ADR Procedure: Resurrecting an Arbitration Matter (Web)

In Hainthaler, et al. v. Zurich Commercial Insurance, Docket No. A-0558-05T1, 2006 WL 2237527 (N.J. Super. Ct. App. Div. Aug. 7, 2006)(available at http://www.judiciary.state.nj.us/opinions/a0558-05.pdf), the New Jersey Superior Court’s Appellate Division reversed a lower court decision that found a plaintiff time-barred from seeking underinsured motorists (“UIM”) arbitration due to the expiration of the statute of limitations.

The appeals panel found that if a plaintiff has initiated arbitration proceedings and has not received the consenting defendant’s repudiation, the plaintiff may not be time-barred even if arbitration has not occurred within the statute of limitations. The panel ordered an investigation into the plaintiff’s reasons for delay.

The plaintiff, Gertrude Hainthaler, was injured on Dec. 27, 1997, by a vehicle with a $25,000 insurance policy. The plaintiff was insured under a policy that afforded her $1 million UIM coverage. The plaintiff's counsel supplied medical records to the defendant insurance company, Schaumburg, Ill.-based Zurich Commercial Insurance, a unit of Zurich, Switzerland’s Zurich Financial Services Group, but settlement negotiations failed.

On Oct. 18, 1999, the plaintiff's counsel notified the insurer that it was appointing an arbitrator. The plaintiff’s attorney sent Zurich a name, and asked for its consent to arbitration and the name of its party-appointed arbitrator. The defense counsel responded a month later with its arbitrator’s name. The defendant did not repudiate the agreement to arbitrate.

During the next 10 months, the defendant's counsel made several requests for additional medical information. When the plaintiff did not respond, the defendant sent a letter stating that it would close the plaintiff's file if its discovery requests were not answered. The defense counsel received a response from plaintiff's counsel on Sept. 20, 2000, stating that the plaintiff had passed away and that outstanding medical liens would be forwarded to the defendant when received.

On Feb. 26, 2001, the defendant's counsel acknowledged that it had received the requested medical records and stated that in lieu of a three-member arbitration panel, the defendant would prefer to use a retired judge “to review what is likely to be extensive medicals in this matter and hear the appropriate testimony.” The insurer requested the plaintiff's consent and asked if the plaintiff had any preference for the judge to be used.

But from March 2001, through June 2001, the defendant's counsel made three more requests for medical information. The defendant did not receive any communications from the plaintiff until Dec. 8, 2003. The plaintiff's counsel indicated that the plaintiff intended to pursue the claim, inquired as to whether "Zurich will honor said claim," and stated that if a response was not received by the end of the week, the plaintiff would be forced to prepare an order to show cause.

The defendant's counsel responded by stating that the file had been closed. The defense added that an order to show cause would be inappropriate until the file could be reviewed and would result in the defendant's counsel request for “fees in light of the history of this action.”

The Hainthaler attorney counsel provided more information at the end of December 2003, and in January 2004, which Zurich’s attorneys acknowledged--but noting that other requested information again had failed to be included.

On April 24, 2004, the defendant's counsel asserted that the six-year statute of limitations had started to run on the date of the accident and thus had expired on December 27, 2003, barring the plaintiff's claim.
On July 26, 2004, the plaintiff filed a verified complaint that sought: 1) a declaration that the defendant was required to arbitrate the UIM claim, 2) to compel the defendant to submit to UIM arbitration, 3) to schedule a hearing date and appoint a third arbitrator, and 4) fees and any other appropriate relief. The plaintiff argued that the defendant could not raise the statute of limitations after having agreed to arbitration and investigating the claim.

The Superior Court, New Jersey’s trial court, declined to issue summary relief, explaining that there were other issues surrounding the plaintiff's entitlement to a waiver of the statute of limitations, including the possible defenses of the plaintiff's failure to cooperate and the plaintiff's unclean hands in failing to proceed with the arbitration.

After some discovery, the defendant moved for judgment. The judge found that the “passage of time is solely the result of plaintiff failing to prosecute the claim,” and that Zurich had in no way indicated that the statute of limitations would be waived “if the plaintiff continued to sit quiet on its claim and take no action.”
Since the statute of limitations could not be waived and more than six years had passed, the judge dismissed the suit.

The Appellate Division reviewed de novo the decision to dismiss the suit. The panel reasoned that in naming an arbitrator, the defendant had explicitly indicated that it intended to fulfill its contractual obligation to arbitrate.

On Dec. 8, 2003, when the plaintiff had stated her intention to pursue the UIM claim and file suit if the claim was not honored, the defendant had responded by requesting further review of the file. The panel noted that as late as the Dec. 11, 2003 response, the defendant still had not repudiated its previously acknowledged duty to arbitrate.

The appeals panel held that the acknowledgment, coupled by a lack of repudiation, was “tantamount to a declaration that plaintiff had timely begun the arbitration process.”

The appeals court explained that its disagreement with the decision to dismiss the suit amounted to more than a difference of opinion on whether the statute of limitations should have been tolled.
Rather, the panel cited Lafange v. Jani, 166 N.J. 412, 423 (2001) in noting that the statute of limitations’ purpose is to protect defendants from plaintiffs who unexpectedly attempt to enforce stale claims after failing to use reasonable diligence to prosecute them. Therefore, it reasoned that considerations of the statute of limitations should not be brought into this analysis, as the plaintiff had in fact diligently pursued the claim by demanding and securing the defendant's consent to arbitration.

The court referred to Mortara v. Cigna Property & Cas. Inc. Co., 356 N.J. Super. 1, 811 A.2d 458 (N.J. Super. Ct. App. Div. 2001), aff'd, 174 N.J. 566, 811 A.2d 404 (2002). In Mortara, the plaintiff sought to compel the defendant insurance company to submit to UIM arbitration. After receiving the defendant's consent, the plaintiff opted to voluntarily dismiss the complaint. The defendant then repudiated its agreement to arbitrate, and the plaintiff failed to file suit to compel arbitration for almost one year after the statute had run. The plaintiff was held to be time-barred.

The panel contrasted Mortara with the case at hand, explaining that in contrast, Zurich had not repudiated its agreement to arbitrate.

The appeals panel noted that the possible failure of the plaintiff to promptly comply with the defendant's discovery demands for medical records was another relevant consideration. To the extent that the plaintiff might have unduly delayed the arbitration by not complying with these demands, she could be estopped from seeking to compel the defendant to complete the arbitration, despite the defendant's prior consent.
But the panel also acknowledged that there may have been other relevant factors such as the plaintiff’s counsel’s health, and the plaintiff’s age and possible dementia.

The panel instead ruled that the matter “must be analyzed in terms of the reasons for the delay,” including the named arbitrators’ inaction and “apparent failure to discharge the duties of their office.” It also noted that the defense never sought to compel the plaintiff to proceed, or request the arbitrators to take action.

The opinion suggested a framework for the analysis, Mitchell v. Alfred Hofmann Inc., 48 N.J. Super. 396, (App. Div. 1958). “That court considered whether the attempt to reconvene the arbitration after so long a delay constituted laches,” the Hainthaler panel notes. “Although the arbitration in Mitchell was much more advanced than here, in both cases the arbitration had begun. . . . Accordingly, we view the dispute here not as to whether the plaintiff timely sought arbitration. She did. Rather we take this to be a question of whether plaintiff sufficiently to prosecute the arbitration so as to forfeit her right to pursue it further.”

The panel reversed and remanded for further proceedings on the issue of whether the plaintiff failed to prosecute the arbitration.

--Kimberly Finneran, CPR Intern