Opinion ID: 6500685
Heading Depth: 2
Heading Rank: 2

Heading: Legal Action Against Us

Text: 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;
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.
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