Loans of New Jersey Property Liability Ins. Guar. Ass'n, Matter of

• Decision Date: 16 May 1991
• Citation: 590 A.2d 210,124 N.J. 69
• Parties: In the Matter of the LOANS OF the NEW JERSEY PROPERTY LIABILITY INSURANCE GUARANTY ASSOCIATION to the New Jersey Automobile Insurance Guaranty Fund Pursuant to the New Jersey Fair Automobile Insurance Reform Act of 1990 (L.1990, C. 8).
• Court: New Jersey Supreme Court

Page 69

124 N.J. 69

590 A.2d 210

In the Matter of the LOANS OF the NEW JERSEY PROPERTY LIABILITY INSURANCE GUARANTY ASSOCIATION to the New Jersey Automobile Insurance Guaranty Fund Pursuant to the New Jersey Fair Automobile Insurance Reform Act of 1990 (L.1990, C. 8).

Supreme Court of New Jersey.

Argued Jan. 15, 1991.

Decided May 16, 1991.

J. Michael Riordan, for appellant New Jersey Property Liability Ins. Guar. Ass'n (Bressler, Amery & Ross, attorneys, J. Michael Riordan and Richard R. Spencer, Jr., of counsel, Jordan S. Weitberg, Keith S. Barbarosh, Lori A. Connors, Sean T. O'Neil, and Lawrence D. Ross, Florham Park, on the briefs).

Douglas S. Eakeley, Acting Atty. Gen., for respondent State of N.J. (Douglas S. Eakeley, attorney, Jack M. Sabatino, Asst. Atty. Gen., of counsel, Sharon M. Hallanan and Patricia A. Kern, Deputy Attys. Gen., on the brief).

The opinion of the Court was delivered by

HANDLER, J.

The Court heard oral argument in this appeal with the argument in the related case of State Farm Mutual Insurance Co. v. State, 124 N.J. 32, 590 A.2d 191 (1991), also decided today; we assume familiarity with our opinion in State Farm. Here, the New Jersey Property Liability Insurance Guaranty Association (PLIGA) challenges Order No. A90-252 (the Order) of the Department of Insurance, dated December 21, 1990. The Order required PLIGA to pay into the New Jersey Automobile Insurance Guaranty Fund (Auto Fund) the assessments collected from property-casualty insurers pursuant to Section 74 ( N.J.S.A. 17:30A-8a(9)) of the Fair Automobile Insurance Reform Act of 1990, L. 1990, c. 8 (Reform Act or the Act). PLIGA's challenge to the Order includes four claims: (1) that the loans PLIGA must make under Section 74 violate the debt limitation clause of the New Jersey Constitution, Article VIII, Section II, paragraph 3; (2) that the Reform Act's provision creating the loans is void for vagueness and thus a violation of procedural due process; (3) that PLIGA is entitled to a declaratory judgment setting the terms and conditions of the loans; and (4) that PLIGA is entitled to a judgment requiring the return of the loaned funds in the event that the Reform Act should be held unconstitutional. Since the last of these claims is now moot, or has been rendered premature, in view of our decision in State Farm that the Reform Act is facially constitutional, we address only the first three.

As discussed more fully in State Farm, supra, 124 N.J. at 43, 590 A.2d at 197, PLIGA was created in 1974 as a means for collecting assessments to cover unpaid claims against insurers that have become insolvent. See Railroad Roofing & Bldg. Supply Co. v. Financial Fire & Casualty Co., 85 N.J. 384, 389-90, 427 A.2d 66 (1981). Under the Reform Act, PLIGA is assigned the additional duty of collecting separate assessments during the years 1990 through 1997; these funds are dedicated to payment of the debt of the New Jersey Automobile Full Insurance Underwriting Association (JUA).

After the Reform Act became law in March 1990, there were a considerable number of details to be worked out about administrative procedures for collecting and disbursing funds for the JUA bailout generally, and about the PLIGA assessments in particular. Further, many insurers filed actions challenging the constitutionality of the Act, in most of which PLIGA, as stakeholder of the assessment monies, was joined as a defendant. The assessment process set forth in Section 74 of the Act clearly contemplates, at a minimum, the initial collection of the JUA assessments by PLIGA, followed by the payment of the assessments into the Auto Fund. Despite various legal challenges by the insurers and PLIGA, PLIGA was required to proceed with collection of the assessments in July 1990. The Department of Insurance apparently permitted PLIGA simply to hold the collected assessments, while the Department and PLIGA attempted to negotiate more specific procedures and terms for the loans.

Negotiations continued through November of 1990, but the Department and PLIGA did not reach agreement on such issues as the establishment of a fixed source of repayment, an amortization schedule, and an interest rate. In December 1990, with negotiations apparently at an impasse and with the Commissioner of Insurance required by the Reform Act to secure payover of the assessments to the Auto Fund before year-end, the Commissioner issued Order No. A90-252. The Order required PLIGA to payover the 1990 assessments by December 27, 1990 and specified PLIGA's recordkeeping, investment, and collection duties for future years. Most significantly for this appeal, the Order provided as follows for repayment of the loans:

(1)(a) The Automobile Fund shall repay said loans in a manner to be determined pursuant to paragraph (b) below out of whatever monies are available in the Automobile Fund, subject to their appropriation by the Legislature, after a determination by the Commissioner that there are adequate funds in the Automobile Fund for the retirement of the debt of the JUA or repayment of the loans is otherwise provided for, and subject to the approval of the Treasurer as required by Section 23(e) of the ... Act.

(b) Whereas the amount of the JUA debt and the quantity of funds available to pay that debt are at this time too uncertain to attempt to fix any meaningful repayment schedule for these loans, at a date not later than January 1, 1996, [PLIGA] and the JUA trustee shall meet with the Commissioner or his designee to establish a reasonable repayment schedule for the loans taking into consideration, among other issues, the monies collectible under Section 35 of the ... Act [i.e., funds collected by the Department of Motor Vehicles for violation surcharges] which are to be remitted for repayment of the loans....

Citing a conflict between its duties under the Reform Act and Order, and its possible fiduciary duties to its member insurers, PLIGA, on December 26, 1990, in its capacity as a party to the State Farm action, made an emergent application to this Court, requesting either a stay of its payment of the loan funds or payment into the Court. That request was denied; PLIGA then simultaneously filed an appeal of the Order before the Appellate Division and petitioned this Court for direct certification. We granted certification and permitted argument of PLIGA's appeal together with the State Farm arguments.

I.

PLIGA asserts that the Reform Act's requirement that it remit loans to the Auto Fund in the amount of approximately $160 million per year violates the debt limitation clause of the New Jersey Constitution, article VIII, section II, paragraph 3, because that amount exceeds one percent of the State's total appropriations for the current fiscal year and has not been enacted in conformity with the constitutional provision. The debt limitation clause, in pertinent part, states:

The Legislature shall not ... create in any fiscal year a debt or debts ... which together with any previous debts or liabilities shall exceed at any time one per centum of the total amount appropriated by the general appropriation law for that fiscal year, unless the same shall be authorized by a law for some single object or work distinctly specified therein.... [S]uch law shall provide the ways and means, exclusive of loans, to pay the interest of such debt or liability as it falls due, and also to pay and discharge the principal thereof within thirty-five years from the time it is contracted; and the law shall not be repealed until such debt or liability and the interest thereon are fully paid and discharged. No such law shall take effect until it shall have been submitted to the people at a general election and approved by a majority of the legally qualified voters of the State voting thereon.... [ N.J. Const. of 1947, art. VIII, § 2, p 3.]

Concededly, the Reform Act does not specify particular ways and means to pay either the interest or the entire principal on PLIGA's $160 million loans, does not specify a time period for repayment, and has not been submitted to voters in a referendum. However, the State argues that the repayment of the PLIGA loans will require future appropriations and that the Reform Act thus does not create any present obligation to make specific future payments on the part of the State. In essence, we understand the State's position to be that provisions for the repayment of the PLIGA loans is not a "debt" of the State within the meaning of the debt limitation clause.

The relevant provision of the Reform Act, Section 74, states the duty to make the loans in general terms, directing that PLIGA shall

[m]ake loans in the amount of $160 million per calendar year, beginning in calendar year 1990, to the New Jersey Automobile Insurance Guaranty Fund ... except that no loan shall be made pursuant to this paragraph after December 31, 1997. [ N.J.S.A. 17:30A-8a(10).]

In the statute itself, the only provision made for repayment of the PLIGA loans is that under Section 35, dealing with the merit-rating surcharges to be imposed by the Division of Motor Vehicles for certain motor-vehicle violations and drunken-driving convictions. That section provides that the surcharges shall be paid over to the JUA and then, after the JUA passes out of existence on October 1, 1991, to the Auto Fund; finally,

[f]rom the date of certification by the Commissioner of Insurance that the monies collectible under this subsection are no longer needed to fund the association debt, monies collectible under this subsection shall be remitted to the New Jersey Property-Liability Guaranty Association ... to be used for payment of any loans made by that association to the New Jersey Automobile Insurance Guaranty Fund ... [ N.J.S.A. 17:29A-35b(2).]

Taken together, Sections 35 and 74 of the Reform Act and the Commissioner's Order of December 21, 1990 indicate the following plan for repayment of the PLIGA loans. Presently, the only...