The Delaware Department of Insurance (“DOI”) is threatening to take action against those who do not abide by state mandatory arbitration law. On September 1, 2015, the Delaware DOI released a bulletin to remind all insurers writing the coverages required under 21 Del. C. § 2118 that they are required to submit to mandatory arbitration all subrogation claims among insurers or self-insurers pursuant to 21 Del. C. § 2118(g)(3). Subrogation professionals should be certain to keep this in mind when handling auto subrogation in Delaware. The bulletin posted serves as a reminder that the DOI is taking this seriously and may be motivated to use legal means to force this arbitration and penalize violators.
The mandatory arbitration law requires that “disputes among insurers as to liability or amounts paid pursuant to paragraphs (a)(1)-(4) of this section (PIP) shall be arbitrated by the Wilmington Auto Accident Reparation Arbitration Committee or its successors (Arbitration Forums). Any disputes arising between an insurer or insurers and a self-insurer or self-insurers shall be submitted to arbitration which shall be conducted by the commissioner in the same manner as the arbitration of claims provided for in subsection (j) or this section.” 21 Del. C. § 2118(g)(3). In short, these provisions require that all insurers and self-insurers submit their subrogation claims among insurers or self-insurers to mandatory arbitration.
This mandatory arbitration provision is causing a stir within the subrogation industry. One of the primary reasons for the unease is due to reports of subrogated parties with legitimate claims who have been barred from litigation and arbitration due to jurisdictional restrictions. The conundrum arises in cases where Arbitration Forums (or alternative venue) rejects jurisdiction and, due to 21 Del. C. § 2118(g)(3), this decision cannot be appealed in court. This has been most noticeable when an insurance company is attempting to exercise Personal Injury Protection (“PIP”) subrogation rights pertaining to a Delaware insured, but arising from an accident outside of Delaware, in which case, an insurer would have no recourse within the state. See Zurich American Ins. Co. v. St. Paul Surplus Lines, Inc., Civil Action No. 4095-VCP. These cases cannot be litigated or arbitrated in Delaware creating a quagmire for the subrogated party. Despite these cases, many subrogation practitioners believe that an out-of-state insurer seeking PIP subrogation rights may still do so under the common law (equitable subrogation). However, be wary because this is possibly the reason for the aforementioned threats by the Delaware DOI.
In addition to the jurisdictional issues, there are those who argue that 21 Del. C. § 2118(g)(3) stands on relatively weak constitutional grounds. The question is whether mandatory arbitration laws can stand up to a due process and fair trial challenge. The U.S. Constitution and the vast majority of State Constitutions protect a civil litigant’s right to a fair trial, including, in most cases, a trial by jury.
Similar cases have been litigated before, most recently, over an even less-restrictive law passed by the Illinois legislature. On January 1, 2012, an Illinois Senate Bill was signed into law mandating arbitration in collision subrogation cases involving amounts less than $2,500. 215 I.L.C.S. § 5/143.24d. However, this change did not last very long. On December 18, 2013, the Appellate Court of Illinois, First District, in Interstate Bankers Casualty Co., et al. v. Alberto Hernandez, 2013 IL App (1st) 123035, held that the Illinois mandatory arbitration clause was unconstitutional as a violation of due process fair trial principles. The Court explained that a property subrogation claim is basically a common law negligence action and, accordingly, includes the right to trial by jury.
Although the new law was declared unconstitutional, the Court did not have the last laugh. In response to the mandatory arbitration law being shut down, the legislature amended 215 I.L.C.S. § 5/143.24d so as to pass constitutional scrutiny. The primary change to the new 215 I.L.C.S. § 5/143.24d is that it now makes mandatory arbitration non-binding. By removing the binding nature of arbitration, this new rule will likely be upheld under Illinois law. Although we can never be certain whether Delaware courts would rule in similar fashion, the Illinois story can be instructive. Unlike Delaware, the Illinois law was even less restrictive because it established a maximum dollar amount of $2,500. However, the Illinois law was dealing with subrogation for vehicle property damage, while the Delaware law is in regard to PIP.
Whether Delaware courts go the route of Illinois or not, 21 Del. C. § 2118(g)(3) is the law of the land and the Delaware DOI seems set on enforcing it. From the wording of this memo, it seems that enforcement will occur regardless of where the accident occurred and whether the subrogated party has access to a state forum for resolution. Accordingly, it is absolutely essential that the subrogation professional understand the law and file their cases appropriately.
If you should have any questions regarding this article or subrogation in general, please contact Ashton Kirsch at [email protected].