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Federal Insurance Company v. Dina Von Windherburg-Cordeiro

December 31, 2012

FEDERAL INSURANCE COMPANY, PLAINTIFF,
v.
DINA VON WINDHERBURG-CORDEIRO DEFENDANT.



The opinion of the court was delivered by: Pisano, District Judge.

OPINION

Plaintiff Federal Insurance Company ("Federal") brings this action against defendant Dina von Windherberg-Cordeiro ("Defendant") alleging violations of New Jersey's Insurance Fraud Prevention Act, N.J.S.A. § 17:33A-1 et seq. Presently before the Court is a motion by Defendant to dismiss or, in the alternative, stay this action in light of an ongoing arbitration proceeding between the parties in which Federal has raised fraud claims. For the reasons below, Defendant's motion is denied.

I. BACKGROUND

According to the complaint, as of November 7, 2002, Defendant was an insured under a $1.5 million Voluntary Accident Insurance Policy (the "Policy"). The Policy provided, among other things, coverage for "Permanent Total Disability," which is defined by the Policy as "Accidental Bodily Injuries" that "solely and directly cause" an insured to suffer certain disabling conditions such as the loss of the use of hand or feet, loss of sight, loss of hearing or loss of speech.

In 2005, Defendant gave notice to Federal of a claim for Permanent Total Disability benefits. She stated that on March 20, 2004, she fell down an escalator at the Munich Airport in Munich, Germany. As a result of the fall, Defendant alleged that she suffered, among other things, dental damage, facial injuries, serious cervical spine injury, and traumatic brain injury causing loss of use of her extremities. Defendant claims that she can no longer work in any capacity or care for herself.

Defendant submitted a claim form to Federal on April 26, 2006. Shortly thereafter an investigator retained by Federal met with Defendant. Federal made a number of requests to Defendant seeking information regarding her employment history as well as Defendant's medical records. It appears that Defendant's response, if any, was considered incomplete by Federal, and from approximately 2007 to 2010, Federal made repeated requests to Defendant for certain medical records. By letter dated December 20, 2010, Federal denied Defendant's claim for Permanent Total Disability Benefits based primarily upon review of the limited medical records obtained by Federal.

Pursuant to the Policy, the parties agreed that in the event of "a dispute under the policy," either party could make an arbitration demand. Specifically, the Policy provides as follows:

In the event of a dispute under the policy, either we, the Insured Person, or in the event of Loss of Life, the Insured Person's beneficiary may make a written demand for arbitration. In that case, we and the Insured Person, or in the event of Loss of Life, the Insured Person's beneficiary, will each select an arbitrator. The two arbitrators will select a third. If they cannot agree within fifteen (15) days, either we or the Insured Person, or in the event of Loss of Life, the Insured Person's beneficiary, may request that the choice of the arbitrator be submitted to the American Arbitration Association. The arbitration will be held in the state of the Insured Person's principal residence.

On March 3, 2011, in accordance with this provision, Defendant filed a demand for arbitration with the American Arbitration Association disputing the denial of her claim. That arbitration was pending at the time this motion was filed, and the Court has recently received notice through a filing by Federal that an award was entered in the arbitration in August 2012.*fn1 See D.I. 22-4 (final award in favor of Federal on all of Defendants' claims as well as on Federal's counterclaim for declaratory relief; partial award in favor of Federal on its fraud counterclaim as to liability only; final award on damages pending).

In connection with the arbitration, the parties engaged in extensive discovery. On May 15, 2012, based upon information obtained through such discovery, Federal filed a counterclaim in the arbitration proceeding asserting common law fraud. Approximately two weeks prior, Federal had filed the instant action asserting violations of New Jersey's Insurance Fraud Prevention Act, N.J.S.A. § 17:33A-1 et seq. ("IFPA").

II. ANALYSIS

Citing the Federal Arbitration Act, 9 U.S.C. § 1, et seq., ("FAA") Defendant moves to dismiss or stay this action in favor of the pending arbitration. Defendant argues that there exists a valid arbitration agreement between the parties and that Federal's IFPA claims fall within the scope of the parties' arbitration agreement. In response, Federal argues that its claims are not arbitrable because (1) the statute expressly provides that an insurer may sue under the statute "in any court of competent jurisdiction" and, therefore, the claim is not arbitrable; and (2) the FAA is reverse preempted in this situation under the McCarran- Ferguson Act, 15 U.S.C. § 1012(b). Federal also claims that certain remedies available under the statute are unavailable in arbitration and, as a result, staying or dismissing the action would violate New Jersey's public policy to fight insurance fraud.

Under the FAA,

[i]f any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the ...


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