On appeal from a final decision of the Commissioner of the Department of Banking and Insurance, Docket No. UC01-02.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Parrillo and Gilroy.
In their breach of contract action in the Law Division, petitioners, four insurance agencies, alleged that Rutgers Casualty Company (Rutgers) terminated their insurance agency contracts in violation of the "take-all-comers" provision of the Fair Automobile Insurance Reform Act of 1990 (FAIRA), N.J.S.A. 17:33B-1 to -64. Upon transfer of the case to the Office of Administrative Law (OAL), and following a plenary hearing, the Administrative Law Judge (ALJ) found that Rutgers' main witness lied and that another key witness was not unavailable to testify as Rutgers claimed. The ALJ determined that petitioners' terminations were in violation of FAIRA, N.J.S.A. 17:33B-15, -18.
The Commissioner of the Department of Banking and Insurance (Commissioner) adopted the ruling of the ALJ that Rutgers violated FAIRA, even though he disagreed with the finding that Rutgers' witness had lied. Rutgers appeals from this final agency determination, arguing that the Commissioner erred in not finding that the ALJ's conclusions were erroneous and reversible, and in accepting the ALJ's conclusion that Rutgers' failure to produce a witness permitted an adverse inference as to its reasons not to have her testify. For the following reasons, we affirm.
Some of the facts are disputed. Rutgers was a corporation founded in 1981 to write private passenger automobile (PPA) insurance in New Jersey. Petitioners were four insurance agencies who had broker agreements (or contracts) with Rutgers to sell automobile insurance: Bill Scheller Insurance Agency; Robert Baitinger Insurance Management, Inc.; The Berne Corporation: Insurance; and Siegel Agency. The contracts provided that either party could terminate the agreement, so long as the termination was not a violation of State law.
Rutgers began to experience financial problems in the early 1990's and had been in contact with the Department regarding the need to maintain a premium-to-surplus ratio of no greater than 3:1. Rutgers had always utilized strict underwriting criteria to bring in "good" i.e., low-risk, business. In fact, a market conduct examination by the Department found that Rutgers would not write policies for any applicant who: had more than four points on his or her license; was not employed at least twenty hours per week; was under age twenty-four; or lived in a household with drivers under twenty years of age. Rutgers also declined to insure high performance vehicles, as well as drivers employed in certain professions such as bartenders and police officers. This practice of strict underwriting was known as "cherry-picking," meaning that Rutgers screened for the lowest risk applicants.
In 1990, FAIRA was enacted to reduce insurance costs for New Jersey drivers. N.J.S.A. 17:33B-2(d). A significant feature of FAIRA, for present purposes, was the "take-all-comers" provision requiring that an insurance agent must write an application for any eligible person who requested coverage and could not "channel away" higher-risk applicants.*fn1 N.J.S.A. 17:33B-15, -18. In addition, an insurer was prohibited from penalizing an agent because of the type of business it submitted or because of its geographical location. N.J.S.A. 17:33B-18. FAIRA included an exemption for insurers who were in a financially unsafe situation. N.J.S.A. 17:33B-19. Even before the enactment of FAIRA, other statutory protections afforded an insurer the right to non-renew either 2% of its voluntary market PPA policies every year ("the 2% rule") or one old policy for every two new policies it wrote ("two for one"). N.J.S.A. 17:29C-7.1(b), (c). The Legislature granted the insurance industry two years to prepare for FAIRA, and it took effect in April 1992. N.J.S.A. 17:33B-15(a).
On February 25, 1992, the Department made a determination that, based upon Rutgers' financial situation, it qualified for an exemption from the "take-all-comers" provision. This determination was premised upon data from September 30, 1991, which indicated that Rutgers' premium-to-surplus ratio exceeded 7:1, significantly higher than the 3:1 benchmark used by the Department to determine whether an insurer was in a financially unsafe or unsound condition. In addition, the Commissioner deferred Rutgers' obligation to pay assessments and surtaxes that FAIRA imposed for the years 1991 and 1992 because of its financial predicament.
During the period that Rutgers was exempt from the "take-all-comers" requirement, however, Rutgers continued to write new insurance policies using the strict guidelines it had developed in the past. In January 1995, other insurers who were complying with the "take-all-comers" requirement complained to the Department that insurers such as Rutgers were enjoying unfair competitive advantages by being able to "cherry-pick" the best business. Consequently, the Department issued a bulletin stating that after April 1, 1995, any insurer who was exempt under N.J.S.A. 17:33B-19 would be prohibited from writing new insurance polices unless it voluntarily complied with the "take-all-comers" provision. Rutgers informed the Department that it would voluntarily comply with the "take-all-comers" requirement, but requested and was granted a one-month extension until May 1, 1995.
As May 1, 1995 approached, Rutgers conducted breakfast meetings with its brokers to inform them of the new "take-all-comers" requirements. At these meetings, Rutgers' employees, including Lynn Lannon, head underwriter for automobile insurance; Barry Goldstein, counsel; Florence Gargano, marketing manager; and Helene Gaughan, underwriting manager, expressed concerns about the financial solvency of the company and told the brokers that even though Rutgers would comply with the law, the company preferred business that conformed with the more restrictive criteria that had previously been in effect. Despite the Department's directive, the agents were told to conduct "business as usual" to the extent possible.
According to both Lannon and Goldstein, because the new business was expected to be inferior to what Rutgers had written in the past, the fear was that this would cause the company to become insolvent, i.e. exceed the 3:1 premium-to-surplus ratio. The goal, therefore, was to keep new business to a minimum and to continue to attract the type of business Rutgers had accepted prior to May 1, 1995.
Goldstein confirmed that Rutgers told brokers to direct to other companies new business which did not comply with the old underwriting guidelines. Yet despite Rutgers' stated expression of preference for the older type of business, it is undisputed that Rutgers wrote every PPA policy that was submitted after May 1, 1995, as the statute required.
This much, as noted, appears generally undisputed. The parties differ substantially over the reasons for petitioners' termination in May and November, 1995. According to petitioners, each was told by Rutgers, prior to termination, that its broker contract was in jeopardy because of the large volume of applications it had been submitting after May 1, 1995.
Bill Scheller, owner of the Bill Scheller Insurance Agency, testified that in several May 1995 telephone conversations, Gaughan told him to "slow down" the submission of PPA applications, and in particular to restrict young drivers, inexperienced drivers and drivers over age sixty-five. Gaughan and Lannon both warned Scheller that his contract would be cancelled if he did not slow business and restrict new applicants according to the earlier criteria.
Scheller had surreptitiously taped telephone conversations with Gaughan on May 15, 1995, and May 26, 1995, and with Gargano on June 15, 1995.*fn2 In those conversations, Gaughan stated that she did not want risky drivers even though she acknowledged that Rutgers needed to comply with the statute. When Scheller said that he did not have another company that he could send these applicants to, Gaughan replied, "You don't have another company. See that's my problem." When Scheller responded, "I don't want to lose my contract," Gaughan replied:
I know you don't, that's why we're calling . . . I don't just want to cut you off . . .
I'm asking you to underwrite. What did you underwrite when you were giving me the business last month in April? It was certain limits . . . certain quality . . . .
In the May 26, 1995 conversation subsequent to his termination, Scheller questioned whether Rutgers was "doing this to everybody." Gaughan replied No . . . to the ones that are . . . have been . . . giving me a lot of business all of a sudden and . . . uh . . . you know, walk in business . . . new business . . . business I would not have ordinarily written before . . . .*fn3
According to Sandor Schneck, who was employed by the Berne Corp., Gaughan telephoned him in May 1995 about an applicant named "Bullard" whom Rutgers did not want because she was unemployed and had four points on her license. Gaughan requested that he withdraw the application. When Schneck responded that doing so would ...