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Liberty Mutual Insurance Co. v. American Millennium Insurance Co.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


July 15, 2010

LIBERTY MUTUAL INSURANCE COMPANY, PLAINTIFF-RESPONDENT,
v.
AMERICAN MILLENNIUM INSURANCE COMPANY, DEFENDANT-APPELLANT.
AMERICAN MILLENIUM INSURANCE COMPANY, PLAINTIFF-APPELLANT,
v.
ZENCAR MOTOR AUTO SALES, ELAINE IACONA, ANGELA IACONA AND LIBERTY MUTUAL INSURANCE GROUP, DEFENDANTS-RESPONDENTS.
ELAINE IACONA, PLAINTIFF-RESPONDENT,
v.
ANGELA IACONA AND ZENCHER MOTOR SALES, INC., DEFENDANTS-RESPONDENTS.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, Docket No. L-1829-08, L-2295-08 and L-8983-07.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued June 2, 2010

Before Judges Carchman and Lihotz.

In this dispute between two insurance companies concerning the appropriate forum for resolving the issue of responsibility for Personal Injury Protection (PIP) benefits, defendant American Millennium Insurance Company (AMIC or defendant) appeals from an order of the Law Division compelling it to arbitrate claims made by plaintiff Liberty Mutual Insurance Company (Liberty or plaintiff) for reimbursement for benefits paid to Liberty's insured. See N.J.S.A. 39:6A-9.1 (Section 9.1). We affirm.

These are the relevant facts. Defendant was the insurer of Zencar Motor Auto Sales, Inc. (Zencar), a used car dealership located in Woodbridge. In March 2006, Elaine Iacona (Iacona) purchased a 1997 Chevrolet Cavalier from Zencar in "as is" condition. The automobile's odometer indicated that it had already traveled 112,858 miles. Two weeks later, Iacona's daughter, Angela Iacona, then sixteen-years old, was operating the vehicle with a driver's permit, with her mother and another individual as passengers. They were traveling on Route 9 North in Sayreville when, allegedly, the brakes failed, causing the automobile to crash into a utility pole. A mechanic's report stated that the vehicle had traveled 113,179 miles, indicating it had been driven just over 300 miles since its purchase from Zencar. The mechanic opined that the vehicle's brake problems had pre-existed its recent purchase.

As a result of this incident, Iacona filed a lawsuit against both her daughter and Zencar, seeking damages for injuries allegedly sustained in the accident. In the complaint, Iacona alleged that Zencar sold her the vehicle with defective brakes. The vehicle was insured by Liberty, which, post-accident, paid PIP benefits in the amount of $38,736.32.*fn1

Liberty Mutual, thereafter, filed suit against AMIC and Zencar for reimbursement of all PIP benefits paid, pursuant to section 9.1. The complaint sought direct recovery against Zencar as the alleged tortfeasor, or, alternatively, to compel AMIC, as Zencar's insurer, to arbitrate the PIP reimbursement claims as required by statute.

After further motion practice, the Law Division judge issued two orders, wherein the judge consolidated the various lawsuits for discovery purposes only and compelled AMIC to arbitrate Liberty's PIP reimbursement claim utilizing a "private three person arbitration panel at the end of discovery[.]" Liberty and AMIC were to choose one arbitrator each, with the two arbitrators then agreeing upon a third and final arbitrator. Subsequently, Liberty filed a stipulation of dismissal for Zencar on September 26, 2008.

Although not related to the orders here, a summary judgment motion was heard on December 19, 2008, where the judge determined that AMIC had a continuing contractual obligation to defend and indemnify Zencar. In an oral opinion, the Law Division judge discussed the lack of evidence regarding Zencar's alleged culpability for the accident:

However, though disadvantaged, [AMIC's] likelihood of success in defending Zencar has not been adversely affected, for several reasons.

First, the report of Ms. Iacona's mechanic simply states that, upon inspection of the vehicle, there was no fluid in the brake master cylinder, and the right rear brakes drum had a leaky wheel cylinder.

The report further states, it's our opinion the wheel cylinder had been leaking for some time. This may very well be a net opinion.

Further, nowhere within the one page, three paragraph letter, does the mechanic state that any of the defects found caused the accident or even existed at the time that Ms. Iacona purchased the vehicle from Zencar.

.... [AMIC] can also show that [the mechanic's] report is a net opinion. It may not even be in the case. Or that it does not state the condition of the brakes caused the accident.

Additionally, Zencar sold the vehicle "as is," and Ms. Iacona drove the vehicle over 300 miles without incident. Moreover, [AMIC] may note the lack of evidence that the brakes were defective when the vehicle was sold by Zencar.

Nevertheless, Zencar remained as a defendant. Ultimately, Iacona's personal injury lawsuit was settled. After denying AMIC's motion for summary judgment and dismissal of Liberty's PIP reimbursement claim, the judge, by separate order, directed AMIC to name an arbitrator within ten days pursuant to its earlier order, instructed the arbitrators to agree upon a third, neutral arbitrator within thirty days and ordered the matter adjudicated within 120 days. The judge noted that "[t]he parties are compelled to attend arbitration pursuant to N.J.S.A. 39:6A-9.1 and Judge Ryan's 7/17/08 order."

This appeal followed. Although AMIC raises a number of discrete arguments on appeal, the thrust of its assertions is based on its theory that it is not a "tortfeasor" and should not be compelled to arbitrate.

The operative and relevant provisions of Section 9.1 provide:

In the case of an accident occurring in this State involving an insured tortfeasor, the determination as to whether an insurer, health maintenance organization or governmental agency is legally entitled to recover the amount of payments and the amount of recovery, including the costs of processing benefit claims and enforcing rights granted under this section, 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.

AMIC contends that Liberty has not, "nor could ever prove a case of negligence against Zencar based upon the undisputed issues of fact presented to the trial court for consideration on July 17, 2009." AMIC argues that "Zencar is not and cannot be viewed as a 'tortfeasor' within the meaning of [Section] 9.1[]" and proffers that the trial judge "had every obligation to, as a threshold matter, determine whether Zencar was a 'tortfeasor' prior to any unnecessary ordering of the parties into PIP-reimbursement arbitration proceedings." Using similar reasoning, AMIC attempts to analogize the question of whether Zencar was a "tortfeasor" under Section 9.1 to a coverage determination, arguing that because "AMIC's insurance coverage does not extend to Zencar[] unless Zencar is first determined to be a 'tortfeasor[,]'... the resolution of AMIC's tortfeasor-status constitutes a coverage determination issue to be resolved by the court, and not by an arbitrator." Specifically, AMIC cites to O'Connell v. N.J. Mfrs. Inc. Co., 306 N.J. Super. 166, 173 (App. Div. 1997), appeal dismissed, 157 N.J. 537 (1998), an uninsured motorist case, where we concluded that "[i]f the conditions precedent of the statute are not satisfied, there can be no arbitration." The logic of AMIC's argument is that since Zencar is not a tortfeasor, the statute does not apply.

In response, Liberty asserts that as AMIC is Zencar's carrier and admits coverage, it is obligated under Section 9.1 to arbitrate Liberty's entitlement to reimbursement as well as the amount of the reimbursement.

"New Jersey courts have recognized a 'strong public policy favors arbitration as a means of dispute resolution[.]'" EPIX Holdings Corp. v. Marsh & McLennan Cos., Inc., 410 N.J. Super. 453, 471 (App. Div. 2009) (quoting Bruno v. Mark MaGrann Assocs., Inc., 388 N.J. Super. 539, 545 (App. Div. 2006)). Embracing this policy, the No Fault Act's reimbursement provision, Section 9.1, creates a statutory right of reimbursement for PIP insurers against certain tortfeasors by allowing 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, including the costs of processing benefit claims and enforcing rights granted under this section, 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. [N.J.S.A. 39:6A-9.1 (emphasis added).]

This provision helps promote an important "goal of the No-Fault Law[,]" which "is to avoid excessive litigation related to accidents and insurance[.]" Unsatisfied Claim & Judgment Fund Bd. v. N.J. Mfrs. Ins. Co., 138 N.J. 185, 205 (1994).

AMIC also relies on AAA Mid-Atlantic Ins. of N.J v. Prudential Prop. & Cas. Ins. Co., 336 N.J. Super. 71, 76 (App. Div. 2000), a case where Prudential argued that the term "legally entitled" in Section 9.1 meant that all factual and legal issues, including AAA's coverage defense, had to be resolved through statutorily mandated arbitration. AAA, on the other hand, contended that the threshold determination of whether the alleged tortfeasors, parental-social hosts who Prudential claimed were liable for injuries suffered by their son as a result of excessive alcohol consumption at their home, "[were] tortfeasors within the meaning of [Section] 9.1 should [have been] made by a judge, and if the judge conclude[d] as a matter of law that they [were] not, Prudential [had] no legal entitlement to recovery and no arbitrable claim against AAA." Ibid. We concluded that we were "dealing with a question of a statutory defense, a purely legal issue, much more within the expertise of the court rather than the arbitrators." Id. at 77. We therefore invoked our original jurisdiction under Rule 2:10-5 and resolved the issue, finding that since the parents were statutorily immune, under N.J.S.A. 2A:15-5.7, from liability for injuries suffered by their son resulting from alcoholic beverages they served him, "the son's PIP carrier [could] not seek direct reimbursement because [the parents] [were] not 'tortfeasors' under [Section] 9.1." Id. at 77-78. We further found that:

A derivative claim can rise no higher than the claim on which it is dependent.

Prudential's claim is clearly derivative.

It depends upon establishing liability against another carrier's insureds, the homeowners and social hosts. Since AAA's insureds are statutorily insulated from liability, Prudential's claim for reimbursement of benefits paid to [the injured party] under his PIP endorsement is dismissed with prejudice. [Id. at 79.]

That is not the case here. Unlike the social hosts in AAA Mid-Atlantic Ins. of N.J, AMIC's insured, Zencar, as the auto dealer who sold the allegedly defective automobile, falls within the broad scope of a "tortfeasor" under Section 9.1*fn2, as Zencar has no statutory defenses to tort liability. Instead, the question is whether there is enough factual evidence available to find Zencar negligent. The statute mandates that this simple evidentiary question be decided through arbitration: "the determination as to whether an insurer... is legally entitled to recover the amount of payments... 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."

N.J.S.A. 39:6A-9.1 (emphasis added).

Here, AMIC insured Zencar; Zencar sold an automobile to Liberty's insured; an accident occurred shortly after the sale; Liberty's insured alleged that the automobile had defective brakes; and Liberty paid PIP benefits to its insured. These were the only facts necessary to move Liberty Mutual's PIP reimbursement claim to the arbitration forum. Without a statutory defense to Zencar being defined as a "tortfeasor," the only question remaining is whether there is sufficient evidence to prove that Zencar was indeed negligent. That is a question for the arbitrators.

Under AMIC's scenario, the Law Division would first have to adjudicate the factual dispute as to whether a party is a tortfeasor, a proceeding that could well involve a trial.

This would undermine the statutory scheme by creating an extra and potentially lengthy step in the process. The statute does not envision the court first resolving the liability issue in a plenary proceeding, and such a role would undermine the No Fault Act's objective of "'eliminat[ing] minor personal-injury-automobile-negligence cases from the court system.'" Woodworth v. Joyce, 373 N.J. Super. 114, 119 (App. Div. 2004) (quoting Roig v. Kelsey, 135 N.J. 500, 510 (1994)). The statutory arbitration provisions were designed to avoid such a process, and the motion judge correctly mandated AMIC's participation in the arbitration proceeding.

As to AMIC's remaining arguments, we conclude that they are likewise without merit. We take particular note of a challenge to the constitutionality of Section 9.1, which AMIC raises for the first time in its reply brief. Aside from the fact that the issue was not raised below, we adhere to our prior pronouncement regarding such issues. "Raising an issue for the first time in a reply brief is improper[,]" especially one of constitutional dimension, and because such tactics eliminate the respondent's opportunity to "properly address[]" the issue through written briefing, we "decline to decide the case" on the basis of AMIC's constitutional argument and "take no position on the issue's merits." Borough of Berlin v. Remington & Vernick Eng'rs, 337 N.J. Super. 590, 596 (App. Div.), certif. denied, 168 N.J. 294 (2001); see also State v. Smith, 55 N.J. 476, 488, cert. denied, 400 U.S. 949, 91 S.Ct. 232, 27 L.Ed. 2d 256 (1970). See also Manetti v. Prudential Prop. & Cas. Ins. Co., 196 N.J. Super. 317, 320-21 (App. Div. 2007) (holding, in limited circumstances, that there was no right to a jury trial in an action to recover PIP benefits). We decline to address the issue here.

We conclude that the motion judge correctly mandated that AMIC participate in the arbitration proceeding with Liberty to determine the parties respective responsibilities for PIP benefits paid to Iacona.

Affirmed.


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