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American Fire and Casualty Co. v. New Jersey Department of Insurance

Decided: May 19, 1992.

AMERICAN FIRE AND CASUALTY COMPANY, OHIO CASUALTY INSURANCE COMPANY, AND WEST AMERICAN INSURANCE COMPANY, APPELLANTS,
v.
NEW JERSEY DEPARTMENT OF INSURANCE, RESPONDENT



On appeal from a final order of the Commissioner of Insurance of the State of New Jersey.

Antell, Baime and Thomas. The opinion of the court was delivered by Antell, P.J.A.D.

Antell

ANTELL, P.J.A.D.

Appellants, member insurers of the Ohio Casualty Insurance Group, appeal from three identically worded orders which denied their request for relief from the surtaxes and assessments imposed on insurers by the Fair Automobile Insurance Reform Act of 1990 ("FAIR"), L. 1990, c. 8, N.J.S.A. 17:33B-1 et seq. FAIR imposes a 5% surtax on automobile premiums paid in New Jersey for a period of three years and assessments equal to 2.7% of the insurer's net premiums. The assessment is

imposed by the Property Liability Insurance Guarantee Association (PLIGA) and the surtax is administered by the Commissioner of Insurance. Under FAIR, the Commissioner is given discretion to exempt, abate or defer the payment of the surtax and the assessment if payment would place any company in an unsafe or unsound financial condition.

Appellants are all nationwide companies that do a relatively small volume of business in New Jersey. They requested relief from the surtax and assessments on the ground that they will be losing money on their New Jersey business. The Commissioner found, after examining each company's condition as a whole, that they were financially stable and in no danger of insolvency. Appellants do not dispute the Commissioner's assessment of their financial health nationwide. They contend, however, that the Commissioner was constitutionally obliged to examine only their New Jersey operations in determining whether to defer, exempt or abate the taxes. Appellants argue that to base the decision of whether to defer, exempt or abate on the appellants' operations nationwide constitutes a taking of their property, amounts to a tax on extraterritorial values in violation of the due process clause, offends principles of equal protection, and violates the commerce clause.

In our view, State Farm v. State, 124 N.J. 32, 590 A.2d 191 (1991), is dispositive on the issue of confiscation. The Court there held that FAIR requires the Commissioner to authorize premiums that are high enough to assure companies a constitutionally-required fair and reasonable return, notwithstanding certain provisions of FAIR which could be interpreted as flatly prohibiting insurers from including the surtax and assessment in the rate base. State Farm, supra, 124 N.J. at 61, 590 A.2d 191. While one member of the Court expressed "grave doubts about the ability of the Commissioner of Insurance, under present regulations, to guaranty insurance companies a constitutionally-adequate rate of return," id. at 66-67, 590 A.2d 191 (Garibaldi, J., Concurring), the Court was willing to give the Commissioner the opportunity to implement the Act so as to

provide insurers with a fair rate of return. Id. at 62-53, 590 A.2d 191. Accord, Matter of Aetna Casualty & Surety Co., 248 N.J. Super. 367, 387-89, 591 A.2d 631 (App.Div.), certif. denied, 126 N.J. 385, 599 A.2d 162 (1991), cert. denied, U.S. , 112 S. Ct. 1244, 117 L. Ed. 2d 476 (1992). The Court pointedly noted that its holding as to the facial validity of the surtax and assessment did not preclude an as-applied challenge "in the event that the relief afforded to them under N.J.A.C. 11:3-16.11 is either substantively or procedurally inadequate to assure a constitutionally fair rate of return." 124 N.J. at 63, 590 A.2d 191.

Appellants contend that the Commissioner "violated the due process clause by solely considering Ohio's net worth without separating out the New Jersey operations." They maintain that the failure to grant an abatement results in a tax on extraterritorial values, since the effect of denying an abatement is to siphon off profits from appellant's operations in other states in order to subsidize New Jersey drivers. This contention is without merit.

As the Commissioner points out, both the surtax and the assessment are imposed solely on premiums earned by insurers in New Jersey and nowhere else. The 5% surtax is collected "on all taxable premiums collected in this state." N.J.S.A. 17:33B-49a. Likewise, the assessment is based on the percentage of an insurer's market share in New Jersey. N.J.S.A. 17:30A-8a(9). Thus, there is both a minimal connection between the State and appellants, and a rational relationship between the tax and appellants' New Jersey business, thereby satisfying the demands of due process. Evanston Ins. Co. v. Merin, 598 F. Supp. 1290, 1304-1311 (D.N.J.1984). It appears to us that appellants have confused the imposition of the tax with procedures for obtaining exemption, abatement or ...


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