Joint Insurance Fund’s Self-Insurance Found Not To Trigger Other Insurance Clause

The issue in the Supreme Court case, Statewide Insurance Fund v. Star Insurance Co., 2023 N.J. LEXIS 205 (2023), was whether the Statewide Insurance Fund (the “Fund”) or Star Insurance Company (“Star”), a commercial general liability insurance company, had the primary responsibility to pay the settlement of a negligence claim brought against Long Branch.  This lawsuit involved a tragic accident in which a boy died from injuries while at the beach with his family in the City of Long Branch.  After the case settled, an insurance coverage dispute arose between the Fund and Star to determine which entity was responsible to pay the balance of the settlement after Long Branch paid its $1 million dollar self-retention under the Star policy. The issue was which policy was primary and which one was excess based upon their respective “other insurance” clauses.

The boy had been visiting the beach with his family in the City of Long Branch and dug a tunnel in the sand near a lifeguard stand.  Unfortunately, the sand collapsed on the boy and he died the next day from his injuries.

The boy’s parents filed a negligence action, suing Long Branch, Long Branch Beach Patrol, and seasonal beach police officers who were responsible for patrolling the area.  The underlying negligence action was settled but the payment of the balance of this settlement awaited the conclusion of this appeal.

The Supreme Court noted that Long Branch had joined the plaintiff Statewide Insurance Fund, which is a public entity JIF created under the Joint Insurance Fund Act. Through the JIF, Long Branch was entitled to receive $10 million dollars in liability coverage per each occurrence.  However, the Fund’s contracting document contained a clause which limited recovery from the Fund to liability in excess over other “insurance or self-insurance” coverage.  Thus, based upon this provision, Long Branch could recover from the Fund only after it exhausted any other insurance or self-insurance coverage to which it was entitled.

Long Branch had also purchased a commercial insurance policy from the defendant Star.  Under that policy, Long Branch had $10 million dollars in liability insurance coverage with a $1 million dollar self-insured retention (“SIR”).  Star’s policy had a provision making its coverage excess over “other insurance.”

Payment of the SIR was not an issue on this appeal.  That amount was paid to the plaintiffs.  The question in this case was whether the Fund or Star had the primary responsibility to pay the remaining settlement amount. 

At the trial court level, both Star and the Fund filed for a summary judgment.  The trial court granted the Fund’s motion and denied Star’s motion.  The trial court judge concluded that Long Branch’s membership in the Fund did not trigger Star’s “other insurance” clause.  Further, the judge determined that the Fund did not provide insurance coverage to its members.  Rather, Long Branch self-insured by joining the Fund.  Thus, the plaintiffs in the underlying negligence lawsuit could look to Star’s primary policy limits, above the SIR, for the balance of their settlement with Long Branch.

This matter went up on appeal to the Appellate Division.  The Appellate Division agreed with the trial court judge that the Fund was not an insurance company and that the Fund did not qualify as an insurer under New Jersey law.  The Appellate Division determined that Fund membership protected Long Branch against liability claims through “self-insurance” and it upheld the Fund’s summary judgment order.

The Supreme Court accepted this appeal upon petition for certification.  Star’s main argument was that, regardless of the statutory framework, the Fund issued what Star characterized as an insurance policy to Long Branch and is bound by its terms.  Under that purported policy, Star claimed that the Fund provided “insurance,” not “self-insurance.”  Thus, Star argued that its own “other insurance” clause is therefore triggered, making Star’s coverage excess to the “insurance” provided by the Fund. 

The Fund rebutted this argument based upon two reasons.  First, it asserted that the Legislature “explicitly exempted JIFs from insurance statutes and regulations, conclusively precluded JIFs from acting as insurers, and unambiguously declared that authorized JIF activities do not constitute the transaction of insurance or doing insurance business.”  Secondly, the Fund argued that because claims against Long Branch are satisfied from member assessments, rather than from an authorized insurance policy, Long Branch “self-insured – and retained risk by joining the Fund.”  Because its members protected against liability through self-insurance, rather than insurance, the Fund argued that Star’s “other insurance” clause would not be triggered and, therefore, Star should cover the damages that exceeded the SIR up to Star’s policy limit.  The Fund contended that it would only provide excess coverage after Star’s policy limit was exhausted.

The New Jersey Supreme Court reviewed the JIF enabling statute and found that the Fund was not an insurance company.  Rather, its authorized activities do not constitute either the transaction of insurance or doing the business of insurance.  More importantly, the Fund was not subject to the extensive insurance laws contained in New Jersey statutes.  Hence, the New Jersey Supreme Court ruled that JIFs cannot insure members.  Instead, “JIFs enable members to self-insure, spread risks, and reduce insurance costs.”

Thus, the Court rejected Star’s argument that general references to “insurance” in the Joint Insurance Fund Act “should be interpreted to mean that JIFs are providing insurance to their members.”  Further, the Supreme Court found that the word “insurance” in the Fund’s contracting documents do not override the Legislature’s clear mandate that JIFs are not insurance companies.  The Supreme Court found that “[a]s a matter of law, Long Branch’s liability protection as a Fund member is through ‘self-insurance,’ not insurance.”

The Supreme Court found that because self-insurance is not the same as insurance under the law and because membership in the Fund protected against liability claims rather than by insurance, the Supreme Court agreed with the trial court and Appellate Division that Star’s “other insurance” clause was not triggered.  Unlike the Fund’s contracting document, which specified that the Fund’s obligation were excess over “insurance or self-insurance,” the Court noted that Star’s clause states only that insurance coverage available under the Star policy is “excess over . . . any of the other insurance.”  The Supreme Court held that because Star’s clause did not encompass the self-insurance available to members through the Fund, Star’s insurance policy was primary in covering the underlying plaintiff settlement of the negligence action against Long Branch. 

Hence, the Supreme Court affirmed the Appellate Division decision.

Tags: insurance, liability