NAII Warns that Proposed NJ Arbitration Bill Would Permit Punitive Damages

March 13, 2003

The National Association of Independent Insurers has issued a bulletin calling attention to provisions in a pending New Jersey bill dealing with arbitration methods that include a section that would allow arbitrators to award punitive damages, in spite of a conditional gubernatorial veto requesting removal of certain labor issues.

“Although we urged the governor to conditionally veto the punitive damages section, he focused instead on removal of labor issues, which leaves the bill seriously flawed,” stated Donald S. Cleasby, NAII assistant VP and assistant general counsel. “Many insurers include arbitration clauses in their insurance contracts because arbitration provides an efficient, speedy and cost-effective method for resolving disputes. By allowing arbitrators to award punitive damages, insurers and policyholders will be far less willing to go to arbitration, which defeats the purpose of the process.”

“S.B. 514, which adopts a modified version of the Uniform Arbitration Act of 2000, is based on a model law proposed by the National Conference of Commissioners on Uniform State Laws. The model law includes a section allowing arbitrators to award punitive damages or other exemplary relief if law authorizes such an award,” said the bulletin.

“Arbitration was developed as an efficient means of equitable dispute resolution, not as a form of punishment,” Cleasby stressed. “Bringing punitive damages into arbitration would radically change the original character and purpose of arbitration. Arbitrators should not be given authority by the state to punish; this should be reserved for the courts, which need to adhere to principles of substantive law and the protections offered by the rules of evidence.”

The announcement indicated that “Under the terms of the conditional veto, the bill goes back to the legislature for correction of the sections chosen by the governor for change. If the changes are not made, the bill is automatically vetoed. “

Was this article valuable?

Here are more articles you may enjoy.