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AAA Mid-Atlantic Insurance of New Jersey v. Prudential Property & Casualty Insurance Company

December 22, 2000

AAA MID-ATLANTIC INSURANCE OF NEW JERSEY F/K/A KEYSTONE INSURANCE COMPANY OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
PRUDENTIAL PROPERTY & CASUALTY INSURANCE COMPANY AND ARBITRATION FORUMS, INC., DEFENDANT-RESPONDENT.



On appeal from Superior Court of New Jersey, Law Division, Camden County, L-2181-99.

The opinion of the court was delivered by: Axelrad, J.T.C. (temporarily assigned).

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued: October 25, 2000

Before Judges King and Axelrad.

The two issues raised in this appeal are: (1) whether courts, rather than arbitrators, have jurisdiction to determine if parents who serve alcoholic beverages to their adult son, who is injured in a one-vehicle collision, are "tortfeasors" under the New Jersey Automobile Reparation Reform Act's reimbursement provision, N.J.S.A. 39:6A-9.1, and (2) whether, under this provision, the son's automobile insurance carrier is entitled to reimbursement from the parents' homeowners' carrier for the personal injury protection (PIP) benefits it paid the son for injuries sustained as a result of his parents' negligence.

James MacElrath, age twenty-five, attended a Christmas party hosted by his parents at their house and allegedly was served alcoholic beverages while visibly intoxicated. He left the party in his own motor vehicle which was insured by defendant Prudential Property & Casualty Insurance Company (Prudential). He struck an embankment in a one-vehicle collision and suffered extensive injuries, incurring $80,900 in medical expenses which were paid under his PIP coverage. MacElrath's parents maintained a homeowners' insurance policy issued by plaintiff AAA Mid-Atlantic Insurance of New Jersey f/k/a Keystone Insurance Company of New Jersey (AAA).

Prudential contends it is entitled to reimbursement from AAA, under a social host liability theory, for the medical expense benefits it paid because the MacElraths served their son alcohol and either knew or should have known that he was intoxicated when he left their home, making them "tortfeasors" within the meaning of N.J.S.A. 39:6A-9.1.(1) Prudential filed an application with Arbitration Forums, Inc. (Arbitration Forums) for intercompany arbitration, seeking reimbursement of the benefits paid under its PIP endorsement. AAA filed an order to show cause seeking to invoke the jurisdiction of the court, rather than submitting to arbitration. AAA sought a declaration that it need not submit to arbitration because, even assuming that Prudential would be able to satisfy the conditions for social host liability, the MacElraths do not qualify as "tortfeasors" within the meaning of N.J.S.A. 39:6A- 9.1. More specifically, AAA asserted that the claim was derivative and barred by N.J.S.A. 2A:15-5.7,(2) which exempts from liability social hosts who serve alcohol to visibly intoxicated adults.

The parties entered into a consent order barring arbitration pending a decision on the order to show cause. After oral argument, the motion judge denied relief to AAA, finding that N.J.S.A. 39:6A-9.1 provides that all disputes, of both fact and law, must be decided by arbitrators. He concluded that the court did not have jurisdiction over this matter. AAA has appealed the motion judge's order and its application for a stay of the underlying arbitration pending this appeal. We granted AAA's motion and continued the stay of the arbitration.

On appeal, AAA argues that the court has jurisdiction to decide the dispute between AAA and Prudential. AAA also requests we exercise original jurisdiction pursuant to R. 2:10-5 and determine, as a matter of law, that its insureds have no social host liability to their son and Prudential under N.J.S.A. 2A:15-5.7 and that it may not seek reimbursement because the parents are not tortfeasors under N.J.S.A. 39:6A-9.1. We agree with AAA's position and reverse.

I.

Merely because AAA and Prudential are members of intercompany arbitration through Arbitration Forums does not make them contractually bound to resolve all disputes through arbitration. By its terms, the Agreement provides for compulsory arbitration of controversies arising out of accidents, insured events or occurrences involving reimbursement of PIP benefits under the New Jersey Automobile Reparation Reform Act, N.J.S.A. 39:6A-1 to -35.

In this case, Prudential is an automobile PIP carrier and AAA is a homeowners' comprehensive personal liability carrier; there is no contractual obligation compelling arbitration of this type of claim. This is not an intramural PIP dispute.

We next consider whether the New Jersey Automobile Reparation Reform Act's reimbursement provision, N.J.S.A. 39:6A-9.1, mandates arbitration of this claim. This provision confers a statutory right of recovery on PIP insurers against certain specified tortfeasors by entitling an insurer who pays PIP benefits to recover the amount of payments from any tortfeasor who was not, at the time of the accident, required to maintain personal injury protection or medical expense benefits coverage, other than for pedestrians, under the laws of this State . . . . In the case of an accident occurring in this State involving an insured tortfeasor, the determination as to whether an insurer . . . is legally entitled to recover the amount of payments and the amount of recovery . . . shall be made against the insurer of the tortfeasor, and shall be by agreement of the involved parties or, upon failing to agree, by arbitration. (emphasis added).

Prudential submits that the term "legally entitled" means that the factual and legal issues, including AAA's coverage defense, must be resolved through arbitration. AAA contends that the threshold determination of whether the parents are tortfeasors within the meaning of ยง9.1 should be made by a judge, and if the judge concludes as a matter of law that they ...


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