Augustine W. Badiali v. New Jersey Manufacturers Insurance Group (071931) , 220 N.J. 544 ( 2015 )

SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)
Augustine W. Badiali v. New Jersey Manufacturer’s Insurance Group (A-48-12) (071931)
Argued September 9, 2014 -- Decided February 18, 2015
FERNANDEZ-VINA, J., writing for a unanimous Court.
In this appeal, the Court considers whether an insurer’s rejection of an arbitration award in an uninsured
motorist (UM) claim was “fairly debatable,” thereby barring an insured from recovering counsel fees and other
consequential damages under a theory of bad faith.
In August 2006, plaintiff Augustine W. Badiali was injured when his car was rear-ended by an uninsured
motorist. Plaintiff was insured for UM coverage under his personal policy with defendant, New Jersey
Manufacturer’s Insurance Group (NJM), as well as his employer’s policy with Harleysville Insurance Company.
Plaintiff filed a UM claim, which proceeded to arbitration and resulted in an award of $29,148.62 in plaintiff’s
favor. Since NJM and Harleysville were contractually and statutorily obligated to share this award equally, they
each owed $14,574.31. Harleysville paid its half, but NJM rejected the award and demanded a trial de novo. NJM
asserted that the language of its personal policy allowed either party to dispute an arbitration award in which the
total amount exceeded $15,000.
The trial court affirmed the award, finding NJM liable for $14,574.31. In an unpublished decision, the
Appellate Division affirmed, relying on its holding in D’Antonio v. State Farm Mut. Auto. Ins. Co., 262 N.J. Super.
247, 249-50 (App. Div. 1993), an underinsured motorist (UIM) action, in which it found that the question of whether
a case is of sufficient magnitude to justify a trial rests on the extent of the carrier’s liability, rather than that of the
tortfeasor. NJM subsequently paid the award in full.
In March 2011, plaintiff commenced a second action against NJM, asserting claims for breach of contract,
bad faith, and consumer fraud. NJM moved for summary judgment, relying on a 2004 unpublished Appellate
Division decision, which held, under essentially the same circumstances, that the insurer (also NJM) was entitled to
reject the arbitration award at issue and demand a trial de novo. Geiger v. N.J. Mfrs. Ins. Co., No. A-5135-02 (App.
Div. Mar. 22, 2004). NJM conceded that Geiger lacked precedential authority, but maintained that its existence
proved that NJM’s conduct was reasonable, fair, and honest, and that it had “fairly debatable” reasons to reject the
arbitration award at issue and seek a trial de novo.
The trial court granted summary judgment in favor of NJM on all counts, although discovery had not been
completed. Plaintiff appealed, and the Appellate Division affirmed. Declining to address whether it was improper
for the trial court to grant summary judgment prior to the completion of discovery, the panel held that, as a matter of
law, the mere existence of unpublished case law supporting NJM’s rejection of the arbitration award precluded a
finding of bad faith against NJM, regardless of whether NJM relied on or was aware of that unpublished case.
Badiali v. N.J. Mfrs. Ins. Grp., 429 N.J. Super. 121, 126 (App. Div. 2012). This Court granted plaintiff’s petition for
certification. 213 N.J. 387 (2013).
HELD: NJM’s rejection of the arbitration award in plaintiff’s UM action was “fairly debatable,” thereby barring
plaintiff from recovering counsel fees and other consequential damages under a theory of bad faith.
1. Contracts impose an implied obligation of good faith and fair dealing in their performance and enforcement.
Among the business practices that the New Jersey Legislature considers unfair or deceptive in the context of
insurance claims settlements is failure “to negotiate in good faith to effectuate prompt, fair and equitable settlements
of claims in which liability has become reasonably clear.” N.J.S.A. 17:29B-4(9)(f). An insurer’s breach of good
faith may be found upon a showing that it has breached its fiduciary obligations, including its duty to settle claims.
Whether an insurer has acted in bad faith by breaching its fiduciary duty depends on the circumstances of the
1
particular case. In order to establish a bad faith claim for denial of benefits in New Jersey, a plaintiff must show that
no debatable reasons existed for the denial. (pp. 10-12)
2. Summary judgment is granted where there is no genuine issue of material fact, such that the moving party is
entitled to a judgment as a matter of law. Purely legal questions, such as the interpretation of insurance contracts,
are particularly suited for summary judgment. New Jersey’s public policy favors arbitration as a means of settling
disputes that otherwise would be litigated in a court. In the area of insurance claims settlement, arbitration is often
used to expedite resolution of UM claims, with the duty to arbitrate and the scope of the arbitration dependent on the
provisions of the parties’ agreement. Although this Court has consistently upheld an insurer’s right to reject an
arbitration award pursuant to the express terms and conditions of its policy language, our appellate courts have
limited attempts to reject an award and proceed de novo where the policy wording is ambiguous. For example, in
D’Antonio, supra, 262 N.J. Super. at 249, a UIM case, the Appellate Division rejected a plaintiff’s attempt to seek a
new trial on damages where the phrase “amount of damages” was ambiguous. The panel noted that it is the extent
of the carrier’s UIM liability that should determine whether the case is of sufficient magnitude to justify a trial. (pp.
12-17)
3. In deciding whether NJM had “fairly debatable” reasons for rejecting the arbitration award, the Court first
considers whether the existence of the unpublished Geiger decision reasonably supports NJM’s position. There, the
Appellate Division permitted NJM to move to reject the arbitration award and request a trial de novo based on the
total amount of the arbitration award ($27,000), rather than NJM’s share ($13,500), and the policy provision
allowing either party to dispute an arbitration award in which the total amount exceeded $15,000. In accordance
with Rule 1:36-3, Geiger has no legal precedential value. However, in the limited in-house, business context of this
case, the Court finds that the mere existence of this unpublished opinion allows NJM to avoid a finding of bad faith
for actions take in accordance with its holding. It is illogical to suggest that NJM, or any corporation, cannot rely on
previous unpublished opinions - especially those in which they were involved - in making business decisions. Thus,
having pursued a similar course of action in Geiger with the approval of the Appellate Division, NJM had fair
reason to believe that it was making a legitimate legal and business decision by rejecting the arbitration award and
seeking trial. Rule 1:36-3 is inapplicable in this context, where NJM referenced Geiger not for its legal precedential
value, but rather to prove that NJM acted in good faith. Under the circumstances here, the existence of the
unpublished Geiger decision precludes a finding of bad faith against NJM. (pp. 17-21)
4. Even without reliance on Geiger, the language of NJM’s policy provided a rational, valid reason for NJM to seek
a trial by jury on the disputed claim. Giving the policy terms their plain, ordinary meaning, the $29,148.62
arbitration award was clearly in excess of the policy’s $15,000 threshold, notwithstanding the fact that NJM only
needed to contribute $14,574.31. NJM’s position was, at the very least, fairly debatable based on a reasonable and
principled reading of the applicable policy language. Moreover, plaintiff’s reliance on D’Antonio, a UIM case, is
misplaced. Special rules exist for the calculation of UIM benefits, requiring exhaustion of all available coverages
and the offsetting of any recoveries received as a precondition to payment. Consequently, in D’Antonio, the amount
of the carrier’s liability was less than the total award since the plaintiff had settled with the tortfeasor for a portion of
the total award. Conversely, here, the disposition of plaintiff’s UM claim was not influenced or reduced by the
tortfeasor’s own liability insurance limits. Thus, it was reasonable for NJM to conclude that D’Antonio applied only
in the UIM setting. However, the Court holds that, going forward, any reference in a policy of insurance to the
statutory $15,000 policy limit as the basis for rejecting an arbitration award applies only to the amount that the
insurance company is required to pay, and not to the total amount of the award. To hold otherwise would frustrate
the legislative intent of expediting resolution of smaller cases in the least costly manner, easing congestion in our
courts, and limiting jury trials to larger cases. (pp. 21-25)
5. In light of its disposition of the bad faith cause of action in this matter, the Court declines to address the
entitlement of an insured to attorney’s fees in the uninsured/underinsured context. The Court also declines to
address the issue of discovery, which it deems irrelevant to the instant case.
The judgment of the Appellate Division is AFFIRMED.
CHIEF JUSTICE RABNER, JUSTICES ALBIN and SOLOMON, and JUDGE CUFF (temporarily
assigned) join in JUSTICE FERNANDEZ-VINA’s opinion. JUSTICES LaVECCHIA and PATTERSON did
not participate.
2
SUPREME COURT OF NEW JERSEY
A-48 September Term 2012
071931
AUGUSTINE W. BADIALI,
Plaintiff-Appellant,
v.
NEW JERSEY MANUFACTURERS
INSURANCE GROUP,
Defendant-Respondent.
Argued September 9, 2014 – Decided February 18, 2015
On certification to the Superior Court,
Appellate Division, whose opinion is
reported at 429 N.J. Super. 121 (2012).
Richard J. Hollawell argued the cause for
appellant (Console & Hollawell, attorneys).
Richard J. Williams, Jr. argued the cause
for respondent (McElroy, Deutsch, Mulvaney &
Carpenter, attorneys; Mr. Williams and
Joseph G. Fuoco, on the briefs).
Amos Gern argued the cause for amicus curiae
New Jersey Association for Justice (Starr,
Gern, Davison & Rubin, attorneys; John J.
Ratkowitz, on the brief).
Carl A. Salisbury argued the cause for
amicus curiae United Policyholders
(Kilpatrick Townsend & Stockton, attorneys).
JUSTICE FERNANDEZ-VINA delivered the opinion of the Court.
The issue this Court must decide on appeal is whether an
insurer’s rejection of an arbitration award in an uninsured
motorist (UM) claim was “fairly debatable,” thereby barring an
1
insured from recovering counsel fees and other consequential
damages under a theory of bad faith.
Plaintiff, Augustine W. Badiali, was injured when his motor
vehicle was rear-ended by an uninsured motorist. Plaintiff
filed a UM claim, which proceeded to arbitration and resulted in
an award in plaintiff’s favor. Plaintiff filed suit against his
insurer, defendant New Jersey Manufacturers Insurance Group
(“NJM”), after NJM rejected the arbitration award and refused to
pay its share. The trial court confirmed the arbitration award
in a summary action and found NJM liable for its share of the
award. In a subsequent action, plaintiff asserted that NJM
litigated in bad faith by advocating that its policy language
allowed for a rejection of the arbitration award at issue. The
trial court granted summary judgment in favor of NJM. The court
agreed that the case was ripe for summary judgment although
discovery had not been completed. The court was further
persuaded that NJM’s position was “fairly debatable” based on
its policy language and on the existence of an unpublished
Appellate Division decision involving nearly identical facts, in
which NJM was also a party.
The Appellate Division affirmed, holding that NJM’s
position was “fairly debatable” under Pickett v. Lloyd’s, 131
N.J. 457 (1993), because it was supported by a prior,
2
unpublished opinion of the court. Plaintiff was thereby barred
from recovering counsel fees or any other consequential damages.
For the reasons set forth in this opinion, we affirm the
judgment of the Appellate Division.
I.
On August 1, 2006, plaintiff was injured when his motor
vehicle was rear-ended by an uninsured motorist. Plaintiff was
insured for UM coverage under his personal policy with
defendant, NJM, and also under his employer’s insurance carrier,
Harleysville Insurance Company (“Harleysville”). Plaintiff
filed a UM claim, which proceeded to arbitration and resulted in
an award of $29,148.62 in plaintiff’s favor. NJM and
Harleysville were contractually and statutorily obligated to
share this award equally. See N.J.S.A. 17:28-1.1(c).
Harleysville paid its half, $14,574.31. However NJM rejected
the award and demanded a trial de novo. NJM asserted that the
language of its personal auto policy allowed either party to
dispute an arbitration award in which the total amount exceeded
$15,000. Plaintiff filed suit against NJM to enforce the award.
In a summary action pursuant to N.J.S.A. 2A:24-7, on April
16, 2010, the trial court confirmed the arbitration award and
found NJM liable for $14,574.31, notwithstanding the fact that
the total arbitration award was in excess of the $15,000
threshold provided for in its personal auto policy as grounds to
3
reject the award. The Appellate Division in an unpublished
opinion affirmed (Badiali I), relying on its holding in
D’Antonio v. State Farm Mut. Auto. Ins. Co., 262 N.J. Super.
247, 249-50 (App. Div. 1993), that “‘the extent of the carrier’s
[underinsured motorist] liability . . . not the tortfeasor’s
liability . . . should determine whether the case is of
sufficient magnitude to justify a trial.’” NJM thereafter paid
the arbitration award in full.
On March 29, 2011, plaintiff commenced a second action
against NJM, asserting claims for breach of contract, bad faith,
and consumer fraud. Regarding bad faith, plaintiff argued that
NJM expended more than $28,000 to avoid paying its portion of
the arbitration award in Badiali I. Plaintiff further asserted
that NJM caused him to incur substantial expense, years of
delay, and undue aggravation as a result of its handling of his
UM claim, which entitled him to treble and punitive damages, as
well as attorney’s fees and costs.
NJM moved for summary judgment, maintaining that there was
no genuine issue of material fact whether its actions in Badiali
I constitutes bad faith. In arguing that it did not act in bad
faith, NJM relied on a 2004 unpublished decision in which the
Appellate Division held, under essentially the same
circumstances, that the insurer (also NJM) was entitled to
reject the arbitration award at issue and demand a trial de
4
novo. Geiger v. N.J. Mfrs. Ins. Co., No. A-5135-02 (App. Div.
Mar. 22, 2004)1. Although NJM conceded that Geiger lacked any
precedential authority, it asserted that its mere existence
proved that NJM’s conduct was reasonable, fair, and honest, and
that it had “fairly debatable” reasons to reject the arbitration
award at issue and seek a trial de novo as a result. Put
differently, NJM maintained that its position and reasoning in
rejecting the arbitration award in Badiali I were identical to
its position and reasoning in rejecting the arbitration award in
Geiger. Thus, because the Appellate Division expressly
vindicated that position and reasoning in Geiger, NJM asserted
that it would be inconsistent and illogical to find that they
acted in bad faith under nearly identical circumstances in
Badiali I.
The trial court heard oral argument on January 20, 2012,
and subsequently granted summary judgment in favor of NJM on all
counts, despite the fact that discovery had not yet been
completed. The trial court found that plaintiff failed to
demonstrate how further discovery would supply the missing
elements of his cause of action, or change the material facts or
outcome of his case. As such, the court deemed the case ripe
for summary judgment.
1 We cite but do not rely on this unpublished opinion for reasons
explained in Section VI below. See R. 1:36-3.
5
Plaintiff appealed and the Appellate Division affirmed.
Badiali v. N.J. Mfrs. Ins. Grp., 429 N.J. Super. 121 (App. Div.
2012) [hereinafter “Badiali II”]. The panel held that, as a
matter of law, the mere existence of unpublished case law
supporting NJM’s rejection of the arbitration award precluded a
finding of bad faith against NJM, regardless of whether NJM
relied on or was aware of that unpublished case. Id. at 126.
The Appellate Division declined, however, to address whether it
was improper for the trial court to grant summary judgment prior
to the completion of discovery. The panel found “it does not
matter whether NJM actually based its position in Badiali I on
[Geiger], it also does not matter that plaintiff was deprived of
the opportunity to explore the formulation of NJM’s strategy in
the prior suit in pretrial discovery in this suit.” Id. at n.5.
This Court granted plaintiff’s petition for certification.
Badiali v. N.J. Mfrs. Ins. Grp., 213 N.J. 387 (2013).
Thereafter the Court granted leave to appear as amici curiae to
New Jersey Association for Justice (“NJAJ”) and to United
Policyholders (“United”).
II.
Plaintiff asserts three arguments. Plaintiff first argues
that the trial and appellate courts erroneously concluded that
NJM had “fairly debatable” reasons to reject the arbitration
award at issue, based upon the existence of the unpublished
6
Geiger opinion. Plaintiff contends that NJM failed to establish
that it actually relied on Geiger at the time it rejected the
arbitration award at issue, and that NJM’s decision was contrary
to other published legal authority in D’Antonio, which was
binding on plaintiff.
Plaintiff additionally argues that the appellate court
erroneously upheld the trial court’s grant of summary judgment
when discovery had not yet been completed. He contends that
when certain facts are solely within the knowledge of the moving
party, such as the information relied upon by an insurer when
making its decisions, it is especially inappropriate to grant
summary judgment without allowing the completion of all
scheduled depositions or requested written discovery.
Finally, plaintiff contends that he is statutorily entitled
to all counsel fees incurred while seeking to enforce the
benefits of the policy and arbitration award to which he was
entitled. R. 4:42-9(a)(6).
NJM, on the other hand, argues that the trial and appellate
courts properly found that NJM acted in good faith as a matter
of law. NJM contends that its reasons for rejecting the
arbitration award and demanding a jury trial were based on a
sound, reasonable, and legally supportable interpretation of its
policy language. In addition to its policy language, NJM also
contends that it had “fairly debatable” reasons to reject the
7
arbitration award based on the existence of Geiger, which
although unpublished, was issued prior to the underlying matter
and fully supported the position taken by NJM in Badiali I. NJM
asserts that it was aware of Geiger at all times and disputes
plaintiff’s argument that NJM’s failure to cite Geiger during
the initial litigation evidenced a lack of awareness as to its
essential holding.
Furthermore, NJM disputes plaintiff’s contention that
summary judgment may not be granted until discovery is complete.
Rather, NJM contends that discovery need not be taken if it will
not patently change the outcome of the case. On this issue, NJM
further argues that the underlying case is particularly suited
for disposition on summary judgment because the underlying
dispute deals with the interpretation of an arbitration clause,
which is an issue of law.
NJM’s final argument is that plaintiff is not entitled to
attorney’s fees because Rule 4:42-9(a)(6) does not apply to
first-party insurers providing uninsured/underinsured coverage
and, even if it did, plaintiff is unable to receive attorney’s
fees because it’s conduct was reasonable and not instituted in
bad faith.
NJAJ, appearing as amicus curiae, supports the arguments
advanced by plaintiff. NJAJ contends that a lack of procedural
guidance exists regarding the preservation of first-party bad
8
faith claims. This, NJAJ maintains, has resulted in such claims
being disposed of on the merits in what amounts to a
“post-verdict motion for summary judgment.” NJAJ asserts that,
in analyzing allegations of first-party bad faith, courts should
be required to engage in a more exhaustive examination of
claims-handling practices. This includes reviewing the actual
conduct of the defendant insurance carrier with respect to the
investigation, evaluation, and processing of a plaintiff’s
claim, as well as the information actually considered at the
point in time that a decision was made. Noting the prevailing
judicial attitude that presumes reasonableness on the part of
the insurer against other evidence to the contrary, NJAJ thus
urges this Court to depart from its rigid adherence to Pickett’s
“fairly debatable” approach so as to allow for a determination
of bad faith where an insurer acts intentionally or recklessly
in a manner contrary to its role as fiduciary.
Furthermore, NJAJ joins plaintiff in asserting that summary
judgment was premature and inappropriate, as discovery had not
yet been completed. NJAJ also joins plaintiff in arguing for
the applicability of counsel fees, providing two additional
theories for awarding such fees in first-party bad faith claims.
First, NJAJ contends that since first-party bad faith causes of
action sound primarily in contract, all compensatory, punitive,
and other foreseeable damages should be available as
9
consequential damages for breach of contract. NJAJ also
suggests that plaintiff be awarded attorney’s fees based on the
prohibition of frivolous litigation. N.J.S.A. 2A:15-59.1.
United, appearing as amicus curiae, also supports the
arguments advanced by plaintiff. United contends that the
Appellate Division’s decision in Badiali II improperly insulates
and protects insurance carriers from bad faith causes of action,
even where such carriers act with subjective malice in handling
claims. United stresses the need for guidance and uniform
standards to be applied in judging whether an insurer has
handled a claim in bad faith.
III.
All contracts impose an implied obligation of good faith
and fair dealing in their performance and enforcement. Sears
Mortg. Corp. v. Rose, 134 N.J. 326, 347 (1993); Pickett, supra,131 N.J. at 467. The New Jersey Legislature has attempted to
codify these principles, particularly in the insurance industry,
by defining what is considered to be unfair or deceptive
business practices in the area of insurance claims settlement.
See N.J.S.A. 17:29B-4(9). Such practices include: “[r]efusing
to pay claims without conducting a reasonable investigation
based upon all available information[,]” N.J.S.A. 17:29B-
4(9)(d); “[f]ailing to affirm or deny coverage of claims within
a reasonable time after proof of loss statements have been
10
completed[,]” N.J.S.A. 17:29B-4(9)(e); “[c]ompelling insureds to
institute litigation to recover amounts due under an insurance
policy by offering substantially less than the amounts
ultimately recovered in actions brought by such insureds[,]”
N.J.S.A. 17:29B-4(9)(g); and, finally, “[n]ot attempting to
negotiate in good faith to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear[,]” N.J.S.A. 17:29B-4(9)(f) (emphasis added).
Good faith is generally defined as “honesty in fact in the
conduct or transaction concerned.” N.J.S.A. 12A:1-201(19). The
good faith obligations of an insurer to its insured run deeper
than those in a typical commercial contract. Unlike with a
typical commercial contract, in which “[p]roof of bad motive or
intention” is vital to an action for breach of good faith,
Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center
Assocs., 182 N.J. 210, 225 (2005) (internal quotations omitted),
an insurer’s breach of good faith may be found upon a showing
that it has breached its fiduciary obligations, regardless of
any malice or will, see Bowers v. Camden Fire Ins. Ass’n, 51
N.J. 62, 79 (1968).
One inherent fiduciary obligation of every insurer is the
duty to settle claims. See Lieberman v. Empl’rs Ins. of Wausau,
84 N.J. 325, 336 (1980). Whether an insurer has acted in bad
faith and thereby breached its fiduciary obligation in
11
connection with the settlement of claims “must depend upon the
circumstances of the particular case.” Am. Home Assurance Co.
v. Hermann’s Warehouse Corp., 117 N.J. 1, 7 (1989) (internal
quotations omitted).
A finding of bad faith against an insurer in denying an
insurance claim cannot be established through simple negligence.
Pickett, supra, 131 N.J. at 481. Moreover, mere failure to
settle a debatable claim does not constitute bad faith. Id. at
473 (citing Chester v. State Farm Ins. Co., 789 P.2d 534, 537
(Idaho Ct. App. 1990)). Rather, to establish a first-party bad
faith claim for denial of benefits in New Jersey, a plaintiff
must show “that no debatable reasons existed for denial of the
benefits.” Id. at 481.
Under the salutary “fairly debatable” standard enunciated
in Pickett, “a claimant who could not have established as a
matter of law a right to summary judgment on the substantive
claim would not be entitled to assert a claim for an insurer’s
bad faith refusal to pay the claim.” Id. at 473 (citing
Chester, supra, 789 P.2d at 537).
IV.
A trial court shall grant summary judgment if “the
pleadings, depositions, answers to interrogatories and
admissions on file, together with affidavits, if any, show that
there is no genuine issue of material fact challenged and that
12
the moving party is entitled to a judgment or order as a matter
of law.” R. 4:46-2(c). A motion for summary judgment is not
premature merely because discovery has not been completed,
unless plaintiff is able to “‘demonstrate with some degree of
particularity the likelihood that further discovery will supply
the missing elements of the cause of action.’” See Wellington
v. Estate of Wellington, 359 N.J. Super. 484, 496 (App. Div.)
(quoting Auster v. Kinoian, 153 N.J. Super. 52, 56 (App. Div.
1997), certif. denied, 177 N.J. 493 (2003)).
In considering whether there exists a genuine issue of
material fact, the motion judge “must consider whether the
competent evidential materials presented, when viewed in the
light most favorable to the non-moving party, are sufficient to
permit a rational fact finder to resolve the alleged disputed
issue in favor of the non-moving party.” Brill v. Guardian Life
Ins. Co. of Am., 142 N.J. 520, 540 (1995).
Purely legal questions, such as the interpretation of
insurance contracts, are questions of law particularly suited
for summary judgment. See Selective Ins. Co. of Am. v. Hudson
E. Pain Mgmt. Osteopathic Med. & Physical Therapy, 210 N.J. 597,
605 (2012).
V.
The public policy of this State favors arbitration as a
means of settling disputes that otherwise would be litigated in
13
a court. Cty. Coll. of Morris Staff v. Cty. Coll. of Morris
Staff Ass’n, 100 N.J. 383, 390 (1985). Indeed, in the area of
insurance claims settlement, “the use of arbitration to expedite
resolution of UM claims is widespread and UM coverage provisions
in automobile liability policies characteristically authorize
arbitration of disputes at the option of either party.” United
Servs. Auto. Ass’n v. Turck, 156 N.J. 480, 485 (1998). The
scope of the arbitration is dependent solely on the provisions
and conditions mutually agreed upon in the parties’ agreement.
In re Arbitration Between Grover & Universal Underwriters Ins.
Co., 80 N.J. 221, 229 (1979). Stated another way,
the duty to arbitrate, and the scope of the
arbitration, are dependent solely on the
parties’ agreement. The parties may shape
their arbitration in any form they choose and
may include whatever provisions they wish to
limit its scope. The parties have the right to
stand upon the precise terms of their
contract; the court may not rewrite the
contract to broaden the scope of arbitration
or otherwise make it more effective. It is
also significant that, although the
legislature has mandated binding arbitration
of PIP claims at the option of the insured
(N.J.S.A. 39:6A-5c) and has required non-
binding arbitration of certain automobile tort
claims (N.J.S.A. 39:6A-31), it has not
required arbitration of UM claims at all. Thus
the ascertainable public policy here is to
encourage resort to arbitration while
preserving full flexibility to the parties to
elect or reject, and to structure and limit,
that process as they choose.
[Turck, supra, 156 N.J. at 486 (quoting Cohen v.
Allstate Ins. Co., 231 N.J. Super. 97, 100-01 (App.
14
Div. 1989) (internal citations omitted), certif.
denied, 117 N.J. 39 (1989)).]
This Court has consistently upheld an insurer’s right to
reject an arbitration award pursuant to the express terms and
conditions articulated in its policy language. See, e.g.,
Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163, 175 (1995)
(affirming insurer’s right to reject arbitration award because
insured had failed to make an underinsured motorist (UIM) claim
until after the statute of limitations on the underlying tort
action had run).
However, where an arbitration clause or the wording of a
policy is ambiguous, our appellate courts have limited attempts
to reject an arbitration award and proceed de novo. See, e.g.,
Derfuss v. N.J. Mfrs. Ins. Co., 285 N.J. Super. 125, 130 (App.
Div. 1995) (limiting UIM insurer’s request for trial de novo to
damages only because its policy language created ambiguity that
cast doubt as to whether parties also intended liability to be
an issue). Specifically, in a case central to plaintiff’s
argument, D’Antonio, supra, 262 N.J. Super. at 249, the
Appellate Division rejected a UIM plaintiff’s attempt to seek a
new trial on damages where the phrase “amount of damages” was
ambiguous.
In D’Antonio, the plaintiff was injured when an
underinsured motorist struck her vehicle. The plaintiff settled
15
with the other driver for the maximum of that driver’s liability
policy, $25,000. Id. at 248. Thereafter, the plaintiff brought
a claim against her own insurance carrier for UIM coverage.
Ibid. In arbitration, she was awarded $40,000 in damages.
Ibid. After offsetting the $25,000 recovery received from the
underinsured motorist, the portion owed by the plaintiff’s
insurer was only $15,000. Id. at 249. The plaintiff
subsequently filed a demand for a trial de novo, arguing that,
based on the policy’s arbitration provision, she was entitled to
a jury trial because the “amount of damages” exceeded $15,000,
the statutory minimum limit imposed by N.J.S.A. 17:28-1.1a. The
insurer opposed the plaintiff’s demand for a trial de novo,
arguing that the amount of the insurer’s liability did not
exceed $15,000 and, thus, the award was binding. Id. at 249.
Interpreting the policy language, the Appellate Division found
that the term “amount of damages” was ambiguous. Ibid. The
Appellate Division therefore focused its inquiry on the intent
of the parties, which it determined was “to permit a post-
arbitration trial only in cases of a certain magnitude, i.e.,
only where the ‘amount of damages’ fixed by the arbitrators
exceeds $15,000.” Ibid. The panel reasoned further that,
the arbitration is conducted to determine the
carrier’s liability for UIM payments. If a
trial is available, it too will determine only
the carrier’s UIM obligation. It follows that
the extent of the carrier’s UIM liability --
16
not the tortfeasor’s liability -- should
determine whether the case is of sufficient
magnitude to justify a trial. The parties’
purpose in foreclosing trials in modest cases
would be substantially frustrated if the right
to demand a trial turned on the damages
attributable to the underinsured tortfeasor.
[Id. at 249-50.]
The Appellate Division thus held that the plaintiff was not
entitled to reject the award.
VI.
Having discussed the legal framework for this appeal, we
now turn to the facts of this case and consider whether NJM had
“fairly debatable” reasons for rejecting the arbitration award
in Badiali I.
A.
NJM maintains that its reasoning for rejecting the
arbitration award in Badiali I was “fairly debatable” under
Pickett, supra, 131 N.J. 457, because it was supported by a
prior, unpublished opinion of the Appellate Division, see
Geiger, supra. In Geiger, the plaintiff was injured when his
automobile collided with an uninsured motorist. Plaintiff filed
an arbitration proceeding against NJM for UM coverage. The
arbitration resulted in an award in favor of plaintiff for
$27,000. The award was shared equally between NJM and another
insurer. Thus, NJM’s share of the liability was $13,500 –- an
amount less than the $15,000 statutory minimum limit for
17
liability imposed by N.J.S.A. 17:28-1.1a. Nevertheless, NJM
filed a motion to reject the award and to request a trial de
novo, arguing that the total “arbitration award” was greater
than $15,000. NJM relied upon the terms and conditions of its
policy’s arbitration provision, which provided: “If the
arbitration award exceeds [the minimum limit for liability,
$15,000,] either party may demand the right to a trial by jury
on all issues.” NJM’s arbitration provision was the same in
Badiali I as it was in Geiger. Thus, NJM contends that it had a
perfectly adequate basis for rejecting the arbitration award in
Badiali I, as such action was previously sanctioned by the
Appellate Division in Geiger.
NJM argues for de facto reliance on Geiger based on the
simple premise that litigants are presumed to know the outcome
of cases in which they are a party. We recognize NJAJ’s
suggestion that Pickett’s “fairly debatable” standard should
include at least some focus on the individual investigation and
valuation performed by the claims handler responsible for the
case, however, we express reservation about the potential
discovery complications associated with such an approach and
thus do not adopt such an approach at this time. We do not find
it necessary here to alter the salutary test set forth by the
Pickett Court, as the issue before us does not require such
action. Rather, the important consideration in this case is
18
whether the existence of the unpublished Geiger decision serves
as a reasonable basis to support the position taken by NJM in
the instant case.
In accordance with the well-established jurisprudence and
court rules of this State, Geiger has no legal precedential
value due to its unpublished nature. The use and authority of
unpublished opinions is governed by Rule 1:36-3. That rule
provides:
No unpublished opinion shall constitute
precedent or be binding upon any court. Except
for appellate opinions not approved for
publication that have been reported in an
authorized administrative law reporter, and
except to the extent required by res judicata,
collateral estoppel, the single controversy
doctrine or any other similar principle of
law, no unpublished opinion shall be cited by
any court. No unpublished opinion shall be
cited to any court by counsel unless the court
and all other parties are served with a copy
of the opinion and of all contrary unpublished
opinions known to counsel.
[R. 1:36-3.]
This rule has been affirmed time and again by this Court. See
Guido v. Duane Morris LLP, 202 N.J. 79, 91 n.4 (2010); Mount
Holly Twp. Bd. of Educ. v. Mount Holly Twp. Educ. Ass’n, 199
N.J. 319, 332 n.2 (2009); In re Alleged Improper Practice, 194
N.J. 314, 330 n.10 cert. denied, 555 U.S. 1069, 129 S. Ct. 754,
172 L. Ed. 2d 726 (2008).
19
Still, this Court has never considered whether the mere
existence of an unpublished opinion will allow a party to avoid
a finding of bad faith for actions taken in accordance with its
holding. In the context of the case before us, we find that it
does; however we limit our holding to the in-house, business
context present here. In our view, it is illogical to suggest
that NJM, or any corporation, cannot rely on previous
unpublished opinions -- especially those in which they were
specifically involved -- in forming their business decisions.
Having pursued a similar course of action in Geiger with the
approval and endorsement of the Appellate Division, we find it
was reasonable for NJM to maintain that same position, under
nearly identical facts, in rejecting the arbitration award in
the instant litigation. To clarify, NJM had adequate reason to
believe that its conduct was consistent with judicially accepted
contract interpretation, corporate policies and practices.
Thus, we find the existence of the Geiger opinion establishes
that NJM had, at the very least, fair reason to believe that it
was making a legitimate legal and business decision by rejecting
the arbitration award in Badiali I and seeking trial.
As such, we find that NJM’s citation to the Appellate
Division’s unpublished decision in Geiger before this Court was
acceptable because it was referenced not for its legal
precedential value, but rather to prove that NJM acted in good
20
faith in conducting its business as an insurance claims handler.
We accordingly find that Rule 1:36-3 is inapplicable to this
matter and expressly hold that the existence of the unpublished
Geiger decision precludes a finding of bad faith against NJM.
B.
Even without reliance on Geiger, we find that NJM is able
to show fairly debatable reasons based on both a reasonable
interpretation of its policy language, and the fact that the
case here, a UM action, is distinguishable from D’Antonio, a UIM
case.
As a threshold matter, the language of the policy itself
provided a rational, and indeed valid, reason to seek a trial by
jury on the disputed claim. The NJM policy states:
A decision agreed to by two of the arbitrators
will be binding unless the arbitration award
exceeds the minimum limit [$15,000] for
liability specified by the Financial
Responsibility Law of New Jersey. If the
arbitration award exceeds that limit, either
party may demand the right to a trial by jury
on all issues.
[Emphasis added.]
The terms of the NJM policy must be given their plain, ordinary
meaning. Turck, supra, 156 N.J. at 486. The arbitration award
in this case was $29,148.62, clearly in excess of the policy’s
$15,000 threshold, notwithstanding the fact that NJM needed only
to contribute half of that amount, $14,574.31. Therefore, NJM
21
had reason to believe that the policy language gave it the right
to reject the arbitration award and demand a jury trial. In our
view, NJM’s position was thus, at the very least, fairly
debatable and based on a reasonable and principled reading of
the applicable policy language.
Although plaintiff relies heavily on D’Antonio to support
its position, we find that case distinguishable and inapplicable
here. First and foremost, D’Antonio involved a UIM case rather
than a UM case, as present here. The differences between these
insurance coverages are significant. UM coverage is mandatory
first-party coverage insuring the policy holder, and others,
against the possibility of injury or property damage caused by
the negligent operation of a motor vehicle by an individual
without liability insurance coverage. See N.J.S.A. 17:28-1.4.
UM coverage exists to compensate victims injured by an
“uninsured motor vehicle.” See N.J.S.A. 17:28-1.1e(2). UM
insurance extends protection to the injured victim. Riccio v.
Prudential Prop. & Cas. Ins. Co., 108 N.J. 493, 498 (1987). One
of the stated purposes of UM coverage is “to provide maximum
remedial protection to the innocent victims of financially
irresponsible motorists[.]” Id. at 504. UM coverage is
designed to “fill gaps in compulsory insurance plans.” Id. at
499 (citations omitted).
22
UIM coverage, by contrast, is optional first-party coverage
insuring the policy holder, and others, against the possibility
of injury or property damage caused by the negligent operation
of a motor vehicle whose liability insurance coverage is
insufficient to pay for all losses suffered. See French v. N.J.
Sch. Bd. Ass’n Ins. Grp., 149 N.J. 478 (1997). UIM coverage is
defined by N.J.S.A. 17:28-1.1(e)(1), as
insurance for damages because of bodily injury
and property damage resulting from an accident
arising out of the ownership, maintenance,
operation or use of an underinsured motor
vehicle. Underinsured motorist coverage shall
not apply to an uninsured motor vehicle. A
motor vehicle is underinsured when the sum of
the limits of liability under all bodily
injury and property damage liability bonds and
insurance policies available to a person
against whom recovery is sought for bodily
injury or property damage is, at the time of
the accident, less than the applicable limits
for underinsured motorist coverage afforded
under the motor vehicle insurance policy held
by the person seeking that recovery.
The most important distinguishing characteristics of UIM
insurance are the special rules for calculating UIM benefits.
These rules require exhaustion of all available coverages and
the offsetting of any recoveries received as a precondition to
payment. Vassas, supra, 139 N.J. at 171-72 (citing Longworth v.
Van Houten, 223 N.J. Super. 174 (App. Div. 1988)).
In D’Antonio, supra, the Appellate Division held that, in
the context of a UIM arbitration, it is the extent of the UIM
23
carrier’s liability determined by the arbitrators, rather than
the total tortfeasor liability, that should be measured against
the $15,000 minimum liability limit to determine the right to
demand a trial de novo. 262 N.J. Super. at 249-50. The
plaintiff in that case had settled with the tortfeasor for
$25,000, and the insurance carrier therefore received the
benefit of a $25,000 credit. The arbitration award of a gross
sum of $40,000, then, translated to UIM damages of $15,000.
Thus, “the amount of damages” within the meaning of the UIM
arbitration provision, was $15,000, not the $40,000 gross
damages. The UIM arbitration provision in the insurance policy
gave either party the right to request a trial de novo only if
the “amount of damages” exceeded the statutory minimum limit for
liability. Because the UIM exposure there did not exceed that
limit, the Appellate Division affirmed the trial judge’s denial
of the plaintiff’s request for a trial. Conversely, here, the
disposition of plaintiff’s UM claim was not influenced or
reduced by a tortfeasor’s own liability insurance limits. Thus,
it was not unreasonable for NJM to conclude that D’Antonio
applied only in the UIM setting and not to UM arbitration.
We hold that NJM’s position in rejecting the award was at
least fairly debatable and based on a reasonable and principled
reading of its policy language. In light of this holding, we
24
find that reliance on Geiger is not necessary because NJM’s
policy language gave rise to the same result.
However, we now hold that any reference in a policy of
insurance to the statutory $15,000 policy limit as the basis for
rejecting an arbitration award applies only to the amount that
the insurance company is required to pay, not to the total
amount of the award. To allow the total amount of the award to
be the determining factor for rejecting an arbitration award,
even though the insurance company’s share is less than the
statutory policy limit, would frustrate the legislative intent
of expediting resolution of smaller cases in the least costly
manner, easing the congestion in our courts, and limiting jury
trials to the larger cases.
C.
In light of our disposition of the bad faith cause of
action in this matter, we see no present need to address the
entitlement of an insured to attorney’s fees in the
uninsured/underinsured context. We further decline to address
the issue of discovery, as we find such issue irrelevant to the
instant case.
For the reasons stated herein, we affirm the judgment of
the Appellate Division.
CHIEF JUSTICE RABNER; JUSTICES ALBIN and SOLOMON; and JUDGE
CUFF (temporarily assigned) join in JUSTICE FERNANDEZ-VINA’s
opinion. JUSTICES LaVECCHIA and PATTERSON did not participate.
25
SUPREME COURT OF NEW JERSEY
NO. A-48 SEPTEMBER TERM 2012
ON CERTIFICATION TO Appellate Division, Superior Court
AUGUSTINE W. BADIALI,
Plaintiff-Appellant,
v.
NEW JERSEY MANUFACTURERS
INSURANCE GROUP,
Defendant-Respondent.
DECIDED February 18, 2015
Chief Justice Rabner PRESIDING
OPINION BY Justice Fernandez-Vina
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY
CHECKLIST AFFIRM
CHIEF JUSTICE RABNER X
JUSTICE LaVECCHIA ---------------------- ---------------------
JUSTICE ALBIN X
JUSTICE PATTERSON ---------------------- ----------------------
JUSTICE FERNANDEZ-VINA X
JUSTICE SOLOMON X
JUDGE CUFF (t/a) X
TOTALS 5
1