On appeal from the State of New Jersey, Department of Insurance.
Antell, Baime and Thomas. The opinion of the court was delivered by Baime, J.A.D.
This appeal presents novel questions under the Fair Automobile Insurance Reform Act of 1990 (FAIR Act). N.J.S.A. 17:33B-1 to -63. Among other things, the Act requires the Property Liability Insurance Guaranty Association (PLIGA) to collect assessments from its members to be used to relieve the deficit of the New Jersey Full Insurance Underwriting Association (JUA). N.J.S.A. 17:30A-8a(3)(d). The Act empowers the Commissioner of Insurance to exempt, abate or defer an assessment if an insurer is at risk because of its unsafe or unsound financial condition. N.J.S.A. 17:33B-55 and N.J.S.A. 17:33B-56. At issue here is whether an insurer is entitled to a hearing on its request for an exemption, abatement or deferral. Also in question is whether the statute is constitutionally infirm because it confers unbridled discretion upon the Commissioner in deciding whether to exempt, abate or merely defer the obligation of a financially distressed insurer. We hold that the FAIR Act affords an insurer the right to a hearing on its claim for an exemption. We also conclude that the statute is not unconstitutionally vague. However, we are persuaded that administrative regulations are necessary to guide the Commissioner in the exercise of his statutory powers.
The issues presented can best be understood in the context of a brief overview of New Jersey's experience in regulating automobile insurance. A more exhaustive exposition appears in State Farm Mut. Auto Ins. Co. v. State, 124 N.J. 32, 590 A.2d 191 (1991) and Matter of Am. Reliance Ins. Co., 251 N.J. Super. 541, 598 A.2d 1219 (App.Div.1991). We focus here upon the sections of the FAIR Act designed to alleviate the JUA's debt.
The JUA was created by the New Jersey Automobile Full Insurance Availability Act (N.J.S.A. 17:30E-1 to -24). The objective of the statutory scheme was to abandon the assigned risk plan (N.J.S.A. 17:29D-1), under which the Commissioner apportioned high-risk drivers among all automobile insurers doing business in New Jersey, and to replace it with a more extensive system of allocation with coverage at rates equivalent to those charged in the voluntary market. State Farm Mut. Auto Ins. Co. v. State, 124 N.J. at 40-41, 590 A.2d 191. Unfortunately, the JUA plan did not achieve its goals. Among other failures, the JUA accumulated a deficit of $3.3 billion in unpaid claims and other losses.
The FAIR Act is the Legislature's most recent effort to resolve these problems. We need not describe the newly adopted procedure designed to "depopulate" the JUA and provide economical coverage to "standard" and "non-standard" risk drivers. See Matter of Market Transition Facility, 252 N.J. Super. 260, 599 A.2d 906 (App.Div.1991). Nor need we examine all of the Act's provisions designed to create a funding mechanism to relieve the JUA's debt. See Matter of Am. Reliance Ins. Co., 251 N.J. Super. at 546-47, 598 A.2d 1219. Suffice it to say, new sources of funding were created, including revenues derived from a surtax upon automobile insurance premiums, N.J.S.A. 17:33B-49, fees on lawyers, doctors, and auto body repair businesses, (N.J.S.A. 17:33B-58 to -63), and most significant in the context of this appeal, the imposition of assessments on many types of insurers, N.J.S.A. 17:30A-8a(9) and 8a(10).
As we mentioned earlier, assessments are collected by PLIGA. They are measured by the proportion the net direct written New Jersey premiums of the insurer for the preceding calendar year bear to the net written New Jersey premiums of all PLIGA members. These assessments are to be applied exclusively to the JUA debt. The FAIR Act denominates these assessments as "loans" and requires that they be paid into the New Jersey Automobile Insurance Guaranty Fund (Auto Fund).
N.J.S.A. 17:30A-8a(10). Although the FAIR Act prohibits dollar-for-dollar "pass throughs" of the newly created surtaxes and assessments, N.J.S.A. 17:30A-16b and N.J.S.A. 17:33B-51, the Legislature provided that "automobile insurers are entitled to earn an adequate rate of return through the ratemaking process," N.J.S.A. 17:33B-2g, and the courts have reaffirmed that overarching constitutional prescription with regard to all affected carriers. See State Farm v. State, 124 N.J. at 61, 590 A.2d 191; Matter of Am. Reliance Ins. Co., 251 N.J. Super. at 556, 598 A.2d 1219.
The principal method of assuring the financial integrity of insurers is rate relief. In addition, the FAIR Act contains "stop-gap" measures designed to safeguard insurance companies from the risk of insolvency. In particular, if an insurer is at risk because of an "unsafe or unsound financial condition," the Commissioner may "suspend" (1) its obligation to accept what would be its allocation of assigned risks, N.J.S.A. 17:33B-23 and -24, and (2) its obligation to issue or renew automobile policies, N.J.S.A. 17:33B-27 and -28. The Commissioner may "exempt, abate or defer" (1) the insured's obligation to pay the premium surtax, N.J.S.A. 17:33B-52 and -53, and (2) its obligation to remit PLIGA assessments, N.J.S.A. 17:33B-55 and -56). As we noted in Matter of Am. Reliance Ins. Co., separate sections either "mandate" application of these statutory remedies, see N.J.S.A. 17:33B-23; N.J.S.A. 17:33B-27; N.J.S.A. 17:33B-52; N.J.S.A. 17:33B-55, or confer discretion upon the Commissioner to take that course on his own initiative, N.J.S.A. 17:33B-24; N.J.S.A. 17:33B-28; N.J.S.A. 17:33B-53; N.J.S.A. 17:33B-56, depending upon whether the pertinent financial danger test is satisfied. Matter of Am. Reliance Ins. Co., 251 N.J. Super. at 547, 598 A.2d 1219. As we will observe later in our opinion, the parallel language of these statutory remedies is significant. We repeat that each statutory remedy contains a mandatory section, which requires the Commissioner to grant relief, and a discretionary section, which permits the Commissioner to adopt this course on his own initiative.
The mandatory-discretionary dichotomy appears in all of these sections. N.J.S.A. 17:33B-55 and N.J.S.A. 17:33B-56 are illustrative of the two kinds of statutory remedies. Although we are concerned here with N.J.S.A. 17:33B-55, our consideration of the statutory scheme would not be complete without examining N.J.S.A. 17:33B-56. Because of the importance we attach to considering each section in its full context, we quote both statutes verbatim. N.J.S.A. 17:33B-55 reads:
a. The commissioner shall, after hearing, provide that the New Jersey Property-Liability Guaranty Association exempt, abate or defer, in whole or in part, the assessment on any member insurer imposed pursuant to paragraph (9) of subsection a. of section 8 of P.L. 1974, c. 17 (C. 17:30A-8), if the insurer is in an unsafe or unsound financial condition.
b. If an insurer requests exemption, abatement or deferral and avers that there is an immediate need to exempt, abate or defer the payment of assessments pursuant to paragraph (9) of subsection a. of section 8 of P.L. 1974, c. 17 (C. 17:30A-8), because payment would result in the insurer being in an unsafe or unsound financial condition, the insurer's obligation to pay such assessments shall be exempted, abated or deferred beginning on the 10th business day after the insurer has filed the request and supporting documentation with the commissioner, unless within that time, the commissioner finds that continued payment of assessments will not result in the insurer being in an unsafe or unsound financial condition.
c. Any exemption, abatement or deferral pursuant to subsection a. or b. of this section shall continue until the commissioner, upon the commissioner's own motion or upon request by the insurer or any other interested party, after providing opportunity for a hearing, orders its revocation.
d. For the purposes of this section, an insurer shall be deemed to be in an unsafe or unsound financial condition if the commissioner finds the insurer to have a ratio of annual net premiums written to surplus as to ...