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NJ Appellate Court Rules Parties May Use Imprecise Wording To Exercise A Right Under An Insurance Policy To Reject An Arbitration Award


April 5, 2013
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Parties seeking to reject an arbitration award need not specifically “demand a trial” in order to preserve their rights under an uninsured motorist endorsement. Rather, the Appellate Division held that a letter memorializing the insurer’s “rejection of the arbitration award” was sufficient. The Facts of the Case In Vega v. 21st Century Ins. Co., A-2904-11, plaintiff Marleny Vega made a claim under her policy’s uninsured-motorist (UM) endorsement after being struck by a hit-and-run driver. She was awarded $87,500 in arbitration. Because the award exceeded the minimum-liability coverage required by law, the policy provided that “either party” had the right to “demand the right to a trial on all issues,” provided that the demand was made in writing within thirty days of the arbitrators’ decision. Within thirty days of the award, 21st Century’s attorney wrote to Vega’s attorney, stating: “Pursuant to the provisions of the 21st Century Insurance Policy … the UM Arbitration Award of June 16, 2011 is hereby rejected. Kindly be guided accordingly and contact the undersigned to discuss possible settlement of this matter.” Vega argued that because the letter did not specifically “demand a trial” within the specified time period, the award was binding. The Court’s Decision  The Appellate Division disagreed with the plaintiff’s position and also overruled a prior trial court decision that required litigants to “invoke certain magic words” in order to reject an arbitration award in favor of trial. As explained by the court, “Although there may be times in which a party’s written response to an arbitration award may require such a statement, see Barnett v. Prudential Prop. & Cas. Ins. Co., 304 N.J.Super. 573 (App. Div. 1997), certif. denied, 154 N.J. 610 (1998), we cannot agree there is only one way to trigger the policy language and nullify an arbitration award. In Morag v. Continental Insurance Co. of New Jersey, 375 N.J.Super. 56, 62 (App. Div. 2005), we recognized that a party who fails to expressly demand a trial runs the risk that the demand will be found ambiguous, but we rejected in Morag — and reject here — the notion that a party must strictly invoke the policy’s exact words to nullify the award.” Rather than a strict-compliance standard, the court advocated the alternative approach of “determining ‘the fair implication’ of the wording of a post-arbitration letter in a manner that does not exalt form over substance.” Using this framework, the justices concluded that there was only one way to interpret 21st Century’s letter. “In this context, the rejection of the award can only be interpreted as demanding a trial, as the additional invitation to discuss settlement further amplifies; that is, there was nothing to discuss if the letter did not intend to convey the insurer’s demand for a trial. Vega could not have reasonably understood the letter to mean anything else,” the court held. If you have any questions about this case or would like to discuss the legal issues involved, please contact me, Charles Yuen, or the Scarinci Hollenbeck attorney with whom you work.