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Cohen v. Allstate Insurance Co.

Decided: February 27, 1989.

EDWARD COHEN, PLAINTIFF-APPELLANT,
v.
ALLSTATE INSURANCE COMPANY, DEFENDANT-RESPONDENT



On appeal from the Superior Court, Law Division, Middlesex County.

Gaulkin, Bilder and R. S. Cohen. The opinion of the court was delivered by Gaulkin, P.J.A.D.

Gaulkin

Plaintiff Edward Cohen, insured by defendant Allstate Insurance Company under a policy providing uninsured motorist (UM) coverage of $100,000/$300,000, brought this declaratory judgment action to invalidate a policy provision which permits either party to "demand the right to a trial" if the arbitration mandated by the policy yields an award which exceeds "the minimum limit for liability specified by the financial responsibility law of New Jersey." The trial judge found the provision enforceable. Cohen appeals.

Cohen was a passenger in a car driven by one Norton which was allegedly cut off by an unknown vehicle. Norton swerved, the car went down an embankment and Cohen was severely injured. He submitted a claim for UM benefits, but was unable to reach agreement with Allstate. Cohen then filed a demand for arbitration as required by the policy. Following a hearing, the arbitrators decided, by 2-1 vote, that the unidentified driver was 90% liable and Norton 10% liable for the accident. The panel fixed damages at $60,000, reduced that sum to reflect the 10% liability attributable to Norton, and awarded Cohen $54,000. A week later, Allstate advised that it "does not accept the arbitrators' award, and demands the right to a trial of this claim." It relied upon the following provision of its policy:

A decision agreed to by two of the arbitrators will be binding as to:

1. Whether the covered person is legally entitled to recover damages; and

2. The amount of damages. This applies only if the amount does not exceed the minimum limit for liability specified by the financial responsibility law of New Jersey.*fn1 If the amount exceeds that limit, either party may demand the right to a trial. This demand must be made within 60 days of the arbitrators' decision. If this demand is not made, the amount of damages agreed to by the arbitrators will be binding.

Cohen argues here, as he did in the trial court, that the provision permitting rejection of an arbitration award contravenes both New Jersey statutory law and public policy. We find no merit to his initial contention that the provision conflicts with N.J.S.A. 2A:24-8, which defines and delimits the situations in which a court may vacate an arbitration award. Enforcement of the policy provision does not involve judicial vacation of the arbitration award; rather, it effectuates the presumed common intent of the parties that, in certain circumstances, the award is to be of limited effect.

We are also unpersuaded by Cohen's contention that the provision contravenes New Jersey public policy in favor of arbitration and permits Allstate to benefit unconscionably from what is unquestionably a contract of adhesion. We recognize that courts of several other jurisdictions have found those arguments persuasive and have invalidated clauses permitting either party to reject a UM arbitration award. Pepin v. American Universal Ins. Co., 540 A.2d 21 (R.I.1988); Schmidt v. Midwest Family Mut. Ins. Co., 426 N.W. 2d 870 (Minn.1988); Chrisman v. Super. Ct. (Gen. Acc. Ins. Co.), 191 Cal.App. 3d 1465, 236 Cal.Rptr. 703 (1987). See also Nationwide Mut. Ins. Co. v. Marsh, 15 Ohio St. 3d 107, 472 N.E. 2d 1061, 1063 (1984) (Sweeney, J., concurring). Contra, Roe v. Amica Mut. Ins. Co., 533 So. 2d 279 (Fla.1988).

Although the public policy of this State is to favor arbitration as a means of settling disputes which otherwise

would go to court (Cty. Coll. of Morris Staff v. Cty. Coll. of Morris, 100 N.J. 383, 390 (1985)), it is equally true that the duty to arbitrate, and the scope of the arbitration, are dependent solely on the parties' agreement. In re Matter of Arbitration Between Grover, 80 N.J. 221, 228-229 (1979); Moreira Constr. Co., Inc. v. Wayne Tp., 98 N.J. Super. 570, 575 (App.Div.), certif. den. 51 N.J. 467 (1968). The parties may shape their arbitration in any form they choose and may include whatever provisions they wish to limit its scope. Local 462 v. C. Schaefer & Sons, 223 N.J. Super. 520, 525 (App.Div.1988); Polshek v. Bergen Cty. Iron Works, 142 N.J. Super. 516, 521 (Ch.Div.1976). The parties have the right to stand upon the precise terms of their contract; the court may not rewrite the contract to broaden the scope of arbitration or otherwise make it more effective. Moreira Constr. Co., Inc., 98 N.J. Super. at 576. It is also significant that, although the legislature has mandated binding arbitration of PIP claims at the option of the insured (N.J.S.A. 39:6A-5c) and has required non-binding arbitration of certain automobile tort claims (N.J.S.A. 39:6A-31), it has not ...


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