New Jersey Appellate Division Finds Insurer Can Nullify Arbitration Award Without “Demand For Trial” Letter

Marleny Vega v. 21st Century Insurance Co. (Superior Court of New Jersey, Appellate Division)

The Superior Court of New Jersey, Appellate Division, recently held that an insurer’s timely letter rejecting an arbitration award was sufficient to trigger its right to nullify an arbitration award, and found that the insurer did not need to explicitly demand a trial in order to nullify the award.

In the underlying action, Marleny Vega, claimed to have been injured in a hit-and-run car accident. She made a claim with her auto insurance carrier, 21st Century, seeking uninsured motorist coverage. The case went to arbitration and an award of $87,500 was returned in favor of Ms. Vega.

According to the decision, because the award exceeded the minimum liability coverage required by law, either party had a right, within 30 days of the award, to demand a trial on all the issues. If such a demand was made, according to the opinion, the award would be nullified. Otherwise, the award becomes binding.

Within thirty days of the award, 21st Century wrote a letter to Vega, stating “Pursuant to the provisions of the 21st Century Insurance Policy . . . the UM Arbitration Award of June 16, 2011 is hereby rejected. Kindly be guided accordingly and contact the undersigned to discuss possible settlement of this matter.” Vega commenced action against 21st Century to uphold the arbitration award, claiming that the award became binding because the insurer failed to “demand a trial.”

The Appellate Division determined that 21st Century’s letter to Vega was sufficient to reject the award and render it non binding under state law. The Court found that a party need not specifically state “We demand a trial” to nullify an arbitration award, and held:

Although there may be times in which a party’s written response to an arbitration award may require such a statement, we cannot agree there is only one way to trigger the policy language and nullify an arbitration award.

The Appellate Division rejected the strict compliance standard used by the trial court in entering a judgment in favor of the plaintiff, and noted that “[w]e continue to adhere to [an] approach of determining ‘the fair implication’ of the wording of a post-arbitration letter in a manner that does not exalt form over substance.” The Court concluded that 21st Century’s letter was not ambiguous and could not have been interpreted to mean anything other than a demand for trial.