Crystal Point Condominium Association, Inc. v. Kinsale Insurance Company (085606) (Hudson County & Statewide)

SYLLABUS
This syllabus is not part of the Court’s opinion. 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 Court and may not summarize all portions of the opinion.
Crystal Point Condominium Association, Inc. v. Kinsale Insurance Company
(A-76-20) (085606)
Argued January 3, 2022 -- Decided July 18, 2022
PATTERSON, J., writing for a unanimous Court.
In this appeal, the Court considers whether plaintiff Crystal Point Condominium
Association, Inc., which has obtained default judgments against two entities for
construction defect claims, may assert claims against defendant Kinsale Insurance
Company, alleged to have insured those entities, under the Direct Action Statute,
N.J.S.A. 17:28-2. The Court also considers the effect of the provisions in each
policy mandating binding arbitration of disputes between Kinsale and its insureds.
It is undisputed that Kinsale issued policies that provided insurance coverage
to Nacamuli Associates LLC, a structural engineering firm. Crystal Point alleges
that Kinsale also provided insurance coverage to Hawke Inspections and Testing
LLC, a construction inspection company. The relevant policies both contained an
arbitration agreement providing in part that “[a]ll disputes over coverage or any
rights afforded under this Policy . . . shall be submitted to binding Arbitration.”
Crystal Point manages the common elements of a building in Jersey City.
After discovering what it alleges to be construction defects in the building, it filed
an action against the contractors that it contended were responsible for those defects,
including Nacamuli and Hawke. Crystal Point sought and obtained default
judgments and writs of execution against Nacamuli and Hawke.
Crystal Point filed a declaratory judgment action against Kinsale, alleging that
it was entitled to recover the amounts owed by Nacamuli and Hawke under the
insurance policies issued by Kinsale. Kinsale asserted that Crystal Point’s claims
were subject to binding arbitration in accordance with the insurance policies.
Kinsale argued that the Direct Action Statute did not apply because Crystal Point
had not demonstrated that either Nacamuli or Hawke was insolvent or bankrupt. In
the alternative, Kinsale contended that even if the statute were to apply, it would not
preclude enforcement of the arbitration provisions in the policies. Crystal Point
opposed the motion. It asserted that the arbitration provisions did not apply to its
claims and that the Direct Action Statute precluded enforcement of those provisions.
1
The trial court granted Kinsale’s motion to compel arbitration. The court
viewed the Direct Action Statute to be inapplicable because there was no evidence in
the record before it that either Nacamuli or Hawke was insolvent or bankrupt.
The Appellate Division granted Crystal Point’s motion to supplement the
record with Affidavits of Service by Union County Sheriff’s Officers indicating that
they were unable to serve the writs of execution on Nacamuli or Hawke because, in
each case, the “[c]ompany does not exist at this address.” The appellate court
reversed the trial court’s judgment, finding the evidence that the writs of execution
were unsatisfied met the Direct Action Statute’s requirement that the claimant
present proof of the insured’s insolvency or bankruptcy and determining that the
Direct Action Statute authorized Crystal Point’s claims against Kinsale. 466 N.J.
Super. 471, 480-82 (App. Div. 2021). The Appellate Division concluded that the
arbitration clause in Kinsale’s insurance policies did not warrant the arbitration of
Crystal Point’s claims, so it reinstated the complaint and remanded for further
proceedings. Id. at 485-87.
The Court granted certification. 248 N.J. 10 (2021).
HELD: Crystal Point may assert direct claims against Kinsale pursuant to the
Direct Action Statute in the setting of this case. Based on the plain language of
N.J.S.A. 17:28-2, however, Crystal Point’s claims against Kinsale are derivative
claims, and are thus subject to the terms of the insurance policies at issue, including
the provision in each policy mandating binding arbitration of disputes between
Kinsale and its insureds. Crystal Point’s claims against Kinsale are therefore subject
to arbitration.
1. The Legislature enacted the Direct Action Statute in 1924, and the statute has not
been amended since 1931. The statute mandates the inclusion of specific policy
language in insurance policies both “against loss or damage resulting from accident
to or injury suffered by an employee or other person and for which the person
insured is liable” and “against loss or damage to property caused by animals or by
any vehicle drawn, propelled or operated by any motive power, and for which loss or
damage the person insured is liable.” N.J.S.A. 17:28-2. The statute allows a victim
to directly pursue an insurer without a need for the insured’s cooperation if certain
requirements are met: first, injured parties have no rights under the policy until
“execution against the insured is returned unsatisfied . . . because of the insolvency
or bankruptcy” of the person insured; second, any claim brought under the Direct
Action Statute is a claim “under the terms of the policy.” Ibid. In actions brought
pursuant to policy language mandated by the Direct Action Statute, the judgment
creditor’s rights “are purely derivative. He stands in the shoes of the assured; and he
sues in the right of the insured.” Dransfield v. Citizens Cas. Co. of N.Y., 5 N.J. 190,
194 (1950). (pp. 14-18)
2
2. The Court rejects the argument that the Direct Action Statute applies only to
claims arising from “loss or damage to property caused by animals or by any vehicle
drawn.” N.J.S.A. 17:28-2. By its plain terms, the statute applies to either
(1) coverage for claims “against loss or damage resulting from accident to or injury
suffered by an employee or other person and for which the person insured is liable”;
or (2) coverage for claims “against loss or damage to property caused by animals or
by any vehicle drawn, propelled or operated by any motive power, and for which
loss or damage the person insured is liable.” - Ibid.- - Nothing in the statutory text
suggests legislative intent to limit the statute’s reach to the second category of
claims, nor is there any indication in the case law applying the Direct Action Statute
that the statute applies only to such claims. This case is clearly an action by a
judgment creditor seeking the proceeds of insurance policies for claims arising from
“loss or damage resulting from accident to or injury suffered by an employee or
other person and for which the person insured is liable.” N.J.S.A. 17:28-2.
Accordingly, the Direct Action Statute governs this appeal. (pp. 18-20)
3. Turning to the Direct Action Statute’s proof of insolvency requirement, the Court
notes that the trial court properly concluded, based on the record before it, that
Crystal Point had not presented prima facie evidence of the insolvency of Nacamuli
or Hawke. The Court concurs with the Appellate Division that the supplemented
appellate record included such prima facie evidence -- a showing that the writs of
execution were returned unsatisfied. Crystal Point has satisfied the requirement that
it present prima facie evidence of the insolvency or bankruptcy of the parties that it
claims were insured by Kinsale, and its claim under the statute may proceed.
(pp. 20-22)
4. The Court last considers whether Crystal Point’s claim pursuant to the Direct
Action Statute is subject to the arbitration provision in the relevant policies that
Kinsale issued. The Direct Action Statute defines a judgment creditor’s claim
against the insolvent or bankrupt judgment debtor to be a claim “under the terms of
the policy for the amount of the judgment in the action not exceeding the amount of
the policy.” N.J.S.A. 17:28-2. One of the “terms of the policy” at issue here is the
arbitration clause, whose broad language mandates arbitration of any action brought
by Nacamuli or Hawke against Kinsale. Under the statute’s plain language, Crystal
Point’s rights against Kinsale are purely derivative of the rights that Nacamuli or
Hawke could have asserted against Kinsale. The parties’ disputes must be submitted
to binding arbitration in accordance with the arbitration provisions. (pp. 22-24)
REVERSED. The order compelling arbitration is REINSTATED.
CHIEF JUSTICE RABNER; JUSTICES SOLOMON and PIERRE-LOUIS; and
JUDGE FUENTES (temporarily assigned) join in JUSTICE PATTERSON’s
opinion.
3
SUPREME COURT OF NEW JERSEY
A-76 September Term 2020
085606
Crystal Point
Condominium
Association, Inc.,
Plaintiff-Respondent,
v.
Kinsale Insurance
Company,
Defendant-Appellant.
On certification to the Superior Court,
Appellate Division, whose opinion is reported at
466 N.J. Super. 471 (App. Div. 2021).
Argued Decided
January 3, 2022 July 18, 2022
Sean P. Mahoney argued the cause for appellant
(Kennedys CMK, attorneys; Sean P. Mahoney, of counsel
and on the briefs, and Michael E. DiFebbo, on the briefs).
John Randy Sawyer argued the cause for respondent
(Stark & Stark, attorneys; John Randy Sawyer, of counsel
and on the brief).
Kayla Elizabeth Rowe argued the cause for amici curiae
the Insurance Council of New Jersey and the New Jersey
Civil Justice Institute (Rowe Law, attorneys; Kayla
Elizabeth Rowe, of counsel and on the brief).
1
JUSTICE PATTERSON delivered the opinion of the Court.
The Direct Action Statute authorizes an injured claimant holding an
unsatisfied judgment against an insolvent or bankrupt policyholder to file a
direct action against an insurer in certain settings. N.J.S.A. 17:28-2. That
action must proceed “under the terms of the policy for the amount of the
judgment in the action not exceeding the amount of the policy.” Ibid.In a construction defect case, plaintiff Crystal Point Condominium
Association obtained default judgments against two entities that it contends are
insolvent. Crystal Point alleges that defendant Kinsale Insurance Company
insured the two entities for the construction claims brought here. It relies on
insurance policies issued by Kinsale, each providing for binding arbitration of
disputes arising from the policies.
After Crystal Point failed to recover on the default judgments, it brought
a declaratory judgment and breach of contract action against Kinsale pursuant
to the Direct Action Statute, demanding that Kinsale satisfy the judgments.
Kinsale argued that the Direct Action Statute did not govern Crystal Point’s
claims. It asserted that even if the Direct Action Statute were held to apply,
the statute’s provision that the terms of the policy govern the action mandates
that the parties’ dispute be resolved in arbitration, not in a court proceeding.
2
The trial court concluded that the Direct Action Statute did not apply. It
granted Kinsale’s motion to compel arbitration and dismissed Crystal Point’s
complaint. The Appellate Division reversed the trial court’s determination,
authorized Crystal Point to assert claims against Kinsale under the Direct
Action Statute, and ruled that the parties’ dispute was not arbitrable. Crystal
Point Condo. Ass’n, Inc. v. Kinsale Ins. Co., 466 N.J. Super. 471, 481-87
(App. Div. 2021).
We concur with the Appellate Division that Crystal Point may assert
direct claims against Kinsale pursuant to the Direct Action Statute in the
setting of this case. Based on the plain language of N.J.S.A. 17:28-2,
however, Crystal Point’s claims against Kinsale are derivative claims, and are
thus subject to the terms of the insurance policies at issue, including the
provision in each policy mandating binding arbitration of disputes between
Kinsale and its insureds. Crystal Point’s claims against Kinsale are therefore
subject to arbitration.
Accordingly, we reverse the judgment of the Appellate Division and
reinstate the trial court’s order compelling arbitration of the parties’ dispute.
3
I.
A.
1.
Kinsale is an excess and surplus lines insurer. It is undisputed that
Kinsale issued Architects and Engineers Professional Liability insurance
policies, effective from July 29, 2016 to July 29, 2018, that provided insurance
coverage to Nacamuli Associates LLC, a structural engineering firm. Crystal
Point alleges that Kinsale also provided insurance coverage to Hawke
Inspections and Testing LLC, a construction inspection company, pursuant to
an Architects and Engineers Professional Liability policy effective during the
same policy period.
The relevant policies issued by Kinsale included the following language
addressing the bankruptcy or insolvency of an insured:
SECTION VII - GENERAL CONDITIONS
A. Bankruptcy
Bankruptcy or insolvency of any “insured” or any
“insured’s” estate will not relieve us of our
obligations under this Policy.
B. Legal Action Against Us
1. No action may be brought against us unless there
has been full compliance with all of the terms of
this Policy and the ultimate amount of the
“insured’s” responsibility has been finally
4
concluded either by a trial judgment against the
“insureds” or by written agreement with the
“insureds”, all claimants, and us;
2. No person or organization has any right under
this Policy to join us as party into any suit to
determine the liability of any “insured”.
The policies also contained an arbitration provision that identified the
disputes to be arbitrated and set forth a procedure for the arbitration:
SECTION X - BINDING ARBITRATION
All disputes over coverage or any rights afforded under
this Policy, including whether an entity or person is a
‘named insured’, an ‘insured’, an additional insured or,
the effect of any applicable statutes or common law
upon the contractual obligations owed, shall be
submitted to binding Arbitration, which shall be the
sole and exclusive means to resolve the dispute. Either
party may initiate the binding arbitration.
The arbitration forum and process shall be agreed to by
the parties. In the event the parties cannot agree on an
arbitration forum and process, the matter shall be
submitted to the American Arbitration Association.
The Arbitration shall be before a panel of three
arbitrators, unless the parties agree to one arbitrator, all
of whom shall have experience in insurance coverage
of the type afforded by this Policy. If the parties select
a panel of three arbitrators, each party shall select an
arbitrator and the chosen arbitrators shall select a third
arbitrator. The American Arbitration Association shall
decide any disputes concerning the selection of the
Arbitrators. The potential arbitrators from which the
arbitrators shall be selected shall not be confined to
those provided by the American Arbitration
Association. Each party shall bear the costs of its
arbitrator and shall share equally the costs of the third
5
arbitrator and arbitration process. In the event of a
single arbitrator, the cost shall be shared equally by the
parties. The decision of the arbitration is final and
binding on the parties.
2.
Crystal Point is a nonprofit corporation that manages, operates, and
maintains the common elements of a high-rise residential building in Jersey
City. After discovering what it alleges to be construction defects in the
building, it filed an action against the contractors that it contended were
responsible for those defects. Among the defendants named in Crystal Point’s
action were Nacamuli, which provided engineering and other services for the
construction of the building, and Hawke, which served as a third-party
inspector of the building’s concrete balconies and slabs.
Crystal Point alleges that Nacamuli and Hawke put Kinsale on notice of
the construction defect action and tendered their defenses, and that Kinsale
declined to defend or indemnify either defendant. Neither Nacamuli nor
Hawke filed an answer in Crystal Point’s construction defect action.
Crystal Point sought and obtained default judgments against Nacamuli
and Hawke. After a proof hearing, the trial court entered final judgment
against Nacamuli in the amount of $874,400.86, and final judgment against
Hawke in the amount of $859,965.01.
6
Crystal Point identified a Federal Tax Lien Number for Hawke and
determined that Hawke was no longer in business, but it did not identify a
Federal Tax Lien Number for Nacamuli. It obtained writs of execution against
Nacamuli and Hawke and requested that sheriff’s officers execute the writs.
B.
1.
Crystal Point filed a declaratory judgment action against Kinsale. It
alleged that the insurance policies that Kinsale issued to Nacamuli and Hawke
covered the claims asserted against them. Without invoking the Direct Action
Statute in its complaint, Crystal Point alleged that it was entitled to recover the
amounts owed by Nacamuli and Hawke under the insurance policies issued by
Kinsale. It sought a declaration that the policies covered its claims against the
policyholders, and that Kinsale was obligated to satisfy the judgments in
accordance with those policies. Crystal Point also asserted a breach of
contract claim against Kinsale, alleging that Kinsale had breached its
obligations under the insurance policies by disclaiming coverage.
Kinsale filed a motion to compel arbitration and to stay the proceedings,
asserting that Crystal Point’s claims were subject to binding arbitration in
accordance with the arbitration clauses in the insurance policies. Kinsale
argued that the Direct Action Statute did not apply because Crystal Point had
7
not demonstrated that either Nacamuli or Hawke was insolvent or bankrupt. In
the alternative, Kinsale contended that even if the Direct Action Statute were
to apply, it would not preclude enforcement of the arbitration provisions in the
policies.
Crystal Point opposed the motion. It asserted that the arbitration
provisions did not apply to its claims and that the Direct Action Statute
precluded enforcement of those provisions.
The trial court granted Kinsale’s motion to compel arbitration but denied
its motion to stay the proceedings. The court noted that as a general rule,
insurance policies are enforced as written when clear and unambiguous, and
that the New Jersey Arbitration Act, N.J.S.A. 2A:23B-1 to -32, expresses the
Legislature’s policy in favor of arbitration. The trial court held that the
arbitration provisions in the insurance policies were clear and unambiguous
and that they governed the dispute between Crystal Point and Kinsale. The
court viewed the Direct Action Statute to be inapplicable because there was no
evidence in the record before it that either Nacamuli or Hawke was insolvent
or bankrupt.
The trial court ordered the parties to arbitrate their dispute and dismissed
the complaint. It denied Crystal Point’s motion for reconsideration but granted
its unopposed motion to stay the order compelling arbitration pending appeal.
8
2.
Crystal Point appealed the trial court’s judgment. The Appellate
Division granted Crystal Point’s motion to supplement the record with
Affidavits of Service by Union County Sheriff’s Officers indicating that they
were unable to serve the writs of execution on Nacamuli or Hawke because, in
each case, the “[c]ompany does not exist at this address.”
The Appellate Division reversed the trial court’s judgment. The
appellate court considered the Affidavits of Service to constitute evidence that
the writs of execution were unsatisfied, and it held that Crystal Point had met
the Direct Action Statute’s requirement that the claimant present proof of the
insured’s insolvency or bankruptcy. Crystal Point, 466 N.J. Super. at 480.
The Appellate Division disagreed with Kinsale’s contention that the Direct
Action Statute applies only to accidents involving loss or damage to property
caused by motor vehicles or animals. Id. at 481. It viewed the Direct Action
Statute to authorize Crystal Point’s claims against Kinsale. Id. at 480-82.
The Appellate Division also rejected Kinsale’s contention that Crystal
Point’s claims were arbitrable by virtue of the statute’s mandate that the direct
action proceed “under the terms of the policy for the amount of the judgment
in the action not exceeding the amount of the policy.” Id. at 483 (quoting
N.J.S.A. 17:28-2). The appellate court reasoned that Crystal Point is an
9
incidental beneficiary of the contract and “is the injured party with no
contractual relationship with the insured or insurer and whose only means to
collect its judgment against the now defunct insured is through the pathway
afforded by legislative mandate.” Id. at 484. The Appellate Division held that
Crystal Point should not be burdened with “the alternate dispute resolution
mechanism included in the policy by the insurer and consented to by the
insured.” Ibid. It “reject[ed] the notion that labeling a non-signatory claimant
as a third-party beneficiary of an insurance contract compels arbitration” and
concluded that the arbitration clause in Kinsale’s insurance policies did not
warrant the arbitration of Crystal Point’s claims. Id. at 485-87.
The Appellate Division reinstated the complaint and remanded for
further proceedings. Id. at 487.
3.
We granted Kinsale’s petition for certification. 248 N.J. 10 (2021). We
also granted Kinsale’s motion to stay further proceedings in the trial court
pending this Court’s review of the appeal, as well as the application of the
Insurance Council of New Jersey and the New Jersey Civil Justice Institute to
participate as amici curiae.
10
II.
A.
Kinsale contends that the Direct Action Statute does not govern this case
because Crystal Point made no prima facie showing that either Nacamuli or
Hawke is insolvent or bankrupt and the Direct Action Statute applies only to
accidents for property loss or damage from motor vehicles or animals. Kinsale
argues that even if the Direct Action Statute applies, Crystal Point should be
afforded no rights broader than the rights of Nacamuli and Hawke and that,
pursuant to the arbitration clauses in the insurance policies, Crystal Point’s
coverage claims are arbitrable.
B.
Crystal Point asserts that the Appellate Division properly held that it
proved that Nacamuli and Hawke are insolvent, thus meeting the requirements
of the Direct Action Statute. It asserts that the Direct Action Statute is not
limited to actions arising from property loss and damage caused by motor
vehicles or animals. Crystal Point argues that it is an incidental beneficiary of
the insurance policies, not a third-party beneficiary, and that the arbitration
provisions in the insurance policies do not mandate the arbitration of its
claims.
11
C.
Amici curiae the Insurance Council of New Jersey and the New Jersey
Civil Justice Institute contend that a third-party beneficiary seeking to pursue
claims under the Direct Action Statute is subject to all terms of the insurance
policy that it seeks to enforce, including any arbitration provision.
III.
A.
This case turns on the construction of the Direct Action Statute, and our
review is therefore de novo. See, e.g., Kocanowski v. Township of
Bridgewater, 237 N.J. 3, 9 (2019).
Our goal in interpreting a statute “is to effectuate legislative intent.”
Gilleran v. Township of Bloomfield, 227 N.J. 159, 171 (2016). In that inquiry,
“we look to the statute’s language and give those terms their plain and
ordinary meaning . . . because ‘the best indicator of [legislative] intent is the
plain language chosen by the Legislature.’” State v. J.V., 242 N.J. 432, 442-43
(2020) (quoting Johnson v. Roselle EZ Quick LLC, 226 N.J. 370, 386 (2016)).
“Absent a clear indication from the Legislature that it intended statutory
language to have a special limiting definition, we must presume that the
language used carries its ordinary and well-understood meaning.” In re N.J.
12
Firemen’s Ass’n Obligation, 230 N.J. 258, 274 (2017) (quoting State v.
Lenihan, 219 N.J. 251, 262-63 (2014)).
“If the language is clear, the court’s job is complete.” In re
Expungement Application of D.J.B., 216 N.J. 433, 440 (2014). It is only
“when statutory language is ambiguous, or ‘leads to more than one plausible
interpretation’” that we “‘may turn to extrinsic evidence, including legislative
history, committee reports, and contemporaneous construction.’” Firemen’s
Ass’n Obligation, 230 N.J. at 274 (quoting DiProspero v. Penn, 183 N.J. 477,
492-93 (2005)).
B.
In general, “a stranger to an insurance policy has no right to recover the
policy proceeds.” Ross v. Lowitz, 222 N.J. 494, 512 (2015) (quoting Gen.
Accident Ins. Co. v. N.Y. Marine & Gen. Ins. Co., 320 N.J. Super. 546, 553-54
(App. Div. 1999)). There are exceptions to that general rule, including certain
assignments of rights that authorize a third party to assert a bad-faith claim
against an insurer, ibid.; Murray v. Allstate Ins. Co., 209 N.J. Super. 163, 168-
69 (App. Div. 1986), and third-party beneficiary status, which requires a
showing that the contracting parties intended that a third party receive a
benefit from the contract that may be enforced in court, Ross, 222 N.J. at 513;
Broadway Maint. Corp. v. Rutgers State Univ., 90 N.J. 253, 259 (1982).
13
Crystal Point does not claim to be an assignee of a contractual right and
denies that it is a third-party beneficiary of the insurance policies at issue. Its
claim on appeal is premised on the Direct Action Statute, N.J.S.A. 17:28-2.
The Legislature enacted the Direct Action Statute in 1924. L. 1924, c.
153. 1 It amended the Act seven years after its enactment to mandate additional
insurance policy language that is not relevant to the issues presented here. L.
1931, c. 194. The Legislature has not amended the Direct Action Statute since
1931.
The Direct Action Statute provides, in part, that
[n]o policy of insurance against loss or damage
resulting from accident to or injury suffered by an
employee or other person and for which the person
insured is liable, or against loss or damage to property
caused by animals or by any vehicle drawn, propelled
or operated by any motive power, and for which loss or
1
The legislative history of the Direct Action Statute is sparse. Although the
statute is “declaratory of public policy,” Osborn v. New Amsterdam Cas. Co.,
111 N.J.L. 358, 361 (E. & A. 1933), the Legislature did not explain its intent
in enacting the law, L. 1924, c. 153. A leading commentator cited to New
York’s Direct Action Statute to explain that such statutes were intended to
ameliorate the impact on tort claimants of laws, in effect at the time the
statutes were enacted, that barred insolvent or bankrupt tortfeasors from access
to the proceeds of their insurance policies. Robert E. Keeton, Basic Text on
Insurance Law § 4.8(b), at 233-34 (1971); see also Northfield Ins. Co. v.
Mount Hawley Ins. Co., 454 N.J. Super. 135, 148 (App. Div. 2018) (citing
Keeton’s analysis for the proposition that to protect tort claimants, “insurance
policies -- usually by legislative direction -- later addressed insolvency and
allow a victim to directly pursue an insurer once the claim is successfully
adjudicated and without a need for the insured’s cooperation”).
14
damage the person insured is liable, shall be issued or
delivered in this state by any insurer authorized to do
business in this state, unless there is contained within
the policy a provision that the insolvency or bankruptcy
of the person insured shall not release the insurance
carrier from the payment of damages for injury
sustained or loss occasioned during the life of the
policy, and stating that in case execution against the
insured is returned unsatisfied in an action brought by
the injured person, or his personal representative in
case death results from the accident, because of the
insolvency or bankruptcy, then an action may be
maintained by the injured person, or his personal
representative, against the corporation under the terms
of the policy for the amount of the judgment in the
action not exceeding the amount of the policy.
[N.J.S.A. 17:28-2.]
In addition to notice and loss-of-services coverage provisions not
relevant here, the Direct Action Statute further provides that
[a] policy issued in violation of this section shall,
nevertheless, be held valid but be deemed to include the
provisions required by this section, and when any
provision in the policy or rider is in conflict with the
provisions required to be contained by this section, the
rights, duties and obligations of the insurer, the
policyholder and the injured person shall be governed
by the provisions of this section.
[Ibid.]
The Direct Action Statute thus mandates specific policy language in
insurance policies both “against loss or damage resulting from accident to or
injury suffered by an employee or other person and for which the person
15
insured is liable” and “against loss or damage to property caused by animals or
by any vehicle drawn, propelled or operated by any motive power, and for
which loss or damage the person insured is liable.” Ibid.The required policy language includes two provisions that are relevant to
this appeal: (1) a provision that “the insolvency or bankruptcy of the person
insured shall not release the insurance carrier from the payment of damages for
injury sustained or loss occasioned during the life of the policy”; and (2) a
provision stating that if “execution against the insured is returned unsatisfied
in an action brought by the injured person, or his personal representative in
case death results from the accident, because of the insolvency or bankruptcy,”
then the injured person or that person’s representative may bring an action
“against the corporation under the terms of the policy for the amount of the
judgment in the action not exceeding the amount of the policy.” Ibid. Under
the Direct Action Statute, if an insurance policy within the statute’s reach
lacks either provision, it will be “held valid but be deemed to include the
provisions required by this section.” Ibid. The Direct Action Statute thus
“allow[s] a victim to directly pursue an insurer . . . without a need for the
insured’s cooperation.” Northfield, 454 N.J. Super. at 148.
Case law has confirmed two requirements of the Direct Action Statute
that are central to this appeal.
16
First, under the statute, “injured parties have no rights under the policy
until there is an unsatisfied judgment against the assured.” Kabinski v. Emps.’
Liab. Assurance Corp., 123 N.J.L. 377, 379 (E. & A. 1939). In accordance
with the policy language prescribed by the Direct Action Statute, and the
statutory language itself, an injured party has no claim under the statute absent
proof “that the assured was insolvent or bankrupt, or that an execution was
returned unsatisfied because of the insolvency or bankruptcy of the assured.”
Saxon v. U.S. Fid. & Guar. Co., 107 N.J.L. 266, 268 (E. & A. 1931).
Second, any claim brought under the Direct Action Statute is a claim
“under the terms of the policy.” N.J.S.A. 17:28-2. As this Court has noted
with respect to actions brought pursuant to policy language mandated by the
Direct Action Statute, “apart from the compulsory coverage under [N.J.S.A.
39:6-20(a)],” 2 the judgment creditor’s rights “are purely derivative. He stands
in the shoes of the assured; and he sues in the right of the insured.” Dransfield
v. Citizens Cas. Co. of N.Y., 5 N.J. 190, 194 (1950). Although an injured
party asserting a claim under the statute “has no greater right under the policy
2
The statute cited, the Motor Vehicle Financial Responsibility Act, provided
that when an insurance policy exceeded $5,000 in coverage, the insurance
carrier could “plead against the judgment creditor with respect to the excess
liability any defenses pleadable against the insurer.” Dransfield v. Citizens
Cas. Co. of N.Y., 5 N.J. 190, 194 (1950). That statute was later repealed by L.
1952, c. 1973.
17
than has the assured,” that party “has ‘a cause of action the moment he is
injured’ which ripens into a right of action when he recovers a judgment
against the assured whose insolvency is proved by the return of an execution
unsatisfied.” Ibid.C.
This appeal requires that we resolve three questions regarding the Direct
Action Statute: (1) whether the statute applies only to claims arising from
“loss or damage to property caused by animals or by any vehicle drawn,”
N.J.S.A. 17:28-2, or to a broader category of claims that includes Crystal
Point’s claims; (2) whether Crystal Point’s showing that its writs could not be
executed constitutes prima facie proof of “the insolvency or bankruptcy of the
person insured” under N.J.S.A. 17:28-2; and (3) whether Crystal Point’s action
under N.J.S.A. 17:28-2 must be determined in binding arbitration rather than
in court pursuant to the arbitration provision set forth in the insurance policies.
We consider each in turn.
1.
Kinsale contends that the Direct Action Statute applies only to insurance
for claims arising from loss or damage caused by animals or motor vehicles.
We disagree.
18
By its plain terms, the Direct Action Statute applies to either (1)
coverage for claims “against loss or damage resulting from accident to or
injury suffered by an employee or other person and for which the person
insured is liable”; or (2) coverage for claims “against loss or damage to
property caused by animals or by any vehicle drawn, propelled or operated by
any motive power, and for which loss or damage the person insured is liable.”
N.J.S.A. 17:28-2. As confirmed by the Legislature’s use of the disjunctive
“or” between the two clauses and its inclusion of the term “against” in each
clause, the two categories are separate and distinct. Nothing in the statutory
text suggests legislative intent to limit the statute’s reach to the second
category, claims arising from loss or property damage caused by motor
vehicles or animals. See N.J.S.A. 17:28-2.
Nor is there any indication in the case law applying the Direct Action
Statute that the statute applies only to such claims.
A majority of the decisions addressing the statute arise from claims
based on motor vehicle accidents. See, e.g., Feuchtbaum v. Constantini, 59
N.J. 167, 177 (1971); Cooper v. Gov’t Emps. Ins. Co., 51 N.J. 86, 88 n.1, 94-
95 (1968); Dransfield, 5 N.J. at 192, 194-95. The case law is not limited to
motor-vehicle or animal-related injury settings, however. In Burd v. Sussex
Mutual Insurance Co., this Court considered the question whether the insured’s
19
homeowner’s policy was required to defend a claim arising from the
homeowner’s shooting of a victim on the insured property. 56 N.J. 383, 386-
87 (1970). Noting that the victim had been named as a party to the coverage
action, the Court held that “[b]y statute, N.J.S.A. 17:28-2, an injured claimant
has an interest in a liability policy, and is entitled to be heard as to coverage.”
Id. at 397 (citation omitted). As Burd illustrates, the plain language of
N.J.S.A. 17:28-2 mandates insurance policy terms that apply even when
judgment creditors seek proceeds from policies covering claims based on
injuries other than those caused by motor vehicles or animals.
This case is clearly an action by a judgment creditor seeking the
proceeds of insurance policies for claims arising from “loss or damage
resulting from accident to or injury suffered by an employee or other person
and for which the person insured is liable.” N.J.S.A. 17:28-2. Accordingly,
the Direct Action Statute governs this appeal.
2.
We next address the Direct Action Statute’s mandate that an injured
party prove “the insolvency or bankruptcy of the person insured” as a
prerequisite to maintaining an action under the statute. N.J.S.A. 17:28-2;
Dransfield, 5 N.J. at 194; Kabinski, 123 N.J.L. at 379.
20
Based on the record before it, which contained no proof that Crystal
Point’s default judgments could not be satisfied, the trial court properly
concluded that Crystal Point had not presented prima facie evidence of the
insolvency of Nacamuli or Hawke. However, on appeal, Crystal Point filed a
motion to supplement the record with proof that the writs of execution were
returned unsatisfied. After granting the motion, the Appellate Division held
that Crystal Point had presented prima facie evidence that the insureds were
insolvent and that, in the absence of contradictory evidence, Crystal Point’s
judgments were deemed unsatisfied. Crystal Point, 466 N.J. Super. at 480
(citing Universal Indem. Ins. Co. v. Caltagirone, 199 N.J. Eq. 491, 494 (E. &
A. 1936)).
We concur with the Appellate Division that based on the supplemented
record before it, the Affidavits of Service by Union County Sheriff’s Officers,
showing that the writs of execution were returned unsatisfied, constituted
prima facie evidence that Nacamuli and Hawke are insolvent. See Dransfield,
5 N.J. at 194 (noting that under N.J.S.A. 17:28-2, the insured’s insolvency “is
proved by the return of an execution unsatisfied”); Caltagirone, 199 N.J. Eq. at
494 (holding that an “unsatisfied execution is prima facie evidence” of the
“insolvency of the insured”). To date, Kinsale has presented no evidence to
counter Crystal Point’s showing of insolvency.
21
Accordingly, Crystal Point has satisfied the Direct Action Statute’s
requirement that it present prima facie evidence of the insolvency or
bankruptcy of the parties that it claims were insured by Kinsale, and its claim
under the statute may proceed.
3.
Finally, we review the Appellate Division’s holding that Crystal Point’s
claim pursuant to the Direct Action Statute is not subject to the arbitration
provision in the relevant insurance policies that Kinsale issued.
The Appellate Division found no evidence that when Nacamuli, Hawke,
and Kinsale agreed to arbitrate disputes arising from the insurance policies,
they expressed the intent that a judgment creditor of Nacamuli or Hawke
would be subject to those arbitration provisions. Crystal Point, 466 N.J. Super.
at 481-87. Relying on this Court’s opinion in Hirsch v. Amper Financial
Services, LLC, 215 N.J. 174, 187 (2013), the appellate court reasoned that
although “a non-signatory to an arbitration agreement might be compelled to
arbitrate based on principles of agency or other legal theories,” no such theory
applied here. Id. at 484-86. The court stated that it was “not satisfied that the
third-party beneficiary status accorded to plaintiff by the [Direct Action
Statute] means binding arbitration is a predetermined sequela of that status
when the claim is considered against the canvas of our arbitration
22
jurisprudence.” Id. at 486. It therefore declined to enforce the insurance
policies’ arbitration provisions. Id. at 481-87.
We disagree. The claim at issue in this appeal is a statutory claim
pursuant to the Direct Action Statute, not a common-law claim. See N.J.S.A.
17:28-2. The statute defines a judgment creditor’s claim against the insolvent
or bankrupt judgment debtor to be a claim “under the terms of the policy for
the amount of the judgment in the action not exceeding the amount of the
policy.” Ibid. One of the “terms of the policy” at issue here is the arbitration
clause, which prescribes binding arbitration of “[a]ll disputes over coverage or
any rights afforded under this [p]olicy, including . . . the effect of any
applicable statutes . . . upon the contractual obligations owed.” That broad
language mandates arbitration of any action brought by Nacamuli or Hawke
against Kinsale.
Under the statute’s plain language, Crystal Point’s rights against Kinsale
are “purely derivative” of the rights that Nacamuli or Hawke could have
asserted against Kinsale. Dransfield, 5 N.J. at 194; see also Burd, 56 N.J. at
397 (stating that a claimant’s interest under N.J.S.A. 17:28-2 “is derivative of
the insured’s (absent a statute providing otherwise)”). The Appellate
Division’s decision, however, would grant Crystal Point greater rights than the
rights that Nacamuli or Hawke could have asserted against Kinsale. Were we
23
to concur with the Appellate Division that in contrast to the other provisions of
the insurance policies, the arbitration clause is somehow unenforceable in
Crystal Point’s action, we would contravene the Direct Action Statute’s plain
terms.
Accordingly, we hold that Crystal Point’s claim pursuant to the Direct
Action Statute is subject to the arbitration provisions of the relevant insurance
policies. The parties’ disputes must be submitted to binding arbitration in
accordance with those provisions.
IV.
The judgment of the Appellate Division is reversed, and the trial court’s
order compelling the binding arbitration of Crystal Point’s claims against
Kinsale is reinstated.
CHIEF JUSTICE RABNER; JUSTICES SOLOMON and PIERRE-
LOUIS; and JUDGE FUENTES (temporarily assigned) join in JUSTICE
PATTERSON’s opinion.
24