Direct Action Statute Subject to Arbitration Clauses in New Jersey

Recently, in Crystal Point Condominium Association, Inc. v. Kinsale Insurance Company, A-76-20, the New Jersey Supreme Court held the plain language of the Direct Action Statute, N.J.S.A. 17:28-2, allows an injured party to file claims under this statute, and that claims pursuant to the terms of the policy are derivative, thus, in this case, subject to arbitration clauses within the policy.

The underlying suit arises from alleged construction and/or structural defects of a building in Jersey City, New Jersey. The building was managed by plaintiff, Crystal Point Condominium Association, Inc. (“Crystal Point”). Crystal Point, in-turn, filed an action against Nacamuli Associates, LLC and Hawke Inspections and Testing, LLC, however, these entities were insolvent. Thus, Crystal Point obtained default judgments against these entities. Crystal Point then pursued claims against Kinsale Insurance, who issued professional liability policies to Nacamuli Associates, LLC and Hawke Inspections and Testing, LLC, under the Direct Action Statute, N.J.S.A. 17:28-2. Kinsale Insurance argued against this action stating the Direct Action Statute was not satisfied as there was no proof of the insolvency or bankruptcy of Nacamuli Associates, LLC and Hawke Inspections and Testing, LLC. In the alternative, Kinsale Insurance moved to compel arbitration in compliance with the insurance policy which stated, ““[a]ll disputes over coverage or any rights afforded under this Policy . . . shall be submitted to binding Arbitration.”  The trial court ruled the Direct Action Statute was inapplicable for Crystal Point’s claims. The Appellate Court reversed the trial court decision and specifically noted the claims were not to be resolved via arbitration. The New Jersey Supreme Court granted review.

The Direct Action Statute, N.J.S.A. 17:28-2 allows a claimant to pursue an insurer if: (1) coverage for claims “against loss or damage resulting from accident to or injury suffered by an employee or other person and for which the person insured is liable”; or (2) coverage for claims “against loss or damage to property caused by animals or by any vehicle drawn, propelled or operated by any motive power, and for which loss or damage the person insured is liable.” However, in order to recover under this statute, the claimant must show: (1) first, injured parties have no rights under the policy until “execution against the insured is returned unsatisfied . . . because of the insolvency or bankruptcy” of the person insured; (2) second, any claim brought under the Direct Action Statute is a claim “under the terms of the policy.”

The New Jersey Supreme Court focused the analysis on the Legislative Intent of the statute and looked to the plain language which allows claims “against loss or damage resulting from accident to or injury suffered by an employee or other person and for which the person insured is liable.” The Direct Action Statute also provides, “a judgment creditor’s claim against the insolvent or bankrupt judgment debtor to be a claim ‘under the terms of the policy for the amount of the judgment in the action not exceeding the amount of the policy’; thus the claims are derivative and the claimant essentially “steps into the shoes of the assured” under the policy.  

From a defense perspective, it is beneficial for an insurance carrier to ensure the terms of the policy contain arbitration clauses to resolve claims.

Jumping Out of Arbitration

The Superior Court of New Jersey, Appellate Division, reversed an order from the Law Division in Ocean County which dismissed a minor Plaintiff’s personal injury complaint and compelled his claims to arbitration. See Matullo v. Skyzone Trampoline Park, 472 N.J. Super. 220, 276 A.3d 178 (Super. Ct. App. Div. 2022). The lower court had granted a motion to dismiss the Plaintiff’s complaint and compel arbitration filed by Defendant Skyzone Trampoline Park on the basis that the young Plaintiff defrauded Defendant by misrepresenting his age in a signed participation agreement to enter the park, purporting that he was an adult to be able to jump on their trampolines. The trial court held that Plaintiff misrepresented that he was nineteen years old, that the trampoline gym reasonably relied on his misrepresentation, and Plaintiff received and retained the benefits of their agreement, namely getting the opportunity to enter the park where he would inevitably injure himself.

On November 10, 2017, Plaintiff was a fifteen-year-old minor when he entered the Sky Zone Trampoline Park in Lakewood, New Jersey. Plaintiff was presented with a participant release and assumption of risk contract. One agreement term included an arbitration provision, stating that the patron was waiving their right to bring a lawsuit against the park and that any claims arising out of access to or use must be resolved using arbitration. Plaintiff signed the agreement improperly by first signing his name under the section asserting that he was a patron bringing a child with him and had the authority to execute it on their behalf. After signing that provision, he also signed a section towards the bottom, asserting that he was at least eighteen years old. In each section, he listed different dates of birth next to his signature, each being on either side of eighteen years old. Sky Zone employees did not catch this error on the agreement when processing the Plaintiff to jump at the facility that day.

Sky Zone was able to dismiss the suit at the trial level on the basis that Plaintiff had deceived them into allowing him to jump in the park by asserting he was eighteen. Plaintiff, on appeal, contended that the lower court did not fully consider case law holding that a minor can elect to avoid a contract, and the estoppel exception to that right should not apply to this arbitration provision. Under the law, a minor can generally disaffirm a contract entered prior to them reaching the age of majority, but an exception to this rule applies if the minor fraudulently misrepresented their age to another party, who reasonably relied on it, and allowed the minor to receive and retain the benefits of the agreement. See La Rosa v. Nichols, 92 N.J.L. 375, 379 (1918).

The Appellate Division focused on the Plaintiff’s two asserted dates of birth on the agreement and held that a reasonable person reviewing that agreement would not have relied on such conflicting representations, and there would be obvious questions about a nineteen-year-old being the legal guardian of a fifteen-year-old who both share the same name and birthday. The Appellate Division reversed the lower court, holding that the arbitration provision was unenforceable here while reinstating the complaint and taking the claims out of arbitration.

Written releases are a routine part of many activities people enjoy that carry risk. Do not feel rushed when reviewing the terms on your own before you sign, because sometimes you will only become aware of an arbitration provision or a term limiting your recovery when it’s read to you in court above your own, assenting, signature. On the other side, if you require patrons to sign these agreements at your business, please ensure that they are reviewed for proper execution prior to allowing a patron to receive the benefits of your business.

Saving Someone's Dog Doesn't Entitle Recovery Under the Rescue Doctrine

The New Jersey Supreme Court recently declined to expand the rescue doctrine to include injuries sustained to protecting another’s property, such as someone else’s pet. Samolyk v. Berthe, 2022 N.J. LEXIS 515, (June 13, 2022).  The common law rescue doctrine has applied in situations where the rescuer sues the rescued victim who is either completely, or partially, at fault for creating the peril that invited the rescue, i.e. where the rescuer is injured when trying to rescue another person. See Saltsman v. Corazo, 317 N.J. Super. 237, 248 (App. Div. 1998) (quoting Burns v. Mkt. Transition Facility, 281 N.J. Super. 304, 310 (App. Div. 1995)).

In Samolyk, the Court was required to determine whether to expand the common law rescue doctrine to permit plaintiffs to recover damages for injuries sustained as a proximate result of attempting to rescue defendants’ pet dog. Id. at *2. After saving the life of the defendant’s pet dog, plaintiff was found floating unconscious, sustaining neurological and cognitive injuries. Id. Moreover, the plaintiff specifically alleged that the defendants were liable under the rescue doctrine by negligently allowing their dog to fall or jump into [a] canal. Id. Plaintiff claimed that the defendants invited the rescue because their dog was in peril and the plaintiff would not have jumped but for the dog needing rescue. Id. at *4.

Although the Court acknowledged that the Restatement Second of Torts extends the rescue doctrine to property of another, and provides that, “it is not contributory negligence for a plaintiff to expose himself to danger in an effort to save [them]selves or a third person, or the land or chattels of the plaintiff or a third person, from harm, unless the effort itself is an unreasonable one, or the plaintiff acts reasonably in the course of it. See Restatement Second of Torts § 472. Additionally, the Court went on to mention that the Second Restatement further provides a plaintiff may run a greater risk to [their] own personal safety in a reasonable effort to save the life of a third person than he could run in order to save the animate or inanimate chattels of his neighbor or even of himself. Id. at *5. Although the Court also acknowledged that a majority of sister states have extended the rescue doctrine to cover another individual’s property, the Court ultimately declined to follow and to expand the rescue doctrine. Id. at *9.

In review of whether the rescue doctrine extends to include those who voluntarily choose to expose themselves to significant danger in an effort to safeguard the property of another, specifically here, a dog, the Court emphasized that the rescue doctrine permits recovery for damages and injuries sustained in situations in which an individual had acted to shield human life. Id. at *12. Without discrediting any strong emotional attachments we may have towards our dogs, cats, and other domesticated animals, or any significance to our family heirlooms, the Court reasoned that any attempt to reform the application of the rescue doctrine to include the protection of property, must emanate from the instinct to protect human life. Id. at *12-13.

Conclusively, the Court affirmed the Appellate Division decision to dismiss plaintiff’s Complaint as plaintiff’s decision to jump into the canal to save the dog’s life does not give rise to a recognizable claim under the rescue doctrine. Id. at *13. Additionally, the Court, in detail, reasoned that certain preemptive acts that appear to be driven by the protection of property are, at their core, adjuncts to the protection of human life and may give rise to a cause of action under the rescue doctrine, such as a neighbor who reports a fire in a nearby house to the proper authorities, then attempts to squelch the fire based on a reasonable, good faith belief that children or other vulnerable inhabitants may be in immediate danger, then under those circumstances, the neighbor may have basis to invoke the rescue doctrine to recover damages for injuries. Id. at *15.

New Jersey Supreme Court Finds Affidavit of Merit is not Required in Vicarious Liability Cases

The Supreme Court of New Jersey recently addressed whether under the affidavit of merit (“AOM”) statute N.J.S.A. 2A:53A-26 to – 29, a plaintiff must submit an affidavit of merit in support of a vicarious liability claim against a health care facility based on the negligent conduct of a non-licensed employee. Haviland v. Lourdes Med. Ctr. of Burlington Cty., 2022 N.J. LEXIS 309 (Apr. 12, 2022). Ultimately, the Court held that the AOM statute does not require an AOM in a case where a plaintiff asserts only vicarious liability against a healthcare facility for the negligent acts of its non-licensed agents or employees. Id. at *25.

The AOM statute requires plaintiffs in professional negligence actions by a licensed person in their profession, to submit an affidavit from a licensed professional attesting to the merits of the plaintiff’s claims. Id. at *14-15. The statute goes on to explicitly limit the term “licensed person” to sixteen professions and “a healthcare facility.” Id., N.J.S.A. 2A:53A-26.

In Haviland, Plaintiff presented to the Lourdes Medical Center for a radiological examination following surgery on his left shoulder. Id. at *9. According to Plaintiff, during the examination an unidentified radiology technician (“John Doe”) asked him to hold weights, which was contrary to the physician’s instructions. Id. Holding the weights caused Plaintiff to sustain an injury to his newly repaired left shoulder. Id. The new injury required a surgical procedure two months later. Id. A year later Plaintiff filed a complaint alleging that John Doe and Lourdes Medical Center were careless, negligent, and “deviated from accepted standards of medical care.” Id. at *9-10. In its Answer, Defendant contended that since it was a healthcare facility, Plaintiff was required to submit an AOM. Id. The trial court notified Plaintiff that it needed to produce an AOM, however Plaintiff advised the court that since it was proceeding against Defendant solely on a vicarious liability theory, an AOM was not required. Id. Defendant filed a motion to dismiss for failure to submit an AOM, which the judge granted. Id. at *10-11. Plaintiff appealed this decision and the Appellate Division reversed the trial court’s decision, finding that an AOM was not required under the circumstances presented. Id. at *11.

The New Jersey Supreme Court affirmed the Appellate Division’s decision and found that the AOM statute does not require plaintiffs to submit an AOM in cases where the plaintiff only asserts vicarious liability against a healthcare facility for the negligent acts of non-licensed employees. Id. at *25. In arriving at its decision, the Court looked at previous decisions from the Appellate Division which, when dealing with similar legal questions, focused “on the nature of the underlying conduct responsible for the plaintiff’s injuries.” Haviland v. Lourdes Med. Ctr. Of Burlington Cty., 2022 N.J. LEXIS at *24-25. Additionally, the Court sought to stay consistent with the statute’s legislative history by pointing out that during the initial drafting process the professions listed under the bill were only nine, then it was amended three times to expand the definition of “licensed person,” yet it never included “radiology technician” as one of them. Id. at *25. The Court also noted that Plaintiff does not dispute that had he raised direct claims against the hospital for negligent hiring, training, or supervision of the non-licensed employee, he would have been required to submit an AOM under the AOM statute. Id. at *25-26.

Update to Grieving Families Act

On June 2, 2022, the New York Senate and Assembly passed Bill S74A, also known as the Grieving Families Act (GFA), amending the law concerning the payment and distribution of damages in wrongful death actions. Governor Hochul will likely sign the bill into law. The current law, passed in 1847, precludes close family members from compensation for their non-economic loss in wrongfull death suits.

Section 1 of the legislation extends the time permitted to bring a wrongful death action to three years and six months compared to the two years now, thus giving families sufficient time to grieve before assembling evidence for a case. 

Section 2 permits recovery for emotional loss when a tortfeasor is found liable for causing a death.

Section 3 permits recovery by close family members, which may include but are not limited to, a spouse or domestic partner, children, grandparents, stepparents, and siblings. Whether someone is a close family member is an issue for the factfinder to decide based upon the specific circumstances relating to the person’s relationship with the decedent.

Section 4 replaces the term “distributes” with “persons for whose benefit the action is brought” since current law permits only the distributees of the estate to recover.

Section 5 states that the act shall take effect immediately and apply to all pending actions and actions commenced on or after such date.

Proponents argue the current law’s language is too narrow because it measures the worth of family members solely by their value as wage earners.  Furthermore, it precludes emotional damages.  At least 41 other states compensate family members for emotional loss.  Proponents further argue this bill assists family of the deceased and deters the negligent and reckless behavior, that leads to needless deaths.

Critics argue signing the bill into law could significantly increase the number of wrongful death cases. Furthermore, civil complaints alleging wrongful death could contain several plaintiffs on behalf of the decedent. The increase in plaintiffs per lawsuit may drastically extend the life of a case and will increase litigation costs, settlement demands, and verdicts.  In addition, some fear the bill could cause more economic harm than good to New Yorkers as a whole.

Callahan & Fusco will continue to monitor the status of Bill S74A and any corresponding court decisions on this issue.

Recent Updates to Florida's Proposal for Settlement Law

On May 25, 2022, the First District Court of Appeal of Florida recently reversed a final judgment awarding over $1 million in attorney's fees and taxable costs to plaintiff under §768.79, Fla. Stat. State Farm Auto. Ins. Co. v. Lightfoot, Nos. 1D20-2285, 1D20-2303, 2022 Fla. App. LEXIS 3559, at *3 (1st DCA May 25, 2022). In State Farm Auto. Ins. Co. v. Lightfoot the Defendant in an automobile negligence action sought to reverse a final judgment awarding over $1 million in attorney’s fees and taxable costs to Plaintiff.  The Defendant appealed asserting the rejected Proposal for Settlement (“Proposal”), which was the basis for the award, was not made in good faith.  The Proposal in question required Defendants to pay $1.3 million in cash within 30 days.

The First DCA reasoned the legislature enacted section §768.79, Fla. Stat., to “deter parties from rejecting presumably reasonable settlement offers by imposing sanctions through costs and attorney's fees.”  Section 768.79 allows a court to reject fees if it determines that a proposal was not made in good faith.  Good faith turns on whether the offeror “had a reasonable foundation to make [his] offer and made it with intent to settle the claim made against [him by the offeree] if the offer had been accepted.” Gawtrey v. Hayward, 50 So. 3d 739, 743 (Fla. 2d DCA 2010).  The burden of showing a proposal was not made in good faith falls on the offeree. Id. The First DCA clarified that the holding does not require the offeror to consider the offeree’s finances and ability to pay before tendering a proposal for settlement.  The holding in Lightfoot could provide case specific grounds to challenge a successful Proposal for Settlement on the grounds that the proposal was not made in good faith based on the defendant’s inability to pay and restrictive payment conditions.

On May 26, 2022, the Supreme Court of Florida amended Florida Rule of Civil Procedure 1.442, which governs Proposals for Settlement.  The amendment to the Rule provides that “nonmonetary terms” are now expressly excluded from Proposals for Settlement.  Most significantly, the rule amendment now prevents inclusion of a term that the Plaintiff must execute a General Release as part of the acceptance of the Proposal for Settlement.  Setting forth nonmonetary terms in a Proposal will now give the offeree a basis to invalidate it, preventing the offeror from recovering attorney’s fees and removing any settlement leverage.  Requiring a General Releases has routinely been included as a term by defendants serving proposals for settlement.  The inability to negotiate a General Release as a Proposal for Settlement term similarly means no inclusion of other significant, and often necessary, terms, including but not limited to, confidentiality terms; agreements to defend, indemnify or hold harmless as to hospital/Medicare/other liens; or other case-specific terms that may need to be included in a Release.

While Proposals for Settlement are rarely, if ever, accepted by a plaintiff in personal injury cases, the risk to the plaintiff that they could be forced to pay an award of attorney’s fees sometimes provides helpful settlement leverage.  The new amendment makes a seemingly small yet significant change that will impact defendant Proposals for Settlement going forward.  The amended rule takes effect on July 1, 2022, but because Florida law provides that Proposals for Settlement are generally to be held open for 30 days, the Rule amendment is already effective as of June 1, 2022.  The new Rule amendment may end up eliminating the Proposal for Settlement as a tactical option in many cases for defendants going forward.