On Monday, September 10th, New Jersey Governor Jon Corzine signed into law a bill (S-1666/A-3038) banning the use of step-down provisions. Step-down provisions are used in businesses’ motor vehicle liability insurance policies and apply to employee claims. They come into effect when an employee is not a “named insured” on the business’ policy. In these situations, insurance companies use the step-down provisions to pay the claim under the lower uninsured and underinsured motorist limits of the employee’s own personal policy instead of the higher limits of the business’ policy.
Most notably, the bill overturns the New Jersey Supreme Court’s 2005 ruling in Pinto v. New Jersey Manufacturers Insurance Co., 874 A.2d 520. In Pinto, the Court held that step-down provisions are valid and imposed a duty on insurance producers to “inform employers about the necessity for [adding employees as ‘named insureds’ to avoid step-down provisions] so that employers may make informed decisions.” The decision, however, was highly criticized, mostly because insurance companies usually do not allow employees to be “named insureds” on businesses’ policies. As a result, the decision essentially instructs insurance producers to advise their clients to add employees to the policy as “named insureds” even though insurance companies do not allow them to do so.
The bill solves this problem by banning the use of step-down provisions and requiring that employees receive the maximum uninsured or underinsured motorist coverage available under their employer’s policy whether or not they are “named insureds.” The bill was strongly supported by the Professional Insurance Agents of New Jersey Inc.
