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Howell v. Rosecliff Realty Co.

Decided: July 10, 1968.

CHARLES R. HOWELL, COMMISSIONER OF BANKING AND INSURANCE, STATE OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
ROSECLIFF REALTY CO., INC., A CORPORATION OF THE STATE OF NEW JERSEY, DEFENDANT-RESPONDENT



For reversal -- Chief Justice Weintraub and Justices Jacobs, Francis, Proctor, Hall and Schettino. For affirmance -- None. The opinion of the court was delivered by Weintraub, C.J.

Weintraub

[52 NJ Page 315] The Commissioner of Banking and Insurance brought this action against defendant Rosecliff to collect a tax on premiums it paid unadmitted foreign carriers for insurance coverage on New Jersey risks. The policies were written in New York. The trial court gave judgment for Rosecliff, holding that New Jersey could not reach the transactions because of State Board of Insurance v. Todd Shipyards Corp., 370 U.S. 451, 82 S. Ct. 1380, 8 L. Ed. 2 d 620 (1962). We certified the matter before argument in the Appellate Division.

The insurance industry is highly regulated to the end that insurance will be written fairly and by companies that are financially sound. When coverage cannot be obtained from fully authorized carriers at filed rates, the insurance, then called "surplus," may be placed elsewhere. The surplus lines law, N.J.S.A. 17:22-6.40 et seq., deals with such situations. It permits the "exporting" of surplus lines to unauthorized carriers but still seeks to achieve a measure of safety for the insured and simultaneously to support the basic statutory purpose that risks be covered, where they can be, by companies that are authorized to write here and hence under maximum supervision.

N.J.S.A. 17:22-6.42 provides that if certain "insurance coverages of subjects resident, located or to be performed in the State" cannot be obtained from authorized insurers, such coverages, designated by the act as "surplus lines," may be procured from unauthorized insurers, subject to the conditions that (a) the insurance is "eligible for export," (b) the insurer is an "eligible surplus lines insurer," (c) the insurance is placed through a licensed New Jersey "surplus lines agent," and (d) other provisions of the statute are met.

N.J.S.A. 17:22-6.43 defines what coverage is "eligible for export." In general terms, to be thus eligible, the insurance must not be procurable, after diligent effort, from an authorized insurer; the premium rate at which the insurance is exported shall not be lower than the lowest rate filed by an authorized insurer; and the policy shall not provide coverage different from that in actual current use by a majority of the authorized insurers.

N.J.S.A. 17:22-6.45 provides that a surplus lines agent may place coverage only with an unauthorized insurer which is an "eligible surplus lines insurer." A determination of eligibility must be requested by a licensed surplus lines agent, and in support the agent or the insurer must supply specified data for the Commissioner's evaluation. The statute recognizes that, notwithstanding such filing, the Commissioner could not achieve the degree of supervision required

with respect to an authorized insurer, and hence the statute expressly says it is not the Commissioner's duty or responsibility to determine "the actual financial condition or claims practices of any unauthorized insurer; and the status of eligibility * * * shall indicate only that the insurer appears to be sound financially and to have satisfactory claims practices, and that the commissioner has no credible evidence to the contrary." The same section further provides that if insurance cannot be obtained from an eligible surplus lines insurer, the surplus lines agent may, upon filing certain papers with the Commissioner, place the insurance with an ineligible unauthorized insurer which, before accepting the risk, shall deposit specified securities with the Commissioner.

N.J.S.A. 17:22-6.59 imposes a tax of 3% of all gross premiums and requires the surplus lines agent to collect the tax from the insured. N.J.S.A. 17:22-6.64 provides that if the insured places the surplus line without the intervention of a surplus lines agent, the insured shall withhold the 3% tax and remit it to the State, in default of which the insured shall be liable for the tax. In the case before us, Rosecliff placed the surplus lines without the intervention of a surplus lines agent, and not having remitted the 3% tax, this suit was brought.

I

Rosecliff says the statute does not reach the transaction here involved. N.J.S.A. 17:22-6.64 reads:

"Any insurance in an unauthorized insurer procured through negotiations or an application, in whole or in part occurring or made within or from within this State, or for which premiums in whole or in part are remitted directly or indirectly from within this State, shall be deemed to be insurance procured, or continued or renewed in this State within the intent of paragraph 1 above."

The contracts of insurance were negotiated in New York between a representative of Rosecliff and the carriers, and the premiums were paid by Rosecliff's checks on a New York

bank account. Rosecliff says the negotiations were not "from within this State" and that the premiums were not remitted "directly or indirectly from this State." We think Rosecliff is wrong on both counts. Rosecliff is a New Jersey corporation with its principal place of business at Fort Lee in this State. It operates a large amusement park in Fort Lee and Cliffside Park. The Legislature sought in broad terms to reach all surplus line transactions relating to New Jersey risks. In that context, we think negotiations occur in part "from within this State" when a corporation formed under our laws and with its principal place of business in New Jersey designates the negotiator on its behalf. We also think it clear the alternative provision was met because the premiums were "remitted directly or indirectly from within this State." The moneys on deposit in the New York account were earned at the amusement park in New Jersey. It would be absurd to suppose a corporation of this State whose income originated here can place itself beyond the statute by putting the moneys in a New York bank account before sending them on to the carrier.

II

We turn then to the principal question, whether the transactions were beyond the legislative power of the State because of the doctrine of Todd Shipyards. We think the answer turns upon the activities within the State of New Jersey, and hence we will relate in those terms the facts stipulated by the parties.

As already noted, defendant is a New Jersey corporation, with its principal place of business here. It owns and operates Palisades Amusement Park at Fort Lee and Cliffside Park. The risks covered relate to the ownership of the real and personal property comprising the amusement park and to the business operation at the park. The coverage includes public liability, fire and extended coverage, money and

securities, burglary and theft, garage keeper's liability and ...


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