Zirger v. General Acc. Ins. Co.

• Decision Date: 12 June 1996
• Citation: 676 A.2d 1065,144 N.J. 327
• Parties: , 65 USLW 2043 Martin S. ZIRGER, Plaintiff-Appellant, v. GENERAL ACCIDENT INSURANCE COMPANY, Defendant-Respondent.
• Court: New Jersey Supreme Court

Page 327

144 N.J. 327

676 A.2d 1065, 65 USLW 2043

Martin S. ZIRGER, Plaintiff-Appellant, v. GENERAL ACCIDENT INSURANCE COMPANY, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Jan. 2, 1996.

Decided June 12, 1996.

Roy T. Konray, Rahway, argued the cause for appellant (Ravich, Koster, Tobin, Oleckna, Reitman & Greenstein, attorneys).

Elliott Abrutyn, Livingston, argued the cause for respondent (Morgan, Melhuish, Monaghan, Arvidson, Abrutyn & Lisowski, attorneys; Warren Usdin, on the brief).

The opinion of the Court was delivered by

STEIN, J.

The critical issue posed by this appeal is whether plaintiff's damages verdict against a third-party tortfeasor, awarded after a jury trial, collaterally estops General Accident Insurance Company (General Accident) from enforcing the arbitration clause included in the underinsured motorist (UIM) endorsement of plaintiff's automobile insurance policy. General Accident concedes that it knew of plaintiff's intention to proceed to a jury verdict on damages. The trial court granted plaintiff's motion for summary judgment, observing that General Accident had waived its right to proceed under the arbitration clause. The Appellate Division reversed in an unreported opinion, concluding that General Accident's knowledge of and acquiescence to plaintiff's intention to try the damages issue did not constitute a waiver of the insurer's right to demand arbitration.

We granted plaintiff's petition for certification. 142 N.J. 456, 663 A.2d 1363 (1995). After oral argument the parties informed us that the case had been settled, rendering moot the underlying legal issue. Ordinarily, our interest in preserving judicial resources dictates that we not attempt to resolve legal issues in the abstract. See Oxfeld v. New Jersey State Bd. of Educ., 68 N.J. 301, 303-04, 344 A.2d 769 (1975); Sente v. Mayor & Mun. Council of Clifton, 66 N.J. 204, 205, 330 A.2d 321 (1974). On occasion, however, we will decide such appeals where the underlying issue is one of substantial importance, likely to reoccur but capable of evading review. See, e.g., Division of Youth & Family Servs. v. J.B., 120 N.J. 112, 118-19, 576 A.2d 261 (1990); Matter of J.I.S. Indus. Serv. Co. Landfill, 110 N.J. 101, 104-05, 539 A.2d 1197 (1988); Matter of Conroy, 98 N.J. 321, 342, 486 A.2d 1209 (1985); Guttenberg Sav. & Loan Ass'n v. Rivera, 85 N.J. 617, 622-23, 428 A.2d 1289 (1981). The issue before us is of that nature, involving as it does the enforceability of a standard arbitration clause in the UIM endorsement included in automobile insurance policies, but evading review because of the possible reluctance by the industry or private litigants to press for resolution of the question. Accordingly, notwithstanding its mootness we undertake to resolve the issue.

I

The pertinent facts are essentially undisputed. Plaintiff sustained personal injuries in an accident with an automobile operated by Joseph Filsaime on January 4, 1991. Filsaime's liability policy provided only $15,000 in coverage. Zirger's automobile policy issued by General Accident provided UIM coverage of $1,000,000. General Accident's UIM endorsement contained a standard arbitration clause widely used in the industry. It read in part:

ARBITRATION

a. If we and an "insured" disagree whether the "insured" is legally entitled to recover damages from the owner or driver of ... an "underinsured motor vehicle" or do not agree as to the amount of damages that are recoverable by that "insured," then the matter may be arbitrated.... Either party may make a written demand for arbitration. In this event, each party will select an arbitrator. The two arbitrators will select a third.

The endorsement also included a standard coverage provision:

A. COVERAGE

1. We will pay all sums the "insured" is legally entitled to recover as compensatory damages from the owner or driver of an "uninsured motor vehicle" or an "underinsured motor vehicle." The damages must result from "bodily injury" sustained by the "insured," or "property damage" caused by an "accident." The owner's or driver's liability for these damages must result from the ownership, maintenance or use of an "uninsured motor vehicle" or an "underinsured motor vehicle."

2. Any judgment for damages arising out of a "suit" brought without our written consent is not binding on us.

Zirger instituted a negligence action against Filsaime to recover damages for the injuries sustained in the accident. In February 1993, Zirger's counsel informed General Accident about the limit of liability on Filsaime's policy, requesting General Accident's permission to settle with Filsaime for the policy limit in order to pursue a UIM claim under Zirger's policy. Zirger's counsel also demanded arbitration pursuant to the UIM endorsement, and selected an arbitrator. General Accident also selected its arbitrator. A few months later General Accident consented to Zirger's proposed settlement of his claim against Filsaime for the policy limit.

That settlement never occurred. After trial on liability only, a jury determined that Filsaime was liable for Zirger's injuries. Filsaime's insurer then offered to settle the case for $15,000, the policy limit. Zirger's counsel contacted General Accident's counsel, stating that he was inclined to reject the offer and proceed to a jury trial on damages. General Accident's attorney acknowledged that he "was actually somewhat confused as to exactly why [Zirger's attorney] was calling me," but confirmed that he informed Zirger's attorney "that if he chose to do so he should proceed to obtain a jury verdict on the question of damages." General Accident's attorney stressed that he never waived the contractual right to arbitrate the damages issue, and that his informal authorization to proceed to trial on damages was of no significance because General Accident was not authorized to preclude plaintiff from presenting his claim for damages to a jury.

The jury awarded Zirger $400,000. Zirger then demanded payment of that amount from General Accident, reduced by the $15,000 recovery against Filsaime. When General Accident refused payment, Zirger instituted this action.

The parties filed cross-motions for summary judgment. The trial court granted Zirger's motion, concluding that General Accident impliedly had consented to the litigation of Zirger's claim against Filsaime, thereby waiving its contractual right to arbitration. The Appellate Division reversed, concluding that General Accident's acquiescence to plaintiff's pursuit of a damage claim was not sufficiently unequivocal and decisive to constitute a waiver of the contractual right to arbitration. That court also determined that General Accident could not be collaterally estopped from relitigating the damages question because its interests and Filsaime's were not sufficiently similar to conclude that Filsaime's litigation of the damages claim provided adequate representation of General Accident's interest in minimizing its ultimate liability under the UIM endorsement.

II

Simply stated, the question posed is whether a plaintiff, who has tried to conclusion in the Law Division his or her claim against a tortfeasor and has received an award of damages, can nevertheless be compelled to relitigate the issue of damages before an arbitration panel pursuant to the arbitration clause in the UIM endorsement of the plaintiff's automobile liability policy. The carrier's insistence on arbitration undoubtedly derives from its expectation that the arbitration damages award will be less than the jury verdict, and the carrier relies on the unambiguous provisions of the insurance contract to support its arbitration demand. Plaintiff asserts that the contractual provision should not override the public policy interest in avoiding duplicative and unnecessary relitigation of the damages issue, contending that the carrier's interest in minimizing damages was represented adequately by the tortfeasor's carrier that defended the Law Division action. That contention was acknowledged by the trial court in granting Zirger's motion for summary judgment: "Defendant Filsaime's attorney presented a full defense with the single goal in mind--to limit Mr. Filsaime's liability--precisely the same goal the defendant insurer would have during arbitration."

Our courts have emphasized that the insurance contract ordinarily should govern the resolution of disputes arising pursuant to UM and UIM endorsements. "[The insured claimant's] rights under a UM endorsement are governed by the contract with the UM carrier." Riccio v. Prudential Property & Casualty Ins. Co., 108 N.J. 493, 499, 531 A.2d 717 (1987); accord Allgor v. Travelers Ins. Co., 280 N.J.Super. 254, 259, 654 A.2d 1375 (App.Div.1995) ("A claim presented under a UIM endorsement is essentially one of contract.")

Although the relationship of the insurer and insured is contractual, the source of the obligation to offer UIM coverage is statutory. Prior to the amendments enacted in 1983, L. 1983, c. 65, § 5, and L. 1983, c. 362, § 1, N.J.S.A. 17:28-1.1 imposed on automobile insurers the obligation to provide uninsured motorist (UM) coverage in every automobile liability policy in limits of not less than $15,000 per person and $30,000 per accident. UIM coverage was not required. The 1983 amendments imposed for the first time a duty on insurers to offer each insured the option of purchasing coverage up to the limits of liability coverage, but not exceeding $250,000 per person and $500,000 per accident against the risk of injury caused by underinsured tortfeasors or a single limit of $500,000. See N.J.S.A. 17:28-1.1(b). The 1983 amendments reflected a legislative determination that the risk that victims of automobile accidents would be inadequately compensated for their injuries is attributable to underinsured drivers as well as uninsured drivers. See Longworth v. Van Houten, 223 N.J.Super. 174, 177, 538 A.2d 414 (App.Div.1988) ....