (App. Div. 2000). The majority held that the policy was free of ambiguity and was to be given its “plain and ordinary meaning.” Id. at 234. The dissenter concluded that the policy should be read to conform to the reasonable expectations of the insured, explaining that plaintiff had purchased insurance with the intention of covering all legally cognizable liability claims arising from the use of his boat. Id. at 236-37 (Pressler, P.J.A.D., dissenting). Plaintiff filed this appeal as of right. R. 2:2-1(a).
A. That fundamental rule of interpretation, known as the doctrine of reasonable expectations, has long been a part of our law. This Court invoked the doctrine in Kievit v. Loyal Protective Life Insurance Co., 34 N.J. 475 (1961). In Kievit, the plaintiff owned an accident insurance policy that covered losses “'resulting directly and independently of all other causes from accidental bodily injuries,'” but not losses “'resulting from or contributed to by any disease or ailment.'” Id. at 477. While at work, the plaintiff sustained an injury that activated or caused Parkinson's disease-like symptoms over his entire body. Id. at 478. The symptoms completely disabled him. Ibid. The insurer compensated the plaintiff for several months, then stopped payment on the ground that a pre-existing disease or ailment was contributing to his losses. Ibid. The Court held that a pre-existing, dormant condition was not a disqualifier under the terms of the contract. Id. at 490- 91. The Court reasoned that the distinction between accidental injuries that cause disability on their own and accidental injuries that trigger pre-existing ailments was too fine for a layperson to anticipate in advance of purchasing an insurance policy. “[Insureds] should not be subjected to technical encumbrances or to hidden pitfalls and their policies should be construed liberally in their favor to the end that coverage is afforded 'to the full extent that any fair interpretation will allow.'” Id. at 482 (citation omitted). The Court also noted: [T]he court's goal in construing an accident insurance policy is to effectuate the reasonable expectations of the average member of the public who buys it; he may hardly be expected to draw any subtle or legalistic distinctions based on the presence or absence of the exclusionary clause for he pays premiums in the strong belief that if he sustains accidental injury which results (in the commonly accepted sense) in his disability he will be indemnified and not left empty-handed on the company's assertion that his disability was caused or contributed to by a latent disease or condition of which he was unaware and which did not affect him before the accident. The Court reached a similar conclusion in Gerhardt v. Continental Insurance Cos., 48 N.J. 291 (1966). There, the plaintiff purchased a homeowner's policy. Id. at 292. The language of the policy excluded a worker's compensation claim by a domestic employee. To discover that exclusion, the insured would have had to cross-reference several provisions deep into the contract. Id. at 293-94. Citing Kievit, the Court concluded that the plaintiff's reasonable expectation of coverage against a worker's compensation claim should be fulfilled. Id. at 300. In so doing, we described the confusing nature of the policy, observing that “[it] continue[d] over many printed pages in small print and with much obscure terminology.” Id. at 293. We also stated: [T]he exclusionary clause in the policy before us was neither conspicuous nor plain and clear. . . . [O]nly a very hardy soul would have plowed through all of the fine print here in an effort to understand the many terms and conditions. . . . [I]t seems highly unlikely that the ordinary insured would have so understood it on his or her own reading. The Court held in favor of the insurer, concluding that the doctrine of reasonable expectations did not apply. Id. at 269- 70. The coverage and the definition provisions relating to “non- owned” automobiles were on the first page of the policy, making them clear and conspicuous to the insured. Id. at 270. The Court found that the non-owned automobile provisions had fulfilled their purpose, which was to prevent an insured from obtaining coverage for multiple cars when paying for insurance on only one. Id. at 269-70. The Court noted that “[t]he case at hand does not pose the situation where the entangled and professional interpretation of an insurance underwriter is pitted against that of an average purchaser of insurance.” Id. at 270. Similarly, in Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 235-36 (1979), the Court held that a “business risk” provision in a builder's insurance contract was unambiguous and enforceable. Stone-E-Brick's workers allegedly performed shoddy stucco and roofing work on two different jobs. When the customers sued for the costs of replacing the work, Stone-E-Brick sought to compel its insurer to take over its defense. Id. at 236. Stone-E- Brick's insurance policy covered liability for torts in the form of bodily injury caused by its work, but not for replacement costs of work done poorly. Id. at 241. The policy contained an exclusion for “'property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.'” Ibid. This Court enforced the exclusion. In so doing, however, we reaffirmed the doctrine of reasonable expectations: We conceive a genuine ambiguity to arise where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage. In that instance, application of the test of the objectively reasonable expectation of the insured often will result in benefits coverage never intended from the insurer's point of view. Based on that test, the Court concluded that the language of the policy should have been clear to the insured and was thus sustainable. New Jersey courts have found intra-family exclusions, similar to the one contained in plaintiff's policy, to be unambiguous. For example, in Foley v. Foley, 173 N.J. Super. 256 (App. Div. 1980), the Appellate Division found valid an intra-family exclusion within the context of a homeowner's insurance policy. In Foley, the plaintiff instituted suit against her husband for injuries she incurred due to his alleged negligence or an alleged assault. Id. at 257. The policy excluded bodily injuries to any insured, which included a spouse. Id. at 258. The Appellate Division dismissed the plaintiff's argument that the language of the policy was unclear. “The coverage provisions and the exclusions are written one following the other. The exclusions are in bolder type so that one reading the policy will have his attention brought to the terms of the exclusions. The exclusion itself is plain and unambiguous.” Id. at 260. In Knoblock v. Prudential Property & Casualty Insurance Co., 260 N.J. Super. 127 (App. Div. 1992), the Appellate Division held valid another intra-family exclusion. There, the plaintiffs sued family members on behalf of their infant son who had been injured when he fell off a minibike that his aunt and uncle had permitted him to ride. Id. at 129. The aunt and uncle filed a counterclaim against the mother of the infant and a third-party action against the boy's father seeking indemnity or contribution. Ibid. The plaintiffs' homeowners insurance policy covered the costs of any injuries caused by an insured, and pledged to provide a defense to any claim. Id. at 129-30. It also provided, however, “'[w]e do not cover bodily injury to you or any insured[.]'” Id. at 130. The infant son was an insured under the terms of the policy. Id. at 128. The court held that when bodily injury is sustained by “any insured,” the exclusion plainly withdraws its coverage of indemnity claims. Id. at 130. See also Horesh v. State Farm Fire & Cas. Co., 265 N.J. Super. 32, 38-39 (App. Div. 1993) (enforcing intra-family exclusion in third-party claim of husband against wife for injury to son). For completeness, we note also that in the automobile insurance context, courts have held intra-family exclusions void, not on the ground of ambiguity, but because the Legislature's automobile insurance scheme has rendered such provisions violative of public policy. See Kish v. Motor Club of Am. Ins. Co., 108 N.J. Super. 405 (App. Div.), certif. denied, 55 N.J. 595 (1970). Courts in other jurisdictions also have analyzed intra- family exclusions and found them to be unambiguous. In Suba v. State Farm Fire & Casualty Co., 498 N.Y.S.2d 656, 657 (App. Div.), appeal denied, 67 N.Y.2d 610, appeal dismissed, 68 N.Y.2d 665 (1986), the following language in a homeowner's policy was held to be valid: “Coverage L - Personal Liability and Coverage M - Medical Payments to Others do not apply to: . . . g. bodily injury to you or any insured within the meaning of part (a) or (b) of the definition of insured.” Part (a) of the definition of “insured” contained in the policy provides that “'insured' means you and the following residents of your household: a. your relatives.” The court noted that that “exclusion is clear and unambiguous and plainly applies,” and that similar language had been upheld by courts in Washington and California. Ibid. (citing State Farm Gen. Ins. Co. v. Emerson, 102 Wash.2d 477 (1984); State Farm Fire & Cas. Co. v. Alstadt, 113 Cal. App.3d 33 (Ct. App. 1980)). In Emerson, a case from the State of Washington, the plaintiff sought coverage for the death of her daughter and injuries to her son-in-law caused by an accident involving the antenna atop her home. At the time of the accident both victims lived with the insured. Emerson, supra, 102 Wash. 2d at 479. The court described the policy as follows: The exclusion clause at issue reads, “This policy does not apply: 1. Under Coverage E _ Personal Liability . . . (g) to bodily injury to any insured within the meaning of parts (1) and (2) of definition of insured.” . . . The definitions section contained the following language: “(a) 'Insured' means (1) The Named Insured stated in the Declarations of this policy; (2) if residents of the Named Insured's household, his spouse, the relatives of either, and any other person under the age of twenty one in the care of any Insured[.]” The plaintiff argued that the policy was ambiguous because its liability, exclusion, and definition sections were separate from one another. Id. at 484. The court rejected her argument, observing: [I]t is hard to imagine how the language could be more clear. . . . The exclusion clauses are all in capital letters. The definition section is explicitly referenced in the exclusion clause. The fact that a policy is long, and that pertinent language is not contained on a single page does not, in itself, render the policy structurally ambiguous. This is particularly so when the limiting language is clearly set off as it is here. [Id. at 484-85.] See also Salviejo v. State Farm Fire & Cas. Co., 958 P.2d 552, 565 (Haw. Ct. App. 1998) (holding intra-family exclusion in homeowner's policy was unambiguous); Reinsurance Ass'n of Minn. v. Hanks, 539 N.W.2d 793, 796 (Minn. 1995) (ruling intra-family exclusion in farm multiperil policy unambiguously covered child under age twenty-one). Applying those tenets, we hold that the terms of plaintiff's boatowner's policy are unambiguous and should be enforced. The policy's language is direct and ordinary. Large and bold type is used, and the contract provisions are clearly spaced. In our view, the intra-family exclusion does not require an entangled and professional interpretation to be understood. The definitions page clearly describes “insured person” to include any relative living in the household. The policy explicitly disclaims coverage for injuries to insureds. We thus agree with the Appellate Division that plaintiff's policy does not cover the injuries sustained by plaintiff's spouse. Plaintiff urges a contrary conclusion because the policy's declarations sheet does not expressly list the intra-family exclusion. The wording of an insurance policy's declarations sheet was determinative in Lehrhoff v. Aetna Casualty & Surety Co., 271 N.J. Super. 340, 346-47 (App. Div. 1994). In that case, the Appellate Division concluded that the reasonable expectations of the insured, as formed on the basis of the declarations sheet, could not be defeated by the boilerplate text contained elsewhere in the policy. The court stated: There has been little judicial consideration of the import of the declaration page of an insurance policy in terms of construction of the policy as a whole and in terms of its capacity to define the insured's reasonable expectations of coverage. We, however, regard the declaration page as having signal importance in these respects. . . . We are, therefore, convinced that it is the declaration page, the one page of the policy tailored to the particular insured and not merely boilerplate, which must be deemed to define coverage and the insured's expectation of coverage. And we are also convinced that reasonable expectations of coverage raised by the declaration page cannot be contradicted by the policy's boilerplate unless the declaration page itself so warns the insured.
See also Gerhardt, supra, 48 N.J. at 298 (observing that policy
was ambiguous in part because exclusion was not on declarations
sheet).
Insurance contracts are complex instruments. They are issued to assist individuals to plan rationally for the unforeseen challenges of an unpredictable future. For such transactions to be sustainable, both sides must be able to rely on the plain meaning of the contracts into which they respectively enter. Courts should construe insurance policies against the insurer, consistent with the reasonable expectations of insureds, when those policies are overly complicated, unclear, or written as a trap for the unguarded consumer. Kievit, supra, 34 N.J. at 475. In the same vein, our jurisprudence will continue to expect companies to write their contracts in a straightforward manner. The policy at issue here passes muster for the reasons already noted, but it is far from perfect. For example, it would have been clearer if the definition of insured had a cross-reference to the intra-family exclusion, or vice versa. Moreover, the insurer could have more conspicuously reminded plaintiff on the declarations sheet that certain exceptions applied to coverage and that to understand those exceptions, the insured had to cross reference the policy's coverage and definitions sections. Although we urge the insurance industry to write more discernible policies to avoid future disputes, we conclude that plaintiff's policy is sufficiently clear when reviewed under the rules of construction traditionally employed in this setting. Chief Justice Poritz and Justices Stein and LaVecchia join in Justice Verniero's opinion. Justice Long has filed a separate dissenting opinion, in which Justice Zazzali joins. Justice Coleman did not participate. SUPREME COURT OF NEW JERSEY A- 1 September Term 2000
Plaintiff-Appellant,
v.
ALLSTATE INSURANCE COMPANY
Defendants and Third-Party
v.
MARIA ZACARIAS,
Third-Party Defendant.
LONG, J., dissenting.
I do not subscribe to the judgment of my colleagues in this
rather straightforward case. Their conclusion that the boat
liability policy purchased by Zacarias is not ambiguous is footed
on a Herculean effort by an insured. The scope of that effort was
set forth precisely by Judge Pressler who dissented below:
all sums arising from an accidental
loss which an insured person becomes
legally obligated to pay as damages
because of bodily injury or property
damage resulting from the ownership,
maintenance, or use of covered water
craft, boat equipment or boat
trailers.
Then comes the second portion of the liability
coverage entitled “Losses We Do not Cover.”
In addition to the usual exclusions for
intentional or criminal conduct of an insured
person, illegal or business use of the boat,
workers' compensation claims, and the like, is
paragraph 2, which provides in full that:
We do not cover bodily injury to an
insured person or property damage to
property owned by an insured person. In order for the reader of the policy to determine who is intended by the insurer to be embraced within the phrase “insured person” for purposes of the liability exclusion, he must refer to paragraph 3 of the definition section appearing on page three of the policy and to which nothing in the liability coverage sections on page ten directs him. And even though the text of the liability exclusion clause does not use the pronoun “you” or “your,” he would nevertheless have to perceive the relevance and significance of the page three, paragraph 1 definition of “you” or “your” as including the resident spouse of the insured named on the declarations page. Then, if he properly completes this unmapped exercise in contract construction and if does so at the time the policy is delivered to him _ both of which eventualities I regard as remote in the case of the average buyer of insurance _ he may come to understand that even though he is exclusively identified on the declarations page and thus appears to be the only insured, an “insured person” also includes “any relative” and “any dependent person in your care” if “resident in your household.” And then, if he is quick witted or experienced in such matters, he may finally indeed come to realize that the “insured person” whose liability claims are excluded from coverage on page ten are the members of his family with whom he lives and who are free, as a matter of law, to sue him for negligence and to obtain damages for personal injury from him.
[Zacarias v. Allstate Ins. Co.,
330 N.J.
Super. 231, 238-240 (App. Div. 2000)(Pressler,
P.J.A.D., dissenting.]
The burden of deciphering this policy renders it ambiguous,
thus justifying resort to the “reasonable expectations” doctrine
that, in the face of ambiguity, requires us to honor the
objectively reasonable expectations of insurance applicants even
where a “'painstaking study of the policy provisions would have
negated those expectations.'” Sparks v. St. Paul Ins. Co.,
100 N.J. 325, 338-39 (1985)(quoting R. Keeton, Insurance Law 351
(1971); R. Keeton, Insurance Law Rights at Variance with Policy
Provisions,
83 Harv. L. Rev. 961, 967 (1970)). Applied here, the
reasonable expectations doctrine requires a ruling in favor of
Zacarias who, like any purchaser of a boat liability policy,
reasonably expected to be covered for all legally cognizable
liability claims against him arising out of the use of the boat--
including legally recognized interspousal claims. See Merenoff v.
Merenoff,
76 N.J. 535, 557 (1978) (holding that doctrine of
interspousal tort immunity is abrogated as bar to civil suit
between married persons for damages for personal injuries). See
also Foldi v. Jeffries,
93 N.J. 533, 549 (1983) (concluding that
doctrine of parental immunity will no longer insulate parent from
liability for willful or wanton failure to supervise children).
Indeed, in purchasing $500,000 worth of boat liability insurance,
what reasonable person would not expect coverage for injuries
sustained by his family members, the people most likely to be on
the boat? NO. A-1 SEPTEMBER TERM 2000
ON APPEAL FROM Appellate Division, Superior Court
ON CERTIFICATION TO
JOAO ZACARIAS,
Plaintiff-Appellant, v.
ALLSTATE INSURANCE COMPANY
Defendants and Third-Party
v.
MARIA ZACARIAS,
Third-Party Defendant.
DECIDED July 3, 2001 PRESIDING
OPINION BY Justice Verniero CONCURRING OPINION BY DISSENTING OPINION BY Justice Long
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