December 11, 2008
IN THE MATTER OF THE APPEAL BY AMERICAN MILLENNIUM INSURANCE COMPANY REGARDING ITS 2002, 2003 AND 2004 UCJF ASSESSMENTS.
IN THE MATTER OF THE APPEAL BY AMERICAN MILLENNIUM INSURANCE COMPANY REGARDING ITS 2005 AND 2006 UCJF ASSESSMENTS.
On appeal from the New Jersey Department of Banking and Insurance.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued September 24, 2008
Before Judges Rodríguez, Kestin and Newman.
Plaintiff American Millennium Insurance Company (AMIC) appeals from two determinations by the Commissioner of the New Jersey Department of Banking and Insurance (Commissioner), upholding the assessment by the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA) in the amount of $428,151.11 as contributions to the Unsatisfied Claim and Judgment Fund (UCJF) for the years 2002, 2003, 2004, 2005 and 2006. The first decision, concerning the 2002, 2003 and 2004 assessments, was rendered on June 19, 2006. The second decision was rendered on January 17, 2007 and concerns the 2005 and 2006 assessments.*fn1
AMIC objected to the assessments levied against it for the years 2002, 2003 and 2004. NJPLIGA rejected the objection. AMIC challenged the decision to the Commissioner. The Commissioner issued an order denying AMIC's request for an evidentiary hearing, denying AMIC's appeal, and affirming NJPLIGA's decision. This constituted a final agency decision. AMIC appealed to us (A-6052-05T5).
After filing this first appeal, AMIC challenged the UCJF assessments for 2005 and 2006. NJPLIGA rejected the challenge.
The Commissioner denied AMIC's challenge to NJPLIGA's decision. AMIC transferred $428,151.11 into NJPLIGA's operating account to cover its UCJF assessments from 2002 through 2006, and appealed the 2005 and 2006 assessment decisions to us (A-3428-06T5).
On appeal, AMIC contends that its UCJF assessments should not have been calculated on the basis of the net direct written premium formula because: (a) "NJPLIGA failed to recognize that N.J.S.A. 39:6-63(d) no longer required UCJF assessments to be based on a proportion of net direct written premiums;" (b) the Commissioner failed to give effect to the legislative deletion of the net direct written premium language; and (c) NJPLIGA's "methodology was impermissibly unfair, unreasonable and inequitable." In a supplemental brief, AMIC contends that NJPLIGA acted unreasonably by relying exclusively upon the net direct written premium formula. We disagree.
The crux of these appeals concerns the impact of the June 9, 2003 amendments to N.J.S.A. 39:6-63, which deleted the following language, requiring UCJF assessments be calculated according to the "net direct written premium" formula: Creation and Maintenance of [UCJF]
For the purpose of creating and maintaining the fund:
Such probable amount which will be needed to carry out the provisions of this act shall be assessed against insurers for each year's contributions to the fund. Such probable amount needed shall be initially apportioned on an estimated basis among such insurers in the proportion that the net direct written premiums of each bear to the aggregate net direct written premiums of all insurers . . . Such estimated sum shall be subject to adjustment . . . based upon the proportion that the net direct written premiums of each insurer bear to the aggregate net direct written premiums of all insurers . . . during the year the estimated assessment was paid . . . .
The amended statute does not specify any formula for calculating UCJF assessments. As amended, it now provides:
The probable amount needed to carry out the provisions of this section shall be assessed against insurers for that year's contribution to the fund. [N.J.S.A. 39:6-63(d).]
AMIC contends that after the amendment, NJPLIGA was under no obligation to utilize the net direct written premium formula in its calculations. The Commissioner and NJPLIGA disagree. We concur with the Commissioner's decision.
AMIC does not dispute that it is an insurer for the purposes of the UCJF assessments. Although the new version of the statute does not contain language requiring the use of net direct written premiums as the basis for a calculation of the UCJF assessment, we note that the amendment does not expressly forbid use of the net direct written premium as the basis for the calculation. It is well-established that, "[w]here there is room for two opinions, action is not arbitrary or capricious when exercised honestly and upon due consideration, even though it may be believed that an erroneous conclusion has been reached." Bayshore Sewerage Co. v. DEP, 122 N.J. Super. 184, 199 (Ch. Div. 1973), aff'd, 131 N.J. Super. 37 (App. Div. 1974). Therefore, the fact that NJPLIGA continued to utilize the net direct written premium method of calculation does not make its actions arbitrary, capricious or unreasonable, even if another calculation method is also appropriate.
In its supplemental brief, AMIC also contends that "the Commissioner misconstrued AMIC's argument about the impact of risk retention groups and analyzed the issue on the basis of an erroneous premise." Specifically, AMIC argues that the Commissioner misconstrued its argument that its continual loss of business to risk retention groups should be taken into account for the purposes of calculating its 2005 and 2006 UCJF assessments. We disagree.
The Commissioner may have used the term UCJF assessment generally in his opinion as opposed to specifically citing the exact portion of each assessment that AMIC opposed. However, from our study of the Commissioner's opinion, it does not appear that he misconstrued AMIC's argument in the slightest. AMIC's arguments are disposed of by our holding in American Reliance, where we rejected equal protection and substantive due process challenges to insurance legislation. In re American Reliance Ins. Co., 251 N.J. Super. 541, 551-554 (App. Div. 1991), certif. denied, 127 N.J. 56 (1992). Appellants argued that the assessment system utilized under the legislation disproportionately affected in-state insurers in comparison to out-of-state insurers. Concluding that the appropriate standard of review was a rational basis test, we held the challenged statute constitutionally valid. Ibid. We also held that the fact that some members of a burdened class do not directly benefit from a classification system insufficient grounds to render the system arbitrary or capricious. Ibid. AMIC's contention that the net direct written premium formula disproportionately affects commercial as opposed to private passenger automobile insurers must similarly fail.
Because we held the statute in American Reliance constitutionally sound, we similarly rejected as irrelevant the contention that the challenged insurance assessment system adversely impacted in-state insurers' ability to compete against out-of-state insurers. "Levying assessments based on the amount of premiums earned in New Jersey is a reasonable means of deriving revenues to pay the JUA debt." Id. at 554-555.
Competitive disparities between NJPLIGA members and non-members were irrelevant to the question of whether all NJPLIGA members bore a similar burden and received a similar benefit under the assessment system.
Here, the situation is no different. AMIC contends that it is having difficulty competing with risk-retention groups because of its inability to charge lower premiums due to NJPLIGA assessments such as these. A risk retention group is "simply a group of businesses or others who join together to set up their own insurance company only to issue insurance policies to themselves." Aftab v. N.J. Prop.-Liab. Ins. Guar. Ass'n, 386 N.J. Super. 41, 50 (App. Div.), certif. denied, 188 N.J. 357 (2006). Risk retention groups are statutorily prohibited from participating in NJPLIGA, meaning they receive neither the benefits of NJPLIGA membership such as indemnification and defense, nor do they bear the burden of UCJF assessments: "No risk retention group, whether domiciled in this State or otherwise, shall be eligible to become a member of, contribute to, or derive any benefit from, [NJPLIGA]. . . ." N.J.S.A. 17:47A-9.
AMIC's arguments regarding licensure requirements as modified by case law interpreting the Federal Liability Risk Retention Act, 15 U.S.C.A. § 3901 to § 3906, are largely undermined by this statutory preclusion.
Because risk retention groups do not participate in either the benefits or burdens of NJPLIGA membership, and because we have previously held that competitive disparities with such non-members is irrelevant to a challenge to an assessment system, we reject as likewise irrelevant AMIC's arguments regarding its inability to compete with risk retention groups.