The Appellate Division provided clarity to the one or two insurers in the State of New Jersey that tried to reduce their insured's PIP benefit coverage (Personal Injury Protection benefits) by a dubious argument that co-pays and deductibles are included as part of the total PIP benefits coverage. For example, if an insured purchased PIP coverage for $15,000, with a $500 deductible and the mandated 20% co-pay on the first $5,000 in benefits, Travelers argued that its own actual payout burden was $13,500 - shorting the insured $1,500 by taking credit for the deductible and co-pays. Attorneys representing PIP claimants have fought against this ridiculous interpretation by the insurers, however no insurer was foolish enough to try and push the point at trial. Until this year. Birmingham, et al. v. Travelers N.J. Ins. Co., et al., A-0429-21 (App. Div. 3/31/23)
The Appellate Division found that the deductible and co-pay are not part of the calculated PIP benefits but stopped short of the correct legal reasoning. In the case at bar, the Court held that because there was no language or agreed upon terms between the insurer and insured as to whether deductibles and co-pays are part of PIP benefits, the insurer was wrong to reduce its PIP benefits payout. However, an auto insurance policy is an adhesion contract between an Insurer and an Insured. Both the Insurer and Insured have legal obligations which flow from the contract. Following a motor vehicle accident wherein a claim for medical benefits is made, an Insurer must pay benefits for medically necessary treatment until the policy limits are exhausted. An Insured is responsible for paying, out-of-pocket, a pre-selected deductible and a co-payment at the rate of 20% on the first $5,000 in benefits paid, pursuant to their PIP policy. A "deductible" means the "portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer." Black's Law Dictionary 372 (5th Ed. 1979).
The New Jersey Department of Banking and Insurance (“NJDOBI”), the agency charged with creating regulations governing PIP, created the New Jersey Auto Insurance Buyer’s Guide (the "Guide"). A plain reading of the Guide reveals deductibles and co-payments are the responsibility of the Insured, and the Insurer cannot take same as a credit as benefits paid.
NJDOBI defines “deductible” as “[p]ayments you have to make before the insurer pays. For example, a $750 deductible means that you pay the first $750 of each claim.” The Guide at p.6. The Guide also states, with one caveat, “[y]our insurer will pay the medical bills over the deductible amount you choose.” Id. That caveat is that a co-payment of 20% for medical expenses between the deductible selected and $5,000 applies. The Guide continues, “[t]hat means you pay 20 percent, and your insurer pays 80 percent.” Id. A “co-payment” is, as explained in the Guide, a 20% responsibility of the Injured on amounts up to $5,000. The Insurer is responsible for 80%. Id.
The public policy behind the deductible and co-payment, was to assist in controlling auto insurance rates in this State. See Craig and Pomeroy, N.J. Auto Insurance Law § 1 (2014). In addition, there was a problem with lower income individuals bypassing auto insurance policies due to the exorbitant costs of procuring same. As the legislature declared,
"Whereas, The high cost of automobile insurance in New Jersey has presented a significant problem for many-lower income residents of the state, many of whom have been forced to drop or lapse their coverage in violation of the State's mandatory motor vehicle insurance laws, making it necessary to provide a lower-cost option to protect people by providing coverage to pay their medical expenses if they are injured." §39:6A-1.1.
Thus the Legislature instituted the deductible and co-pay system, and, along with the Courts, understood that sometimes following an accident an injured person will only require minimal medical treatment. Craig and Pomeroy, N.J. Auto Insurance Law § 1 (2014).
There are times that an injured will not require ANY benefits to be paid by an Insurer. See Roig v. Kelsey, 135 N.J. 500 (1994). In those situations, when the deductible covers all expenses, the Insurer has effectively paid nothing in benefits. It is incongruous to accept the argument that out-of-pocket payment by an injured should be credited to the benefit of a multi-billion dollar auto insurer.
Peter J. Vazquez, Jr.