Insurers Claim N.J. Supreme Court Ruling is Setback for Auto Market

By | June 14, 2005

Insurance companies are blasting a decision by the New Jersey Supreme Court that they say undermines ongoing efforts to revive the private auto insurance market in the state and jeopardizes cost savings promised to drivers.

In DiProspero v. Penn, the high court’s justices on June 14 unanimously ruled that the so-called “serious life impact” test that was applied under the previous verbal threshold to limit when injured claimants could sue for non-economic damages does not apply under the current law, the Automobile Insurance Cost Reduction Act (AICRA) passed in 1998.

In reviewing the history, intent and language of the current statute, the court determined that state lawmakers did not intend to carry forward the life impact test when they enacted AICRA. New legislation would be required to do this, the justices held.

The life impact test, first applied in Oswin v. Shaw in 1992, made it more difficult for motorists to sue. The Oswin court concluded that in addition to proving that an injury fit into one of nine statutory injury categories of the verbal threshold, the accident victim also had to prove the injury resulted in a “serious life impact.”

Critics of this week’s DiProspero ruling say that removing the life impact criteria will open the door for more lawsuits and increase costs in the system, contrary to what the legislature intended when it passed AICRA in 1998.

“The Supreme Court has effectively gutted the verbal threshold and potentially opened up the flood gates for litigation in non-serious injury cases,” stated David Snyder, American Insurance Association vice president and assistant general counsel. “This ruling wipes out many of the possible savings realized by the nine-out-of-ten drivers who chose to receive discounted premiums in return for limiting their ability to sue for pain and suffering in minor injury cases.”

The American Insurance Association filed an amicus brief with the court on this case in conjunction with the Property Casualty Insurers Association of America and the Insurance Council of New Jersey.

But policyholder advocates dismiss the industry’s alarm, noting that the court upheld a strict reading of the statute under which a person must satisfy one of six criteria that are stricter than the previous nine in order to sue.

“The injured still have to meet the six criteria and those are tighter than they were before 1998,” said Cynthia M. Craig, one of the attorneys for defendants and an expert on N.J. auto insurance law.

While some cases that had been turned away because of the life impact test may now proceed, that’s not likely to be many cases, maintained Craig, who is with the firm of Blume, Goldfaden, Berkowitz, Donnelly, Fried & Forte.

“It’s not opening any floodgates,” she said.

The New Jersey Insurance Department said it was reviewing the decision for possible impact, if any, on the marketplace.

Background on AICRA
AICRA provides policyholders with the choice of lower premium payments in exchange for limiting their right to sue for non-economic damages. The statute’s “limitation on lawsuit” threshold restricts an accident victim from suing for non-economic damages unless the victim suffers a bodily injury that results in death; dismemberment; significant disfigurement or significant scarring; displaced fractures; loss of a fetus; or a permanent injury other than scarring or disfigurement.

The previous threshold required the accident victim to prove that an injury satisfied one of nine statutory categories in order to qualify for recovery of non-economic damages.

The DiProspero appeal addressed whether Oswin’s serious life impact standard applies to AICRA’s limitation on lawsuit threshold.

The plaintiff contended that the intent of the legislature is found in the plain language of the threshold statute and the absence of a serious life impact standard in that statute: “Plaintiff’s strongest argument may lie in a simple logical deduction. The legislature knew of the Oswin standard; the AICRA threshold does not contain that standard; therefore, the legislature must have intended to exclude the Oswin standard.”

Defendants argued that the legislature intended to carry over the serious life impact test from the verbal threshold to the current lawsuit threshold: “The singular purpose of AICRA was to reduce insurance rates, they contended. By defendants’ logic, discarding Oswin’s serious life impact standard would guarantee more successful pain and suffering claims, which in turn would lead to increases in insurance premiums, a result the legislature could not have wanted.”

In reversing the appellate court, the high court ruled that the plain language of the statute does not contain a serious life impact standard. “Nothing in AICRA’s preamble, its legislative history, or its policy objectives suggests that the legislature intended this court to write in that standard,” the justices said.

The court disagreed with the plaintiff’s assessment in relation to the goals of the legislation. “AICRA is a detailed and comprehensive statute that seeks to contain costs in multiple ways: through the prosecution of fraud, introduction of a basic insurance plan, implementation of a dispute resolution procedure, and tightening of the threshold. The new limitation on lawsuit threshold was but one means of stabilizing and reducing costs. The legislature could have completely eliminated the right to sue for pain and suffering, which would have presumably reduced insurance premiums. But it did not do so. Instead, the legislature chose to effectuate cost-cutting savings by placing specific restrictions on the right to sue. Those restrictions are set forth in the statutory language of the new threshold. The legislature did not articulate in its statutory scheme a requirement that injured plaintiffs must prove a serious life impact to meet the threshold” the decision states.

The court said it declined to add the life impact test, claiming that was the job of lawmakers:

“We should not interfere with the policy choices made by the legislature. It may be true that there would be fewer successful claims if we were to impose a serious life impact standard on top of the statutory requirements. However, if the legislature intended that accident victims should have a more difficult hurdle in obtaining a recovery, then it must draft a statute that accomplishes that end. We will not write that statute.”

AIA’s Snyder said that the removal of the test would result in the six lawsuit limiting criteria being interpreted “very technically.”

“The effect is to create significantly rising costs,” he warned.

“The court’s decision threatens the recent progress that has been made to replace one of the worst automobile insurance markets in the country with one that offers more choice and lower costs,” stated Snyder.

He said it was not possible at this time to quantify the impact of the ruling and that it was too early to predict how insurers would respond.

Craig noted that under AICRA, insurers gained control over medical treatments, which should help them contain payments.

The accident
The case involved an accident that occurred on November 30, 1999, in Berlin, N.J., where Barbara Penn failed to observe a “yield” sign and crashed into a car operated by plaintiff Christina DiProspero. As a result of the accident, the 21year-old DiProspero developed back and neck pain. DiProspero received chiropractic and medical treatment for two years until her insurance carrier stopped paying for the visits.

DiProspero filed a lawsuit seeking damages for, among other things, pain and suffering. DiProspero was covered by a no fault insurance policy subject to the limitation on lawsuit threshold.

DiProspero claimed that she suffered permanent injuries. As required by the statute, DiProspero submitted certifications by her doctors attesting to the permanency of her injuries The trial court granted defendants’ motion for summary judgment on the ground that there was no evidence that DiProspero’s injuries had a serious impact on her life.

With one judge dissenting, the appellate division affirmed the grant of summary judgment. DiProspero appealed to the Supreme Court, which has now reversed the lower court.

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