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Allstate New Jersey Insurance Company v. IFA Insurance Co.

Superior Court of New Jersey, Appellate Division

November 12, 2013

IFA INSURANCE COMPANY, Defendant-Appellant.


Argued October 15, 2013

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L-8180-12.

Gregory E. Peterson argued the cause for appellant (Dyer & Peterson, P.C., attorneys; Mr. Peterson, on the brief).

David J. Dickinson argued the cause for respondent (McDermott & McGee, L.L.P., attorneys; Gabrielle J. Pribula, on the brief).

Before Judges Yannotti and Ashrafi.


This appeal arises from a dispute between two automobile insurance carriers over responsibility for payment of personal injury protection (PIP) benefits. Defendant IFA Insurance Company appeals from two January 11, 2013 orders by which the Law Division compelled arbitration of the dispute. We affirm.

The relevant facts are essentially undisputed. Carmen Burgos was injured in a motor vehicle accident on November 16, 2006, while crossing the street as a pedestrian. She had an automobile insurance policy with plaintiff Allstate New Jersey Insurance Company. She was also a named insured on her husband's separate auto insurance policy issued by IFA. Allstate began paying PIP benefits on behalf of Burgos within two weeks of the accident.

As of September 2007, claims adjustors for Allstate and IFA were communicating about the claims. Allstate provided to IFA a copy of the Allstate policy and its PIP ledger showing payments it had made for Burgos's medical expenses. The Allstate adjustor believed that IFA would accept responsibility for a pro rata share. In January 2008, Allstate formally sought concurrent coverage from IFA for Burgos's medical expenses and requested that IFA pay half the amount of PIP benefits and costs. IFA wrote to Allstate in July 2008 disclaiming coverage on the basis of unspecified exclusions in its policy.

By October 2008, Allstate had exhausted the limit of PIP coverage payable on behalf of Burgos, $250, 000.

Allstate did not take any further action to recover a pro rata share of its payments from IFA until November 2012. At that time, Allstate filed a complaint in the Law Division and obtained an order to show cause to compel IFA to arbitrate the responsibility of each insurer for the benefits Allstate had paid. IFA filed an answer and simultaneously moved for summary judgment to dismiss Allstate's complaint, arguing that Allstate had not made a timely demand for arbitration. The Law Division heard argument and ruled in Allstate's favor. It issued a letter-opinion and two orders, one denying IFA's motion for summary judgment and the second compelling arbitration, including on the issue of whether Allstate had made a timely demand for arbitration.

On appeal, IFA contends that the timeliness issue is a threshold legal question that must be decided by the court before IFA can be compelled to arbitrate the dispute about its obligation on the PIP expenses. Citing O'Connell v. New Jersey Manufactures Insurance Co., 306 N.J.Super. 166, 172 (App. Div. 1997), appeal dism., 157 N.J. 537 (1998), IFA claims an arbitrator does not have jurisdiction to hear the matter unless the court determines first that IFA is subject to arbitration under the applicable statute. We disagree.

N.J.S.A. 39:6A-11 provides for mandatory inter-company arbitration of disputes between insurance carriers regarding responsibility to pay PIP benefits. Under the statute, the maximum PIP coverage available to an insured remains the same where more than one insurance carrier is liable to pay PIP benefits.[1] Ibid. The statute provides that: "any insurer paying the benefits shall be entitled to recover from each of the other insurers, only by inter-company arbitration or inter-company agreement, an equitable pro-rata share of the benefits paid." Ibid. So the statute mandates inter-company arbitration, rather than judicial proceedings, to resolve disputes between insurance carriers about their relative obligations.

The mandatory arbitration provision was enacted to avoid delay in coverage and payment decisions of insurance carriers. See Ideal Mut. Ins. Co. v. Royal Globe Ins. Co., 211 N.J.Super. 336, 339 (App. Div. 1986) ("The purpose of a provision requiring inter-company arbitration is '[t]o reduce the burden of litigation in the courts. . . .'") (quoting 8D Appleman, Insurance Law and Practice, § 5178.35 at 512 (1981)). Rather than pursuing litigation in the courts, insurance companies know that they can issue payment for medical expenses and then seek contribution from other insurers who are liable on the claim.

The statute does not contain a limitations period by which a demand for contribution or arbitration must be made. Rather, only "equitable principles" may bar a carrier's untimely claim for contribution. Id. at 340. By implication, the carrier must demand arbitration within a reasonable time. Ibid.

Here, IFA argues that Allstate did not demand arbitration within a reasonable time. It contends that Allstate paid almost $200, 000 in medical expenses before it sought concurrent coverage from IFA in January 2008. IFA contends it was afforded no opportunity to participate in reviewing the claims and to challenge the amounts billed by medical providers, including hospital payments of more than $150, 000.

IFA acknowledges that its contentions are actually in the nature of a laches argument, that is, prejudice arising from Allstate's allegedly unjustified delay in claiming a right to contribution. See Fox v. Millman, 210 N.J. 401, 417-18 (2012) ("Laches is an equitable doctrine, operating as an affirmative defense that precludes relief when there is an 'unexplainable and inexcusable delay' in exercising a right, which results in prejudice to another party." (quoting Cnty. of Morris v. Fauver, 153 N.J. 80, 105 (1998)).

We see no reason why IFA's arguments cannot be presented to and decided by an arbitrator. Contrary to the facts and reasoning of O'Connell, supra, 306 N.J.Super. at 173, IFA's arguments do not pertain to "the conditions precedent" to determining whether it must cover medical expenses arising out of the accident. There is no dispute in this case that Burgos was a named insured on IFA's policy and that her injuries arose from a covered accident.

An arbitrator can take into consideration the facts pertinent to the medical treatment provided to Burgos and the reasonableness of the charges and payments made by Allstate. The reasonableness of Allstate's payments may affect an equitable pro rata share of the expenses to be paid by IFA.

Likewise, the arbitrator can make an initial threshold decision of whether the time lapse before Allstate formally demanded arbitration was unreasonable and therefore a bar to Allstate's claim for contribution in its entirety. As the Law Division concluded, an experienced PIP arbitrator will be in a better position than the court to make such a determination, especially with greater knowledge of insurance industry practices in such matters.

"In construing provisions of the New Jersey Automobile Reparation Reform Act, N.J.S.A. 39:6A-1, et seq., our Supreme Court has favorably noted 'approaches which minimize resort to the judicial process. . . .'" Ideal Mut. Ins. Co., supra, 211 N.J.Super. at 339 (quoting Gambino v. Royal Globe Ins. Co., 86 N.J. 100, 107 (1981)); see also Rutgers Cas. Ins. Co. v. Ohio Cas. Ins. Co., 299 N.J.Super. 249, 253 (App. Div. 1997) (the purpose of the Act is to settle claims in an "expeditious and least costly manner, and to ease the burden and congestion of the state's courts" (quoting N.J.S.A. 39:6A-24)), aff'd, 153 N.J. 205 (1998).

Requiring a court rather than an arbitrator to decide whether a demand for arbitration was made within a reasonable time would increase rather than minimize resort to the judicial process. It would be contrary to the Legislature's purpose in mandating arbitration of inter-company disputes about PIP responsibility.


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