On appeal from and on certification to the Superior Court, Appellate Division, whose opinion is reported at 248 N.J. Super. 616 (1991).
Stein, Wilentz, Clifford, Handler, Pollock, O'hern, Garibaldi
The opinion of the court was delivered by
Twin City Fire Insurance Company (Twin City) challenges the constitutionality of the order issued by the Commissioner of Insurance (Commissioner) conditioning the termination of its authority to write insurance in New Jersey. Twin City objects primarily to two conditions: the so-called "forfeiture" condition, which requires that the separate corporations affiliated with Twin City as members of the ITT Hartford Group, Inc. (ITT Hartford) surrender their respective certificates of authority within five years and withdraw from the state; and the so-called "new-business condition," which requires that during its withdrawal from the state over a five-year period Twin City comply with existing laws, including those provisions of the Fair Automobile Insurance Reform Act of 1990, L. 1990, c. 8 (the Reform Act or the Act) requiring automobile insurers to participate equitably in the shifting of residual-market insureds to the voluntary market. See N.J.S.A. 17:30E-14. In a published opinion, the Appellate Division upheld the Commissioner's order except with respect to a modification consented to by the Commissioner eliminating two life- and health-insurance affiliates from the forfeiture condition, but remanded the matter to the Commissioner to afford Twin City the opportunity to have its withdrawal application reconsidered on the basis of regulations adopted subsequent to the Commissioner's order. 248 N.J. Super. 616, 641 (1991). We granted Twin City's petition for certification. N.J.(1991). We affirm.
Twin City is a property-casualty insurer licensed for more than twenty years to transact business in each of the fifty states and the District of Columbia. It has no plan to surrender its license in any jurisdiction other than New Jersey.
Twin City primarily writes private-passenger and commercial automobile insurance in New Jersey. Its 1989 private-passenger insurance premiums aggregated $16.3 million, or 1.032% of that market; its aggregate 1989 commercial-insurance premiums were $49.6 million, representing 13% of the market.
Twin City is a wholly-owned subsidiary of Hartford Fire Insurance Company (Hartford Fire), as are the other six Twin City affiliated companies affected by the Commissioner's order, as modified: Hartford Accident & Indemnity Company; Hartford Casualty Insurance; Hartford Underwriters Insurance Company; Hartford Insurance Company of the Midwest; Hartford Insurance Company of Connecticut; and New England Insurance Company. ITT Hartford is the parent company of Hartford Fire and, derivatively through Hartford Fire, of Twin City and its six affiliated companies. Twin City and its affiliates market their products collectively under common trade names (The Hartford, The Hartford Insurance Group, and ITT Hartford Insurance Group), through independent insurance agencies appointed generally to represent member companies of ITT Hartford. Claims submitted to Twin City and its affiliates are commonly processed by employees of Hartford Fire pursuant to management agreements between Hartford Fire and its respective subsidiary companies. Twin City and its affiliates participate in reinsurance-pooling agreements with other member companies of ITT Hartford. Hartford Fire and the other six Twin City affiliates generated approximately $120 million in aggregate premiums from New Jersey insurance business in 1989, of which approximately $9 million was attributable to private-passenger automobile premiums and the balance to multiple lines of property and casualty insurance.
On March 7, 1990, Twin City tendered its Certificate of Authority for surrender to the Acting Commissioner of Insurance, accompanied by a letter forecasting that the impending adoption of the Reform Act would cause Twin City to incur "devastating losses in future years." The Reform Act was signed by Governor Florio on March 12, 1990. Section 72 of the Act, which applied retroactively to requests by insurers for surrender of Certificates of Authority submitted on or after January 25, 1990, provides:
An insurance company of another state or foreign country authorized under chapter 32 of Title 17 of the Revised Statutes to transact insurance business in this State may surrender to the commissioner its certificate of authority and thereafter cease to transact insurance in this State, or discontinue the writing or renewal of one or more kinds of insurance specified in the certificate of authority, only after the submission of a plan which provides for an orderly withdrawal from the market and a minimization of the impact of the surrender or discontinuance on the public generally and on the company's policyholders in this State. The plan shall be approved by the commissioner before the withdrawal or discontinuance takes effect. In reviewing a plan for withdrawal under this section, the commissioner shall consider, and may require as a condition of approval, whether some or all other certificates of authority issued pursuant to chapter 17 or 32 of Title 17 of the Revised Statutes held by the company or by other companies in the same holding company as the company submitting the plan should be surrendered. The certificate of authority of the company shall be deemed to continue in effect until the provisions of the approved plan have been carried out. The provisions of this section shall apply to any request for withdrawal, surrender or discontinuance filed on or after January 25, 1990.
The Acting Commissioner immediately rejected Twin City's attempted surrender of its license, and informed Twin City that no termination could occur until the Commissioner had approved and Twin City had implemented a plan for orderly withdrawal in accordance with Section 72 of the Act. When Twin City declined to submit such a plan, the Department of Insurance (Department) sought and obtained injunctive relief, and Twin City was ordered to rescind notifications of withdrawal it had forwarded to its agents and cease all activities preparatory to termination of its business in New Jersey.
In response, on April 30, 1990, Twin City submitted a plan for orderly withdrawal, effective the following day, in which it proposed to withdraw from private-passenger automobile-insurance business in New Jersey by non-renewing its policies and withdrawing its rating system, retaining the authority to write other forms of insurance in the state. According to the Commissioner's order, Twin City's affiliates simultaneously communicated their intention to withdraw from the private-passenger automobile-insurance market by eliminating their rating systems for that insurance. The sole exception to the affiliates' proposed withdrawal was an automobile- and homeowners-insurance program offered by Hartford Underwriters Insurance Company to members of the American Association of Retired Persons.
Twin City's rationale for its proposed withdrawal from the private-passenger automobile-insurance market, as explicated in arguments opposing the Department's application for injunctive relief, relied on financial projections prepared by Twin City in anticipation of adoption of the Reform Act. Those projections, prepared on the basis of estimated rate increases of 6.4% in 1990 and 8% in 1991 and 1992, calculated that Twin City would sustain underwriting losses in those three years of $3.8 million, $19 million, and $23.5 million, respectively, if it continued its present private-passenger automobile-insurance business.
In his Administrative Decision and Order of August 14, 1990 (No. A90-151), the Commissioner approved Twin City's plan subject to fourteen conditions. In challenging the Commissioner's Order and the constitutionality of Section 72 of the Reform Act in the Appellate Division, Twin City objected specifically to four of the conditions:
A. The "Five Year Condition"
Twin City must attempt to place its private-passenger automobile business with other insurers. If unsuccessful after five years, Twin City may then issue notices of non-renewal. Twin City cannot withdraw from the market until all of its policies have been placed with other carriers or have expired.
B. The "Other Business Condition"
Twin City shall be required to seek replacement carriers for its other lines of business for a period of five years. After five years Twin City must non-renew any remaining policies in force as they expire.
C. The "Forfeiture Condition"
Twin City's ITT Hartford affiliates must submit orderly plans of withdrawal from their respective markets providing for the termination of their transaction of insurance business within five years.
D. The "New-Business Condition"
During its withdrawal from the private-passenger automobile-insurance business over a five-year period, Twin City must comply with all provisions of the Reform Act including the requirement that it participate proportionately in the shifting of "assigned risk" or residual market insureds to the voluntary market.
The Appellate Division sustained the conditions and upheld the constitutionality of Section 72 of the Act. 248 N.J. Super. at 621-42. The court rejected Twin City's contention that the condition requiring Twin City's affiliates to surrender their licenses within five years was an unconstitutional taking of property without just compensation. In the Appellate Division's view, Twin City's affiliates could retain their respective lines of insurance in New Jersey if Twin City continued to write private-passenger insurance. Hence, the only "loss" mandated by the Act was the potential reduction in profits resulting from Twin City's compliance with the residual market depopulation and other provisions of the Reform Act, which the court characterized as "'a slender reed upon which to rest a takings claim.'" Id. at 627 (quoting Andrus v. Allard, 444 U.S. 51, 66, 100 S. Ct. 318, 327, 62 L. Ed. 2d 210, 223 (1979)). The court also rejected Twin City's substantive-due-process argument, concluding that Section 72 of the Act and the Commissioner's order constituted a rational response to a private insurer's desire to withdraw from the private-passenger market, reflecting the strong governmental interest in encouraging all companies to share the burden of depopulating the residual market and reducing the cost of private-passenger automobile insurance. Id. at 630-38. The court summarily rejected Twin City's equal-protection and Commerce Clause arguments. Id. at 639-40. Finally, the Appellate Division remanded the matter to the Commissioner to permit Twin City to have its withdrawal proposal adjudicated on the basis of the regulations adopted subsequent to the Commissioner's order. Id. at 640-41.
A. History and Overview of the Reform Act
A basic familiarity with the events and circumstances that prompted passage of the Reform Act, as well as an appreciation of the Act's anticipated impact on the private-passenger automobile-insurance market, are essential prerequisites to an informed evaluation of the validity of the Commissioner's order. The Act's background and objectives are described comprehensively in State Farm Mutual Automobile Insurance Co. v. State, 124 N.J. 32 (1992), in which this Court sustained the constitutionality of the Reform Act against a facial challenge. We revisited the subject in In re Department of Insurance's Order Nos. A-89-119 and A-90-125, 129N.J. 365, 371-374, 609 A.2d 1236 (1992) (slip op. at 7-12), also filed today. Rather than summarize the critical developments that led to the Reform Act, we draw on Justice Handler's careful explanation in our State Farm opinion:
For years, New Jersey's system of automobile insurance regulation, like those of many other states, has faced an intractable problem of providing coverage for high-risk drivers. Prior to 1983, drivers who could not obtain coverage directly from insurers in the voluntary market were insured through an Assigned Risk Plan (N.J.S.A. 17:29D-1), under which the Commissioner of Insurance apportioned high-risk drivers among all auto insurers doing business in New Jersey. In 1983, the Automobile Full Insurance Availability Act, N.J.S.A. 17:30E-1 through -24, replaced the ...