No Magic Words Needed for Insurer to Reject Under-Insured Motorist Arbitration Award and Obtain a Trial

Vega v. 21st Century Ins. Co., 430 N.J. Super. 18 (App. Div. 2013).  More and more, courts are rejecting formalisms and looking to the realities of a situation.  This opinion by Judge Fisher is an example of that.

Plaintiff, allegedly injured in an auto accident, made a claim under the under-insured motorist (“UM”) endorsement to her auto insurance policy with defendant.  The parties went to arbitration, which yielded an award of $87,500 to plaintiff.  “Because the award exceeded the minimum-liability coverage required by law, ‘either party’ had the right to ‘demand the right to a trial on all issues,’ provided that the demand was made in writing within thirty days of the arbitrators’ decision.  When this policy provision is properly triggered, the award is nullified and the claimant must resort to filing a complaint; without such a demand, the award becomes ‘binding.'”

Within thirty days of the award to plaintiff, defendant’s counsel wrote a letter to plaintiff’s attorney stating that, pursuant to the insurance policy, “the UM Arbitration Award of June 16, 2011 is hereby rejected.  Kindly be guided accordingly and contact the undersigned to discuss possible settlement of this matter.”  The letter did not explicitly demand a trial.  As a result of that, instead of filing a complaint for damages, plaintiff filed an action seeking to confirm the arbitration award, on the grounds that defendant had not demanded a trial, so that the arbitration award had become binding.  The Law Division agreed with plaintiff.  Exercising plenary review of that purely legal ruling, the Appellate Division reversed.  

Judge Fisher quoted Morag v. Continental Ins. Co. of New Jersey, 375 N.J. Super. 56 (App. Div. 2005), where the insurer likewise had failed to demand a trial explicitly.  There, though the Appellate Division stated that “[t]he proper and most direct manner to demand a trial is to do so expressly,” the court found that the letter sufficiently demanded a trial even without those express words since “the fair implication of the correspondence between the lawyers was that the carrier was demanding a damages trial.”  Judge Fisher “continue[d] to adhere to this approach of determining ‘the fair implication’ of the wording of a post-arbitration letter in a manner that does not exalt form over substance.”  He also reiterated that an insurer can avoid expensive litigation such as this by being crystal clear in demanding a trial.

The Law Division here had relied on LoBianco v. Harleysville Ins. Co., 368 N.J. Super. 515 (Law Div. 2003).  The panel found that decision inconsistent with Morag and overruled it.  Judge Fisher also discussed some other Appellate Division opinions that might have been seen to support plaintiff, but ruled that they did not.

Elevating form over substance is almost never appropriate.  The Supreme Court has for years rejected “technisms.”  This wise decision follows in that tradition.