The Appellate Division, in deciding Khandelwal v. Zurich Ins. Co., __ A.3d __, 2012 WL 1912237 (N.J.Super.A.D. 5/29/2012), recently addressed the issue of intra-family exclusions in the context of automobile insurance and held such exclusions are void as against public policy, and that this is true even where the intra-family exclusion is structured so as to be provided in an optional, separate policy offered in addition to basic coverage under a car rental agreement.
In Khandelwal, the plaintiff’s husband rented a car to drive his wife and two children from North Brunswick, New Jersey to Niagara Falls, New York. At the time he rented the car, he was offered the opportunity to purchase Supplemental Liability Insurance (“SLI”) providing up to one million dollars in coverage. Plaintiff’s husband claims he decided to take the SLI policy, in part, to provide extra coverage for his family. On the way to Niagara Falls there was a motor vehicle accident causing serious injuries to his wife and children. Plaintiffs sued the insurer that issued the SLI policy, the rental companies, and the rental car company contracted to run and operate the rental location, to obtain coverage under the SLI policy.
During discovery, the defendants acknowledged that employees were trained to sell additional insurance to renters, including SLI coverage. That training included scripted answers and what points to highlight to potential customers. The scripted answers did not include reference to the intra family exclusion. In the event customers had a question about exclusions, they were to be directed to a brochure which listed exclusions including the intra-family exclusion.
The trial court denied plaintiffs’ motion for summary judgment and granted the motions filed by the defendants holding there was no duty to disclose the family exclusion as the intra-family exclusion was clearly stated in the policy.
The Appellate Court reversed holding the intra-family exclusion language was against public policy and unenforceable under New Jersey law. Citing Kish v. Motor Club of Am. Ins. Co., 108 N.J.Super. 405 (App.Div.) cert. den. 55 N.J. 595 (1970), the Appellate Court stated a New Jersey automobile insurance policy could not, through exclusions, provide less coverage than statutorily mandated by New Jersey insurance law. Holding “Whenever an insurance policy and a governing Statute are in conflict, the statute controls, and the policy is automatically amended by operation of law to conform to the statutory standard.” The Court also held that legislation involving automobile insurance “must be construed with liberality in effecting the broadest protection of auto accident victims.” 2012 WL 1912237*7.
The Appellate Court held the fact the SLI policy was an optional purchase above the standard insurance offered with the rental car is irrelevant. The Court concluded that the “structuring of the rental coverage into two separate, but interrelated policies, is simply a device intended to provide more restrictive omnibus coverage, something our courts have routinely disallowed in the context of automobile insurance.” The Court went on to hold plaintiffs’ claims were covered by the combined limits of the basic and SLI policies.
by Beverly Barr, Esq.