Railroad Roofing & Bldg. Supply Co., Inc. v. Financial Fire & Cas. Co.

• Decision Date: 26 March 1981
• Docket Number: BAR-DOW
• Citation: 85 N.J. 384,427 A.2d 66
• Court: New Jersey Supreme Court
• Parties: RAILROAD ROOFING & BUILDING SUPPLY CO., INC., a New Jersey Corporation, Plaintiff-Respondent, v. FINANCIAL FIRE & CASUALTY CO., a Florida Corporation et al., Defendants, and The State of New Jersey Department of Insurance, Defendant-Respondent, and New Jersey Property-Liability Insurance Guaranty Association, Defendant- Appellant, and Moffatt Excess, Inc., Defendant. The WHITE MOTOR CREDIT CORPORATION, Plaintiff, v.CORP., individually and in the name of Richard Schaub, Commissioner of Banking, et al., Defendants, and James F. DOWLING, individually and to the extent of his interest, if any, in Bar-Dow Corporation, Defendant-Third Party Plaintiff-Respondent, v. James J. SHEERAN, individually and as Commissioner of the Department of Insurance, Third Party Defendant-Respondent, and T. M. Boyd, individually and as Executive Secretary of the New Jersey Property-Liability Insurance Guaranty Association, Defendant-Appellant, and The All Statewide Agency, a corporation et al., Third Party Defendants. Ernest J. BUCCINI, M.D., Dr. Emanuel Klosk, Headliners, Inc., P. C. M. Molding Company, Edward Joffe, Elizabeth Board of Education, Frank Zaccardi, M. D., Dr. A. DiRenzo, Karrington Farms, Inc., d/b/a Four Seasons Farm, Byram Road House, Inc., John Lehita, Anna Lehita, Edward Faye, Mary Faye, Richard Stack, Estate of Carl Haipt, Robert O. Powers, George F. Johnson, David J. Kendall, Lewis Rosenblatt, d/b/a Sparta Medical Associates, a Professional Association, The J. E. Burke Company, a corporation of Wisconsin, Del-Chuck Corp., Charles L. Partie and Robert Treat Savings & Loan, Plaintiffs-Respondents, v. STATE of New Jersey, James J. Sheeran, individually and as Commissioner of the Department of Insurance of the State of New Jersey, Defendants-Respondents, and T. M. Boyd, individually and as Executive Secretary of the New Jersey Property-Liability Insurance Guaranty Association, Defendant-Appellant, and Joyce Luciano et al., Defendants.

Page 384

85 N.J. 384

427 A.2d 66

RAILROAD ROOFING & BUILDING SUPPLY CO., INC., a New Jersey Corporation, Plaintiff-Respondent, v. FINANCIAL FIRE & CASUALTY CO., a Florida Corporation et al Defendants, and The State of New Jersey Department of Insurance Defendant-Respondent, and New Jersey Property-Liability Insurance Guaranty Association, Defendant- Appellant, and Moffatt Excess, Inc., Defendant.

The WHITE MOTOR CREDIT CORPORATION, Plaintiff, v. BAR-DOW CORP., individually and in the name of Richard

Schaub, Commissioner of Banking, et al., Defendants,

and James F. DOWLING, individually and to the extent of his

interest, if any, in Bar-Dow Corporation, Defendant-Third Party Plaintiff-Respondent, v. James J. SHEERAN, individually and as Commissioner of the

Department of Insurance, Third Party Defendant-Respondent,

and T. M. Boyd, individually and as Executive Secretary of the

New Jersey Property-Liability Insurance Guaranty

Association, Defendant-Appellant, and The All Statewide Agency,

a corporation et al., Third Party Defendants.

Ernest J. BUCCINI, M.D., Dr. Emanuel Klosk, Headliners Inc., P. C. M. Molding Company, Edward Joffe, Elizabeth Board of Education, Frank Zaccardi, M. D., Dr. A. DiRenzo Karrington Farms, Inc., d/b/a Four Seasons Farm, Byram Road House, Inc., John Lehita, Anna Lehita, Edward Faye, Mary Faye, Richard Stack, Estate of Carl Haipt, Robert O. Powers, George F. Johnson, David J. Kendall, Lewis Rosenblatt, d/b/a Sparta Medical Associates, a Professional Association, The J. E. Burke Company, a corporation of Wisconsin, Del-Chuck Corp., Charles L. Partie and Robert Treat Savings & Loan, Plaintiffs-Respondents, v. STATE of New Jersey, James J. Sheeran, individually and as Commissioner of the Department of Insurance of the State of New Jersey, Defendants-Respondents, and T. M. Boyd, individually and as Executive Secretary of the New Jersey Property-Liability Insurance Guaranty Association, Defendant-Appellant, and Joyce Luciano et al., Defendants.

Supreme Court of New Jersey.

Argued Jan. 12, 1981.

Decided March 26, 1981.

Richard R. Spencer, Jr., Newark, for appellants (Stryker, Tams & Dill, Newark, attorneys; Richard R. Spencer, Jr., and William J. Heller, Newark, on the briefs).

Peter D. Pizzuto, Deputy Atty. Gen., for Commissioner of Insurance (John J. Degnan, Atty. Gen., attorney; Stephen Skillman, Asst. Atty. Gen., of counsel).

Theodore A. Gardner, Jersey City, for James F. Dowling (Timothy K. Madden, Director, Hudson County Legal Services, Corp., Jersey City, attorney).

John I. Lisowski, Livingston, for Ernest J. Buccini, et al. (Morgan, Melhuish, Monaghan & Spielvogel, Livingston, attorneys).

Allan Maitlin, West Orange, for respondent Railroad Roofing & Building Supply Co. (Feurstein, Sachs & Maitlin, West Orange, attorneys).

Eugene M. Haring, Newark, submitted a brief on behalf of amici curiae Alliance of American Insurers, American Ins. Ass'n, National Ass'n of Independent Insurers, and State Farm Mut. Auto. Ins. Co. (McCarter & English, attorneys; Ronald J. Hedges, Newark, on the brief).

Arthur R. Schmauder, Newark, submitted a brief on behalf of amicus curiae Risk and Insurance Management Society, Inc. (Shanley & Fisher, Newark, attorneys; LeBoeuf, Lamb, Leiby & Macrea, New York City, members of the New York bar, and Reginald Beane, a member of the Massachusetts bar, of counsel).

The opinion of the Court was delivered by

SULLIVAN, J.

The issue presented on appeal in these three consolidated cases¹ involves the applicability of the New Jersey Property-Liability Insurance Guaranty Association Act, N.J.S.A. 17:30A-1 et seq. (Guaranty Act), as it existed prior to February 22, 1980, to surplus lines insurance carriers. ² The particular question of insurance law common to these cases is whether New Jersey claims covered by policies issued by out-of-state surplus lines insurers, who thereafter became insolvent, fall within the protective scope of the Guaranty Act. Two trial courts ruled that the provisions of the Guaranty Act did not extend to surplus lines insurers. In consolidated proceedings, the Appellate Division reversed on the grounds that the Act protected New Jersey policyholders of surplus lines carriers. Certification was granted to review this question. 84 N.J. 441, 420 A.2d 343 (1980). We now reverse.

Surplus 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. ³ In such cases, coverage may be obtained through a surplus lines agent, licensed under "the surplus lines law" of New Jersey, N.J.S.A. 17:22-6.40 et seq., to "export" the insurance coverage place it with an "unauthorized" insurer. The surplus lines law essentially regulates the surplus lines agents who are licensed thereunder. It also imposes limited requirements on unauthorized insurers who wish to become "eligible" to have surplus lines coverage placed with them. N.J.S.A. 17:22-6.43(b) & (c), -6.45, -6.46. If the surplus lines agent is unable to place the insurance with an "eligible" surplus lines insurer, however, he may then place the coverage with a surplus lines insurer who has not been granted eligibility, provided such insurer satisfies the requirements of N.J.S.A. 17:22-6.45(h). In short, under the surplus lines law surplus lines insurers are not authorized or admitted to transact business in this State. Rather, the insurance is "exported" and placed with them only by a licensed surplus lines agent.

The Guaranty Act was adopted in this State in 1974 in recognition of the need to provide some protection to policyholders of insurance companies which become insolvent. N.J.S.A. 17:30A-2(a). The Act applies to all kinds of direct insurance except for specifically enumerated types such as life insurance, accident and health insurance, etc. N.J.S.A. 17:30A-2(b). The Act creates a New Jersey Property-Liability Insurance Guaranty Association (Association) and requires all insurers in the State who write insurance to which the Act applies to be members of the Association as a condition of their authority to transact insurance in this State. N.J.S.A. 17:30A-6. The Association is empowered to assess members in amounts necessary to pay the covered claims of an insolvent insurer. N.J.S.A. 17:30A-8. ⁴

Prior to February 22, 1980, the Act defined "(i)nsolvent insurer" to mean "(1) an insurer admitted or authorized to transact the business of insurance in this State ... and (2) who is determined to be insolvent ...." L.1974, c. 17:30A-5(e). It also defined "(m)ember insurer" as "any person who (1) writes any kind of insurance to which this act applies ... and (2) is admitted or authorized to transact the business of insurance in this State." L.1974, c. 17:30A-5(f). The Association and the New Jersey Department of Insurance never considered surplus lines carriers as such to be admitted or authorized to transact the business of insurance in this State and therefore the Association never attempted to assess them under the Act. Accordingly, insureds in this State holding surplus lines policies from these carriers never paid the policy surcharge for Association assessments. ⁵ Pursuant to the February 22, 1980 amendments, as heretofore noted, the Act now expressly excludes surplus lines insurers from its coverage.

The relevant facts in the three cases consolidated on appeal are undisputed. They involve two surplus lines insurance carriers, one domiciled in Florida and the other in Wisconsin, with whom surplus lines coverage was placed by surplus lines agents in New Jersey. The insurance covered subjects of insurance resident, located or to be performed in New Jersey. Thereafter, and prior to February 22, 1980, these two carriers were adjudicated to be insolvent. The three instant cases are brought by insureds in this State holding surplus lines policies issued by these carriers, seeking a ruling that their claims are protected under the New Jersey Guaranty Act.

The Appellate Division, in an opinion reported at 171 N.J.Super. 375, 409 A.2d 300 (1979), reversed trial court rulings that the provisions of the Guaranty Act did not extend to surplus lines insurers. It held that coverage existed. This decision was based largely on a liberal construction of the provisions of the Act as called for by N.J.S.A. 17:30A-4. Examining the statutory definition of "insolvent insurer," as it existed prior to February 22, 1980, and focusing on the words "admitted ... to transact the business of insurance in this State" in that definition, the Appellate Division found a...