September 7, 2007
CONTINENTAL CASUALTY INSURANCE COMPANY, PLAINTIFF-RESPONDENT,
SELECTIVE WAY INSURANCE COMPANY, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Chancery Division, Middlesex County, C-288-05.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued August 29, 2007
Before Judges Cuff and Lintner.
This appeal involves an insurance dispute between two insurance carriers providing first-party property damage coverage for office premises located at 25 Main Street in Hackensack. Following an adverse decision in binding arbitration requiring it to contribute $109,513.25 toward an insurance settlement, totaling $156,026.69, plaintiff, Continental Casualty Insurance Company (Continental), filed a complaint naming Selective Way Insurance Company (Selective) as defendant, seeking to vacate the arbitration award. Both parties filed cross-motions for summary judgment. After hearing argument on the motions, the judge entered summary judgment in favor of Continental, setting aside the arbitration award. Following denial of its motion for reconsideration, Selective filed this appeal. We now affirm.
On March 26, 2004, the property in question sustained significant water damage as a result of flooding purportedly caused by a defective water filter located in the premises leased by tenant, Cole, Schotz, Meisel and Forman. At the time, the tenant was covered with a property damage policy issued by Selective. At the same time, the landlord, Court Plaza Associates, was insured by plaintiff Continental.
Selective reached a settlement with the tenant agreeing to cover the loss for $156,026.69. Both Continental and Selective were signatories to the Arbitration Forums, Inc. Special Arbitration Agreement, which required both carriers to submit certain inter-company disputes to binding arbitration. Based upon its contention that once the damage property was repaired it would inure to the benefit of the landlord, Selective filed for Special Arbitration with Arbitrations Forums, Inc., seeking contribution from Continental.
Continental responded, asserting in part that the matter did not qualify under the compulsory provisions of Article First of the Special Arbitration Rules because "the companies did not provide concurrent coverage to the same parties." It also asserted that it provided no coverage to the tenant, it was in the process of adjusting the loss submitted by its insured, and the insurable interest, if any, that its insured had in the residual value of the carpeting damaged in the rental premises, was negligible. On the merits, it claimed that the landlord and tenant had entered into a third amended lease, which granted an allowance to the tenant of $244,788.45 for the removal and replacement of all the carpeting and, because the old carpeting had not been replaced by the time of the loss, it had no residual value.
The Special Arbitration Forum provided its Decision Notice on February 8, 2005, finding Continental covered 87.50% of the loss. The following explanation was given:
The original lease was for 16 years & terminated in 2006. At the time of the loss, there were 2 years left on the lease. Therefore, Co 1 (Selective) is responsible for 1/8 and 2 [Continental] is responsible for 7/8. Damages were not contested by [Continental]. No proof was offered that the $244,788.45 that was negotiated in the 2004 lease extension was directed to pay for these betterments/improvements. [Continental] offered no proof to support their contention that they had paid for any of the damages.
Appealing the award pursuant to the rules of Arbitration Forums, Continental asserted, "Continental's insured is not listed as an insured or additional insured for property covered under the Selective Way policy." Continental then reiterated Article First of the Compulsory Provision of the Special Arbitration Rules, which provides in pertinent part:
Upon settlement of a claim or suit, signatory companies must submit any unresolved disputes to Arbitration Forums, Incorporated . . . where:
(b) each has issued separate polices of property or casualty insurance providing . . . concurrent coverage to the same party or parties asserted to cover an accident, occurrence or event out of which a first or third party claim or suit for . . . property damage arises . . . . (footnote omitted).
Continental also cited to the definition of concurrent coverage found in the Special Arbitration Definitions:
Concurrent Coverage - Two or more policies of insurance and/or self-insureds providing coverage to the same party or parties for the same accident, occurrence or event. Concurrent coverage includes primary/excess disputes.
Maintaining that because both Selective and Continental did not provide coverage to the same parties, Continental argued that there was no concurrent coverage and, thus, the panel was without jurisdiction to hear the dispute.
Denying Continental's appeal, the Special Arbitration Appeal Decision found that concurrent coverage existed because "[b]oth companies insure the same property and cover the damages arising out of the same occurrence." It further noted that the carriers "do not insure the same people but [the] same premises."
In its presentation to the motion judge, Selective submitted an affidavit from Walter Fowler, a Property Subrogation Specialist for Selective, who attached an example of concurrent coverage provided in the Special Arbitration Forums Reference Guide, which states:
Example: A condominium owner's insurer, Company 1, paid for a fire loss. The condominium association also had fire insurance for the same loss with Company 2. Company 1 believed Company 2 should cover the insured's loss. When both insurers are signatories to the Special Forum, this coverage issue would be appropriate and compulsory for Special Arbitration.
Also attached to Fowler's affidavit was an Arbitration Forums newsletter with an updated definition of concurrent coverage, effective January 3, 2006, which added the words "or the same risk or risks" to the definition of "Concurrent Coverage." Noting that the newsletter indicated that the new definition "clarifies that the situation of different parties providing coverage for the same risk represents a compulsory dispute," Fowler opined that the modification was merely a clarification of what constituted concurrent coverage at the time of the subject arbitration.
The judge noted that the condominium example was not clear as to whether the carriers provided coverage for both the owner and the association. Keying on the definition of concurrent coverage under the inter-company arbitration agreement, the judge concluded that, because there was no showing that Continental insured the tenant, the dispute did not meet the definition of concurrent coverage to support compulsory arbitration under the agreement. She noted that undue influence under N.J.S.A. 2A:23B-23 includes situations where arbitrators exceed their authority by disregarding the terms of the parties' agreement. She also concluded that to permit the arbitration decision to stand against Continental would "compel [it] to pay out on a claim it did not insure."
On appeal, Selective contends that it was clear from the condominium example that it was the intent of the Special Arbitration Agreement to include situations where two carriers insure the same risk such as here, as well as cases where two carriers insure the same party. Selective also contends that Continental waived its objection to jurisdiction by participating in arbitration. Relying on Section 3-5 of the Special Arbitration Rules and Regulations, which states in part that "[t]he arbitrator(s) will only consider: (a) Those affirmative defenses or objections to jurisdiction included in the Affirmative Defense/Pleading section on the Contentions Sheet," Selective asserts that Continental, as a signatory, specifically consented to the arbitrator determining jurisdictional issues.
This is a private sector arbitration matter as opposed to a public sector arbitration matter. Thus, unless agreed to by the parties (not here contended), the appropriate judicial scope of review does not encompass errors of law or facts. Tretina Printing, Inc. v. Fitzpatrick & Assocs., Inc., 135 N.J. 349, 357-58 (1994). An arbitrator's award can be vacated if "procured by corruption, fraud, or other undue means"; or the arbitrator "refused to postpone the hearing," "exceeded [his or her] powers" or conducts the arbitration "without proper notice . . . so as to substantially prejudice the rights of a party to the arbitration proceeding." N.J.S.A. 2A:23B-23; see also High Voltage Eng'g Corp. v. Pride Solvents & Chem. Co. of N.J., 326 N.J. Super. 356, 362 (App. Div. 1999) (citing Tretina, supra, 135 N.J. at 355-59); Allstate Ins. Co. v. Universal Underwriters Ins. Co., 330 N.J. Super. 628, 632-33 (App. Div. 2000); Habick v. Liberty Mut. Fire Ins. Co., 320 N.J. Super. 244, 253 (App. Div.), certif. denied, 161 N.J. 149 (1999). "When parties have agreed, through a contract, on a defined set of rules that are to govern the arbitration process, an arbitrator exceeds his powers when he ignores the limited authority that the contract confers." County College of Morris Staff Ass'n v. County College of Morris, 100 N.J. 383, 391 (1985). "The scope of an arbitrator's authority depends on the terms of the contract between the parties." Ibid.
Generally, we look to the terms of the policy to determine whether coverage is primary, co-primary, or excess. See Am. Reliance Ins. Co. v. Am. Cas. Co. of Reading, Pa., 294 N.J. Super. 238, 240 (App. Div. 1996), certif. denied, 150 N.J. 29 (1997). However, neither party submitted their policy documents to the motion judge and the documents are not part of the record on appeal. We note in passing, however, that Article 9 paragraph K, of the Agreement of Lease, which was not the subject of subsequent amendments, required the tenant to deliver to the landlord "property damage insurance policies . . . with respect to the premises, in which Landlord, Tenant, and Landlord's mortgagee . . . shall be named as additional insureds." Moreover, paragraph 3 of the Second Amendment to Lease specifically provided that the "Tenant understands that Landlord will not carry insurance of any kind on Tenant's personal property." Thus, while it would appear, at least from the lease agreement, that the tenant was required to provide concurrent coverage in its policy (issued by Selective) for the landlord, the landlord was not required to provide coverage in its policy (issued by Continental) for the tenant.
The motion judge correctly determined that the relevant provision of Article First of the Arbitration Forums Agreement limited compulsory arbitration by one carrier seeking contribution from another after settling a first-party claim to situations where both carriers offer concurrent coverage to the same parties. Indeed, as pointed out by the judge, the expressed definition required that policies were considered concurrent when they provided (1) "coverage to the same party or parties" for (2) "the same accident, occurrence or event." Selective's assertions to the contrary lack merit.
Equally unpersuasive are Selective's contentions that Continental, as a signatory to the agreement, consented to permit the arbitrator to decide the issue of jurisdiction and waived its right to proceed in court by participating in the arbitration. Although it is "preferable" for the party to seek injunctive relief when claiming that an arbitrator is exceeding the scope of the arbitration agreement, it is not mandatory. N. J. Mfrs. Ins. Co. v. Franklin, 160 N.J. Super. 292, 300 (App. Div. 1978). "If the objection to the arbitrator's jurisdiction is made known, participation in the merits of the controversy does not dictate a finding of waiver." Ibid.
"Affirmative Defense" is defined by the Special Arbitration Definitions as "[a] complete defense that does not address the allegations, but instead, asserts reasons that preclude the panel from ruling on the disputed issue(s)." Continental preserved its right to attack the arbitrators' decision in court by appropriately raising its objection to the propriety of the arbitration as an affirmative defense on the ground of no coverage and participating in the arbitration proceeding under protest to decide the factual issues. See In re Arbitration Between Grover & Universal Underwriters Ins. Co., 80 N.J. 221, 230 (1979). Simply stated, Continental participated in the arbitration process in accordance with the agreement, without waiving its right to subsequent relief through the courts, based upon its assertion that the arbitration panel was precluded under the agreement from deciding the issue.
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