On appeal from the Superior Court of New Jersey, Law Division, Morris County.
Approved for Publication September 8, 1995
Before Judges Stern, Keefe and Humphreys. The opinion of the court was delivered by Keefe, J.A.D.
The opinion of the court was delivered by: Keefe
The opinion of the court was delivered by KEEFE, J.A.D.
Two issues are presented on this appeal: 1) whether a motor vehicle insured by the New Jersey Automobile Full Insurance Underwriting Association (JUA) is uninsured in the context of N.J.S.A. 17:28-1.1, thereby permitting plaintiff to proceed directly against her uninsured motorist (UM) carrier rather than wait for payment under the JUA deferral plan; and 2) if the first issue is resolved against plaintiff, whether her insurer is obligated to arbitrate plaintiff's underinsured motorist (UIM) claim before the tortfeasor's liability limit for bodily injury is offered in settlement or paid by judgment. We conclude for the reasons stated herein that the JUA is an insolvent insurer in the context of N.J.S.A. 17:28-1.1(b), and, although the second issue is rendered moot by our Conclusion on the first issue, we hold that UIM insurance carriers are not compelled to arbitrate until the conditions set forth in Longworth v. Van Houten, 223 N.J. Super. 174, 538 A.2d 414 (App. Div. 1988) are satisfied.
The facts are undisputed. Plaintiff Lorraine Ainsworth was involved in an automobile accident on February 2, 1990, when her vehicle was struck by a vehicle operated by Quey Cooper. Cooper was insured under a policy issued by the JUA through one of its servicing carriers with a combined single bodily injury limit of $50,000. At the time of the accident, the vehicle operated by plaintiff was insured by defendant State Farm. She also had non-owned vehicle coverage under a family auto insurance policy issued by defendant Prudential.
Plaintiff filed a complaint against Cooper in the Law Division on June 26, 1991. Summary judgment has since been entered against Cooper on the issue of liability. At the present time, injured claimants who either settle or obtain judgments against JUA insureds must wait up to eighteen months for their money. See N.J.S.A. 17:33B-3b(2); N.J.S.A. 11:3-2A.
Plaintiff maintains that it is unfair to make claimants, such as herself, wait for their just compensation, and that the Legislature has established a statutory scheme to prevent such an unjust result. That statutory scheme, according to plaintiff, is found in N.J.S.A. 17:28-1.1(e)(2)(b), which permits an insured claimant to pursue a UM claim against his or her insurer where the tortfeasor's insurer "is unable to make payment with respect to the legal liability of its insured because the insurer has become insolvent or bankrupt, or the Commissioner of Insurance has undertaken control of the insurer for the purpose of liquidation[.]"
Consequently, in September 1993, plaintiff filed a complaint and order to show cause in the Law Division seeking to compel State Farm and Prudential to arbitrate her alleged UM and UIM claims. *fn1 After receiving briefs and entertaining oral argument, the Law Division held that plaintiff could not pursue the UM claim because JUA was not an insolvent insurer within the context of N.J.S.A. 17:28-1.1(e)(2)(b), but did have a right to pursue the UIM claim and ordered that arbitration to proceed. Plaintiff appeals from the Law Division judgment denying her request for UM arbitration, and defendant State Farm cross-appeals from that part of the judgment ordering UIM arbitration. *fn2 The JUA was not a party to the Law Division action but was granted leave to file an amicus curiae brief on the issue of whether Cooper is uninsured in the context of N.J.S.A. 17:28-1.1(e)(2)(b). At our invitation, the Commissioner of Insurance (Commissioner) has also filed an amicus curiae brief.
Plaintiff argues that the JUA is insolvent, under any recognized definition of the term, because of its huge deficit and the fact that it is paying settlements and judgments on a deferral basis through a trustee. She maintains that this Conclusion is not only legally correct, but is an equitable result for deserving claimants. Plaintiff posits that if the UM carriers *fn3 pay her UM claim, they will be subrogated to her rights against the JUA insured, and ultimately will recoup the money they pay her on the UM claim through settlement or judgment. The practical effect is that the UM carriers rather than plaintiff will have to abide the deferral period for the money the JUA justly owes.
Although the JUA is unable to point to any negative impact on it or its operation resulting from an adjudication that it is insolvent, it maintains that it is not insolvent, and also argues that the Commissioner has not undertaken control for the purpose of liquidation. The Commissioner essentially adopts the position taken by the JUA. Although the Commissioner contends that an adjudication that the JUA is insolvent may have precedential impact on the MTF, the JUA's residual market successor, he fails to identify any adverse consequence of such a determination in the context of a UM claim presented pursuant to N.J.S.A. 17:28-1.1(e)(2)(b).
The practical impact of plaintiff's argument, as we see it, is on open market UM carriers. Plaintiff maintains that the impact is minimal in view of the fact that a UM insurer will be subrogated to a plaintiff's claim and receive full reimbursement. Plaintiff appears to be correct in her contention that UM insurers will be able to present subrogated claims against JUA. Nothing in the Fair Automobile Insurance Reform Act of 1990, N.J.S.A. 17:33B-1 et seq., (FAIRA), or the pertinent regulations, prohibits the presentation of a subrogated claim, and neither the JUA, the Commissioner, nor the UM insurers have argued to the contrary. Thus, the UM insurers in this litigation, and in similar cases, will have an advantage that they would not have had had the JUA bailout been accomplished in the typical manner, i.e., where the Commissioner institutes formal proceedings to have an insurer declared insolvent. In the typical case, a UM insurer may not present a subrogated claim for reimbursement to the New Jersey Property Liability Guaranty Association (Guaranty Association). N.J.S.A. 17:30A-5d. *fn4
However, plaintiff's argument is not complete in terms of the practical impact a decision in her favor will have on UM insurers. While it is true that the UM insurers are subrogated to plaintiff's rights if they pay plaintiff's UM claim, they are not entitled to a dollar for dollar return of their money as a matter of law. The JUA is not bound by the arbitration proceedings between plaintiff and the UM insurers, and may take the position that the value of plaintiff's claim is substantially less than that awarded to plaintiff in the UM arbitration. If that occurs, the UM insurers may be forced to litigate the subrogated claim against the JUA in the pending civil suit, unless they are willing to accept from the JUA an amount less than they paid through arbitration.
Several scenarios may flow from this result. Most UM endorsements allow either party to reject the arbitrators' damage award if the amount of the award exceeds the statutory minimum liability insurance limit. See Cohen v. Allstate Ins. Co., 231 N.J. Super. 97, 555 A.2d 21 (App. Div.), certif. den., 117 N.J. 87 (1989) (upholding the legality of such clauses). Thus, a UM insurer, faced with the prospect of litigating the value of a plaintiff's damage claim against the JUA, will undoubtedly elect not to accept the award as final unless it can obtain JUA's acknowledgement that the award represents the fair value of plaintiff's claim. That is the best case scenario.
Alternatively, JUA may refuse to acknowledge that the award represents the true value of the claim, in which case the UM carrier will reject the arbitration award and request a plenary trial. In that case a plaintiff will become involved in a plenary trial, thereby losing the benefit of the expedited arbitration proceeding. However, in this second scenario, the plenary trial can involve both the UM carrier and JUA, and both will be bound by the result. The UM carrier will be required to pay the judgment promptly ...