New Jersey Mfrs. Ins. Co. v. Franklin

Decision Date27 June 1978
PartiesNEW JERSEY MANUFACTURERS INSURANCE COMPANY, Plaintiff-Appellant, v. William H. FRANKLIN, Defendant-Respondent.
CourtNew Jersey Superior Court — Appellate Division

R. Peter Connell, Newark, for plaintiff-appellant (McElroy, Connell, Foley & Geiser, Newark, attorneys).

Laurence E. Appet, Fairfield, for defendant-respondent (Appet & Appet, Fairfield, attorneys).

Before Judges HALPERN, LARNER and KING.

The opinion of the court was delivered by


Defendant William H. Franklin sustained serious injuries as a result of an automobile accident with a vehicle owned by Carmine V. Capalbo. As a result of a settlement agreement Capalbo's liability insurance carrier paid Franklin the sum of $25,000 representing the total coverage of Capalbo's policy. Thereafter Franklin made a claim against his own carrier, New Jersey Manufacturers Insurance Co., for the additional sum of $15,000 based on the uninsured motorist endorsement on his policy. He claimed that his injuries and losses were not fully compensated by the payment from Capalbo's carrier, and that Capalbo was therefore "uninsured" to the extent that his policy was insufficient to pay for the injuries and losses.

Pursuant to the provision contained in the uninsured motorist endorsement, Franklin filed a demand for arbitration with the American Arbitration Association which sought $15,000 from New Jersey Manufacturers Insurance Co. for personal injuries based on the uninsured motorist provision of his policy. The demand contained no special request for arbitration of any particular issues and was simply a printed form demanding arbitration under the uninsured motorist provision of the policy. The record does not reflect an answer or statement by New Jersey Manufacturers. In any event, an arbitrator was selected. However, pursuant to an agreement that the matter would be submitted on written memoranda, neither party appeared before the arbitrator.

Accordingly, counsel for the insurance company submitted to the arbitrator a "Memorandum of Law in Support of Motion for Dismissal" and a supplemental memorandum as well. In these memoranda he argued that the matter was not appropriately the subject of arbitration, citing Selected Risks Ins. Co. v. Schulz, 136 N.J.Super. 185, 345 A.2d 349 (App.Div.1975), as authority for his position that the question of coverage is not arbitrable. He noted that since the scope of arbitration is limited to "questions of fault and damage" which are not in dispute, nothing remains for the arbitrator to decide.

In addition to the foregoing jurisdictional contention relevant to the application to dismiss, the memoranda also ventured into a discussion of the merits of the coverage question involved in the uninsured motorist claim. On July 20, 1976 the arbitrator filed what is entitled "Interim Award of Arbitrator" with the following provisions:

1. NEW JERSEY MANUFACTURERS INSURANCE CO. is liable to WILLIAM FRANKLIN for injuries received from the accident which occurred on January 19, 1973, under Policy No. FA 548825-9.

2. Jurisdiction is retained until August 29, 1976 for a determination as to damages should the parties be unable to agree on a mutually acceptable amount.

On November 29, 1976 New Jersey Manufacturers filed a complaint in the Law Division for a declaratory judgment to determine that the arbitrator's interim ruling was beyond his jurisdiction, that the arbitration proceeding be dismissed, and that coverage does not exist for Franklin's claim under the New Jersey Manufacturers policy. Defendant took no steps to confirm the interim award and no final arbitrator's award was ever filed.

However, defendant moved to dismiss the complaint. The trial judge converted the motion into a summary judgment motion, which he granted on the ground that New Jersey Manufacturers had waived its right to a judicial determination of the coverage question by its participation in the arbitration proceeding. He also added his opinion that the arbitrator not only had jurisdiction to decide the issue of coverage but had decided that issue on its merits in accord with controlling law, citing Motor Club of America Ins. Co. v. Phillips, 66 N.J. 277, 330 A.2d 360 (1974).

Plaintiff's appeal from this determination presents the following questions for resolution: (1) Did the arbitrator have jurisdiction to decide the coverage question? (2) Did New Jersey Manufacturers waive its objection to the arbitrator's jurisdiction to determine that issue? (3) If the answer to both of these questions is in the negative, does the uninsured motorist provision of the policy afford coverage for Franklin's excess claim?

The standard uninsured motorist endorsement attached to the policy herein provides for arbitration only as to the liability of the uninsured motorist tortfeasor and the quantum of damages (Condition G). And since the scope of such arbitration is necessarily limited by the contract, the submission to the arbitrator by the demand for arbitration precluded consideration of any other issues. Goerke Kirch Co. v. Goerke Kirch Holding Co., 118 N.J.Eq. 1, 4, 176 A. 902 (E. & A.1935); Moreina Constr. Co., Inc. v. Wayne Tp., 98 N.J.Super. 570, 575-576, 238 A.2d 185 (App.Div.), certif. den. 51 N.J. 467, 242 A.2d 15 (1968); Polshek v. Bergen Cty. Iron Works, 142 N.J.Super. 516, 521, 362 A.2d 63 (Ch.Div.1976); Leslie v. Leslie, 50 N.J.Eq. 103, 107, 24 A. 319 (Ch.1892).

Hence it is well settled in this State that coverage questions are not arbitrable under the usual arbitration clause contained in an uninsured motorist endorsement. GEICO v. Bovit, 142 N.J.Super. 268, 361 A.2d 100 (App.Div.), certif. den. 71 N.J. 502, 366 A.2d 658 (1976); Selected Risks Ins. Co. v. Schulz, supra, 136 N.J.Super. at 187, 345 A.2d 349; Travelers Indem. Co. v. Mongiovi, 135 N.J.Super. 452, 343 A.2d 750 (App.Div.1975); Gov't Employees Ins. Co. v. Shara, 137 N.J.Super. 142, 145-146, 348 A.2d 212 (Ch.Div.1975). See also, Annotation, "What issues are arbitrable under arbitration provision of uninsured motorist insurance?," 29 A.L.R.3d 328 (1970); Widiss, A Guide to Uninsured Motorist Coverage, §§ 6.17-6.26 at 202-216 (1969). The issue of coverage is one for determination by a court, and in the absence of evidence of stipulation, waiver or estoppel, the arbitrator had no primary jurisdiction to determine that question.

It follows therefore that the justification for the arbitrator's interim award holding New Jersey Manufacturers liable can only be premised on a finding that the company's participation in the arbitration proceeding constituted a waiver and submission to the power and jurisdiction of the arbitrator to decide the coverage question. Even in the absence of a contractual submission of an issue to arbitration, a party may by conduct or agreement waive his legal right to judicial determination. If such a waiver is established, objection to the arbitrator's jurisdiction is no longer viable. See Grover v. Universal Underwriters Ins. Co., 151 N.J.Super. 403, 411, 376 A.2d 1308 (App.Div.1977); Collingswood Hosiery Mills v. Amer. Fed. Hosiery Wkrs., 28 N.J.Super. 605, 101 A.2d 372 (Ch.Div.1953), rev'd on other grounds 31 N.J.Super. 466, 107 A.2d 43 (App.Div.1954); Migneault v. United Services Automobile Ass'n, 21 Ariz.App. 397, 519 P.2d 1162 (Ct.App.1974); Annotation, "Participation in arbitration proceedings as waiver of objections to arbitrability," 33 A.L.R.3d 1242, 1245-1250 (1970).

It is our considered opinion that the degree and nature of the participation in the arbitration proceeding by the carrier herein did not constitute an unequivocal and knowing waiver so as to vest jurisdiction in the arbitrator to decide the merits of the coverage question.

When the claimant filed his demand for arbitration he submitted a Pro forma document which did not specify the issues to be determined by the arbitrator. The tenor of the demand demonstrates a request for arbitration within the ambit of the uninsured motorist endorsement, thereby limiting the jurisdiction of the arbitration to the liability of the tortfeasor and damages. Faced with such a demand the company had a range of options. It could disregard the arbitration and not participate therein; it could immediately seek to restrain the arbitration pending a determination by a court of the coverage question; it could make a timely objection in the arbitration proceeding before the hearing on the merits, or it could participate fully before the arbitrator on the merits of all issues. See generally, Stanton, "Protection Against Uninsured Motorists in New Jersey," 3 Seton Hall L.Rev. 19, 36-40 (1971). The determination whether there has or has not been a waiver is dependent upon the course elected by the company and the facts relating to the nature and degree of its participation in the arbitration proceeding.

In the context of the limitation of arbitrable issues contained in the insurance contract, the critical question is whether an agreement to arbitrate the coverage question was in fact made by the carrier because of what it did in the arbitration proceeding. In Battle v. General Cellulose Co., 23 N.J. 538, 129 A.2d 865 (1957), the court noted:

The one who denies the existence of the contract (to arbitrate) may seek a judicial determination upon an application to stay the arbitration or upon a proceeding to enforce the award. If he chooses to ignore the arbitration and await an action upon the award, he takes the risk of a determination that he was obligated to arbitrate and hence is bound by the award. (at 543-544, 129 A.2d at...

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