INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Arbitration argument
Crystal Point Condominium Association, Inc., managed the common elements of a building in Jersey City, New Jersey. After discovering what it alleged to be construction defects in the building, it filed an action against the contractors that it contended were responsible for those defects, including Nacamuli Associates, LLC, a structural engineering firm, and Hawke Inspections and Testing, LLC, a construction inspection company. Crystal Point obtained default judgments and writs of execution against Nacamuli and Hawke.
Crystal Point filed a declaratory judgment action against Kinsale Insurance Company, alleging that it was entitled to recover the amounts owed by Nacamuli and Hawke under the policies issued by Kinsale. Kinsale asserted that Crystal Point’s claims were subject to binding arbitration in accordance with the policies. Kinsale argued that the state’s 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.
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 that either Nacamuli or Hawke was insolvent or bankrupt. Crystal Point appealed.
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. The appellate division concluded that the arbitration clause in Kinsale’s policies did not warrant the arbitration of Crystal Point’s claims, so it reinstated the complaint and remanded for further proceedings.
The state supreme court held that Crystal Point could assert direct claims against Kinsale pursuant to the direct action statute in the settling of this case. Based on the plain language of the statute, however, Crystal Point’s claims against Kinsale were derivative claims and thus were subject to the terms of the 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 were therefore subject to arbitration.
The court rejected 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.”
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.”
Turning to the direct action statute’s proof of insolvency requirement, the court noted that the trial court properly concluded, based on the record, that Crystal Point had not presented prima facie evidence of the insolvency of Nacamuli or Hawke. The court concurred 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 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 could proceed.
The court last considered whether Crystal Point’s claim pursuant to the direct action statute was subject to the arbitration provision in the Kinsale policies. 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.” One of the “terms of the policy” at issue 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 were 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.
The order compelling arbitration was reinstated.
Crystal Point Condominium Association, Inc., v. Kinsale Insurance Company—Supreme Court of New Jersey—No. 085606—July 18, 2022.
