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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 25, 2005, CNA withdrew its application and agreed to reschedule the UIM arbitration for October 2005.

During pre-arbitration discovery, Eline supplied interrogatory answers on June 23, 2005, which stated that overgrown vegetation impeded visibility at the accident site. Thereafter, during Eline's September 1, 2005 deposition, she explained that in the past, she avoided the intersection because it was difficult to maneuver, especially when turning left, and she had encountered visibility difficulties due to overgrown vegetation.

CNA filed a motion to vacate the order scheduling arbitration and dismiss Reid's application for UIM benefits. CNA asserted Reid did not qualify for UIM benefits because two additional tortfeasors existed as identified by Eline: 1) Hovnanian, the owner of the property overgrown with vegetation and shrubs; and 2) Marlboro, which was responsible for the traffic pattern at the location where the accident occurred. CNA argued that Reid's failure to investigate the liability of these third-party tortfeasors impeded its rights. Alternatively, CNA asserted the liability of all potential tortfeasors was pending in Monmouth County and arbitration should abide that outcome.

Reid countered CNA's position, stating the claim of liability against Marlboro and Hovnanian represented "a smoke screen," and no liability existed. Moreover, Reid asserted that CNA could raise third-party liability issues in the course of the arbitration.

Eline filed a motion to intervene in the Camden County action. Alternatively, she sought to have the Camden County UIM matter consolidated with the Monmouth County liability action and venue transferred to Monmouth County.

After argument, the motion judge denied CNA's motion, determining that "the UIM endorsement does not require an insured to join all persons involved in the accident in a third-party suit in order to protect an insure[r]'s subrogation rights." See Hreshko v. Harleysville Ins. Co., 337 N.J. Super. 104, 111 (App. Div. 2001). The motion judge reasoned that "CNA certainly has the ability to present to the arbitrators the issue of whether or not Hovnanian and/or the Borough of Marlboro was responsible for the happening of the collision, and if so, the extent to which they should respond to the plaintiff in damages."

The motion judge also concluded CNA was equitably estopped from retreating from the agreement to arbitrate as evidenced by the two consent orders. Finally, the motion judge concluded CNA suffered no prejudice because it had the availability of pursuing the third-party fault issues in the Monmouth County litigation, which it controlled. Eline's motions were denied, as well, and arbitration was scheduled.

CNA filed a motion to reconsider the October 7, 2005 order to dismiss Reid's UIM claim, or alternatively, stay the UIM arbitration pending the outcome of the Monmouth County litigation. CNA argued that Zirger v. General Accident Insurance Co., 144 N.J. 327, 343 (1996), required the subrogation litigation to be completed before arbitration is conducted in order to avoid disparate results. The court denied the motion in all respects.

The UIM arbitration began on February 27, 2006, and continued on February 28, 2006. The arbitration hearing was recessed until May 18, 2006.

CNA now appeals from the October 7, 2005 and November 3, 2005 orders, arguing that Reid does not qualify for UIM benefits due to his failure to protect CNA's subrogation rights. Alternatively, CNA maintains that the UIM arbitration could not proceed until the conclusion of the underlying tort action pending in Monmouth County.

After filing this appeal, CNA had requested an emergent review seeking to stay the UIM arbitration and allow an interlocutory appeal. The applications were denied by this court's order dated February 10, 2006. This could have resulted in an end to the matter under review; however, the order did not dismiss the appeal and Reid had not yet moved to dismiss. On May 9, 2006, upon CNA's motion, we denied a request for summary disposition but granted a stay, halting the arbitration. On May 18, 2006, Reid filed a motion to reconsider the entry of stay and to dismiss the appeal as interlocutory. The request to reconsider was denied and the application to dismiss was deferred. Thereafter, other orders extended the time for submission of the parties' briefs and relaxed the page limitations.

Generally, orders that compel arbitration are not final. Wein v. Morris, 388 N.J. Super. 640, 652-53 (App. Div. 2006), certif. granted, 190 N.J. 254 (2007). "[T]here is nothing peculiar about an order compelling arbitration that ought to permit its immediate review by an appeal as of right." Ibid. Also, we are mindful that "if we treat every interlocutory appeal on the merits just because it is fully briefed, there will be no adherence to the Rules, and parties will not feel there is a need to seek leave to appeal from interlocutory orders." Parker v. City of Trenton, 382 N.J. Super. 454, 458 (App. Div. 2006).

Nevertheless, at this time we are constrained to deny Reid's motion as it appears that our own orders may have misguided the parties. Finding exceptional circumstances, we choose not to dismiss, but rather, grant leave to appeal, nunc pro tunc. Caggiano v. Fontoura, 354 N.J. Super. 111, 125 (App. Div. 2004); Fu v. Fu, 309 N.J. Super. 435, 439-40 (App. Div. 1998) rev'd on other grounds, 160 N.J. 108 (1999). We will address CNA's arguments.

CNA asserts it had no information about the additional tortfeasors, Hovnanian and Marlboro, until Eline's September 1, 2005 deposition. As ordered on August 11, 2000, Reid provided only a limited assignment to CNA and he, not CNA, remained responsible to determine the existence of other tortfeasors. Further, CNA asserts that despite Reid's actual knowledge of additional tortfeasors, he remained silent and failed to investigate or prosecute claims against these third parties, which impeded CNA's subrogation rights. Citing our decision in Bauter v. Hanover, Ins. Co., 247 N.J. Super. 94, 99 (App. Div.), certif. denied, 126 N.J. 335 (1991), CNA reasons that UIM coverage is not "recognized or required unless and until the limits of all bodily injury liability insurance has been exhausted."

Reid responds that CNA's assertion is disingenuous. Reid raises for the first time on appeal that CNA had actual knowledge of the other potential tortfeasors when Reid's attorney provided a copy of Eline's complaint against Hovnanian and Marlboro to subrogation counsel on December 17, 2001. As this was not part of the record below, we will not consider it. Cipala v. Lincoln Tech. Inst., 179 N.J. 45, 52 (2004); R. 2:5-4(a).

Reid also maintains that the alleged claims against Hovnanian or Marlboro were not pursued because "the overwhelming evidence in this case does not support a legitimate claim against anyone other than Diane Eline." Eline has no memory of the accident or the appearance of the intersection on the date of the accident. Her testimony regarding overgrown vegetation resulted from prior encounters at the site.

Patricia Dowd, an eyewitness driving behind Reid, expressed no difficulty with visibility and could see Eline's vehicle inching onto the highway when she was approximately ten car lengths from the intersection. Dowd testified Eline did not fully stop at the intersection and then "she really jammed her foot on the gas very quickly" entering the intersection. Dowd stated that in the past she has approached the intersection from the direction as Eline had and experienced no visual difficulty.

The responding police officer, Martin H. Smith, III, stated that his accident reconstruction investigation revealed Eline failed to yield the right-of-way and disregarded the stop sign. He further stated that historically, there has not been a lot of accidents at this intersection. Also, Smith testified that vegetation at the intersection had been "cleaned out" "for years" and added: "It still was very rough to see, though."

CNA's reliance on Bauter is misplaced. In Bauter, supra, the plaintiff settled a dram shop action against the tavern that served the intoxicated tortfeasor. 247 N.J. Super. at 95. The plaintiff had also settled with the tortfeasor for his automobile liability policy limits of $25,000 before filing a claim for UIM coverage. Ibid. We determined that N.J.S.A. 17:28-1.1(e) encompasses all available liability policies of tortfeasors, not simply automotive policies. Id. at 96. The tavern's liability was sufficiently established such that it tendered its policy limits. Ibid. In this matter, the alleged liability of Hovnanian and Marlboro is tethered to the limited anecdotal recollection of Eline, as she suffered a concussion eliminating her memory of what occurred on the day of the accident.

In denying CNA's motions, Judge Orlando noted that Reid's counsel had reviewed the situation and determined that the contributory fault claims, if any, against Hovnanian and Marlboro were not viable based on the witnesses' statements. Judge Orlando acknowledged that "a claim must be filed in good faith and have an evidentiary and legal basis." Scheer v. DiBenedetto, 346 N.J. Super. 550, 557 (App. Div. 2002) (quoting Hreshko, supra, 337 N.J. Super. at 111); R. 1:4-8(a)(2) and (3). Further, he noted that the "UIM endorsement does not require an insured to join all persons involved in the accident in a third-party suit, irrespective of fault, in order to protect an insurer's subrogation rights." Hreshko, supra, 337 N.J. Super. at 111.

We agree with Judge Orlando's legal analysis on these issues and reject CNA's contentions. CNA may pursue its theory of additional tortfeasors before the arbitrators, ibid., and in the liability action, Zirger, supra, 144 N.J. at 341. Additionally, in arbitration, Reid could establish that Hovnanian and Marlboro were not tortfeasors in the auto accident case, thereby proving that CNA's subrogation rights were not prejudiced by any action or inaction by Reid. CNA Ins. Cos. v. Cave, 332 N.J. Super. 185, 187 (App. Div.) certif. denied, 165 N.J. 678 (2000).

Moreover, CNA suffers no prejudice. CNA has successfully intervened in the liability action, controlled by subrogation counsel, where Hovnanian and Marlboro have been joined. If a recovery results against a third-party tortfeasor after CNA has paid Reid's UIM claim, CNA may recover from Reid under Paragraph 3 of the UIM endorsement, which provides: "If we make payment and the 'insured' recovers from another party, the 'insured' shall hold the proceeds in trust for us and pay us back the amount we have paid."

CNA also challenges the motion judge's application of equitable estoppel, arguing that the elements of estoppel are not present and the prior agreement to proceed to arbitration was bottomed on a belief that no additional tortfeasors existed. "'Estoppel is an equitable doctrine, founded in the fundamental duty of fair dealing imposed by law.'" Knorr v. Smeal, 178 N.J. 169, 178 (2003) (quoting Casamasino v. City of Jersey City, 158 N.J. 333, 354 (1999)). "The doctrine is designed to prevent injustice by not permitting a party to repudiate a course of action on which another party has relied to his detriment." Ibid.; see also Price v. New Jersey Mfrs. Ins. Co., 182 N.J. 519, 526 (2005) (insurer's communication seeking information to process insured's UIM claim for more than three years equitably tolls application of statute of limitations).

The motion judge did not specifically articulate the facts supporting equitable estoppel. However the record reveals that Reid had relied on CNA's actions, including: the withdrawal of its request for a jury trial, the agreement to proceed to arbitration, and the request to stay the liability action. We conclude that CNA's actions and omissions delayed the determination of liability and finalization of Reid's UIM claim, to Reid's detriment.

CNA's UIM endorsement contained a standard arbitration clause, which read in part:


a. If we and an "insured" disagree whether the "insured" is legally entitled to recover damages from the owner or driver of . . . an "underinsured motor vehicle" or do not agree as to the amount of damages that are recoverable by that "insured," then the matter may be arbitrated . . . . Either party may make a written demand for arbitration. In this event, each party will select an arbitrator. The two arbitrators will select a third.

Reid sought resolution of his UIM claims in arbitration, which CNA initially resisted. Although CNA later agreed to arbitration, Reid was required to file an order to show cause in August 2004, to fix the date for arbitration. On January 18, 2005, the first order confirming the agreement to arbitrate was entered, over five years following the accident, and over three years following CNA's initiation of the liability action. CNA also failed to commence discovery, even though Judge Orlando stated, during the August 11, 2000 argument regarding the scope of Reid's assignment, that "[e]ach party is free to continue to explore its legal options." CNA could have taken Eline's deposition at any time.

We also find CNA's actions demonstrate a waiver of its right to a judicial determination in favor of arbitration of the UIM claims. Knorr, supra, 178 N.J. at 177 (citing W. Jersey Title & Guar. Co. v. Indus. Trust Co., 27 N.J. 144, 152 (1958)). Here, the circumstances clearly and convincingly show that CNA knew of its right to obtain a judicial determination and, either by design or indifference, abandoned that right in favor of the pursuit of arbitration. See Merchs. Indem. Corp. of N.Y. v. Eggleston, 68 N.J. Super. 235, 254 (App. Div. 1961), aff'd, 37 N.J. 114 (1962). CNA's most recent motion to stay the liability matter further demonstrates an attempt to proceed on whatever course delays Reid's recovery.

Finally, we reject CNA's argument to stay the UIM arbitration until conclusion of the liability action, in the interest of avoiding multiple litigation. CNA cites Zirger as support. In Zirger, supra, the Supreme Court examined the relationship of the UIM/UM consent to sue and arbitration provisions. 144 N.J. at 330-31. The plaintiff had litigated to verdict the tortfeasor's liability and the insured's damages.

Id. at 331-32. The defendant insurer refused payment under the UIM clause, causing the plaintiff to initiate an action for enforcement of the policy. Id. at 332. The Court "invalidated the contractual arbitration clause only to the extent that it requires an arbitration proceeding that duplicates the underlying litigation of the tort claim." Id. at 343. Thus, the insurer, with notice of the insured's decision to proceed to a judicial determination of the tortfeasor's liability and the insured's damages, will not be required to again present the issues in contractual arbitration. Ibid.

In this matter, CNA controlled the liability litigation, choosing to stay any adjudication pending a determination of its PIP liability, determining the applicability of the policy step-down clause, and attempting to withdraw from arbitration to proceed to jury trial. Even now, at CNA's urging, the liability determination is stayed.

In contrast, Reid expeditiously obtained a settlement from Eline. He concluded that any asserted liability of Hovnanian and Marlboro was speculative because Eline had no recollection of the accident or its cause and the other witnesses' testimony militated against third-party liability. The arbitration and liability action coincide in time as a result of CNA's choices.

The record strongly suggests a lack of prejudice to CNA by requiring arbitration as we cannot conclude that CNA has no coverage obligations to Reid. Finally, the overriding public interest in the efficient and expeditious resolution of UIM claims necessitates the end of obstructions that unreasonably delay the payment of benefits that UIM coverage was intended to provide. Ibid. The logical forum for determining the respective liability of Eline, Hovnanian or Marlboro, as well as the fair value of Reid's injuries, is UIM arbitration. Cave, supra, 332 N.J. Super. at 193. That arbitration should proceed expeditiously to conclusion.

The pending motion to dismiss the appeal is denied. The trial court's rulings are affirmed.


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