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Fastenberg v. Prudential Insurance Company of America

309 N.J. Super. 415, 707 A.2d 209 (App. Div. 1998)

EMPLOYER-EMPLOYEE; ARBITRATION—The court’s preference for arbitration in New Jersey is so strong that the “business of insurance” exception to the mandatory arbitration provision in the standard securities industry employment contract is to be narrowly construed.

A senior vice president of an insurance company was terminated for failing to enforce the company’s document retention policy. The company released a statement to the media concerning an on-going investigation of the company’s practices. This release also stated that the vice president was fired for destroying documents important to the investigation. The vice president sued the company, alleging that his superiors conspired against him, wrongfully discharged him, and negligently misrepresented his responsibility for the destruction of company documents. The company sought to compel arbitration pursuant to the Code of Arbitration of the National Association of Securities Dealers (NASD), of which it was a member. While employed by the company, the vice president signed a Uniform Application for Securities Industry Regulation (U-4). The U-4 is an NASD form requiring arbitration of any dispute arising out of termination of an employee of any member, “with the exception of disputes involving the insurance business of any member which is also an insurance company.” The motion judge refused the company’s request for arbitration because of this exception, holding that the company’s stated reason for termination involved aspects of its insurance business.

The Appellate Division stated that the New Jersey legislature has indicated that arbitration is the preferred forum for resolution of contract disputes. Accordingly, state courts have construed arbitration agreements liberally in favor of arbitration, and have ruled that an order to arbitrate should not be denied unless it is clear that the arbitration clause is inapplicable. Specifically in insurance matters, New Jersey courts have considered the facts of each case when determining whether the issues were “intrinsically insurance” related, as that term was used by the NASD in its proposed rule change, or simply an ordinary employment dispute that happened to be with an insurance company. However, the Third Circuit has rejected a factual analysis and stated that in the absence of clear guidance concerning the meaning of “business of insurance” or “intrinsically insurance,” courts should defer to the presumption in favor of arbitration. In Re Prudential Insurance Co. of America Sales Practice Litigation, 133 F.3d 225 (3d Cir. 1998). Since the Appellate Division was unable to glean the intent of the U-4 or the meaning of “intrinsically insurance,” it followed the Third Circuit and made a presumption in favor of arbitration. The Court then proceeded to analyze the facts under relevant New Jersey case law and ordered arbitration after concluding that the employer’s claims did not fall within the “business of insurance” exception. The Court stated that the issue did not hinge on the particulars of the insurance business, but simply on whether the vice president was wrongfully discharged for not retaining corporate documents, claims that could occur in any industry.


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