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Johnson v. Braddy

March 31, 2005


On appeal from Superior Court of New Jersey, Law Division, Hudson County, Docket No. L-2785-01.

Before Judges Skillman, Parrillo and Riva.

The opinion of the court was delivered by: Skillman, P.J.A.D.


Argued February 1, 2005

The New Jersey Property-Liability Insurance Guaranty Association Act, N.J.S.A. 17:30A-1 to -20 (Guaranty Act), establishes a Guaranty Association, funded by assessments on insurance companies, which is required to pay the obligations of insolvent insurance companies subject to a maximum of $300,000. The issue presented by this appeal is whether the holder of an insurance policy with an insolvent insurance company, with policy limits in excess of $300,000, is personally liable for any judgment in excess of the Association's $300,000 maximum liability. We conclude that in the absence of any statutory provision expressly exempting a policyholder from such liability, the Guaranty Act should be construed to afford an injured party the right to recover any damages in excess of the Association's maximum liability directly from the policyholder.

On May 7, 1999, as he was getting out of his tow truck on a street in Jersey City, plaintiff Frederick Johnson was hit by a truck owned and operated by defendant Willie Braddy. As a result of this accident, plaintiff suffered severe injuries, including trauma to his left leg that required amputation above the knee.

At the time of the accident, Braddy was an"owner-operator" performing trucking services for defendant Walsh Trucking, a large North Jersey trucking company. In accordance with Interstate Commerce Commission regulations, Walsh maintained an insurance policy issued by Reliance Insurance Company, with limits of $1,000,000, and an umbrella policy issued by AIG, with limits of $25,000,000,*fn1 which provided coverage to both Walsh and its drivers including Braddy.

Subsequent to plaintiff's accident, Reliance was declared insolvent and placed into liquidation.

Plaintiff filed this action in 2001. After being notified of Reliance's insolvency, the trial court entered a consent order that dismissed plaintiff's complaint, subject to restoration after disposition of plaintiff's claim for uninsured motorist benefits under his own insurance policy. Plaintiff's insurer awarded him $300,000, which was the full amount of his uninsured motorist coverage, and his complaint against Braddy and Walsh was then reinstated.

Braddy and Walsh filed a motion for summary judgment seeking dismissal of plaintiff's complaint on the theory they could not be subject to personal liability for any damages in excess of the $300,000 maximum coverage provided by the Guaranty Association, which plaintiff had already recovered under his own policy.*fn2

The trial court concluded in an oral opinion that the $300,000 statutory limit on recovery from the Association is solely"a limit on the amount of funds available to a plaintiff from the Association's coffers, not a limit on the total amount of damages a plaintiff may recover." The court reasoned that because New Jersey's public policy favors compensating victims of automobile accidents, any adverse financial consequences of insolvency of the tortfeasor's insurance company should be borne by the tortfeasor rather than the injured party. Therefore, the court denied defendants' motion.

We granted defendants' motion for leave to appeal because of the conflict between the trial court's decision in this case and the published opinion in Flaherty v. Safran, 367 N.J. Super. 565 (Law Div. 2003).

The essential objective of the Guaranty Act is"to minimize financial loss to claimants or policyholders because of the insolvency of an insurer." N.J.S.A. 17:30A-2(a). To achieve this objective, the Act establishes the Guaranty Association and requires all insurers who write insurance to which the Act applies, which includes all forms of motor vehicle coverage, see N.J.S.A. 17:30A-2(b), to be members, N.J.S.A. 17:30A-6, and authorizes the Association to collect assessments from members sufficient to pay covered claims of insolvent insurers, N.J.S.A. 17:30A-8(a)(3). See Carpenter Tech. Corp. v. Admiral Ins. Co., 172 N.J. 504, 508-09 (2002). This legislation"is patterned after a model bill prepared under the auspices of the National Association of Insurance Commissioners... and thereafter adopted in varying forms by almost every state." R.R. Roofing & Bldg. Supply Co. v. Fin. Fire & Cas. Co., 85 N.J. 384, 391 (1981).

The Guaranty Association is liable for the limits of liability stated in the policy of the insolvent insurer, subject to a maximum of $300,000. N.J.S.A. 17:30A-8(a)(1). Thus, if a policyholder's coverage is less than $300,000, the Association's liability is limited to the amount of that coverage, but if the policyholder's coverage under the policy issued by ...

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