On appeal from the Commissioner of Insurance.
King, Dreier and Bilder. The opinion of the court was delivered by Bilder, J.s.c. (Temporarily Assigned)
[195 NJSuper Page 203] On this appeal we are asked to pass on the validity of a requirement that an insurance company have a $5 million policyholder surplus in order to participate as a servicing carrier for the State's revised program for automobile liability insurance for high-risk drivers who cannot otherwise obtain coverage. The requirement is challenged by a carrier, IFA
Insurance Company, which wishes to act as a servicing carrier but has only $800,000 in policyholder surplus.
Prior to January 1, 1984 any applicant for automobile insurance who was in good faith entitled to such insurance, but was unable to procure it through ordinary market outlets, was required to seek coverage through the New Jersey Automobile Insurance Plan (AIP). These applicants were members of the "residual" or "involuntary" market because no insurance company was willing to provide coverage to them voluntarily. All insurance companies licensed to transact automobile insurance business in this State were required to be members of the AIP and were required to accept assignments of applicants from the AIP. N.J.S.A. 17:29D-1.
On February 10, 1983 the New Jersey Automobile Full Insurance Availability Act (Act) became law. N.J.S.A. 17:30E-1 et seq., L. 1983, c. 65. This Act provided for the phase-out of the AIP and the creation of a new, involuntary market mechanism known as the New Jersey Automobile Full Insurance Underwriting Association (Association), an unincorporated, nonprofit association established to provide automobile insurance for the residual market through servicing carriers designated to process coverage. The Act mandated that all insurers licensed to transact automobile insurance in this State become members of the Association and be bound by a plan of operation prepared by the Association and approved by the Commissioner of Insurance. Unlike the AIP, wherein all members were required to accept and service residual market applicants, the Act contemplated that Association business would be transacted by a limited number of qualified servicing carriers. To this end, the statute specifically required that the plan establish procedures and minimum standards of eligibility for the selection of servicing carriers. N.J.S.A. 17:30E-6(a). In the absence of qualified volunteers, the Commissioner of Insurance could require one or more members of the Association to act as a servicing carrier if he determined that such action was necessary to effectuate the purposes of the Act. No company having less than one-percent
of the private passenger automobile insurance market could be required, under this provision, to act as a servicing carrier. N.J.S.A. 17:30E-12(b).
The board of directors of the Association formulated a plan of operation which was submitted to and approved by the Commissioner of Insurance in July 1983. As required by statute, the plan established minimum eligibility standards for companies seeking to become servicing carriers, one of which was that a prospective servicing carrier have at least $5 million in policyholder surplus. This requirement is the subject of the present litigation. Appellant IFA Insurance Company appeals from a final decision of the Commissioner of Insurance sustaining the requirement.
Although appellant's claims broadly encompass alleged constitutional and antitrust objections, its basic contention is that the $5 million requirement is unreasonable and arbitrary. This claim underlies all of its other contentions. Implicit in appellant's argument is the principle that any constitutional and antitrust assertions fail if there was a reasonable basis for the rule, the $5 million minimum classification.
Despite appellant's arguments to the contrary, we find there is a reasonable and rational basis for the adoption of the $5 million surplus requirement. The Commissioner concluded that a servicing carrier should process a minimum of 35,000 to 50,000 policies to maximize the efficiencies achievable through the use of data-processing capabilities. Because of unreimbursable start-up costs incident to the commencement of the servicing operation and an anticipated time-lag in the payment of reimbursable servicing expenses, the Commissioner projected that the cash-flow drain for a carrier servicing the minimum policy allotment could approach $3 million during the first three months of operation. It was permissible, appropriate and, indeed, prudent to consider the cash-flow problems inherent in start-up costs and reimbursement lag. The relationship of the volume required to achieve these benefits of scale and the
cash-flow problem surely could be considered in fulfilling the legislative mandate that minimum requirements be set for the selection of servicing carriers. N.J.S.A. 17:30E-6(a). The surplus that is required to insure that the cash-flow problems will not result in danger to the financial condition of a carrier -- or, worse yet, insolvency -- was a matter peculiarly within the competence of the Commissioner. He must consider not only the legislative mandate of an efficient system, N.J.S.A. 17:30E-6(a), but the more fundamental goal, to insure the Plan does not impair the financial condition of carriers to the ...