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Merchants Insurance Group v. AAA Mid-Atlantic Insurance Co.


September 27, 2010


On appeal from the Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-399-09.

Per curiam.


Argued May 11, 2010

Before Judges Fuentes and Gilroy.

This is a real property subrogation action. Plaintiff Merchants Insurance Group appeals from the Law Division's June 30, 2009 order that denied its motion for reconsideration of the May 12, 2009 order, which had denied plaintiff's order to show cause (OTSC) seeking to vacate an arbitration award entered in favor of defendant AAA Mid-Atlantic Insurance Company. We reverse and remand.

Merchants and AAA Mid-Atlantic are signatories to an inter-company property subrogation arbitration agreement with Arbitration Forums, Inc. (AF). The agreement requires signatory companies to forego litigation and to resolve property damage subrogation claims through arbitration with AF.

On September 9, 2005, Champion Construction Co. performed construction work on a structure located on Pavonia Avenue, Jersey City. Chu Lam owned the building directly next door. During the construction, Lam's building was damaged by a gush of water and raw sewerage that emanated from a pipe underneath his building. On the date of the accident, Merchants insured Champion for third-party liability coverage. AAA Mid-Atlantic insured Lam's building. Pursuant to the terms of its insurance policy, AAA Mid-Atlantic indemnified Lam for his loss in the amount of $98,050.75; Lam also sustained an uninsured loss in the amount of $500, the amount of his insurance policy deductible.

In February 2008, contending that Champion was responsible for the damage to Lam's property, AAA Mid-Atlantic filed an application for arbitration with AF seeking to recover the monies it paid Lam, together with Lam's deductible. Initially, AF had difficulty serving Merchants with a copy of the application at the address provided by AAA Mid-Atlantic. On July 28, 2008, after receiving advice from Merchants' counsel that Donald Alexander was the insurance company's representative handling the claim, AAA Mid-Atlantic filed an amended application for arbitration providing AF with Alexander's name and address. Copies of the amended arbitration application were served upon Alexander and Merchants' counsel.

On August 7, 2008, AF sent a notice to both parties advising that an arbitration proceeding was scheduled for September 16, 2008. Merchants received the notice on August 15, 2008. However, Merchants never filed a response to the demand for arbitration. Although the arbitration hearing proceeded as scheduled, the arbitration panel continued the hearing, requesting AAA Mid-Atlantic to submit a liability expert report supporting its claim against Champion. AF rescheduled the hearing for November 18, 2008, but adjourned that hearing at the request of AAA Mid-Atlantic's counsel. The hearing was rescheduled for December 16, 2008, with AAA Mid-Atlantic submitting an engineering report to AF supporting its claim that the damage to Lam's building was caused by Champion's negligence. On December 18, 2008, AF issued its arbitration award in favor of AAA Mid-Atlantic in the amount of $98,550.75.

On January 9, 2009, Merchants appealed the award to AF on the basis that it had not been properly served with the arbitration application, nor served with notices of the hearing dates. On April 1, 2009, AF denied the appeal. On January 27, 2009, Merchants filed a complaint and OTSC seeking to vacate the arbitration award pursuant to section 13, N.J.S.A. 2A:23A-13, of the Alternative Procedure for Dispute Resolution Act (APDRA), N.J.S.A. 2A:23A-1 to -30. AAA Mid-Atlantic opposed.

On April 3, 2009, the trial court heard argument on the OTSC. On May 12, 2009, the court entered an order supported by an oral decision of April 23, 2009, denying Merchants' OTSC concluding that Merchants had failed to establish a valid reason to vacate the arbitration award under N.J.S.A. 2A:23A-13. On June 30, 2009, the court entered an order supported by an oral decision denying Merchants' motion for reconsideration.

On appeal, Merchants argues that the trial court erred in denying its application "to vacate the arbitration award under N.J.S.A. 2A:23-A-13," and, alternatively, "equity mandates that the arbitration award be vacated so that the claim is decided on the merits." Because we are satisfied that the trial court mistakenly considered Merchants' OTSC under the APDRA, rather than under the Arbitration Act, N.J.S.A. 23B-1 to -32, we reverse and remand.

The statutory grounds for vacating an award under the APDRA, although similar, are different than the grounds under the Arbitration Act. N.J.S.A. 2A:23A-13c; N.J.S.A. 2A:23B-23c. For example, the APDRA includes grounds for vacating an award not found in the Arbitration Act. See N.J.S.A. 2A:23A-13c(5) (providing "[t]he umpire's committing prejudicial error by erroneously applying law to the issues and facts presented for alternative resolution"). Additionally, except under limited circumstances not applicable here,*fn1 parties to a proceeding under the APDRA waive the right to appeal the decision of the trial court. N.J.S.A. 2A:23A-18b. Accordingly, before a matter can be said to fall under the APDRA, the parties to the dispute must have agreed to submit the dispute for resolution under the APDRA pursuant to a written agreement. N.J.S.A. 2A:23A-2a; Mt. Hope, supra, 154 N.J. at 145-46.

Here, a review of the property damage arbitration agreement in the appellate appendix disclosed that it does not contain a provision requiring the parties to submit the matter for resolution under the APDRA. On inquiring of counsel whether the parties had ever entered into a separate agreement to resolve the subrogation claim under the APDRA, we were advised that they had not. Accordingly, because the parties never agreed to resolve the property damage subrogation claim under the APDRA, we are satisfied that the trial court incorrectly considered Merchants' application to vacate the arbitration award under the APDRA, rather than under the statutory standard contained in the Arbitration Act, N.J.S.A. 2A:23B-23a. We remand to the trial court to reconsider the matter anew under the Arbitration Act.

Reversed and remanded. We do not retain jurisdiction.

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