N.J. Automobile Insurance and the Law
Few issues irritate New Jersey residents or sum up the problems of living in the Garden State more than automobile insurance. New Jersey motor vehicle owners continue to pay the highest insurance premiums in the country, despite years of rewriting the laws, and are getting less coverage for their money. The most recent legislative overhaul of the mandatory insurance laws, the Automobile Insurance Cost Reduction Act of 1998 (AICRA), which went into effect as people renewed their policies between March 1999 and March 2000, signals a shift in the traditional focus of automobile insurance from protecting your assets in the event that you cause an accident to protecting yourself in the event that someone injures you. These changes have the added effect of replacing your right to have your case decided by a jury with a system of arbitrations before lawyers and other professionals.
We have found that most people do not understand automobile insurance beyond the bottom line of the premium they must pay. We have also found that the insurance brokers and agents who sell policies often give bad advice, for which they are immune under New Jersey law (N.J.S.A. 17:29-1.9). It is stating the obvious to describe the importance of the automobile to New Jersey residents and to point out the congestion on the roadway. It has been estimated that a New Jersey driver will be involved in an accident on the average of once every 12 years. The options that you select on your policy affect the ability to get medical treatment and the right to recover for injuries for your entire family. The following is offered as a summary of the laws and the pitfalls to avoid, along with recommendations as to the coverage which you should select.
BACKGROUND AND HISTORY
Liability insurance provides money that is paid by an insurance company on your behalf to someone to whom you are liable. No-Fault insurance provides money that is paid regardless of who is at fault for the insurance, and refers mainly to medical and other benefits known as Personal Injury Protection (PIP) coverage. No-Fault became the law in New Jersey in 1973. Because almost all drivers in New Jersey had liability insurance, reformers thought it would be more convenient for the same policies also to provide medical insurance for people hurt in accidents. Automobile insurance policies were also required to provide Uninsured Motorist (UM) coverage to afford protection for persons injured by drivers who had no insurance, thereby relieving the strain on a state fund known as the Unsatisfied Claim and Judgment Fund. These changes had two results. First, insurance companies that had experience only in providing liability coverage also had to learn to process medical claims, which many did inefficiently. Second, drivers had to pay an increased premium that reflected the liability, UM and medical coverage that they were required to purchase.
To keep premiums down, the legislature created a threshold in which an injured person could not sue for pain and suffering unless incurring medical bills of $200. By the 1980s, this threshold provided inadequate. The legislature amended the law, effective in 1984, to create a choice of thresholds. Instead of the $200 threshold, people could chose to reduce their premium by increasing their threshold to $1,500 in order to sue for their pain and suffering from an automobile accident. The $1,500 was adjusted annually, and, by the time the economic threshold was scrapped in 1989, it had reached $1,950. Instead of increasing the amount of liability coverage which drivers had to carry from the required minimum of $15,000(per claimant)/$30,000(total claims per accident), people could buy Underinsured Motorist (UIM) coverage to protect themselves from the risk that someone who injured them had only the basic $15,000/$30,000 or other inadequate coverage.
Premiums continued to rise for reasons that are the subject of debate and a lot of finger pointing that continues to today; the inflationary rise in medical costs made it more expensive to provide PIP coverage, the population increase in New Jersey increased the risk of an injury occurring from an automobile accident, the insurance companies claim that people were too quick to file lawsuits over their injuries, and skeptics believe that insurance company profitability was more closely linked to the collapse of the junk bond market and the end of high interest rates than with litigation trends. The connection between the threshold and liability insurance premiums is indirect; a restriction on your right to sue only helps to reduce the liability of the person who injures you. Your liability premium, for coverage that protects you, in case you cause an accident and are sued, is being based on your decision to forego a recovery if you are injured by someone else’s fault. This marked a significant shift from basing liability premiums on the risk you create toward others to basing premiums on whether you choose to seek compensation because of the risk someone else poses to you. Liability premiums were being based on the cost of the whole automobile litigation system rather than on risk posed by the insured.
In 1989 the verbal threshold became law. Instead of describing the threshold in terms of a dollar amount of medical bills required to treat an injury, the new law used words to describe the threshold injury needed to maintain a lawsuit for pain and suffering, hence the name “verbal” threshold. The New Jersey Legislature recognized nine categories of injuries that could meet this threshold. For an increased premium, insureds could elect to have no threshold at all. The application of these descriptions to actual injuries, however, was imprecise and not even the appellate courts in New Jersey always agreed as to whether an injury met the verbal threshold. In 1990, the legislature amended the PIP medical coverage to shift medical costs over $75,000 to a state fund, cap medical expense coverage at $250,000 and to impose deductibles and co-payments for PIP.
Automobile insurance premiums continued to rise through the 1990s, even as jury verdicts and other potentially inflationary factors, such as the cost of repairing vehicles, remained relatively stable, and it has been estimated that as many as 20 percent of New Jersey drivers did not carry the mandatory insurance. The most recent legislative response was AICRA, the Automobile Insurance Cost Reduction Act of 1998, which went into effect in 1999. Policies written under the new law can offer virtually no protection for either liability or No-Fault, though there has been little decrease in premiums other than the statutorily mandated one-time 15 percent cut to make the legislation more politically palatable the first year it went into effect. Insurance company profitability has increased dramatically though, even if some insurance companies will not admit it.
The New Automobile Insurance Policy: The Threshold
The new law replaces the verbal threshold with the “Limitation on Lawsuit” threshold. This threshold requires that a person sustain one of six injuries in order to recover non-economic losses. Those injuries are (1) death, (2) dismemberment, (3) significant disfigurement or significant scarring, (4) a displaced fracture, (5) the loss of a fetus, or (6) a permanent injury other than those already listed. A doctor must verify these injuries through “objective” findings, and the doctor must so certify under oath. As with the verbal threshold, insureds can opt for no threshold by paying a higher premium.
The difference between “objective” and “subjective” evidence of an injury reflects the insurance industry’s ability to convince the New Jersey legislature and courts to adopt as the law something that had previously been only an argument that its lawyers made to juries. Though most people sue primarily because they are in pain from an injury, the insurance companies have regarded pain as imaginary because it cannot be seen or measured. Insurance companies routinely tell juries that people are exaggerating claims of pain, no matter how devastating the injury, because injured people cannot prove they are in pain other than through their own testimony. Pain is “subjective” because it cannot be felt by anyone other than the person experiencing it, and this experience is not considered sufficiently real by the insurance industry or the lawmakers in New Jersey. Evidence of certain injuries may be observed by trained medical personnel. These are “objective injuries.” For example, if you feel tenderness in a muscle, this is only a subjective injury, but if a doctor can feel the muscle go into spasm when touching it, this is an objective injury. A limitation on one’s range of motion of the back, neck or a limb is considered subjective because the injured person tells the doctor when the limb can no longer move. Swelling and discoloration are objective because another person can see them. Certain tests, like X-rays, MRIs, EMGs or CAT scans can also objectively demonstrate an injury. Pain, by itself, will never meet a threshold.
However, just because your doctor objectively verifies your injury, don’t think that the insurance companies will concede the point. As part of discovery, you will have to submit to a medical examination by a doctor selected by the insurance company. Such doctors routinely fail to find the same objective indications of an injury that treating doctors find. Even when a test shows your injury, certain insurance company doctors manage not to see the same problem as your treating doctor and the radiologist. If the problem is undeniable, the insurance companies will try to blame it on another injury or condition that you had earlier in your life, even in the absence of medical documentation that the condition was bothering you at the time of your accident. For example, insurance companies routinely blame herniated and bulging discs on arthritic degeneration, even without proof that the injured person suffered from problems with arthritis before an accident.
Many insurance agents and brokers who sell automobile insurance policies will tell you that you should take the higher Limitation on Lawsuit threshold, because you are not the type to sue over minor injuries anyway. Of course, they do not live with the consequences of this selection. You do, and your selection of a threshold will bind all immediate family members, such as your spouse and children, who live in your house and do not have their own automobile insurance policies.
There are several problems with the Limitation on Lawsuit threshold. First, even non-permanent injuries that do not meet the threshold can significantly set your life back by disabling you for substantial periods of time. Second, the insurance companies will do everything imaginable to deny that your injuries meet the threshold, and if the objective medical evidence is equivocal, you may not be able to prove to a court’s satisfaction that your injuries are sufficiently severe. Third, if you have any pre-existing injury or disease, the insurance companies will blame your condition on that problem rather than on the injuries from your accident. Fourth, you will need your doctor’s cooperation to document the objective evidence of your injury, and your doctor may not be willing to cooperate. You have the burden of proving that your injuries meet the threshold.
We recommend that you reject the “Limitation on Lawsuit” threshold and select “No Threshold”. Though you will pay a higher premium, you can easily recoup all of your premiums if you are involved in one serious accident, as a New Jersey driver will statistically experience, and you will be able to recover for your injuries
Liability And UM/UIM Coverage
The new law allows people to select the “basic policy,” also sometimes known at the “mini policy”. If you select the basic policy, you are required only to carry the $5,000 in liability coverage for property damage (to fix the other driver’s car), and have the option of carrying no more than $10,000 in liability coverage in case you are sued for causing personal injuries. The basic policy also provides PIP medical coverage up to $15,000 (other than a limited exception for catastrophic brain trauma). The majority of automobile accidents result in less than that amount in medical bills, which is why the insurance companies want to retain PIP and do away with liability coverage. The basic policy does not provide Uninsured (UM) or Underinsured (UIM) coverage. All you are buying is a minimal amount of medical insurance and some insurance to pay for the damage you do to someone else’s vehicle.
The standard policy still provides the minimum $15,000/$30,000/$50,000 in liability coverage, but allows you to purchase optional liability coverage up to, depending, on the insurance company, $300,000, with the ability to buy umbrella coverage beyond that. It still provides $250,000 in PIP medical coverage, though you can opt for lesser amounts, and provides you with at least $15,000 in UM/UIM coverage with the option of buying more.
You should purchase as much liability coverage as you can afford. Injured people’s right to sue is limited by their own threshold selection, not by the amount of your insurance coverage. Just because you have little or no liability coverage does not mean that someone whom you injure cannot sue you for any amount a jury will give them. If you are sued, the injured person can obtain a judgment against you, and if you do not have enough insurance liability coverage to pay that judgment, the judgment can be filed with the court, in a process known as “docketing,” where it will affect your credit and act as a lien on any real estate in your name for 20 years. Brokers and agents who sell liability insurance will sometimes tell you that you need only enough liability coverage to protect your current assets so that they cannot be taken in order to satisfy a judgment against you. But even if you have few assets at the present that need to be protected, you need to think where you will be when you try to buy a house 10 years from now and the mortgage company finds that docketed judgment.
Moreover, you are not allowed under New Jersey law to purchase UM or UIM coverage in limits that exceed the liability coverage that you purchased. In other words, you are not allowed to protect yourself more than you are willing to protect other people. This is another reason not to buy minimal liability coverage. Uninsured Motorist coverage protects you from the risk that someone without insurance will injure you. Underinsured Motorist coverage protects you from the risk that someone with inadequate insurance will injure you.
Before AICRA, up to 20 percent of New Jersey drivers were illegally uninsured and did not carry liability coverage. Now, under AICRA, those drivers can legally carry no liability coverage if they buy the basic policy. If you are injured by a driver with no liability coverage, and do not want to wait up to 20 years to recover, your recourse is through the Uninsured Motorist coverage of your own policy. Many drivers who do carry liability insurance have very low limits, as the minimum $15,000/$30,000/$50,000 coverage has not been increased since 1973 and is inadequate to compensate many losses. If you are injured by a driver with little or no liability coverage, your recourse is through the Uninsured or Underinsured Motorist coverage of your own policy. With either UM or UIM, you can recover up to the limits of your own policy, rather than the policy of the person who injured you, but your policy limits for either of these types of coverage cannot exceed the limits of your own liability coverage. Brokers or adjusters may tell you that, because automobile insurance in New Jersey is compulsory, the chance of someone without insurance injuring you is low. However, there is a good chance that you will be injured by someone with coverage that is inadequate to compensate you fully.
The importance of UM and UIM coverage reflects a substantial shift that is developing in automobile insurance in New Jersey in which you must insure yourself in order to protect yourself from the risk created by other drivers, rather than insure yourself to protect other drivers from the risk that you pose. As noted, the legislature has refused to increase the minimum required amounts of liability coverage, and has even eliminated mandatory personal injury liability coverage for those with a basic policy, leaving many drivers either uninsured or underinsured. Uninsured and Underinsured Motorist coverage has, in the meantime, become mandatory. You pay for the insurance protection that you want to receive but you cannot do so unless you also elect higher liability coverage. The legislature has also attempted, unsuccessfully, to reduce insurance premiums by linking them to the right to sue rather than the risk one creates on the roads. It is incumbent on you to preserve your right to sue by electing to have no threshold.
UM and UIM claims are not, in the first instance, resolved by a trial before a jury. The manner in which these claims are resolved depends entirely on what your insurance company puts in its policy. The New Jersey legislature and courts and the New Jersey Department of Banking and Insurance have refused to intervene to protect consumers. The typical policy requires that a claim for UM or UIM benefits be arbitrated by three lawyers, one of whom is picked by you, one of whom is picked by the insurance company, and one of whom is picked by the first two arbitrators. The arbitrations are preceded by the same sort of discovery that is found in a civil lawsuit, but with no judge to control events, the process often drags out. Most insurance policies allow either side to reject an award that is above a certain amount, usually $15,000, but higher awards are more likely to upset an insurance company rather than a claimant, and insurance companies reject the vast majority of arbitration awards that exceed this amount (indeed, almost all of them in our experience). The claims then become the subject of a regular lawsuit, which adds another two to four years to the process. The arbitration clause that insurance companies put in your policy is little more than a delaying tactic to add to the length of time it takes to resolve your claim.
Personal Injury Protection Benefits
Just as the rest of the country was getting sick of the abuses of managed health care, the New Jersey Legislature modified, as part of AICRA, the mandatory PIP medical benefits in everyone’s automobile insurance policies to give the insurance companies unprecedented control over the type of medical treatment you are entitled to receive after an automobile accident. As a result, you can expect to fight with your insurance company after eight weeks to 12 weeks of treatment, depending on your injury. The insurance company can refuse to pay for the sort of objective testing that is necessary to demonstrate that your injury meets the Limitation on Lawsuit threshold. By refusing to pay for this testing, it is easier for the insurance industry to argue that your injuries are subjective, keep their medical costs down, and deny your ability to sue for pain and suffering. In our experience, many medical providers are so frustrated by the PIP protocols that they are seeking payment through health insurance plans rather than the automobile insurance plans. This will ultimately require consumers to pay for their own medical treatment because many health insurance carriers can recoup their payments from the injured person’s pain and suffering award. There is a big difference between aggressively treating a medical condition and merely “doing something” to help the injured person. We feel that the effect of the changes in the PIP laws means that your insurance company has to provide you with enough medical treatment so that it can claim that it is doing something for you, but not necessarily the optimal amount of care that you may need.
PIP medical coverage pays for your own medical treatment following an automobile accident. It is considered No-Fault insurance because your PIP must pay regardless of who is at fault for the accident. If the other driver is totally at fault for the accident, your own PIP still pays for your medical treatment. If you are totally at fault for the accident, your PIP will still pay for your treatment. PIP offers other types of No-Fault coverage as well, such as payment for a portion of your lost wages and essential services such as housekeeping which you may require as you heal. The medical coverage, however, is the most important and the most often used.
If you are injured in an automobile accident, for which PIP medical coverage is available, you can go to any doctor you choose without getting a referral from a primary care doctor like that required by many health insurance companies. We strongly suggest that you go immediately to a specialist, such as an orthopedist or a neurologist, rather than a primary care doctor, as the specialist is better able to treat you and document your injuries, both of which need to be done as soon as possible after the accident. You do not have to notify the PIP carrier for the first 10 days of in-patient hospital treatment. For injuries to the back and neck, you are then entitled to treatment according to protocols developed by each individual insurance company and filed with the New Jersey department of Banking and Insurance. Protocols are treatment plans consisting of recommended treatments and decisional points of review. Other protocols are being developed for other sorts of injuries. You are not necessarily entitled to see these protocols before you are get injured and file a claim for PIP benefits.
These protocols are not fully developed yet and the following is only a summary of what you can expect under the proposals that have been floated so far. The standard protocols being developed for neck and back injuries allow you to have up to 10 days in the hospital immediately following the accident and conservative treatment (non-surgical, usually physical therapy) for the first four weeks without the need to give notice to the insurance company. After that, if you fail to file a formal claim with your PIP carrier, you may incur penalties as severe as a reduction of up to 50 percent of the portion of your medical bills that PIP must pay (and for which you therefore become responsible). Doctors and other medical providers must notify the PIP carrier within 21 days of beginning treatment or the PIP carrier can refuse to pay any of their bills. You will have to make sure that your doctors, physical therapists, etc., have your correct insurance information. After the first four weeks, PIP will pay for no further treatment without notification, and the insurance company has the right to cut off additional treatment, but you do not need permission for additional treatment. But after another four to eight weeks (eight to 12 weeks after the accident), depending on your injury, all treatment must be pre-authorized. At any time, your PIP carrier can insist that you go to its doctor for a medical examination to see if further treatment is needed. As with any insurance company examination, you should expect the results to be unfavorable to you. Pre-authorization is needed for diagnostic testing.
If you have a dispute with your insurance company over PIP payments, you have the right to have your dispute arbitrated. The arbitrators are lawyers on a list approved by the New Jersey Department of Banking and Insurance. You can also ask to have your medical records reviewed by an outside Medical Review Organization for its determination as to whether additional treatment is warranted. The Medical Review Organizations are selected by the New Jersey Department of Banking and Insurance.
Note that the law is continually evolving and changes regularly. This website is not meant to be a comprehensive statement of any area of the law, but is intended only to afford some familiarity with basic terms and concepts in New Jersey. You should consult a lawyer for more detailed information. All materials on this website are the property of Drazin and Warshaw, P.C., copyright 2001, and are not to be used without written permission