(Article from Insurance Law Alert, March 2023)
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Holding
The New Jersey Supreme Court ruled that a joint insurance fund affords protection through “self-insurance,” not insurance, and therefore that a general liability insurer’s “other insurance” clause was not implicated. Statewide Ins. Fund v. Star Ins. Co., 2023 N.J. LEXIS 205 (N.J. Feb. 16, 2023).
Background
A city was sued in a negligence action following the death of a young boy. After the suit settled, a dispute arose as to which party was responsible for indemnification of the settlement. Statewide Insurance Fund, a public entity joint insurance fund, provided $10 million per-occurrence coverage to the city, excess over any other insurance or self-insurance. The city also had coverage from Star Insurance under a general liability policy that was excess to both a self-insured retention and to “other insurance.” The Fund and Star each argued that the other had the primary responsibility to indemnify the settlement. A trial court granted the Fund’s motion, ruling that the Fund did not provide insurance so as to trigger the “other insurance” clause in Star’s policy, and therefore that Star was primarily responsible for the settlement. An appellate court affirmed, as did the New Jersey Supreme Court.
Decision
The New Jersey Supreme Court ruled that the city’s participation in the Fund constituted self-insurance, rather than insurance, for purposes of Star’s “other insurance” clause. The court emphasized that the statute governing the establishment of joint insurance funds, N.J.S.A. 40A:10-48, provides that a fund is “not an insurance company or an insurer under the laws of this State” and is therefore not subject to the extensive regulation of insurance under state law. Further, the court noted that the “risk pooling” nature of joint insurance funds differs fundamentally from traditional insurance, which contemplates a transfer of risk in consideration for premium payments.
Having determined that the Fund was not “insurance” within the meaning of Star’s “other insurance” clause, the court ruled that Star’s general liability policy was primary in covering the city’s underlying settlement.
Comments
The New Jersey Supreme Court’s decision comports with the majority of decisions holding that participation in a joint insurance fund is akin to self-insurance, rather than traditional insurance, for purposes of an “other insurance” clause in a general liability policy. Importantly, the court deemed it irrelevant that the word “insurance” was used in both the Fund’s contracting document and New Jersey’s Joint Fund Act. The court emphasized that use of that term does not “override the Legislature’s clear mandate that [joint insurance funds] are not insurance companies, that they cannot insure members, and that their authorized activities do not constitute ‘the transaction of insurance nor doing an insurance business.’”