ARGUMENT

I. THE ARBITRATORS' DECISION ON LIABILITY IS BINDING UNDER THE TERMS OF THE POLICY

The leading case on the binding nature of an arbitration panel's finding of liability is Derfuss v. New Jersey Mfrs. Ins. Co., 285 N.J. Super. 125 (App. Div. 1995). Derfuss pertains to a claim for uninsured motorist benefits and concerns an insurance policy that contains language similar to the language in the policy at issue herein. The Derfuss insured's auto insurance policy contained the following language:

... A decision agreed to by two of the arbitrators will be binding as to:

1. Whether the insured is legally entitled to recover damages; and

2. The amount of damages. This applies only if the amount does not exceed the minimum limit for liability specified by the financial responsibility law of New Jersey. If the amount exceeds the limit, either party may demand the right to a trial ... If this demand [for trial de novo] is not made, the amount of damages agreed to by the arbitrators will be binding.

Id. at 128.

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By contrast, the instant plaintiffs' insurance policy contains this language:

Deciding Fault and Amount:

Two questions must be decided by agreement between the insured and us:

1. Is the insured legally entitled to collect damages from the owner or driver of the uninsured motor vehicle or underinsured motor vehicle; and,

2. If so, in what amount?

If there is no agreement, these questions shall be decided by arbitration upon written request of the insured or us ...

* * * *

The written decision of any two arbitrators shall be binding on each party unless the amount of the damages awarded exceeds the minimum limit of liability specified by the financial responsibility law of New Jersey. If the amount of the damages awarded in the arbitrators' decision exceeds that limit, either party may, within 30 day of the arbitrators' decision, demand a trial. If the demand is not made, the decision of the arbitrators is binding on each party.

[See Policy at Exhibit _____, Pg. 26 thereof. ]

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The Derfuss arbitration panel found that plaintiff was 40% at fault and that she was entitled to $350,000.00 in damages. Id. at 127-128. Plaintiff filed a motion for a trial de novo which the trial court granted as to both liability and damages. Id. at 127. At trial plaintiff was found to be 20% at fault and was awarded $500,000.00. Id. The defendant insurance carrier appealed. The Appellate Division held that, based upon the policy language, "the arbitrators' determination as to liability was binding, and thus, plaintiff had no right to a trial de novo on the issue." Id. at 128.

The trend in the insurance industry, even in 1995 when Derfuss was decided, in drafting insurance policies is to clearly specify whether a trial de novo is on damages or both damages and liability. The Derfuss Court cited Annunziata v. Prudential Ins. Co., 260 N.J. Super. 210 (Law Div. 1992), as a example. There, the policy in issue provided that “[i]f an arbitration award exceeds these limits [the statutory liability minimum] ... either party has a right to trial on all issues in a court of competent jurisdiction ....” Derfuss, supra, at 131, quoting, Annunziata, supra, at 215. Hence, the trend is that there is no trial de novo on both liability and damages unless the policy explicitly says so.

Public policy also militates in favor of finding that liability, based upon the language of the policy in issue, and as established by the arbitration panel, is binding. Alternate dispute resolution “can only succeed where arbitration actually settles disputes between parties who have specifically contracted for it.” Derfuss, supra, at 132, quoting Cutitta v. Selective Ins. Co., 255 N.J. Super. 252, 259 (App. Div. 1992). Moreover, our Supreme Court has also said that,

Just as we view piecemeal litigation as anathema, we also look with disfavor upon the unnecessary bifurcation of disputes between judicial resolution and arbitration. Thus, our [broad] construction of the scope of arbitration clauses is consistent with the policy of favoring commercial arbitration as a speedy and inexpensive method for settling disputes.

Derfuss, supra, at 132-133, quoting Ohio Casualty
Ins. Co. v. Benson, 87 N.J. 191, 199 (1981).

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Plaintiffs respectfully submit that Derfuss is controlling in this case. Both the policies in Derfuss and the case at bar are similar in that they both allow (a) a panel of two arbitrators to decide whether the insured is legally entitled to recover damages and (b) either party to request a trial de novo if the party is aggrieved by the arbitrators' decision. The language of similar policies have already been construed by our courts in favor of the arbitration being binding as to liability. Defendants are entitled to request a trial de novo on damages because the arbitration award was for a net $75,000.00, whereas the minimum limit of liability specified by the financial responsibility law of New Jersey is $15,000.00. N.J.S.A. 17:28-1.1a(1); Derfuss, supra, at 130, fn. 2. They are not entitled, however, to a trial de novo on liability.

Plaintiffs request summary judgment on this issue to be granted in their favor.

CONCLUSION

The court should grant plaintiffs' summary judgment as to liability.

Respectfully Submitted,

LAW OFFICES OF XXXXXX & XXXX, P.C.


_____________________________________
Xxxxxxxxxxx D. Xxxxxx, Esq.
Attorney for Plaintiff.

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