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CNA Insurance Co. v. Reid

November 21, 2007


On appeal from Superior Court of New Jersey, Law Division, Camden County, Docket No. L-5760-01.

Per curiam.


Argued June 5, 2007

Before Kestin, Weissbard and Lihotz.

In this matter, we are asked to examine whether an insurer can rescind a prior agreement to arbitrate the insured's claim for underinsured motorists (UIM) benefits because the underlying liability action has not been concluded. Defendant Edward Reid was injured in an accident on October 1, 1999, while operating his employer's truck, which was insured by plaintiff CNA Insurance Company (CNA). Diane Eline struck Reid's vehicle after she disregarded a stop sign. CNA filed a declaratory judgment action to determine the extent of available UIM coverage under its policy, which had a limit of one million dollars, and, ultimately, consented to UIM arbitration. Thereafter, CNA filed a motion to vacate the order for arbitration stating it learned of the possibility of additional tortfeasors. CNA appeals from the October 7, 2005 Law Division order denying its request to vacate the order of arbitration and dismiss Reid's claim for UIM benefits, and denying its motion for reconsideration. After review of the record, we conclude, as did the Law Division judge, that the UIM arbitration must continue. It is helpful to present the extensive litigation history culminating in CNA's appeal.

Following Reid's accident, CNA first filed a complaint for declaratory relief in Camden County to determine its liability to pay personal injury protection (PIP) benefits claimed by Reid, who had incurred over $140,000 of medical costs (Docket No. CAM-L-1216-00). The suit named Reid and State Farm Mutual Automobile Insurance Company (State Farm), Eline's carrier, as defendants.

State Farm offered Reid $100,000, the limits of its policy coverage. On May 24, 2000, correspondence sent to CNA advised that an offer to settle was tendered by State Farm, and Reid sought authorization to accept payment. See Longworth v. Van Houten, 223 N.J. Super. 174, 186 (App. Div. 1988) (holding upon receipt of an acceptable settlement offer from the tortfeasor, the insured must notify the carrier, which may promptly pay its insured the amount offered by the tortfeasor in exchange for an assignment of the insured's claim against the tortfeasor). CNA denied consent to settle and proposed to exchange $100,000 for the assignment of Reid's claims.

A dispute arose regarding the scope of CNA's subrogation rights under the assignment. Reid refused to provide a full assignment to CNA regarding any potential tortfeasors, but instead, asserted the assignment covered Eline and the vehicle owner, Nam D. Ho. Reid's position was partially premised on the fact that CNA sought application of the policy's step-down provision, disclaiming UIM coverage beyond the $100,000. The Law Division concluded that CNA received, by subrogation, assignment of only Reid's claims against Eline and Ho. Reid was to investigate the liability of other potential tortfeasors.

In October 2001, Eline and Ho filed an action in Monmouth County against the Township of Marlboro (Marlboro), K. Hovnanian at Marlboro Township, IV, Inc. (Hovnanian), and various fictitious parties (Docket No. MON-L-4845-01). Eline's complaint sought recovery for her damages suffered in the collision. She alleged negligence by the property owner for failing to properly maintain the realty, allowing vegetation to obstruct safe view at the intersection, and by the municipality because the intersection's configuration was dangerous. On October 7, 2002, following defendants' summary judgment motions, the action was dismissed as untimely.

On September 27, 2001, CNA filed a separate negligence action in Monmouth County on behalf of Reid and his wife on her per quod claim, against Eline and Ho (Docket No. MON-L-4570-01). On August 2, 2002, the action was stayed pending disposition of the initial Camden County PIP litigation (Docket No. CAM-L-1216-00). The record does not disclose when the initial Camden County action concluded; however, on June 7, 2005, the stay was vacated and discovery was ordered to be completed.

After the resumption of the Monmouth County liability action, Eline requested to file an amended answer and third-party complaint against Marlboro and Hovnanian. CNA filed a request to intervene as the UIM carrier. Both motions were granted. At CNA's request, the Monmouth County action was again stayed pending the disposition of this appeal.

On September 12, 2001, CNA had also filed a second declaratory judgment action in Camden County naming Reid and State Farm as defendants (Docket No. CAM-L-5760-01). CNA's complaint sought to invoke the policy step-down clause, lowering its policy limits to the amount of the State Farm coverage. State Farm filed a counterclaim and a cross-claim asserting that CNA's policy was primary.

CNA filed a motion to determine the applicability of the CNA policy UIM step-down clause, and after determination, CNA appealed the Law Division's order that the step-down clause was not applicable to Reid. We affirmed in an unpublished opinion. CNA v. Reid, No. A-1816-02T5 (App. Div. Jan. 21, 2004). The Law Division then addressed various discovery disputes that arose, resulting in orders imposing discovery deadlines and scheduling Reid's independent medical examination.

Reid filed an emergent application to compel UIM arbitration. In an order dated January 18, 2005, the parties consented to have their arbitrators appoint the third arbitrator and proceed to a UIM arbitration hearing by April 2, 2005. Arbitration was scheduled for April 11, 2005. CNA then filed a motion to vacate the arbitration order and demanded to proceed to trial. In an order dated April ...

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