On appeal from the Superior Court of New Jersey, Law Division, Bergen County, L-9646-04.
The opinion of the court was delivered by: Lisa, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Collester, Lisa and S.L. Reisner.
Plaintiffs are New Jersey attorneys who have been named as defendants in legal malpractice suits in New Jersey. Their professional liability insurance carrier, "American National Lawyers Insurance Reciprocal (Risk Retention) Group" (ANLIR), became insolvent, and plaintiffs sought defense and indemnification from the New Jersey Property-Liability Insurance Guaranty Association (PLIGA). Because ANLIR was a risk retention group, PLIGA denied coverage. Plaintiffs brought this action seeking a declaration that PLIGA was responsible to provide coverage. The Law Division granted PLIGA's summary judgment motion and dismissed the complaint.
Plaintiffs argue on appeal that because ANLIR was a reciprocal as well as a risk retention group it was not excluded from PLIGA coverage. Alternatively, plaintiffs argue that PLIGA coverage applied because ANLIR's reinsurer, the Reciprocal of America (ROA), which also became insolvent, was a PLIGA member and exerted controlling influence over ANLIR. Thus, according to plaintiffs, the reinsurance veil should be pierced and ANLIR insureds and claimants against them should be entitled to PLIGA coverage because they would be entitled to coverage from ROA. We reject these arguments. We hold that an insurer registered in New Jersey solely as a risk retention group is not covered by PLIGA regardless of the status of that insurer in another jurisdiction as a reciprocal, and regardless of the status of its reinsurer or its relationship with its reinsurer. Accordingly, we affirm.
ANLIR was formed in Tennessee in 1992. Its officers were authorized to execute and file documents to obtain licensure to transact business as an insurance company in Tennessee, and to obtain registration or recognition to transact business in any other jurisdiction. A Virginia corporation known as Lawyers Management Corporation (Lawyers Management) was named as ANLIR's "attorney-in-fact." ANLIR entered into a Management and Insurance Services Agreement in which ANLIR and Lawyers Management each appointed Virginia Professional Underwriters, Inc. (Virginia Professional) as their exclusive management and insurance services company to perform a wide range of specified duties on their behalf. Virginia Professional also agreed to loan ANLIR and Lawyers Management up to $3.5 million in start-up funds. Virginia Professional later changed its name to The Reciprocal Group (TRG).
On December 11, 1995, the New Jersey Department of Banking and Insurance (the Department) wrote to ANLIR confirming that it had "filed the necessary documents" with the State of New Jersey as detailed under P.L. 1993, c. 240 [N.J.S.A. 17:47A-1 to -12 (New Jersey Risk Retention Act) (NJRR Act)] and "is considered registered in New Jersey as a Risk Retention Group." The letter advised ANLIR that although registered[,] the group has not been subjected to any admission process, and as such has no status in New Jersey other than as a Risk Retention Group. The group should not make any representations to prospective new members in New Jersey that the Department approves or has licensed the group. [Emphasis added.]
At the time the underlying malpractice claims were made or filed, and as of January 31, 2003, plaintiffs were ANLIR subscribers. Set apart in the center of the title page of the policies issued to plaintiffs by ANLIR was the following:
THIS POLICY IS ISSUED BY YOUR RISK RETENTION GROUP. YOUR RISK RETENTION GROUP MAY NOT BE SUBJECT TO ALL OF THE INSURANCE LAWS AND REGULATIONS OF YOUR STATE. STATE INSURANCE INSOLVENCY GUARANTY FUNDS ARE NOT AVAILABLE FOR YOUR RISK RETENTION GROUP.
ANLIR's by-laws, referring to itself as "the Reciprocal," provided:
The purpose of the Reciprocal is to exchange contracts of indemnity or insurance with individuals, partnerships, corporations, and other entities through the facilities of a common Attorney-In-Fact (as defined herein) pursuant to the provisions of Chapter 16 of Title 56 of the Tennessee Code Annotated and as a risk retention group in accordance with the [federal] Liability Risk Retention Act of 1986 and any amendments thereto. The above stated purpose shall not preclude the Reciprocal from performing all lawful acts, duties, undertakings and services consistent with the laws of the State of Tennessee. In addition, the Reciprocal shall have the power to conduct and carry on its activities, subject to the prior approval of the Attorney-In-Fact, in any state, territory of the United States or foreign country in conformity with state and federal laws.
The by-laws further provided: "Subscribership in the Reciprocal shall consist of individuals, partnerships, corporations, and other entities engaged in the practice of law which are insured under the name of the Reciprocal through the facilities of the Attorney-In-Fact acting on behalf of the several Subscribers." Subscribers were those "executing, or otherwise being bound by, the Subscriber's Agreement and Power of Attorney or any like agreement of the Reciprocal, if required under applicable law." Each insured lawyer, either individually or as an insured under a corporation's, partnership's, or association's policy, would have one vote at ANLIR's annual or special meetings.
ANLIR's Board of Directors was given powers and duties including: "(a) To supervise the finances and affairs of the Reciprocal to such extent as to assure conformity with (i) the laws and regulations of jurisdictions in which it is licensed, admitted, recognized, or authorized to transact business, including without limitation, the Liability Risk Retention Act of 1986 . . . ." The Board members were to be drawn from representatives of states in which a state or local bar organization exclusively endorsed ANLIR's professional liability insurance programs, and at least seventy-five percent of the Board members were to be comprised of subscribers or their employees.
In the Operating Guidelines section of the by-laws, another statement of purpose provided: "The purpose for which the Reciprocal is formed is to carry on and transact in the State of Tennessee and other jurisdictions the business of a reciprocal insurer for the benefit of its Subscribers by providing insurance." ANLIR was to endeavor to maintain a minimum surplus of assets over liabilities of at least $2 million. If additional funds were needed, subscribers could be required to make loans or payments to ANLIR, and if excess funds were available, they could be distributed to subscribers.
A form of Subscriber's Agreement and Power of Attorney for ANLIR provided that the subscribers appointed Lawyers Management as attorney-in-fact to carry out the purposes and objectives of the agreement. It further provided:
The Reciprocal, through the Attorney-In-Fact, shall have the power to insure lawyers, as may be authorized by the Board of Directors and the Attorney-In-Fact, which are similar or related with respect to liability exposure, against loss or liability of every kind, nature or description, as may be authorized and permitted by state and federal laws (including the Liability Risk Retention Act of 1986 and any amendments thereto), and to issue contracts of indemnity or insurance on behalf of subscribers covering any or all such loss, liability, or liabilities, subject to the provisions contained herein and the Reciprocal's Bylaws.
Under the Subscriber's Agreement, Lawyers Management would make contracts of indemnity or insurance with subscribers; accept or cede reinsurance; adjust, settle, and pay claims; endorse checks and other papers to pay claims; invest and maintain ANLIR's funds; accept service and sue on ANLIR's behalf; and incur and pay expenses on ANLIR's behalf. Many of these powers and duties were further forwarded to Virginia Professional (renamed TRG), pursuant to the Management and Insurance Services Agreement.
TRG was also the attorney-in-fact for Reciprocal of America (ROA), a Virginia-chartered and domiciled reciprocal. ROA is a member of PLIGA. ROA is also one of ANLIR's reinsurers, and it appears that 100% of ANLIR's risk was reinsured, either by ROA or by "Cologne/GenRe." According to the reinsurance agreement, ANLIR was required to "investigate and settle or defend all claims and losses." The agreement further provided that "This Agreement is solely between the Company [ANLIR] and the Reinsurer. . . . In no ...