New Jersey-2010-A1984-Introduced

An Act concerning the liability of policyholders of certain insolvent insurers and amending P.L.1974, c.17.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 2 of P.L.1974, c.17 (C.17:30A-2) is amended to read as follows:

2. a. The purpose of this act is to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment, to minimize financial loss to claimants or policyholders because of the insolvency of an insurer, to protect policyholders from personal liability for damages within the coverage limits of policies issued by insolvent insurers, to assist in the detection and prevention of insurer insolvencies, to provide an association to assess the cost of such protection among insurers, and to provide a mechanism to run off, manage, administer and pay claims asserted against the Unsatisfied Claim and Judgment Fund, created pursuant to P.L.1952, c.174 (C.39:6-61 et seq.), the New Jersey Automobile Full Insurance Underwriting Association, created pursuant to P.L.1983, c.65 (C.17:30E-1 et seq.), and the Market Transition Facility, created pursuant to section 88 of P.L.1990, c.8 (C.17:33B-11).

b. This act shall apply to all kinds of direct insurance, except life insurance, accident and health insurance, workers' compensation insurance, title insurance, annuities, surety bonds, credit insurance, mortgage guaranty insurance, municipal bond coverage, fidelity insurance, investment return assurance, ocean marine insurance and pet health insurance.

(cf: P.L.2004, c.175, s.1)

2. Section 11 of P.L.1974, c.17 (C.17:30A-11) is amended to read as follows:

11. a. Any person recovering under this act shall be deemed to have assigned his rights under the policy to the association to the extent of his recovery from the association. Every insured or claimant seeking the protection of this act shall cooperate with the association to the same extent as such person would have been required to cooperate with the insolvent insurer. Any insured of an insolvent insurer shall not be liable for damages which are within the coverage, and not in excess of the applicable limits of an insurance policy to which P.L.1974, c.17 (C.17:30A-1 et seq.) applies, issued by the insolvent insurer. The association shall have no cause of action against the insured of the insolvent insurer for any sums it has paid out except such causes of action as the
insolvent insurer would have had if such sums had been paid by the insolvent insurer. In the case of an insolvent insurer operating on a plan with an assessment liability, payments of claims of the association shall not operate to reduce the liability of insureds to the receiver, liquidator, or statutory successor for unpaid assessments;

b. The receiver, liquidator, or statutory successor of an insolvent insurer shall be bound by settlements of covered claims by the association or its representatives. The court having jurisdiction shall grant such claims priority equal to that which the claimant would have been entitled in the absence of this act against the assets of the insolvent insurer. The expenses of the association or similar organization in handling claims shall be accorded the same priority as the liquidator's expenses;

c. The association shall periodically file with the receiver or liquidator of the insolvent insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association which shall preserve the rights of the association against the assets of the insolvent insurer;

d. The liquidator, receiver, or statutory successor of an insolvent insurer covered by this act shall permit access by the board or its representative to all of the insolvent insurer's records which would assist the board in carrying out its functions under this act with regard to covered claims. In addition, the liquidator, receiver, or statutory successor shall provide the board or its representative with copies or permit it to make copies of such records upon the request of the board and at the expense of the board;

e. The association shall have the right to recover from the following persons the amount of any covered claim paid to or on behalf of that person pursuant to P.L.1974, c.17 (C.17:30A-1 et seq.):

(1) An insured whose net worth on December 31 of the year immediately preceding the date the insurer becomes an insolvent insurer exceeds $25 million and whose liability obligations to other persons are satisfied in whole or in part by payments made under P.L.1974, c.17 (C.17:30A-1 et seq.); and

(2) Any person who is an affiliate of the insolvent insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under P.L.1974, c.17 (C.17:30A-1 et seq.).

(cf: P.L.2004, c.175, s.6)

3. This act shall take effect immediately and shall apply to covered claims resulting from insolvencies occurring on or after that date.

STATEMENT

This bill immunizes policyholders from liability for damages within the coverage limits of policies issued by insolvent insurers when the policy coverage exceeds the New Jersey Property-Liability Insurance Guaranty Association ("PLIGA") statutory limit of $300,000.

Currently, PLIGA, created by the Legislature to provide payments of claims under certain insurance policies when an insurer becomes insolvent, pays the obligations of the insolvent insurer up to a maximum of $300,000, leaving the insured liable to a claimant for any damages in excess of this amount, regardless of the insured's purchased policy limit. See Johnson v. Braddy, 186 N.J. 40 (2006). To protect policyholders with insurance policy limits in excess of $300,000, and in recognition that the loss of coverage occurs through no fault of the insured, the bill expressly provides immunity from liability for damages within the coverage limits of the insured's policy, notwithstanding the insurer's insolvency.

For example, under the bill, a policyholder with a $500,000 policy limit and a claim against him for $600,000, whose insurer becomes insolvent, would only be personally liable to the claimant for $100,000 in damages, representing the amount which exceeds the policy limit. This personal liability exposure for the policyholder is the same as if the insurer was not insolvent and could pay its $500,000 obligation under the policy. Under current law, PLIGA would pay the obligations of the insolvent insurer up to $300,000, as per the statutory limit, and thereafter the policyholder would be personally liable to the claimant for the additional $300,000 in damages, even though the loss of policy coverage occurred through no fault of the insured.

While PLIGA is intended to provide payments of claims arising from many kinds of direct insurance coverage, the sponsor also notes the importance of this bill as it relates to physicians and other healthcare providers, and the on-going legislative efforts to remove deterrents associated with the practice of medicine in this State. When healthcare providers purchase medical malpractice insurance with ample coverage limits, it is reasonable for them to expect that New Jersey's insurance laws would preclude personal assets from judgements arising from covered claims. However, as set forth in the Appellate Division decision in Johnson, 376 N.J. Super. 215 (App. Div. 2005), if a medical malpractice insurer becomes insolvent, healthcare providers may be personally liable for judgements in excess of $300,000; a strong concern given the high value of many malpractice judgements. This potential for personal liability warrants legislative action to better protect healthcare providers and remove this deterrent from the practice of medicine in New Jersey.