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Shore Orthopaedic v. The Equitable is an important case in a policyholder’s arsenal - supporting the right to obtain a disability carrier’s underwriting manuals to challenge a claim denial.

The Appellate Court decided on January 24, 2008 that a $50,000 counsel fee award by the trial judge in favor of plaintiff was the proper sanction, after the disability carrier, Equitable, delayed producing its underwriting manual.  One of Shore Orthopaedic’s practitioners became disabled and unable to pay his share of the overhead expenses of the medical group.  The practice owned a disability policy through Equitable intended to pay the practice benefits to reimburse for overhead expenses the doctor, insured under the policy, was unable to pay.  The policy provided that the benefits would be paid directly to the medical practice as the owner of the policy.

During discovery, Shore demanded a copy of Equitable’s underwriting manuals.  The trial judge determined that Equitable intentionally obfuscated plaintiff’s request for the manuals which were eventually produced after they “surfaced.”  Plaintiff was awarded attorney’s fees from the time of the first discovery request through its motion for summary judgment.

The decision to award counsel fees was within the trial court’s discretion under R. 4:42-9, even though the court rejected plaintiff’s request for counsel fees under the Frivolous Lawsuit statute or under the statute providing for reimbursement of attorney’s fees in an action upon a liability or indemnity insurance policy, traditionally limited to “third party” claims in New Jersey as a matter of policy.

Thus, the importance of the opinion is that while the court did not award counsel fees under what would have been a significant modification to the rule, by allowing attorney’s fees in what the court determined was a “first party” insurance claim, the case affirms a plaintiff’s right to obtain underwriting manuals from a defendant disability insurance carrier.  An issue in the case was whether the insurance carrier acted properly in denying the claim.  The court agreed that the carrier’s handling of the claim, i.e. disputing the insured’s medical condition, warranted an examination of the carrier’s claims handling procedure, as revealed in its underwriting manuals.

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The New Jersey Appellate Division decided Delam Construction v. 15 Thornton Road on December 10, 2007.  The parties had entered into a contract for Delam to construct a building.  Defendant, Thornton, owed Delam a balance of $187,368 for Delam’s work on the project.  Delam filed suit for breach of contract and later added Thornton’s managing member as a defendant.

Thornton counterclaimed alleging construction deficiencies.

Discovery took place and trial was scheduled more than one year after the complaint was filed.  By then, defendant had obtained new counsel, trial was adjourned and the court sent the matter to arbitration after defendant’s new attorney raised for the first time an arbitration clause in the original contract.  Plaintiff alleged that defendant had waived its right to arbitration by participating in the litigation for over one year.  The court examined the competing interests between, on the one hand, favoring commercial arbitration as a speedy and inexpensive alternative to litigation, particularly in construction contract disputes, and on the other hand, whether the active and prolonged litigation resulted in a waiver of the right to compel arbitration.

The court noted an earlier decision where a trial judge’s compelling arbitration nearly five years after the original complaint, was rejected.

After wrestling with the issue of when a waiver has occurred, the court ruled in favor of allowing the matter to proceed to arbitration.

The court relied upon “prejudice” as the “touchstone” for determining when a waiver has occurred.  The court was influenced by the perceived lack of prejudice to plaintiff given that much of the same information generated through discovery would be admissible in the arbitration.  The court was also persuaded by the assumed knowledge by plaintiff that by filing in court, plaintiff was ignoring the mandatory contractual arbitration provision.  Finding neither side blameless, the court directed the matter to arbitration.

The court recognized this was a difficult choice.  Parties litigating in this area should be mindful that there are federal cases which hold otherwise.  As always, the ultimate outcome was somewhat case specific and fact sensitive.

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The New Jersey Supreme Court has adopted New Jersey Rule of Evidence 519 entitled “Mediation Privilege” to become effective July 1, 2008.  It provides that a mediation communication is privileged and shall not be subject to discovery or admissible in evidence in a proceeding unless waived or precluded under limited circumstances further defined in the amendment.

However, evidence or information that is otherwise admissible or discoverable does not become inadmissible or protected from discovery solely by reason of its disclosure or use in a mediation.

The parties to a mediation may expressly waive the privilege, and in the case of the privilege of a mediator, it may be expressly waived by the mediator.

Among the exceptions, where the privilege does not apply are the following:

1.    Communications made during a public mediation;
2.    A threat or statement of a plan to inflict bodily injury;
3.    Communications sought or offered to prove or disprove a claim or complaint against a mediator arising out of a mediation;
4.    Communications offered to prove or disprove a claim or complaint of professional malpractice; and
5.    Communications sought or offered to prove or disprove child abuse or neglect in a proceeding involving DYFS, unless DYFS participates in the mediation.

The privilege does not exist where a court, administrative agency or arbitrator finds that the party seeking discovery where the proponent of the evidence has shown that the evidence is not otherwise available, that there is a need for the evidence that substantially outweighs the interest in protecting confidentiality and the that the mediation communication is sought or offered in a proceeding involving a crime or to avoid liability on a contract arising out of the mediation.

A mediator may not make a report or recommendation regarding a mediation to a court.

The foregoing evidence rule expands upon New Jersey Court Rule 1:40-4 “Mediation - General Rules” which include a “confidentiality” provision.  It mirrors several provisions within the New Jersey Uniform Mediation Act, N.J.S.A. 2A:23C-1 to 13.  The evidence rule reaffirms the court’s intent to foster uninhibited communication during mediation, so as to further the goal of creating an environment wherein the parties will discuss freely their respective positions creating greater opportunities for settlements to occur.

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Cvetkovic vs. N.J. Water Supply Authority

 

It is common for contractors working on large-scale construction projects to require their subcontractors to provide a “Certificate of Insurance.” These certificates are commonly issued by insurance brokers and are intended to confirm to the prime contractor that the subcontractor maintains insurance.

In Cvetkovic vs. N.J. Water Supply Authority,  a New Jersey Law Division Court has decided, as a matter of first impression in New Jersey, that a certificate of insurance which contains a disclaimer that the certificate was issued “as a matter of information only and confers no rights upon the certificate holder” nor does it “amend, extend or alter the coverage afforded by the policies” does not establish insurance coverage for the contractor receiving the certificate.

The Court confirmed the limited weight these commonly issued certificates should be afforded, due to the expansive disclaimers included on most form certificates.

In practice, a party seeking proof of insurance, in the construction context, or otherwise, should not rely merely upon the certificate of insurance as evidence of insurance coverage. Further, if the contractor seeks coverage under the subcontractor’s policy, the contractor must require an endorsement issued by the insurance carrier showing that the certificate holder has been added to the insurance policy as an additional insured. Without this endorsement, the certificate holder is left largely unprotected, and should not draw comfort from the certificate, which alone can be of little or no value.

Thus, if a party seeks confirmation that its subcontractor has insurance coverage, the party should require an actual copy of the policy with confirmation from the insurance carrier that it is in full force and effect. If the party is seeking liability protection as an additional insured, an endorsement which so provides is required.

Technorati Tags: New Jersey : Certificate of Insurance : Construction

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In a recent study conducted by Cornell Professor David Sherwyn, he presented a case study of a large employer following implementation of a program of alternative dispute resolution. He concluded that there did not appear to be discernable bias either in favor of employees or employers in terms of the results of arbitration of employment discrimination claims. Cases were resolved in under two weeks, on average, rather than one year or more as is typical in matters which proceed to court. The costs on all sides were considerably less and where the parties were not otherwise able to work out disputes on their own, arbitration appeared to be a generally more favorable alternative to litigation.

Technorati Tags: New Jersey : Alternative Dispute Resolution : ADR

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Lehr vs. Afflitto

In Lehr vs. Afflitto, decided January 19, 2006, the New Jersey Appellate Division ruled that the trial court erred in permitting a mediator to testify during a hearing held to determine whether the parties had reached a settlement of their matrimonial dispute.

After 22 years of marriage and two children, plaintiff filed a divorce complaint in 2002. The parties were directed to court appointed mediation. After two sessions, the mediator met briefly with the parties, without their attorneys, in order to finalize what was thought to have been an agreement between the parties. The mediator prepared a letter to the attorneys listing 13 items the parties had "agreed" to, identifying three items that were left open. The mediator made "recommendations" as to how the three open items might be resolved. These included the amount of defendant's child support obligation; the parties' financial responsibility for their childrens' college education expenses; and the allocation between them of interim marital expenses until the entry of a final divorce judgment.

The mediator intended that the open items be resolved through discussion among counsel and offered to hold a short meeting with the parties for that purpose.

A few days after the last mediation session, the defendant told the plaintiff that he had changed his mind, believing that the 13 items of supposed agreement were unfair and not in his best interest.

Regardless, plaintiff's attorney wrote to the court a few weeks later advising that the case had been settled. Defendant's attorney did not advise the court otherwise, but did advise Plaintiff's attorney approximately one week later, that his client did not accept the terms set forth in the mediator's letter. The court, ruling that it was the defendant's attorney's responsibility to inform the court that there was no settlement, once plaintiff had so advised the court, entered a judgment of divorce based upon the terms in the mediator's letter.

Defendant appealed and the Appellate Court directed the trial court to hold a hearing to determine whether a settlement had been reached. Defendant called the mediator as a witness and the court, over plaintiff's objection, allowed the mediator to testify. The mediator testified he had informed the parties the mediation was confidential, unless the parties agreed in writing otherwise. This is consistent with the rules under which the case was sent to mediation which provide that "all mediation proceedings shall be confidential and nonevidential." The mediator also testified that in his opinion his letter confirming agreement between the parties on the "vast majority of the case" did not constitute a binding settlement. He testified that the parties' "agreement" was in concept, subject to review by their attorneys. The defendant's attorney at the mediation was also called to testify. The trial judge ruled that there had been a meeting of the minds as to the 13 items of agreement, and that the parties were bound by their agreement.

On a second appeal, the Appellate Court, citing the importance of mediator confidentiality, and the appearance of mediator impartiality, ruled that it was improper for the trial court to have taken testimony from the mediator at the evidentiary hearing. The court was influenced by the importance of instilling trust and confidence of the participants in the mediation process, citing neutrality as the essence of the mediation process. The court was "wary" of the inevitability that mediator testimony would be characterized so as to favor one side or the other.

Absent an express waiver of the confidentiality provisions of R. 1:40-4 (c), the court held that the trial judge had erred in permitting the mediator to testify. Furthermore, the court found that the trial judge had also erred in concluding the parties had reached a settlement.

The Appellate Court sent the matter back a second time to the trial court for a trial on the merits. The court noted that not all matters are well suited to mediation and that notwithstanding the noble designs behind the process, some cases simply need to be tried.

Technorati Tags: New Jersey : Alternative Dispute Resolution : ADR

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Caridi v. Caridi

In a recent construction partnership break-up case, Caridi v. Caridi, a New Jersey Chancery Judge addressed whether an arbitration award should be confirmed where one of the parties alleged that the arbitrator's decision was erroneous because certain evidence was not considered. The party challenging the arbitrator's decision alleged that his former partner falsely claimed that certain documents relevant to the arbitration were "lost," only to have been later produced during an insurance investigation.

The Court was not convinced that the "lost" documents would have resulted in a different outcome and refused to disturb the arbitrator's money judgment award. The Court did, however, delay the payment of the award, to allow 30 days for the challenging party to appeal.

This case demonstrates the Court's reluctance to overturn an arbitrator's decision. For the prevailing party, this can be comforting. For the party disappointed by the outcome of an arbitration, it can be sobering. Courts are generally inclined to uphold arbitration awards, giving significant deference to the arbitrator's decision. This discourages appeals, consistent with the primary reason for choosing arbitration in the first place; a faster decision, binding upon both parties, thus avoiding the expense of litigation and protracted appeals.

It will be interesting to see whether the aggrieved party seeks to appeal this ruling or whether an appellate court will disturb the arbitrator's award.

Technorati Tags: New Jersey : Alternative Dispute Resolution : ADR

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Prompted by a recommendation by the New Jersey Supreme Court Committee on Complimentary Dispute Resolution, there is a proposal pending to raise the compensation for Court-referred mediators to $100 per hour for the first three hours of the mediator's services.

At present, the first three hours of the mediator's time is without compensation. This has been the arrangement since Court-referred mediation began in the New Jersey Superior Court in 2000. After the first three hours, mediators may charge customary hourly rates which average $250 to $300 per hour. These fees are split between the parties.

The current proposal is a result of increasing dissatisfaction among mediators, causing many to leave the ranks. The Court initiated program, which assigns most cases out for mediation within approximately 90 days after an Answer is filed to the Complaint, is operating in 17 counties, pending likely extension to all 21 counties. This program involves referral of more than 5,000 cases a year.

Extending compensation at $100 per hour for the first three hours, will likely cause some highly qualified mediators to return to the active roster, thereby making available to litigants mediators with greater expertise and increasing the likelihood that cases will be resolved through the process. The goal of mediation is to create an environment within which the parties can settle their disputes before each side has spent considerable sums in attorneys and expert fees, monies which could be better spent, or saved, as part of a settlement of the dispute.

The program has been quite effective and has not only resolved many cases, but has also exposed litigants to alternate means of resolving disputes. In some ways this has humanized the legal system for people otherwise anticipating long, drawn out expensive legal battles.

This should be a positive development, if adopted by the Court, and renew vigor to a program which has demonstrated its rightful place as a means of settling all manner of legal disputes, from the smallest neighborhood dispute to multi-million dollar commercial cases.

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