(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 March 27, 2001 -- Decided June 28, 2001
STEIN, J., writing for a unanimous Court.
This appeal concerns the New Jersey Fair Automobile Insurance Reform Act (FAIRA), N.J.S.A. 17:33B-1
to -63, enacted in 1990 to reform and repair the State's troubled automobile insurance system by repaying the
substantial debt of the Joint Underwriting Association (JUA) and replacing the JUA with a workable distribution of
the automobile insurance market. The JUA was created in 1983 to provide automobile insurance to drivers rejected
by the voluntary insurance market.
The specific questions presented in this appeal are whether R.J. Gaydos Insurance Agency, Inc. (Gaydos)
has an implied right of action under FAIRA to assert a claim against National Consumer Insurance Company
(NCIC), and whether Gaydos can assert a common-law cause of action for breach of the implied duty of good faith
and fair dealing when that claim is based solely on allegations that NCIC violated FAIRA.
In 1989, to help insurance companies comply with FAIRA's mandate, the New Jersey Voluntary Private
Passenger Automobile Insurance Pool (Pool) was formed. NCIC was then created to write insurance policies for the
Pool and act as the primary insurer of those policies. By 1995, NCIC had incurred significant losses and determined
that in order to remain solvent, it needed to slow its volume of new business. To meet that goal, NCIC decided to
terminate forty agents; the first twenty agents were scheduled to be terminated in May 1995, and the second twenty
were scheduled to be terminated in June 1995. Schumacher Associates was among those scheduled to be terminated
in June 1995. That agency was owned by Edward Schumacher who acquired Gaydos in 1996. After its own
investigation, the Department of Banking and Insurance (DOBI) approved in May 1995 NCIC's termination plan.
In 1995, several insurance companies decided to leave the Pool. In response, NCIC devised a plan for
“depooling” and moving forward as an independent insurance company. Prior to authorizing NCIC's depooling
plan, DOBI required that NCIC submit a five-year business plan to explain how it would function as a stand-alone
company with a disproportionate share of urban-based insurance policies and agents. NCIC provided such a plan
that, among other things, relied on the expectation that terminations would result from agents' failure to comply
with their agency agreements usually evidenced by a lack of cooperation or poor quality of service. The plan was
approved by DOBI to be effective August 1996. In less than a year as an independent company, NCIC was in dire
financial straits, requiring that it implement its business plan to terminate ten agents in 1997 in order to reduce the
volume of new applications and slow the company's losses. NCIC claimed that in making its determination of
which agents to terminate, it did consider the agent's volume of applications but did not consider as material factors
the agent's geographical area or loss ratio. Internal memoranda did not support that assertion.
On April 6, 1997, NCIC sent a notice of termination to Schumacher, the owner of Gaydos. NCIC stated
that Gaydos's termination was due to the 600% increase in its volume of new applications. On receiving notice,
Schumacher did not file a complaint with DOBI.
Shortly thereafter, NCIC asked that DOBI suspend the obligation to “take all comers” pursuant to a
provision in FAIRA that prohibits insurers from denying or limiting coverage to otherwise eligible insureds. A rate
increase previously requested by NCIC had not been acted on by DOBI and NCIC claimed that the suspension of
the “take all comers” provision was necessary for it to remain solvent. DOBI denied the request in February 1998.
Thereafter, NCIC requested that DOBI approve its withdrawal from the State because of the lack of any kind of
financial relief. In June 1998, procedures were put in place for NCIC to cease its operations in the State.
In June 1997, Gaydos filed in the Chancery Division a complaint against NCIC alleging, among other
things, tortious interference with contract and breach of the implied obligation of fair dealing because NCIC
wrongly terminated its agency agreement with Gaydos in violation of FAIRA. Gaydos sought an injunction against
the termination because Gaydos wrote only NCIC policies and would be forced out of business. The trial court
granted Gaydos's motion and preliminarily enjoined NCIC from terminating Gaydos's agency agreement. After a
four-day trial, the trial court granted NCIC's motion for an involuntary dismissal, finding NCIC's termination to be
fair and reasonable. On appeal, the Appellate Division remanded the matter back to the trial court for additional
fact-finding. In December 1999, the trial court reaffirmed its decision that NCIC was not substantially motivated by
loss ratio or geographic location when it decided to terminate Gaydos. On appeal, a divided panel of the Appellate
Division reversed, holding that NCIC violated FAIRA because it terminated its agency relationship with Gaydos
because that agency generated a high volume of high loss ratio policies. The court remanded the matter back to the
Law Division for trial.
NCIC appeals as of right based on the dissent in the Appellate Division.
HELD: FAIRA does not confer a private right of action to Gaydos to pursue its FAIRA allegations against NCIC.
However, Gaydos can assert a common-law claim that NCIC breached the implied duty of good faith and
fair dealing when NCIC terminated its agency agreement with Gaydos.
1. This appeal focuses on FAIRA's “take all comers” provision as well as the provision that prohibits insurers from
reducing an agent's compensation and commissions based on the geographic location of an agent's business. The
Legislature empowered the Commissioner of DOBI to enforce FAIRA's provisions and penalize those who violate
the Act. There are statutory penalties as well as potential monetary penalties and reimbursement for costs of
investigation and prosecution. (Pp. 17-22)
2. To determine if a statute confers an implied private right of action, courts consider whether: 1) plaintiff is a
member of a class for whose special benefit the statute was enacted; 2) there is any evidence that the Legislature
intended to create a private right of action under the statute; and 3) it is consistent with the underlying purpose of
the legislative scheme to infer the existence of such a remedy. New Jersey courts have generally declined to infer a
private cause of action in statutes where the statutory scheme contains civil penalty provisions; this applies in the
context of insurance statutes where there is no discernable legislative intent to authorize a private cause of action in
a statutory scheme that already contains civil penalty provisions. (Pp. 22-30)
3. The implied duty of good faith and fair dealing is inherent in a contract even if a contract implicates a statute that
does not confer a private right of action. (Pp. 30-34)
4. FAIRA does not provide a private right of action for an agent to pursue a claim that it was wrongly terminated as
a result of an insurer's alleged FAIRA violations. First, insurance agents are not members of the class for whose
special benefit FAIRA was enacted. The legislative history is clear that the goal of FAIRA was to benefit insureds,
not insurance agents. The primary purpose of the “take all comers” provision is to assure that all eligible drivers
have access to car insurance; it was not adopted to protect insurance producers. Moreover, the Legislature did not
intend to confer a private right of action to the insurance agent. Rather, enforcement of FAIRA's provisions is
vested with the Commissioner. Lastly, such a right is inconsistent with the underlying purpose of the Act and could
undermine the State's ability to properly regulate automobile insurance. (Pp. 35-38)
5. Although the contract between Gaydos and NCIC permitted either party to terminate the contract on ninety-days
notice, there nevertheless exists an implied obligation to perform in good faith. In view of the strong legislative
expression obligating agents to provide automobile insurance coverage to all eligible persons, and prohibiting
diminution of the agents' compensation because their policies prove to be unprofitable, to permit agents to be
subject to termination because of their compliance with FAIRA would be contrary to the Legislature's intent. DOBI
is the appropriate entity to enforce FAIRA's provisions and to determine how they should operate in the context of
other statutory schemes regulating the automobile industry. Thus, on remand, the Law Division should transfer this
matter to DOBI to determine whether NCIC violated FAIRA when it terminated Gaydos in 1997. Because the
Court is unpersuaded that DOBI performed a complete investigation of this issue, DOBI is cautioned not to rely on
previous findings but to consider the matter anew. (Pp. 38-43)
As MODIFIED, judgment of the Appellate Division is AFFIRMED and the matter is REMANDED to
the Law Division for action consistent with this opinion.
JUSTICES COLEMAN, LONG, VERNIERO, and ZAZALLI join in JUSTICE STEIN'S OPINION.
CHIEF JUSTICE PORITZ and JUSTICE LAVECCHIA did not participate.
SUPREME COURT OF NEW JERSEY
A-
53 September Term 2000
R.J. GAYDOS INSURANCE AGENCY,
INC., t/a SCHUMACHER
ASSOCIATES,
Plaintiff-Respondent,
v.
NATIONAL CONSUMER INSURANCE
COMPANY, THE ROBERT PLAN
CORPORATION, THE ROBERT PLAN
OF NEW JERSEY and LION
INSURANCE COMPANY,
Defendants-Appellants,
and
JOHN DOES 1-200,
Defendants.
Argued March 27, 2001 -- Decided June 28, 2001
On appeal from and certification to the
Superior Court, Appellate Division, whose
opinion is reported at
331 N.J. Super. 458
(2000).
Alan E. Kraus argued the cause for
appellants (Riker, Danzig, Scherer, Hyland &
Perretti, attorneys; Mr. Kraus, Robert J.
Schoenberg and R.N. Tendai Richards, on the
briefs).
Richard A. Grodeck argued the cause for
respondent (Feldman Grodeck, attorneys).
Raymond R. Chance, III, Deputy Attorney
General, argued the cause for amicus curiae
Commissioner of Banking and Insurance (John
J. Farmer, Jr., Attorney General of New
Jersey, attorney; Michael J. Haas, Assistant
Attorney General, of counsel; Mr. Chance and
Thalia P. Cosmos, Deputy Attorney General on
the brief).
Thomas P. Weidner submitted a brief on
behalf of amicus curiae Insurance Council of
New Jersey (Windels, Marx, Lane &
Mittendorf, attorneys; Mr. Weidner and David
F. Swerdlow, on the brief).
Susan Stryker submitted a brief on behalf of
amici curiae American Insurance Association
and National Association of Independent
Insurers (Sterns & Weinroth, attorneys; Ms.
Stryker and Mitchell A. Livingston, on the
brief).
The opinion of the Court was delivered by
STEIN, J.
This appeal involves New Jersey's Fair Automobile Insurance
Reform Act (FAIRA), N.J.S.A. 17:33B-1 to -63, a comprehensive
legislative initiative that was enacted in 1990 to reform New
Jersey's automobile insurance system. The questions presented in
this appeal are whether plaintiff, R.J. Gaydos Insurance Agency,
Inc. (Gaydos), has an implied private right of action under FAIRA
to assert a claim against defendant, National Consumer Insurance
Company (NCIC), and whether Gaydos can assert a common-law cause
of action for breach of the implied duty of good faith and fair
dealing when that claim is based solely on allegations that NCIC
violated FAIRA.
The Appellate Division did not address whether FAIRA
authorizes a private right of action by an insurance agent.
Rather, a divided panel of the Appellate Division held that NCIC
violated FAIRA because it terminated Gaydos based on its large
volume of high loss ratio policies, in violation of N.J.S.A.
17:33B-15 and N.J.S.A. 17:33B-18b, and remanded to the Law
Division to address Gaydos's tortious interference with contract
and related claims. R.J. Gaydos Ins. Agency, Inc. v. National
Consumer Ins. Co.,
331 N.J. Super 458, 475, 478 ( 2000). NCIC
appeals to this Court as of right. R. 2:2-1(a)(2).
For decades the New Jersey Legislature has attempted to
reform the State's automobile insurance system to provide
coverage to high-risk drivers. Prior to 1983, those drivers who
had been unable to procure insurance coverage in the voluntary
market received coverage through an Assigned Risk Plan, N.J.S.A.
17:29D-1, pursuant to which the Commissioner apportioned high-
risk drivers among all insurers doing business in New Jersey.
Thereafter, in 1983 the Legislature adopted the New Jersey
Automobile Full Insurance Availability Act, N.J.S.A. 17:30E-1 to
-24, to replace the assigned risk system. That Act contemplated
that motorists who were rejected by the voluntary market would
receive coverage at standard market rates through the
statutorily-created Joint Underwriting Association (JUA). When
the JUA was operational, insurers could apply to become servicing
carriers for the JUA and bear administrative responsibility for
collecting premiums and arranging coverage. However, the
agreements between the JUA and servicing carriers provided that
the claims and liabilities of the JUA would be borne by the JUA
independently, and the servicing carriers were to be insulated
from such claims and liabilities. The primary objective of the
JUA and the Act was “to create a more extensive system of
allocating high-risk drivers to carriers, and through the JUA, to
provide such drivers with coverage at rates equivalent to those
charged in the voluntary market.” State Farm Mut. Auto. Ins. Co.
v. State,
124 N.J. 32, 41 (1991). We set forth the embattled
history of the JUA in State Farm, supra, and we need not
reiterate those facts here. See In re Commissioner of
Insurance's March 24, 1992 Order,
132 N.J. 209, 212-13 (1993)
(describing how JUA was more complex than Assigned Risk Plan).
We note only that by 1990 the JUA had accumulated a financial
deficit of over $3.3 billion in unpaid claims and other losses,
and that the JUA was insuring over fifty percent of New Jersey's
drivers. State Farm, supra, 124 N.J. at 42.
To repay the JUA's debt and replace the JUA system with a
workable distribution of the automobile insurance market, the
Legislature in 1990 enacted FAIRA to dismantle the JUA and return
its automobile insurance business to the private marketplace.
Because a primary objective of FAIRA was to transfer JUA insureds
to private insurance companies, FAIRA required every insurer
operating in New Jersey to absorb a certain quota of JUA
policyholders in proportion to the size of their existing book of
business or, in the alternative, to appoint agents in urban
territories. Under FAIRA, the individual insurance companies
were permitted to decide the manner and method by which they
serviced their depopulation quotas.
In 1989, Robert Wallach, Chief Executive Officer of the
Robert Plan Corporation (RPC), devised a plan to help insurance
companies comply with that mandate. RPC enlisted seventeen
independent insurance companies conducting business in New Jersey
to form a pool, designated the New Jersey Voluntary Private
Passenger Automobile Insurance Pool (Pool). NCIC was then
created to write insurance policies for the Pool and act as the
primary insurer of those policies, and the members of the Pool
were required to reinsure those policies. RPC, as NCIC's holding
company and ultimate parent, administered the Pool by providing
underwriting, data processing, and claims handling services. By
participating in the Pool, the insurance companies were told that
the Department of Banking and Insurance (DOBI or Department)
would give them credit for “1) their . . . [share] of the Fair
Act depopulation quotas for their percentage of the Pool; 2) the
demographic/geographic distribution of brokers and insureds
involved/insured within the policy base; 3) a flow through of any
Assigned Risk credits generated by [NCIC's] class/territorial
writings; 4) credits applicable against their . . . obligations
to contract with eligible producers whose sole or primary market
is the JUA/MTF; and 5) any profits or losses generated by the
Pool.”
From its inception, NCIC incurred substantial losses.
NCIC's “pure loss ratio,” the percentage derived by dividing
incurred losses, exclusive of operating costs, by premiums
received, was over 100%. The following chart demonstrates those
losses:
Year Losses Pure Loss Ratio
1992
$61,932,432
118.90%
1993
$89,095,412
116.60%
1994
$113,128,199
129.30%
1995
$88,638,450
136.90%
1996
$57,009,126
134.00%
By 1995, NCIC determined that for it to remain solvent the
company needed to slow its volume of new business. To accomplish
that goal, NCIC decided to terminate forty agents. The first
twenty agents were scheduled to be terminated in May 1995, and an
additional twenty agents were scheduled to be terminated in June
1995. Schumacher Associates was among those agents slated for
termination. That agency was owned by Edward Schumacher who
acquired the Gaydos agency in 1996. Schumacher did not institute
a lawsuit or make any claim as a result of the termination that
took effect on May 29, 1995.
Those agents slated for termination in 1995 did not have the
worst loss ratios nor were they all located in urban territories.
An auditor employed by the Robert Plan of New Jersey, a
subsidiary of the RPC, testified that those terminations were
based on a number of factors including an agent's loss ratio, an
agent's performance of administrative duties, an agent's volume
of business written, and the geographic location of an agent's
business.
NCIC informed DOBI of its agent termination plans, and the
Department requested that NCIC forego any terminations until the
Department conducted an investigation to determine whether that
action constituted a de facto withdrawal from the private
passenger automobile insurance market, in violation of N.J.A.C.
11:2-29. NCIC cooperated with the DOBI and did not terminate any
agents until the Department's investigation was complete. In the
interim, NCIC met with DOBI officials and assured them that the
company was not withdrawing from the State and that it intended
to appoint additional agents in under-served areas. In May 1995,
DOBI approved NCIC's terminations and stated that it did not
“consider the termination of these producers as activity
constituting a de facto withdrawal. This determination is based
in part on representations by NCIC that there will be additional
producers appointed in under-served areas.”
In 1995, several insurance companies decided to leave the
Pool. Responding to that development, NCIC devised a plan for
“depooling” and moving forward as an independent insurance
company. As part of the depooling process, NCIC gave departing
Pool members two options. They either could accept their
proportionate share of agents and insureds and write insurance
policies for them directly, or they could pay NCIC to assume the
risk of going forward as a stand-alone company with that member's
proportionate share of insureds.
Prior to authorizing NCIC's depooling plan, however, DOBI
required NCIC to submit a five-year business plan to explain how
NCIC would function as a stand-alone company with a
disproportionate share of urban-based insurance policies and
agents. In January 1996, NCIC submitted to DOBI a six-page
business plan summarizing how NCIC would reduce and stabilize its
losses, and discussing how NCIC intended to operate as a
profitable company. Among its list of proposed solutions, NCIC
stated that it would not renew two percent of its policies each
year, and not renew two existing policies for every new policy
issued. In addition, NCIC would improve its claims handling
procedures, and “would expect NCIC to be granted rate increases
to the extent justified by these rate filings.” Most significant
to this appeal was NCIC's assumption that “[w]e expect
termination of approximately 10 agents in 1996 and 1997, and 5-7
in each subsequent year with a corresponding reduction in new
lines. The agent terminations are expected to result from the
agents['] failure to comply with their agency agreements usually
evidenced by lack of cooperation and poor quality service.”See footnote 11
Overall, NCIC's business plan evidenced the company's belief that
it had the potential to survive as an independent insurance
company. For example, NCIC projected that, in its first year of
operation, the company would write approximately $30 million in
annualized premiums and that those policies would generate a
capital surplus of $52 million. Effective August 1996, the DOBI
approved NCIC's business plan and entered an order allowing NCIC
to operate as an independent insurance company.
In less than one year as a stand-alone company, NCIC lost
approximately sixty percent of its capital. NCIC attributed its
losses to its agents writing a voluminous number of policies that
exceeded NCIC's projections by approximately ten million dollars.
According to NCIC, the company's dire financial situation
required NCIC to implement its business plan to terminate ten
agents in 1997. NCIC explained that the purpose of those
terminations was to reduce NCIC's volume of new applications and
to slow the company's losses. To select which agents to
terminate, NCIC officials testified that the company considered
whether the agents were likely to search out profitable business
and be actively engaged in marketing, rather than just “taking
all comers.” Although NCIC acknowledged that it considered an
agent's volume of applications, NCIC claimed that an agent's
geographical area and loss ratio were not material factors in
selecting agents for termination. However, a February 1997
memorandum written by Kenneth R. Corsun, Senior Vice President of
NCIC, did not support that assertion. Corsun's memorandum reads
in part as follows:
I believe the significant factors driving our
results (and influencing the profiles) are
the nature of the population and the
conditions in the urban areas where we are
disproportionately represented. People are
poor, there are many new, inexperienced
drivers, there is congestion _ cars hit each
other more frequently _- there is much crime
_- thefts and vandalism _- and often rampant
fraud. An accident is frequently viewed as a
means of “getting even” with the system or
the insurance company. The nature of the PIP
coverage, in particular, drives many
basically honest people to take advantage of
the system.
Although we take steps to combat fraud . . .
it may not be possible to move the loss ratio
to profitability without more dramatic
action. I believe our book needs to be
balanced by writing heavily in non-urban
areas, while trimming our writings in the
urban areas. The trimming will be done by
reducing our agency plant to the designated
core agents. The move to more suburban areas
will be done by selectively appointing
professional, profitable agents in solidly
middle class parts of the state. We can stay
in the inner cities, but the book must be
balanced. We cannot make a profit being
predominantly in the urban areas.
[(Emphasis added).]
In an April 1997 memorandum, Gary Ropiecki, Executive Vice
President of RPC, echoed Corsun's concerns about “slow[ing] the
volume of new writings in the territories in which we have
significant penetration.” To explain why NCIC was experiencing a
deterioration in its underwriting performance and projecting a
fifty percent reduction in its statutory surplus, Ropiecki
observed:
The heart of the deterioration is the
high concentration of business in 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 this
significant capital drain, our business plan
is to reduce our writings in capped
territories[See footnote 22] and increase our writings in
territories in uncapped territories. Until
we improve our business mix between capped
territories and others we will continue to
incur a significant capital drain. Not
taking immediate action will result in an
unsafe and unsound financial course which can
potentially only be cured with draconian
regulatory measures.
[(Emphasis added).]
On April 16, 1997, NCIC sent a notice of termination to
Edward Schumacher, the owner of the Gaydos agency. Gaydos
serviced territories in Clifton, Passaic, and Paterson and had
been an NCIC agent since June 1996. NCIC stated in its brief
supporting its petition for certification that Gaydos was
selected for termination “[d]ue to its 600% increase in volume of
new applications for insurance.” NCIC explained that its
termination of Gaydos was in accordance with NCIC's 1995 five-
year business plan and Gaydos's agency agreement that said that
either Gaydos or NCIC could terminate the agency agreement within
ninety days upon written notice. On receiving the notice of
termination, Schumacher did not file a complaint with the DOBI.
At trial, Ropiecki explained that Gaydos was terminated
because its “overall profile” was “poor” and NCIC wanted agents
that were selling “more profitable business.” Similarly,
Ropiecki testified that NCIC wanted agents who were “positive,
who knew their insureds, who knew their marketplace.” Ropiecki
also conceded that Gaydos's “rapid increase in new business” was
a principal reason for its termination. For example, in June
1996, Gaydos wrote seventy policies, and by April 1997, Gaydos
had written 490 policies, a 600% increase. Consequently, by 1997
Gaydos's loss ratio was 131%. When Ropiecki was asked at trial
whether Gaydos's increase in new policies was a “significant
factor” in NCIC's decision to terminate Gaydos, Ropiecki answered
that its volume was “a” factor.
NCIC contends that the events that occurred in the months
following its termination of Gaydos demonstrate persuasively the
reasonableness of that action. In August 1997, only one year
after the DOBI approved NCIC's five-year business plan, NCIC
wrote to the DOBI to request a suspension of its obligations to
“take all comers,” pursuant to N.J.S.A. 17:33B-19, a provision of
FAIRA that prohibits insurers from denying or limiting coverage
to otherwise eligible insureds. NCIC claimed that it needed
relief because the company was in an unsafe and unsound financial
condition as a result of an unexpected increase in its level of
premium writings above what was projected, and an increase in its
losses. NCIC said that the company was on the verge of
insolvency because its five-year business plan depended on faulty
assumptions and expectations. For example, NCIC explained that
it projected that in the first year after depooling, NCIC would
generate approximately $34 million in written premiums. However,
NCIC's written premiums that year totaled approximately $40
million, $6 million more than NCIC projected. To remain
financially solvent, NCIC stated that it requested a ten percent
rate increase from the DOBI, but that “never materialized.” NCIC
concluded that it needed relief because the “absence of rate
relief . . . and the severe limitation on nonrenewals add to the
financial surplus strain and high loss trends.” In addition,
NCIC argued that relief was warranted because its losses were
increasing and eroding the company's premium-to-surplus ratio.
NCIC explained that if NCIC continued writing business at its
current rate, the company would have “only $18 million in surplus
to support about $40 million in written premiums.” Nevertheless,
in February 1998, the DOBI denied NCIC's request for relief from
the “take all comers” provision.
In March 1998, NCIC wrote to the DOBI to request a
withdrawal from the State pursuant to N.J.A.C. 11:2-29 because
“without significant relief from the Department, NCIC will be
insolvent before the end of 1998.” NCIC stated that “[w]e have
requested alternative relief, but to date all our requests have
either been denied or not acted upon.” NCIC explained further
that it was losing surplus at the rate of $60,000 per day.
Accordingly, in June 1998, the DOBI placed NCIC under
administrative supervision and, pursuant to an administrative
consent order, required NCIC to cease accepting new applications
for automobile insurance and to wind up its business affairs.
In June 1997, Gaydos filed a complaint in the Chancery
Division against NCIC alleging a number of claims including
tortious interference with contract and that NCIC breached the
implied obligation of good faith and fair dealing because the
company wrongfully terminated its agency agreement with Gaydos in
violation of FAIRA, N.J.S.A. 17:33B-1 to -63. Gaydos sought an
injunction against the termination because Gaydos wrote only NCIC
insurance policies and faced going out of business. The trial
court granted Gaydos's motion and preliminarily enjoined NCIC
from terminating Gaydos's agency agreement. The preliminary
injunction was later modified to prohibit Gaydos from submitting
more than thirteen new private passenger automobile insurance
policies per week.
The matter proceeded to a four-day bench trial. Thereafter,
the trial court granted defendants' motion for involuntary
dismissal at the conclusion of Gaydos's case finding NCIC's
termination to be “fair and reasonable.” The Appellate Division
remanded the matter to the trial court for “additional fact
finding respecting whether loss ratio and geographic territory
constituted a substantial motivating factor in NCIC's decision to
terminate the Gaydos agency.” Meanwhile, NCIC filed a request
with the DOBI for voluntary liquidation and was placed under
administrative supervision. In June 1998, NCIC and DOBI executed
a consent order that gave NCIC the right to cease processing new
automobile policies and to begin non-renewing policies.
In December 1999, the trial court issued a supplemental
decision and reaffirmed its decision that NCIC was not
substantially motivated by loss ratio or geographic location when
it decided to terminate Gaydos. A divided panel of the Appellate
Division reversed, holding that NCIC violated FAIRA because it
terminated its agency relationship with Gaydos due to Gaydos's
generation of a high volume of high loss ratio policies, and
remanding the matter to the Law Division for trial. R.J. Gaydos,
supra, 331 N.J. Super. at 475, 478. Although NCIC is no longer
in operation, Gaydos's claim is not moot to the extent that it
seeks monetary damages against NCIC and other defendants.
The New Jersey Legislature passed FAIRA in 1990 as a comprehensive legislative initiative to address New Jersey's troubled automobile insurance system. Noting that the automobile insurance system is “complicated and interrelated,” the Legislature called for “a logical, comprehensive and complete revision of various laws and regulatory schemes that impact, in whatever fashion, on the system and its participants.” N.J.S.A. 17:33B-2f. The goals of the Act were to reduce insurance costs for the majority of New Jersey motorists, to depopulate the JUA by moving its insureds into the voluntary market, and to create a funding mechanism to pay off the JUA debt. State Farm, supra, 124 N.J. at 42; see also In re Commissioner, supra, 132 N.J. at 214 (discussing how automobile insurance reform was central issue in 1989 gubernatorial campaign). To accomplish those goals, FAIRA required insurers to absorb a quota of JUA policyholders in proportion to the size of their existing book of business or, in the alternative, to appoint agents in urban territories. The Appellate Division has explained the purpose of that mandate as follows:
The plain fact is that urban auto owners have not had fair access to the voluntary auto insurance market in recent years. The result is that great numbers of perfectly sound drivers have been relegated to JUA coverage. Perhaps it is because insurers abandoned the inner cities for profitable suburban business, without distinguishing good urban drivers from bad . . . . The early assignment of urban exposures in the depopulation process serves to give good urban drivers the same access to the benefits of the voluntary market as their suburban counterparts. Those benefits include a greater choice of benefits and carriers, and, eventually, of costs.
[In re Aetna Cas. and Sur. Co., 248 N.J. Super. 367, 380 (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).]
Although FAIRA has many components, our focus in this appeal is on N.J.S.A. 17:33B-15, the section that requires insurers to “take all comers,” and N.J.S.A. 17:33B-18b, the section that prohibits insurers from reducing an agent's compensation and commissions based on the geographic location of an agent's business.
N.J.S.A. 17:33B-15 is known as the “take all comers” provision, and reads in part as follows:
a. On or after April 1, 1992, every insurer . . . 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 . . . .
[N.J.S.A. 17:33B-15.]
The implementing regulations state that the “take all comers” provision “prohibit[s] insurers, both individually and through their agents, from attempting to channel away eligible persons, with the effect of avoiding an insurer's obligations to provide private passenger automobile insurance coverage to eligible persons.” N.J.A.C. 11:3-44.1(a). Thus, FAIRA requires insurers to accept automobile insurance applications submitted by all eligible persons who do not fall within the statutorily defined poor-risk category. Generally, an eligible person is a “good driver,” someone with eight points or less, regardless of any risk factors. An insurer can refuse to provide coverage to a driver who it believes is “ineligible” as defined in N.J.S.A. 17:33B-13. To do so, the insurer must inform the applicant of its reasons for refusal and the applicant has the opportunity to appeal that decision to the Commissioner. N.J.S.A. 17:33B-16; N.J.S.A. 17:33B-17. If either the insurer or the person who was denied coverage disagrees with the Commissioner's disposition of the matter, either party can request that the Commissioner “hear the matter as a contested case.” N.J.S.A. 17:33B-17b.
The Legislature recognized the financial impact that the “take all comers” mandate could have on insurers. Accordingly, the Act permits insurers to apply to the DOBI to request a suspension from its statutory obligation to insure all eligible persons. The Act states that the DOBI will grant relief to an insurer if it determines that an insurer “is in an unsafe or unsound financial condition.” N.J.S.A. 17:33B-19a. An insurer is deemed to be in that condition if the DOBI finds that it has “a ratio of annual net premiums written to surplus as to policyholders that threatens” its financial health. N.J.S.A. 17:33B-19d. The insurer also can receive an accelerated suspension of its obligation to “take all comers” if the insurer “avers that there is an immediate need to cease issuance of policies.” N.J.S.A. 17:33B-19b (emphasis added). If an insurer is suspended from its obligation to “take all comers,” the suspension “shall continue until the commissioner, upon [her] own motion or upon request by the insurer or any other interested party, after providing opportunity for a hearing, orders its revocation.” N.J.S.A. 17:33B-19c. According to the DOBI, an insurer who qualifies for relief from the “take all comers” provision is prohibited from writing any new private automobile insurance business while the relief order is in effect.
The second FAIRA provision relevant to this appeal is N.J.S.A. 17:33B-18b. That section reads in part as follows:
There is no legislative history amplifying the meaning of N.J.S.A. 17:33B-18b. However, the DOBI explains that “[i]n cases where the Department has reason to believe that a termination is based directly upon geographic location or loss ratio, it conducts an investigation of the termination. Should the Department conclude that the termination was improper, the Department may require the company to rescind the termination and reinstate the agent.” Gaydos claims that NCIC violated that provision because NCIC terminated Gaydos due to its loss experience and geographic location, and asserts that “termination of an agency agreement is the ultimate in paying an agent 'less than normal commissions or normal compensation or salary.'”
The Legislature empowered the Commissioner to enforce FAIRA's provisions and penalize those who violate the Act. For example, if an insurer violates the “take all comers” provision, “[t]he commissioner may suspend, revoke or otherwise terminate [its] certificate of authority to transact automobile insurance business in this State.” N.J.S.A. 17:33B-15d. The Commissioner also may impose civil penalties on an insurer who violates certain FAIRA provisions:
If the commissioner determines that any person has violated any provision of [Sections 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 . . . .
In addition to statutory penalties, the regulations state that if an insurer who violates FAIRA consents to an administrative penalty, the Department may require the insurer to pay a monetary penalty, reimburse the Department for the costs of investigation and prosecution, and provide “restitution of moneys owed any person.” N.J.A.C. 11:17D-2.1c(iv).
NCIC argues that the Appellate Division erroneously decided Gaydos's common-law breach of contract claims because FAIRA does not authorize insurance agents to institute a private cause of action against insurers who violate provisions of the Act. The Appellate Division did not address whether FAIRA authorized such a private right of action because it stated that NCIC did not raise that argument at trial, in its appellate briefs, in the remand proceedings, or in its supplemental briefs. R.J. Gaydos, supra, 331 N.J. Super. at 474 n.6. We note, however, that NCIC did raise the private right of action issue in its initial opposition to Gaydos's motion for a preliminary injunction, and that argument was rejected by the trial court. NCIC did not raise that issue before the Appellate Division because NCIC prevailed at trial. Nevertheless, whether FAIRA provides Gaydos with a statutory private cause of action is a central issue in this case and we will address it in detail.
New Jersey courts have been reluctant to infer a statutory private right of action where the Legislature has not expressly provided for such action. In Osback v. Lyndhurst Township, 7 N.J. 371 (1951), the plaintiff, a town employee, injured a bystander in the course of his employment. When the plaintiff discovered that the municipality did not have the statutorily- required liability insurance to satisfy the injured party's claim, the plaintiff sued the Township. The Court rejected the plaintiff's contention that one affected detrimentally by noncompliance with a statute has a cause of action for the injury or loss sustained, and stated that
[w]e are cognizant of the individual hardship which may occasionally befall an employee as a result of the municipality's default in obeying the legislative command. The statute, however, while stating the requirement of public liability insurance in mandatory language, does not provide a remedy for those who may suffer through a failure to comply with its terms. If it had done so, the right to recover would be clear.
. . . .
Since no right of action by the appellant against the township existed prior to the statute, and since no such right was specifically created by it, in our opinion the complaint must fall.
Similarly, the Court in Strohmeyer v. Borough of Little Ferry, 136 N.J.L. 485 (E. & A. 1947) rejected a party's request to infer a private right of action where none was statutorily authorized. The Court stated that a police officer who was suspended pending a trial did not have a private right of action to sue for his pay during the suspension, observing that
[h]ad the legislature also provided for recovery where a police officer was illegally suspended, the appellant's right to recovery in this case would have been clear; but since no such right has been granted we are obliged to find that the ruling . . . was in all respects proper.
To determine if a statute confers an implied private right of action, courts consider whether: (1) plaintiff is a member of the class for whose special benefit the statute was enacted; (2) there is any evidence that the Legislature intended to create a private right of action under the statute; and (3) it is consistent with the underlying purposes of the legislative scheme to infer the existence of such a remedy. Those factors were established by the United States Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S. Ct. 2080, 45 L. Ed.2d 26 (1975) and adopted by our Court in In re State Comm'n of Investigation, 108 N.J. 35, 41 (1987). Although courts give varying weight to each one of those factors, “the primary goal has almost invariably been a search for the underlying legislative intent.” Jalowiecki v. Leuc, 182 N.J. Super. 22, 30 (App. Div. 1981).
The seminal case in New Jersey to consider whether a state statute confers an implied private right of action is In re State Comm'n of Investigation, supra, 108 N.J. at 35. There, the Court considered whether the plaintiffs, who were being investigated by the State Commission of Investigation (SCI), could be granted an injunction to enforce the SCI's statutorily-mandated confidentiality obligations. In a unanimous decision, the Court held that the plaintiffs had no private right of action under a statute that prohibited SCI employees from disclosing information obtained in the course of an investigation. In reaching its conclusion, the Court reviewed the statute's legislative history and found no evidence that the Legislature enacted the law to protect the targets of SCI investigations. Moreover, the Court found that the statute's legislative scheme provided mechanisms for the Attorney General to enforce the statute that “obviates the plaintiffs' need for a private cause of action.” Id. at 44. Accordingly, the Court determined that the doctrine of exhaustion of remedies should be applied to prevent the circumvention of established procedures. Ibid. The Court stated that
[j]ust as we generally require that litigants exhaust their administrative remedies before they come to court . . . so we hold that these plaintiffs must seek relief in the first instance through the designated statutory vehicle. If after the Attorney General and the SCI conclude their consideration of this matter the plaintiffs still believe that they have not obtained relief to which they are entitled, then . . . they may seek judicial review.
The Appellate Division in Jalowiecki v. Leuc, supra, 182 N.J. Super. at 24, similarly rejected a plaintiff's request for a court to infer a regulatory private cause of action. In Jalowiecki, the plaintiff-homebuyers claimed that the defendant- sellers violated a regulation governing the design and installation of individual sewage disposal systems, and that the violation was a proximate cause of the malfunctioning septic system that caused damage to the plaintiffs' home. After considering the Cort factors, the Appellate Division concluded that the environmental regulations did not authorize an implied private right of action because “the legislative intent of the statutory schemes which the Department [of Environmental Protection] is charged with enforcing is to protect the environment for the public as a whole, not for any single person or group of people.” Id. at 31. Furthermore, the court held that an implied private right of action was inconsistent with the legislation: “Although a private action might help to deter violations of the act, such protracted civil litigation could not possibly be as effective in promoting environmental protection as the summary proceedings available to the Department.” Id. at 32.
New Jersey courts have generally declined to infer a private right of action in statutes where the statutory scheme contains civil penalty provisions. Cf. Parks v. Pep Boys, 282 N.J. Super. 1, 15 (App. Div. 1995) (holding that violation of statute can generate civil remedy for plaintiff when Act does not provide for remedy, if legislative provision is for benefit of plaintiff's class of persons); Bortz v. Rammel, 151 N.J. Super. 312, 321 (App. Div.), certif. denied, 75 N.J. 539 (1977) (holding that plaintiff has right of action in tort if plaintiff is member of class to be protected by standard of conduct proscribed by legislative provision). See also Restatement (Second) of Torts § 874A (stating that when legislative provision protects a class of persons but does not provide civil remedy for violations, “the court may, if it determines that the remedy is appropriate in furtherance of the purpose of the legislation and needed to assure the effectiveness of the provision,” provide an injured member of the class a private right of action).
For example, in Miller v. Zoby, 250 N.J. Super. 568, 576 (App. Div.), certif. denied, 127 N.J. 553 (1991), the Appellate Division ruled that the Legislature did not intend to confer a private cause of action in enacting the Casino Control Act (CCA). The court determined that the Legislature did not confer a private cause of action permitting players to seek damages based on a casino's violation of the extension of credit provisions of the CCA because “[i]f the Legislature had so intended, we think that it specifically would have created the right to sue expressly in the [Casino Control] Act [and] . . . not leave the matter to the happenstance of future judicial construction.” Id. at 577. The court added that “when [the Legislature] wanted members of the public to have access to the civil courts for violations of remedial statutes,” id. at 576, the Legislature has expressly conferred a private cause of action. To support that proposition, the court cited N.J.S.A. 56:9-12a (Antitrust Act of 1970), N.J.S.A. 56:8-19 (Consumer Fraud Act of 1971), N.J.S.A. 13:1K-13a (Environmental Cleanup Responsibility Act of 1983), N.J.S.A. 2A:35A-4a (Environmental Rights Act of 1974), and N.J.S.A. 55:13B-21 (Rooming and Boarding House Act of 1979) as examples of statutes in which the Legislature expressly provided for private causes of action. See Campione v. Adamar of New Jersey, Inc., 155 N.J. 245, 266 (1998) (declining to imply cause of action for money damages for plaintiff because Casino Control Act contains elaborate regulatory scheme and no such cause of action existed at common law).
In the context of insurance statutes, our courts have similarly concluded that where there is no discernable legislative intent to authorize a private cause of action in a statutory scheme that already contains civil penalty provisions, the courts will not infer a private cause of action. As the Appellate Division noted in In re Commissioner of Insurance's March 24, 1992 Order, 256 N.J. Super. 158, 176-78 (App. Div. 1992), aff'd, 132 N.J. 209 (1993),
[w]henever the Legislature intended to create civil penalties for violations of insurance statutes, regulations, and Department orders, it knew how to do so . . . . Implied remedies are unlikely to be intended by a Legislature that enacts a comprehensive legislative scheme including an integrated system of procedures for enforcement.
See also Lemelledo v. Beneficial Management Corp., 150 N.J. 255, 264 (1997) (finding no private right of action for damages under Insurance Trade Practices Act, New Jersey Insurance Producer Licensing Act, or Credit Life and Health Insurance Act, and distinguishing those statutes from Consumer Fraud Act that expressly provides consumers with a cause of action); Pierzga v. Ohio Cas. Group of Ins. Companies, 208 N.J. Super. 40, 47 (App. Div.) (holding that no private cause of action exists under Insurance Trade Practices Act), certif. denied, 104 N.J. 399 (1986); Retail Clerks Welfare Fund v. Continental Cas. Co., 71 N.J. Super. 221, 226 (App. Div. 1961) (holding that provisions of Insurance Trade Practices Act prohibiting discriminatory and deceptive trade practices do not imply private right of action).
Regardless of whether FAIRA confers an implied private right
of action, Gaydos argues that it has a common-law cause of action
because NCIC breached the implied common-law duty of good faith
and fair dealing when it refused to “take all comers,” in
violation of N.J.S.A. 17:33B-15, and when it penalized Gaydos
because of the geographic location from which its automobile
insurance policies originated, in violation of N.J.S.A. 17:33B-
18b.
As a general rule, we have recognized that every contract in
New Jersey contains an implied covenant of good faith and fair
dealing. See Wilson v. Amerada Hess Corp., No. A-86, 2
001 WL
664234, at *3 (N.J. June 14, 2001); Sons of Thunder v. Borden,
Inc.,
148 N.J. 396, 420 (1997); Pickett v. Lloyd's,
131 N.J. 457,
467 (1993); Onderdonk v. Presbyterian Homes,
85 N.J. 171, 182
(1981); Bak-A-Lum Corp. v. Alcoa Bldg. Prods., Inc.,
69 N.J. 123,
129-30 (1976); Association Group Life, Inc. v. Catholic War
Veterans,
61 N.J. 150, 153 (1972); Palisades Properties, Inc. v.
Brunetti,
44 N.J. 117, 130 (1965). See Restatement (Second) of
Contracts § 205 (stating “[e]very contract imposes upon each
party a duty of good faith and fair dealing in its performance
and its enforcement”). In some cases where the parties have
reached an agreement, “the implied obligation of good faith
provides the necessary consideration” for the agreement. 2
Corbin on Contracts § 5.27 (1995). In addition, a court may
impose such a condition on grounds of fairness and justice.
“Where fairness and justice require, even though the parties to a
contract have not expressed an intention in specific language,
the courts may impose a constructive condition to accomplish such
result when it is apparent that it is necessarily involved in the
contractual relationship.” Palisades Properties, supra, 44 N.J.
at 130. Furthermore, “implied covenants and terms of a contract
are as effective components of the agreement as those expressed.”
Aronsohn v. Mandara,
98 N.J. 92, 100 (1984).
Our Court has determined that the implied duty of good faith
and fair dealing means that “neither party shall do anything
which will have the effect of destroying or injuring the right of
the other party to receive the full fruits of the contract; in
other words, in every contract there exists an implied covenant
of good faith and fair dealing.” Association Group Life, supra,
61 N.J. at 153. See 13 Williston on Contracts § 38:15 (4th ed.
2000) (stating that an implied covenant of good faith and fair
dealing means that “neither party will do anything which will
have the effect of destroying or injuring the right of the other
party to receive the fruits of the contract”). The Restatement
explains further that “[g]ood faith performance or enforcement of
a contract emphasizes faithfulness to an agreed common purpose
and consistency with the justified expectations of the other
party.” Restatement (Second) of Contracts § 205, comment a
(1981). See Wilson, supra, 2
001 WL 664234 at *4-7 (discussing
implied covenant of good faith and fair dealing in various
contexts and noting that its meaning has “been the subject of
considerable analysis”).
The implied duty of good faith and fair dealing is inherent
in a contract even if a contract implicates a statute that does
not confer a private right of action. In Pickett v. Lloyd's,
131 N.J. 457, 467 (1993), the Court considered whether an insurance
carrier's failure to pay collision damage benefits to an insured
could be a basis of an action for damages. In deciding if an
insurance carrier had a duty to exercise good faith in processing
the insured's claims, the Court looked to the Insurance Trade
Practices Act, N.J.S.A. 17:29B-1 to -14, that prohibits unfair
trade practices by insurance companies. Based on its review of
that statute, the Court acknowledged that it did not provide for
a private cause of action or any other remedy not contained in
the Act. Nonetheless, the Court concluded:
Although the regulatory framework does not
create a private cause of action, it does
declare state policy and we do not think that
finding a cause of action for the breach of
the duty of good faith and fair dealing would
conflict with that policy.
Gaydos's common-law claim for breach of the implied duty of good faith and fair dealing is complicated by the fact that Gaydos's claim is based solely on its allegations that NCIC violated FAIRA. To address that concern, we are guided by the Court's decision in Campione v. Adamar of New Jersey, Inc., supra, 155 N.J. at 245. In Campione, a card-counting gambler brought an action against a casino and its employees for discrimination, breach of contract, and malicious prosecution. The plaintiff based his common-law claims on the defendants' alleged violation of the Casino Control Commission's (CCC) regulations that allow casinos to use countermeasures to discourage card counting.
As a result of the casino's countermeasures, the plaintiff filed a number of patron complaints with the CCC. However, the CCC informed the plaintiff that the CCC did not conduct hearings on individual complaints. The plaintiff sued the casino, and did not appeal the CCC's disposition of his patron complaints. Campione held that a court may entertain the plaintiff's claims that have a common-law basis, such as a discriminatory treatment claim. However, the Court concluded that the CCC should in the first instance determine whether the casino had violated the Act or regulations promulgated pursuant thereto. We stated:
To the extent that the resolution of a plaintiff's claim depends on an interpretation of the Act or administrative regulations, the CCC should have the first opportunity to provide that interpretation. A referral to the CCC should assure the resolution of the controversy consistent with the views of the entity best positioned to consider the matter. Retaining primary jurisdiction in the courts could dislocate the intricate regulatory structure governing a sensitive industry. Permitting courts and juries throughout the State to interpret statutory and administrative regulations could introduce confusion where uniformity is needed. The lack of uniform interpretations, in turn, could effect the stability of the industry.
In our view, FAIRA does not create a private right of action for an agent to pursue a claim that it was wrongly terminated as a result of an insurer's alleged FAIRA violations. First, we note that insurance agents are not members of the class for whose special benefit FAIRA was enacted. The legislative history is clear that the goal of FAIRA was to benefit New Jersey auto insureds, not insurance agents. From the outset, the Legislature declared that the efforts to reform New Jersey's automobile insurance industry were intended “to provide to the motorists of this State a comprehensive program of indemnification from the injuries and damages that may arise out of the ownership or operation of motor vehicles . . . .” N.J.S.A. 17:33B-2b (emphasis added). See 22 N.J.R. 3853 (Dec. 17, 1990) (stating that purpose of FAIRA “is to assure that drivers with good driving records are able to procure automobile insurance coverage in the voluntary market”). FAIRA's provisions are consumer- oriented and focus on insuring all eligible persons. For example, if a driver is denied coverage, FAIRA requires the insurer to give the motorist either a written or oral explanation for why coverage was denied. N.J.S.A. 17:33B-16. If the driver disagrees with the insurer's explanation, FAIRA allows a driver to appeal the insurer's decision to the Commissioner. N.J.S.A. 17:33B-17. Finally, if the driver disagrees with the Commissioner's determination, the Commissioner is required to “hear the matter as a contested case.” N.J.S.A. 17:33B-17b.
Furthermore, because the centerpiece of the FAIRA scheme is the “take all comers” provision, we believe that the Legislature's reform efforts were intended to assist drivers who were unable to procure automobile insurance through the voluntary market. See In re Producer Assignment Program, supra, 261 N.J. Super. at 299. The legislative history does not suggest that the Legislature adopted FAIRA t