THE CHANGING NATURE OF AUTOMOBILE ARBITRATION
©2001 Connell Foley LLP
I. Third Party Liability Cases
Pursuant to Rule 4:21A, certain personal injury actions are subject to mandatory arbitration in our Superior Court system. Furthermore, pursuant to the federal rules, magistrate judges may refer and/or order the parties to arbitration. Our Courts, state and federal, have put a premium on arbitrations so as to save judicial resources. Alternative dispute resolution (arbitration and mediation) is now the most favored manner for the resolution of filed cases.
With reference to the Superior Court, Rule 4:21A-1 provides that all tort actions arising out of the operation, ownership, maintenance or use of an automobile shall be submitted to arbitration. There is little room under the rules for an automobile matter to be removed from arbitration.
In cases involving novel legal questions or unusually complex factual issues, a party may file with the "arbitration administrator" a request for removal supported by a certification stating with specificity, the basis for the request. If there is no objection to the request, the arbitration administrator will decide whether or not the matter remains or is removed.
There are timing issues involved in a request for removal. The request should come prior to receipt of a notice for arbitration or within 15 days after receiving a notice. Any request thereafter will be procedurally denied by the arbitration administrator. A party may file a formal Notice of Motion seeking removal. That motion must be filed with the presiding civil judge in the county or his or her designee.
The Superior Court of New Jersey schedules arbitration hearings based on the filing date of the Complaint. Pursuant to the rules, hearings shall not be scheduled for a date prior to the end of the applicable discovery period, including any extensions requested by any of the parties. Arbitration hearings are to take place, however, within 60 days of the expiration of the discovery period. It is suggested that careful attention be paid to arbitration notices and hearing dates. Under "Best Practices," the trial date will be assigned to a matter immediately upon the filing of trial de novo following an arbitration hearing. In this regard, notices for an arbitration hearing should be acted upon if discovery is not complete. The rules of Court strictly govern requests for adjournments of arbitration hearings.
In many of our counties, there are problems associated with adjournment requests. As in Essex County, some counties designate specific judges to handle all applications for adjournments of arbitration dates. Each of these designated judges has their particular approach under Best Practices. Some are more lenient than others. To the extent that the county has a strict enforcement policy with regard to adjournments, the application for a continuance should be most formal and supported by strong documentation.
Rule 4:36-2(c) makes clear that any party failing to file a Trial Information Statement (TIS) will be deemed to have waived any argument with regard to outstanding discovery and the Court will move ahead and schedule the case for arbitration. In this instance, "absent exceptional circumstances, no adjournment of the arbitration will be granted." Under Best Practices, forms have become most important. The filing and service of a TIS is mandatory for any hope of an adjournment of an arbitration date.
Assuming discovery is completed and the arbitration hearing date has been scheduled with all parties ready to proceed, the matter will be heard by a single arbitrator with a formal award entered. It is, however, the practice in most counties that the designated arbitrator will want to speak directly with the attorneys concerning the case prior to hearing testimony. Each arbitrator, designated by the civil division manager, may have his or her own approach to matters. A particular arbitrator may want to move the parties towards settlement before hearing any testimony. The arbitrator may want to know from the attorneys where the parties stand with regard to settlement and may specifically want to know what dollar amounts have been discussed. Attorneys and insurance carriers should be creative in this regard. Parties may want to consider "high-low" agreements and advise the arbitrator of same. Parties may also wish not to advise the arbitrator of any pre-arbitration settlement discussions. In most cases, the designated arbitrator will be receptive to the parties’ request.
The rules of Court provide the parties with the opportunity to stipulate to alternative approaches to arbitration. They may stipulate in writing to the number and the names of the arbitrators to be involved. This stipulation must be filed with the civil division manager within 14 days following the date of the notice for arbitration. These stipulated arbitrators will be subject to approval of the assignment judge. For instance, the parties may agree to a panel of three arbitrators to hear the case at the courthouse on the designated date. All rules concerning the arbitration and the ultimate award will apply notwithstanding the fact that three arbitrators decided the case as opposed to one.
The parties, pursuant to the rules, shall exchange a concise factual and legal statement 10 days prior to the arbitration date. A copy of the documents exchanged are to be submitted to the arbitrator for review on the day of the hearing. The arbitrator may consider all relevant evidence, even evidence which would not be admissible under the rules of evidence. The arbitrator may accept Affidavits of witnesses and other sworn discovery statements as well as hospital records and medical reports. Obviously these items of evidence should be exchanged between the parties. The arbitrator is given great discretion with regard to all evidence received at the hearing. It should be noted that no verbatim record will be made at the arbitration hearing, and the arbitrator’s findings of fact and conclusions of law shall not be evidential at any subsequent trial de novo. The Court rules are quite specific with regard to the non-use of any testimony given at an arbitration hearing at a subsequent trial.
Rule 4:21A-4(f) addresses the issue of a party’s failure to appear. The application of this rule is quite penal. If a party claiming damages does not appear, the party’s pleading is dismissed. If a party defending against a claim of damages does not appear, the party’s pleading is stricken and the proceeding moves forward with the non-appearing party being deemed to have waived the right to a trial de novo! Relief from this result will only be considered on the filing of a formal motion showing good cause. The rules specifically provide for the opposing party’s right to counsel fees and other costs directly related to the non-appearance.
The arbitration award itself must be filed with the civil division manager by the arbitrator within 10 days of the hearing. In most instances throughout the state of New Jersey, these awards are filed on the date of the hearing. The arbitrator will provide a copy to each party and the award will include a notice with regard to a trial de novo and the consequences of such a request.
The arbitrator’s award is not subject to appeal. Pursuant to the rules, any party to the arbitration may file within 30 days of the award a request for trial de novo with the civil division manager. All parties to the action must be served with the notice as well. The notice should reflect the fact that the arbitration award is rejected by that party and a trial de novo is being requested. A fee of $200 must accompany the request for trial de novo.
The 30 day time period is strictly enforced. There is little or no room for relief from this time restraint. Our courts have made it quite clear that arbitration is the favored method of resolution of litigated cases and any request to reject the arbitration award and move to a trial de novo must be timely made.
There are consequences to a trial de novo. To begin, a trial de novo will be held within 90 days after the filing and service of the request. The $200 fee is used towards payment of the arbitrator’s compensation. Other consequences are more penal. Following the trial de novo, if the non-demanding party obtains a verdict in an amount greater than 80% of the original award, that party may file a motion seeking reasonable costs including attorney’s fees (not to exceed $750) and compensation for witness costs (not to exceed $500).
As a result of the rules, it is most important that thought be given to the arbitration award, once entered, the timely filing of a trial de novo and the consequences of that de novo in terms of ultimate responsibility for additional costs and fees.
In the case of a minor or an incompetent, an arbitration award, if acceptable to all parties, must be approved by the Court pursuant to Rule 4:44.
It should be noted that a little used rule of Court, "offer of judgment" is applicable to arbitrated cases. Rule 4:58 deals with judgments and verdicts but has been construed to include arbitration awards and the arbitrator’s decision, and the term cost of suit has been construed to mean cost of arbitration. This rather effective, albeit little used, rule should be considered more often by the parties.
If there is no de novo of an arbitration award, any party may, within 50 days after the filing of the award, move to confirm the arbitration award and enter judgment. The judgment shall include pre-judgment interest pursuant to Rule 4:42-11. If there is no de novo filed nor a consent order detailing a settlement, or a motion to confirm the arbitration award, the matter will be dismissed administratively by the Court. It is essential, therefore, that defendants involved in a Superior Court arbitration either reject the award and file a trial de novo on a timely basis if the award is unacceptable or, if the award is acceptable, a timely consent order reflecting the settlement of the case be filed so as to cut off any right to pre-judgment interest by the successful plaintiff.
Most of litigation and reported cases concerning trial de novo have to do with the 30 day time period. Our Supreme Court has strictly construed what is meant by "extraordinary circumstances" involved in the late filing of a trial de novo request. The Court has indicated that extraordinary circumstances does not include excusable neglect and, therefore, does not encompass negligence or carelessness by the attorney or his office staff. Hartsfield v. Fantini, 149 N.J. 611 (1997). In Accilien v. Consolidated Rail, 323 N.J. Super. 595 (App. Div.) (certif. den.) 162 N.J. 486 (1999), the Court found that there were no extraordinary circumstances relative to an alleged error of law by the arbitrator which would permit a trial de novo after the 30 day period. This Court also found that the dismissal of the case entered after 50 days is with prejudice. It is most important to note that the 30 day requirement applies to the service of the de novo on all parties as well as the filing of the de novo with the Court.
It should also be noted that a trial de novo in one case of a multi-party, consolidated action will affect the entire matter. Shambry v. N.J. Transit Bus Operations, 307 N.J. Super. 390 (App. Div. 1998).
Finally, with regard to Superior Court matters subject to arbitration, our Supreme Court is forever expanding alternative dispute resolution as a favored method of resolving over crowding of our dockets. The same is true for the federal courts. The rules allow for the parties to remove cases from the Superior Court to voluntary binding arbitration and/or mediation. Many of the state’s automobile insurance carriers have had success with this system, using many of the available alternative dispute resolution corporations and/or professional associations which generally are made up of retired state and federal judges and/or magistrates. A removed matter from the Superior Court system allows time for discovery without the pressure and restrictions associated with "Best Practices". It permits the parties to enter into stipulations and/or agreements that might otherwise be unavailable to them within the Court system. It also serves as a cost saving device as the rules of evidence will not be strictly enforced allowing expert testimony to be considered without the appearance of the actual expert. Binding arbitration, on a voluntary basis, allows the parties to select a reasonable panel of experts to decide the case. It brings immediate resolution to the matter and, as we have all seen over the past few years, extraordinary jury verdicts are avoided.
II. PIP and PIP Arbitration
The most recent developments in PIP has occurred with the introduction of the post-AICRA legislation. AICRA is the Automobile Insurance Cost Reduction Act which was signed into law on May 19, 1998. AICRA has created the use of "care paths," pre-certification requirements and decision point reviews. Care paths for certain types of injuries, requires the provider (medical professional) to submit regular updates regarding a patient’s condition to allow the automobile insurer to assess the necessity for further care. Such regular intervals are called decision points. Decision points are also triggered when a provider wishes to undertake certain diagnostic testing such as MRI’s or other studies. The insurer can take up to a 50% reimbursement deduction for a provider’s failure to submit documentation for decision point review.
For treatment outside an established care path, physicians must seek pre-certification from the insurer. An appeal process is in place for pre-certification disputes. The pre-certification reviewed by the insurer is similar to a decision point review on a care path issue. Any dispute on these issues may be brought before the Courts or, as is more often the case, brought before the American Arbitration Association pursuant to N.J.A.C. 11:3-5.
PIP litigation has taken on extraordinary importance in the insurance industry here in New Jersey. Although generally unhappy with the jurisdiction of the American Arbitration Association, the automobile insurance industry continues to be vigilant in its review of AAA decisions and the pursuit of fraud cases against unscrupulous medical providers.
The issues raised and the rules that apply to the American Arbitration Association’s PIP arbitration process are fraught with problems. Essentially, the administrative process established by the American Arbitration Association breaks down when any significant substantive issue is raised. The association has no particular guidelines, code regulations or case law to rely upon in determining how matters should be dealt with when something more than the pre-certification question or unpaid bills is the subject at hand. As an example, many medical providers have turned to the arbitration process as a collection agency. Routinely, medical providers have automobile accident patients immediately execute an assignment of rights in the provider’s favor at the time of the patient’s first visit. After months of treatment and a determination by the insurance company to terminate treatment, the unpaid balance is turned over to an attorney to collect through the American Arbitration Association arbitration process. It is preferred to the Court system because of the quick turnaround time from filing date to hearing date before the DRP (dispute resolution professional). The medical provider’s attorney fills out the demand for arbitration listing the insurance company in question, the dates of treatment, the dates the bills were submitted to the insurer and the amount in controversy. The attorney may submit the dispute in writing or may request an oral hearing before the arbitrator. A copy of the demand goes to the insurer in question and pursuant to the rules governing the AAA, the insurer is entitled to respond to the demand and prepare for the ultimate hearing or document submission.
Although the dispute resolution professionals are charged with the responsibility of applying the law, statutes and code regulations governing medical treatment following an auto accident, the experience of the insurance industry is still quite unfavorable. The informal nature of the arbitration process leads to questionable results and awards which, according to the arbitration statute, are essentially unappealable. In addition to the questionable results, insurance carriers are unhappy with the American Arbitration Association’s response to reasonable discovery requests by the carriers and/or their retained attorneys. For instance, under the approved automobile insurance policies currently in effect in New Jersey, cooperation from the insured patient is required with regard to any questions raised as to medical treatment. When the defense of the PIP litigation results in a deposition notice or a notice for a statement under oath of the insured patient and/or the medical provider in question, there is no uniformity to the relief available when the demanding party refuses to appear. Often times the responding insurance carrier must resort to the Court system to obtain an Order requiring the American Arbitration Association to hold the matter in abeyance until such time as the depositions are concluded. All of this effort may be required in a case where the outstanding fee is no more than $1,000. Despite incredible efforts to revamp and overhaul the PIP arbitration system, the insurance industry is still unhappy with the results. One of the most offensive aspects of PIP arbitration has to do with the award of attorneys fees. It is quite common to see a demand for arbitration over a medical provider’s outstanding fee not exceeding $500 and in the very same demand seeing the requested attorneys fees set at $3,000 for having filed a three page document with the American Arbitration Association as to a matter which represents nothing more than a book account case.
As indicated, there is no appeal of the eventual award entered by the dispute resolution professional. The award may be reduced to a judgment by moving in Court pursuant to the arbitration statute. Efforts in the past by the insurance industry to appeal PIP arbitrator awards has been quite negative at the trial and appellate level. There is no question that the no fault/PIP legislation and arbitration process will be the subject of ongoing review and revamping.
III. UM/UIM Arbitrations
One of the more recent developments in law governing UM arbitration has to do with the automobile insurer’s refusal to participate in arbitration due to the insured’s failure to make reasonable efforts to determine the identity of the alleged uninsured tortfeasor. This includes the duty of the insured to give timely notice to the police of the accident as well as notice to the carrier. In Kenny v. New Jersey Manufacturers Insurance Co., 328 N.J. Super. 403 (App. Div. 2000), Judge Pressler wrote that the failure of the insured to give prompt notice of the accident with an unidentified party to the insurer and to the police did not automatically preclude coverage, the insurer must also show "appreciable prejudice" as a result of the failure to give timely notice. The insured was a toll collector and the unidentified motorist allegedly grabbed his hand causing injury. The insured failed to notify the police and failed to give prompt notice of the event to New Jersey Manufacturers. At the trial level, there were cross motions for summary judgment. The trial judge agreed with New Jersey Manufacturers and dismissed the plaintiff’s Complaint since appropriate notice was not given to the police or to NJM in a timely fashion. Although the injured toll collector advised the Turnpike Authority of the event, he did not advise the State Police. Mr. Kenny did identify the vehicle in vague terms and had a partial plate identification, but again did not advise the State Police of same. As a result, there was no investigation immediately following the event. The offending vehicle simply moved on and was never found. The claim for UM benefits under the NJM policy was not made until eight months after the event. NJM disclaimed under the UM policy. Judge Pressler cited to the decision in O’Connell v. New Jersey Manufacturers, 306 N.J. Super. 166 (App. Div. 1997), which I was fortunate enough to argue to set out the two prong approach to the issue. Judge Pressler indicated that the questions that must be answered are whether or not the insured’s conduct in attempting to identify the hit-and-run driver was reasonable or, alternatively, efforts to do so would have been futile; and second, whether the failure to file a prompt police report was excusable under the circumstances. As a result, Judge Pressler found that the granting of the dismissal to NJM in the Kenny case was inappropriate and that a fact question was present and therefore had to be determined by the trier of fact in deciding whether the claimant’s efforts to identify the hit-and-run car and driver were reasonable. In the O’Connell case, the trier of fact was not a jury, but rather the judge who took testimony and ultimately ruled on the issue.
This question was the subject of further appellate review most recently with a decision entered May 15, 2001. In Dunbar v. Liberty Mutual Insurance Co., the Appellate Division in a per curium decision upheld a ruling of the Hon. Edith Payne, sitting in Essex County, denying the application of Dunbar for UM arbitration relative to an accident that took place in 1994. Judge Payne found that Dunbar had not made any efforts to preserve evidence or determine the identity of the hit-and-run driver of the vehicle which allegedly was involved in the accident. The question in Dunbar had to do with Liberty Mutual’s failure to show prejudice as set forth in the Kenny case. Liberty Mutual argued that Dunbar’s failure to notify the police of the accident and to make any reasonable effort to identify the hit-and-run vehicle was "inherently prejudicial" and as a result, Liberty Mutual did not have to show "actual prejudice". The facts in Dunbar are simple. The accident in question had occurred when an alleged unidentified vehicle struck Dunbar’s vehicle which was caused to hit the vehicle in front of it. Dunbar allegedly filled out a vehicle accident report but only partially, and never submitted it to anyone. Liberty Mutual submitted proof that it was not notified of the 1994 accident until sometime in 1997. Dunbar suggested that she attempted to contact the third vehicle operator involved, but that was not done until 1996 and the statement produced by Dunbar allegedly given by the other driver was not signed. Based on all of this information, the trial judge granted Liberty Mutual’s motion for summary judgment. The Appellate Division found that there was no need for the case to be submitted to a fact finder for ultimate resolution since there was "insufficient evidence giving rise to a fact question as to the reasonableness of plaintiff’s efforts to identify the hit-and-run car and driver."
The notification aspect of hit-and-run accidents is one rarely tested by auto carriers in New Jersey. It has been our experience that the Courts are most willing to look at this issue and carefully review the facts and rule summarily or, in the alternative, schedule short evidential hearings and decide the reasonable efforts issue. The only alternative is to submit this issue to the panel of arbitrators selected by the parties pursuant to the contract. Such decisions are arbitrary by definition, need not be unanimous and are not subject to immediate appellate review. A carrier unsatisfied with the arbitrators’ decision and award would have to file for trial de novo and first proceed to the Superior Court trial level and then ultimately, if necessary, to the appellate level.
Another significant area involving UM and UIM arbitration surrounds the Supreme Court’s decision in Zirger and the intervention of the UM/UIM carrier into a pending third-party liability suit. The Zirger opinion did not give much guidance as to the procedures to be followed once intervention is elected. On behalf of our clients, we have taken a very active/ aggressive position when intervening. Currently, a case is pending before the Appellate Division and will be argued tomorrow as to the bad faith of the third-party liability carrier involved in the underlying trial where our client chose not to intervene.
Zirger permits an injured plaintiff to notify his or her UIM carrier that the third-party liability case against the alleged underinsured tortfeasor is not settling and is moving towards trial. If notice is timely (and there is no definition as to what constitutes timely notice), the UIM carrier may motion the Court for permission to intervene. The Court must allow the intervention of a UIM carrier but may, in its own discretion, set the procedural boundaries of the intervening party. As indicated, we rely on administrative code regulations which require the Court to treat the intervening party as any other party with all duties, rights and obligations. We request the Court to permit us to represent the UIM carrier in name before the jury, to participate in the selection of the jury and to call and to cross-examine witnesses. Our experience has been mixed with regard to this approach. Some Courts have required the UIM carrier to sit idly by as the third-party defendant’s attorney conducts the defense of the case, while others have permitted full participation. In many cases, the third-party liability carrier has very little coverage at stake while the UIM carrier has tremendous exposure. As such, we have argued successfully that not only should we be allowed to participate, but that we should be allowed to take the lead.
As indicated, the question arises as to the third-party liability carrier’s good faith effort to settle the case within the policy limits prior to or during trial. Currently, many auto liability carriers are arbitrarily selecting settlement numbers on cases which do not accurately reflect the value of the case and/or the potential exposure. The liability carrier feels somewhat comfortable in it position knowing that there is a UIM carrier available to pay on any verdict and/or judgment in excess of the liability carrier’s policy. The Courts have not addressed this issue to date, but there certainly will be law on it within the next year. In the case we are currently litigating, the plaintiff’s case was subject to Superior Court arbitration with an award entered below the third-party defendant’s policy limits. Liability was not an issue in the case. The carrier involved rejected the award and filed for trial de novo. A "Zirger" notice was sent to the UIM carrier and that carrier carried out an analysis of the case and found the arbitration award to be reasonable and as a result, chose not to intervene at the trial level. The case did in fact go to trial. The defendant’s carrier refused to settle at the arbitration award amount or at the policy amount despite receipt of a Rova Farms letter from plaintiff’s counsel. A jury verdict was entered well in excess of the liability policy limit and as a result, the plaintiff’s attorney demanded payment on the excess amount from the UIM carrier as required by the Zirger decision. So as to protect its interests, the UIM carrier paid the excess amount. The liability carrier filed a motion for new trial, which was denied, and then filed an appeal. The UIM carrier sought leave to intervene at the appellate level, which application was granted. The UIM carrier takes the position that the liability carrier is responsible for the excess verdict and that restitution should be made to the UIM carrier on the payment to plaintiff pursuant to the Zirger decision.
This area of practice is fraught with problems not only for the automobile insurance industry but for defense counsel as well. Certainly intervention into a case with tremendous exposure and significant issues as to liability and proximate cause should be actively and aggressively pursued and defended. Hopefully the Courts will permit the UIM carrier to participate as desired. Otherwise, the UIM carrier’s attorney must work carefully with the defense attorney so as to ensure appropriate presentation of the issues to the ultimate fact finders. We believe these cases of alleged bad faith by the liability carrier in failing to settle the underlying liability suit will be decided on a case by case basis turning on the particular facts of the case. In the case currently before the Appellate Division, the alleged underinsured defendant failed to have his expert review essential MRI films and other x-rays so as to support his opinion that plaintiff suffered no permanent injuries. When the expert attempted to testify as to these films during trial, the objection by plaintiff’s counsel was sustained since the expert had not previously issued a report concerning his opinions as to the review of those films. As it turns out, the expert testified that he only saw the films a few minutes before he took the stand. Obviously we are unclear as to how the Appellate Division will ultimately deal with these facts, but the Zirger case and its ramifications will be the subject of ongoing review and interpretation for years to come.
Otherwise, UM/UIM law has been generally settled in terms of issues of coverage and issue resolution before panels of arbitrators. It is our experience that aggressive defense of these claims with full discovery and appropriate damages analysis results in fair awards which limit de novo trials. To the extent that awards are rejected and de novo trials are pursued, case law requires the claimant to become a plaintiff and to file the action in Court directly against the carrier. It has been our experience that representation of the carrier by name at the time of trial is beneficial. Once the jurors are made aware of the nature of the dispute, and why, they (the jury), must resolve it, verdicts have been generally reasonable and fair.
Finally, it is not unusual for UM/UIM claimants and their attorneys to push quickly for arbitration hearings. Although recourse to the Courts on this issue is rare, Courts have been receptive to defense positions that full discovery should be permitted before an arbitration hearing is scheduled so as to avoid unnecessary de novo requests and the filing of unnecessary lawsuits.