(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 interests of brevity, portions of any opinion may not have been summarized).
Martin S. Zirger v. General Accident Insurance Company (A-68-95)
(NOTE: This is a companion case to Green v. Selective Insurance Co. also decided today.)
Argued January 2, 1996 -- Decided June 12, 1996
STEIN, J., writing for a unanimous Court.
The issue on this appeal is whether Martin Zirger, who has tried to conclusion in the Law Division
his claim against a tortfeasor and has received an award of damages, can nevertheless be compelled to
relitigate the issue of damages before an arbitration panel pursuant to the arbitration clause in the
underinsured motorist (UIM) endorsement of his own automobile liability policy.
On January 4, 1991, Martin Zirger was injured in an accident with a car operated by Joseph
Filsaime. Filsaime's liability insurance policy provided only $15,000 in coverage. Zirger's automobile policy
issued by General Accident provided UIM coverage of $1,000,000. General Accident's UIM endorsement
contained a standard arbitration clause widely used in the insurance industry. That clause enabled the
parties to choose to arbitrate UIM coverage issues. In addition, the contract also provided that any
judgment for damages arising out of a "suit" brought without the insurer's written consent is not binding on
the insurer (the consent to sue clause).
Zirger sued Filsaime to recover damages for the injuries he sustained in the accident. On February
19, 1993, Zirger's attorney notified General Accident of Filsaime's limit of liability and asked General
Accident for permission to settle with Filsaime for the policy limit in order to pursue a UIM claim under
Zirger's policy. Zirger's attorney also demanded arbitration pursuant to the UIM endorsement. Although
General Accident consented to Zirger's proposed settlement of his claim against Filsaime for the policy limit,
that settlement never occurred. After a trial on liability only, a jury determined that Filsaime was at fault for
Zirger's injuries. Filsaime's insurer then offered to settle the case for $15,000, Filsaime's policy limit.
Zirger's attorney notified General Accident that he was going to reject the offer and proceed to a jury trial
on damages. General Accident's attorney informally authorized Zirger's request to proceed to trial but
General Accident stresses that counsel never waived the contractual right to arbitrate the damages issue.
The jury awarded Zirger $400,000. Zirger then demanded payment of that amount from General
Accident less the $15,000 recovery against Filsaime. General Accident refused payment and Zirger instituted
this action.
The parties filed cross-motions for summary judgment. The trial court granted Zirger's motion,
concluding that General Accident impliedly had consented to the litigation of Zirger's claims against
Filsaime, thereby waiving its contractual right to arbitration.
On appeal, the Appellate Division reversed, concluding that General Accident's acquiescence to
Zirger's suit for damages was not a waiver of the contractual right to arbitration. The court also found that
General Accident could not be collaterally estopped from relitigating the damages question because its
interests and Filsaime's were not sufficiently similar to conclude that Filsaime's litigation of the damages
claim provided adequate representation of General Accident's interests.
The Supreme Court granted certification. Although the parties settled this litigation after oral
argument, the Court decides the matter because it is one of substantial importance.
HELD: Subject to the discretionary authority of trial courts to resolve specific motions for intervention,
uninsured motorists/underinsured motorists (UM/UIM) carriers ordinarily may intervene in their
insured's actions against a third-party tortfeasor. A UM/UIM carrier that intervenes in the
underlying tort litigation, or declines to exercise its opportunity to intervene, is barred from
enforcing the standard arbitration clause in a UM/UIM endorsement. This holding applies
prospectively to cases in which the third-party action is tried after the effective date of this decision
or the UM/UIM carrier is afforded notice and adequate opportunity to intervene.
1. There is a strong public-policy interest in providing through automobile insurance adequate compensation
to New Jersey motorists for injuries sustained in accidents with underinsured motorists. The strong public
policy interest underlying the statutorily mandated availability of UM/UIM coverage has prompted courts in
several states to override and invalidate provisions in the UM/UIM insurance contract such as the consent to
sue provision and the standard arbitration clause. The reluctance of courts to enforce such provisions in
UM/UIM endorsements reflects the concern that they unreasonably obstruct an insured's right to recover
benefits under his or her insurance policy. Considerations of fairness and avoidance of redundant litigation
often have persuaded courts to hold that UM/UIM insurers are collaterally estopped from challenging
damage judgments obtained in litigation proceedings against the tortfeasor, of which the carrier had notice,
whether or not the policy included an enforceable arbitration clause. (pp. 6-13)
2. The doctrine of collateral estoppel bar the relitigation of any issue that was actually determined in a prior
action, generally between the same parties, involving a different claim or cause of action. The party against
whom collateral estoppel is to be invoked must have been in privity with the party in the first action.
Ordinarily, there will be a sufficient identity of interests between the third-party tortfeasor's carrier and the
UM/UIM carrier to justify according preclusive effect to the result of a damage verdict in the litigation
between the injured plaintiff and a tortfeasor. (pp. 10-15)
3. In order to avoid relitigation of issues tried in a prior action against the tortfeasor, UM/UIM carriers
ordinarily may intervene in their insured's action against the third-party tortfeasor. Case management issues,
such as the designation of trial counsel, will be addressed and resolved by trial courts. Moreover, the
contractual arbitration clause is invalidated only to the extent that it requires an arbitration proceeding that
duplicates the underlying litigation of the tort claim. Adherence to basic principles of contract law must give
way to the public interest in the efficient and expeditious resolution of UM/UIM claims. An insurance
policy provision that requires that an insured litigate to the conclusion the issues of liability and damages in a
personal-injury action against the tortfeasor, on notice to the UM/UIM carrier, only to be required to
relitigate those same issues in an arbitration proceeding with the carrier, cannot be reconciled with the policy
considerations that prompted the Legislature to mandate the availability of UM/UIM coverage for all
insurers. (pp. 19-23)
Judgment of the Appellate Division is REVERSED.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN, GARIBALDI and
COLEMAN join in JUSTICE STEIN's opinion.
SUPREME COURT OF NEW JERSEY
A-
68 September Term 1995
MARTIN S. ZIRGER,
Plaintiff-Appellant,
v.
GENERAL ACCIDENT INSURANCE
COMPANY,
Defendant-Respondent.
Argued January 2, 1996 -- Decided June 12, 1996
On certification to the Superior Court,
Appellate Division.
Roy T. Konray argued the cause for appellant
(Ravich, Koster, Tobin, Oleckna, Reitman &
Greenstein, attorneys).
Elliott Abrutyn argued the cause for
respondent (Morgan, Melhuish, Monaghan,
Arvidson, Abrutyn & Lisowski, attorneys;
Warren Usdin, on the brief).
The opinion of the Court was delivered by
STEIN, J.
The critical issue posed by this appeal is whether
plaintiff's damages verdict against a third-party tortfeasor,
awarded after a jury trial, collaterally estops General Accident
Insurance Company (General Accident) from enforcing the
arbitration clause included in the underinsured motorist (UIM)
endorsement of plaintiff's automobile insurance policy. General
Accident concedes that it knew of plaintiff's intention to
proceed to a jury verdict on damages. The trial court granted
plaintiff's motion for summary judgment, observing that General
Accident had waived its right to proceed under the arbitration
clause. The Appellate Division reversed in an unreported
opinion, concluding that General Accident's knowledge of and
acquiescence to plaintiff's intention to try the damages issue
did not constitute a waiver of the insurer's right to demand
arbitration.
We granted plaintiff's petition for certification.
142 N.J. 456 (1995). After oral argument the parties informed us that the
case had been settled, rendering moot the underlying legal issue.
Ordinarily, our interest in preserving judicial resources
dictates that we not attempt to resolve legal issues in the
abstract. See Oxfeld v. New Jersey State Bd. of Educ.,
68 N.J. 301, 303-04 (1975); Sente v. Mayor & Mun. Council of Clifton,
66 N.J. 204, 205 (1974). On occasion, however, we will decide such
appeals where the underlying issue is one of substantial
importance, likely to reoccur but capable of evading review.
See, e.g., Division of Youth & Family Servs. v. J.B.,
120 N.J. 112, 118-19 (1990); Matter of J.I.S. Indus. Serv. Co. Landfill,
110 N.J. 101, 104-05 (1988); Matter of Conroy,
98 N.J. 321, 342
(1985); Guttenberg Sav. & Loan Ass'n v. Rivera,
85 N.J. 617, 622-23 (1981). The issue before us is of that nature, involving as
it does the enforceability of a standard arbitration clause in
the UIM endorsement included in automobile insurance policies,
but evading review because of the possible reluctance by the
industry or private litigants to press for resolution of the
question. Accordingly, notwithstanding its mootness we undertake
to resolve the issue.
The pertinent facts are essentially undisputed. Plaintiff
sustained personal injuries in an accident with an automobile
operated by Joseph Filsaime on January 4, 1991. Filsaime's
liability policy provided only $15,000 in coverage. Zirger's
automobile policy issued by General Accident provided UIM
coverage of $1,000,000. General Accident's UIM endorsement
contained a standard arbitration clause widely used in the
industry. It read in part:
ARBITRATION
a. If we and an "insured" disagree
whether the "insured" is legally
entitled to recover damages from
the owner or driver of . . . an
"underinsured motor vehicle" or do
not agree as to the amount of
damages that are recoverable by
that "insured," then the matter may
be arbitrated. . . . Either party
may make a written demand for
arbitration. In this event, each
party will select an arbitrator.
The two arbitrators will select a
third.
The endorsement also included a standard coverage provision:
A. COVERAGE
1. We will pay all sums the "insured" is legally entitled to recover as compensatory damages from the owner
or driver of an "uninsured motor
vehicle" or an "underinsured motor
vehicle." The damages must result
from "bodily injury" sustained by
the "insured," or "property damage"
caused by an "accident." The
owner's or driver's liability for
these damages must result from the
ownership, maintenance or use of an
"uninsured motor vehicle" or an
"underinsured motor vehicle."
2. Any judgment for damages arising
out of a "suit" brought without our
written consent is not binding on
us.
Zirger instituted a negligence action against Filsaime to
recover damages for the injuries sustained in the accident. In
February 1993, Zirger's counsel informed General Accident about
the limit of liability on Filsaime's policy, requesting General
Accident's permission to settle with Filsaime for the policy
limit in order to pursue a UIM claim under Zirger's policy.
Zirger's counsel also demanded arbitration pursuant to the UIM
endorsement, and selected an arbitrator. General Accident also
selected its arbitrator. A few months later General Accident
consented to Zirger's proposed settlement of his claim against
Filsaime for the policy limit.
That settlement never occurred. After trial on liability
only, a jury determined that Filsaime was liable for Zirger's
injuries. Filsaime's insurer then offered to settle the case for
$15,000, the policy limit. Zirger's counsel contacted General
Accident's counsel, stating that he was inclined to reject the
offer and proceed to a jury trial on damages. General Accident's
attorney acknowledged that he "was actually somewhat confused as
to exactly why [Zirger's attorney] was calling me," but confirmed
that he informed Zirger's attorney "that if he chose to do so he
should proceed to obtain a jury verdict on the question of
damages." General Accident's attorney stressed that he never
waived the contractual right to arbitrate the damages issue, and
that his informal authorization to proceed to trial on damages
was of no significance because General Accident was not
authorized to preclude plaintiff from presenting his claim for
damages to a jury.
The jury awarded Zirger $400,000. Zirger then demanded
payment of that amount from General Accident, reduced by the
$15,000 recovery against Filsaime. When General Accident refused
payment, Zirger instituted this action.
The parties filed cross-motions for summary judgment. The
trial court granted Zirger's motion, concluding that General
Accident impliedly had consented to the litigation of Zirger's
claim against Filsaime, thereby waiving its contractual right to
arbitration. The Appellate Division reversed, concluding that
General Accident's acquiescence to plaintiff's pursuit of a
damage claim was not sufficiently unequivocal and decisive to
constitute a waiver of the contractual right to arbitration.
That court also determined that General Accident could not be
collaterally estopped from relitigating the damages question
because its interests and Filsaime's were not sufficiently
similar to conclude that Filsaime's litigation of the damages
claim provided adequate representation of General Accident's
interest in minimizing its ultimate liability under the UIM
endorsement.
Simply stated, the question posed is whether a plaintiff,
who has tried to conclusion in the Law Division his or her claim
against a tortfeasor and has received an award of damages, can
nevertheless be compelled to relitigate the issue of damages
before an arbitration panel pursuant to the arbitration clause in
the UIM endorsement of the plaintiff's automobile liability
policy. The carrier's insistence on arbitration undoubtedly
derives from its expectation that the arbitration damages award
will be less than the jury verdict, and the carrier relies on the
unambiguous provisions of the insurance contract to support its
arbitration demand. Plaintiff asserts that the contractual
provision should not override the public policy interest in
avoiding duplicative and unnecessary relitigation of the damages
issue, contending that the carrier's interest in minimizing
damages was represented adequately by the tortfeasor's carrier
that defended the Law Division action. That contention was
acknowledged by the trial court in granting Zirger's motion for
summary judgment: "Defendant Filsaime's attorney presented a
full defense with the single goal in mind--to limit Mr.
Filsaime's liability--precisely the same goal the defendant
insurer would have during arbitration."
Our courts have emphasized that the insurance contract
ordinarily should govern the resolution of disputes arising
pursuant to UM and UIM endorsements. "[The insured claimant's]
rights under a UM endorsement are governed by the contract with
the UM carrier." Riccio v. Prudential Property & Casualty Ins.
Co.,
108 N.J. 493, 499 (1987); accord Allgor v. Travelers Ins.
Co.,
280 N.J. Super. 254, 259 (App. Div. 1995) ("A claim
presented under a UIM endorsement is essentially one of
contract.")
Although the relationship of the insurer and insured is
contractual, the source of the obligation to offer UIM coverage
is statutory. Prior to the amendments enacted in 1983, L. 1983,
c. 65, § 5, and L. 1983, c. 362, § 1, N.J.S.A. 17:28-1.1 imposed
on automobile insurers the obligation to provide uninsured
motorist (UM) coverage in every automobile liability policy in
limits of not less than $15,000 per person and $30,000 per
accident. UIM coverage was not required. The 1983 amendments
imposed for the first time a duty on insurers to offer each
insured the option of purchasing coverage up to the limits of
liability coverage, but not exceeding $250,000 per person and
$500,000 per accident against the risk of injury caused by
underinsured tortfeasors or a single limit of $500,000. See
N.J.S.A. 17:28-1.1(b). The 1983 amendments reflected a
legislative determination that the risk that victims of
automobile accidents would be inadequately compensated for their
injuries is attributable to underinsured drivers as well as
uninsured drivers. See Longworth v. Van Houten,
223 N.J. Super. 174, 177 (App. Div. 1988). For an insured who exercises the UIM
option, the practical effect of the coverage offered pursuant to
the 1983 amendments is to require an insurer, to the extent of
coverage, to pay its insured the damages that the insured is
entitled to recover from the underinsured tortfeasor, less the
amount of the tortfeasor's coverage. Longworth, supra, 233
N.J. Super. at 177-78. Accordingly, the mandatory availability
of UIM coverage for all insureds reflects a strong public-policy
interest in providing through automobile insurance adequate
compensation to New Jersey motorists for injuries sustained in
accidents with underinsured motorists.
The strong public-policy interests underlying the
statutorily mandated availability of UM and UIM coverage has
prompted courts in several states to override and invalidate
provisions in the UM/UIM insurance contract that unreasonably
obstruct an insured's claim for coverage. The "consent to sue"
provision is a notable example. As it appears in General
Accident's UM/UIM endorsement, the clause states: "Any judgment
for damages arising out of a 'suit' brought without our written
consent is not binding on us." Most courts that have considered
the enforceability of consent to sue clauses in UM/UIM
endorsements have concluded that they are contrary to public
policy and therefore invalid. As one court observed:
A consent to sue clause, however,
dilutes, conditions, and limits the character
of the coverage mandated in the statute. An
insurer, by refusing to be bound, can force
an insured, who has already obtained a
judicial determination of his losses against
the uninsured motorist, to relitigate
liability and damages as a condition of
recovery. At a minimum, this dilutes
coverage by requiring insureds to expend
greater resources in order to recover an
amount they have already established they are
entitled to.
[Briggs v. American Family Mut. Ins. Co.,
833 P.2d 859, 862 (Colo. Ct. App. 1992) (citation
omitted).]
A number of other courts have reached the same conclusion. See,
e.g., MFA Mut. Ins. Co. v. Lovins,
248 F. Supp. 108, 111-12 (E.D.
Ark. 1965); Vernon Fire & Casualty Ins. Co. v. Matney,
351 N.E.2d 60, 65-67 (Ind. Ct. App. 1976); Indiana Ins. Co. v. Noble,
265 N.E.2d 419, 435-36 (Ind. App. 1970); Andeen v. Country Mut. Ins.
Co., 217 N.E.2d 814, 816-17 (Ill. Ct. App. 1966), cert. denied,
385 U.S. 1036,
87 S. Ct. 775,
17 L. Ed.2d 682 (1967); Levy v.
American Auto. Ins. Co.,
175 N.E.2d 607, 610-11 (Ill. Ct. App.
1961); Nationwide Mut. Ins. Co. v. Webb,
436 A.2d 465, 471-78
(Md. 1981); State ex rel State Farm Mut. Auto. Ins. Co. v. Craig,
364 S.W.2d 343, 345-46 (Mo. Ct. App. 1963); Dominici v. State
Farm Mut. Auto. Ins. Co.,
390 P.2d 806, 808-10 (Mont. 1964);
Boughton v. Farmers Ins. Exch.,
354 P.2d 1085, 1089-90 (Okla.
1960). See generally Alan I. Widiss, A Guide to Uninsured
Motorist Coverage §§ 7.4-7.8 (1969) (observing that courts have
frequently invalidated consent to sue clauses in jurisdictions
that declined to enforce arbitration clauses in UM/UIM
endorsements).
Courts in a number of states have declined on various
grounds to enforce the standard arbitration clause contained in
UM/UIM endorsements. In some states the common law rule
precluding specific enforcement of agreements to arbitrate has
not been modified; in others, the common law restriction has been
modified only to permit enforcement of agreements to arbitrate
present disputes, a modification considered insufficient to
render enforceable the UM/UIM's endorsement requiring arbitration
of unidentified future disputes. See Widiss, supra, § 6.3; see,
e.g., MFA Mut., supra, 248 F. Supp. at 110; Indiana Ins. Co.,
supra, 265 N.E.
2d at 426-27; Levy, supra, 175 N.E.
2d at 610;
Craig, supra, 364 S.W.
2d at 345-46; Dominici, supra, 390 P.
2d at
809; Heisner v. Jones,
169 N.W.2d 606, 609 (Neb. 1969); Boughton,
supra, 354 P.
2d at 1089.
The reluctance of courts to enforce "consent to sue" and
arbitration provisions in UM/UIM endorsements undoubtedly
reflects the concern that such provisions unreasonably obstruct
an insured's right to recover benefits under the policy. Even
those courts willing to enforce arbitration clauses contained in
UM/UIM endorsements are reluctant to do so if the insured has
already litigated his or her damage claim against the uninsured
or underinsured tortfeasor, on notice to the UM/UIM carrier.
Considerations of fairness and avoidance of redundant litigation
often have persuaded courts to hold that UM/UIM insurers are
collaterally estopped from challenging damage judgments obtained
in litigated proceedings against the tortfeasor, of which the
carrier had notice, whether or not the policy included an
enforceable arbitration clause. For example, in Allstate
Insurance Co. v. Pietrosh,
454 P.2d 106 (1969), the Nevada
Supreme Court held that the UM insurer was bound by the damage
judgment obtained after trial against the uninsured tortfeasor,
notwithstanding the policy's arbitration clause, because the
insured had notified the carrier of the litigation. The court
observed:
The aim of this endorsement is to preclude
the binding effect of a judgment against the
uninsured motorist upon the insurance
company. The notion is that although the
insured may litigate against the uninsured
motorist without the insurance company's
permission, any judgment secured will not
obviate the necessity for him to arbitrate
with or sue his company in order to collect
under the policy. The provision is
reasonable when the insurance company is not
notified of the litigation and is, therefore,
without compulsion to intervene, demand
arbitration, or take other steps. Its
enforcement may be appropriate in a case
where the insured secures a default judgment
against the uninsured motorist, since an
adversary determination of liability and
damages is absent. However, where the
company is given notice of the action, has
the opportunity to intervene, and judgment is
thereafter obtained against the uninsured
motorist in an adversary proceeding, we hold
that the company should be bound thereby
despite the contrary policy provision.
See also Employers Mut. Cos. v. Nordstrom, 495 N.W.2d 855, 858-59 (Minn. 1993) (holding that tort judgment against underinsured tortfeasor binds carrier not by estoppel but by conclusively establishing without need for arbitration amount insured is
"legally entitled" to recover); Wells v. Hartford Accident & Indem. Co., 459 S.W.2d 253, 259 (Mo. 1970) (holding that uninsured motorist carrier with notice and opportunity to intervene in suit instituted by insured against uninsured tortfeasor in which liability and damages are litigated is estopped from relitigating those issues); Bryant v. Clark, 584 N.E.2d 687, 689-90 (Ohio 1992) (holding that insurer that consents to entry of insured's default judgment against uninsured tortfeasor, sends counsel to attend damages hearing, and fails to request arbitration until entry of judgment for damages waives right to arbitration and is bound by judgment for damages); Keel v. MFA Ins. Co., 553 P.2d 153, 157-59 (Okla. 1976) (holding that because uninsured motorist carrier with notice of insured's suit against uninsured tortfeasor may intervene in such litigation, carrier is bound by judgment against uninsured motorist, but ruling would apply only prospectively); State ex rel Motorists Mut. Ins. Co. v. Broadwater, 453 S.E.2d 591, 596-97 (W. Va. 1994) (holding that UIM carrier on notice of insured's suit against underinsured motorist that proceeds to trial on damages, notwithstanding settlement for policy limits with tortfeasor's insurer, was bound by judgment for damages entered after jury trial); Meyer v. Classified Ins. Corp. of Wis., 507 N.W.2d 149, 154-55 (Wis. App. 1993) (holding that where UIM carrier, joined as defendant in insured's suit against underinsured tortfeasor that settles for policy limits, delays demand for arbitration until after court-imposed deadline for motions, carrier waives
right of arbitration and becomes bound by jury verdict on
damages), review denied,
513 N.W.2d 406 (Wis. 1994); cf. Shevlin
v. Prudential Commercial Ins. Co.,
256 N.J. Super. 691, 701-02
(Law Div. 1991) (holding that insured who obtained jury verdict
against tortfeasor on liability and damages is bound by verdict
and cannot compel UM/UIM carrier to arbitrate damages); Poray v.
Royal Globe Ins. Co.,
90 N.J. Super. 454, 463 (Law Div. 1966)
(holding that UM/UIM carrier that participated in consolidated
suits instituted by insured and tortfeasor against each other had
waived right of arbitration and was bound by jury verdict).
The doctrine of collateral estoppel, or issue preclusion, "bars relitigation of any issue [that] was actually determined in a prior action, generally between the same parties, involving a different claim or cause of action." State v. Gonzalez, 75 N.J. 181, 186 (1977). Traditionally, courts have confined application of the doctrine to cases in which the parties were the same in both actions, on the assumption that that restriction on the scope of collateral estoppel promoted fairness and simplification. Id. at 188. The modern trend favors modification of the strict rule of mutuality of parties, in favor of a more pragmatic, case-by-case approach that we anticipated in McAndrew v. Mularchuk, 38 N.J. 156, 161 (1962), observing:
"Generally the question to be decided is whether a party has had
his day in court on an issue, rather than whether he has had his
day in court on that issue against a particular litigant." In
United Rental Equipment Co. v. Aetna Life & Casualty Ins. Co.,
74 N.J. 92 (1977), we adopted a standard for applying collateral
estoppel in cases where the parties to the prior action are not
identical to the parties in the current action: "A party
precluded from relitigating an issue with an opposing party . . .
is also precluded from doing so with another person unless he
lacked full and fair opportunity to litigate the issue in the
first action or unless other circumstances justify affording him
an opportunity to relitigate the issue." Id. at 101 (quoting
Restatement (Second) of Judgments § 88 (Tentative Draft No. 2,
1975)). The American Law Institute adopted that standard without
significant change in the final version of the Restatement. See
Restatement (Second) of Judgments § 29 (1982).
Although mutuality of parties no longer is an essential
condition of collateral estoppel, the party against whom
collateral estoppel is to be invoked must have been in "privity"
with a party in the first action. Wunschel v. City of Jersey
City,
96 N.J. 651, 658 (1984). The concept of privity, as well
as its parameters, are necessarily imprecise: "Privity states no
reason for including or excluding one from the estoppel of a
judgment. It is merely a word used to say that the relationship
between the one who is a party on the record and another is close
enough to include that other within the res judicata."
Bruszewski v. United States,
181 F.2d 419, 423 (3d Cir. 1950)
(Goodrich, J., concurring), cert. denied,
340 U.S. 865,
71 S. Ct. 87,
95 L. Ed. 632 (1950). "A relationship is usually considered
'close enough' only when the party is a virtual representative of
the non-party, or when the non-party actually controls the
litigation." Collins v. E.I. DuPont De Nemours & Co.,
34 F.3d 172, 176 (3rd Cir. 1994) (applying New Jersey law); see also
Moore v. Hafeeza,
212 N.J. Super. 399, 403-04 (Ch. Div. 1986)
("Generally, one person is in privity with another and is bound
by and entitled to the benefits of a judgment as though he was a
party when there is such an identification of interest between
the two as to represent the same legal right . . . .").
We need not probe the outer limits of the privity doctrine
to conclude that ordinarily there will be a sufficient identity
of interests between the third-party tortfeasor's carrier and the
UM/UIM carrier to justify according preclusive effect to the
result of a damages verdict in the litigation between the injured
plaintiff and the tortfeasor. We intimated in Parks v. Colonial
Penn Ins. Co.,
98 N.J. 42, 47-49 (1984), that policies of issue
preclusion could suitably be adapted to UM/UIM litigation in
order to avoid relitigation of issues tried in a prior action
against the tortfeasor. Parks, a passenger, was injured in a
single-car accident and brought suit against the uninsured driver
and the owner, who was insured by INA. Parks had coverage with
Colonial Penn, including UM/UIM coverage. After a trial on
liability only, the trial court granted Parks's motion for a
directed verdict against the driver, granted the owner's motion
for judgment against Parks on the ground of no agency, and also
granted the owner's motion for judgment on the driver's
crossclaim for indemnification and contribution. In addition,
the trial court submitted to the jury the extraneous issue of the
driver's permissive use of the automobile (a condition of INA's
coverage), and the jury determined that no permission to operate
the car had been granted. Based on that jury determination,
Parks attempted to institute an arbitration proceeding under his
policy alleging that Colonial Penn was obligated to provide
coverage because the driver had been found to be uninsured.
Colonial Penn refused to arbitrate, contending that INA's
coverage remained in issue. Parks then filed a declaratory
judgment action to compel Colonial Penn to arbitrate, and
Colonial Penn filed a third-party complaint against INA to
establish coverage. The trial court granted INA's motion to
dismiss the third-party complaint, relying on the preclusive
effect of the jury's resolution of the permissive use issue, and
also granted Parks's motion for summary judgment against Colonial
Penn on the same ground. The Appellate Division affirmed in an
unreported opinion. This Court reversed, concluding that to
apply principles of issue preclusion to bar Colonial Penn from
relitigating the question of INA's coverage would be improper:
Nobody in the Parks liability case was a
privy of Colonial Penn--surely not Parks, to
whom it is a matter of some indifference
whether he be paid by INA or Colonial Penn,
and just as surely not Ajamian or Skelton,
with neither of whom Colonial Penn enjoyed
any relationship save possibly as a potential
adversary in litigation. A fair application
of doctrines of issue preclusion would not
foreclose Colonial Penn's right to litigate
the question of coverage under these
circumstances.
Nevertheless, the Court recognized
that there are strong arguments for policies
of issue preclusion that will avoid
multiplicity of litigation over the same
issue. Yet it remains essential that the
party to be bound by the former adjudication
have fair notice and be fairly represented in
the prior proceeding. . . .
In addition, it is quite possible that
in an initial litigation of the liability
claim, an injured claimant would have a
sufficient stake--the amount of coverage, for
instance--in a result that would secure the
insurance coverage of the liability carrier
rather than that of the uninsured motorist
carrier and, consequently, would have an
interest in perfecting a liability claim that
established not only agency but permissive
use as well. In that situation, there could
be sufficient privity between the claimant
and the UM carrier so that it would not be
unfair to bind the latter to any jury
determination of lack of permissive use. In
any event, to avoid any question of
procedural fairness, it should be possible to
notify the UM insurance carrier of the
pendency of the negligence case and the
likelihood that the issue of permissive use
implicating liability insurance coverage
would be presented for determination. The UM
carrier, given the opportunity to intervene
or otherwise protect its interests, would
then properly be bound by the jury's
determination of that issue. These
approaches would certainly further the
salutary goals of consolidating the
litigation of related controversies and
avoiding inconsistent results.
The Court's emphasis in Parks on the UM/UIM carrier's right to intervene as a means of protecting its interests is especially pertinent to the question of avoiding relitigation of a plaintiff's claim for damages against the third-party tortfeasor. Our cases have established that plaintiffs are obligated to provide notice to their UM/UIM carrier of the institution of suit against the tortfeasor. Rutgers Casualty Ins. Co. v. Vassas, 139 N.J. 163, 174 (1995). Our Court Rule on permissive intervention, R. 4:33-2, is to be liberally construed by trial courts, State v. Lanza, 39 N.J. 595, 600 (1963), cert. denied, 375 U.S. 451, 84 S. Ct. 525, 11 L. Ed.2d 477 (1964), with a view to whether intervention will unduly delay or prejudice the adjudication of the rights of the original parties, Looman Realty Corp. v. Broad St. Nat'l Bank of Trenton, 74 N.J. Super. 71, 78 (App. Div.), certif. denied, 37 N.J. 520 (1962), and whether intervention will eliminate the need for subsequent litigation. Division of Youth & Family Servs. v. Torres, 185 N.J. Super. 234, 245 (Juv. & Dom. Rel. Ct. 1980), aff'd o.b., 185 N.J. Super. 182 (App. Div. 1982). Other state courts have acknowledged the right of a UM/UIM carrier to intervene in the plaintiff's action against the third-party tortfeasor. See, e.g., Briggs, supra, 833 P. 2d at 863; Webb, supra, 436 A. 2d at 475; Vernon Fire, supra, 351 N.E. 2d at 64-65; Indiana Ins. Co., supra, 265 N.E. 2d at 431, 433; Wells, supra, 459 S.W. 2d at 259-60; Heisner, supra, 169 N.W. 2d at 611;
Keel, supra, 553 P.
2d at 157-59. As the Supreme Court of
Nebraska observed in Heisner, supra:
We therefore hold that an uninsured
motorist's carrier may intervene in an action
between its insured and the uninsured
tort-feasor in order to protect itself on the
issues of liability and damages arising under
the uninsured motorist's provisions of its
insurance policy. It is further clear that
our holding herein is conditioned upon and
rests upon the compliance by the insured with
the fundamentals of procedural due process.
The carrier would not be bound unless given
full notice and adequate opportunity to
intervene and defend when the insured
litigates the issues of liability and damages
with the uninsured motorist tort-feasor. To
give the uninsured motorist's carrier the
right to intervene is to give assurance that
it may litigate the issues and at the same
time avoid the multiplicity of suits and the
harassment of the insured by the necessity to
litigate his rights twice.
Subject to the discretionary authority of trial courts to resolve
specific motions for intervention, we hold that UM/UIM carriers
ordinarily may intervene in their insured's action against the
third-party tortfeasor. We are satisfied that case management
issues, such as the designation of trial counsel, will be
addressed and resolved by trial courts.
The ability to intervene in the litigation against the
third-party tortfeasor persuades us to hold, as have the majority
of state courts that have considered the issue, that a UM/UIM
carrier that intervened in the underlying tort litigation, or
declined to exercise its opportunity to intervene, is barred from
enforcing the standard arbitration clause in the UM/UIM
endorsement. We apply our holding only prospectively to cases in
which the third-party action is tried after the effective date of
our decision and the UIM carrier is afforded notice and adequate
opportunity to intervene. We acknowledge that to apply
principles of collateral estoppel to bind the UM/UIM carrier to
the liability and damages verdict in the underlying tort
litigation may constitute a modification of the usual
requirements for privity, but we are convinced that the UM/UIM
carrier's interests can be protected adequately in the underlying
action and that the common interests of the UM/UIM carrier and
the tortfeasor's carrier effectively serve the purposes of the
privity requirement. As the Supreme Court of Nevada noted in
Pietrosh, supra:
We recognize that our holding on this
point subverts the requirement of privity
normally present with an application of the
doctrines of res judicata or collateral
estoppel. Privity is absent here. Our
holding also forces intervention. However,
the avoidance of multiple litigation carries
the greater weight.
We also note the potential anomaly of the use of arbitration as a supplement to an adjudication in court. The basic rationale for the use of arbitration as a means of resolving disputes is that it is quicker and less expensive than litigation:
Arbitration is "a substitution, by consent of the parties, of another tribunal for the tribunal provided by the ordinary processes of law," and its object is "the final disposition, in a speedy, inexpensive, expeditious and perhaps less formal manner, of the controversial differences between the
parties." Arbitration can attain its goal of
providing final, speedy and inexpensive
settlement of disputes only if judicial
interference with the process is minimized;
it is, after all, "meant to be a substitute
for and not a springboard for litigation."
[Barcon Assocs. v. Tri-County Asphalt Corp.,
86 N.J. 179, 187 (1981) (citations omitted).]
The advantages of arbitration evaporate when arbitration is used
not as a substitute for litigation, but as a supplement to
litigation. Used in that manner, a procedure designed to
expedite dispute resolution is transformed into a mechanism for
delaying and obstructing final resolution of disputes:
A modern system of judicial
administration should provide not only for
the efficient disposition of cases within the
judicial system, but also should contemplate
alternative methods of dispute resolution
outside the system. One such alternative
method is arbitration. Just as we view
piecemeal litigation as anathema, we also
look with disfavor upon the unnecessary
bifurcation of disputes between judicial
resolution and arbitration. Thus, our
construction of the scope of arbitration
clauses is consistent with the policy of
favoring commercial arbitration as a speedy
and inexpensive method for settling disputes.
[Ohio Casualty. Ins. Co. v. Benson,
87 N.J. 191, 199 (1981) (citation omitted).]
We invalidate the contractual arbitration clause only to the extent that it requires an arbitration proceeding that duplicates the underlying litigation of the tort claim. For example, if the underlying tort claim does not result in an adjudication of damages, as is often the case, the arbitration clause in the UM/UIM policy will be given full force and effect. Nevertheless, we conclude that adherence to basic principles of contract law
must yield to an overriding public interest in the efficient and
expeditious resolution of UM/UIM claims. We often have
emphasized our policy of construing legislation involving
automobile insurance to effect "the broadest protection of auto
accident victims consistent with the language of the pertinent
statute." Ciecka v. Transamerica Ins. Group,
81 N.J. 421, 428
(1979) (quoting Motor Club of Am. Ins. Co. v. Phillips,
66 N.J. 277, 293 (1974)).
Our objective is the same when confronted with insurance
policy provisions that unreasonably condition or unfairly
obstruct the availability of benefits from coverage that the
Legislature requires insurance companies to offer. In our view,
an insurance policy provision that would require an insured to
litigate to conclusion the issues of liability and damages in a
personal-injury action against the tortfeasor, on notice to the
UM/UIM carrier, only to be required to relitigate those same
issues in an arbitration proceeding with the UM/UIM carrier,
cannot be reconciled with the policy considerations that prompted
the Legislature to mandate the availability of UM/UIM coverage
for all insureds. Just as the Legislature's purpose can be
thwarted by unreasonable restrictions on or exclusions from
coverage, Ciecka, supra, 81 N.J. at 419, so too is the
legislative goal obstructed by conditions that delay unreasonably
the payment of the benefits that UM/UIM coverage was intended to
provide.
We reverse the judgment of the Appellate Division.
CHIEF JUSTICE WILENTZ and JUSTICES HANDLER, POLLOCK, O'HERN,
GARIBALDI and COLEMAN join in JUSTICE STEIN's opinion.
NO. A-68 SEPTEMBER TERM 1995
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
MARTIN S. ZIRGER,
Plaintiff-Appellant,
v.
GENERAL ACCIDENT INSURANCE
COMPANY,
Defendant-Respondent.
DECIDED June 12, 1996
Chief Justice Wilentz PRESIDING
OPINION BY Justice Stein
CONCURRING OPINION BY
DISSENTING OPINION BY