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In re Midland Insurance Co.

Decided: March 22, 1979.


On appeal from Commissioner of Insurance.

Matthews, Kole and Milmed. The opinion of the court was delivered by Kole, J.A.D.


Midland Insurance Company (Midland) appeals from a determination of the Commissioner of Insurance (Commissioner) imposing fines in the sum of $79,000 and ordering it to cease and desist from certain practices. These actions were based on Midland's failure to satisfy judgments and forfeitures on its bail bond obligations within a reasonable period of time.

In July 1976 an order to show cause, later amended, was issued by the Department of Insurance (Department) with respect to possible violations of the State's insurance laws arising out of Midland's failure to make prompt payment of its bail bond obligations, involving forfeitures and judgments, in violation of the insurance laws.

Hearings on the order were held before an examiner, during the course of which many counts were withdrawn by the Department, leaving 241 charges. Most of the charges involved unpaid judgments, and forfeitures without judgments, for which a penalty was sought under N.J.S.A.

17:33-2 for violations of N.J.S.A. 17:32-2(b); others sought a cease and desist order involving violations of N.J.S.A. 17:29B-4(9)(f) and (g). The last day on which hearings were conducted and evidence received was December 9, 1976. Some four months later the examiner heard closing arguments. At that time, and somewhat earlier, Midland moved to supplement the record with evidence relating to subsequent court action taken to vacate some of the judgments underlying the charges. This motion was denied.

The evidence at the hearing was substantially the same for each count, except to the extent that forfeitures differ from judgments. The Department introduced on each count evidence of the entry of bench warrants and orders of forfeiture when a person bonded by Midland failed to appear, notices to Midland of the forfeitures, and in the case of judgments, notices of motion for judgment, the judgments themselves and notices thereof to Midland. The Department showed the length of time which had elapsed between the time of entry of an order of forfeiture or judgment and the time of actual monetary satisfaction thereof. In many instances payment resulted after the issuance of the initial order to show cause in July 1976. Of the 241 counts remaining after the hearings, most of them related to unpaid judgments; the balance involved unpaid forfeitures.

The testimony revealed that while differences exist among the various counties and courts insofar as record keeping with respect to bail bonds is concerned, the procedure for declaration of forfeiture and entry of judgment thereon is essentially the same. When a defendant fails to appear on the prescribed date, the judge orally declares that a bench warrant issue and either on his own motion or on motion of the prosecutor enters an order declaring forfeiture of the bond. The bondsman -- the surety's agent -- and the surety are then notified of the forfeiture and a demand for payment is made. If payment is not forthcoming, a notice of motion for the entry of a judgment on the forfeiture is sent to the surety and judgment is thereafter obtained. The

surety is then notified of the judgment and payment is again requested.

The evidence disclosed, however, substantial differences in the time lapse between the various steps taken leading up to final judgments. In some cases the order of forfeiture was not entered until many months after the issuance of the bench warrant, presumably around the date of a defendant's failure to appear. Similarly, many months often elapsed between the entry of the order of forfeiture and the entry of judgment.

These delays apparently stem from the informal nature of the bail bonding procedure, rooted in common law tradition. For example, there was testimony at the hearing that when a defendant does not appear in municipal court, the judge notifies the bondsman by telephone and a later forfeiture apparently is declared.*fn1 In county trial courts, notification of the failure to appear may come by mail about one week after the appearance date. The order of forfeiture usually is not entered immediately upon defendant's failure to appear; the judge merely issues a bench warrant. Subsequently, after a reasonable time has been allowed for locating the defendant, the prosecutor moves for the entry of an order of forfeiture by formal motion. After a hearing thereon the judge declares a forfeiture and the county counsel then moves to enforce it by reducing it to a civil judgment. There appears to be no uniformity in the State with respect to the time interval between declaration of forfeiture and entry of judgment.

In 1972 the Administrative Director of the Courts, in a memorandum, prescribed that upon breach of the condition of the recognizance the prosecutor or the court, on its own motion, move for declaration of forfeiture; that notice thereof and demand for payment immediately be sent to the bondsman and surety; that if the amount of the bond were not

paid or if the forfeiture were not set aside within 20 days, county counsel was to collect the forfeiture by moving for entry of judgment. At least two counties, Passaic and Monmouth, employ this so-called "20 day rule."*fn2 As to municipal courts, the memorandum requires the clerk of the court, after declaration of a forfeiture, to send the matter to the county authorities and directs the county officials to take further action with respect to enforcement thereof in accordance with the procedure applicable to county trial court forfeitures.

After entry of an order of forfeiture, but prior to the entry of judgment, if a defendant is apprehended or his whereabouts are discovered, the surety may move for vacation of the forfeiture and remission of the monies paid. The court may retain that portion of the payment necessary to cover the expenses incurred in locating or apprehending defendant. According to Midland's evidence, this exoneration of the forfeiture and remission of payment is very common; but even if defendant is located, only a relatively small number of judgments are vacated and payment thereon remitted.

The examiner concluded that defendant had perpetrated 135 violations of N.J.S.A. 17:32-2(b) in that it failed to satisfy its obligations on 135 judgments within six months of the entry thereof. He was of the view that in this case, six months was a reasonable period for that purpose. He concluded that N.J.S.A. 17:32-2(b) established an ongoing requirement which must be met by all foreign insurance companies doing business in the State, and that N.J.S.A. 17:33-2 authorized the imposition, in this case, of a monetary penalty. He recommended the levying of fines on

these 135 charges ranging from $500 to $2,000, depending on the length of time between entry of judgment and payment. The aggregate fine recommended for these violations was $94,500.

Although the examiner found that a forfeiture imposed upon the surety an obligation to pay, he noted that the municipalities and counties also have an obligation to enforce the collection of a forfeiture through the entry of a judgment under R. 3:26-6, and that in many cases this was not done. Accordingly, he recommended that in this case no guilt be found or fine imposed for failure to make timely payments on forfeitures not reduced to judgment and that the counts relating solely to forfeitures be dismissed.

The examiner then dealt with the issue of whether a cease and desist order should be entered by reason of Midland's alleged unfair claim settlement practices under N.J.S.A. 17:29B-4(9)(f) and (g). As to forfeitures only, he determined that since the counts relating thereto were dismissed, the matter of whether they violated N.J.S.A. 17:29B-4(9)(f) was moot. Hence, he recommended that no cease and desist order relating thereto should issue.

He also recommended dismissal of the charge alleging a violation of N.J.S.A. 17:29B-4(9)(g), since he found that this provision was directed towards the casualty field and had no application in the context of bail bonds. He further recommended that there be no revocation of Midland's license, given its good faith effort to satisfy its obligations, its cooperation with the Attorney General and the examiner in the proceedings, and the public interest in continued service by bail bond companies.

The Commissioner adopted much of the examiner's report. However, he dismissed the counts involving individual unpaid judgments in which the underlying forfeitures were vacated before judgment, one involving a judgment erroneously listed twice and one based on the bond of another surety. He found failure to pay forfeitures not reduced to judgments to constitute violations of N.J.S.A. 17:32-2(b)

in the instant case, and thus refused to dismiss the charges relating thereto; but he levied no fines therefor, since the penalties imposed for not paying judgments were deemed to be sufficient as a deterrent. He also dismissed other counts alleging nonpayment of forfeitures ...

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