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Matter of Liquidation of Sussex Mut. Ins. Co.

June 5, 1997


On appeal from Superior Court of New Jersey, Chancery Division, Sussex County.

Approved for Publication June 5, 1997.

Before Judges Petrella, Landau and Wallace. The opinion of the court was delivered by Petrella, P.j.a.d.

The opinion of the court was delivered by: Petrella

The opinion of the court was delivered by


The Commissioner of Banking and Insurance, in the capacity of Liquidator of Sussex Mutual Insurance Company (Liquidator), appeals from the Chancery Division's determination that two insurance companies for which Sussex Mutual Insurance Company (Sussex Mutual), now in liquidation, acted as reinsurer, National Casualty Company and National Casualty Company of America, Ltd. (referred to collectively as National Casualty) qualified for the category of priority in liquidation set forth in N.J.S.A. 17:30C-26c(4). The Chancery Judge rejected the Liquidator's argument that National Casualty fell within the residual category of "all other claims" under N.J.S.A. 17:30C-26c(5) (Class 5), rather than N.J.S.A. 17:30C-26c(4) (Class 4), which identifies "claims by policyholders, beneficiaries and insurers."

The statutory provision at issue in this case is part of the regulatory scheme governing the liquidation of Sussex Mutual. In general, the statute has been referred to as part of the Uniform Insurers Liquidation Act (UILA), N.J.S.A. 17:30C-1 through -31. *fn1 The Commissioner was appointed Liquidator of Sussex Mutual by the Chancery Judge on July 17, 1992, pursuant to the UILA. Under N.J.S.A. 17:30C-26, the Liquidator determined that National Casualty's claims for compensation as a reinsured of Sussex Mutual fell within the catch-all Class 5 priority category under N.J.S.A. 17:30C-26c(5). Apparently, there are insufficient funds available to the Liquidator to satisfy the Class 5 claims. Consequently, National Casualty objected to the Liquidator's assignment of its claim to Class 5, resulting in the Chancery Judge's order that National Casualty's claims should be classified as Class 4 claims under the statute. This appeal ensued.

Essentially, the Liquidator contends that the Judge erred in overturning the administrative determination of Class 5 priority status for National Casualty because National Casualty is Sussex Mutual's reinsured. The Liquidator asserts that N.J.S.A. 17:30C-26c(4), enacted by L. 1979, c. 470, § 1, effective February 27, 1980, was erroneously transcribed into the statute books, *fn2 and should be read as "claims by policyholders, beneficiaries and insured s." Additionally, the Liquidator claims that even if the word "insurer" was properly included in the statute National Casualty cannotqualify for Class 4 priority because the traditional distinction between insurance and reinsurance demonstrates that the Legislature would not have granted reinsured insurance companies such priority status without explicitly stating so and that the term "insurer" cannot be read as equivalent to "reinsured." The New Jersey Property-Liability Insurance Guaranty Association (Guaranty Association) *fn3 has intervened as an appellant and joined in the Liquidator's arguments.

Sussex Mutual was a property and casualty insurer that eventually began acting as a reinsurer of other insurance companies. In 1989 the Liquidator determined that Sussex Mutual was insolvent and the company was placed into rehabilitation. Ultimately, a liquidation order was issued on July 17, 1992. Thereafter, proofs of claims were submitted to the Liquidator, including claims by National Casualty, which it characterized as those of a "general creditor" or "other claimants" without claiming policyholder protection. Those claims were originally filed as Class 5 claims, and it was noted that Sussex Mutual's assets were insufficient to pay any claims in that class.

As a result of the proceedings instituted by National Casualty in the Chancery Division the Judge concluded that both the plain meaning and the legislative history of the 1979 amendments to N.J.S.A. 17:30C-26 by L. 1979, c. 470, indicated that the use of the word "insurers" in subsection c(4) was consistent with the legislative intent and that the term included insurers, such as National Casualty, who were reinsureds of the liquidated insurance company.

The Liquidator argues that the Judge erred in overturning Class 5 claim priority for National Casualty because the Class 5 determination was based on the only reasonable interpretation of the UILA, and specifically of N.J.S.A. 17:30C-26c(4). The Liquidator relies heavily on what is perceived as a typographical error in the statute in the use of "insurers" instead of "insureds." The Guaranty Association joins in that argument and asserts that reversal of the Class 4 allocation to National Casualty is necessary because National Casualty's Class 4 status would result in harm to policyholders and third party claimants both covered and uncovered by the Guaranty Association's statutory scheme and the sharing of limited funds with a reinsured in a way clearly unintended by the Legislature.


Although the determination of an administrative agency is entitled to deference where agency expertise is involved, see Mayflower Securities Co. v. Bureau of Securities, 64 N.J. 85, 92-93, 312 A.2d 497 (1973); In re Aetna Casualty Surety Co., 248 N.J. Super. 367, 376, 591 A.2d 631 (App. Div.), certif. denied, 126 N.J. 385 (1991), cert. denied, 502 U.S. 1121, 112 S. Ct. 1244, 117 L. Ed. 2d 476 (1992), an agency's interpretation with respect to a matter of statutory construction stands on a different footing. New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 575, 384 A.2d 795 (1978); Mayflower Securities Co. v. Bureau of Securities, (supra) (64 N.J. at 93).

N.J.S.A. 17:30C-26, captioned "Priority of claims for compensation," was amended by L. 1979, c. 470, § 1 (effective February 27, 1980) to add subsection c. Under the prior law (L. 1975, c. 113, § 26) the only priorities specified were those for administration expenses and employee compensation. Despite the claim of the Liquidator that the statute contains a technical error, our inquiry at oral argument indicated that to date no legislative initiative has been taken by the executive branch or the Legislature, including the Office of Legislative Services, to correct this supposed error. This provision was passed by the Legislature in 1979, and approved by the Governor in 1980. Moreover, the Department ofBanking and Insurance, *fn4 and presumably the Legislature, have had knowledge of the "error" at least since the date of National Casualty's objection to the assignment of its claims to Class 5, and ...

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