On certification to the Superior Court, Appellate Division, whose opinion is reported at 335 N.J. Super. 510 (2000).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
Construing the New Jersey Property Liability Insurance Guarantee Association Act, N.J.S.A. 17:30A-1 to -20 (Act), the Court determines whether the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA), as secondarily-liable for insurance coverage relating to an environmental tort claim, is entitled to a credit equal to the statutory maximum payable by the primarily liable entity, the Pennsylvania Property and Casualty Insurance Guaranty Association (PPCIGA), or whether NJPLIGA is entitled merely to a credit for the amount the insured actually recovered from PPCIGA.
Carpenter Technology Corporation (Carpenter), with its principal place of business in Pennsylvania, was identified as a potentially responsible party by the State of New Jersey and the United States for environmental contamination at four sites in New Jersey. Carpenter sought a declaratory judgment to determine its insurance coverage for the contamination under multiple insurance policies. However, three of the insurers became insolvent and, as a result, the NJPLIGA and the PPCIGA, New Jersey's and Pennsylvania's insurance guaranty associations, were added as defendants. Because the Act states that any entity that may recover from more than one insurance guaranty association shall seek recovery first from the association of the residence of the insured, the trial court found that PPCIGA is the primarily-liable guaranty association and that NJPLIGA is liable for secondary coverage.
In 1997, Carpenter settled with PPCIGA. NJPLIGA subsequently moved for summary judgment seeking an order permitting it to set off the maximum statutory claim payable by PPCIGA against NJPLIGA's liability to Carpenter on each covered claim. The trial court concluded that NJPLIGA is entitled to a credit per covered claim of $299,900, which represents the maximum statutory amount PPCIGA could tender Carpenter under Pennsylvania law. Because New Jersey's maximum statutory amount is $300,000, the trial court found that NJPLIGA's obligation to Carpenter for each covered claim was $100.
The Appellate Division rejected the trial court's conclusion and held that NJPLIGA is entitled only to a credit for the amount PPCIGA actually paid Carpenter in settlement of each covered claim.
HELD: In determining the amount it will pay to a claimant pursuant to the New Jersey Property Liability Insurance Guarantee Association Act, the New Jersey Property-Liability Insurance Guaranty Association, as the secondarily-liable guaranty association in this situation, is entitled to a credit equal to the statutory maximum amount payable by the Pennsylvania Property and Casualty Insurance Guaranty Association, the primarily-liable guaranty association.
1. The Act was modeled after the Post-Assessment Property and Liability Insurance Guaranty Association Model Act. A significant majority of states, including New Jersey and Pennsylvania, has passed some version of this model statute. The principle of primary liability is set forth in Section 12a of the Act, which tracks the language of the model statute. Section 12a states, in part, that a claimant shall seek recovery first from the association of the place of residence of the insured. It states further that "any recovery under this act shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent." The language "amount of recovery from" is ambiguous, and the Court must look beyond the language to discover the Legislature's intent in this matter. (Pp. 9-13).
2. The Act was created to avoid financial loss to claimants or policyholders because of the insolvency of insurance companies. The conservation of resources, however, is a major goal of the Act. For example, the Act limits recovery at $300,000 per covered claim. (Pp. 13-16).
3. Court opinions construing the Act and similar statutes in other states demonstrate how the national network of insurance guaranty associations, of which the New Jersey Property-Liability Insurance Guaranty Association is a part, interacts to provide relief to claimants as well as to apportion equitably the risk among the guaranty associations. In the jurisdictions that have considered this issue, a constant in those court opinions is that secondarily-liable guaranty associations were credited the maximum amount recoverable from primarily-liable guaranty associations. (Pp. 16 to 22).
4. The Court's holding that NJPLIGA is entitled to a credit equal to the statutory maximum amount payable by PPCIGA comports with the Legislature's intent to enroll New Jersey in a national network of insurance guaranty associations designed to spread equitably the risk of insurer insolvency. The holding comports also with this State's public policy favoring the protection of New Jersey insurance policy holders that fund NJPLIGA, the need to prevent claimants from bypassing the system of primary liability codified in the Act, and the duty to conserve NJPLIGA's resources. If the Court were to rule otherwise, the primarily-liable guaranty association could settle for a small percentage of the claim, evade its obligation as the primarily-liable association, and shift that primary obligation to the secondarily-liable guaranty association. Neither the model statute nor New Jersey law intended that the primarily-liable guaranty association could forsake its obligation and transfer its responsibility to a secondarily-liable guaranty association. (Pp. 22 to 23).
The judgment of the Appellate Division is REVERSED.
JUSTICE VERNIERO, dissenting, believes that the plain language of the Act entitles NJPLIGA to a credit only for the amounts actually received by the insured from PPCIGA. Justice Verniero believes that the majority's holding is at odds with the Act's clear goal of protecting insureds from the inequities and hardships caused by insurance company insolvencies and with the need to fund an environmental clean-up plan for the New Jersey sites.
CHIEF JUSTICE PORITZ and JUSTICES STEIN and COLEMAN join in JUSTICE ZAZZALI's opinion. JUSTICE VERNIERO filed a separate dissenting opinion. JUSTICES LONG and LaVECCHIA did not participate.
The opinion of the court was delivered by: Zazzali, J.
Argued September 24, 2001
The State of New Jersey and the United States identified Carpenter Technology Corporation (Carpenter), a corporation with its principal place of business in Pennsylvania, as a potentially responsible party (PRP) for environmental contamination at four sites in New Jersey. In response, Carpenter commenced a declaratory judgment action in which it sought a declaration of coverage for the claims under multiple insurance policies issued by defendant insurance companies. Three of Carpenter's insurers became insolvent and, as a result, the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA) and the Pennsylvania Property and Casualty Insurance Guaranty Association (PPCIGA) (formerly known as the Pennsylvania Insurance Guaranty Association (PIGA)) were added as defendants.
PPCIGA is the primarily-liable guaranty association because any entity that may recover from more than one insurance guaranty association shall seek recovery first from the association of the residence of the insured. N.J.S.A. 17:30A-12a. The issue in this appeal is the amount of credit to which NJPLIGA is entitled because of PPCIGA's primary liability. The trial court concluded that NJPLIGA is entitled to a credit per "covered claim" of $299,900, which represents the maximum statutory amount PPCIGA could tender Carpenter under Pennsylvania law. The Appellate Division rejected that conclusion, holding that NJPLIGA is entitled only to a credit for the amount PPCIGA actually paid Carpenter in settlement of each covered claim. We conclude that the Appellate Division's holding contravenes the Legislature's intent in creating New Jersey's insurance guaranty association. We therefore reverse.
In 1974, our Legislature enacted the New Jersey Property- Liability Insurance Guaranty Association Act, N.J.S.A. 17:30A- 1 to -20 (Act). The Act requires that all insurers in New Jersey, with limited exceptions, join NJPLIGA in order to transact business. Railroad Roofing & Bldg. Supply Co. v. Financial Fire & Cas. Co., 85 N.J. 384, 389-90 (1981); N.J.S.A. 17:30A-6. NJPLIGA is obligated to assume the contractual obligations of an insolvent insurer and to pay certain claims up to the limit of the policyholder's contract, subject to a maximum liability of $300,000. N.J.S.A. 17:30A- 8a(1). In order to fund those claims, the Act authorizes NJPLIGA to collect assessments from member insurers that are used to pay both "covered claims," N.J.S.A. 17:30A-5d, and the Association's costs and expenses, N.J.S.A. 17:30A-8a(3). Member insurers can seek to recoup the amount of the assessment from their insureds by adding a surcharge on policy premiums. N.J.S.A. 17:30A-16a.
In 1994, the New Jersey Department of Environmental Protection (NJDEP) and the United States Environmental Protection Agency (EPA) identified Carpenter, incorporated under the laws of Delaware with its principal place of business in Pennsylvania, as a PRP for property damage and environmental contamination at four sites in New Jersey, two sites in Pennsylvania, and one site in Maryland. At the time Carpenter filed its declaratory judgment action, Carpenter manufactured specialty steel products and operated manufacturing plants in Pennsylvania and New Jersey. According to Carpenter's complaint, the property damage at the four New Jersey sites was due to either the treatment or recycling of manufacturing by-products, or in the case of one site where Carpenter operated an underground facility for storing solvents, the damage resulted from the leakage of chemicals such as Trichloroethylene (TCE). TCE is commonly used in manufacturing to degrease machine parts. Toxicological Profile for Trichloroethylene. U.S. Public Health Service, U.S. Dep't of Health and Human Servs., Atlanta, GA 1993. TCE is "between a probable and possible human carcinogen." U.S. Environmental Protection Agency, 63 FR 34338 (June 24, 1998).
Carpenter maintained primary umbrella and excess comprehensive general liability insurance to cover liabilities resulting from its manufacturing operations. Under the terms of the policies, each insurer agreed to defend and indemnify Carpenter for all liabilities to third parties. The policies covered claims brought by state and federal agencies for environmental damage that Carpenter caused by discharging waste materials and by-products into the environment.
Like NJPLIGA, PPCIGA is a property-liability insurance guaranty association created by Pennsylvania statute to provide limited relief to policyholders and claimants in the event of insurance company insolvencies. Under both the New Jersey and Pennsylvania statutory schemes, if a potential claimant can make a claim against either guaranty association, the claimant must seek recovery first from the guaranty association of the state in which it resides. N.J.S.A. 17:30A-12; 40 Pa. Stat. Ann. § 1701.503. NJPLIGA's maximum statutory limit per "covered claim" is $300,000. N.J.S.A. 17:30A-8. PPCIGA's maximum statutory limit per "covered claim" is $299,900. 40 Pa. Stat. Ann. § 1701.203.
In 1993, Carpenter filed a complaint seeking declaratory relief requiring its insurers to defend Carpenter in any litigation and to indemnify Carpenter for all past, present or future losses and expenses in accordance with the liability coverage for environmental clean-up and remediation of the four New Jersey sites. As discussed, at the time Carpenter filed suit, three of Carpenter's insurers were insolvent.
Accordingly, Carpenter sought statutory benefits from PPCIGA and NJPLIGA pursuant to 40 Penn. Stat. Ann. § 991.1801 to 991.1820 and N.J.S.A. 17:30A-1 to -20 respectively. *fn1 Both PPCIGA and NJPLIGA denied Carpenter's claims for statutory benefits. Carpenter, PPCIGA, and NJPLIGA moved for summary judgment. Carpenter admitted it was a Pennsylvania resident for insurance guaranty association purposes.
The trial court granted partial summary judgment to NJPLIGA and determined that PPCIGA was the primary payor in respect of the four New Jersey sites. The court noted that because Carpenter's corporate residence was in Pennsylvania, Carpenter was not a New Jersey policyholder. The court also found that the premiums Carpenter paid to the insolvent insurers were used to calculate the assessments paid to PPCIGA and not NJPLIGA. Accordingly, NJPLIGA's liability to Carpenter, if any, would be secondary. Carpenter does not challenge that determination.
The trial court also determined that NJPLIGA's maximum obligation to Carpenter in respect of the New Jersey sites was equal to its maximum statutory limit of $300,000 per "covered claim." Further, the court determined that the $300,000 limit should be reduced by a credit attributable to PPCIGA's payment to Carpenter under N.J.S.A. 17:30A-12a, but did not determine the amount of the reduction. The trial court calculated Carpenter's past damages attributable to the New Jersey sites to be $20,289,864.
The parties engaged in settlement negotiations. NJPLIGA participated in but later withdrew from those negotiations. In 1997, Carpenter settled with PPCIGA. NJPLIGA subsequently moved for summary judgment seeking an order permitting it to set off the maximum statutory claim payable by PPCIGA against its liability to Carpenter on each "covered claim." The trial court granted the motion and ruled that NJPLIGA was entitled to a credit for each "covered claim" equal to PPCIGA's maximum statutory limit ($299,900). The court held that NJPLIGA's maximum "per covered claim" obligation to Carpenter was $300,000, less a credit for PPCIGA's $299,900 statutory limit, that is, $100 per claim. Subsequently, the trial court held that Carpenter was entitled to relief on sixty-five "covered claims." Consequently, the trial court entered judgment in favor of Carpenter against NJPLIGA in the amount of $6,500.
The Appellate Division affirmed in part and reversed in part. Carpenter Tech. Corp. v. Admiral Ins. Co., 335 N.J. Super. 510, 517 (2000). The court held that NJPLIGA is entitled to a credit only for the amounts actually received by Carpenter from PPCIGA. Id. at 516. Because the settlement amount did not appear in the record, the court remanded the matter for a determination of the proper credit. Ibid. The Appellate Division also affirmed the trial court's determination of the number of "covered claims." Id. at 517.
We granted certification, 167 N.J. 633 (2001), on the issue of the amount of credit to which NJPLIGA is entitled. We also granted the motion of the Commissioner of Banking and Insurance for leave to appear as amicus curiae.
The narrow issue in this appeal is whether Section 12a of the Act entitles NJPLIGA to a credit equal to the statutory maximum payable by PPCIGA or merely to a credit for the amount Carpenter actually recovered from PPCIGA.
N.J.S.A. 17:30A-12, Priority of claim of associations in other states, provides: a. Any person having a covered claim which may be recovered from more than one insurance guaranty association or its equivalent shall seek recovery first from the association of the place of residence of the insured at the time of the insured event except that if it is a first party claim for damage to property with a permanent location, he [or she] shall seek recovery first from the association of the location of the property. Any recovery under this act shall be reduced by the amount of recovery from any other insurance guaranty association or its equivalent. However, if recovery is denied or deferred by the association, a person may proceed to recover from any other insurance guaranty association or its equivalent from which recovery may be legally sought. b. Any person having a claim against an insurer, whether or not the insurer is a member insurer, under any provision in an insurance policy other than a policy of an insolvent insurer which is also a ...