On appeal from the Superior Court, Law Division, Hudson County, and the Superior Court, Law Division, Mercer County.
Crane, Milmed and King. The opinion of the court was delivered by King, J.A.D.
These three cases involve the common question of whether claims against surplus lines insurance carriers, declared eligible to issue policies in this State by the Commissioner of Insurance and which become insolvent, fall within the protective scope of the New Jersey Property-Liability Insurance Guaranty Association Act (Guaranty Act), N.J.S.A. 17:30A-1 et seq. In summary proceedings, the judges of the Law Division held they did not.
The three types of claims which were left uncovered because of the insolvencies of the eligible surplus lines carriers were: (1) a theft insurance claim for a heavy-duty truck, underwritten by Financial Fire and Casualty Company; (2) a fire insurance claim on business premises, underwritten by the same company, and (3) medical malpractice claims, underwritten by All-Star Insurance Corporation. Appellants contend that these claims should be covered by the Guaranty Act.
The Guaranty Act was adopted in New Jersey in 1974 as a mechanism to protect this State's policyholders and claimants from the devastating financial effects consequent upon an insurer's insolvency. N.J.S.A. 17:30A-2(a). Due to the imminently impending insolvency of the Professional Insurance Company of New York, there were no legislative hearings held prior to enactment. All parties concede that there is no formal legislative history available. The Guaranty Act was derived in large measure from the Model Guaranty Association Post-Assessment Bill promulgated by the National Association of Insurance Commissioners in 1969. Since then the model bill has been adopted in varying forms in about 47 states. The legislative purpose in our version of the Guaranty Act was stated explicitly:
The purpose of this act is to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment, to avoid financial loss to claimants or policyholders because of the insolvency of an
insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers. [ N.J.S.A. 17:30A-2(a)]
The Guaranty Act was declared to apply "to all kinds of direct insurance" except life, accident and health, workers' compensation, title, annuities, surety bonds and insurance provided by the Motor Vehicle Liability Security Fund (N.J.S.A. 39:6-92 et seq.). N.J.S.A. 17:30A-2(b). Respondent Guaranty Association appropriately concedes that direct insurance for vehicle theft, building fire and medical malpractice claims are not among the expressly excluded categories of coverages under the Guaranty Act.
Respondent Guaranty Association contends, however, that all surplus lines coverages and claims emanating therefrom, though direct insurance within the meaning of the Guaranty Act, and not excess or reinsurance coverages, are beyond the ambit of the act. The Guaranty Association contends that eligible surplus lines carriers are neither "admitted [n]or authorized to transact the business of insurance in this State" and thus are not within the definition of "insolvent insurer" contained in N.J.S.A. 17:30A-5(e)(1) of the Guaranty Act. Under the act, the Association is liable only for covered claims against an "insolvent insurer," as defined therein. N.J.S.A. 17:30A-8(a)(1) and (2). The word "admitted" was added to the model bill by our New Jersey act. The basic question is whether the term "admitted" should be interpreted to include surplus lines carriers declared by the Commissioner of Insurance as eligible to sell policies in New Jersey.
Any examination of the scope of relief to be afforded under the Guaranty Act to insureds and claimants in this State must first acknowledge the express constructional admonition of the Legislature that "[t]his act shall be liberally construed to effect the purpose under section 2 [ N.J.S.A. 17:30A-2, above], which shall constitute an aid and guide to interpretation." N.J.S.A. 17:30A-4(a). This court has previously stated that this
constructional mandate from the Legislature means that "the act must be interpreted to protect policyholders and claimants and to advance their interests rather than the interests of the Association." N.J. Prop.-Liab. Ins. Guar. Ass'n v. Sheeran , 137 N.J. Super. 345, 351 (App.Div. 1975), certif. den. 70 N.J. 143 (1976).
When construing similar legislation the Supreme Court of Mississippi stated:
It is clear that the Mississippi Insurance Guaranty Association Act was enacted for the express purpose of protecting the public against financial loss to policyholders or claimants because of the insolvency of insurers. In order to achieve this purpose, the association was created as an instrument whereby economic loss which would otherwise result will be shared by policyholders in companies that remain sound. To achieve this desirable result in which the public interest in involved, the legislature expressly provided that the statute is to be liberally construed. [ Mississippi Ins. Guar. Ass'n v. Gandy , Miss., 289 So. 2d 677, 681 (1974)]
In deciding whether claims which arose prior to the effective date of a guaranty act were covered, the Louisiana Court of Appeals used the ...