Creature of Statute, A Joint Insurance Fund, That is Not Insurance Need Not Share with Insurer

Insurer May Not Compel State to Fund its Obligation

Oct 26, 2021

A JIF IS NOT INSURANCE

At the time of the incident, Long Branch was a member of Statewide Insurance Fund (Statewide), a joint insurance fund (JIF), formed pursuant to New Jersey’s joint insurance fund statute, N.J.S.A. 40A:10-36 to -51. Statewide provided Long Branch $10,000,000 in general liability coverage per occurrence. Long Branch also purchased a policy, effective January 1, 2012, to January 1, 2013, with $10,000,000 in coverage per occurrence under policy number CP 0641963 from defendants Star Insurance Company and Meadowbrook Inc. (collectively, Star).

On April 28, 2017, Statewide sued Star seeking a declaratory judgment for excess insurance coverage. Long Branch also filed a companion declaratory judgment action similar to Statewide’s in March 2017, which was deemed moot after Statewide and Star agreed to fund a settlement as Ezra’s case approached trial. This settlement included agreed-upon methods to determine when the self-insurance retention (SIR) limit of $1,000,000 would be reached, and how each insurer would fund the settlement in the interim.

Statewide alleged that under N.J.S.A. 40A:10-36, their coverage was not considered “insurance” for the purposes of applicable “other insurance clauses.” The court denied Star’s motion and granted Statewide’s, meaning Star was solely responsible for payment of the settlement on behalf of Long Branch.

TRIAL COURT DECISION

Star argued that although Statewide is a JIF under N.J.S.A. 40A:10-36 and -48, Statewide still must adhere to the terms of its contract. Star argues that JIFs, as insurers, are obligated to follow the general rules of insurance contract interpretation and each policy’s “other insurance” clauses are mutually repugnant.

A joint insurance fund established pursuant to the provisions of the act is not an insurance company nor an insurer under the laws of New Jersey. The authorized activities of the fund do not constitute the transaction of insurance nor doing an insurance business.

The trial court found that: “joint insurance funds are not insurance companies or insurers. There can be no stronger indication of the Legislature’s intent than the clear an[d] unambiguous language of the relevant statu[t]es. N.J.S.A. 40A:10-48 undeniably states that joint insurance funds are not insurance companies or insurers. . . .”

THE APPEAL

A court’s role does not include writing additional qualifications which the Legislature pointedly omitted in drafting the statute. Nor should an appellate court engage in conjecture or surmise concerning the Legislature’s intent that would circumvent the plain meaning of the statutes.

While joint insurance funds are subject to review and regulation by the Department of Banking and Insurance [DOBI], this review does not permit an appellate court to ignore the clear and unambiguous language of the statute that joint insurance funds are not insurance companies or insurers.

There is a difference between self-insurance and no insurance. As has been observed, the term “self-insurance” is ambiguous. The essence of an insurance contract is the shifting of the risk of loss from the insured to the insurer. However, under some circumstances, “self-insurance” is more than “no insurance.” In a sense, all risks not otherwise insured are “self-insured.” However, many formal procedures exist whereby an entity can become recognized as a self-insurer. This is most commonly accomplished by filing a bond or furnishing another form of proof of the ability to pay amounts for which the self-insurer may become liable.

Long Branch had an SIR-a dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss. An SIR limits an entity’s exposure to losses below the point at which its insurer becomes liable under an excess policy. Star is the excess policy. Absent some other policy to cover those losses, it may be more accurate to say the entity is uninsured.

ANALYSIS

The appellate court examined the “Other-Insurance” clause of each policy to determine whether there exists language which may govern the contribution each party should make

When giving the words of each policy’s other insurance clause their plain and ordinary meaning, the court agreed that the language of the Star policy’s “other insurance” clause is only excess over other “insurance.” Since self-insurance is not insurance, it has been recognized as the antithesis of insurance.

A court may not rewrite a better policy and allow Star to trigger its other insurance clause based upon the presence of the antithesis of insurance, self-insurance. Assuming Star wanted to include self-insurance as triggering the other insurance clause, it should have been included in the policy and will not be written into the policy at summary judgment on a coverage motion.

When reading the clauses, the sensible conclusion is that Star did not include self-insured JIFs in their clause, while Statewide did. And Statewide is not an insurer under N.J.S.A. 40A:10-48. Thus, Star’s argument failed.

ZALMA OPINION

Insurance contracts are created to shift the risk of loss from one to an insurer who is licensed to do the business of insurance in a state. A JIF is a statutorily created entity to solve the problems some entities, like the city of Long Branch, find themselves facting in obtaining commercial insurance. A JIF is, by definition, not insurance. Since it is not insurance it cannot be “other insurance” to share with Star the costs of defense or indemnity of the city. No court will ever change the wording of a contract or a contract of insurance to make the contract more favorable than intended. Star tried to dip into the funds of the state and lost.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.

He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.

Subscribe to Excellence in Claims Handling at https://barryzalma.substack.com/welcome.

He is available at

http://www.zalma.com

and zalma@zalma.com. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Go to training available at https://claimschool.com; articles at https://zalma.substack.com, the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at https://www.rumble.com/zalma ; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library/ The last two issues of ZIFL are available at https://zalma.com/zalmas-insurance-fraud-letter-2/ podcast now available at https://podcasts.apple.com/us/podcast/zalma-on-insurance/id1509583809?uo=4