Insurers Doing Business in New Jersey are Being Increasingly Precluded from Arbitrating Out-of-State

In Allied Professionals Insurance Co. v. Jodar, New Jersey’s Appellate Division affirmed a trial court order denying enforcement of an arbitration choice-of-forum provision in a medical malpractice insurance contract. The decision is notable because it broadly interprets prior Appellate Division case law, reaches a contrary result to a recent Law Division case where the issue went unchallenged, and paves the way for further extension of the result.

In Jodar, Joanna Jodar and her practice, Integral Acupuncture, were named as defendants in an underlying medical malpractice action for services rendered on April 11, 2008. Jodar sought coverage from Allied Professionals Insurance Company, her insurer, after she renewed her policy. Allied declined coverage, claiming Jodar made a material misrepresentation by failing to disclose a potential cause of action against her on the policy renewal application. Allied then cancelled her policy. After Jodar filed a third-party complaint against Allied, seeking to compel coverage, Allied filed a R. 4:67 proceeding, demanding arbitration under the terms of the policy, which contained a forum selection clause providing for arbitration in California.

The Appellate Division upheld the Trial Court’s decision that it would be unfair to enforce the forum selection clause because it was contrary to New Jersey public policy. Like the Trial Court, the Appellate Division reasoned that other witnesses from within the State, in addition to the doctor herself, likely would be required for a full and fair arbitration of the coverage question. More pointedly, the Court held, “[t]he public’s interest is implicated when insureds, attempting to enforce coverage, are required pursuant to boilerplate forum language in their policies to arbitrate out-of-state even though the covered risks, potential witnesses, and other evidence are located in this state.”

Jodar represents a departure from the Appellate Division’s opinion just two months earlier in Wismer v. Weinman, which concerned a similar medical malpractice coverage dispute against Allied involving an identical forum selection clause. The Trial Court in Wismer had enforced the forum selection clause, and because no party appealed that order, the Appellate Division did not address the issue and the arbitration took place in California.

Jodar also represents an expansion of the Appellate Division’s 1997 opinion in Param Petroleum Corp. v. Commerce & Industrial Insurance Co., which arose out of an arbitration clause in an insurance contract that the Court concluded would violate New Jersey public policy if enforced as written. The Court there stated that choice-of-forum clauses “should generally be ignored at least when the insured risk is in the state,” though this statement was in the context of an environmental pollution dispute that had more obvious ties to New Jersey than a claim for medical malpractice. In Jodar, however, the Court found that the unfairness inherent in requiring a medical malpractice insured to arbitrate out-of-state would similarly be a violation of New Jersey public policy, thereby extending Param Petroleum’s holding.

Jodar makes clear that boilerplate forum selection clauses in insurance contracts — no matter the nature of the dispute — will not be blindly enforced if they implicate the public interest. Insurers that include a choice-of-forum clause in their policies should thus beware that such clauses are subject to attack on public policy grounds and, as a result, may not be enforced.

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