Crystal Point Condo. Ass'n v. Kinsale Ins. Co.
| Decision Date | 18 July 2022 |
| Docket Number | A-76-20 |
| Parties | Crystal Point Condominium Association, Inc., Plaintiff-Respondent, v. Kinsale Insurance Company, Defendant-Appellant. |
| Court | New Jersey Supreme Court |
Argued January 3, 2022
On certification to the Superior Court, Appellate Division whose opinion is reported at 466 N.J.Super. 471 (App. Div. 2021).
Sean P. Mahoney argued the cause for appellant (Kennedys CMK attorneys; Sean P. Mahoney, of counsel and on the briefs, and Michael E. DiFebbo, on the briefs).
John Randy Sawyer argued the cause for respondent (Stark & Stark, attorneys; John Randy Sawyer, of counsel and on the brief).
Kayla Elizabeth Rowe argued the cause for amici curiae the Insurance Council of New Jersey and the New Jersey Civil Justice Institute (Rowe Law, attorneys; Kayla Elizabeth Rowe of counsel and on the brief).
In this appeal, the Court considers whether plaintiff Crystal Point Condominium Association, Inc., which has obtained default judgments against two entities for construction defect claims, may assert claims against defendant Kinsale Insurance Company, alleged to have insured those entities, under the Direct Action Statute, N.J.S.A. 17:28-2. The Court also considers the effect of the provisions in each policy mandating binding arbitration of disputes between Kinsale and its insureds.
It is undisputed that Kinsale issued policies that provided insurance coverage to Nacamuli Associates LLC, a structural engineering firm. Crystal Point alleges that Kinsale also provided insurance coverage to Hawke Inspections and Testing LLC, a construction inspection company. The relevant policies both contained an arbitration agreement providing in part that "[a]ll disputes over coverage or any rights afforded under this Policy . . . shall be submitted to binding Arbitration."
Crystal Point manages the common elements of a building in Jersey City. After discovering what it alleges to be construction defects in the building, it filed an action against the contractors that it contended were responsible for those defects, including Nacamuli and Hawke. Crystal Point sought and obtained default judgments and writs of execution against Nacamuli and Hawke.
Crystal Point filed a declaratory judgment action against Kinsale alleging that it was entitled to recover the amounts owed by Nacamuli and Hawke under the insurance policies issued by Kinsale. Kinsale asserted that Crystal Point's claims were subject to binding arbitration in accordance with the insurance policies. Kinsale argued that the Direct Action Statute did not apply because Crystal Point had not demonstrated that either Nacamuli or Hawke was insolvent or bankrupt. In the alternative, Kinsale contended that even if the statute were to apply, it would not preclude enforcement of the arbitration provisions in the policies. Crystal Point opposed the motion. It asserted that the arbitration provisions did not apply to its claims and that the Direct Action Statute precluded enforcement of those provisions.
The trial court granted Kinsale's motion to compel arbitration. The court viewed the Direct Action Statute to be inapplicable because there was no evidence in the record before it that either Nacamuli or Hawke was insolvent or bankrupt.
The Appellate Division granted Crystal Point's motion to supplement the record with Affidavits of Service by Union County Sheriff's Officers indicating that they were unable to serve the writs of execution on Nacamuli or Hawke because, in each case, the "[c]ompany does not exist at this address." The appellate court reversed the trial court's judgment, finding the evidence that the writs of execution were unsatisfied met the Direct Action Statute's requirement that the claimant present proof of the insured's insolvency or bankruptcy and determining that the Direct Action Statute authorized Crystal Point's claims against Kinsale. 466 N.J.Super. 471, 480-82 (App. Div. 2021). The Appellate Division concluded that the arbitration clause in Kinsale's insurance policies did not warrant the arbitration of Crystal Point's claims, so it reinstated the complaint and remanded for further proceedings. Id. at 485-87.
The Court granted certification. 248 N.J. 10 (2021).
HELD: Crystal Point may assert direct claims against Kinsale pursuant to the Direct Action Statute in the setting of this case. Based on the plain language of N.J.S.A. 17:28-2, however, Crystal Point's claims against Kinsale are derivative claims, and are thus subject to the terms of the insurance policies at issue, including the provision in each policy mandating binding arbitration of disputes between Kinsale and its insureds. Crystal Point's claims against Kinsale are therefore subject to arbitration.
1. The Legislature enacted the Direct Action Statute in 1924, and the statute has not been amended since 1931. The statute mandates the inclusion of specific policy language in insurance policies both "against loss or damage resulting from accident to or injury suffered by an employee or other person and for which the person insured is liable" and "against loss or damage to property caused by animals or by any vehicle drawn, propelled or operated by any motive power, and for which loss or damage the person insured is liable." N.J.S.A. 17:28-2. The statute allows a victim to directly pursue an insurer without a need for the insured's cooperation if certain requirements are met: first, injured parties have no rights under the policy until "execution against the insured is returned unsatisfied . . . because of the insolvency or bankruptcy" of the person insured; second, any claim brought under the Direct Action Statute is a claim "under the terms of the policy." Ibid. In actions brought pursuant to policy language mandated by the Direct Action Statute, the judgment creditor's rights Dransfield v. Citizens Cas. Co. of N.Y., 5 N.J. 190, 194 (1950). (pp. 14-18) 2. The Court rejects the argument that the Direct Action Statute applies only to claims arising from "loss or damage to property caused by animals or by any vehicle drawn." N.J.S.A. 17:28-2. By its plain terms, the statute applies to either (1) coverage for claims "against loss or damage resulting from accident to or injury suffered by an employee or other person and for which the person insured is liable"; or (2) coverage for claims "against loss or damage to property caused by animals or by any vehicle drawn, propelled or operated by any motive power, and for which loss or damage the person insured is liable." Ibid. Nothing in the statutory text suggests legislative intent to limit the statute's reach to the second category of claims, nor is there any indication in the case law applying the Direct Action Statute that the statute applies only to such claims. This case is clearly an action by a judgment creditor seeking the proceeds of insurance policies for claims arising from "loss or damage resulting from accident to or injury suffered by an employee or other person and for which the person insured is liable." N.J.S.A. 17:28-2. Accordingly, the Direct Action Statute governs this appeal. (pp. 18-20)
3. Turning to the Direct Action Statute's proof of insolvency requirement, the Court notes that the trial court properly concluded, based on the record before it, that Crystal Point had not presented prima facie evidence of the insolvency of Nacamuli or Hawke. The Court concurs with the Appellate Division that the supplemented appellate record included such prima facie evidence -- a showing that the writs of execution were returned unsatisfied. Crystal Point has satisfied the requirement that it present prima facie evidence of the insolvency or bankruptcy of the parties that it claims were insured by Kinsale, and its claim under the statute may proceed. (pp. 20-22)
4. The Court last considers whether Crystal Point's claim pursuant to the Direct Action Statute is subject to the arbitration provision in the relevant policies that Kinsale issued. The Direct Action Statute defines a judgment creditor's claim against the insolvent or bankrupt judgment debtor to be a claim "under the terms of the policy for the amount of the judgment in the action not exceeding the amount of the policy." N.J.S.A. 17:28-2. One of the "terms of the policy" at issue here is the arbitration clause, whose broad language mandates arbitration of any action brought by Nacamuli or Hawke against Kinsale. Under the statute's plain language, Crystal Point's rights against Kinsale are purely derivative of the rights that Nacamuli or Hawke could have asserted against Kinsale. The parties' disputes must be submitted to binding arbitration in accordance with the arbitration provisions. (pp. 22-24)
REVERSED. The order compelling arbitration is REINSTATED.
PATTERSON JUSTICE
The Direct Action Statute authorizes an injured claimant holding an unsatisfied judgment against an insolvent or bankrupt policyholder to file a direct action against an insurer in certain settings. N.J.S.A. 17:28-2. That action must proceed "under the terms of the policy for the amount of the judgment in the action not exceeding the amount of the policy." Ibid.
In a construction defect case, plaintiff Crystal Point Condominium Association obtained default judgments against two entities that it contends are insolvent. Crystal Point alleges that defendant Kinsale Insurance Company insured the two entities for the construction claims brought here. It relies on insurance policies issued by Kinsale, each providing for binding arbitration of disputes arising from the policies.
After Crystal Point failed to recover on the default judgments, it brought a declaratory judgment and breach of contract...
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