Before Judges Pressler, Kestin and Alley.
The opinion of the court was delivered by: Pressler, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
On appeal from the Department of Banking and Insurance.
Plaintiffs are thirty-one property and casualty insurance companies licensed to do business in this State. All are members of the Property-Liability Insurance Guaranty Association (PLIGA) created in 1974 by N.J.S.A. 17:30A-1 to -20. None of them, during the time period pertinent to this appeal, wrote automobile insurance. They challenge the constitutionality, as applied to them, of the Good Driver Protection Act of 1994 (GDPA), N.J.S.A. 34:1B-21.1 to -21.15. Plaintiffs contend that GDPA violates their right to equal protection as well as their federal and state constitutional protections against impairment of contractual rights conferred upon them by the Fair Automobile Insurance Reform Act of 1990 (FAIRA or Reform Act*fn1), N.J.S.A. 17:33B-1 to -64. They also challenge actions taken pursuant to the Act by the Commissioner of Insurance, the State Treasurer, and other State officials and agencies.
The crux of plaintiffs' challenge lies in the provision of the Reform Act that required PLIGA to collect from its members, starting in calendar year 1990, eight annual total assessments of 160 million dollars each for transmission, as loans, to the State Treasury as a contribution to the then accumulated debt of the JUA. Their basic contention is that the effect of the 1994 adoption of GDPA and administrative actions taken thereunder impairs their right to repayment assured by the Reform Act. We reject all of their claims.
Understanding of the present controversy requires a historical foray into the automobile insurance law of the last quarter of a century.
The dispute before us has its genesis in New Jersey's decades- long automobile insurance troubles. Our courts have commented extensively on the history of that protracted debacle up to the point of the 1990 adoption of FAIRA, the mechanisms devised by FAIRA for addressing the crisis that had by then developed, and the problems encountered in implementing the FAIRA scheme. See, e.g., Matter of Commissioner of Ins., 132 N.J. 209, 212-216 (1993), aff'g 256 N.J. Super. 158 (App. Div. 1992); Matter of Loans of N.J. Prop. Liab. Ins. Guar. Ass'n., 124 N.J. 69, 71-72 (1991); State Farm v. State, 124 N.J. 32, 40-44 (1991); Matter of Market Transition Facility, 252 N.J. Super. 260, 263-266 (App. Div. 1991), certif. denied, 127 N.J. 565 (1992); Matter of American Reliance Ins. Co., 251 N.J. Super. 541, 545-548 (App. Div. 1991), certif. denied, 127 N.J. 556 (1992); Matter of Aetna Cas. & Sur. Co., 248 N.J. Super. 367, 372-375 (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); Allstate Ins. Co. v. Fortunato, 248 N.J. Super. 153, 156-157 (App. Div. 1991). See also the extensive legislative statements, particularly Assembly Appropriations Committee Statement annexed to Assemb., No. 1-L. 1990, c. 8 (FAIRA), and Senate Budget and Appropriations Committee Statement annexed to S., No. 1250-L. 1994, c. 57 (GDPA).
In reviewing that history to the extent it underlies the issues before us, we start with the adoption in 1970 of the assigned-risk plan, requiring the distribution among automobile insurers of those insurance applicants unable to obtain coverage in the voluntary market. N.J.S.A. 17:29D-1. The necessity for drivers to obtain coverage was intensified by the New Jersey Automobile Reparation Reform Act, N.J.S.A. 39:6A-1, et seq., operative in 1973, making automobile insurance compulsory and creating the no-fault benefit scheme. The Legislature's response to the ensuing escalating rates for insurance charged to assigned- risk drivers was the adoption in 1983 of the New Jersey Automobile Full Insurance Availability Act, N.J.S.A. 17:30E-1, et seq., which replaced the assigned-risk scheme with the New Jersey Automobile Full Insurance Underwriting Association, commonly known as the Joint Underwriting Association or JUA, to which all insurers writing automobile business in New Jersey were required to belong. As explained by State Farm v. State, supra, 124 N.J. at 41, the goal of the JUA "was to create a more extensive system of allocating high-risk drivers to carriers, and through the JUA, to provide such drivers with coverage at rates equivalent to those charged in the voluntary market."
After it had been in operation for seven years, the JUA plan had not only failed in its primary goals, but had proved entirely counterproductive and had resulted in overburdening insurance buyers in the voluntary market. It had been understood from the outset that if the JUA was to be charging voluntary market rates to high-risk drivers, its premium collections would be insufficient to cover the cost of claims. The statute, therefore, had accorded JUA additional sources of revenue, including "Department of Motor Vehicle surcharges for moving violations and drunken driving convictions, policy 'flat charges,' and 'residual market equalization charges,' or RMECs, to be added to policy rates for voluntary-market insureds. N.J.S.A. 17:30E-8." State Farm, supra, 124 N.J. at 41-42.
By 1988, apparently because of insurance company response to the financial pressures imposed by the JUA scheme, over 50 percent of New Jersey drivers had to be insured by the JUA; the premiums paid by insureds in the voluntary market were increased, at least in part, in order to subsidize the JUA by the mechanism of the RMECs; and the JUA had, despite its additional revenue sources, managed to accumulate a deficit of around 3.3 billion dollars.
The JUA having failed, the Legislature then had to cope once again with the problem of distributing the insurance burden of covering high-risk drivers while at the same time making the cost of automobile insurance reasonably affordable to the general public. Of signal importance, of course, was the devising of a mechanism to pay the JUA debt. FAIRA was its plan for achieving these aims. By the instrumentality of the new Market Transition Facility (MTF), JUA was to be depopulated within two years and a new assigned-risk scheme created and implemented within that time. The MTF then was to go out of business. The greater challenge, as noted, was the payment of the JUA debt. To meet this obligation, FAIRA created the New Jersey Automobile Guaranty Fund (Auto Fund) within the State Treasury to collect and disperse the revenues earmarked for the JUA bail-out. N.J.S.A. 17:33B-5. The motor vehicle surcharges that had been paid to JUA now went into the Auto Fund. Since the RMECs were discontinued, additional sources of revenue for the Auto Fund had to be created. Sources included a new annual fee imposed on lawyers, physicians and other designated health care providers, auto body repair businesses and an increase in automobile registration fees. N.J.S.A. 17:33B-58 to -63. Another source was the imposition of a surtax on automobile insurers. N.J.S.A. 17:33B-49. An additional source, which is the basis of the present controversy, was the assessments created by N.J.S.A. 17:30A-8a(9) and (10).
These assessments, denominated as loans, were imposed on all members of PLIGA, whether automobile insurers, property and casualty insurers, or both. PLIGA had originally been created in 1974 to impose assessments on member insurers, as defined by N.J.S.A. 17:30A-2b, to pay covered claims against insolvent insurers. N.J.S.A. 17:30A-2a. The PLIGA Act was amended simultaneously with the adoption of FAIRA to add subsections (9) and (10) to N.J.S.A. 17A:30A-8. The import of subsection (10) was to require PLIGA to make loans to the Auto Fund in the amount of 160 million dollars a year in calendar years 1990 through and including 1997. Subsection (9) required PLIGA to assess its members, by the methodology therein described, in order to obtain and transmit the annual required loan. Assessed members, moreover, while they had been able to pass over to policy holders the assessments they made to pay claims against insolvent insurers, N.J.S.A. 17:30A-16a, were prohibited from doing so in respect of the Auto Fund assessment, N.J.S.A. 17:30A-16b.
The adoption of FAIRA with its attendant amendment of the PLIGA Act and the creation of the Auto Fund almost immediately spawned a broad range of constitutional challenges by the insurance industry as well as challenges to various implementing orders issued by the Commissioner of Insurance. We limit our review of the ensuing judicial decisions to those that deal directly with or bear significantly on the PLIGA loan scheme.
In State Farm v. State, supra, 124 N.J. 32, the Supreme Court rejected the industry's facial challenge to the 1990 legislative scheme. More specifically, because neither the automobile insurers' surtax nor the PLIGA members' loan assessments could be passed through to policyholders, the insurers claimed that the scheme constituted a proscribed taking and a denial of due process since a reasonable rate of return was thus being denied them. Relying on N.J.S.A. 17:33B-2g, which assured the industry a reasonable rate of return, the Court concluded, however, that the Commissioner of Insurance had thereby been implicitly granted the power to meet the standard of a fair return and had, in fact, done so by the adoption of regulations permitting application for rate relief if the surtax or assessment made a fair return unrealizable. State Farm, supra, 124 N.J. at 58-63. State Farm also rejected a constitutional challenge based on the contract clause, U.S. Const. art I, § 10.
Some of the insurers had argued that under the JUA program they had been promised that they would not be liable for JUA debts, and under FAIRA, they were being surcharged and assessed for those debts. The Court's answer was that the JUA was a regulatory scheme subject to legislative amendment and not a contract at all. State Farm v. State, supra, 124 N.J. at 64. It also explained, pertinent to this litigation:
In a highly regulated business such as insurance, participants cannot credibly assert that they had any vested right or contractual expectation in the indefinite continuance of the JUA scheme. Moreover, even if there were an impairment of a contractual relationship, it would nonetheless be justified in this instance because the Reform Act addresses a significant and legitimate public purpose, imposing reasonable conditions that are related to appropriate governmental objective. [Id. at 64-65.]
Even more relevant to the issues here was the Supreme Court's companion decision to State Farm, that is, Matter of Loans of N.J. Prop. Liab. Ins. Guar. Ass'n., supra, 124 N.J. 69. The industry challenge there was a direct constitutional attack on subsections (9) and (10) of N.J.S.A. 17:30A-8. The state constitutional claim was premised on the contention that the eight annual loans of 160 million dollars violated the debt limitation provision of N.J. Const., art. VIII, § 2, ¶ 3. The federal constitutional claim was based on the assertion of ...