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Ifa Insurance Company v. Millburn Surgical Center A/S/O James Warrelmann


April 13, 2011


On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-3948-10.

Per curiam.


Telephonically Argued February 3, 2011-

Before Judges Parrillo and Espinosa.

Defendant Millburn Surgical Center (Millburn or defendant) appeals the Law Division's denial of its request for attorney's fees and costs incurred in successfully defending an action filed by plaintiff IFA Insurance Company (IFA or plaintiff) seeking to modify an arbitration award in defendant's favor. For the following reasons, we reverse and remand.

Briefly, by way of background, on August 4, 2007, James Warrelmann sustained injuries in an automobile accident while insured by IFA with an automobile insurance policy that included PIP benefits pursuant to N.J.S.A. 39:6A-5, providing for no fault medical expense benefits to the insured or his assignees. On April 2, 2008, Warrelmann sought ambulatory surgical services from Millburn. As a result, Warrelmann provided Millburn with an Assignment of Benefits pursuant to his IFA policy. On April 4, 2008, Millburn submitted a claim to IFA for PIP benefits, which IFA ultimately denied after it deemed that Millburn's services were not medically necessary.*fn1

On April 18, 2008, Milburn filed its demand for arbitration of PIP benefits, claiming a total of $53,914.90. Additionally, counsel for Millburn submitted a Certification of Services for attorney's fees of $3,375 plus costs of $265. The arbitrator held a hearing on February 1, 2010, and on April 2, 2010, awarded Millburn $53,914.90 for PIP benefits and $2,065 for attorney's fees and costs.

IFA then filed a verified complaint and order to show cause in the Law Division seeking to modify the arbitrator's award under the "New Jersey Alternative Procedure for Dispute Resolution Act" (APDRA), N.J.S.A. 2A:23A-1 to -30. Although IFA did not dispute the arbitrator's findings that Millburn's services were medically necessary, IFA claimed that the arbitrator did not adequately determine "the usual, customary, and reasonable fees that were charged by [Millburn]." Consequently, prior to resolution by the Law Division, on May 25, 2010, IFA paid only $14,089.06 to Millburn for what it believed was "appropriate, usual, and customary and reasonable" reimbursement, as well as $2,065 for attorney's fees and costs incurred by Millburn during the arbitration.

In response to the order to show cause, Millburn defended the arbitrator's award and requested an additional award for attorney's fees and costs incurred as a result of the Law Division's proceeding. In support of Millburn's request, its counsel filed a fee certification for $2,263.26 in fees and costs relating to the order to show cause.

Following argument, the Law Division concluded that the arbitrator conducted "an exhaustive analysis" of the reasonableness of Millburn's charges and reimbursement rates "[a]nd that the services were at the usual customary and reasonable charges." Consequently, the judge entered an order, confirming the award and ordering IFA to pay to Millburn an additional $33,117.36 plus interest, representing the difference between what IFA had already paid Millburn and the arbitrator's award. Although Millburn successfully defended against IFA's action, the judge declined to grant Millburn's request for additional attorney's fees and costs, reasoning:

[T]he statute in and of itself allows for, and I know it was [Millburn's] argument that [IFA's] getting a second bite of the apple.

But the code, administrative code and the statute allow for it. And there were questions that were raised, the Court signing an Order to Show Cause. But the Court's not going to award fees on the action by IFA, and finds that they had standing to . . . bring the case. But not that the standing wasn't sufficient to overturn the [arbitrator's] award.

This appeal follows in which Millburn challenges the denial of additional attorney's fees and costs as not based on the appropriate factors. We agree.

The award of attorney's fees is governed by statute, court rules, and the Rules of Professional Conduct, RPC 1.5. Allstate Ins. Co. v. Sabato, 380 N.J. Super. 463, 473 (App. Div. 2005) (Sabato II). The "New Jersey Automobile Reparation Reform Act" (No Fault Act), N.J.S.A. 39:6A-1 to -35, allows attorney's fees when an insured claimant prevails in an arbitration proceeding for PIP benefits. N.J.S.A. 39:6A-5; see also Knight v. AAA Midlantic Ins. Co., 394 N.J. Super. 333, 337 (App. Div. 2007) (citing Olewinsky ex rel. Olewinsky v. Aetna Cas. & Sur. Ins.

Co., 234 N.J. Super. 429, 432 n.1 (Law Div. 1988)). Here, Millburn prevailed in arbitration, for which it was awarded fees under N.J.S.A. 39:6A-5. In addition, Millburn has requested attorney's fees, pursuant to Rule 4:42-9(a)(6), in connection with its successful defense against IFA's action in the Law Division that challenged the arbitrator's award.

Rule 4:42-9(a)(6) permits the award of attorney's fees "[i]n an action upon a liability or indemnity policy of insurance, in favor of a successful claimant." See, e.g., Maros v. Transamerica Ins. Co., 76 N.J. 572, 579 (1978). Rule 4:42-9(a)(6) further permits an award to the assignee of a PIP claim. State Farm Ins. Co. v. Sabato, 337 N.J. Super. 393, 394-95, 398 (App. Div. 2001) (Sabato I). The rule is intended "to discourage groundless disclaimers and to provide more equitably to an insured the benefits of the insurance contract without the necessity of obtaining a judicial determination that the insured, in fact, is entitled to such protection." Sears Mortg. Corp. v. Rose, 134 N.J. 326, 356 (1993) (citations and internal quotation marks omitted). In other words, an award for attorney's fees and costs in an action to enforce insurance benefits is supported by "[t]he theory . . . that one covered by a policy is entitled to the full protection provided by the coverage, and that benefit should not be diluted by the insured's need to pay counsel fees in order to secure its rights under the policy." Liberty Vill. Assocs. v. W. Am. Ins. Co., 308 N.J. Super. 393, 406 (App. Div.) (citing Sears Mortg., supra, 134 N.J. at 356), certif. denied, 154 N.J. 609 (1998).

Ordinarily, "[a] successful insured is presumptively entitled to attorney's fees and need not establish that the insurer acted in bad faith or arbitrarily in declining a claim." Sabato II, supra, 380 N.J. Super. at 473-74 (citing Liberty

Vill., supra, 308 N.J. Super. at 405-06). Essentially, "it is simply unfair to burden an insured with attorney fees in order to receive moneys to which, at least in part, he was entitled to in the first place." Olewinsky, supra, 234 N.J. Super. at 434. The award of counsel fees, however, is not mandatory, "but rather the trial judge has broad discretion as to when, where, and under what circumstances counsel fees may be proper and the amount to be awarded." Iafelice ex rel. Wright v. Arpino, 319 N.J. Super. 581, 591 (App. Div. 1999) (citing Enright v. Lubow, 215 N.J. Super. 306, 313 (App. Div.), certif. denied, 108 N.J. 193 (1987)); see also Packard-Bamberger & Co. v. Collier, 167 N.J. 427, 443-44 (2001); Myron Corp. v. Atl. Mut. Ins. Corp., 407 N.J. Super. 302, 309 (App. Div. 2009), aff'd, 203 N.J. 537 (2010). Because the decision to award fees is a function of judicial prerogative, their denial is reviewed by appellate courts for an abuse of discretion. See, e.g., Packard-Bamberger, supra, 167 N.J. at 443-44.

"Equitable principles must govern" the application of Rule 4:42-9(a)(6). Enright, supra, 215 N.J. Super. at 313 (citations omitted). To this end, factors a court may consider in exercising its discretion include:

(1) the insured's good faith in refusing to pay the demands; (2) excessiveness of plaintiff's demands; (3) bona fides of one or both of the parties[;] (4) the insurer's justification in litigating the issue; (5) the insured's conduct in contributing substantially to the necessity for the litigation on the policies[;] (6) the general conduct of the parties[;] and (7) the totality of the circumstances. [Ibid. (citations omitted).]

In the present matter, Millburn commenced "an action upon a liability . . . policy of [automobile] insurance" and thus falls squarely within the provisions of Rule 4:42-9(a)(6). See Sears Mortg., supra, 134 N.J. at 354-55. Moreover, counsel's efforts in successfully litigating Millburn's claim "necessarily included both time spent before the Law Division and [in arbitration]." Sabato II, supra, 380 N.J. Super. at 474 (emphasis added). As such, we are asked to determine whether, under the totality of the circumstances, the court abused its discretion in denying the award of such fees incurred in the Law Division. See Packard-Bamberger, supra, 167 N.J. at 443-44.

The record discloses that the court addressed counsel fees summarily and practically as an afterthought.*fn2 There was no analysis of the totality of the circumstances involved, much less of the equitable factors delineated in Enright, supra. Therefore, we may infer from its brief oral opinion that the court simply relied on the fact that plaintiff was permitted to challenge the arbitration award and did so in good faith. Yet, as noted, a successful insured need not establish the insurer's bad faith in declining a claim in order to prevail on its requests for attorney's fees. Sabato II, supra, 380 N.J. Super. at 473-74. Thus, the court erred in its application of the law of attorney's fees and we owe no deference to its decision in that regard. Accordingly, we reverse that portion of the order of July 2, 2010 denying attorney's fees and costs and remand to permit consideration of all applicable factors and circumstances.

Reversed and remanded.

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