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In a dispute between two insurance companies that signed a limited arbitration agreement, a state court in New Jersey held that because one company validly denied coverage, the other company was not entitled to arbitration of its claim.
In AAA Mid-Atlantic Insurance Co. of New Jersey v. State Farm Indemnity Co, No. MID-L-5431-05, 2007 WL 763227 (N.J. Super. Ct. App. Div. Mar. 15, 2007), a vehicle insured by AAA Mid-Atlantic injured a pedestrian who was insured by State Farm. State Farm paid personal injury protection (PIP) benefits to the insured pedestrian, but sought arbitration to recover reimbursement of these benefits from AAA Mid-Atlantic.
In ruling that State Farm was not entitled to arbitration, the Court noted that while the two companies agreed to arbitrate certain disputes involving separate policies that provided "concurrent coverage" to the same party, the agreement specifically excluded claims for which a company legitimately asserted a "denial of coverage."
The injured party was not covered by AAA Mid-Atlantic's policy, which specifically excluded pedestrians injured by a covered automobile. Such a denial was legal under New Jersey law, and State Farm was therefore not entitled to arbitration of its claims under the terms of the companies' agreement.
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