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Arcnet Architects, Inc. v. New Jersey Property-Liability Insurance Guaranty Association

April 25, 2005


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-3219-02.

Before Judges Lefelt, Fuentes and Falcone.

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


Argued March 8, 2005

In 2004, the Legislature amended the New Jersey Property-Liability Insurance Guaranty Association Act (Act), N.J.S.A. 17:30A-1 to -20, to exclude specifically from the definition of covered claims "counsel fees and other claim expenses incurred prior to the date of [the insurance company's] insolvency." L. 2004, c. 175, § 2. This amendment, approved on December 22, 2004, also provided that it "shall take effect immediately and shall apply to covered claims resulting from insolvencies occurring on or after that date." Id. at § 9. The amendment thus settled, at least prospectively, an ongoing dispute as to whether the Property-Liability Insurance Guaranty Association (PLIGA) should pay counsel fees and claim expenses incurred by an insurer before its insolvency. This appeal addresses preinsolvency counsel fees and litigation expenses that were incurred before the amendment's effective date. Judge Uhrmacher, in the trial court, decided about two years before the Legislature amended the Act that these costs were not "covered claims," and therefore were not payable by PLIGA. We affirm.

Plaintiff, ARCNET Architects, Inc., is a New Jersey architectural firm that was insured by Reliance Insurance Company. After ARCNET was sued in two third-party complaints for professional malpractice, Reliance agreed to supply a defense. Under the pertinent insurance policy, at ARCNET's recommendation, Reliance designated Fox, Rothschild, O'Brien & Frankel, LLP (Fox Rothschild) as defense attorneys.

Under the pertinent policy, Reliance was to pay "sums in excess of the Deductible amount . . . which [ARCNET as the insured] shall become legally obligated to pay as Damages and Claims Expenses." "Claims Expenses" included "reasonable and necessary fees charged by [the designated defense attorney and] all other fees, costs and charges resulting from the investigation, adjustment, defense, and appeal of a Claim." Pursuant to the policy, Reliance paid all of Fox Rothschild's defense costs and fees associated with the malpractice claim until Reliance became insolvent.

After Reliance's insolvency, ARCNET, who had a general retainer with Fox Rothschild, paid the firm over $50,000 in costs and fees, which had been incurred before Reliance became insolvent. ARCNET asserts that over $50,000 in costs and fees still remains unpaid from fees and expenses also incurred before the insolvency. As a result, ARCNET sought reimbursement from PLIGA of the amount it had already paid, as well as the unpaid sum.

PLIGA is a statutorily-created private, nonprofit, and unincorporated legal entity comprised of licensed insurers.

N.J.S.A. 17:30A-6; R.R. Roofing & Bldg. Supply Co. v. Fin. Fire & Cas. Co., 85 N.J. 384, 389-90 (1981). PLIGA's obligations are derived from the Act, which is based upon the State Post-Assessment Insurance Guaranty Association Model Act. Carpenter Tech. Corp. v. Admiral Ins. Co., 172 N.J. 504, 515 (2002); Edith K. Payne, Surviving Insurer Insolvency, 172 N.J. Lawyer 28, 30 (1995). The purpose of the Model Act and this State's Act was to "minimize financial loss to claimants or policyholders because of the insolvency of an insurer."

N.J.S.A. 17:30A-2a; Carpenter Tech. Corp., supra, 172 N.J. at 515.

Under the Act, PLIGA manages and administers claims against an insolvent insurer. N.J.S.A. 17:30A-6, -8. PLIGA is "obligated to the extent of the covered claims against an insolvent insurer incurred prior to or 90 days after the determination of insolvency . . . ." N.J.S.A. 17:30A-8a(1). It is "deemed the insurer to the extent of its obligations on the covered claims and to such extent shall have all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent." N.J.S.A. 17:30A-8a(2).

PLIGA's responsibility to pay claims under an insolvent insurer's policy is limited to the payment of "covered claims." It is not "a panacea for all problems caused by insurance company insolvencies." Carpenter Tech. Corp., supra, 172 N.J. at 524. It was not designed "as a form of reinsurance for every insurer who becomes insolvent." Id. at 524-25. The Act "requires [PLIGA] to stand in the shoes of its insolvent member insurance companies only in proceedings involving 'covered claims.'" Am. Employers' Ins. Co. v. Elf Atochem N. Am., Inc., 157 N.J. 580, 584 (1999) (citing N.J.S.A. 17:30A-8a(2)).

The Act, in pertinent part before the 2004 amendment, defined "covered claim" as "an unpaid claim . . . which arises out of and is within the coverage, and not in excess of the applicable limits of an insurance policy to which this act applies, issued by an insurer, if ...

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