Court Opinion

ID: 2779885
Source: CourtListenerOpinion
Date Created: 2015-02-18 15:05:38.31605+00
Date Added: 2024-06-11T10:55:53.750498
License: Public Domain

SYLLABUS

(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
interest of brevity, portions of any opinion may not have been summarized.)

           Augustine W. Badiali v. New Jersey Manufacturer’s Insurance Group (A-48-12) (071931)

Argued September 9, 2014 -- Decided February 18, 2015

FERNANDEZ-VINA, J., writing for a unanimous Court.

         In this appeal, the Court considers whether an insurer’s rejection of an arbitration award in an uninsured
motorist (UM) claim was “fairly debatable,” thereby barring an insured from recovering counsel fees and other
consequential damages under a theory of bad faith.

          In August 2006, plaintiff Augustine W. Badiali was injured when his car was rear-ended by an uninsured
motorist. Plaintiff was insured for UM coverage under his personal policy with defendant, New Jersey
Manufacturer’s Insurance Group (NJM), as well as his employer’s policy with Harleysville Insurance Company.
Plaintiff filed a UM claim, which proceeded to arbitration and resulted in an award of $29,148.62 in plaintiff’s
favor. Since NJM and Harleysville were contractually and statutorily obligated to share this award equally, they
each owed $14,574.31. Harleysville paid its half, but NJM rejected the award and demanded a trial de novo. NJM
asserted that the language of its personal policy allowed either party to dispute an arbitration award in which the
total amount exceeded $15,000.

          The trial court affirmed the award, finding NJM liable for $14,574.31. In an unpublished decision, the
Appellate Division affirmed, relying on its holding in D’Antonio v. State Farm Mut. Auto. Ins. Co., 262 N.J. Super.
247, 249-50 (App. Div. 1993), an underinsured motorist (UIM) action, in which it found that the question of whether
a case is of sufficient magnitude to justify a trial rests on the extent of the carrier’s liability, rather than that of the
tortfeasor. NJM subsequently paid the award in full.

          In March 2011, plaintiff commenced a second action against NJM, asserting claims for breach of contract,
bad faith, and consumer fraud. NJM moved for summary judgment, relying on a 2004 unpublished Appellate
Division decision, which held, under essentially the same circumstances, that the insurer (also NJM) was entitled to
reject the arbitration award at issue and demand a trial de novo. Geiger v. N.J. Mfrs. Ins. Co., No. A-5135-02 (App.
Div. Mar. 22, 2004). NJM conceded that Geiger lacked precedential authority, but maintained that its existence
proved that NJM’s conduct was reasonable, fair, and honest, and that it had “fairly debatable” reasons to reject the
arbitration award at issue and seek a trial de novo.

          The trial court granted summary judgment in favor of NJM on all counts, although discovery had not been
completed. Plaintiff appealed, and the Appellate Division affirmed. Declining to address whether it was improper
for the trial court to grant summary judgment prior to the completion of discovery, the panel held that, as a matter of
law, the mere existence of unpublished case law supporting NJM’s rejection of the arbitration award precluded a
finding of bad faith against NJM, regardless of whether NJM relied on or was aware of that unpublished case.
Badiali v. N.J. Mfrs. Ins. Grp., 429 N.J. Super. 121, 126 (App. Div. 2012). This Court granted plaintiff’s petition for
certification. 213 N.J. 387 (2013).

HELD: NJM’s rejection of the arbitration award in plaintiff’s UM action was “fairly debatable,” thereby barring
plaintiff from recovering counsel fees and other consequential damages under a theory of bad faith.

1. Contracts impose an implied obligation of good faith and fair dealing in their performance and enforcement.
Among the business practices that the New Jersey Legislature considers unfair or deceptive in the context of
insurance claims settlements is failure “to negotiate in good faith to effectuate prompt, fair and equitable settlements
of claims in which liability has become reasonably clear.” N.J.S.A. 17:29B-4(9)(f). An insurer’s breach of good
faith may be found upon a showing that it has breached its fiduciary obligations, including its duty to settle claims.
Whether an insurer has acted in bad faith by breaching its fiduciary duty depends on the circumstances of the

                                                             1
particular case. In order to establish a bad faith claim for denial of benefits in New Jersey, a plaintiff must show that
no debatable reasons existed for the denial. (pp. 10-12)

2. Summary judgment is granted where there is no genuine issue of material fact, such that the moving party is
entitled to a judgment as a matter of law. Purely legal questions, such as the interpretation of insurance contracts,
are particularly suited for summary judgment. New Jersey’s public policy favors arbitration as a means of settling
disputes that otherwise would be litigated in a court. In the area of insurance claims settlement, arbitration is often
used to expedite resolution of UM claims, with the duty to arbitrate and the scope of the arbitration dependent on the
provisions of the parties’ agreement. Although this Court has consistently upheld an insurer’s right to reject an
arbitration award pursuant to the express terms and conditions of its policy language, our appellate courts have
limited attempts to reject an award and proceed de novo where the policy wording is ambiguous. For example, in
D’Antonio, supra, 262 N.J. Super. at 249, a UIM case, the Appellate Division rejected a plaintiff’s attempt to seek a
new trial on damages where the phrase “amount of damages” was ambiguous. The panel noted that it is the extent
of the carrier’s UIM liability that should determine whether the case is of sufficient magnitude to justify a trial. (pp.
12-17)

3. In deciding whether NJM had “fairly debatable” reasons for rejecting the arbitration award, the Court first
considers whether the existence of the unpublished Geiger decision reasonably supports NJM’s position. There, the
Appellate Division permitted NJM to move to reject the arbitration award and request a trial de novo based on the
total amount of the arbitration award ($27,000), rather than NJM’s share ($13,500), and the policy provision
allowing either party to dispute an arbitration award in which the total amount exceeded $15,000. In accordance
with Rule 1:36-3, Geiger has no legal precedential value. However, in the limited in-house, business context of this
case, the Court finds that the mere existence of this unpublished opinion allows NJM to avoid a finding of bad faith
for actions take in accordance with its holding. It is illogical to suggest that NJM, or any corporation, cannot rely on
previous unpublished opinions - especially those in which they were involved - in making business decisions. Thus,
having pursued a similar course of action in Geiger with the approval of the Appellate Division, NJM had fair
reason to believe that it was making a legitimate legal and business decision by rejecting the arbitration award and
seeking trial. Rule 1:36-3 is inapplicable in this context, where NJM referenced Geiger not for its legal precedential
value, but rather to prove that NJM acted in good faith. Under the circumstances here, the existence of the
unpublished Geiger decision precludes a finding of bad faith against NJM. (pp. 17-21)

4. Even without reliance on Geiger, the language of NJM’s policy provided a rational, valid reason for NJM to seek
a trial by jury on the disputed claim. Giving the policy terms their plain, ordinary meaning, the $29,148.62
arbitration award was clearly in excess of the policy’s $15,000 threshold, notwithstanding the fact that NJM only
needed to contribute $14,574.31. NJM’s position was, at the very least, fairly debatable based on a reasonable and
principled reading of the applicable policy language. Moreover, plaintiff’s reliance on D’Antonio, a UIM case, is
misplaced. Special rules exist for the calculation of UIM benefits, requiring exhaustion of all available coverages
and the offsetting of any recoveries received as a precondition to payment. Consequently, in D’Antonio, the amount
of the carrier’s liability was less than the total award since the plaintiff had settled with the tortfeasor for a portion of
the total award. Conversely, here, the disposition of plaintiff’s UM claim was not influenced or reduced by the
tortfeasor’s own liability insurance limits. Thus, it was reasonable for NJM to conclude that D’Antonio applied only
in the UIM setting. However, the Court holds that, going forward, any reference in a policy of insurance to the
statutory $15,000 policy limit as the basis for rejecting an arbitration award applies only to the amount that the
insurance company is required to pay, and not to the total amount of the award. To hold otherwise would frustrate
the legislative intent of expediting resolution of smaller cases in the least costly manner, easing congestion in our
courts, and limiting jury trials to larger cases. (pp. 21-25)

5. In light of its disposition of the bad faith cause of action in this matter, the Court declines to address the
entitlement of an insured to attorney’s fees in the uninsured/underinsured context. The Court also declines to
address the issue of discovery, which it deems irrelevant to the instant case.

         The judgment of the Appellate Division is AFFIRMED.

        CHIEF JUSTICE RABNER, JUSTICES ALBIN and SOLOMON, and JUDGE CUFF (temporarily
assigned) join in JUSTICE FERNANDEZ-VINA’s opinion. JUSTICES LaVECCHIA and PATTERSON did
not participate.

                                                             2
                                      SUPREME COURT OF NEW JERSEY
                                         A-48 September Term 2012
                                                  071931

AUGUSTINE W. BADIALI,

    Plaintiff-Appellant,

         v.

NEW JERSEY MANUFACTURERS
INSURANCE GROUP,

    Defendant-Respondent.

         Argued September 9, 2014 – Decided February 18, 2015

         On certification to the Superior Court,
         Appellate Division, whose opinion is
         reported at 429 N.J. Super. 121 (2012).

         Richard J. Hollawell argued the cause for
         appellant (Console & Hollawell, attorneys).

         Richard J. Williams, Jr. argued the cause
         for respondent (McElroy, Deutsch, Mulvaney &
         Carpenter, attorneys; Mr. Williams and
         Joseph G. Fuoco, on the briefs).

         Amos Gern argued the cause for amicus curiae
         New Jersey Association for Justice (Starr,
         Gern, Davison & Rubin, attorneys; John J.
         Ratkowitz, on the brief).

         Carl A. Salisbury argued the cause for
         amicus curiae United Policyholders
         (Kilpatrick Townsend & Stockton, attorneys).

    JUSTICE FERNANDEZ-VINA delivered the opinion of the Court.

    The issue this Court must decide on appeal is whether an

insurer’s rejection of an arbitration award in an uninsured

motorist (UM) claim was “fairly debatable,” thereby barring an

                                1
insured from recovering counsel fees and other consequential

damages under a theory of bad faith.

    Plaintiff, Augustine W. Badiali, was injured when his motor

vehicle was rear-ended by an uninsured motorist.   Plaintiff

filed a UM claim, which proceeded to arbitration and resulted in

an award in plaintiff’s favor.   Plaintiff filed suit against his

insurer, defendant New Jersey Manufacturers Insurance Group

(“NJM”), after NJM rejected the arbitration award and refused to

pay its share.   The trial court confirmed the arbitration award

in a summary action and found NJM liable for its share of the

award.   In a subsequent action, plaintiff asserted that NJM

litigated in bad faith by advocating that its policy language

allowed for a rejection of the arbitration award at issue.     The

trial court granted summary judgment in favor of NJM.    The court

agreed that the case was ripe for summary judgment although

discovery had not been completed.    The court was further

persuaded that NJM’s position was “fairly debatable” based on

its policy language and on the existence of an unpublished

Appellate Division decision involving nearly identical facts, in

which NJM was also a party.

    The Appellate Division affirmed, holding that NJM’s

position was “fairly debatable” under Pickett v. Lloyd’s, 131

N.J. 457 (1993), because it was supported by a prior,

                                 2
unpublished opinion of the court.     Plaintiff was thereby barred

from recovering counsel fees or any other consequential damages.

    For the reasons set forth in this opinion, we affirm the

judgment of the Appellate Division.

                                I.

    On August 1, 2006, plaintiff was injured when his motor

vehicle was rear-ended by an uninsured motorist.    Plaintiff was

insured for UM coverage under his personal policy with

defendant, NJM, and also under his employer’s insurance carrier,

Harleysville Insurance Company (“Harleysville”).     Plaintiff

filed a UM claim, which proceeded to arbitration and resulted in

an award of $29,148.62 in plaintiff’s favor.     NJM and

Harleysville were contractually and statutorily obligated to

share this award equally.   See N.J.S.A. 17:28-1.1(c).

Harleysville paid its half, $14,574.31.     However NJM rejected

the award and demanded a trial de novo.     NJM asserted that the

language of its personal auto policy allowed either party to

dispute an arbitration award in which the total amount exceeded

$15,000.   Plaintiff filed suit against NJM to enforce the award.

    In a summary action pursuant to N.J.S.A. 2A:24-7, on April

16, 2010, the trial court confirmed the arbitration award and

found NJM liable for $14,574.31, notwithstanding the fact that

the total arbitration award was in excess of the $15,000

threshold provided for in its personal auto policy as grounds to

                                 3
reject the award.   The Appellate Division in an unpublished

opinion affirmed (Badiali I), relying on its holding in

D’Antonio v. State Farm Mut. Auto. Ins. Co., 262 N.J. Super.

247, 249-50 (App. Div. 1993), that “‘the extent of the carrier’s

[underinsured motorist] liability . . . not the tortfeasor’s

liability . . . should determine whether the case is of

sufficient magnitude to justify a trial.’”   NJM thereafter paid

the arbitration award in full.

    On March 29, 2011, plaintiff commenced a second action

against NJM, asserting claims for breach of contract, bad faith,

and consumer fraud.   Regarding bad faith, plaintiff argued that

NJM expended more than $28,000 to avoid paying its portion of

the arbitration award in Badiali I.   Plaintiff further asserted

that NJM caused him to incur substantial expense, years of

delay, and undue aggravation as a result of its handling of his

UM claim, which entitled him to treble and punitive damages, as

well as attorney’s fees and costs.

    NJM moved for summary judgment, maintaining that there was

no genuine issue of material fact whether its actions in Badiali

I constitutes bad faith.   In arguing that it did not act in bad

faith, NJM relied on a 2004 unpublished decision in which the

Appellate Division held, under essentially the same

circumstances, that the insurer (also NJM) was entitled to

reject the arbitration award at issue and demand a trial de

                                 4
novo.   Geiger v. N.J. Mfrs. Ins. Co., No. A-5135-02 (App. Div.

Mar. 22, 2004)1.   Although NJM conceded that Geiger lacked any

precedential authority, it asserted that its mere existence

proved that NJM’s conduct was reasonable, fair, and honest, and

that it had “fairly debatable” reasons to reject the arbitration

award at issue and seek a trial de novo as a result.   Put

differently, NJM maintained that its position and reasoning in

rejecting the arbitration award in Badiali I were identical to

its position and reasoning in rejecting the arbitration award in

Geiger.   Thus, because the Appellate Division expressly

vindicated that position and reasoning in Geiger, NJM asserted

that it would be inconsistent and illogical to find that they

acted in bad faith under nearly identical circumstances in

Badiali I.

     The trial court heard oral argument on January 20, 2012,

and subsequently granted summary judgment in favor of NJM on all

counts, despite the fact that discovery had not yet been

completed.   The trial court found that plaintiff failed to

demonstrate how further discovery would supply the missing

elements of his cause of action, or change the material facts or

outcome of his case.    As such, the court deemed the case ripe

for summary judgment.

1 We cite but do not rely on this unpublished opinion for reasons
explained in Section VI below. See R. 1:36-3.
                                 5
    Plaintiff appealed and the Appellate Division affirmed.

Badiali v. N.J. Mfrs. Ins. Grp., 429 N.J. Super. 121 (App. Div.

2012) [hereinafter “Badiali II”].       The panel held that, as a

matter of law, the mere existence of unpublished case law

supporting NJM’s rejection of the arbitration award precluded a

finding of bad faith against NJM, regardless of whether NJM

relied on or was aware of that unpublished case.       Id. at 126.

The Appellate Division declined, however, to address whether it

was improper for the trial court to grant summary judgment prior

to the completion of discovery.       The panel found “it does not

matter whether NJM actually based its position in Badiali I on

[Geiger], it also does not matter that plaintiff was deprived of

the opportunity to explore the formulation of NJM’s strategy in

the prior suit in pretrial discovery in this suit.”       Id. at n.5.

    This Court granted plaintiff’s petition for certification.

Badiali v. N.J. Mfrs. Ins. Grp., 213 N.J. 387 (2013).

Thereafter the Court granted leave to appear as amici curiae to

New Jersey Association for Justice (“NJAJ”) and to United

Policyholders (“United”).

                                  II.

    Plaintiff asserts three arguments.        Plaintiff first argues

that the trial and appellate courts erroneously concluded that

NJM had “fairly debatable” reasons to reject the arbitration

award at issue, based upon the existence of the unpublished

                                  6
Geiger opinion.    Plaintiff contends that NJM failed to establish

that it actually relied on Geiger at the time it rejected the

arbitration award at issue, and that NJM’s decision was contrary

to other published legal authority in D’Antonio, which was

binding on plaintiff.

    Plaintiff additionally argues that the appellate court

erroneously upheld the trial court’s grant of summary judgment

when discovery had not yet been completed.     He contends that

when certain facts are solely within the knowledge of the moving

party, such as the information relied upon by an insurer when

making its decisions, it is especially inappropriate to grant

summary judgment without allowing the completion of all

scheduled depositions or requested written discovery.

    Finally, plaintiff contends that he is statutorily entitled

to all counsel fees incurred while seeking to enforce the

benefits of the policy and arbitration award to which he was

entitled.    R. 4:42-9(a)(6).

    NJM, on the other hand, argues that the trial and appellate

courts properly found that NJM acted in good faith as a matter

of law.     NJM contends that its reasons for rejecting the

arbitration award and demanding a jury trial were based on a

sound, reasonable, and legally supportable interpretation of its

policy language.     In addition to its policy language, NJM also

contends that it had “fairly debatable” reasons to reject the

                                   7
arbitration award based on the existence of Geiger, which

although unpublished, was issued prior to the underlying matter

and fully supported the position taken by NJM in Badiali I.     NJM

asserts that it was aware of Geiger at all times and disputes

plaintiff’s argument that NJM’s failure to cite Geiger during

the initial litigation evidenced a lack of awareness as to its

essential holding.

    Furthermore, NJM disputes plaintiff’s contention that

summary judgment may not be granted until discovery is complete.

Rather, NJM contends that discovery need not be taken if it will

not patently change the outcome of the case.   On this issue, NJM

further argues that the underlying case is particularly suited

for disposition on summary judgment because the underlying

dispute deals with the interpretation of an arbitration clause,

which is an issue of law.

    NJM’s final argument is that plaintiff is not entitled to

attorney’s fees because Rule 4:42-9(a)(6) does not apply to

first-party insurers providing uninsured/underinsured coverage

and, even if it did, plaintiff is unable to receive attorney’s

fees because it’s conduct was reasonable and not instituted in

bad faith.

    NJAJ, appearing as amicus curiae, supports the arguments

advanced by plaintiff.   NJAJ contends that a lack of procedural

guidance exists regarding the preservation of first-party bad

                                 8
faith claims.   This, NJAJ maintains, has resulted in such claims

being disposed of on the merits in what amounts to a

“post-verdict motion for summary judgment.”   NJAJ asserts that,

in analyzing allegations of first-party bad faith, courts should

be required to engage in a more exhaustive examination of

claims-handling practices.   This includes reviewing the actual

conduct of the defendant insurance carrier with respect to the

investigation, evaluation, and processing of a plaintiff’s

claim, as well as the information actually considered at the

point in time that a decision was made.   Noting the prevailing

judicial attitude that presumes reasonableness on the part of

the insurer against other evidence to the contrary, NJAJ thus

urges this Court to depart from its rigid adherence to Pickett’s

“fairly debatable” approach so as to allow for a determination

of bad faith where an insurer acts intentionally or recklessly

in a manner contrary to its role as fiduciary.

    Furthermore, NJAJ joins plaintiff in asserting that summary

judgment was premature and inappropriate, as discovery had not

yet been completed.   NJAJ also joins plaintiff in arguing for

the applicability of counsel fees, providing two additional

theories for awarding such fees in first-party bad faith claims.

First, NJAJ contends that since first-party bad faith causes of

action sound primarily in contract, all compensatory, punitive,

and other foreseeable damages should be available as

                                 9
consequential damages for breach of contract.      NJAJ also

suggests that plaintiff be awarded attorney’s fees based on the

prohibition of frivolous litigation.      N.J.S.A. 2A:15-59.1.

    United, appearing as amicus curiae, also supports the

arguments advanced by plaintiff.      United contends that the

Appellate Division’s decision in Badiali II improperly insulates

and protects insurance carriers from bad faith causes of action,

even where such carriers act with subjective malice in handling

claims.   United stresses the need for guidance and uniform

standards to be applied in judging whether an insurer has

handled a claim in bad faith.

                                III.

    All contracts impose an implied obligation of good faith

and fair dealing in their performance and enforcement.         Sears

Mortg. Corp. v. Rose, 134 N.J. 326, 347 (1993); Pickett, supra,

131 N.J. at 467.   The New Jersey Legislature has attempted to

codify these principles, particularly in the insurance industry,

by defining what is considered to be unfair or deceptive

business practices in the area of insurance claims settlement.

See N.J.S.A. 17:29B-4(9).   Such practices include:    “[r]efusing

to pay claims without conducting a reasonable investigation

based upon all available information[,]” N.J.S.A. 17:29B-

4(9)(d); “[f]ailing to affirm or deny coverage of claims within

a reasonable time after proof of loss statements have been

                                 10
completed[,]” N.J.S.A. 17:29B-4(9)(e); “[c]ompelling insureds to

institute litigation to recover amounts due under an insurance

policy by offering substantially less than the amounts

ultimately recovered in actions brought by such insureds[,]”

N.J.S.A. 17:29B-4(9)(g); and, finally, “[n]ot attempting to

negotiate in good faith to effectuate prompt, fair and equitable

settlements of claims in which liability has become reasonably

clear[,]” N.J.S.A. 17:29B-4(9)(f) (emphasis added).

    Good faith is generally defined as “honesty in fact in the

conduct or transaction concerned.”     N.J.S.A. 12A:1-201(19).    The

good faith obligations of an insurer to its insured run deeper

than those in a typical commercial contract.    Unlike with a

typical commercial contract, in which “[p]roof of bad motive or

intention” is vital to an action for breach of good faith,

Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Center

Assocs., 182 N.J. 210, 225 (2005) (internal quotations omitted),

an insurer’s breach of good faith may be found upon a showing

that it has breached its fiduciary obligations, regardless of

any malice or will, see Bowers v. Camden Fire Ins. Ass’n, 51

N.J. 62, 79 (1968).

    One inherent fiduciary obligation of every insurer is the

duty to settle claims.     See Lieberman v. Empl’rs Ins. of Wausau,

84 N.J. 325, 336 (1980).    Whether an insurer has acted in bad

faith and thereby breached its fiduciary obligation in

                                  11
connection with the settlement of claims “must depend upon the

circumstances of the particular case.”      Am. Home Assurance Co.

v. Hermann’s Warehouse Corp., 117 N.J. 1, 7 (1989) (internal

quotations omitted).

    A finding of bad faith against an insurer in denying an

insurance claim cannot be established through simple negligence.

Pickett, supra, 131 N.J. at 481.      Moreover, mere failure to

settle a debatable claim does not constitute bad faith.        Id. at

473 (citing Chester v. State Farm Ins. Co., 789 P.2d 534, 537

(Idaho Ct. App. 1990)).    Rather, to establish a first-party bad

faith claim for denial of benefits in New Jersey, a plaintiff

must show “that no debatable reasons existed for denial of the

benefits.”   Id. at 481.

    Under the salutary “fairly debatable” standard enunciated

in Pickett, “a claimant who could not have established as a

matter of law a right to summary judgment on the substantive

claim would not be entitled to assert a claim for an insurer’s

bad faith refusal to pay the claim.”      Id. at 473 (citing

Chester, supra, 789 P.2d at 537).

                                IV.

    A trial court shall grant summary judgment if “the

pleadings, depositions, answers to interrogatories and

admissions on file, together with affidavits, if any, show that

there is no genuine issue of material fact challenged and that

                                 12
the moving party is entitled to a judgment or order as a matter

of law.”   R. 4:46-2(c).   A motion for summary judgment is not

premature merely because discovery has not been completed,

unless plaintiff is able to “‘demonstrate with some degree of

particularity the likelihood that further discovery will supply

the missing elements of the cause of action.’”    See Wellington

v. Estate of Wellington, 359 N.J. Super. 484, 496 (App. Div.)

(quoting Auster v. Kinoian, 153 N.J. Super. 52, 56 (App. Div.

1997), certif. denied, 177 N.J. 493 (2003)).

    In considering whether there exists a genuine issue of

material fact, the motion judge “must consider whether the

competent evidential materials presented, when viewed in the

light most favorable to the non-moving party, are sufficient to

permit a rational fact finder to resolve the alleged disputed

issue in favor of the non-moving party.”     Brill v. Guardian Life

Ins. Co. of Am., 142 N.J. 520, 540 (1995).

    Purely legal questions, such as the interpretation of

insurance contracts, are questions of law particularly suited

for summary judgment.   See Selective Ins. Co. of Am. v. Hudson

E. Pain Mgmt. Osteopathic Med. & Physical Therapy, 210 N.J. 597,

605 (2012).

                                 V.

    The public policy of this State favors arbitration as a

means of settling disputes that otherwise would be litigated in

                                 13
a court.   Cty. Coll. of Morris Staff v. Cty. Coll. of Morris

Staff Ass’n, 100 N.J. 383, 390 (1985).   Indeed, in the area of

insurance claims settlement, “the use of arbitration to expedite

resolution of UM claims is widespread and UM coverage provisions

in automobile liability policies characteristically authorize

arbitration of disputes at the option of either party.”      United

Servs. Auto. Ass’n v. Turck, 156 N.J. 480, 485 (1998).      The

scope of the arbitration is dependent solely on the provisions

and conditions mutually agreed upon in the parties’ agreement.

In re Arbitration Between Grover & Universal Underwriters Ins.

Co., 80 N.J. 221, 229 (1979).   Stated another way,

           the duty to arbitrate, and the scope of the
           arbitration, are dependent solely on the
           parties’ agreement. The parties may shape
           their arbitration in any form they choose and
           may include whatever provisions they wish to
           limit its scope. The parties have the right to
           stand upon the precise terms of their
           contract; the court may not rewrite the
           contract to broaden the scope of arbitration
           or otherwise make it more effective. It is
           also    significant   that,    although    the
           legislature has mandated binding arbitration
           of PIP claims at the option of the insured
           (N.J.S.A. 39:6A-5c) and has required non-
           binding arbitration of certain automobile tort
           claims (N.J.S.A. 39:6A-31), it has not
           required arbitration of UM claims at all. Thus
           the ascertainable public policy here is to
           encourage    resort  to    arbitration   while
           preserving full flexibility to the parties to
           elect or reject, and to structure and limit,
           that process as they choose.

           [Turck, supra, 156 N.J. at 486 (quoting Cohen v.
           Allstate Ins. Co., 231 N.J. Super. 97, 100-01 (App.

                                 14
          Div. 1989) (internal citations omitted), certif.
          denied, 117 N.J. 39 (1989)).]

    This Court has consistently upheld an insurer’s right to

reject an arbitration award pursuant to the express terms and

conditions articulated in its policy language.   See, e.g.,

Rutgers Cas. Ins. Co. v. Vassas, 139 N.J. 163, 175 (1995)

(affirming insurer’s right to reject arbitration award because

insured had failed to make an underinsured motorist (UIM) claim

until after the statute of limitations on the underlying tort

action had run).

    However, where an arbitration clause or the wording of a

policy is ambiguous, our appellate courts have limited attempts

to reject an arbitration award and proceed de novo.   See, e.g.,

Derfuss v. N.J. Mfrs. Ins. Co., 285 N.J. Super. 125, 130 (App.

Div. 1995) (limiting UIM insurer’s request for trial de novo to

damages only because its policy language created ambiguity that

cast doubt as to whether parties also intended liability to be

an issue).   Specifically, in a case central to plaintiff’s

argument, D’Antonio, supra, 262 N.J. Super. at 249, the

Appellate Division rejected a UIM plaintiff’s attempt to seek a

new trial on damages where the phrase “amount of damages” was

ambiguous.

    In D’Antonio, the plaintiff was injured when an

underinsured motorist struck her vehicle.   The plaintiff settled

                                15
with the other driver for the maximum of that driver’s liability

policy, $25,000.    Id. at 248.   Thereafter, the plaintiff brought

a claim against her own insurance carrier for UIM coverage.

Ibid.   In arbitration, she was awarded $40,000 in damages.

Ibid.   After offsetting the $25,000 recovery received from the

underinsured motorist, the portion owed by the plaintiff’s

insurer was only $15,000.   Id. at 249.    The plaintiff

subsequently filed a demand for a trial de novo, arguing that,

based on the policy’s arbitration provision, she was entitled to

a jury trial because the “amount of damages” exceeded $15,000,

the statutory minimum limit imposed by N.J.S.A. 17:28-1.1a.        The

insurer opposed the plaintiff’s demand for a trial de novo,

arguing that the amount of the insurer’s liability did not

exceed $15,000 and, thus, the award was binding.     Id. at 249.

Interpreting the policy language, the Appellate Division found

that the term “amount of damages” was ambiguous.     Ibid.   The

Appellate Division therefore focused its inquiry on the intent

of the parties, which it determined was “to permit a post-

arbitration trial only in cases of a certain magnitude, i.e.,

only where the ‘amount of damages’ fixed by the arbitrators

exceeds $15,000.”   Ibid.   The panel reasoned further that,

          the arbitration is conducted to determine the
          carrier’s liability for UIM payments. If a
          trial is available, it too will determine only
          the carrier’s UIM obligation. It follows that
          the extent of the carrier’s UIM liability --

                                  16
           not the tortfeasor’s liability -- should
           determine whether the case is of sufficient
           magnitude to justify a trial. The parties’
           purpose in foreclosing trials in modest cases
           would be substantially frustrated if the right
           to demand a trial turned on the damages
           attributable to the underinsured tortfeasor.

           [Id. at 249-50.]

The Appellate Division thus held that the plaintiff was not

entitled to reject the award.

                                VI.

    Having discussed the legal framework for this appeal, we

now turn to the facts of this case and consider whether NJM had

“fairly debatable” reasons for rejecting the arbitration award

in Badiali I.

                                A.

    NJM maintains that its reasoning for rejecting the

arbitration award in Badiali I was “fairly debatable” under

Pickett, supra, 131 N.J. 457, because it was supported by a

prior, unpublished opinion of the Appellate Division, see

Geiger, supra.   In Geiger, the plaintiff was injured when his

automobile collided with an uninsured motorist.   Plaintiff filed

an arbitration proceeding against NJM for UM coverage.      The

arbitration resulted in an award in favor of plaintiff for

$27,000.   The award was shared equally between NJM and another

insurer.   Thus, NJM’s share of the liability was $13,500 –- an

amount less than the $15,000 statutory minimum limit for

                                17
liability imposed by N.J.S.A. 17:28-1.1a.   Nevertheless, NJM

filed a motion to reject the award and to request a trial de

novo, arguing that the total “arbitration award” was greater

than $15,000.   NJM relied upon the terms and conditions of its

policy’s arbitration provision, which provided:    “If the

arbitration award exceeds [the minimum limit for liability,

$15,000,] either party may demand the right to a trial by jury

on all issues.”   NJM’s arbitration provision was the same in

Badiali I as it was in Geiger.   Thus, NJM contends that it had a

perfectly adequate basis for rejecting the arbitration award in

Badiali I, as such action was previously sanctioned by the

Appellate Division in Geiger.

    NJM argues for de facto reliance on Geiger based on the

simple premise that litigants are presumed to know the outcome

of cases in which they are a party.   We recognize NJAJ’s

suggestion that Pickett’s “fairly debatable” standard should

include at least some focus on the individual investigation and

valuation performed by the claims handler responsible for the

case, however, we express reservation about the potential

discovery complications associated with such an approach and

thus do not adopt such an approach at this time.   We do not find

it necessary here to alter the salutary test set forth by the

Pickett Court, as the issue before us does not require such

action.   Rather, the important consideration in this case is

                                 18
whether the existence of the unpublished Geiger decision serves

as a reasonable basis to support the position taken by NJM in

the instant case.

    In accordance with the well-established jurisprudence and

court rules of this State, Geiger has no legal precedential

value due to its unpublished nature.    The use and authority of

unpublished opinions is governed by Rule 1:36-3.    That rule

provides:

            No unpublished opinion shall constitute
            precedent or be binding upon any court. Except
            for appellate opinions not approved for
            publication that have been reported in an
            authorized administrative law reporter, and
            except to the extent required by res judicata,
            collateral estoppel, the single controversy
            doctrine or any other similar principle of
            law, no unpublished opinion shall be cited by
            any court. No unpublished opinion shall be
            cited to any court by counsel unless the court
            and all other parties are served with a copy
            of the opinion and of all contrary unpublished
            opinions known to counsel.

            [R. 1:36-3.]

This rule has been affirmed time and again by this Court.       See

Guido v. Duane Morris LLP, 202 N.J. 79, 91 n.4 (2010); Mount

Holly Twp. Bd. of Educ. v. Mount Holly Twp. Educ. Ass’n, 199

N.J. 319, 332 n.2 (2009); In re Alleged Improper Practice, 194

N.J. 314, 330 n.10 cert. denied, 555 U.S. 1069, 129 S. Ct. 754,

172 L. Ed. 2d 726 (2008).

                                 19
    Still, this Court has never considered whether the mere

existence of an unpublished opinion will allow a party to avoid

a finding of bad faith for actions taken in accordance with its

holding.   In the context of the case before us, we find that it

does; however we limit our holding to the in-house, business

context present here.     In our view, it is illogical to suggest

that NJM, or any corporation, cannot rely on previous

unpublished opinions -- especially those in which they were

specifically involved -- in forming their business decisions.

Having pursued a similar course of action in Geiger with the

approval and endorsement of the Appellate Division, we find it

was reasonable for NJM to maintain that same position, under

nearly identical facts, in rejecting the arbitration award in

the instant litigation.     To clarify, NJM had adequate reason to

believe that its conduct was consistent with judicially accepted

contract interpretation, corporate policies and practices.

Thus, we find the existence of the Geiger opinion establishes

that NJM had, at the very least, fair reason to believe that it

was making a legitimate legal and business decision by rejecting

the arbitration award in Badiali I and seeking trial.

    As such, we find that NJM’s citation to the Appellate

Division’s unpublished decision in Geiger before this Court was

acceptable because it was referenced not for its legal

precedential value, but rather to prove that NJM acted in good

                                  20
faith in conducting its business as an insurance claims handler.

We accordingly find that Rule 1:36-3 is inapplicable to this

matter and expressly hold that the existence of the unpublished

Geiger decision precludes a finding of bad faith against NJM.

                                 B.

    Even without reliance on Geiger, we find that NJM is able

to show fairly debatable reasons based on both a reasonable

interpretation of its policy language, and the fact that the

case here, a UM action, is distinguishable from D’Antonio, a UIM

case.

    As a threshold matter, the language of the policy itself

provided a rational, and indeed valid, reason to seek a trial by

jury on the disputed claim.    The NJM policy states:

           A decision agreed to by two of the arbitrators
           will be binding unless the arbitration award
           exceeds the minimum limit [$15,000] for
           liability    specified   by    the   Financial
           Responsibility Law of New Jersey.      If the
           arbitration award exceeds that limit, either
           party may demand the right to a trial by jury
           on all issues.

           [Emphasis added.]

The terms of the NJM policy must be given their plain, ordinary

meaning.   Turck, supra, 156 N.J. at 486.   The arbitration award

in this case was $29,148.62, clearly in excess of the policy’s

$15,000 threshold, notwithstanding the fact that NJM needed only

to contribute half of that amount, $14,574.31.   Therefore, NJM

                                 21
had reason to believe that the policy language gave it the right

to reject the arbitration award and demand a jury trial.         In our

view, NJM’s position was thus, at the very least, fairly

debatable and based on a reasonable and principled reading of

the applicable policy language.

    Although plaintiff relies heavily on D’Antonio to support

its position, we find that case distinguishable and inapplicable

here.   First and foremost, D’Antonio involved a UIM case rather

than a UM case, as present here.       The differences between these

insurance coverages are significant.       UM coverage is mandatory

first-party coverage insuring the policy holder, and others,

against the possibility of injury or property damage caused by

the negligent operation of a motor vehicle by an individual

without liability insurance coverage.       See N.J.S.A. 17:28-1.4.

UM coverage exists to compensate victims injured by an

“uninsured motor vehicle.”    See N.J.S.A. 17:28-1.1e(2).       UM

insurance extends protection to the injured victim.       Riccio v.

Prudential Prop. & Cas. Ins. Co., 108 N.J. 493, 498 (1987).          One

of the stated purposes of UM coverage is “to provide maximum

remedial protection to the innocent victims of financially

irresponsible motorists[.]”   Id. at 504.      UM coverage is

designed to “fill gaps in compulsory insurance plans.”          Id. at

499 (citations omitted).

                                  22
    UIM coverage, by contrast, is optional first-party coverage

insuring the policy holder, and others, against the possibility

of injury or property damage caused by the negligent operation

of a motor vehicle whose liability insurance coverage is

insufficient to pay for all losses suffered.     See French v. N.J.

Sch. Bd. Ass’n Ins. Grp., 149 N.J. 478 (1997).    UIM coverage is

defined by N.J.S.A. 17:28-1.1(e)(1), as

           insurance for damages because of bodily injury
           and property damage resulting from an accident
           arising out of the ownership, maintenance,
           operation or use of an underinsured motor
           vehicle. Underinsured motorist coverage shall
           not apply to an uninsured motor vehicle. A
           motor vehicle is underinsured when the sum of
           the limits of liability under all bodily
           injury and property damage liability bonds and
           insurance policies available to a person
           against whom recovery is sought for bodily
           injury or property damage is, at the time of
           the accident, less than the applicable limits
           for underinsured motorist coverage afforded
           under the motor vehicle insurance policy held
           by the person seeking that recovery.

    The most important distinguishing characteristics of UIM

insurance are the special rules for calculating UIM benefits.

These rules require exhaustion of all available coverages and

the offsetting of any recoveries received as a precondition to

payment.   Vassas, supra, 139 N.J. at 171-72 (citing Longworth v.

Van Houten, 223 N.J. Super. 174 (App. Div. 1988)).

    In D’Antonio, supra, the Appellate Division held that, in

the context of a UIM arbitration, it is the extent of the UIM

                                23
carrier’s liability determined by the arbitrators, rather than

the total tortfeasor liability, that should be measured against

the $15,000 minimum liability limit to determine the right to

demand a trial de novo.     262 N.J. Super. at 249-50.   The

plaintiff in that case had settled with the tortfeasor for

$25,000, and the insurance carrier therefore received the

benefit of a $25,000 credit.     The arbitration award of a gross

sum of $40,000, then, translated to UIM damages of $15,000.

Thus, “the amount of damages” within the meaning of the UIM

arbitration provision, was $15,000, not the $40,000 gross

damages.     The UIM arbitration provision in the insurance policy

gave either party the right to request a trial de novo only if

the “amount of damages” exceeded the statutory minimum limit for

liability.    Because the UIM exposure there did not exceed that

limit, the Appellate Division affirmed the trial judge’s denial

of the plaintiff’s request for a trial.     Conversely, here, the

disposition of plaintiff’s UM claim was not influenced or

reduced by a tortfeasor’s own liability insurance limits.      Thus,

it was not unreasonable for NJM to conclude that D’Antonio

applied only in the UIM setting and not to UM arbitration.

    We hold that NJM’s position in rejecting the award was at

least fairly debatable and based on a reasonable and principled

reading of its policy language.     In light of this holding, we

                                  24
find that reliance on Geiger is not necessary because NJM’s

policy language gave rise to the same result.

    However, we now hold that any reference in a policy of

insurance to the statutory $15,000 policy limit as the basis for

rejecting an arbitration award applies only to the amount that

the insurance company is required to pay, not to the total

amount of the award.   To allow the total amount of the award to

be the determining factor for rejecting an arbitration award,

even though the insurance company’s share is less than the

statutory policy limit, would frustrate the legislative intent

of expediting resolution of smaller cases in the least costly

manner, easing the congestion in our courts, and limiting jury

trials to the larger cases.

                                  C.

    In light of our disposition of the bad faith cause of

action in this matter, we see no present need to address the

entitlement of an insured to attorney’s fees in the

uninsured/underinsured context.    We further decline to address

the issue of discovery, as we find such issue irrelevant to the

instant case.

    For the reasons stated herein, we affirm the judgment of

the Appellate Division.

     CHIEF JUSTICE RABNER; JUSTICES ALBIN and SOLOMON; and JUDGE
CUFF (temporarily assigned) join in JUSTICE FERNANDEZ-VINA’s
opinion. JUSTICES LaVECCHIA and PATTERSON did not participate.

                                  25
               SUPREME COURT OF NEW JERSEY

NO.    A-48                                      SEPTEMBER TERM 2012

ON CERTIFICATION TO              Appellate Division, Superior Court

AUGUSTINE W. BADIALI,

      Plaintiff-Appellant,

              v.

NEW JERSEY MANUFACTURERS
INSURANCE GROUP,

      Defendant-Respondent.

DECIDED               February 18, 2015
                Chief Justice Rabner                             PRESIDING
OPINION BY                   Justice Fernandez-Vina
CONCURRING/DISSENTING OPINIONS BY
DISSENTING OPINION BY

  CHECKLIST                               AFFIRM
  CHIEF JUSTICE RABNER                         X
  JUSTICE LaVECCHIA                  ----------------------   ---------------------
  JUSTICE ALBIN                                X
  JUSTICE PATTERSON                  ----------------------   ----------------------
  JUSTICE FERNANDEZ-VINA                       X
  JUSTICE SOLOMON                              X
  JUDGE CUFF (t/a)                             X
  TOTALS                                       5

                                                        1