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Decision Alert: Subrogation: Court Order Upholding Arb Award in Excess of Policy Limits


Summary of Court Decision obtained by Clark & DiStefano:

On October 14, 2016, Monmouth County Superior Court Judge Dennis R. O’Brien entered an order confirming an arbitration award entered in Arbitration Forums even though the award was in excess of the remaining policy limits of Knightbrook Insurance Company. In Judge O’Brien’s eight page written decision, he concluded that Knightbrook’s failure to raise its limited policy limits as a defense constituted a waiver of that defense pursuant to the rules of Arbitration Forums.  Judge O’Brien further concluded that the fact that the arbitration award was in excess of Knightbrook’s remaining policy limits did not constitute a sufficient ground under New Jersey’s Arbitration Act justifying either modifying or vacating the arbitration award.

The underlying facts regarding the arbitration award were not in dispute. Liberty Mutual Insurance Company provided a policy of automobile liability insurance which provided PIP benefits in the amount of $250,000.00 to Elias Boudaher.  On October 28, 2012, Ms. Boudaher was involved in a motor vehicle accident with an ambulance owned by Eden Ambulance and insured by Knightbrook.  The policy provided a liability limit of $1 million dollars per accident.

Ms. Boudaher was severely injured in the motor vehicle accident and subsequently died. Her estate brought a wrongful death action against Eden Ambulance which was eventually settled for the sum of $885,000.00 reducing Knightbrook’s remaining policy limits to $115,000.00.

Liberty Mutual paid PIP benefits on behalf of Ms. Boudaher and sought to recover those PIP benefits pursuant to N.J.S.A. 39:6A-9.1. Liberty Mutual initiated an arbitration action against Knightbrook in Arbitration Forums since both parties were members of the PIP tribunal.  Knightbrook filed an answer and requested a deferment.  Liberty Mutual challenged the deferment since the wrongful death claim against Knightbrook’s insured had been settled.  Knightbrook never raised its reduced policy limits as an affirmative defense.

An arbitration hearing was conducted and an award was entered in favor of Liberty Mutual and against Knightbrook in the amount of $262,404.33. Judge O’Brien concluded that Arbitration Forums Rule 3-9 would have given Knightbrook the opportunity to raise its limited policy limits defense up to sixty {60} days after the arbitration award had been entered.  Judge O’Brien concluded that Knightbrook’s failure to either raise its limited policy limits prior to the arbitration hearing or after the arbitration hearing constituted a complete waiver of that defense.

Further, Judge O’Brien concluded that the fact that the arbitration award was in excess of Knightbrook’s remaining policy limits did not constitute a sufficient ground to either modify or vacate the award under New Jersey’s Arbitration Act. Judge O’Brien cited Selective Insurance Company v. National Continental Insurance Company, 385 N.J. Super. 62 (App. Div. 2006) as the Court’s justification for confirming the arbitration award even though it was in excess of Knightbrook’s remaining policy limits.  Judge O’Brien went onto award counsel fees, costs, and interest.

The Court’s decision in Liberty Mutual Insurance Company v. Knightbrook Insurance Company is a warning to all parties that participate in Arbitration Forums.  New Jersey Courts will enforce the rules of an arbitration tribunal and will respect the arbitration award unless one of the specific grounds for vacating the arbitration award as found in the New Jersey Arbitration Act applies.

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