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In re Objection of Sun Life Assurance Company of Canada

January 3, 2008

IN THE MATTER OF THE OBJECTION OF SUN LIFE ASSURANCE COMPANY OF CANADA AND KEYPORT LIFE INSURANCE COMPANY TO THE INSURANCE FRAUD ASSESSMENT FOR FY 2002 AND 2003 PURSUANT TO N.J.S.A. 17:33A-8.


On appeal from final agency action by the Department of Banking and Insurance.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued November 28, 2007

Before Judges Wefing, R. B. Coleman and Lyons.

The issue in this case is the timeliness of this appeal filed by Sun Life Assurance Company and Keyport Life Insurance Company (collectively, Sun Life or the Companies).*fn1 Sun Life appeals from a decision by the New Jersey Department of Banking and Insurance (NJDBI or Department) dated October 16, 2006, which denied Sun Life's objections to amounts assessed pursuant to N.J.S.A. 17:33A-8(g) against Sun Life as Sun Life's insurance fraud assessments for fiscal years 2002 and 2003, and Sun Life's request for a refund of amounts it deemed were overpaid. Because we find that the State's assessments dated March 10, 2003, for fiscal year 2002, and January 9, 2004, for fiscal year 2003, constitute "final decisions or actions of any state administrative agency" pursuant to Rule 2:2-3(a)(2) and the time to appeal those assessments pursuant to Rule 2:4-1(b) has expired, we affirm NJDBI's determination not to recalculate Sun Life's assessment and not to provide any refund.

The pertinent facts and procedural history are as follows. NJDBI's Division of Insurance Fraud Prevention is charged with investigating alleged insurance fraud in New Jersey. In 1983, the New Jersey Insurance Fraud Prevention Act (Act), N.J.S.A. 17:33A-1 to -30 was enacted. It created a special purpose funding mechanism referred to as the fraud assessment, whereby the actual incurred expenses of NJDBI for all services related to insurance fraud investigation are funded by the companies that the Department regulates. The Act permits the Commissioner of Banking and Insurance (Commissioner) to apportion expenses incurred by the State to fund its responsibilities pursuant to the Act among every company writing a class of insurance described in Subtitle 3 of Title 17 and Subtitle 3 of Title 17B "in the proportion that the net premiums received by each of them . . . bears to the sum total of all such net premiums received by all companies writing that insurance within the State . . . ." N.J.S.A. 17:33A-8(g). The term "net premiums received" is defined in the Act as "gross premiums written, less return premiums thereon and dividends credited or paid to policyholders." Ibid.

Historically, the Commissioner has calculated the assessment based upon information contained in Schedule T of a company's annual statement. Schedule T is a standard form used throughout the industry and adopted by the National Association of Insurance Commissioners. Column 3 of Schedule T indicates the amount of "net premiums received."

Prior to January 1, 2001, the amounts reported on Column 3 of Schedule T accurately reflected "net premiums received." However, after January 1, 2001, the National Association of Insurance Commissioners adopted a revised format for Schedule T. This format called for certain "deposit-type" funds, such as annuities, which were previously reported in Column 6, to be reported in Column 3. Apparently, the Commissioner calculated the assessments for the years 2002 and 2003, using the amounts stated in Column 3 without addressing the then recent change in what was included in Column 3 of Schedule T.

On March 10, 2003, the Department of Treasury issued the annual fraud assessments, entitled "Insurance Premiums Tax," for fiscal year 2002 pursuant to N.J.S.A. 17:33A-8(g) to each of the companies. The assessments set forth the amount due for fiscal year 2002 from the Companies for the cost of administration of the Division of Insurance Fraud Prevention pursuant to the Act. The assessments further advised the Companies that the amounts on the documents were payable on or before thirty days from the date of the documents.

On April 9, 2003, Sun Life paid both of the assessments and wrote to the Department of Treasury seeking to challenge the assessments. The letter from the Companies advised that the Companies believed that the calculation method was faulty and advised that it was submitting "the enclosed payments under protest, and request[ed] the recalculations to determine the actual amount owed and the appropriate refunds of any overpayments." No response was made to that letter, and Sun Life did not take any action to follow up on the letter until September 2004.

On January 9, 2004, NJDBI issued the fiscal 2003 fraud assessments to the Companies. Those documents set forth the statutory basis for the assessments, as well as the computation utilized to come to the amount of assessment due. The assessments provided that payment was due on February 5, 2004. On January 30, 2004, counsel for Sun Life wrote to the NJDBI, arguing that the calculation method applied to determine the amount owed was faulty and not consistent with applicable law. Accordingly, counsel advised the Department that the Companies were submitting payments under protest and again requested recalculations to determine the actual amount owed and appropriate refunds of any payments. Again, no response was made by the Department and no further follow up or action was undertaken by the Companies.

On September 7, 2004, counsel for Sun Life wrote to the New Jersey Division of Revenue noting it had not received a response to its earlier letter of April 9, 2003, regarding the fiscal 2002 assessment. It sought again a recalculation and a refund. There is no evidence of any response to that letter.

On May 15, 2006, our court, in an action filed by thirteen other insurance companies in the Superior Court, Appellate Division, to challenge the fraud assessments by NJDBI for fiscal years 2002 and 2003, invalidated the method by which the Department had calculated the assessments.*fn2 We found that the appellants in that matter paid an assessment in excess of what the State was entitled to receive and that they were entitled to a refund for any overpayment.

On June 8, 2006, counsel for Sun Life wrote to counsel for NJDBI and stated that in light of our decision the previous month, the Companies looked forward to a refund of the amounts the Companies overpaid. The Department responded on October 16, 2006, with a letter stating that because Sun Life had not been a party to the appeal and had failed to appeal in a timely and appropriate manner, it was the position of the Department that all the issues regarding Sun Life's insurance fraud ...


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