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Excelsior Insurance Co. v. One Beacon Insurance Co.

Superior Court of New Jersey, Appellate Division

September 3, 2013



Argued May 1, 2013

On appeal from the Superior Court of New Jersey, Chancery Division, Gloucester County, Docket No. C-57-11.

John T. Coyne argued the cause for appellant (McElroy, Deutsch, Mulvaney & Carpenter, L.L.P., attorneys; Mr. Coyne, on the brief).

Lallie M. Banks, III argued the cause for respondent (Christie, Pabarue, Mortensen and Young, attorneys; Carolyn Bates Kelly, on the brief).

Before Judges Sapp-Peterson and Haas.


Plaintiff, Excelsior Insurance Company ("Excelsior"), appeals from the trial court order confirming an arbitration award issued in favor of defendant, One Beacon Insurance Company ("Beacon"). We affirm.

Both Excelsior and Beacon are members of Arbitration Forum, Inc. ("AFI"), and signatories to its arbitration process. Special arbitration under AFI resolves disputes between multiple insurers to the extent, if any, of apportioning liability between the multiple insurers, each of whom has acknowledged a coverage obligation. Where, however, an insurer has denied coverage, AFI lacks jurisdiction to entertain the matter, and the denial of coverage is an affirmative defense under AFI provisions.

Excelsior and Beacon provided coverage to Hovson's, Inc., a developer who built homes in a development known as Holiday City in Monroe Township. The homes were built between 1996 and 2002. Beacon provided liability coverage to Hovson's from March 1999 through March 2001, while Excelsior provided similar coverage from March 2001 through March 2005. Homeowners sustained property damage resulting from water infiltration and sued Hovson's. Excelsior denied coverage on the basis that New Jersey law applied to any interpretation of the claims and that under New Jersey law, coverage is determined by a "manifestation trigger, " meaning that the water filtration did not manifest during the period of coverage by Excelsior. Beacon, however, agreed to defend Hovson's under a reservation of rights and, once judgment was entered against Hovson's, instituted a special arbitration against Excelsior. After Excelsior failed to answer the arbitration pleading and after the arbitrator denied Excelsior's last-minute adjournment request, the matter proceeded to arbitration where an award was entered in favor of Beacon.

Excelsior filed a verified complaint and order to show cause seeking to vacate the arbitration award. Beacon filed a timely answer. Judge Eugene J. McCaffrey, Jr., denied Excelsior's motion on April 20, 2012. In doing so, the judge noted it was undisputed that Excelsior, inexplicably, never responded to the demand for arbitration with an answer or a contention sheet and that under AFI, the failure to do so operates as a waiver of defenses, including any jurisdictional defense. The judge found that Excelsior had "every opportunity to proceed and participate in the arbitration proceeding, but for reasons not articulated, failed to do so. [Excelsior] did not attempt to assert an affirmative defense of jurisdiction until a day before the arbitration hearing and several days after the materials were due." Based upon Excelsior's conduct, Judge McCaffrey concluded:

[T]he Arbitration Panel in this matter clearly acted within the scope of the powers afforded them in the Agreement between the parties. The Arbitrator found that [Excelsior] did not provide a sufficient cause for adjourning the arbitration hearing . . . . The Court finds that the Arbitrators acted within their scope of authority in denying [Excelsior's] last-minute request for an adjournment. Affirmative defenses not raised in the contention sheet are waived.[] Adjournment requests may be granted provided the request is made a least three (3) days before the hearing date and the party requesting the adjournment has filed its "contention sheet" in a timely manner.[]

The judge additionally found that Excelsior's denial of coverage was based upon its conclusion that the damage sustained by the homeowners manifested itself two years before the inception date of its coverage and, as such, under New Jersey law, its duty to provide coverage had not been triggered. The judge concluded that Excelsior's denial of coverage for this reason "does not constitute 'denial of coverage' as defined in the Arbitration Agreement. Therefore, . . . [AFI] had jurisdiction to hear the dispute." Thus, recognizing the narrow grounds upon which an arbitration award may be vacated, the court concluded Excelsior failed to meet any of those grounds.

On July 13, 2012, Beacon filed a motion to confirm the arbitration award. During oral argument, Judge McCaffrey granted the motion, stating that the arguments against confirmation were "essentially the same arguments made when the motion to vacate the arbitration award was filed." Excelsior's counsel agreed that Excelsior's primary argument against confirmation of the arbitration award was AFI's lack of jurisdiction. Having previously rejected this argument, the judge granted the motion. The present appeal followed.

On appeal, Excelsior raises the following points for our consideration:

A. The Agreement Is T[h]e Only Source of An Arbitrator's Power[.]
B. Per The Agreement, Signatories Cannot Be Compelled to Arbitrate Coverage "Denials[.]"
C. Rules Unilaterally Promulgated By An Arbitrator Cannot Expand Jurisdiction[.]
D. Even If The AFI Rules Were Relevant, Excelsior's Position Still Would Constitute A "Denial[.]"
E. Because Excelsior Did Object to AFI's Authority And Did Not Address The Merits of The Dispute With AFI, Excelsior Did Not Waive Its Objection To AFI's Jurisdiction[.]
F. The Court Below Relied Upon The Rules Unilaterally Promulgated By AFI As Conferring Jurisdiction[.]

We have considered the points raised in light of the briefs submitted, arguments of counsel, and governing legal principles. We conclude the points raised are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We affirm for the reasons expressed by Judge McCaffrey in his cogent and well-reasoned memorandum decision of April 20, 2012, and his August 10, 2012 oral decision.[1] We add the following brief comments.

Arbitration is a long-established practice in New Jersey consistently encouraged by the Legislature. Barcon Assocs., Inc. v. Tri-County Asphalt Corp., 86 N.J. 179, 186 (1981). It is a substitution to litigation "and its object is the final disposition, in a speedy, inexpensive, expeditious and perhaps less formal manner . . . ." Id. at 187 (internal citation and quotation omitted). The principles of arbitration are codified into the Uniform Arbitration Act, N.J.S.A. 2A:238-1 to -32, which "grants arbitrators extremely broad powers and extends judicial support to the arbitration process subject only to limited review." Barcon, supra, 86 N.J. at 187 (interpreting predecessor Act, N.J.S.A. 2A:24-1 to -11).

The circumstances under which a court may vacate an arbitration award are limited. Tretina v. Fitzpatrick & Assocs., 135 N.J. 349, 355-56 (1994). Those circumstances include, as Excelsior contends here, that "[the] arbitrator exceeded the arbitrator's powers[.]" N.J.S.A. 2A:23B-23a(4).

"The scope of an arbitrator's authority depends on the terms of the contract between the parties." Cnty. College of Morris Staff Ass'n v. Cnty. Coll. of Morris, 100 N.J. 383, 391 (1985) (citations omitted). "Thus, an arbitrator may not disregard the terms of the parties' agreement, nor may he rewrite the contract for the parties. Ibid. (citations omitted).

Here, Excelsior and Beacon, as signatories under AFI, were both bound by its terms and provisions set forth in the AFI Special Arbitration Forum Reference Guide ("Guide"). Within the Guide, AFI makes clear that "[b]y signing this Agreement, the company accepts and binds itself to the following[.]" The Guide additionally provides: "A company accepts and binds itself to all of the Articles by signing the Special Arbitration Agreement. In signing the Agreement, the company also agrees to comply with the Special Arbitration Rules and Regulations." Thus, the parties were bound by these Articles within the Guide as well as the Rules and Regulations.

Chapter 5, Article Second of the Guide states that "[n]o company shall be required, without its written consent, to arbitrate any claim or suit if . . . it has asserted a denial of coverage to the party or parties seeking coverage under the policy for the claims or suit otherwise subject to arbitration." A "denial of coverage" under the Guide is an affirmative defense, which must be timely asserted. Chapter 3, Special Arbitration Agreement Definitions, defines "affirmative defense" as "[a] complete defense that does not address the allegations, but instead, asserts reasons that preclude the panel from ruling on the disputed issue(s)." Further, Chapter 20 of the Guide, which specifically addresses affirmative defenses and pleading requirements, states that an affirmative defense "is any issue that does not address the dispute itself but rather raises other issues that may be impediments to the arbitrator's right to consider the dispute itself." This chapter additionally provides that "[a]n affirmative defense or pleading is valid only if a party properly raises and supports it. An arbitrator cannot raise these issues for a party." Here, as Judge McCaffrey found:

Excelsior never filed an answer challenging jurisdiction of Arbitration Forums or asserted affirmative defenses in a timely manner. At no point does [Excelsior] explain the reason(s) for the delay or why it did not file in a timely manner in accordance with Arbitration Forum's requirement. As a signatory to the Special Arbitration Agreement and Arbitration Forum's, Inc., [Excelsior] is required to follow their rules and procedures.

Thus, there was no abuse of discretion in denying the adjournment request.

Likewise, the Guide also makes clear that an assertion of a "denial of coverage" should be based upon "the fact that the company's policy does not cover the individual or entity seeking coverage for the claim or suit or that there was not a policy in effect at the time of the incident at issue." The denial of coverage here addressed neither of these circumstances. Rather, the denial addressed Excelsior's determination that there was no coverage because of its interpretation of New Jersey law determining when the duty to provide coverage was triggered. Hence, we also agree, as Judge McCaffrey concluded, a "denial of coverage based on the damage manifesting itself two (2) years before the inception date of [Excelsior's] coverage does not constitute 'denial of coverage' as defined in the Arbitration Agreement."


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