The New Jersey Supreme Court partially overturned a state appeals court on Monday and held that a condominium can pursue claims against an insurer of allegedly insolvent policyholders, but they must be arbitrated.

Richmond, Virginia-based excess and surplus lines insurer Kinsale Insurance Co. issued architects and engineers professional liability insurance policies effective from July 2016 to July 2018 to Elizabeth, New Jersey-based Nacamuli Associates LLC, a structural engineering firm, and to Elizabeth-based Hawke Engineers and Testing LLC, a construction inspection company, according to the New Jersey Supreme Court in Trenton’s unanimous ruling in Crystal Point Condominium Association, Inc. v. Kinsale Insurance Co.

In a construction defect case, Crystal Point, which manages a high-rise residential building in Jersey City, New Jersey, obtained default judgments totaling $1.7 million against the two entities.

It sought payment from Kinsale under the state’s “direct action” statute, which provides that an injured claimant with an unsatisfied judgment against an insolvent or bankrupt policyholder can file a direct action against an insurer in certain settings, according to the ruling.

The trial court ruled the statute did not apply. It granted Kinsale’s motion to compel arbitration and dismissed Crystal Point’s complaint. An appeals court reversed the lower court, and authorized Crystal Point to assert claims against Kinsale under the statute, but ruled the dispute was not arbitrable.

The supreme court agreed with the appellate court that Crystal Point can assert claims against Kinsale, but ruled the claims must be arbitrated.

Based on the direct action statute’s plain language, “Crystal Point’s claims against Kinsale are derivative claims, and are thus subject to the terms of the insurance policies at issue, including the provisions in each policy mandating binding arbitration of disputes between Kinsale and its insureds,” the ruling said.

“Crystal Point’s claims against Kinsale are therefore subject to arbitration,” it said, in partially reversing the appeals court, and reinstating the trial court’s order compelling arbitration.

Attorneys in the case did not respond to requests for comment.