TRENTON, N.J., May 14 – Another step was taken on legislation to prevent insurance companies from restricting medical coverage to their employees through the step down procedure allowed in commercial auto insurance policies.

The bill, S1666, was released by the Assembly Insurance Committee for a future floor vote despite objections voiced by car insurance companies and businesses that it is not only unnecessary, but would lead to higher premiums for commercial automobile insurance.

The measure already has cleared the Senate unanimously and is expected to clear the Democratic-controlled Assembly and be signed into law by Governor Jon Corzine.

The sponsor of the bill, State Senator Nicholas Scutari (D-Union County), said that, currently, through step down clauses in commercial automobile insurance policies, coverage and protections for employees not individually named in the employers policy are limited when the employees are injured in motor vehicle accidents while on the job.

Scutari asserted that, in most cases, when an employee is injured, the company uses the step down clause that steps down to the amount of medical coverage stipulated in the employees personal car insurance policy.

The step down procedure was upheld in the New Jersey Supreme Court in 2005 in Pinto v. New Jersey Manufacturers Insurance Co. Scutari said his legislation is needed to override the court decision.

Scutari said that in most commercial policies, only the company itself is a named insured, while coverage for employees in a commercial policy is virtually inaccessible.

He said that, under the step down clause, two employees with the same job, working for the same employer, traveling in the same vehicle and with identical injuries are treated completely differently.

Insurers Position

Insurance industry officials have noted that injured employees are fully covered for medical costs in job-related accidents under workers compensation, and that the step down clauses are legitimate contract agreements. Eliminating these clauses, they contended, will increase premiums and tighten the market.

Richard Stokes of the Property Casualty Insurers Association of America said the step down provision is a freedom that determines what type of coverage is necessary.

This legislation would essentially take away another right of business to make their own decision about their business needs and requirements, he said in prepared comments before the Assembly committee.

Stokes said the legislation is not necessary because all employees are covered under workers compensation insurance for medical costs of job related injuries, including traffic accidents.

Stokes noted that S1666 would make a drastic change in insurance law. Currently uninsured/underinsured motorists follows the individual and not the motor vehicle. He said S1666 would change that for business insurance buyers, and have an adverse impact on the insurance industry by setting a double standard that would increase litigation.

He added that eliminating step down provisions would remove the predictability needed to set accurate UM/UIM rates.

Michael Van Wagner, vice president of legislative affairs for New Jersey Manufacturers Insurance Company, explained that under a commercial policy:

If a company employee is a named insured the full company UM/UIM coverage would be available;

If the company employee is not a named insured and has no personal insurance of his or her own, the full company UM/UIM coverage would be available to them;

If the company employee is not a named insured and has their own insurance, the amount of coverage available to the employee is limited to the policy limits of their coverage.

He said the basis for the step down is clear and fair and employees should not enjoy, nor should employers be required to provide, greater UM/UIM protection than that chosen under their own personal auto policy.

The Professional Insurance Agents of New Jersey Inc., meanwhile, supports the bill to prohibit the step down provision. PIANJ president Andrew Anderson, CIC, said, in testimony before the Assembly committee, New Jersey is the only state that uses these types of provisions to limit coverage. Instead of receiving the uninsured and underinsured motorist limits stated on their employers policy, an employee who is injured while occupying a business vehicle receives the lesser coverage limits of his own personal auto policy or that of a family member if he does not have his own policy.

He added that, in the Pinto decision, the court held that insurance producers have a duty to tell employers that if they want to avoid imposition of the step down provision, they have to name their employees on their auto policy. However, Anderson noted that most insurance companies will not allow employers to include employees as named insureds on a business auto policy. The Pinto decision was particularly troublesome for insurance producers because the court also imposed upon insurance agents and brokers in our state a new duty that is impossible to achieve, said Anderson. This impractical duty has substantially increased the risk of litigation against insurance producers and placed them in an untenable position with their customers.