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Thomsen v. Mercer-Charles

April 28, 2005

CHRISTINE THOMSEN, PLAINTIFF,
v.
JANICE D. MERCER-CHARLES, CARING, INC., CARING HOUSE PROJECTS, INC., CARING MEDICAL DAY SERVICES, INC., CARING FELLOWSHIP CENTER, INC., AND COASTAL SUPPORT SERVICES, INC., DEFENDANTS.
ALICE BROWN, AS ADMINISTRATOR AD PROSEQUENDUM FOR THE HEIRS-ATLAW OF ALICE F. WATTS, DECEASED, AND AS ADMINISTRATOR OF THE ESTATE OF ALICE F. WATTS, DECEASED, PLAINTIFFS,
v.
JANICE D. MERCER-CHARLES, CARING, INC., CARING HOUSE PROJECTS, INC., CARING MEDICAL DAY SERVICES, INC., CARING FELLOWSHIP CENTER, INC., COASTAL SUPPORT SERVICES, INC., CHRISTINE D. THOMSEN, IRENE MCMICHAEL, R.C. MAXWELL CO., ATLANTIC CITY ELECTRIC CO., BELL ATLANTIC-NEW JERSEY, INC., DEFENDANTS, AND BELL ATLANTIC-NJ, INC., THIRD PARTY PLAINTIFF,
v.
COUNTY OF ATLANTIC, THIRD PARTY DEFENDANT, AND IRENE MCMICHAEL, THIRD PARTY PLAINTIFF,
v.
PHILADEPHIA INDEMNITIES INSURANCE COMPANY, RELIANCE INSURANCE COMPANY AND NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION, THIRD PARTY DEFENDANTS.
LARRY SPELL, BY HIS GUARDIAN AD LITEM, PATRICIA LYNCH, PLAINTIFF-RESPONDENT,
v.
JANICE D. MERCER, CARING INC., CARING HOUSE PROJECTS, INC., CARING MEDICAL DAY SERVICES, CARING FELLOWSHIP CENTER, INC., COASTAL SUPPORT SERVICES, INC., CHRISTINE D. THOMSEN, AND IRENE MCMICHAEL, DEFENDANTS, AND IRENE MCMICHAEL, THIRD PARTY PLAINTIFF,
v.
PHILADELPHIA INDEMNITIES INSURANCE COMPANY AND RELIANCE INSURANCE COMPANY, THIRD PARTY DEFENDANTS,
v.
NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTEE ASSOCIATION, THIRD PARTY DEFENDANT-APPELLANT.
JANICE MERCER-CHARLES AND DEXTER CHARLES, HER HUSBAND, PLAINTIFFS,
v.
CHRISTINE D. THOMSEN, DEFENDANT,
v.
BELL ATLANTIC - NJ, THIRD PARTY PLAINTIFF,
v.
COUNTY OF ATLANTIC, THIRD PARTY DEFENDANT, AND IRENE MCMICHAEL, THIRD PARTY PLAINTIFF,
v.
PHILADEPHIA INDEMNITIES INSURANCE COMPANY, RELIANCE INSURANCE COMPANY, AND NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION, THIRD PARTY DEFENDANTS.
LARRY SPELL, BY HIS GUARDIAN AD LITEM, PATRICIA LYNCH, PLAINTIFF,
v.
R.C. MAXWELL CO., ATLANTIC CITY ELECTRIC COMPANY, BELL ATLANTIC-NJ, INC., WEST JERSEY HEALTH SYSTEMS PARAMEDICS UNIT, GALLOWAY TOWNSHIP VOLUNTEER AMBULANCE SQUAD WEST DIVISION, EGG HARBOR CITY RESCUE SQUAD, WILLIAM B. KESSLER MEMORIAL HOSPITAL, EUGENE M. MLYNARCZYK, M.D., LISA RASOM, RN, L. DEFRANCISCO, RN, DEFENDANTS,
v.
BELL ATLANTIC-NJ THIRD PARTY PLAINTIFF,
v.
COUNTY OF ATLANTIC, THIRD PARTY DEFENDANT, AND IRENE MCMICHAEL, THIRD PARTY PLAINTIFF,
v.
PHILADELPHIA INDEMNITIES INSURANCE COMPANY, RELIANCE INSURANCE COMPANY AND NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTEE ASSOCIATION, THIRD PARTY DEFENDANTS.



On appeal from the Superior Court of New Jersey, Law Division, Atlantic County, L-4172-96, L-1845-97, L-2764-97, L-4530-97, L-2884-98.

Before Judges A. A. Rodríguez, Weissbard and Hoens.

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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued September 13, 2004

This appeal was brought by the New Jersey Property-Liability Insurance Guaranty Association (the Association) concerning interpretation of the exhaustion and setoff provision (N.J.S.A. 17:30A-12b) of the New Jersey Property-Liability Insurance Guaranty Act (the Act).*fn1 The specific issue presented is whether the Act's setoff provision operates to reduce the amount payable on a covered claim by the amount of coverage available from a solvent insurer, even when the claim far exceeds the coverage limits of the solvent insurer's policy.

The setoff provision provides in pertinent part:

[a]ny 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 covered claim, shall be required to exhaust first his right under that other policy. An amount payable on a covered claim . . . shall be reduced by the amount of recovery under any such insurance policy.

[N.J.S.A. 17:30A-12b.]

We hold that the Association is entitled to a setoff of the full amount paid by a solvent insurer. In other words, when there is coverage by two policies and the exhaustion of the solvent insurer's policy does not completely recompense the claimant's damages, the Association is still entitled to the setoff. Thus, the Association's obligation is extinguished if the setoff equals or exceeds the $300,000 statutory cap for covered claims.

I.

The facts are undisputed. On September 5, 1996, Larry Spell, then thirty-eight years old, was a passenger in a 1994 Dodge para-transit van owned by Caring, Inc. and leased to Caring Medical Day Services, Inc. (collectively "Caring") and operated by Janice Mercer-Charles, an employee of Caring. There was a collision between the van and a vehicle operated by Christine Thomsen. As a result of the impact, the van crashed into a telephone pole. Spell suffered a fractured neck and was rendered a quadriplegic. Alice F. Watts, another passenger in the van, died as a result of the accident. Lawsuits were filed by Spell, the Estate of Watts, Thomsen and Mercer-Charles against various parties.

At the time of the accident, Caring was insured pursuant to a business automobile policy issued by Philadelphia Insurance Company (PIC). The PIC policy provided liability coverage in the amount of $1 million for any one accident. Caring was also insured pursuant to a commercial insurance policy issued by Reliance Insurance Company (Reliance). The Reliance policy provided liability coverage in the amount of $1 million for any one accident.

Spell offered to settle his claims against Mercer-Charles and Caring for $2 million. The offer was eventually accepted by Caring's insurers, PIC and Reliance. A consent order was entered permitting PIC and Reliance to deposit their respective policy limits into court, pending an allocation hearing. PIC deposited its $1 million. However, before Reliance deposited its limit, it was declared insolvent and ordered into liquidation by a Pennsylvania court. As a result, the Association moved successfully to intervene in the litigation and assumed responsibility for claims against Reliance's insured.

The Association moved for a declaration that its $300,000 per claim statutory obligation must be reduced by any amount received from PIC, the solvent insurer. Spell opposed this motion. For purposes of the motion, the parties agreed that Spell's damages exceeded $2 million. In a written opinion, the judge denied the Association's motion, ruling that it is not entitled to any setoff. The judge interpreted the language of the setoff provision to mean that the setoff only applies to insurance proceeds payable as a direct result of insolvency.

II.

The Association appeals contending that pursuant to the setoff provision, its obligation to pay statutory benefits to Spell is reduced to zero. We agree.

We begin our analysis by restating certain core principles of the Act's legislative scheme. First, the Association is not an insurer. It is a private, non-profit, unincorporated legal entity. N.J.S.A. 17:30A-6; Am. Employers' Ins. Co. v. Elf Atochem N. Am., Inc., 157 N.J. 580, 586-87 (1999). It depends upon revenue received through statutory assessments levied upon its members, who are insurers writing defined types of direct insurance. Johnson v. Braddy, ___ N.J. Super. ___, ___ (App. Div. 2005); Harrow Stores, Inc. v. Hanover Ins. Co., 315 N.J. Super. 547 (App. Div. 1998). Those assessments are ultimately recouped through policy surcharges imposed upon policyholders, who hold policies embraced within the scope of the Act. N.J.S.A. 17:30A-8a(3); N.J.A.C. 11:1-6.3. The statutory mandate requires the Association to administer and pay "covered claims" that are asserted against insolvent insurers and their policyholders. The Association's purpose is "to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment, [and] to avoid financial loss to claimants or policyholders because of the insolvency of an insurer . . . " N.J.S.A. 17:30A-2a. The Act is to be construed liberally to effect its purposes.

Carpenter Tech. Corp. v. Admiral Ins. Co., 172 N.J. 504, 516-17 (2002) (citing Am. Employers' Ins. Co., supra, 157 N.J. at 590 and N.J. Guar. Ass'n. on Behalf of the Midland Ins. Co. v. Ciani, 242 N.J. Super. 164, 169 (App. Div. 1990)). The Legislature sought "to conserve limited Association resources to better assure their availability to serve core purposes." Ibid.

Second, the Legislature created the Association to provide "a measure of relief for policyholders and claimants in the case of insurer insolvency." Ciani, supra, 242 N.J. Super. at 169 (emphasis added). It did not intend to "substitute the Association for the defunct insurer so as to prevent all loss to affected parties." Ibid. (emphasis added); see also Carpenter Tech. Corp., supra, 172 N.J. at 515; Am. Employers' Ins. Co., supra, 157 N.J. at 590. In short, the Association is a limited safety net. It was not designed to put a claimant in the same position as if there had been no insolvency.

Third, the Association does not pay an injured party's entire loss. Instead, it pays only those losses qualifying as "covered claims" pursuant to the terms of the Act. See Carpenter Tech. Corp., supra, 172 N.J. at 508-09. A "covered claim" is defined as an unpaid claim within the purview of a policy issued by an insurer, which became insolvent after January 1, 1974 and: (1) the claimant or insured is a resident of New Jersey at the time of the insured event; or (2) the property from which the claim arises is permanently located in New Jersey. N.J.S.A. 17:30A-5d. Moreover, "'covered claim' shall not include any amount due any . . . insurer . . . as subrogation recoveries or otherwise." Ibid.; Carpenter Tech. Corp., supra, 172 N.J. at 516; Primus v. Alfred Sanzari Enter., 372 N.J. Super. 392, 402 ...


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