N.J. Bill Reportedly Would Permit Punitive Damages

March 12, 2003

In spite of a conditional gubernatorial veto requesting removal of certain labor issues, a New Jersey bill dealing with arbitration
methods still includes a section that would reportedly allow arbitrators to award punitive damages.

“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,” Donald Cleasby, assistant vice president and assistant general counsel for the National Association of Independent Insurers (NAII), remarked. “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.

“Arbitration was developed as an efficient means of equitable dispute
resolution, not as a form of punishment,” Cleasby said. “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.”

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.

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