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A New Jersey appellate court ruled that a policyholder was responsible for sums allocated to insolvent insurers and that such costs should not be reallocated to solvent primary and excess insurers.  Ward Sand and Materials Co. v. Transamerica Ins. Co., 2016 WL 237781 (N.J. Sup. Ct. App. Div. Jan. 12, 2016).

Ward, a municipal waste operator, was sued for environmental contamination.  Ward was insured under a series of primary and excess policies during the relevant time frame.  While litigation against Ward was pending, several insurers became insolvent.  The New Jersey Property Liability Insurance Guaranty Association (“PLIGA”) contributed to defense costs on behalf of the insolvent insurers.  Ward ultimately settled the underlying litigation and sought indemnification from PLIGA and its primary and excess insurers.  A New Jersey trial court ruled that costs must be allocated pro rata among insurers and that Ward was responsible for sums allocated to its insolvent insurers to the extent that such sums exceeded settlement payments made by PLIGA.  The appellate court affirmed.

The appellate court ruled that under well-established state law, Ward was responsible for the pro rata shares of its insolvent insurers to the extent that such sums were not paid by PLIGA.  See Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998); Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994); Sayre v. Ins. Co. of N. Am., 305 N.J. Super. 209 (1997).  Ward argued that a 2004 amendment to the PLIGA Act (N.J.S.A. 17:30A-5) required the solvent insurers to cover those costs.  The appellate court acknowledged that the amendment shifts responsibility for an insolvent carrier’s pro rata share to solvent insurers rather than the policyholder.  However, the court held that the amendment was inapplicable because it applied prospectively and here, the insurer insolvencies had occurred prior to the amendment’s December 2004 effective date.  The court rejected Ward’s assertion that the amendment should be applied retroactively on the basis that it is “ameliorative” or “corrective.”