(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in
the interests of brevity, portions of any opinion may not have been summarized).
Argued September 24, 2001 -- Decided June 17, 2002
Zazzali, J., writing for a majority of the Court.
Construing the New Jersey Property Liability Insurance Guarantee Association Act, N.J.S.A. 17:30A-1 to
-20 (Act), the Court determines whether the New Jersey Property-Liability Insurance Guaranty Association
(NJPLIGA), as secondarily-liable for insurance coverage relating to an environmental tort claim, is entitled to a
credit equal to the statutory maximum payable by the primarily liable entity, the Pennsylvania Property and
Casualty Insurance Guaranty Association (PPCIGA), or whether NJPLIGA is entitled merely to a credit for the
amount the insured actually recovered from PPCIGA.
Carpenter Technology Corporation (Carpenter), with its principal place of business in Pennsylvania, was
identified as a potentially responsible party by the State of New Jersey and the United States for environmental
contamination at four sites in New Jersey. Carpenter sought a declaratory judgment to determine its insurance
coverage for the contamination under multiple insurance policies. However, three of the insurers became insolvent
and, as a result, the NJPLIGA and the PPCIGA, New Jersey's and Pennsylvania's insurance guaranty associations,
were added as defendants. Because the Act states that any entity that may recover from more than one insurance
guaranty association shall seek recovery first from the association of the residence of the insured, the trial court
found that PPCIGA is the primarily-liable guaranty association and that NJPLIGA is liable for secondary coverage.
In 1997, Carpenter settled with PPCIGA. NJPLIGA subsequently moved for summary judgment seeking
an order permitting it to set off the maximum statutory claim payable by PPCIGA against NJPLIGA's liability to
Carpenter on each covered claim. The trial court concluded that NJPLIGA is entitled to a credit per covered claim
of $299,900, which represents the maximum statutory amount PPCIGA could tender Carpenter under Pennsylvania
law. Because New Jersey's maximum statutory amount is $300,000, the trial court found that NJPLIGA's
obligation to Carpenter for each covered claim was $100.
The Appellate Division rejected the trial court's conclusion and held that NJPLIGA is entitled only to a
credit for the amount PPCIGA actually paid Carpenter in settlement of each covered claim.
HELD: In determining the amount it will pay to a claimant pursuant to the New Jersey Property Liability Insurance
Guarantee Association Act, the New Jersey Property-Liability Insurance Guaranty Association, as the
secondarily-liable guaranty association in this situation, is entitled to a credit equal to the statutory maximum
amount payable by the Pennsylvania Property and Casualty Insurance Guaranty Association, the primarily-liable
guaranty association.
1. The Act was modeled after the Post-Assessment Property and Liability Insurance Guaranty Association
Model Act. A significant majority of states, including New Jersey and Pennsylvania, has passed some version of
this model statute. The principle of primary liability is set forth in Section 12a of the Act, which tracks the language
of the model statute. Section 12a states, in part, that a claimant shall seek recovery first from the association of the
place of residence of the insured. It states further that "any recovery under this act shall be reduced by the amount
of recovery from any other insurance guaranty association or its equivalent." The language "amount of recovery
from" is ambiguous, and the Court must look beyond the language to discover the Legislature's intent in this matter.
(Pp. 9-13).
2. The Act was created to avoid financial loss to claimants or policyholders because of the insolvency of
insurance companies. The conservation of resources, however, is a major goal of the Act. For example, the Act
limits recovery at $300,000 per covered claim. (Pp. 13-16).
3. Court opinions construing the Act and similar statutes in other states demonstrate how the national
network of insurance guaranty associations, of which the New Jersey Property-Liability Insurance Guaranty
Association is a part, interacts to provide relief to claimants as well as to apportion equitably the risk among the
guaranty associations. In the jurisdictions that have considered this issue, a constant in those court opinions is that
secondarily-liable guaranty associations were credited the maximum amount recoverable from primarily-liable
guaranty associations. (Pp. 16 to 22).
4. The Court's holding that NJPLIGA is entitled to a credit equal to the statutory maximum amount payable
by PPCIGA comports with the Legislature's intent to enroll New Jersey in a national network of insurance guaranty
associations designed to spread equitably the risk of insurer insolvency. The holding comports also with this State's
public policy favoring the protection of New Jersey insurance policy holders that fund NJPLIGA, the need to
prevent claimants from bypassing the system of primary liability codified in the Act, and the duty to conserve
NJPLIGA's resources. If the Court were to rule otherwise, the primarily-liable guaranty association could settle for
a small percentage of the claim, evade its obligation as the primarily-liable association, and shift that primary
obligation to the secondarily-liable guaranty association. Neither the model statute nor New Jersey law intended
that the primarily-liable guaranty association could forsake its obligation and transfer its responsibility to a
secondarily-liable guaranty association. (Pp. 22 to 23).
The judgment of the Appellate Division is REVERSED.
JUSTICE VERNIERO, dissenting, believes that the plain language of the Act entitles NJPLIGA to a
credit only for the amounts actually received by the insured from PPCIGA. Justice Verniero believes that the
majority's holding is at odds with the Act's clear goal of protecting insureds from the inequities and hardships
caused by insurance company insolvencies and with the need to fund an environmental clean-up plan for the New
Jersey sites.
CHIEF JUSTICE PORITZ and JUSTICES STEIN and COLEMAN join in JUSTICE ZAZZALI's opinion.
JUSTICE VERNIERO filed a separate dissenting opinion. JUSTICES LONG and LaVECCHIA did not
participate.
SUPREME COURT OF NEW JERSEY
A-
76 September Term 2000
CARPENTER TECHNOLOGY
CORPORATION,
Plaintiff-Respondent,
v.
ADMIRAL INSURANCE COMPANY;
AETNA CASUALTY AND SURETY
COMPANY; ALLSTATE INSURANCE
COMPANY (as successor in
interest to Northbrook
Insurance Company); AMERICAN
INSURANCE COMPANY; HIGHLANDS
INSURANCE COMPANY; INSURANCE
COMPANY OF NORTH AMERICA;
INTERNATIONAL INSURANCE
COMPANY; LEXINGTON INSURANCE
COMPANY; PACIFIC EMPLOYERS
INSURANCE COMPANY;
PENNSYLVANIA INSURANCE
GUARANTY ASSOCIATION; UNITED
STATES FIRE INSURANCE
COMPANY; EXECUTIVE RE
INDEMNITY, INC.; ALLIANZ
INSURANCE COMPANY; FIRST
STATE INSURANCE COMPANY;
ASSOCIATED INTERNATIONAL
INSURANCE COMPANY; INDEMNITY
INSURANCE COMPANY OF NORTH
AMERICA; UNDERWRITERS AT
LLOYD'S, LONDON; AND LONDON
MARKET COMPANIES, INCLUDING:
DOMINION INSURANCE COMPANY;
EXCESS INSURANCE COMPANY;
HIGHLANDS INSURANCE COMPANY;
LONDON & EDINBURGH GENERAL
INSURANCE COMPANY LIMITED;
STRONGHOLD INSURANCE COMPANY
LIMITED and TUREGUM INSURANCE
COMPANY,
Defendants,
and
NEW JERSEY PROPERTY-LIABILITY
INSURANCE GUARANTY
ASSOCIATION,
Defendant-Appellant.
Argued September 24, 2001 -- Decided June 17, 2002
On certification to the Superior Court,
Appellate Division, whose opinion is
reported at
335 N.J. Super. 510 (2000).
Mark M. Tallmadge argued the cause for
appellant (Bressler, Amery & Ross and Susan
L. Moreinis, attorneys; Mr. Tallmadge and
Stephanie M. Hopkins, on the briefs).
Steven E. Speece, a member of the
Pennsylvania bar, argued the cause for
respondent (Brown & Connery, attorneys; Mr.
Speece and Michael J. Vassalotti, on the
briefs).
Paul G. Witko, Deputy Attorney General,
argued the cause for amicus curiae,
Commissioner of Banking and Insurance (John
J. Farmer, Jr., Attorney General of New
Jersey, attorney; Patrick DeAlmeida,
Assistant Attorney General, on the brief).
The opinion of the Court was delivered by
ZAZZALI, J.
The State of New Jersey and the United States identified
Carpenter Technology Corporation (Carpenter), a corporation with
its principal place of business in Pennsylvania, as a potentially
responsible party (PRP) for environmental contamination at four
sites in New Jersey. In response, Carpenter commenced a
declaratory judgment action in which it sought a declaration of
coverage for the claims under multiple insurance policies issued
by defendant insurance companies. Three of Carpenter's insurers
became insolvent and, as a result, the New Jersey Property-
Liability Insurance Guaranty Association (NJPLIGA) and the
Pennsylvania Property and Casualty Insurance Guaranty Association
(PPCIGA) (formerly known as the Pennsylvania Insurance Guaranty
Association (PIGA)) were added as defendants.
PPCIGA is the primarily-liable guaranty association because
any entity that may recover from more than one insurance guaranty
association shall seek recovery first from the association of the
residence of the insured. N.J.S.A. 17:30A-12a. The issue in
this appeal is the amount of credit to which NJPLIGA is entitled
because of PPCIGA's primary liability. The trial court concluded
that NJPLIGA is entitled to a credit per “covered claim” of
$299,900, which represents the maximum statutory amount PPCIGA
could tender Carpenter under Pennsylvania law. The Appellate
Division rejected that conclusion, holding that NJPLIGA is
entitled only to a credit for the amount PPCIGA actually paid
Carpenter in settlement of each covered claim. We conclude that
the Appellate Division's holding contravenes the Legislature's
intent in creating New Jersey's insurance guaranty association.
We therefore reverse.
In 1994, the New Jersey Department of Environmental Protection (NJDEP) and the United States Environmental Protection Agency (EPA) identified Carpenter, incorporated under the laws of Delaware with its principal place of business in Pennsylvania, as a PRP for property damage and environmental contamination at four sites in New Jersey, two sites in Pennsylvania, and one site in Maryland. At the time Carpenter filed its declaratory judgment action, Carpenter manufactured specialty steel products and operated manufacturing plants in Pennsylvania and New Jersey. According to Carpenter's complaint, the property damage at the four New Jersey sites was due to either the treatment or recycling of manufacturing by-products, or in the case of one site where Carpenter operated an underground facility for storing solvents, the damage resulted from the leakage of chemicals such as Trichloroethylene (TCE). TCE is commonly used in manufacturing to degrease machine parts. Toxicological Profile for Trichloroethylene. U.S. Public Health Service, U.S. Dep't of Health and Human Servs., Atlanta, GA 1993. TCE is “between a probable and possible human carcinogen.” U.S. Environmental Protection Agency, 63 FR 34338 (June 24, 1998).
Carpenter maintained primary umbrella and excess comprehensive general liability insurance to cover liabilities resulting from its manufacturing operations. Under the terms of the policies, each insurer agreed to defend and indemnify Carpenter for all liabilities to third parties. The policies covered claims brought by state and federal agencies for environmental damage that Carpenter caused by discharging waste materials and by-products into the environment.
Like NJPLIGA, PPCIGA is a property-liability insurance guaranty association created by Pennsylvania statute to provide limited relief to policyholders and claimants in the event of insurance company insolvencies. Under both the New Jersey and Pennsylvania statutory schemes, if a potential claimant can make a claim against either guaranty association, the claimant must seek recovery first from the guaranty association of the state in which it resides. N.J.S.A. 17:30A-12; 40 Pa. Stat. Ann. § 1701.503. NJPLIGA's maximum statutory limit per “covered claim” is $300,000. N.J.S.A. 17:30A-8. PPCIGA's maximum statutory limit per “covered claim” is $299,900. 40 Pa. Stat. Ann. § 1701.203.
In 1993, Carpenter filed a complaint seeking declaratory relief requiring its insurers to defend Carpenter in any litigation and to indemnify Carpenter for all past, present or future losses and expenses in accordance with the liability coverage for environmental clean-up and remediation of the four New Jersey sites. As discussed, at the time Carpenter filed suit, three of Carpenter's insurers were insolvent. Accordingly, Carpenter sought statutory benefits from PPCIGA and NJPLIGA pursuant to 40 Penn. Stat. Ann. § 991.1801 to 991.1820 and N.J.S.A. 17:30A-1 to -20 respectively.See footnote 11 Both PPCIGA and NJPLIGA denied Carpenter's claims for statutory benefits. Carpenter, PPCIGA, and NJPLIGA moved for summary judgment. Carpenter admitted it was a Pennsylvania resident for insurance guaranty association purposes.
The trial court granted partial summary judgment to NJPLIGA and determined that PPCIGA was the primary payor in respect of the four New Jersey sites. The court noted that because Carpenter's corporate residence was in Pennsylvania, Carpenter was not a New Jersey policyholder. The court also found that the premiums Carpenter paid to the insolvent insurers were used to calculate the assessments paid to PPCIGA and not NJPLIGA. Accordingly, NJPLIGA's liability to Carpenter, if any, would be secondary. Carpenter does not challenge that determination.
The trial court also determined that NJPLIGA's maximum obligation to Carpenter in respect of the New Jersey sites was equal to its maximum statutory limit of $300,000 per “covered claim.” Further, the court determined that the $300,000 limit should be reduced by a credit attributable to PPCIGA's payment to Carpenter under N.J.S.A. 17:30A-12a, but did not determine the amount of the reduction. The trial court calculated Carpenter's past damages attributable to the New Jersey sites to be $20,289,864.
The parties engaged in settlement negotiations. NJPLIGA participated in but later withdrew from those negotiations. In 1997, Carpenter settled with PPCIGA. NJPLIGA subsequently moved for summary judgment seeking an order permitting it to set off the maximum statutory claim payable by PPCIGA against its liability to Carpenter on each “covered claim.” The trial court granted the motion and ruled that NJPLIGA was entitled to a credit for each “covered claim” equal to PPCIGA's maximum statutory limit ($299,900). The court held that NJPLIGA's maximum “per covered claim” obligation to Carpenter was $300,000, less a credit for PPCIGA's $299,900 statutory limit, that is, $100 per claim. Subsequently, the trial court held that Carpenter was entitled to relief on sixty-five “covered claims.” Consequently, the trial court entered judgment in favor of Carpenter against NJPLIGA in the amount of $6,500.
The Appellate Division affirmed in part and reversed in part. Carpenter Tech. Corp. v. Admiral Ins. Co., 335 N.J. Super. 510, 517 (2000). The court held that NJPLIGA is entitled to a credit only for the amounts actually received by Carpenter from PPCIGA. Id. at 516. Because the settlement amount did not appear in the record, the court remanded the matter for a determination of the proper credit. Ibid. The Appellate Division also affirmed the trial court's determination of the number of “covered claims.” Id. at 517.
We granted certification, 167 N.J. 633 (2001), on the issue of the amount of credit to which NJPLIGA is entitled. We also granted the motion of the Commissioner of Banking and Insurance for leave to appear as amicus curiae.
a. Any person having a covered claim which may be recovered from more than one insurance guaranty association or its equivalent shall seek recovery first from the association of the place of residence of the insured at the time of the insured event except that if it is a first party claim for damage to property with a permanent location, he [or she] shall seek recovery first from the association of the location of the property. Any recovery under this act shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. However, if recovery is denied or deferred by the association, a person may proceed to recover from any other insurance guaranty association or its equivalent from which recovery may be legally sought.
b. Any person having a claim against an
insurer, whether or not the insurer is a
member insurer, under any provision in an
insurance policy other than a policy of an
insolvent insurer which is also a covered
claim, shall be required to exhaust first his
[or her] right under that other policy. An
amount payable on a covered claim under P.L.
1974, c. 17 (C. 17:30A-1 et seq.) shall be
reduced by the amount of recovery under any
such insurance policy.
[(Emphasis added).]
As a general rule, “[a] statute should be interpreted in
accordance with its plain meaning if it is clear and unambiguous
on its face and admits of only one interpretation.” Franklin
Tower One v. N.M.,
157 N.J. 602, 613 (1999). “A statute's
meaning is not self-evident, however, where varying
interpretations of the statute are plausible.” Bergen Commercial
Bank v. Sisler,
157 N.J. 188, 202 (1999) (citation omitted).
Moreover, “[w]here a literal reading will lead to a result not in
accord with the essential purpose and design of the act, the
spirit of the law will control its letter.” Aponte-Correa v.
Allstate Ins. Co.,
162 N.J. 318, 323 (2000) (citation omitted).
“To that end, 'words may be expanded or limited according to the
manifest reason and obvious purpose of the law.'” State v.
Ochoa,
314 N.J. Super. 168, 171-72 (App. Div. 1998) (citations
omitted). Stated simply, “it is not the words but the internal
sense of the law that controls.” Roig v. Kelsey,
135 N.J. 500,
516 (1994). See also N.J.S.A. 1:1-1 (stating that courts
construe statutory words and phrases according to their generally
accepted meaning unless that meaning is inconsistent with
legislative intent). Accordingly, a court's “ultimate goal in
construing a statute is to ensure that the Legislature's plan is
effectuated.” Lettenmaier v. Lube Connection, Inc.,
162 N.J. 134, 144 (1999) (citation omitted); see also Jimenez v. Baglieri,
152 N.J. 337, 351 (1998) (“The inquiry in the ultimate analysis
is to determine the true intention of the law[.]”) Moreover,
“[l]egislative intent may also be inferred on grounds of policy
or reasonableness.” McCann v. Clerk of the City of Jersey City,
338 N.J. Super. 509, 519 (App. Div.), aff'd,
167 N.J. 311 (2001)
(citation omitted).
A simple reading of Section 12a demonstrates that its
meaning is not plain. The first sentence states that a claimant
“shall seek recovery first from the association of the place of
residence of the insured.” N.J.S.A. 17:30A-12a. As a matter of
plain language, as well as common sense, “recovery” implies all
available recovery. The next sentence states recovery in New
Jersey shall be reduced by “the amount of recovery from any other
insurance guaranty association or its equivalent.” Ibid. That
sentence blurs, but does not alter, the meaning of the first
sentence, given what we perceive to be the Legislature's intent
and this State's public policy, both discussed more fully below.
Stated differently, the statute read as a whole,
particularly the initial sentence of Section 12a, establishes a
principle of primary liability whereby the guaranty association
located in the state of the insured's corporate residence is
primarily liable. Residence is the standard by which the statute
determines the priority of liability. The language “amount of
recovery from” is ambiguous in that context. We are persuaded
therefore that “varying interpretations of the statute are
plausible.” Sisler, supra, 157 N.J. at 202.
The Supreme Court of Nevada, construing similar language in
the Nevada guaranty association act, observed that the term
“shall be reduced by the amount of recovery” is “neither a model
of clarity nor an exemplar of the draftsman's craft.” Cimini v.
Nevada Ins. Guar. Ass'n,
915 P.2d 279, 282 (Nev. 1996). The
Cimini court quoted the Arizona Supreme Court in Arizona Property
& Casualty Insurance Guaranty Fund v. Herder,
751 P.2d 519, 523
(Ariz. 1988), wherein the Arizona court found ambiguous the
phrase “[a]ny amount payable on a covered claim shall be reduced
by the amount of such recovery under other applicable insurance”
in Arizona's insurance guaranty association act. (Emphasis
added).
Because different interpretations of the statute are
arguable, we are obligated to look beyond its language, to
discover the “spirit of the law.” Storch v. Sauerhoff,
334 N.J.
Super. 226, 229 (Ch. Div. 2000) (citing Ochoa, supra, 314 N.J.
Super. at 172).
B
Mindful of our duty to discern the legislative intent, we
examine the Act's goals. The Act was created to “avoid financial
loss to claimants or policyholders because of the insolvency of
insurance companies.” See Senate Bill Statement, S. 1004, c. 17
(April 11, 1974). Thus, the Act's function is twofold: to avoid
“excessive delay,” and to avoid “financial loss to claimants or
policyholders.” N.J.S.A. 17:30A-2; New Jersey Prop.-Liab. Ins.
Guar. Ass'n v. Sheeran,
137 N.J. Super. 345, 351 (App. Div.
1975). However, no legislative history exists in respect of the
language in Section 12a stating that “[a]ny recovery under this
act shall be reduced by the amount of recovery from any other
insurance guaranty association or its equivalent.”
The principle of primary liability as set forth in Section
12a tracks the language of the Post-Assessment Property and
Liability Insurance Guaranty Association Model Act (Model Act)
drafted by the National Association of Insurance Commissioners
(NAIC). A significant majority of states, including New Jersey
and Pennsylvania, has passed some version of the Model Act
containing the provision at issue in the present case. NAIC's
purpose in passing the Model Act was to “minimize financial loss
to claimants or policyholders because of the insolvency of an
insurer.” Post-Assessment Prop. & Liab. Ins. Guar. Assoc. Model
Act, reprinted in NAIC Model Laws, Regulations and Guidelines, at
540-1, § 2 (1995).
In passing New Jersey's Act, the Legislature sought to bring
our State within a nationwide network of individual insurance
guaranty association statutes designed to spread equitably the
risk of insurer insolvency among the states. See generally
American Employers' Insurance Co. v. Elf Atochem North America,
Inc.,
157 N.J. 580, 598 (1999); T.B. Ridgley, Interstate
Conflicts and Cooperation, Law and Practice of Insurance Company
Insolvency at 528 (1986). The network “should result in [an] as
equitable as possible allocation of the inevitable loss where
'everyone makes some concessions to the common necessity and no
one suffers too much.'” See Christopher J. Wilcox, The U.S.
Guaranty Association Concept at 25: A Quarter Century
Assessment,
14 J. Ins. Reg. 370, 399 (1999) (citing The Committee
Comment to Wisconsin Statute Chapter 645, at 377-78 (1967))
(emphasis added).
However, the legislative desire to assist claimants cannot
be, and is not intended to be, bureaucratic benevolence. The
Legislature did not give NJPLIGA unfettered discretion to
accommodate all claimants for any claims. The conservation of
resources is a major goal. The Legislature signaled the need for
restraint and caution in the payment of claims, and did so in a
myriad of ways. Illustratively, NJPLIGA does not pay prejudgment
interest on covered claims. N.J.S.A. 17:30A-5d. It is not
liable for counsel fees incurred by a successful party in a
declaratory judgment coverage action against NJPLIGA. N.J.S.A.
17:30A-5d; New Jersey Guar. Ass'n v. Ciani,
242 N.J. Super. 164,
169 (App. Div. 1990). The Act specifically excludes insurer
subrogation claims from the definition of a covered claim.
N.J.S.A. 17:30A-5d. Recovery against NJPLIGA is limited to
unpaid claims that are either asserted by insureds or claimants
who are residents of the State, or concern property permanently
located in New Jersey. N.J.S.A. 17:30A-5. NJPLIGA is not
responsible for “assessments or charges for failure of [the]
insolvent insurer to have expeditiously settled claims.”
N.J.S.A. 17:30A-5d. Further, where a claim is covered both by a
solvent insurer's policy and an insolvent insurer's policy, a
policyholder first must exhaust his or her policy with the
solvent insurer before NJPLIGA has any statutory obligation to
pay the policyholder. “Therefore, until such exhaustion[,]
[NJPLIGA], as the 'deemed' insurer under the insolvent insurer's
policy, has no obligation.” N.J.S.A. 17:30A-12b; Harrow Stores,
Inc. v. Hanover Ins. Co.,
315 N.J. Super. 547, 555 (App. Div.
1998). Finally, the Act's limitation of recovery at $300,000 per
covered claim applies regardless of whether a claimant's policy
limit exceeds that amount. N.J.S.A. 17:30A-8a(1).
This Court has recognized the legislative intent that
conservation of NJPLIGA's resources is necessary to achieve the
Act's stated goals. In American Employers', supra, at issue was
whether the defendant was a New Jersey resident at the time of
the insured event. 157 N.J. at 590. In holding that the
defendant was not a New Jersey resident under the Act, we noted
that “an overly broad definition of 'resident' might place New
Jersey at a disadvantage compared to other states” by allowing
other states to escape responsibility for covered claims. Id. at
594 (emphasis added). We emphasized that “[a]lthough the scope
of relief under the Act is to be construed liberally to effect
its purposes [citation omitted], clearly one concern of the
Legislature is 'to conserve limited Association resources to
better assure their availability to serve core purposes.'” Id.
at 590 (quoting Ciani, supra, 242 N.J. Super. at 169) (emphasis
added).
We now consider caselaw relevant to our analysis of Section
12a.
[A]n excess carrier is entitled to a credit,
not from the primary carrier's settlement,
but from the amount allocable to the primary
under its policies. In other words, the
excess carrier is entitled to a credit for
the full amount of the primary carrier's
coverage before it is required to pay any
cleanup expense.
[Id. at 69 (emphasis added).]
The Third Circuit cited UMC with approval in Chemical Leaman
Tank Lines, Inc. v. Aetna Casualty & Surety Company,
177 F.3d 210
(3d Cir. 1999). In that case, the plaintiffs instituted an
action against the defendant insurance company seeking a
declaratory judgment requiring that the defendant indemnify the
plaintiffs for environmental cleanup costs. Id. at 214.
Specifically, the plaintiffs contended that because they had
settled with their primary liability carriers for less than their
policy limits, the excess liability insurer should not have been
granted a credit equal to the amount of the relevant policy
limits. Id. at 226. Accordingly, the plaintiffs argued that the
excess liability carrier was entitled to a credit for only the
amount of settlement between the plaintiffs and the primary
carrier. Id. at 226-27. In holding that the excess liability
carrier was entitled to a credit equal to the full amount of the
policy limits, the court endorsed UMC's reasoning:
[T]he UMC approach tracks 'a widely followed
corollary to the doctrine that a settlement
with a primary insurer exhausts the primary
coverage.' Under this approach, the insured
forfeits any right to coverage of any dollar
difference between the settlement amount and
the primary insurer's policy limits. The
excess insurer cannot be made liable for any
part of this difference because the excess
insurer never agreed to pay for losses below
a specified floor . . . . This rule prevents
the insured from securing a double recovery.
[Id. at 227.]
See also Koppers Co. v. Aetna Cas. & Sur. Co.,
98 F.3d 1440 (3d
Cir. 1996) (stating that settlement between insured and primary
insurer will automatically permit excess insurer to credit equal
to primary insurer's policy limit) (citing Barry R. Ostrager &
Thomas R. Newman, Handbook on Insurance Coverage Disputes
§ 13.04, at 575-77 (7th ed. 1994)). But see McMahon v. Caravan
Refrigerated Cargo,
594 A.2d 349 (Pa. Sup. Ct.), alloc. denied,
600 A.2d 538 (1991) (holding that the plaintiff-claimant was not
required to obtain a final adjudication of his claim against
another guaranty association before recovering from PPCIGA).
McMahon, in interpreting an analogous provision of Pennsylvania's
insurance guaranty act, determined that because the plaintiff's
claim had been denied by the guaranty association of the
insured's residence (Texas), the plaintiff had satisfied his
requirement to “exhaust first his right of recovery from the
association of the place of residence of the insured.” 40 Pa.
Stat. Ann. § 991-1817(a). McMahon, however, is distinguishable
from the instant matter because the guaranty association of the
insured, PPCIGA, has not denied Carpenter's claims, but in effect
has acknowledged an obligation to Carpenter by settling with it
for an undisclosed sum.
The Oklahoma Court of Appeals determined that OPCIGA was entitled to offset its $150,000 obligation by TGA's statutory limit, $100,000, rather than the amount actually received by the plaintiff from TGA, $75,000. Id. at 879. Thus, the court “held that this amount [$150,000] must be reduced by the amount . . . [TGA] could have been required to pay.” Ibid. Because the TGA maximum was $100,000, OPCIGA's obligation “was reduced from $150,000 to $50,000.” Ibid. OPCIGA sought review by the Oklahoma Supreme Court. Plaintiff did not and therefore the court did not review the appellate court's holding in respect of whether OPCIGA was entitled to offset its obligation to the plaintiff by TGA's statutory limit or the amount actually recovered by the plaintiff.
In Palmer v. Montana Insurance Guaranty Ass'n, 779 P.2d 61 (Mont. 1989), the Supreme Court of Montana held that the Montana Insurance Guaranty Fund (MIGA) was entitled to offset its obligation to the plaintiff by the maximum amount recoverable by the plaintiff from the Idaho Insurance Guaranty Fund (IIGF), the primarily-liable insurance guaranty association. Pointedly, the court observed that MIGA “was not adopted as a form of reinsurance for every insurer who becomes insolvent. Rather, it is clear the Association was established to soften resulting hardship which may be encountered, under limited circumstances.” Id. at 64. See also Sifers v. General Marine Catering Co., 897 F.2d 1288 (5th Cir. 1990) (holding that Louisiana Insurance Guaranty Association could offset its maximum obligation of $150,000 by $100,000 paid to plaintiff by Texas Guaranty Association, its statutory limit); Cox. v. Minnesota Ins. Guar. Ass'n, 508 N.W.2d 536 (Minn. Ct. App. 1994) (holding Minnesota Insurance Guaranty Association had no obligation to pay plaintiff because amount plaintiff recovered from primarily-liable Florida Insurance Guaranty Association - the statutory limit of $599,900 - was greater than maximum recovery available in Minnesota - $299,900).
A constant in all of the above out-of-state cases is that the secondarily-liable guaranty association was credited the maximum amount recoverable from the primarily-liable guaranty association. We thus consider those cases to support the system of primary liability intended by the national network of guaranty associations.
Although we do not attribute bad faith to PPCIGA or Carpenter, the process and the result give pause. By settling with Carpenter, PPCIGA at some level agreed that it had an obligation to pay Carpenter for its covered claims. Accordingly, on this record, any conflict concerning the priority of obligation between two liable guaranty associations must resolve itself in favor of the rule of primary liability expressed in Section 12a. To hold otherwise would force NJPLIGA to assume liability beyond that intended by the Legislature.
Although we recognize that in UMC and the other cases cited above, supra at __ (slip op. at 15-18), the excess insurer's policy with the insured contained exhaustion language, those cases are nevertheless helpful by way of analogy. Just as an excess insurer is obligated to pay only an amount above the primary insurer's limit, a secondarily-liable insurance guaranty association should be required to pay only an amount above the maximum recoverable from the primarily-liable guaranty association.
The dissent concludes that because Section 12a does not employ the term “exhaust,” in contrast to Section 12b, which does use “exhaust,” NJPLIGA is entitled to credit only the amount Carpenter actually received from PPCIGA for each covered claim. Post at __ (slip op. at 7). “Exhaustion” is properly used in Section 12b because of the potential for solvent insurers. See Jendrezewski v. Allstste Ins. Co., 341 N.J. Super. 460, 462 (App. Div.), certif. denied, 170 N.J. 209 (2001) (quoting Jendrezewski v. Allstate Ins. Co., No. L-9374-99, slip op. at 2 (Jan. 21, 2000) (holding that PIP coverage under defendant's policy must be exhausted before plaintiff could recover statutory benefits from PLIGA and that PLIGA assumes obligations of insolvent insurer)). In other words, Section 12b presumes the existence of solvent insurance and imposes no obligation on the guaranty association before that solvent insurance is depleted. A parallel procedure in circumstances where Section 12a governs simply will not work because of the mutuality of obligation of each guaranty association to the claimant. Thus, in the absence of such insurance, the Legislature has prescribed that a system of primary liability should control under Section 12a.
In its discussion of exhaustion the dissent also asserts that the national network of state insurance guaranty associations establishes only the “order” in which claimants must pursue recovery. We disagree. If the dissent's view is taken to its logical extreme, it inexorably follows that a claimant, for reasons good or ill, can make its initial claim against the foreign association, settle for a small sum, and then demand payment from NJPLIGA for the bulk of its claim. The claimant thus reverses the order of priority and effectively makes NJPLIGA primarily liable.
We recognize that the Pennsylvania maximum ($299,900) approximates the New Jersey cap ($300,000). One may therefore contend that our result frees NJPLIGA from virtually any liability - only $6,500, as determined by the trial court. But that result is fortuitous, attributable only to the fact that the statutory maximum in each state is nearly identical.See footnote 22 NJPLIGA's obligation would be substantially greater, if, for example, the primarily-liable guaranty association was from Colorado, whose statutory cap is $99,900, Colo. Rev. Stat. § 10-4-508 or Oklahoma, whose cap is $150,000, Okla. Stat. tit. 36, § 2007. In the case of Colorado, NJPLIGA's liability would be $200,100 per claim. In the Oklahoma example, NJPLIGA's liability would be $150,000 per claim.
The Appellate Division and the dissent consider the out-of- state guaranty association cases unpersuasive. See 335 N.J. Super at 514-15; post at __ (slip op. at 11-13). However, those decisions reinforce the conclusion that the existence of a nationwide network of insurance guaranty associations is premised on a scheme of primary liability that is designed to spread equitably the risk of insurer insolvencies. The significant point to be gleaned from the arithmetical labyrinth in Moiser, supra, 890 P.2d 878, is that the secondarily-liable guaranty association was entitled to offset its obligation by the maximum potential obligation owed by the primarily-liable guaranty association, rather than the amount the primary association paid. Further, in three of the cited cases the primarily-liable insurance guaranty association paid its statutory maximum obligation to the plaintiff. As the New Jersey Banking Commissioner argues, those cases suggest that primarily-liable guaranty associations paid their statutory maximum because they recognized their obligation to do so. A contrary practice would expose the national network to settlements disruptive to its primary objective.
Finally, Carpenter's and the dissent's interpretation of Section 12a may expose NJPLIGA to substantially increased liability that will be borne ultimately by New Jersey's insureds. As amicus notes, “[i]mposing that burden on New Jersey shifts the obligations from one state's guaranty association to another at the whim of the insured, and effectively undermines the . . . national network of guaranty associations.” We do not believe the Legislature intended the Act to require New Jersey residents and corporations to finance the cleanup of environmental sites polluted by foreign corporations that can recover from another state's guaranty association. Moreover, adopting Carpenter's interpretation would encourage out-of-state insureds to seek recovery from NJPLIGA when such recovery is more properly the responsibility of another state's insurance guaranty association. In that regard, we accept NJPLIGA's representation that
NJPLIGA is involved in numerous declaratory
judgment actions involving foreign corporations who have elected to bring their insurance coverage lawsuits in New Jersey since it is perceived to be a policyholder friendly forum. As a result[,] NJPLIGA is repeatedly joined in litigation asserting that it bears liability to pay statutory benefits for foreign corporations, which benefits are properly payable by a primarily liable foreign insurance guaranty association.
The Act was not designed to be a panacea for all problems caused by insurance company insolvencies or to require NJPLIGA to assume all the obligations of an insolvent insurer. We agree with the Supreme Court of Montana's observation that the legislation creating guaranty associations “was not adopted as a form of reinsurance for every insurer who becomes insolvent.” Palmer, supra, 779 P. 2d at 64. Caution is thus the byword, particularly in this appeal, where three of Carpenter's insurers became insolvent and NJPLIGA is facing numerous claims. NJPLIGA has a fiduciary obligation to member insurers and is “required to act as [a fiduciary].” Evanston Ins. Co. v. Merin, 598 F. Supp. 1290, 1313 (D.N.J. 1984).
Faced as we are with both parties' invocations of public policy, we conclude that this State's public policy supports NJPLIGA's position. Further compounding the problem, “large carrier insolvencies are becoming more and more frequent” and affect a wide range of insurers, including those providing environmental insurance. J. Ernest Hartz, State Insurance Guaranty Associations: The Time has Come to Establish Uniform Ground Rules - or Prepare for Federal Involvement in Insurance Insolvency, 22 Fall Brief 20 (1992) (cited in American Employers', supra, 157 N.J. at 598); National Conference of Insurance Guaranty Funds, 1993 Assessment and Financial Information 6-7 (1994); A.M. Best Co., Special Report: Best's Insolvency Study (1991). Consequently, the cost of supporting insurer insolvencies is on the rise. See Kent M. Forney, Insurer Insolvencies and Guaranty Associations, 43 Drake L. Rev. 813, 814-15 (1995) (noting that net loss to insurers, who fund associations through assessments, is ultimately passed on to policyholders or taxpayers).
The dissent's suggestion that our disposition limits the amount of monies available to remediate in-state environmental hazards does not consider the unique facts of this appeal. Although we do not know why the settlement with Pennsylvania occurred, the fact is that Carpenter settled for less than was available under Pennsylvania law. Further, the record does not inform us whether other resources are available, i.e., federal and/or state funding sources for the remediation of polluted sites. See Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.A. §9601 to -9675 (West 2001); Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.25 (2001).
Based on our interpretation of N.J.S.A. 17:30A-12a, and on this record, we conclude that NJPLIGA is entitled to a credit equal to the statutory maximum amount payable by PPCIGA.
Reversed.
CHIEF JUSTICE PORITZ and JUSTICES STEIN and COLEMAN join in JUSTICE ZAZZALI's opinion. JUSTICE VERNIERO filed a separate dissenting opinion. JUSTICES LONG and LaVECCHIA did not participate.
SUPREME COURT OF NEW JERSEY
A- 76 September Term 2000
CARPENTER TECHNOLOGY
CORPORATION,
Plaintiff-Respondent,
v.
ADMIRAL INSURANCE COMPANY;
AETNA CASUALTY AND SURETY
COMPANY; ALLSTATE INSURANCE
COMPANY (as successor in
interest to Northbrook
Insurance Company); AMERICAN
INSURANCE COMPANY; HIGHLANDS
INSURANCE COMPANY; INSURANCE
COMPANY OF NORTH AMERICA;
INTERNATIONAL INSURANCE
COMPANY; LEXINGTON INSURANCE
COMPANY; PACIFIC EMPLOYERS
INSURANCE COMPANY;
PENNSYLVANIA INSURANCE
GUARANTY ASSOCIATION; UNITED
STATES FIRE INSURANCE
COMPANY; EXECUTIVE RE
INDEMNITY, INC.; ALLIANZ
INSURANCE COMPANY; FIRST
STATE INSURANCE COMPANY;
ASSOCIATED INTERNATIONAL
INSURANCE COMPANY; INDEMNITY
INSURANCE COMPANY OF NORTH
AMERICA; UNDERWRITERS AT
LLOYD'S, LONDON; AND LONDON
MARKET COMPANIES, INCLUDING:
DOMINION INSURANCE COMPANY;
EXCESS INSURANCE COMPANY;
HIGHLANDS INSURANCE COMPANY;
LONDON & EDINBURGH GENERAL
INSURANCE COMPANY LIMITED;
STRONGHOLD INSURANCE COMPANY
LIMITED and TUREGUM INSURANCE
COMPANY,
Defendants,
and
NEW JERSEY PROPERTY-LIABILITY
INSURANCE GUARANTY
ASSOCIATION,
Defendant-Appellant.
VERNIERO, J., dissenting.
I would affirm the judgment of the Appellate Division
substantially for the reasons expressed in Judge Bilder's
persuasive opinion. Carpenter Tech. Corp. v. Admiral Ins. Co.,
335 N.J. Super. 510 (2000). Based on a straightforward analysis,
the panel determined that when the Legislature used the phrase
“reduced by the amount of recovery” in N.J.S.A. 17:30A-12a, it
meant what it said, namely, that “NJPLIGA is entitled to credit
only for the amounts actually received by plaintiff from
[PPCIGA].” Carpenter, supra, 335 N.J. Super. at 516. The
majority has reached an opposite conclusion. The Court concludes
that “reduced by the amount of recovery” means reduced by an
amount “equal to the statutory maximum amount payable by PPCIGA.”
Ante at __ (Slip. op. at 21-22).
Our sole task is to look at the statute's words and ascribe
to them their plain meaning. The Court does otherwise. It
ferrets out an ambiguity that, in my view, does not exist. In so
doing, the Court advances a parochial interest, and it dilutes
our State's role in a national system designed to counteract the
problems created by insolvent insurers. The irony is that, under
the guise of protecting New Jersey's interests, the Court's
disposition limits the amount of insurance monies available to
remediate the environmental damage to four New Jersey sites. Our
land and water, more so than Pennsylvania's, are at risk in this
case. Because I do not subscribe to the Court's approach or to
the statutory interpretation on which it is based, I respectfully
dissent.
a. Any person having a covered claim which may be recovered from more than one insurance guaranty association or its equivalent shall seek recovery first from the association of the place of residence of the insured at the time of the insured event except that if it is a first party claim for damage to property with a permanent location, he shall seek recovery first from the association of the location of the property. Any recovery under this act shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. However, if recovery is denied or deferred by the association, a person may proceed to recover from any other insurance guaranty association or its equivalent from which recovery may be legally sought.
b. Any person having a claim against an
insurer, whether or not the insurer is a
member insurer, under any provision in an
insurance policy other than a policy of an
insolvent insurer which is also a covered
claim, shall be required to exhaust first his
right under that other policy. An amount
payable on a covered claim . . . shall be
reduced by the amount of recovery under any
such insurance policy.
In adopting that language, the Legislature declared its goal unequivocally:
The purpose of this act is to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay [in] payment, to avoid financial loss to claimants or policyholders because of the insolvency of an insurer; to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers.
The statute generally tracks the Post-Assessment Property and Liability Insurance Guaranty Model Act (Model Act), which was drafted by the National Association of Insurance Commissioners “as a means of allocating the risk of insolvent insurers equitably among the several states.” American Employers' Ins. Co. v. Elf Atochem, 157 N.J. 580, 587 (1999). As written, the statute contains two differences from the Model Act. First, it eliminates the reference to workers' compensation. Second, the New Jersey Act provides that if a claimant is “denied or deferred” by the first guaranty association approached, the claimant “may proceed to recover from any other insurance guaranty association or its equivalent from which recovery may be legally sought.” N.J.S.A. 17:30A-12a. By enacting a statute similar to the Model Act, New Jersey has joined the majority of states in establishing a national system to ameliorate the losses to insureds that result when property and liability carriers fail.
Against that statutory backdrop, we are called on to interpret the “amount of recovery” language found at N.J.S.A. 17:30A-12a. A preeminent principle of our jurisprudence is that a court should not presume that in enacting a statute the Legislature intended something other than what it expressed by way of its plain language. State v. Wright, 107 N.J. 488, 495 (1987). “A statute should be interpreted in accordance with its plain meaning if it is 'clear and unambiguous on its face and admits of only one interpretation.'” Bd. of Educ. of Neptune v. Neptune Township Educ. Ass'n, 144 N.J. 16, 25 (1996) (quoting State v. Butler, 89 N.J. 220, 226 (1982)). When a statute is clear, “we need delve no deeper than the act's literal terms to divine the Legislature's intent.” Butler, supra, 89 N.J. at 226.
Equally well-established is the corollary principle that the judiciary enjoys no fiat to rewrite a plainly-written enactment of the Legislature. State v. Afanador, 134 N.J. 162, 171 (1993) (“Absent any explicit indications of special meanings, the words used in a statute carry their ordinary and well-understood meanings.”). Applying those standards, the Appellate Division reached the only possible conclusion regarding the meaning of “reduced by the amount of recovery.” Nothing about that phrase is unclear or ambiguous. It means that a NJPLIGA payment is to be reduced by the amount a claimant actually receives from the other guaranty association.
Unlike the majority, I do not believe that enforcement of the Act's literal language will lead to an absurd result. The exposure of the guaranty association of one state can be distinct from the exposure of a secondary association in a different state, based on differences in the laws of those jurisdictions and in the specific provisions of their respective statutes. Thus, I can foresee that an association of first resort could have defenses to some but not all of a claimant's claims, thus warranting less than the maximum allowable recovery. After a claimant has recovered from one association and then approaches a second association, the set-off should be the sum that the claimant has received in the first state, not that state's statutory maximum.
The majority suggests that the “seek recovery first” language in N.J.S.A. 17:30A-12a, when read in concert with the “exhaust first” language in N.J.S.A. 17:30A-12b, evinces a Legislative desire to limit recovery in these circumstances. I disagree. The “exhaust first” language appears solely within the context of a person having a claim under a policy “other than a policy of an insolvent insurer[,]” N.J.S.A. 17:30A-12b, which is not the case here. When the Legislature has employed a term in one place in a statute and excluded it in another, the term should not be implied where excluded. Higgins v. Pascack Valley Hosp., 158 N.J. 404, 419 (1999).
Policy exhaustion makes complete sense when private insurance is concerned. Without question, a claimant should be required to draw on sources of insurance for which premiums have been paid before tapping into a fund guaranteed or established by the State. See Kent M. Forney, Insurer Insolvencies and Guaranty Associations, 43 Drake L. Rev. 813, 825 (1995) (“This rule is a direct outgrowth of the philosophy underlying the [Model] Act that the guaranty association is to be the 'payer of last resort,' a