Insurer Who Ignored Arbitration Pleading Must Abide By Award Entered (NJ)

Insurers who are signatories to arbitration forums such as Arbitration Forum, Inc. to resolve disputes amongst other signatories should be aware that New Jersey courts will enforce such agreements.  In a recent case, Excelsior Insurance Co. v. One Beacon Insurance Co., the Appellate Division noted the Legislature’s encouragement of this “speedy, inexpensive, expeditious and perhaps less formal manner” to resolve such disputes.

The dispute involved two insurers who wrote succcessive policies to the same insured housing developer.  When claims were brought for water infiltration against the developer,  Excelsior, who had first insured the risk, denied coverage claiming that the water infiltration had not manifested during its policy term.  One Beacon defended the insured under a reservation of rights and, then, pursued Excelsior in the arbitration forum after judgment had been entered against the insured.  Excelsior failed to timely answer One Beacon’s pleading in arbitration resulting in an award against it.

Excelsior unsuccessfully turned to the New Jersey Superior Court to set aside the arbitration award.  Excelsior contended that it contested coverage owed to its insured- taking the controversy out of the scope for such arbitration.  In fact, the arbitration agreement provides that a company shall not be forced to submit to arbitration where coverage is contested.  However, Excelsior failed to follow the special rules for arbitration it agreed to follow when it failed to affirmatively plead its defense.  Additionally, had it sought to raise the coverage issue, the nature of the denial did not fall within the guidelines for such an affirmative defense.  Such a coverage denial is applied only where the claim is against an individual who is not covered or with respect to a policy that was not in effect at the time of the incident.  The Appellate Division did not consider Excelsior’s denial based upon a “manifestation trigger” as meeting this guideline term.

Thus, the court was not moved by Excelsior’s arguments and found no abuse in discretion by the arbitration forum or the lower court judge.  The award was upheld.

For more information contact Denise Fontana Ricci at dricci@wcmlaw.com.