Preview:

Rutgers School of Law
N.J.S.A. 17:33B-1 to -64) (FAIRA) requires insurers to accept applications for automobile insurance submitted by all
eligible persons, that is, those not falling within a statutorily defined poor risk category. N.J.S.A. 17:33B-15. The Act
bars insurers from penalizing an agent by paying less than normal compensation because of the expected or actual loss
experience produced by the agent's automobile insurance business or because of the geographic location of the
business written by the agent. N.J.S.A. 17:33B-18b. At issue is whether these provisions preclude an insurer from
terminating an agency relationship based upon the agent's volume of high loss ratio policies generated in an urban
market.
"> Original WP 5.1 Version
(NOTE: This decision was approved by the court for publication.)
This case can also be found at 331 N.J. Super. 458.
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-5601-97T5
R.J. GAYDOS INSURANCE AGENCY, INC.,
t/a SCHUMACHER ASSOCIATES,
Plaintiff-Appellant,
vs.
NATIONAL CONSUMER INSURANCE COMPANY,
THE ROBERT PLAN CORPORATION, THE
ROBERT PLAN OF NEW JERSEY, LION
INSURANCE COMPANY,
Defendants-Respondents,
and JOHN DOES 1-200,
Defendants.
Argued May 3, 2000 - Decided June 12, 2000
Before Judges Baime, Brochin and Wecker.
On appeal from Superior Court of New
Jersey, Chancery Division, Union County.
Richard A. Grodeck argued the cause for
appellant (Feldman Grodeck, attorneys;
Mr. Grodeck, on the brief).
Alan E. Kraus argued the cause for respondent
(Riker, Danzig, Scherer, Hyland & Peretti,
attorneys; Mr. Kraus, of counsel; Robert J.
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
Schoenberg and R.N. Tendai Richards, on
the brief).
The opinion of the court was delivered by
BAIME, P.J.A.D.
The Fair Automobile Insurance Reform Act ( N.J.S.A. 17:33B-15. The Act bars insurers from penalizing an agent
by paying less than normal compensation because of the expected or actual loss experience produced by the agent's
automobile insurance business or because of the geographic location of the business written by the agent. N.J.S.A.
17:33B-18b. At issue is whether these provisions preclude an insurer from terminating an agency relationship based
upon the agent's volume of high loss ratio policies generated in an urban market.
R.J. Gaydos Insurance Agency, Inc. (Gaydos) brought this action in the Chancery Division contending that National
Consumer Insurance Company (NCIC) breached an express contract and its implied covenant of good faith and fair
dealing by wrongfully terminating its agency agreement. Gaydos contended that NCIC's termination of its agency
relationship was based upon its generation of high loss ratio policies in an urban market and that the termination
violated the "take all comers" requirement of FAIRA. Also named as defendants were the Robert Plan Corporation, a
holding company and the ultimate parent of NCIC, the Robert Plan of New Jersey, its subsidiary, and Lion Insurance
Company, NCIC's predecessor. Gaydos claimed that the Robert Plan defendants tortiously interfered with its
contractual rights with NCIC. The Chancery Division granted defendants' motion for involuntary dismissal at the
conclusion of Gaydos's case. Gaydos appealed. We remanded the matter for additional findings of fact. The Chancery
Division found that NCIC's termination of Gaydos was designed to reduce the volume of its business losses in order to
preserve its solvency and that neither Gaydos's actual or expected loss experience nor the geographic area in which it
underwrote its business constituted a substantial motivating factor in the termination of its agency relationship. We
now reverse and remand for further proceedings.
I.
The setting is the perennially troubled New Jersey automobile insurance market. In a long line of decisions, we have
described at length the problems besetting the automobile insurance industry. In re Producers Assignment Program,
261 N.J. Super. 292 (App. Div.), certif. denied, 133 N.J. 438-39 (1993); In re Aetna Cas. and Surety Co., 248 N.J.
Super. 367 (App. Div.), certif. denied, 126 N.J. 385 (1991), cert. denied, 502 U.S. 1121, 112 S. Ct. 1244, 117 L.Ed.2d
476 (1992). See also In re Plan for Orderly Withdrawal, 129 N.J. 389 (1992), cert. denied, 506 U.S. 1086, 113 S. Ct.
1066, 122 L.Ed.2d 370 (1993); State Farm v. State, 124 N.J. 32 (1991); In re Comm'r of Insurance, 256 N.J. Super. 158
(App. Div. 1992), aff'd 132 N.J. 209 (1993); In re Private Passenger Auto Rate Rev., 256 N.J. Super. 46 (App. Div.
1992); In re Rate Filing By Market Transition Facility of New Jersey, 252 N.J. Super. 260 (App. Div. 1991), certif.
denied, 127 N.J. 565 (1992); Allstate Ins. Co. v. Fortunato, 248 N.J. Super. 153 (App. Div. 1991). We need not cover
ground so exhaustively explored in the cited cases. Instead, we recount the legislative highlights only insofar as they
shed light on the issues before us.
We begin with the adoption of the assigned risk plan in 1970. That plan involved the forced distribution among
insurers of applicants who were unable to procure coverage through ordinary means. N.J.S.A. 17:29D-1. Effective in
1973 was the New Jersey Automobile Reparation Reform Act ( N.J.S.A. 39:6A-1 to 35), which made automobile
insurance compulsory, created extensive no-fault benefits, and imposed a tort threshold.
In 1983, the Legislature adopted the New Jersey Automobile Full Insurance Availability Act ( N.J.S.A. 17:30E-1 to
-24). The Act's articulated objectives were to supplant the assigned risk system, "to assure to the New Jersey insurance
consumer full access to automobile insurance through normal market outlets . . ., and to require that companies be
made whole for losses in excess of regulated rates on all risks not voluntarily written . . .                              ." N.J.S.A. 17:30E-2. Unlike
the assigned risk system, the new legislation contemplated coverage provided by JUA, at standard market rates, to
risks rejected by the voluntary market. Servicing insurers were to issue policies in their own names, but the risks were
to be borne by JUA. The servicing insurers would be paid fees for handling coverage, premiums and claims. JUA's
inevitable underwriting losses would be funded by poor driver and accident surcharges imposed by the Division of
Motor Vehicles and JUA, and the "residual market" equalization charge levied on almost all automobiles. N.J.S.A.
17:30E-8b.
The new scheme failed miserably. Insurers restricted their coverage to only the most favorable risks, leaving fully
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
half of New Jersey's drivers to be covered through JUA at artificially low rates. JUA's financial integrity deteriorated
rapidly, resulting in increasingly large charges imposed on all New Jersey drivers.
Curative amendments were adopted in 1988. We need not describe these changes in detail. Perhaps the most
important aspect of the 1988 legislation was a plan for the downsizing, or depopulation, of JUA over a four year period
to the end that it would serve only its original purpose of providing coverage for the least desirable risks. N.J.S.A.
17:30E-14. In annual increments, the voluntary market insurers were to increase the percentage of private passenger
car exposures. Methods were prescribed for apportioning and assigning to voluntary market insurers the number of
JUA insureds sufficient to satisfy any shortfall that occurred in the required annual increase in voluntarily written
policies.
FAIRA was enacted on March 12, 1992. Its overall purpose is to ensure that all automobile owners in New Jersey,
except those who meet statutorily defined objective criteria of poor risk, see N.J.S.A. 17:33B-13, are covered by the
voluntary market. FAIRA created the Market Transition Facility as an interim mechanism to achieve a two-year,
phased depopulation of JUA, and the transfer of JUA insureds to the voluntary market. N.J.S.A. 17:33B-11.
In order to assure that all eligible insureds have a viable conduit to the voluntary market, FAIRA established a
producer assignment program. N.J.S.A. 17:33B-9. We have no occasion here to describe the intricacies of the program,
which are examined in detail in In re Producer Assignment Program, 261 N.J. Super. at 298. The heart of the
legislation is paragraph 6, which requires the Commissioner to establish a producer assignment program by October 1,
1991, that is, one full year prior to the final depopulation of the Market Transition Facility and the mandated
assumption by the voluntary market of the obligation to insure all eligible persons. Ibid. We note that one of the
criteria for producer assignment eligibility is that the producer must be located in and service a geographic area
determined by the Commissioner "to lack sufficient representation for the placement of automobile insurance business
in the voluntary market." N.J.S.A. 17:33B-9. We make special reference to this section because it evidences the
Legislature's concern that agents be available to serve as conduits to the voluntary market for eligible persons in areas
that have been historically under represented because of poor loss experience. In any event, the manner in which JUA
insureds were depopulated and distributed to insurers in the voluntary market is described in In re Aetna Cas. and Sur.
Co., 248 N.J. Super. at 375-76, and, as we will note shortly, provides the factual backdrop for the formation of NCIC.
FAIRA established the rule of "take all comers," which requires insurers to accept applications for automobile
insurance submitted by all eligible persons - those not falling within the poor-risk category, N.J.S.A. 17:33B-15, and
revived the pre-JUA system of an assigned risk plan to provide coverage for all ineligible persons. N.J.S.A. 17:33B-
22. The "take all comers" section provides that "every insurer, either by one or more separate rating plans filed in
accordance with . . . [N.J.S.A. 17:29A-45] . . . shall provide automobile insurance coverage for eligible persons."
N.J.S.A. 17:33B-15a. N.J.S.A. 17:33B-15b states that "[n]o insurer shall refuse to insure, refuse to renew, or limit
coverage available for automobile insurance to an eligible person who meets its underwriting rules as filed with and
approved by the [C]ommissioner [of Insurance]." These provisions are supplemented by N.J.S.A. 17:33B-19d. The
suspension is automatic if the insurer requests it and "avers that there is an immediate need to cease issuance of
policies" and provides "supporting documentation" pertaining to its "unsafe or unsound financial condition." N.J.S.A.
17:33B-19b. Upon his own motion or upon request by the insurer or any other interested party, the Commissioner may
revoke the suspension "after providing an opportunity for a hearing." N.J.S.A. 17:33B-19c; see also In re Farmers'
Mut. Fire Assur., 256 N.J. Super. 607 (App. Div. 1992) (FAIRA requires hearing on a petition for exemption,
abatement or deferral of assessments).
Apart from these provisions, the principal method of assuring the financial integrity of insurers is rate relief. FAIRA
provides specifically that "automobile insurers are entitled to earn an adequate rate of return through the ratemaking
process." N.J.S.A. 17:33B-2g. The courts have "reaffirmed that overarching constitutional prescription with regard to
all affected carriers." In re Farmers Mut. Fire Assur., 256 N.J. Super. at 611. For example, in State Farm Mutual
Automobile Insurance Co. v. State, 124 N.J. 32, (1991), our Supreme Court observed that the Legislature's overall
intent in enacting FAIRA was "to make certain that any lessening of insurers' profits [because of compliance with the
statutory scheme] would not preclude a constitutionally adequate rate of return." Id. at 61; see also In re Comm'r of
Insurance, 256 N.J. Super. 158 (App. Div. 1992) (upon a showing of a need to increase rates, Commissioner must
grant increases and may not set deficit rates and rely on alternative sources of funding); In re American Reliance Ins.,
251 N.J. Super. 541, 556 (App. Div. 1991) (under appropriate circumstances insurers may increase their rates based on
FAIRA assessments). The Court stressed that the "Legislature deliberately left to the Commissioner of Insurance the
determination of the precise constitutionally required rate of return, as being within the area of expertise entrusted to
the Department of Insurance in its long exercise of the ratemaking function." State Farm Mutual Automobile Insurance
Co. v. State, 124 N.J. at 61-62. While acknowledging "uncertainty about how the Act may be applied . . . in individual
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
rate-increase determinations," the Court expressed its confidence that the Commissioner would "fulfill his duty under
the statute to assure that insurers receive a constitutionally fair rate of return." Id. at 62-63.
II.
We now examine the facts in light of this historical backdrop. As we have noted, FAIRA requires every insurer
operating in New Jersey to absorb a "depopulation quota" of former JUA insureds. Robert Wallach, the Chairman and
Chief Executive Officer of the Robert Plan, conceived the idea of creating an insurance pool to service and satisfy the
depopulation quotas of seventeen member insurance companies. Lion Insurance Company was established to service
the pool. As we understand it, Lion was to serve as the primary insurer and the seventeen member insurance
companies were to reinsure the policies written. In 1992, NCIC was formed as Lion's successor.
We previously described the quota system under which insurers were to absorb JUA insureds. We also noted that
FAIRA requires insurers to appoint agents in urban areas. Operating as the administrator of the pool, NCIC satisfied
the appointment obligations of member insurers by naming large numbers of urban based agents. The overwhelming
majority of NCIC agents were located in urban territories.
As we noted earlier, the demographics of urban areas tend to generate high loss experience in the automobile
industry. One of the mysteries of this case is why the Robert Plan believed a profit could be earned by pooling JUA
depopulation quotas. One answer might be that the Robert Plan, through its other subsidiaries, provided services to
NCIC in return for almost thirty percent of the written premiums on NCIC risks. Gaydos suggests in its brief that the
Robert Plan was able to avoid the risk of losses by earning "guaranteed profits" through the servicing of NCIC's
business. Another possible answer is that the Robert Plan anticipated rate relief by the Commissioner. On at least two
occasions, NCIC sought a rate increase. These applications were denied by the Commissioner. Although NCIC
requested the Commissioner to reconsider the applications, this request ultimately became moot for reasons which we
will describe later in this opinion.
In any event, from its inception, NCIC incurred substantial losses. Because NCIC's insureds were concentrated in
urban areas where loss experiences are historically high, NCIC's rate structure was wholly inadequate, as the following
chart clearly discloses:
Year                                                                                                                         Losses                               Pure Loss RatioSee footnote 11
1992                                                                                                                         $ 61,932,432          118.90%
1993                                                                                                                         $ 89,095,412          116.60%
1994                                                                                                                         $113,128,199          129.30%
1995                                                                                                                         $ 88,638,450          136.90%
                                                                                                                             1996See footnote 22   $ 57,009,126   134.00%
We stress that NCIC never appealed from the Commissioner's denial of its applications for rate relief. Nor did it
apply to the Commissioner for suspension of its "take all comers" obligation. It instead devised a strategy to curtail its
devastating losses by terminating its agents. To determine which agents were to be terminated NCIC purportedly
reviewed and rated the administrative practices of its entire agency force. Cynthia Bailey, an auditor employed by the
Robert Plan of New Jersey, testified that agency terminations were based upon loss ratio, the location of the agent's
business, the volume of the business written, and an evaluation of the performance of administrative duties such as
obtaining the necessary underwriting information and assuring the completeness and accuracy of the applications
submitted.
The forty agents who fared worst in NCIC's rating process were identified for termination. These agents were not
necessarily those having the worst loss experiences. Nor were they all located in urban territories. On February 24,
1995, the first twenty agents were notified that their agreements were being terminated. On March 24, 1995, the
remaining twenty agents were apprised of their termination. In each case, the Department of Insurance was informed
of the termination. The Department requested that the terminations be held in abeyance to allow it to determine
whether NCIC was undertaking a de facto withdrawal from New Jersey's private passenger automobile insurance
market. NCIC agreed. Ultimately, the Department accepted and approved all forty terminations.See footnote 33 The
Department based its determination "in part on representations by NCIC that there [would] be additional producers
appointed in under-served areas." NCIC apparently planned to appoint nine new agents in under represented areas, but
the de-pooling process ultimately disrupted that scenario.
In 1995, several member insurers decided that they no longer wished to participate as reinsurers in the pool. As part
of the de-pooling process, the member companies were given essentially two options: (1) they could accept their
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
proportionate share of the insured vehicles, and the associated agents, and directly write insurance for those vehicles
and enter inter-agency agreements with those agents; or (2) they could pay NCIC to assume the risk of going forward
for their proportionate share of NCIC's insured vehicles. A complex actuarial process was necessary to identify which
insureds and which agents would be assigned to which pool member (or to NCIC). For that reason, NCIC stopped
appointing new agents in mid-1995.
During the de-pooling negotiations, NCIC, on January 9, 1996, submitted a summary of its five-year business plan
to the Department's managing actuary. The Department required NCIC to submit such a plan, in order to demonstrate
how NCIC intended to operate profitably as an independent insurance provider in the State. Notably, NCIC's business
plan assumed that NCIC would write approximately $30 million of annualized premiums in its first year; that this
amount of annual premium would set the buyout fee for departing pool members and provide a capital surplus of $52
million that would be adequate for the projected annual premiums for NCIC; that the Department would approve
requested rate increases; and, significantly, that NCIC would terminate ten agents both in 1996 and 1997, and five to
seven additional agents each year thereafter.
Gary Ropiecki served as Executive Vice President of the Robert Plan and was the general manager of all of its New
Jersey operations. Ropiecki additionally held office and served as a director on the boards of all Robert Plan
companies, including NCIC. The record indicates that Ropiecki was the ultimate decision-maker in determining which
agents were to be terminated. Ropiecki testified that agency termination was the only solution to reducing the volume
of NCIC's business losses. Thus, in 1997, NCIC implemented a plan to reduce the volume of NCIC's new applications.
According to Ropiecki, neither an agent's territory nor the loss ratio of its policies was a determining factor in the
decision to terminate. Ropiecki claimed that he focused instead on the agent's attitude, long term plan, efficiency in
performing operations, and the quality of its staff. According to Ropiecki, his goal was to develop "core agents" - those
with high volume and low loss ratio - who would make "good long term partners." However, an internal memorandum
prepared by Ropiecki that pertained to NCIC's financial difficulties perhaps better reveals Ropiecki's thought process.
Ropiecki wrote:
The heart of the deterioration is the high concentration of business and territories where legislation and statutes
cap the amount of premium an insurer can charge. As such, these territories historically are inadequately priced and
produce industry wide poor results. In order to stop the significant capital drain, our business plan is to reduce our
writings in capped territories and increase our writings in uncapped territories.See footnote 44 Until we improve
our business mix between capped territories and others, we will continue to incur significant capital drain. [Emphasis
added.]
These observations proved highly prescient. As we noted, in its de-pooling plan presented to the Department, NCIC
projected it would write between $29 and $32 million in new annual premiums between August 1, 1996 and August 1,
1997 - the first full year after the buyout was completed. Instead, after only ten months of actual experience, NCIC
projected that it would write $43 million in new annual premiums for the first full year of operations after the de-
pooling. On that basis, NCIC projected that it would lose $32 million in one year - approximately sixty percent of its
capital.
The sheer volume of business NCIC was being forced to write and the corresponding losses associated with the
demographic profile of its policyholders meant that continued compliance with FAIRA's "take all comers" requirement
would force the company into insolvency.
NCIC's financial plight required it to accelerate its plan to terminate agents. NCIC did not terminate agents with the
worst loss ratios or all of its urban agents. Because all or substantially all of its agencies operated in areas associated
with poor loss experience and because these agencies generated policies with high loss ratios, NCIC decided to
terminate agencies with the highest volume. Although an agent's geographic territory and loss ratio were not direct
factors in selecting agents for termination, these factors were indirectly determinative because the result of NCIC's
policy was to terminate agencies operating in urban areas having poor loss experiences. Gaydos was one of those
agents.
Gaydos filed a complaint in the Chancery Division seeking to enjoin NCIC from terminating its agency agreement.
The court granted Gaydos a preliminary injunction. On application of NCIC, the court entered an order on September
24, 1997, modifying the injunction. Specifically, Gaydos was barred from submitting more than thirteen new private
passenger insurance applications per week to NCIC. Gaydos subsequently amended its complaint and sought monetary
damages for the loss of business resulting from its compliance with the limitation on new policy applications provided
by the preliminary injunction. Gaydos further claimed that the Robert Plan defendants tortiously interfered with its
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
contractual rights. A protracted non-jury trial ensued. The Chancery Division granted defendants' motion for an
involuntary dismissal at the conclusion of Gaydos's case. In its oral opinion, the court stated that it "would not go so far
as to accept as fact the defendants' claim that loss ratio or geographic area played no role in [NCIC's] decision [to
terminate Gaydos]." It nevertheless concluded that the termination "was fair and reasonable" because the action taken
was designed to stave off insolvency and was "not based merely upon loss ratio or geographic territory."
We remanded the matter to the Chancery Division for additional fact finding as to "whether loss ratios and
geographic territory constituted a substantial motivating factor in NCIC's decision to terminate the Gaydos agency."
On remand, the Chancery Division found that NCIC's purpose in terminating Gaydos was to "reduce the volume of its
business in order to preserve its solvency." The court emphasized that NCIC did not discriminate against agencies
having "higher loss ratios" or agencies "located in the worst loss [experience] urban areas." The court acknowledged
that NCIC knew Gaydos operated in an urban area with a high loss experience and that it produced high loss ratio
policies. The court reasoned, however, that NCIC was within its rights in terminating the Gaydos agency in order to
reduce its volume of business losses.
On April 28, 1998, after the Chancery Division rendered its decision, NCIC filed a request with the Department for
voluntary liquidation. NCIC was placed under administrative supervision on June 3, 1998. On the following day, NCIC
and the Department executed a consent order requiring NCIC to cease accepting applications for automobile
insurance.See footnote 55
III.
We now turn to the issues presented. We begin by observing that the Chancery Division's fact-findings are
supported by substantial credible evidence present in the record. Rova Farms Resort, Inc. v. Investors Ins. Co. of
America, 65 N.J. 474, 484 (1974); State v. Johnson, 42 N.J. 146, 162 (1964); Greenfield v. Dusseault, 60 N.J. Super.
436, 444 (App. Div.), aff'd o.b., 33 N.J. 78 (1960). Indeed, the material facts are not in dispute. Although other urban-
based agencies produced worse loss ratio policies, Gaydos was selected for termination because it produced a higher
volume of high risk policies generating greater financial losses to NCIC. As we phrased the issue at the beginning of
our opinion, the question is whether FAIRA's "take all comers" requirement bars an insurance company from
terminating an agency relationship because of the agent's production of a high volume of high loss ratio policies
generated in an urban marketplace.
We repeat the operative language of the statutes critical to our disposition of this issue. N.J.S.A. 17:33B-15
provides:
a. On or after April 1, 1992, every insurer, either by one or more separate rating plans filed in accordance with
the provisions of section 6 of P.L.1988, c.156 [N.J.S.A. 17:29A-45] prior to March 1, 1998, or section 14 of P.L.1997,
c.150, [N.J.S.A. 17:29A-46.1] on or after March 1, 1998, or through one or more affiliated insurers, shall provide
automobile insurance coverage for eligible persons.
b. No insurer shall refuse to insure, refuse to renew, or limit coverage available for automobile insurance to an
eligible person who meets its underwriting rules as filed with and approved by the commissioner in accordance with
the provisions of section 7 of P.L.1988, c. 156 [N.J.S.A. 17:29A-46] prior to March 1, 1998 or section 15 of P.L.1997,
c.150 [N.J.S.A. 17:29A-46.2] on or after March 1, 1998 . . .
d. The commissioner may suspend, revoke or otherwise terminate the certificate of authority to transact
automobile insurance business in this State of any insurer who violates the provisions of this section.
N.J.S.A. 17:33B-18 states:
a. A licensed insurance agent shall, as a condition of licensure:
(1) Provide each eligible person seeking automobile insurance premium quotations for the forms or types of
automobile insurance coverages which are offered by all insurers represented by the agent or with which the agent
places risks;
(2) Not attempt to channel an eligible person away from an insurer or insurance coverage with the purpose or
effect of avoiding an agent's obligation to submit an application or an insurer's obligation to accept an eligible person;
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
and
(3) Upon request, submit an application of the eligible person for automobile insurance to the insurer selected by
the eligible person . . .
b. With respect to automobile insurance, an insurer shall not penalize an agent by paying less than normal
commissions or normal compensation or salary because of the expected or actual experience produced by the agent's
automobile insurance business or because of the geographic location of automobile insurance business written by the
agent.
Neither of these sections deals specifically with the subject of agency termination. Rather, the Brokers and Agents
Act (153 N.J. 298, 313 (1998); Boss v. Rockland Elec. Co., 95 N.J. 33, 42 (1983); Boldt v. Correspondence
Management, 320 N.J. Super. 74, 82-83 (App. Div. 1999); Ridgefield Park v. N.Y. & Western Ry., 318 N.J. Super.
385, 407 (App. Div. 1999); City of Hackensack v. Weiner, 162 N.J. Super. 1, 27 (App. Div. 1978). We recognize the
Commissioner's expertise, and we are sensitive to the principle that legal claims that are really regulatory issues should
be referred to the agency. We nevertheless note that the Chancery Division repeatedly requested the intervention of the
Commissioner, but the Department steadfastly refused to participate. We add that this litigation has been protracted.
We are persuaded that the interests of justice and fairness to the parties militate in favor of a prompt disposition of the
question presented. And finally, we emphasize that in the final analysis the interpretation of a statute is a judicial
function, particularly where, as here, the plaintiff has sought the remedy of monetary damages.See footnote 66
We thus choose to decide the issue. We hold that FAIRA's "take all comers" requirement is violated where an
insurance company terminates an agency relationship because of the agent's production of a high volume of high loss
ratio policies. Such a termination contravenes the insurer's duty to "provide automobile insurance coverage for [all]
eligible persons." N.J.S.A. 17:33B-18b.
We acknowledge that the penalty prohibited by N.J.S.A. 17:33B-18b. Termination is simply a more drastic way of
depriving an agent of his "normal commissions or normal compensation or salary." Ibid.
Our conclusion is supported by the public policy underlying FAIRA's "take all comers" requirement. In light of the
history of automobile insurance in New Jersey during the last two decades, and the legislative purpose or plan sought
to be effected by FAIRA, this much at least is crystal clear. Implementation of the "take all comers" centerpiece of
FAIRA requires that there be an effective conduit between the voluntary market and those insureds to whom the
voluntary market was historically inaccessible "for an obvious panoply of demographic reasons." In re Producer
Assignment Program, 261 N.J. Super. at 299. As to geographic areas that have traditionally been underserved, it is not
reasonable to expect that dramatic changes will occur overnight. Nor is it reasonable to assume that the insurance-
requiring public will suddenly find its way into a voluntary market with which it has no recent experience and which
has no immediate neighborhood presence. Id. at 606. N.J.S.A. 17:33B-18a were intended to remediate this problem.
Equity among insurers is not the only equity that legitimately concerned the Legislature when it enacted FAIRA. The
needs of the traditionally unserved and underserved public "must also be factored into the equation." In re Producer
Assignment Program, 261 N.J. Super. at 307. It bears emphasis that insurers have strong motivation to evade their
obligation to "take all comers" and to diminish, if not terminate, their presence in geographic areas that have been
historically unserved or underserved. Excluding the high risks historically associated with urban areas permits insurers
to avoid losses and saves them from remitting commissions due to their agents. But the Legislature has the authority
under its police powers to compel insurers to cover people and risks they would rather not insure. The Legislature has
exercised that power by enacting FAIRA. We do no more here than fairly enforce its provisions.
The obligations imposed by FAIRA are not all one way. Insurers are entitled to earn a reasonable rate of return on
their New Jersey automobile insurance business. Sheeran v. Nationwide Mut. Ins. Co., Inc., 80 N.J. 548, 560 (1979).
There is no right to make money on every policy written, or on every day of business. But there is a right to have the
regulatory agency which exercises the rate-making function act reasonably and promptly. Rate relief is prospective
only. Elizabethtown Water Co. v. New Jersey Board of Public Utilities, 107 N.J. 440, 452-59 (1987). Thus rates that
were inadequate because either rate relief was not fairly given or because of a prolonged review process cannot be
retroactively increased or otherwise made up. It is one thing to compel insurers to provide insurance to those they
would rather not insure, but it is altogether unfair and unconstitutional to coerce insurers to take on business they do
not want at inadequate rates.
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
NCIC never sought appellate intervention when the Department denied its requests for an increase in rates. At least
from the vantage point of twenty-twenty hindsight, we would have been obliged to accelerate its appeal, had one been
taken, and to compel the Department to exercise properly and fairly its overarching constitutional obligation to allow
NCIC a reasonable rate of return. The simple and overriding fact is that NCIC did not choose to take that course.
Nor did it apply for a suspension of its obligation to "take all comers," as it could have under N.J.S.A. 17:33B-19.
At least theoretically, NCIC could have limited its "exposures"See footnote 77 by filing an application with the
Commissioner.
NCIC instead sought to implement a strategy that it candidly characterizes as "self-help." We cannot fault NCIC for
seeking to stem its losses and preserve its financial solvency. However, FAIRA provides statutory and administrative
remedies which could, and should, have been taken by NCIC to accomplish its legitimate business objectives. We are
satisfied that the course actually chosen by NCIC - termination of the Gaydos agency because of its high volume of
high loss ratio policies - violated the statute.
IV.
We thus reverse the Chancery Division's grant of defendants' motion for an involuntary dismissal and remand the
matter for consideration of the remaining issues. We are told by Gaydos that, because of NCIC's financial problems, it
intends to focus its efforts on its claim that the Robert Plan defendants tortiously interfered with its contractual rights.
Difficult factual and legal issues are presented in that respect. See Printing Mart-Morristown v. Sharp Electronics
Corp., 116 N.J. 739, 752 (1989) (tortious interference presupposes interference by a non-party to the contract). Other
questions are presented concerning whether Gaydos may recover monetary damages that resulted from entry of the
preliminary injunction and the limitation on its right to accept more than thirteen new applications per week. See
Russell v. Farley, 105 U.S. 433, 437 38, 26 L.Ed. 1060, 1061-62 (1882) (a party injured by the issuance of an
injunction later determined to be erroneous has no action for damages in the absence of a bond). The trial judge did not
reach these issues and thus, we express no view on how these or other issues should be decided.
Reversed and remanded for proceedings consistent with this opinion.
NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
A-5601-97T5
R.J. GAYDOS INSURANCE AGENCY, INC.,
t/a SCHUMACHER ASSOCIATES,
Plaintiff-Appellant,
vs.
NATIONAL CONSUMER INSURANCE COMPANY,
THE ROBERT PLAN CORPORATION, THE
ROBERT PLAN OF NEW JERSEY, LION
INSURANCE COMPANY,
Defendants-Respondents,
and JOHN DOES 1-200,
Defendants.
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
BROCHIN, J.A.D., (dissenting).
The majority opinion holds that NCIC's termination of R.J. Gaydos Insurance Agency, Inc. is contrary to the
implications of the "take all comers" provision of FAIRA. I agree with this conclusion. But I am unwilling to join my
colleagues in their next step, interpreting FAIRA as granting the terminated agent the right to seek redress by an
implied damage remedy.
The legislative scheme for the regulation of automobile insurance is complex and evolving. The Legislature has
confided its supervision, in the first instance, to the Commissioner of Insurance. The court correctly describes the "take
all comers" provision, N.J.S.A. 17:33B-15, as the "centerpiece" of FAIRA. This provision contains its own
enforcement mechanisms:
The commissioner may suspend, revoke or
otherwise terminate the certificate of authority to transact automobile insurance business in this State of any insurer
who violates the provisions of this section.
[N.J.S.A. 17:33B-15(d).]
Furthermore,
If the commissioner determines that any person has violated any provision of [ N.J.S.A. 17:33B-14 to 17:33B-18],
he may impose a civil penalty in an amount of up to $2,000 for the first violation and up to $5,000 for the second and
each subsequent violation, collectible in an action brought in the name of the commissioner pursuant to the provisions
of "the penalty enforcement law," N.J.S. 2A:58-1 et seq.[See footnote 88]
[N.J.S.A. 17:33B-21.]
The primary purpose of the "take all comers' provision is to assure that all eligible drivers have access to automobile
liability insurance. It was not adopted to confer job protection on producers. The Department of Insurance has the
responsibility for implementing the provision for access to insurance. In my view, the Department's overall supervisory
powers and the specific enforcement provisions of the statute are sufficient for that task. There is no need or
justification for our injecting a civil damage action into the existing administrative scheme.
I therefore respectfully dissent from the court's opinion.
Footnote: 1                                                                                                                  1"Pure loss ratio" is calculated by dividing the incurred losses paid by the premiums received. This
percentage is calculated before costs of operation are considered.
Footnote: 2                                                                                                                  2As we will note shortly, the pool was disbanded effective August 1, 1996, for the issuance of new
policies. NCIC assumed the risk for all policies issued after that date.
Footnote: 3                                                                                                                  3One of the agents terminated by NCIC in 1995 was Schumacher Associates. Schumacher purchased the
Gaydos agency in 1996.
Footnote: 4                                                                                                                  4At trial, Ropiecki explained the terms "capped" and "uncapped" territories. Ropiecki testified that
                                                                                                                             "capped" territories were those "traditionally [found in] the urban marketplace." "Uncapped" territories were those in
"non-urban" areas.
Footnote: 5                                                                                                                  5Although NCIC is no longer in operation, Gaydos's claim is not moot to the extent that it seeks
monetary damages against defendants.
Footnote: 6                                                                                                                  6Our dissenting colleague concludes that the "take all comers" provision affords a litigant no implicit
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]




Rutgers School of Law
private cause of action. See In re State Com'n of Investigation, 108 N.J. 35, 41 (1987) (statute barring disclosure of
information pertaining to a State Commission of Investigation matter does not provide a private cause of action for its
violation); Ferraro v. City of Long Branch, 314 N.J. Super. 268, 288-89 (App. Div.), certif. denied, 157 N.J. 541
(1998) (no private cause of action for violation of Right to Know Law); Crusco v. Oakland Care Center, Inc., 305 N.J.
Super. 605, 614-15 (App. Div. 1997) (no private cause of action for violation of Ombudsman Act); Jalowiecki v. Leuc,
182 N.J. Super. 22, 29 (App. Div. 1981) (no private right of action for violation of standards governing sewerage
disposal system). Plaintiff claims that the failure to adhere to the letter and spirit of the "take all comers" requirement
constituted a violation of the covenant of good faith and fair dealing. Whether the "take all comers" provision affords a
private right of action was never raised in the original trial, the briefs submitted on appeal, the remand proceedings,
or in the supplemental briefs. We have no occasion to resolve the issue here.
Footnote: 7                                                                                                                   7Although not applicable here, the Legislature adopted the Automobile Urban Enterprise Zone Act and
correlative amendments to FAIRA designed to cure the many problems with which we are confronted here.
The Automobile Urban Enterprise Zone Act, N.J.S.A. 17:33C-1 to -5, provides that qualified insurers may appoint
urban enterprise zone (UEZ) agents to represent it in an automobile insurance urban enterprise zone. N.J.S.A. 17:33C-
4a. Pursuant to this Act, qualified insurers may limit the number of exposures written through a UEZ agent, and once
the limit is reached, the UEZ agent must advise eligible applicants that coverage may be available from another agent.
N.J.S.A. 17:33C-4b.
The "take all comers" provision in FAIRA, as amended, authorizes qualified insurers, operating pursuant to N.J.S.A.
17:33C-4, to "limit the number of exposures written through its UEZ agent or agents." N.J.S.A. 17:33B-15c.
N.J.S.A. 17:33B-18, as amended, provides that a UEZ agent contracting with a qualified insurer pursuant to
N.J.S.A. 17:33B-18, if the limitation on the number of exposures imposed by the qualified insurer on the UEZ agent
prevents the UEZ agent from insuring an otherwise eligible person. Footnote: 8                                                8 The penalty enforcement law,
N.J.S.A. 2A:58-1 to -9 has been superceded by N.J.S.A. 2A:58-10 to -12.
This archive is a service of Rutgers School of Law - Camden.
file:///C|/Users/Peter/Desktop/Opinions/a5601-97.opn.html[4/20/2013 8:04:04 PM]

Download a5601-97.opn.pdf

New Jersey Law