Selected Risks Ins. Co. v. Dierolf

• Decision Date: 19 December 1975
• Parties: SELECTED RISKS INSURANCE COMPANY, Plaintiff, v. Harry DIEROLF, Defendant.
• Court: New Jersey Superior Court

Page 287

138 N.J.Super. 287

350 A.2d 526

SELECTED RISKS INSURANCE COMPANY, Plaintiff, v. Harry DIEROLF, Defendant.

Superior Court of New Jersey Chancery Division.

Dec. 19, 1975.

James J. Cook, Camden, for plaintiff (Kisselman, Deighan, Montano & Summers, Camden, attorneys).

Harry L. Shaw, Camden, for defendant.

PEEL, J.S.C.

This is an action for declaratory and injunctive relief in which plaintiff Selected Risks Insurance Company seeks to prevent arbitration of an uninsured motorist claim by its insured, defendant Harry Dierolf. The question presented is whether the two-year tort or the six-year contract statute of limitations governs a demand for arbitration under an uninsured motorist endorsement.

The facts are not in dispute. Defendant Dierolf, a resident of New Jersey, sustained personal injuries when involved in an auto accident with an uninsured driver in Pennsylvania on June 13, 1969. At that time Dierolf had automobile liability insurance with uninsured motorist coverage for out-of-state accidents under a policy issued by plaintiff Selected Risks covering the period from October 16, 1968 to October 16, 1969. Dierolf, through his attorney, wrote to Selected Risks on July 8, August 8 and October 15, 1969, advising his insurer of the accident. These letters included the date, place and time of the accident, the claim that defendant sustained physical injury and property damage, that efforts to contact the other driver had failed, and the assertion that Dierolf might be forced to make a claim under the policy's uninsured motorist endorsement. By letters of April 14 and May 14, 1971 defendant's attorney informed Selected Risks of defendant's medical costs. On April 19, 1971 defendant filed an action in the Pennsylvania courts against the uninsured motorist. The only correspondence between the parties from May 14, 1971 to February 16, 1972 was plaintiff's letter acknowledging receipt of defendant's listing of medical costs and other correspondence directed at clarifying who was representing defendant. On February 16, 1972 some two years and eight months after the accident, Dierolf, by letter, made his formal demand for arbitration of his uninsured motorist claim. Thereafter plaintiff instituted this action for a declaration that the claim is barred by the statute of limitations and for a restraint upon arbitration of that claim. Pending the outcome of this action the arbitrable issues remain unresolved.

Selected Risks contends that N.J.S.A. 2A:14--2, the two-year statute of limitations, governs defendant's claim. Plaintiff argues that its endorsement allows recovery only for sums that the insured is 'legally entitled to recover'; that a claimant under that endorsement must establish all of the elements of a tort action to obtain recovery, and in such an action failure to comply with the tort statute of limitations would be a bar to recovery; that therefore a claimant who fails to comply with the statute is not 'legally entitled to recover' under the endorsement. Plaintiff further argues that once the statute has been permitted to run, as here, plaintiff's subrogation rights under the endorsement may be prejudiced.

Defendant's argument that N.J.S.A. 2A:14--1, the six-year statute of limitations, governs his claim is premised upon the view that an insurer's liability for the tort of another is created by contract; that the arbitration procedure is a term of that contract, and a demand for arbitration is an action in contract governed by the statute of limitations applicable to contracts.

Selected Risks' policy provision regarding arbitration of claims under the uninsured motorist endorsement is silent with respect to the issue of when demand for arbitration is to be made. That provision in its entirety provides:

8. Arbitration. If any person making claim hereunder and the company do not agree that such person is legally entitled to recover damages from the owner or operator of an uninsured automobile because of bodily injury to the insured, or do not agree as to the amount of payment which may be owing under this endorsement, then, upon written demand of either, the matter or matters upon which such person and the company do not agree shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Such person and the company each agree to consider itself bound and to be bound by any award made by the arbitrators pursuant to this endorsement.

Similarly, N.J.S.A. 17:28--1.1, the statutory foundation for uninsured motorist coverage, ¹ is silent as to that issue. The litigants, being unable to cite any New Jersey case law dispositive of the issue as to which statute governs, are in agreement that this is an issue of first impression for the New Jersey courts.

The applicability of statutes of limitation to insurance actions has been dealt with generally in a case, cited by plaintiff, which is distinguishable on both the facts and the issue under litigation. In the context of an action by a judgment creditor against an insurance company filed eight years after a judgment, the court in Breen v. N.J. Mfrs. Indem. Ins. Co., 105 N.J.Super. 302, 252 A.2d 49 (Law Div.1969) aff'd 109 N.J.Super. 473, 263 A.2d 802 (App.Div.1970), said:

'As a general rule statutes of limitation applicable to contracts govern actions on insurance * * *.' 53 C.J.S. Limitations of Actions § 44, at 997. The situation most common is where the insured is injured by an uninsured motorist and attempts to recover under the uninsured motorist provision of his policy. Those cases have held that the contract statute of limitations applied rather than the statute of limitations applicable to torts. DeLuca v. Motor Vehicle Acc. Indemnity Corp., 17 N.Y.2d 76, 268 N.Y.S.2d 289, 291, 215 N.E.2d 482 (1966); Schlief v. Hardware Dealer's Mutual Fire Ins. Co., 218 Tenn. 289, 404 S.W.2d 490, 491 (1966); Hartford Acc. & Indemnity Co. v. Mason, 210 So.2d 474, 475 (Fla.App.1968); 14 Fla.L.Rev. 455, 471 (1962); 24 Ohio L.Jour. 589, 591 (1963); 48 Calif.L.Rev. 516, 531 (1960) (at 309, 263 A.2d at 53)

Although the court in Breen was not dealing with a claim under an uninsured motorist endorsement, the case law cited in the above quotation appears to reflect the majority view of those jurisdictions which have ruled upon the statute of limitations which, absent an express statute, governs an uninsured motorist endorsement, whether in the context of a demand for arbitration or the institution of court action. Further authority for this view is found in Annotation 'Automobile Insurance: Time Limitations as to Claims Based on Uninsured Motorist Clause,' 28 A.L.R.3d 580, 585 (1969).

Plaintiff's contention that the phrase, 'legally entitled to recover' renders a demand for arbitration valid only as long as a tort action would be valid, is not persuasive. The term 'legal entitlement,' in the context of arbitration, has a specific content more narrow than envisaged by plaintiff. Interpreting a substantially equivalent arbitration provision, the Appellate Division has recently held in Selected Risks Ins. Co. v. Schulz, 136 N.J.Super. 185, at 187, 345 A.2d 349, at 350 (1975), that:

* * * the arbitration provision in the policy (is) to be limited to a determination of two fact questions, namely, the issue of fault and damages.

The basis for arbitration is disagreement as to legal entitlement to recover and the amount of recovery. Based upon the holding of Schulz, this court interprets the term legal entitlement to be synonymous with the factual issue of fault. Arbitration of legal entitlement does not encompass consideration of a statute of limitations. Extension of the import of that phrase to include a claimant's compliance with such statute is inappropriate in the context of arbitration. Legal entitlement in that context is a factual issue which cannot include compliance with a statute of limitations, a legal issue. See Annotation, 'What Issues are Arbitrable Under Arbitration Provision of Uninsured Motorist Insurance,' 29 A.L.R.3d 328, 351 (1970).

Turning to public policy considerations, the court remains unpersuaded that the two-year statute should govern a demand for arbitration under an uninsured motorist endorsement. A...