New Jersey Medical Malpractice Reinsurance Recovery Fund Surcharge, Adopted New Rules, N.J.A.C. 11:18, In re

• Decision Date: 13 February 1991
• Citation: 586 A.2d 1317,246 N.J.Super. 109
• Parties: In re NEW JERSEY MEDICAL MALPRACTICE REINSURANCE RECOVERY FUND SURCHARGE, ADOPTED NEW RULES, N.J.A.C. 11:18. Henry J. MINEUR, M.D., Hillel Ben-Asher, M.D., Michael H. Handler, M.D., Daniel A. Small, M.D., Lois M. Deritter, M.D., and the Medical Inter-Insurance Exchange of New Jersey, Plaintiffs- Appellants, v. COMMISSIONER OF INSURANCE, STATE OF NEW JERSEY, Defendant-Respondent. The MEDICAL SOCIETY OF NEW JERSEY, Douglas M. Constabile, M.D., Palma E. Formica, M.D., Paul J. Hirsch, M.D., Joseph A. Riggs, M.D., Jerome I. Cohen, M.D., John Durst, M.D., Ronald Krasnick, M.D., Irving P. Ratner, M.D., Plaintiffs-Appellants, v. Samuel FORTUNATO , Commission of the Department of Insurance for the State of New Jersey, Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 109

246 N.J.Super. 109

586 A.2d 1317

In re NEW JERSEY MEDICAL MALPRACTICE REINSURANCE RECOVERY FUND SURCHARGE, ADOPTED NEW RULES, N.J.A.C. 11:18 Henry J. MINEUR, M.D., Hillel Ben-Asher, M.D., Michael H Handler, M.D., Daniel A. Small, M.D., Lois M Deritter, M.D., and the Medical Inter-Insurance Exchange of New Jersey,

Plaintiffs- Appellants, v. COMMISSIONER OF INSURANCE, STATE OF NEW JERSEY,

Defendant-Respondent.

The MEDICAL SOCIETY OF NEW JERSEY, Douglas M. Constabile,

M.D., Palma E. Formica, M.D., Paul J. Hirsch, M.D., Joseph

A. Riggs, M.D., Jerome I. Cohen, M.D., John Durst, M.D., Ronald Krasnick, M.D., Irving P. Ratner, M.D., Plaintiffs-Appellants, v. Samuel FORTUNATO [successor to Merin], Commission of the

Department of Insurance for the State of New

Jersey, Defendants-Respondents.

Superior Court of New Jersey Appellate Division.

Argued Sept. 17, 1990.

Decided Feb. 13, 1991.

Herbert J. Stern, for plaintiff-appellant Medical Soc. of New Jersey (Hellring, Lindeman, Goldstein, Siegal, Stern & Greenberg, attorneys, Herbert J. Stern and David S. Stone, Roseland, of counsel).

Kevin R. Jespersen, for plaintiffs-appellants Henry J. Minuer, M.D., Hillel Ben-Asher, M.D., Michael H. Handler, M.D., Daniel A. Small, M.D., Lois M. Deritter, M.D. and The Medical Inter-Insurance Exchange (Norris, McLaughlin & Marcus, attorneys, Kevin R. Jespersen, M. Karen Thompson, Amy Wechsler, Somerville, on the brief).

Sharon M. Hallanan, First Deputy Atty. Gen., for defendant-respondent Commissioner of Ins. (Robert J. Del Tufo, Atty. Gen., attorney, Joseph L. Yannotti, Deputy Atty. Gen., of counsel, Sharon M. Hallanan on the brief).

Richard R. Spencer, Jr., for respondent-intervenor New Jersey Property-Liability Ins. Guar. Ass'n (Bressler, Amery & Ross, attorneys, Richard R. Spencer of counsel, Cynthia J. Borrelli, Florham Park, and Jon W. Olson, Morristown, on the brief).

Hugh P. Francis, for intervenor New Jersey Medical Malpractice Reinsurance Ass'n (Francis & Berry, attorneys, Hugh P. Francis of counsel, Terrence Smith, Morristown, on the brief).

Before Judges J.H. COLEMAN, DREIER and ASHBEY.

The opinion of the court was delivered by

J.H. COLEMAN, P.J.A.D.

These are three consolidated appeals challenging the methodology employed in N.J.A.C. 11:18-1 et seq. to finance a deficit incurred by a legislatively-created fund to pay certain medical malpractice claims. The regulations require certain licensed medical practitioners and health care facilities, namely physicians, podiatrists and hospitals, to pay surcharges on their medical malpractice liability insurance premiums to retire an approximate $65 million deficit.

The Medical Society of New Jersey (Medical Society) and eight individual doctors have filed an appeal under A-2225-89T5. Henry J. Mineur, M.D., four other physicians and the Medical Inter-Insurance Exchange of New Jersey (MIX) filed an appeal under A-2274-89T5. Both are direct appeals from the promulgation of N.J.A.C. 11:18-1 et seq. by the Commissioner of Insurance (Commissioner). The Medical Society has filed a second appeal, A-2492-89T5, from an order entered in the Law Division on December 18, 1989, dismissing a complaint which sought to compel the Commissioner to retire the deficit through other means. The surcharges became effective December 18, 1989, and all requests for a stay have been denied. We here hold that the regulations are valid.

I

These appeals require us to construe two legislative enactments which created two associations to deal with problems caused when property and liability insurance companies become insolvent or refuse to write medical malpractice liability insurance for some health care providers. We begin with the two statutes because the clearest indication of the legislative intent, which we must decipher, is the statutory language. Perez v. Pantasote, 95 N.J. 105, 114, 469 A.2d 22 (1984).

The first of such enactments is the New Jersey Property-Liability Insurance Guaranty Association Act, N.J.S.A. 17:30A-1 et seq. (Guaranty Act) (effective Apr. 11, 1974). The Guaranty Act was adopted to provide some protection to policyholders and claimants of policyholders of insurance companies which become insolvent. N.J.S.A. 17:30A-2a; Railroad Roofing & Bldg. Supply Co. v. Financial Fire & Cas. Co., 85 N.J. 384, 389, 427 A.2d 66 (1981); Sussman v. Ostroff, 232 N.J.Super. 306, 311, 556 A.2d 1301 (App.Div.), certif. denied 117 N.J. 143, 564 A.2d 865 (1989).

The Guaranty Act creates the Guaranty Association to implement the multiple purposes stated in N.J.S.A. 17:30A-2. All insurers in the State which write insurance to which the Guaranty Act applies are required to be members of the Guaranty Association as a condition of the insurers' authority to engage in the insurance business in the State. N.J.S.A. 17:30A-6. The operation of the Guaranty Association, "in respect of both administration and claims-payment, is financed by the Guaranty Fund," based on assessments of its members. Sussman v. Ostroff, supra, 232 N.J. Super. at 311, 556 A.2d 1301; N.J.S.A. 17:30A-8a(3). The amount of each assessment is based on the premium volume of each member insurer. The assessment, however, is recouped by the member insurer in the form of a policy premium surcharge of one-half percent paid by each insured and is earmarked for the Guaranty Fund. See N.J.A.C. 11:1-6.1 which is based on N.J.S.A. 17:30A-16.

Less than two years later, the Legislature enacted the Medical Malpractice Liability Insurance Act, N.J.S.A. 17:30D-1 et seq., (Malpractice Act) (effective Jan. 30, 1976). The Malpractice Act was adopted to encourage voluntary insurers to write medical malpractice liability insurance in response to a crisis that had developed. Insurance companies were declining to readily provide malpractice coverage to licensed medical practitioners and health care facilities. It was anticipated that by providing reinsurance and requiring the carriers to provide coverage, the crisis would soon end.

In an attempt to achieve those objectives, the Malpractice Act created the Reinsurance Association, N.J.S.A. 17:30D-4, to provide reinsurance up to 100% to certain insurers. N.J.S.A. 17:30D-2a. Each member, namely every insurer authorized to write personal injury and property damage liability insurance on a direct basis in the State (except for workers' compensation), was compelled to provide coverage or lose its authority to operate in New Jersey. N.J.S.A. 17:30D-4. When it became apparent that many carriers were willing to withdraw from the State rather than write medical malpractice liability coverage, the Legislature authorized the Reinsurance Association to write medical malpractice coverage on a direct basis. L. 1978, c. 153, § 1; N.J.S.A. 17:30D-2; N.J.S.A. 17:30D-8b (effective Oct. 1, 1978).

The Malpractice Act also created the New Jersey Medical Malpractice Recovery Fund (Recovery Fund). N.J.S.A. 17:30D-9. The purpose of the Recovery Fund was "to provide a financial backup for the plan of operation of the" Reinsurance Association and was intended to "be used to reimburse the association for any deficit sustained in the operation of the association." Ibid. The regulations involved in these appeals were promulgated to finance the Recovery Fund and to retire any deficit incurred by the Reinsurance Association.

Although the Reinsurance Association was created by the Legislature, it could not actually engage in operation until activated by the Commissioner based on a determination that medical malpractice liability insurance was "unavailable for any class of licensed medical practitioners or health care facility." N.J.S.A. 17:30D-2a.

The Commissioner first activated the Reinsurance Association on March 1, 1976, for hospitals. At about the same time, the Commissioner granted a license to the Hospital Association to operate the Health Care Insurance Exchange (Exchange) as an insurer of hospitals. The Reinsurance Association reinsured the Exchange until the Exchange was in a position to terminate the reinsurance agreement on February 1, 1982. By that time the Exchange had become financially secure enough voluntarily to assume coverage for hospitals.

On December 27, 1976, Federal Insurance Company (Federal), which provided medical malpractice insurance to allopathic and osteopathic physicians in the State, notified the Commissioner that it would not renew the policies insuring physicians and surgeons for professional liability after January 31, 1977. That prompted the Commissioner to activate the Reinsurance Association for allopathic and osteopathic physicians and surgeons effective February 1, 1977, and for podiatrists effective January 31, 1977.

In the meantime, the Medical Society's efforts to form MIX to replace Federal were successful. On December 24, 1977, the Commissioner granted MIX a license pursuant to N.J.S.A. 17:50-1 et seq. But the Commissioner did not deactivate the Reinsurance Association for physicians and surgeons after MIX became operational. The capital contribution required of the policyholders to satisfy N.J.S.A. 17:50-5, allegedly made the cost of obtaining coverage from MIX prohibitive for some. In addition, Federal became reinsured for 100% on physician's coverage for policy limits of $1 million per claim with a maximum of $3 million for any year. Public Service Mutual became the insurer for podiatrists, which provided the same policy limits as did Federal. North River Insurance Company became the excess carrier with limits up to $5 million.

MIX could reject a doctor's request for coverage. It is estimated that between 1977 and 1982, MIX ousted between 70 to 75 physicians and rejected applications from another two dozen or so. There were some, according to the Commissioner, whose claims records were so bad that they simply did not apply to MIX. It seems fair to assume these doctors became insured by the Reinsurance Association.

The Reinsurance Association began writing...