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New Jersey Property-Liability Insurance Guaranty Association v. Sheeran

Decided: December 1, 1975.

NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION, A PRIVATE NON-PROFIT UNINCORPORATED LEGAL ENTITY, APPELLANT,
v.
JAMES J. SHEERAN, COMMISSIONER OF INSURANCE OF THE STATE OF NEW JERSEY, RESPONDENT



Lynch, Ackerman and Larner. The opinion of the court was delivered by Lynch, P.J.A.D.

Lynch

Plaintiff New Jersey Property-Liability Insurance Guaranty Association (Association) is an organization of all property and casualty insurance companies authorized to do business in New Jersey. The Association was created by § 6 of the New Jersey Property-Liability Insurance Guaranty Association Act, N.J.S.A. 17:30A-1 et seq. (Guaranty Act). In the present case the Association appeals from an action of the Commissioner of Insurance of New Jersey (Commissioner), notifying the Association of the insolvency of Summit Insurance Company of New York (Summit), a member of the Association, thus triggering the Association's liability for certain claims of Summit's New Jersey policyholders.

The main purpose of the Guaranty Act is to protect New Jersey policyholders of an insolvent insurance company from the financial loss and excessive delay in payment of claims that can result from an insolvency. N.J.S.A. 17:30A-2(a). To provide the mechanism for such protection, the act created the Association and gave it the power to assess its member-insurers for the costs of protection. N.J.S.A. 17:30A-8(a)(3). In the event of a member-insurer's insolvency, the Association becomes liable for substantially all claims against the insurer by New Jersey claimants and policyholders that are incurred prior to or within 30 days after the determination of the insolvency. N.J.S.A. 17:30A-8(a)(1).

The Guaranty Act defines an "insolvent insurer" as an insurer authorized to do business in this State which is determined to be insolvent by a "court of competent jurisdiction." N.J.S.A. 17:30A-5(e). It is this latter clause which creates the issue for decision here. More particularly the question is whether the North Carolina General Court of Justice, Superior Court Division (North Carolina court) was such a "court of competent jurisdiction" when, on March 17, 1975, on application of the Commissioner of Insurance of that state, it entered an order declaring that "the defendant, Summit Insurance Company of New York is insolvent."

The order further appointed the Commissioner of Insurance of North Carolina "conservator" of Summit, and directed him to take into his possession all of the assets of that company within that state, as provided in N.C. Gen. Statutes , § 58-155.7.

On March 19, 1975 defendant Commissioner of Insurance of New Jersey, acting in accordance with N.J.S.A. 17:30A-10(a)(1), notified the Association that the North Carolina court had declared Summit insolvent. On March 24, 1975, pursuant to his authority under N.J.S.A. 17:30A-10(b)(1), the Commissioner ordered the Association to notify Summit's insureds and other interested parties of the insolvency and of their rights under the Guaranty Act. On April 10, 1975 the Association filed a notice of appeal (or in the alternative motion for leave to appeal) from the Commissioner's action.

The Association contends that the North Carolina court is not a "court of competent jurisdiction" within the meaning of the Guaranty Act and that the Commissioner's directive of March 19, 1975, which triggered the Association's liability for claims, was therefore without legal authority. The Association contends that the Guaranty Act must be interpreted so that only a court of the state of the insolvent insurer's domicile is deemed a "court of competent jurisdiction" within the meaning of the act.

The argument is that only the domiciliary state is competent as to all aspects of the corporate existence since it is the only state which can order liquidation of the corporation. Thus, in this instance the North Carolina court appointed the Commissioner of Insurance of that state as a conservator only of those assets of Summit which were within North Carolina. The Association also points out that on February 4, 1975, prior to the action of the North Carolina court, the Superintendent of Insurance of the State of New York, Summit's domicile, applied to the Supreme Court of that state, which, based on the Superintendent's finding that Summit was "insolvent," appointed the Superintendent

"rehabilitator" of Summit, pursuant to New York Insurance Law § 511. At that time, the Association notes, the New Jersey Commissioner of Insurance advised the Association not to begin its operations under the Guaranty Act. On the other hand, when the North Carolina court appointed its Superintendent conservator of Summit's assets within that state, the New Jersey Commissioner allegedly reversed himself and set in motion the mechanism of the Guaranty Act.

The Commissioner contends that the February 4, 1975 order of the Supreme Court of New York was not based on a determination by the court that Summit was insolvent, but rather was grounded in a determination of the Superintendent to that effect. In contrast, the Commissioner argues that the order of the North Carolina court on March 17, 1975 contained a determination of insolvency by the court itself , which was a "court of competent jurisdiction."

The Association concedes that it did not immediately obey the Commissioner's directive of March 24, 1975 and notify Summit's insureds and other interested persons of the determination of insolvency by the North Carolina court. It applied for emergent relief from the Appellate Division of the Superior Court of New Jersey to stay the requirement that notice be immediately provided. When that application was denied it appealed that determination to the Supreme Court of New Jersey, which also denied appellant's application. Thereafter, without waiving its right to appeal the validity of the Commissioner's letter of March 24, 1975, the Guaranty Association on ...


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