New Jersey Supreme Court to Hear GEICO Challenge to the Deemer Statute

Insurance Law Alert

 

The New Jersey Supreme Court granted GEICO Indemnity Company’s petition for certification of the August 1, 2018 Appellate Division decision in Felix v. Richards, Docket No. A-5093-16T4, 2018 N.J. Super. Unpub. LEXIS 1844 (App. Div. Aug. 1, 2018). The Appellate Division held in Felix that the creation of the basic automobile insurance policy option, without bodily injury liability (“BI”) coverage, did not modify the Deemer statute, N.J.S.A. 17:28-1.4.

The Felix matter arises from a September 2013 automobile accident involving two vehicles. The drivers of both vehicles were insured and injured in the accident: Felix was a resident of Florida and insured by GEICO; Richards was a resident of New Jersey and insured by AAA-Mid Atlantic Insurance Company of New Jersey (“AAA”). Felix’s GEICO policy provided no BI coverage, as permitted by Florida law. GEICO therefore denied Felix a defense or indemnification. AAA filed a third-party complaint against GEICO claiming GEICO’s policy was deemed to include $15,000/$30,000 in BI coverage pursuant to the Deemer statute. The trial court granted AAA’s motion for summary judgment, finding that GEICO’s policy was deemed to include the minimum BI coverage required in a standard New Jersey automobile policy. GEICO appealed the ruling on the grounds that the trial court decision created an irreconcilable conflict between the basic policy and the Deemer statute.

The Deemer statute was enacted in 1985 for the purpose of protecting New Jersey residents injured by out-of-state vehicles by providing residents with coverage as broad as would be available from an in-state policy. The Automobile Insurance Cost Reduction Act of 1998, N.J.S.A. 39:6A-1.1, et seq. (“AICRA”) was enacted to address the high cost of automobile insurance. AICRA provides for a basic policy that does not include a BI coverage minimum. The Deemer statute was subsequently amended, but the provision regarding minimum coverage was not altered in the amendment. As such, the Appellate Division held that the legislature did not intend for the creation of the basic policy option to modify the Deemer statute. GEICO now asks the New Jersey Supreme Court to reconcile the Deemer statute with the availability of the basic policy which does not require BI coverage.

This issue on appeal by GEICO is a particularly significant final step in what some might view as the automobile insurance market correction process which began in 2003. GEICO, which in 1996 became a Berkshire Hathaway affiliated insurer, withdrew from the business of insurance in New Jersey in 1976 due to market over regulation, making it too difficult to do business in the state. In 2003, the New Jersey Legislature adopted the Automobile Insurance Competition and Choice Act (the “Choice Act”). The Choice Act accomplished significant regulatory reforms. Specifically, it abolished the so-called “take all comers” requirement (forcing insurers to accept all drivers without regard to their driving records), permitted carriers to provide customers coverage options with different price quotes, increased the amount of profits insurers could retain and called for expeditious response from the state to insurers’ rate change requests. Thus, after promulgation of the Choice Act and substantial negotiations with then Commissioner of Banking and Insurance Holly C. Bakke, GEICO returned to the New Jersey marketplace after a 28-year hiatus. Other national insurers, such as AIG and State Farm reportedly abandoned plans to exit the market, and Nationwide Mutual Insurance Company, which had withdrawn from the state’s automobile insurance market in 1981, also returned. Nonetheless, the impact of the Deemer statute remains a source of concern to GEICO and other New Jersey automobile insurance market participants. Hopefully, the Felix case will be fully briefed and argued before the New Jersey Supreme Court, and its ruling will finally complete New Jersey’s automobile insurance market reform efforts.