SUPERIOR COURT OF NEW JERSEY
                                  APPELLATE DIVISION
                                  DOCKET NO. A-4621-19


     Plaintiff-Appellant,             APPROVED FOR PUBLICATION
                                                 March 4, 2021
                                          APPELLATE DIVISION



           Argued January 11, 2021 – Decided March 4, 2021

           Before Judges Messano, Suter, and Smith.

           On appeal from the Superior Court of New Jersey,
           Law Division, Hudson County, Docket No. L-1579-

           J. Randy Sawyer argued the cause for appellant (Stark
           & Stark, PC, attorneys; J. Randy Sawyer and John S.
           Prisco, of counsel and on the briefs).

           Sean P. Mahoney argued the cause for respondent
           (White and Williams, LLP, attorneys; Sean P.
           Mahoney and Felix S. Yelin, on the brief).

     The opinion of the court was delivered by

      Plaintiff Crystal Point Condominium Association appeals the June 23,

2020 order that dismissed its declaratory judgment complaint against

defendant Kinsale Insurance Company with prejudice and required it to

arbitrate its claims against defendant. For reasons that follow, we reverse the

June 23, 2020 order, reinstate plaintiff's declaratory judgment complaint and

remand for further proceedings consistent with this decision.


      Plaintiff is a nonprofit corporation that is responsible for "administering,

managing, operating and maintaining the common elements" of a forty -two-

story high-rise condominium building located in Jersey City. An inspection of

the condominium's common elements by an engineering firm retained by

plaintiff revealed there were construction defects or deficiencies with "the

concrete balconies and slabs of the building."

      In 2015, plaintiff sued several contractors involved in construction of the

building seeking damages for these alleged construction defects. Nacamuli

Associates, LLC (Nacamuli), the structural engineer for the condominium

construction project, and Hawke Inspection and Testing (Hawke), a third-party

inspector of the concrete balconies and slabs, were added as parties in 2017

and 2018, respectively. Neither Nacamuli nor Hawke filed an answer to the

construction litigation complaint. A default was entered against Nacamuli in

January 2018 and against Hawke in July 2018.             Following a hearing,

judgments were entered in favor of plaintiff against Hawke for $859,965.01

and against Nacamuli for $874,400.86. Plaintiff attempted to execute on the

judgments. Only Hawke had a federal tax lien number. A bank account search

using that number showed Hawke was out of business. Relevant here, plaintiff

issued writs of execution against Nacamuli and Hawke to be served by the

Hudson County Sheriff. The writs were not returned by the time this appeal

was briefed.

      Defendant is an excess and surplus lines insurer that is eligible to issue

insurance policies in New Jersey. 1 Plaintiff alleges that defendant issued an

architects and engineers professional liability policy to Nacamuli and Hawke

for the periods from July 29, 2016 to July 29, 2017, and from July 29, 2017 to

July 29, 2018.

      Under the policy, the bankruptcy or insolvency of an insured does not

relieve defendant from its obligations. The policy also provides that "[n]o

action may be brought against us unless there has been full compliance with all

  A surplus lines carrier is "an unauthorized insurer in which an insurance
coverage is placed or may be placed under [the] surplus lines law." Johnson &
Johnson v. Dir., Div. of Taxation, 

461 N.J. Super. 148

, 153-54 (App. Div.
2019) (alteration in original) (quoting N.J.S.A. 17:22-6.41(b)).
of the terms of this [p]olicy and the ultimate amount of the 'insured's'

responsibility has been finally concluded either by a trial judgment against the

'insureds' or by written agreement with the 'insureds', all claimants, and us

. . . ." The policy provides for binding arbitration.


            All disputes over coverage or any rights afforded
            under this [p]olicy, including whether an entity or
            person is a "named insured", an "insured", an
            additional insured or, the effect of any applicable
            statutes or common law upon the contractual
            obligations owed, shall be submitted to binding
            [a]rbitration, which shall be the sole and exclusive
            means to resolve the dispute. Either party may initiate
            the binding arbitration.


            The decision of the arbitration is final and binding on
            the parties.

      Defendant declined to defend or indemnify Nacamuli and Hawke in the

construction litigation, and issued a coverage declination letter. Defendant

disputes that Nacamuli is its insured.

      On April 23, 2020, plaintiff filed a declaratory judgment complaint

against defendant.     Plaintiff requested a declaration that defendant was

obligated to pay the judgments against Nacamuli and Hawke. The complaint

also alleged defendant breached its contract with Nacamuli and Hawke by

denying them a defense and indemnification under the policy. The complaint

did not reference N.J.S.A. 17:28-2 (the direct action statute), nor whether

Nacamuli and Hawke were bankrupt or insolvent.

        On May 29, 2020, defendant filed a motion to compel arbitration under

the policy and to stay proceedings in court. 2 It argued that any coverage

dispute about the policy had to be resolved through binding arbitration.

Defendant argued plaintiff was equitably estopped from enforcing the

insurance contract at the same time it was trying to avoid the arbitration


        Plaintiff opposed the motion arguing it was an incidental beneficiary of

the policy. Plaintiff claimed for the first time that the direct action statute

applied to its declaratory judgment action, invalidating any requirement to

participate in binding arbitration. In response, defendant argued the direct

action statute did not apply and the prerequisites for its application were not

met, but if they were, arbitration was required because the statute used the

phrase "under the terms of the policy."

        The motion judge granted defendant's motion to compel binding

arbitration on June 23, 2020, and dismissed plaintiff's complaint. The stay

    This motion is not included in the appendix.
request was denied. In its written decision, the court found plaintiff was an

"incidental third-party beneficiary" of the insurance policy and not a "third-

party beneficiary." As a judgment creditor, it "stand[s] in the shoes of the

insureds to collect the benefits of the contract" and must "accept the terms of

the contract it finds distasteful." The motion judge found the direct action

statute did not apply because there was no indication Nacamuli and Hawke

could not pay the judgment due to insolvency or bankruptcy. Plaintiff, it was

said, "must take the sweet with the sour."

      Plaintiff's motion for reconsideration was denied as "unwarranted." The

statute did not apply because plaintiff never showed Nacamuli and Hawke

were insolvent.   The court found enforcement of "the policies' arbitration

clause [was] not inconsistent with the [d]irect [a]ction [s]tatute" because New

Jersey's law favors arbitration and arbitration can be enforced against a non-

party to a contract. The court granted plaintiff's motion to stay the June 23,

2020 order pending appeal.

      On appeal, plaintiff raises the following issues for our consideration:

            POINT I


            ACTION IN CONTRAVENTION OF                        NEW

            A. Standard of Review.

            B. The Trial Court Improperly Concluded That The
            New Jersey Direct Action Statute, N.J.S.A. § 17:28-2,
            (the "Direct Action Statute") Did Not Apply To The
            Association's Claims.

            C. The Trial Court Erred In Holding that the Policy
            Arbitration Clause Superseded the Direct Action


      "As a general rule, an individual or entity that is 'a stranger to an

insurance policy has no right to recover the policy proceeds.'" Ross v. Lowitz,

222 N.J. 494

, 512 (2015) (quoting Gen. Accident Ins. Co. v. N.Y. Marine &

Gen. Ins. Co., 

320 N.J. Super. 546

, 553-54 (App. Div. 1999)). There is no

such direct right unless a contractual or statutory section allows for a direct

action against the insurer.   See 12 Jeffrey E. Thomas, New Appleman on

Insurance Law Library Edition § 150.08[2][a] (2020).

      In New Jersey, a direct action against an insurer is permitted under

N.J.S.A. 17:28-2. The statute provides,

            [n]o policy of insurance against loss or damage
            resulting from accident to or injury suffered by an
            employee or other person and for which the person
            insured is liable, or against loss or damage to property

            caused by animals or by any vehicle drawn, propelled
            or operated by any motive power, and for which loss
            or damage the person insured is liable, shall be issued
            or delivered in this state by any insurer authorized to
            do business in this state, unless there is contained
            within the policy a provision that the insolvency or
            bankruptcy of the person insured shall not release the
            insurance carrier from the payment of damages for
            injury sustained or loss occasioned during the life of
            the policy, and stating that in case execution against
            the insured is returned unsatisfied in an action brought
            by the injured person . . . because of the insolvency or
            bankruptcy, then an action may be maintained by the
            injured person . . . against the corporation under the
            terms of the policy for the amount of the judgment in
            the action not exceeding the amount of the policy.

            [N.J.S.A. 17:28-2.]

      Plaintiff contends the trial court erred by dismissing its complaint

because the direct action statute permits it to sue defendant directly u nder the

policy issued to Nacamuli and Hawke. Our review of a trial court's legal

determination is plenary.   D'Agostino v. Maldonado, 

216 N.J. 168

, 182-83

(2013) (citing Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 

140 N.J. 366

, 378 (1995)).

      The trial court found the direct action statute did not apply because there

was no evidence Nacamuli or Hawke were bankrupt or insolvent. After the

appeal was filed, however, the writs of execution to Nacamuli and Hawke were

returned unsatisfied. They noted that service was unsuccessful because the

"[c]ompany does not exist at this address." We granted plaintiff's motion to

supplement the record to include these writs. The return of an "unsatisfied

execution is prima facie evidence" of the insolvency of the insured. Universal

Indem. Ins. Co. v. Caltagirone, 

119 N.J. Eq. 491

, 494 (E. & A. 1936).

Defendant has not offered any evidence to contradict this. As such, plaintiff's

judgments are unsatisfied.

      Cases are clear that an injured party cannot proceed through the direct

action statute without proof of an unsatisfied execution or judgment.         See

Dransfield v. Citizens Cas. Co., 

5 N.J. 190

, 194 (1950) (a right of action ripens

when there is recovery of a judgment against the insured "whose insolvency is

proved by the return of an execution unsatisfied"); Kabinski v. Emp'rs' Liab.

Assur. Corp., 

123 N.J.L. 377

, 379 (E. & A. 1939) ("injured parties have no

rights under the policy until there is an unsatisfied judgment against the

[insured]"); Saxon v. United States Fid. & Guar. Co., 

107 N.J.L. 266

, 268 (E.

& A. 1931) (explaining that plaintiffs cannot recover from insurer unless "an

execution was returned unsatisfied because of the insolvency or bankruptcy of

the [insured]").    This prerequisite having been satisfied, and further

considering the unrebutted evidence plaintiff offered in opposing defendant's

motion demonstrating its efforts to collect on the judgment, we find the direct

action statute does apply in this case.

      We disagree with defendant's argument, that the direct action statute is

limited to injuries arising out of accidents for property loss or damage from

animals. The statutory language does not support this cramped application.

Merely because the statute provides that certain types of policy forms must

include a right for a post-judgment action does not mean there is no such right

with respect to other types of policies. The legislature did not indicate that

other types of post-judgment actions were prohibited by the direct action


      The trial court's June 23, 2020 order required plaintiff to participate in

binding arbitration with defendant because the trial court found plaintiff stood

in the shoes of Nacamuli and Hawke as their judgment creditor and had to

accept binding arbitration of its claim under the insurance contract. The trial

court did not resolve whether the direct action statute itself precluded

arbitration, as plaintiff now argues.

      The enforceability of an arbitration provision is a question of law that

we review de novo.       Medford Twp. Sch. Dist. v. Schneider Elec. Bldgs.

Americas, Inc., 

459 N.J. Super. 1

, 7 (App. Div. 2019); see Kernahan v. Home

Warranty Adm'r of Fla., Inc., 

236 N.J. 301

, 316 (2019) ("Whether a

contractual arbitration provision is enforceable is a question of law, and we

need not defer to the interpretative analysis of the trial . . . court[] unless we

find it persuasive.").

      Arbitration is a "favored means of dispute resolution." Hojnowski v.

Vans Skate Park, 

187 N.J. 323

, 342 (2006).         To determine enforceability,

courts "apply ordinary state-law principles that govern the formation of


Kernahan, 236 N.J. at 318

(quoting First Options of Chi., Inc. v.


514 U.S. 938

, 944 (1995)). "An arbitration agreement is valid only if

the parties intended to arbitrate because parties are not required 'to arbitrate

when they have not agreed to do so.'"

Id. at 317

(quoting Volt Info. Scis., Inc.

v. Bd. of Trs. of Leland Stanford Junior Univ., 

489 U.S. 468

, 478 (1989)). The

"initial inquiry" is whether the contract is based on "mutual assent."

Id. at 319

(quoting Atalese v. U.S. Legal Servs. Grp., L.P., 

219 N.J. 430

, 442 (2014)).

      The parties here do not dispute that there was no mutuality of assent

between plaintiff and defendant. The trial court ordered plaintiff to submit to

binding arbitration of its claim against defendant even though plaintiff was not

a signatory of the insurance contract.

      "Nonsignatories of a contract . . . may compel arbitration or be subject to

arbitration if the nonparty is . . . a third[-]party beneficiary to the contract."

Mut. Benefit Life Ins. Co. v. Zimmerman, 

783 F. Supp. 853

, 865 (D.N.J.

1992). Traditionally, third-party beneficiary status "focuses on whether the

parties to the contract intended others to benefit from the existence of the

contract, or whether the benefit so derived arises merely as an unintended

incident of the agreement." 

Ross, 222 N.J. at 513

(quoting Broadway Maint.

Corp. v. Rutgers, 

90 N.J. 253

, 259 (1982)).       Where "there is no intent to

recognize the third party's right to contract performance, 'then the third person

is only an incidental beneficiary, having no contractual standing.'"

Ibid. (quoting Broadway Maint.

Corp., 90 N.J. at 259

). "The contractual intent to

recognize a right to performance in the third person is the key. If that intent

does not exist, then the third person is only an incidental beneficiary, having

no contractual standing."    Broadway Maint. 

Corp., 90 N.J. at 253


Standard Gas Power Corp. v. New England Cas. Co., 

90 N.J.L. 570

, 573-74 (E.

& A. 1917)). There is no indication in this record what the parties intended

about the contract and who would or would not benefit from the contract. We

have no information about the coverage litigation.

      Recently in Northfield Ins. Co. v. Mt. Hawley Ins. Co., 

454 N.J. Super. 135

, 148-49 (App. Div. 2018), we observed that to a certain extent an injured

party is a third-party beneficiary of an insurance policy and has standing to sue

in light of the direct action statute, which permits an injured person to maintain

an action when the insured is insolvent or bankrupt. That status is "compelled

by legislative mandate . . . ."

Id. at 148

n.7. We need not measure the full

extent of this statutory third-party beneficiary status here. In our view, it is

enough that the legislature conferred statutory third-party beneficiary status in

a situation such as this, where an injured party obtained judgment against the

insured and that insured now has been shown to be insolvent.

      It does not follow that merely because the statute allows a direct action

against the insurer that arbitration is required under the contract. Defendant

relies on Flexi-Van Leasing, Inc. v. Through Transp. Mut. Ins. Ass'n, Ltd., 

108 F. App’x 35

(3d Cir. 2004), for the opposite conclusion, but that case is not

persuasive nor is it precedential. Flexi-Van cites the principle "that a third-

party beneficiary is bound by the terms of a contract where its claim arises out

of that contract,"

Id. at 40,

but plaintiff would have no claim here but for the

direct action statute that permits it relief against defendant. In this regard it is

a third-party beneficiary by virtue of the statute rather than in the traditional


         Plaintiff argues the direct action statute itself compels the result that it is

not required to arbitrate because it uses the term "action," which it interprets to

mean a lawsuit in Superior Court. N.J.S.A. 17-28:2. Defendant claims there is

a statutory basis for its argument that arbitration is required because of the

statute's reference to maintaining an action "under the terms of the policy for

the amount of the judgment in the action not exceeding the amount of the


Ibid. We believe the

answer to whether arbitration can be compelled

lies not within the direct action statute but within the principles which animate

our arbitration law.

         Defendant argues that because plaintiff seeks the benefit of the insurance

contract, it has stepped into the shoes of the insured and thus, as the motion

judge said, must "take the sweet with the sour." As much as this colloquialism

may have appeal, it gives no recognition to the fact that plaintiff is the injured

party with no contractual relationship with the insured or insurer and whose

only means to collect its judgment against the now defunct insured is through

the pathway afforded by legislative mandate. Why is it then that the injured

party must accept binding arbitration when it did not assent? In this context, it

is much more likely the legislature's reference in the statute to the policy was

meant to reference the coverage itself and not the alternate dispute resolution

mechanism included in the policy by the insurer and consented to by the


      Defendant relies on Arthur Anderson LLP v. Carlisle, 

556 U.S. 624

, 631

(2009) in support of the trial court's order requiring plaintiff to arbitrate its

claims against defendant. In Arthur Anderson, the Court held that non-parties

are not barred from arbitration "[b]ecause 'traditional principles' of state law

allow a contract to be enforced by or against nonparties to the contract through

'assumption, piercing the corporate veil, alter ego, incorporation by reference,

third-party beneficiary theories, waiver and estoppel . . . .'"

Ibid. We do not

agree with defendant that this is the end of the analysis. In

Hirsch v. Amper Fin. Servs., LLC, 

215 N.J. 174

, 187 (2013), our Supreme

Court considered whether a non-signatory to an arbitration agreement could be

compelled to arbitrate.     Hirsch recognized that in considering whether to

require arbitration, a court must determine "whether a valid agreement to

arbitrate exists."

Ibid. (quoting Hojnowski, 187

N.J. at 342).          "This

preliminary question, commonly referred to as arbitrability, underscores the

fundamental principle that a party must agree to submit to arbitration."

Ibid. A-4621-19 15 (citing

Garfinkel v. Morristown Obstetrics & Gynecology Assocs., P.A., 

168 N.J. 124

, 132 (2001)). However, the Court acknowledged that a non-signatory

to an arbitration agreement might be compelled to arbitrate based on principles

of agency or other legal theories.

Ibid. The Court explained,

               [t]he United States Supreme Court has recognized
               that, in the context of arbitration, "'traditional
               principles' of state law allow a contract to be enforced
               by or against nonparties to the contract through
               'assumption, piercing the corporate veil, alter ego,
               incorporation by reference, third party beneficiary
               theories, waiver and estoppel.'" Arthur Andersen LLP
               v. Carlisle, 

556 U.S. 624

, 631 (2009) (emphasis
               added) (quoting 21 Williston on Contracts § 57:19, at
               183 (4th ed. 2001)). In other words, in assessing
               whether parties can be compelled to arbitrate, courts
               can use principles of contract law even in the absence
               of an express arbitration clause.


[Hirsch, 215 N.J. at 188-89


      Hirsch considered that a non-signatory could be compelled to arbitrate

based on the doctrine of equitable estoppel, finding that there needed to be

proof of detrimental reliance by one of the parties for application of estoppel.

Hirsch rejected the notion that the non-signatory would be required to arbitrate

claims simply because they were intertwined with claims made against a

signatory to the agreement.

Id. at 189.

Hirsch did not involve a third-party


      We reject the notion that labeling a non-signatory claimant as a third-

party beneficiary of an insurance contract compels arbitration. Our courts

have held that the decision whether to enforce arbitration turns on

"consider[ation of] the contractual terms, the surrounding circumstances, and

the purpose of the contract."

Id. at 188

(quoting Marchak v. Claridge

Commons, Inc., 

134 N.J. 275

, 282 (1993)). Courts are to "look to the language

of the arbitration clause to establish its boundaries."

Ibid. (citing Garfinkel, 168

N.J at 132). The Court cautioned against expanding the scope of the

arbitration contract.

Ibid. Defendant contends these

claims fall under its arbitration provision, but

like Hirsch, the arbitration clause is broad although it does "not embrace any

express inclusion of claims involving other parties."

Id. at 195.

It is limited to

the parties to the contract.    In this context, New Jersey's preference for

arbitration does not apply.

Id. at 196

(providing that "preference only applies

when an agreement exists between the parties to arbitrate their disputes").

      We are mindful as well that this case involves a judgment creditor of

Nacamuli and Hawke where defendant apparently declined to provide a

defense or indemnification. Defendant could have attempted to resolve the

coverage issues with its insureds rather than requiring the injured third -party

judgment creditor — who is not a signatory — to relinquish its right to trial to

assert its claim to the insurance policy.

      We are mindful as well that the party seeking to compel arbitration is a

surplus lines carrier.   As we recently explained, "[s]urplus lines insurance

involves New Jersey risks which insurance companies authorized or admitted

to do business in this State have refused to cover by reason of the nature of the

risk." Johnson & 

Johnson, 461 N.J. Super. at 154

(quoting R.R. Roofing &

Bldg. Supply Co. v. Fin. Fire & Cas. Co., 

85 N.J. 384

, 389 (1981)). Defendant

is an eligible surplus lines insurer. N.J.S.A. 17:22-6.45 sets forth the statutory

requirements to become an eligible surplus lines insurer in New Jersey.

Consideration of the policy's arbitration clause is not expressly mentioned in

the statute although the "condition or methods of operation of the insurer must

not be such as would render its operation hazardous to the public or its

policyholders in this State." N.J.S.A. 17:22-6.45(e). Considering the contract,

the surrounding circumstances and the language of the arbitration clause, see

Hirsch, 215 N.J. at 188

, we are not satisfied that the third-party beneficiary

status accorded to plaintiff by the direct action statute means binding

arbitration is a predetermined sequela of that status when the claim is

considered against the canvas of our arbitration jurisprudence.

      Equitable estoppel does not afford relief to defendant. The arbitration

clause in its policy does not reference third-party actions such as this, making

it unlikely defendant relied to its detriment on the clause to defend third -party

claims such as this.

      Reversed. The complaint is reinstated, and the matter is remanded for

further proceedings. We do not retain jurisdiction.


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