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Zirger v. General Acc. Ins. Co.

June 12, 1996


On certification to the Superior Court, Appellate Division.

The opinion of the Court was delivered by Stein, J. Chief Justice Wilentz and Justices Handler, Pollock, O'hern, Garibaldi and Coleman join in Justice STEIN's opinion.

The opinion of the court was delivered by: Stein

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Martin S. Zirger v. General Accident Insurance Company (A-68-95)

(NOTE: This is a companion case to Green v. Selective Insurance Co. also decided today.)

Argued January 2, 1996 -- Decided June 12, 1996

STEIN, J., writing for a unanimous Court.

The issue on this appeal is whether Martin Zirger, who has tried to Conclusion in the Law Division his claim against a tortfeasor and has received an award of damages, can nevertheless be compelled to relitigate the issue of damages before an arbitration panel pursuant to the arbitration clause in the underinsured motorist (UIM) endorsement of his own automobile liability policy.

On January 4, 1991, Martin Zirger was injured in an accident with a car operated by Joseph Filsaime. Filsaime's liability insurance policy provided only $15,000 in coverage. Zirger's automobile policy issued by General Accident provided UIM coverage of $1,000,000. General Accident's UIM endorsement contained a standard arbitration clause widely used in the insurance industry. That clause enabled the parties to choose to arbitrate UIM coverage issues. In addition, the contract also provided that any judgment for damages arising out of a "suit" brought without the insurer's written consent is not binding on the insurer (the consent to sue clause).

Zirger sued Filsaime to recover damages for the injuries he sustained in the accident. On February 19, 1993, Zirger's attorney notified General Accident of Filsaime's limit of liability and asked General Accident for permission to settle with Filsaime for the policy limit in order to pursue a UIM claim under Zirger's policy. Zirger's attorney also demanded arbitration pursuant to the UIM endorsement. Although General Accident consented to Zirger's proposed settlement of his claim against Filsaime for the policy limit, that settlement never occurred. After a trial on liability only, a jury determined that Filsaime was at fault for Zirger's injuries. Filsaime's insurer then offered to settle the case for $15,000, Filsaime's policy limit. Zirger's attorney notified General Accident that he was going to reject the offer and proceed to a jury trial on damages. General Accident's attorney informally authorized Zirger's request to proceed to trial but General Accident stresses that counsel never waived the contractual right to arbitrate the damages issue.

The jury awarded Zirger $400,000. Zirger then demanded payment of that amount from General Accident less the $15,000 recovery against Filsaime. General Accident refused payment and Zirger instituted this action.

The parties filed cross-motions for summary judgment. The trial court granted Zirger's motion, concluding that General Accident impliedly had consented to the litigation of Zirger's claims against Filsaime, thereby waiving its contractual right to arbitration.

On appeal, the Appellate Division reversed, concluding that General Accident's acquiescence to Zirger's suit for damages was not a waiver of the contractual right to arbitration. The court also found that General Accident could not be collaterally estopped from relitigating the damages question because its interests and Filsaime's were not sufficiently similar to conclude that Filsaime's litigation of the damages claim provided adequate representation of General Accident's interests.

The Supreme Court granted certification. Although the parties settled this litigation after oral argument, the Court decides the matter because it is one of substantial importance.

HELD: Subject to the discretionary authority of trial courts to resolve specific motions for intervention, uninsured motorists/underinsured motorists (UM/UIM) carriers ordinarily may intervene in their insured's actions against a third-party tortfeasor. A UM/UIM carrier that intervenes in the underlying ton litigation, or declines to exercise its opportunity to intervene, is barred from enforcing the standard arbitration clause in a UM/UIM endorsement. This holding applies prospectively to cases in which the third-party action is tried after the effective date of this decision or the UM/UIM carrier is afforded notice and adequate opportunity to intervene.

1. There is a strong public-policy interest in providing through automobile insurance adequate compensation to New Jersey motorists for injuries sustained in accidents with underinsured motorists. The strong public policy interest underlying the statutorily mandated availability of UM/UIM coverage has prompted courts in several states to override and invalidate provisions in the UM/UIM insurance contract such as the consent to sue provision and the standard arbitration clause. The reluctance of courts to enforce such provisions in UM/UIM endorsements reflects the concern that they unreasonably obstruct an insured's right to recover benefits under his or her insurance policy. Considerations of fairness and avoidance of redundant litigation often have persuaded courts to hold that UM/UIM insurers are collaterally estopped from challenging damage judgments obtained in litigation proceedings against the tortfeasor, of which the carrier had notice, whether or not the policy included an enforceable arbitration clause. (pp. 6-13)

2. The doctrine of collateral estoppel bar the relitigation of any issue that was actually determined in a prior action, generally between the same parties, involving a different claim or cause of action. The party against whom collateral estoppel is to be invoked must have been in privity with the party in the first action. Ordinarily, there will be a sufficient identity of interests between the third-party tortfeasor's carrier and the UM/UIM carrier to justify according preclusive effect to the result of a damage verdict in the litigation between the injured plaintiff and a tortfeasor. (pp. 10-15)

3. In order to avoid relitigation of issues tried in a prior action against the tortfeasor, UM/UIM carriers ordinarily may intervene in their insured's action against the third-party tortfeasor. Case management issues, such as the designation of trial counsel, will be addressed and resolved by trial courts. Moreover, the contractual arbitration clause is invalidated only to the extent that it requires an arbitration proceeding that duplicates the underlying litigation of the tort claim. Adherence to basic principles of contract law must give way to the public interest in the efficient and expeditious resolution of UM/UIM claims. An insurance policy provision that requires that an insured litigate to the Conclusion the issues of liability and damages in a personal-injury action against the tortfeasor, on notice to the UM/UIM carrier, only to be required to relitigate those same issues in an arbitration proceeding with the carrier, cannot be reconciled with the policy considerations that prompted the legislature to mandate the availability of UM/UIM coverage for all insurers. (pp. 19-23)

Judgment of the Appellate Division is REVERSED.


The opinion of the Court was delivered by STEIN, J.

The critical issue posed by this appeal is whether plaintiff's damages verdict against a third-party tortfeasor, awarded after a jury trial, collaterally estops General Accident Insurance Company (General Accident) from enforcing the arbitration clause included in the underinsured motorist (UIM) endorsement of plaintiff's automobile insurance policy. General Accident concedes that it knew of plaintiff's intention to proceed to a jury verdict on damages. The trial court granted plaintiff's motion for summary judgment, observing that General Accident had waived its right to proceed under the arbitration clause. The Appellate Division reversed in an unreported opinion, concluding that General Accident's knowledge of and acquiescence to plaintiff's intention to try the damages issue did not constitute a waiver of the insurer's right to demand arbitration.

We granted plaintiff's petition for certification. 142 N.J. 456 (1995). After oral argument the parties informed us that the case had been settled, rendering moot the underlying legal issue. Ordinarily, our interest in preserving judicial resources dictates that we not attempt to resolve legal issues in the abstract. See Oxfeld v. New Jersey State Bd. of Educ., 68 N.J. 301, 303-04, 344 A.2d 769 (1975); Sente v. Mayor & Mun. Council of Clifton, 66 N.J. 204, 205, 330 A.2d 321 (1974). On occasion, however, we will decide such appeals where the underlying issue is one of substantial importance, likely to reoccur but capable of evading review. See, e.g., Division of Youth & Family Servs. v. J.B., 120 N.J. 112, 118-19, 576 A.2d 261 (1990); Matter of J.I.S. Indus. Serv. Co. Landfill, 110 N.J. 101, 104-05, 539 A.2d 1197 (1988); Matter of Conroy, 98 N.J. 321, 342, 486 A.2d 1209 (1985); Guttenberg Sav. & Loan Ass'n v. Rivera, 85 N.J. 617, 622-23, 428 A.2d 1289 (1981). The issue before us is of that nature, involving as it does the enforceability of a standard arbitration clause ...

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