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New Jersey 210th Legislature

2002 NJ S 1717

Enacted

07/01/2002

Bryant

                 P.L.2002, CHAPTER 30, approved July 1, 2002



                               Senate, No. 1717

                                    SYNOPSIS



    Transfers moneys in excess of $40,000,000 from Surplus Lines Insurance

Guaranty Fund to General Fund; limits future purpose of fund; authorizes fund

to make loans to Property-Liability Insurance Guaranty Association.



An Act concerning surplus lines insurance and amending and supplementing

P.L.1984, c.101.

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

Jersey:



    1. (New section) The Legislature finds and declares:



    a. The "New Jersey Surplus Lines Insurance Guaranty Fund Act," P.L. 1984,

c.101 (C.17:22-6.70 et seq.), enacted 18 years ago in the face of an imminent

threat of declaration of insolvency of Ambassador Insurance Company of

Vermont, has provided valuable benefits by covering claims of certain

claimants against insolvent property and casualty insurers selling insurance

in New Jersey as surplus lines.



    b. That act was amended 15 years ago to include, as covered claims, those

claims arising from the declared insolvency of Northeastern Fire Insurance

Company of Pennsylvania.



    c. Claims covered by the New Jersey Surplus Lines Insurance Guaranty Fund

included claims by New Jersey residents or claims arising from property

permanently located in New Jersey, in an amount up to the lesser of the policy

limit or $300,000, subject to policy deductibles, thereby redistributing some

of the economic burden of surplus lines insurer failures.



    d. The New Jersey Surplus Lines Insurance Guaranty Fund currently contains

a balance of approximately $80,000,000 and $40,000,000 is sufficient to

satisfy existing covered claims.



    e. The Legislature believes that, beyond the payment of existing covered

claims, it is good public policy to maintain surplus lines insurance guaranty

benefits for certain lines of insurance in the future.



    2. Section 1 of P.L. 1984, c. 101 (C. 17:22-6.71) is amended to read as

follows:



    1. The purpose of this act is to provide a mechanism for the payment of

covered claims under certain insurance policies issued by eligible surplus

lines insurers; to avoid excessive delays in the payment of the covered claims

against insolvent, eligible, nonadmitted insurers; and to avoid financial loss

to claimants or policyholders because of the insolvency of an eligible,

nonadmitted insurer.



    This act On and after July 27, 1984 and before June 25, 2002,

P.L. 1984, c. 101 (C. 17:22-6.70 et seq.) shall apply to all property and

casualty lines of direct insurance authorized under R.S.17:17-1, except

workers' compensation insurance, title insurance, surety bonds, credit

insurance, mortgage guaranty insurance, municipal bond coverage, fidelity

insurance, investment return assurance, and ocean marine insurance. This act

shall also not apply to reinsurance of any kind.



    On or after June 25, 2002, P.L. 1984, c. 101 (C. 17:22-6.70 et seq.)

shall apply only to medical malpractice liability insurance as defined in

subsection d. of section 3 of P.L. 1975, c. 301 (C. 17:30D-3) and property

insurance covering owner occupied dwellings of less than four dwelling units.

On or after June 25, 2002, P.L. 1984, c. 101 (C. 17:22-6.70 et seq.) shall not

apply to reinsurance of any kind.



(cf: P.L.1984, c.207, s. 1.)



    3. Section 3 of P.L. 1984, c. 101 (C.17:22-6.72) is amended to read as

follows:



    3. a. "Association" means the New Jersey Property-Liability Insurance

Guaranty Association created pursuant to P.L.1974, c.17 (C.17:30A-1 et seq.).



    b. "Covered claim" means an unpaid claim, including a claim for unearned

premiums, which arises out of and is within the coverage, and not in excess of

the applicable limits of an insurance policy to which this act applies, and

which was issued by a surplus lines insurer which was eligible to transact

insurance business in this State at the time the policy was issued and which

has been determined to be an insolvent insurer on or after June 1, 1984, 

but prior to June 25, 2002, if (1) the claimant or policyholder is a

resident of this State at the time of the occurrence of the insured event for

which a claim has been made, or (2) the property from which the claim arises

is permanently located in this State. A "covered claim" which arises

because of an insolvency occurring on or after June 25, 2002 shall be limited

to an unpaid claim, including a claim for unearned premiums, which arises out

of either medical malpractice liability insurance coverage or property

insurance covering owner occupied dwellings of less than four dwelling units

within the coverage, and not in excess of the applicable limits, of an

insurance policy to which P.L. 1984, c. 101 (C. 17:22-6.70 et seq.) applies,

and which was issued by a surplus lines insurer which was eligible to transact

insurance business in this State at the time the policy was issued and which

has been determined to be an insolvent insurer on or after June 25, 2002, if

(1) the claimant or policyholder is a resident of this State at the time of

the occurrence of the insured event for which a claim has been made, or (2)

the property from which the claim arises is permanently located in this State.





    "Covered claim" shall not include any amount due any reinsurer, insurance

pool or underwriting association, as subrogation recoveries or otherwise,

except that a claim for any such amount, asserted against a person insured

under a policy issued by a surplus lines insurer which has become an insolvent

insurer, which, if it were not a claim by or for the benefit of a reinsurer,

insurer, insurance pool, or underwriting association, would be a "covered

claim," may be filed directly with the receiver of the insolvent insurer, but

in no event may any such claim be asserted in any legal action against the

insured of that insolvent insurer. "Covered claim" shall also not include

amounts for interest on unliquidated claims, punitive damages unless covered

by the policy, counsel fees for prosecuting suits for claims against the fund,

and assessments or charges for failure by an insolvent insurer to have

expeditiously settled claims.



    A "covered claim" shall not include a claim filed with the fund after the

final date set by the court for the filing of claims against the liquidator or

receiver of an insolvent insurer unless the claimant demonstrates unusual

hardship and the commissioner approves of treatment of the claim as a "covered

claim." "Unusual hardship" shall be defined in regulations promulgated by the

commissioner. With respect to insurer insolvencies pending as of the effective

date of this 1996 amendatory act, a "covered claim" shall not include a claim

filed with the fund: (1) more than one year after the effective date of this

1996 amendatory act or (2) the date set by the court for the filing of claims

against the liquidator or receiver of the insolvent insurer, whichever date

occurs later.



    c. "Fund" means the New Jersey Surplus Lines Insurance Guaranty Fund

created pursuant to section 4 of this act.



    d. "Insolvent insurer" means an insurer which was an eligible surplus

lines insurer at the time the insurance policy was issued or when the insured

event occurred, and which is determined to be insolvent by a court of

competent jurisdiction in this State or the state or place in which the

surplus lines insurer is domiciled. "Insolvent insurer" does not include an

admitted insurer issuing insurance pursuant to section 10 of P.L.1960, c.32

(C.17:22-6.44).



    e. "Member insurer" means an eligible, nonadmitted or surplus lines

insurer required to be a member of, and that is subject to, assessments by the

fund.



    f. "Net direct written premiums" means direct gross premiums on insurance

policies written by a surplus lines insurer to which this act applies, less

return premiums thereon and dividends paid or credited to policyholders on

that direct business. If a policy issued by a surplus lines insurer covers

risks or exposures only partially in this State, the "net direct written

premiums" shall be computed, for assessment purposes, on that portion of the

premium subject to the premium receipts tax levied in accordance with section

25 of P.L.1960, c.32 (C.17:22-6.59). "Net direct written premiums" do not

include premiums on contracts between insurers or reinsurers.



    g. "Surplus lines insurer" means a nonadmitted insurer approved as an

eligible, nonadmitted or unauthorized insurer pursuant to section 11 of

P.L.1960, c.32 (C.17:22-6.45) at the time the policies were issued against

which a covered claim may be filed in accordance with this act.



(cf: P.L.1996, c.156, s.3.)



    4. Section 4 of P.L. 1984, c. 101 (C.17:22-6.73) is amended to read as

follows:



    4. There is created a private, nonprofit, unincorporated, legal entity to

be known as the New Jersey Surplus Lines Insurance Guaranty Fund. All

surplus lines insurers shall be and remain member insurers of the fund as a

condition of their continued eligibility pursuant to section 11 of P.L.1960,

c.32 (C.17:22-6.45). The fund shall be managed and administered by the New

Jersey Property-Liability Insurance Guaranty Association. The association

shall exercise all of the powers vested in the fund under this act, and such

other powers as may be necessary or appropriate to the fulfilling of its

responsibilities under this act. The association shall administer the affairs

of the fund in accordance with the "New Jersey Property-Liability Guaranty

Association Act," P.L.1974, c.17 (C.17:30A-1 et seq.) and its plan of

operation adopted pursuant to section 9 (C.17:30A-9), insofar as the

provisions of that act and that plan are not thereof inconsistent with the

provisions of this act, and subject to any amendments to the plan as may be

necessary or appropriate to effectuate the purposes of this act. After the

excess moneys in the fund are transferred to the General Fund pursuant to

section 5 of P.L.1984, c.101 (C.17:22-6.74), the association shall be

responsible for the run-off and wind-up of all covered claims existing before

June 25, 2002. On or after June 25, 2002, the operations and obligations of

the fund pursuant to P.L. 1984, c. 101 (C. 17:22-6.70 et seq.), with respect

to eligible surplus lines insurers determined to be insolvent after that date,

other than eligible surplus lines insurers issuing policies for medical

malpractice liability insurance or property insurance covering owner occupied

dwellings of less than four dwelling units, shall be terminated. On or after

June 25, 2002, the fund shall only provide coverage for eligible surplus lines

insurers issuing medical malpractice liability insurance or property insurance

covering owner occupied dwellings of less than four dwelling units determined

to be insolvent after that date.



    In order to assist the association in implementing the provisions of this

act, there is created an advisory body to the board of directors of the

association to be comprised of two members representing eligible surplus lines

insurers and two members representing surplus lines agents, to be appointed by

and to serve at the pleasure of the commissioner. The association shall

consult the advisory body on any matter relating to the provisions of

P.L.1984, c.101 (C.17:22-6.70 et seq.).



(cf: P. L.1984, c.207, s.3.)



    5. Section 5 of P.L. 1984, c. 101 (C.17:22-6.74) is amended to read as

follows:



    5. a. The fund shall:



    (1) Be obligated to the extent of the covered claims against an insolvent

insurer incurred prior to or 30 days after the determination of insolvency, or

before the policy expiration date, if less than 30 days after that

determination, or before the policyholder replaces the policy or causes its

cancellation, if he does so within 30 days of the determination. The fund's

obligation for covered claims shall not be greater than $300,000.00 per

occurrence, subject to any applicable deductible contained in the policy. The

commissioner may adjust the fund's obligations for covered claims based on the

monies available in the fund. In no event shall the fund be obligated to a

policyholder or claimant in excess of the limits of liability of the insolvent

insurer stated in the policy from which the claim arises;



    (2) Be deemed the insurer to the extent of its obligation on the covered

claims and to such extent shall have all rights, duties, and obligations of

the insolvent insurer as if the insurer had not become insolvent;



    (3) Assess member insurers in accordance with section 6 of this act in

amounts necessary to pay:



    (a) Obligations of the fund under paragraph (1) of this subsection,



    (b) Expenses of handling covered claims,



    (c) Any other expenses incurred in the implementation of the provisions of

this act;



    (4) Investigate claims brought against the fund; and adjust, compromise,

settle, and pay covered claims to the extent of the fund's obligation; and

deny all other claims; and may review settlements, releases and judgments to

which the insolvent insurer or its policyholders were parties to determine the

extent to which the settlements, releases and judgments may be properly

contested;



    (5) Notify those persons as the commissioner directs under section 8 of

this act;



    (6) Handle claims through the association's employees or representatives,

or through one or more insurers or other persons designated as servicing

facilities; and



    (7) Pay the other expenses of the association in administering the

provisions of this act ; and



    (8) Within 60 days of enactment of P.L. ,c. (C. )(now before the

Legislature as this bill), transfer to the General Fund any and all moneys in

excess of $40,000,000 in the fund as of June 24, 2002 .



    b. The fund may:



    (1) Sue or be sued;



    (2) Negotiate and become a party to those contracts which are necessary to

carry out the purpose of this act;



    (3) Perform those other acts which are necessary or appropriate to

effectuate the purpose of this act;



    (4) Refund to the member insurers in proportion to the contribution of

each member insurer that amount which the commissioner determines to be in

excess of the needs of the fund; and (Deleted by amendment, P.L. , c.

.)



    (5) With the approval of the commissioner, borrow monies from any source,

including but not limited to the New Jersey Property-Liability Insurance

Guaranty Association, in accordance with subsection b. of section 6 of

P.L.1984, c.101 (C.17:22-6.75), as may be necessary to effectuate the purposes

of that act, except that the use of the proceeds of any loans shall be limited

to the payment of covered claims, including claim adjustment expenses ;

and



    (6) Make loans to the New Jersey Property-Liability Insurance Guaranty

Association in accordance with the provisions of the "New Jersey

Property-Liability Insurance Guaranty Association Act," P.L. 1974, c. 17

(C.17:30A-1 et seq.) .



(cf: P.L.1984, c.207, s. 4.)



    6. This act shall take effect immediately and be retroactive to June 24,

2002.