The Commissioner, State of New Jersey Department of Banking and Insurance (Commissioner) authorized recoupment of guaranty fund assessments by way of a policyholder surcharge (Recoupment Order). By Order No. A17-110, dated August 3, 2017, The Recoupment Order comes in response to a bulletin issued by the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA), May 12, 2017 Bulletin 2017-003.  In the bulletin, NJPLIGA, a private, non-profit, unincorporated legal entity comprised of member insurers writing certain covered lines of property-liability insurance in the State of New Jersey (see N.J.S.A. 17:30A-6) notifies its members of pending assessments.  Those insurers are assessed in proportion to the direct written premium they write in the state for the purpose of providing a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment and to minimize financial loss to claimants or policyholders because of the insolvency of an insurer.  See N.J.S.A. 17:30A-2a.  NJPLIGA and its member insurers play a critical role in an insurance insolvency where guaranty association protection is afforded.

NJPLIGA also administers and pays claims asserted against certain other statutorily-created entities, including the Unsatisfied Claim and Judgment Fund, created pursuant to separate statute.  N.J.S.A. 39:6-61 et seq. (UCJF), the New Jersey Full Automobile Insurance Guaranty Association, created pursuant to 17:30E-1 (JUA), the Market Transition Facility, created pursuant to N.J.S.A. 17:33B-11 (MTF), and the Workers’ Compensation Security Fund created pursuant to N.J.S.A. 34:15-105 (WCSF).  Finally, NJPLIGA manages and administers the New Jersey Surplus Lines Insurance Guaranty Fund, a separate guaranty fund created for the purpose of providing protection because of the insolvency of eligible surplus lines insurers in New Jersey.  See N.J.S.A. 17:30A-6 and 17:22-6.70 et seq.

Pursuant to its enabling statute, N.J.S.A. 17:30A-1 et seq. (the Guaranty Association Act), NJPLIGA is empowered to assess its member insurers in amounts necessary to pay the covered claims of insolvent insurers, the expenses of handling covered claims, the cost of examination and other authorized expenses.  Additionally, in view of the consolidation within NJPLIGA of several administrative functions related to payment of automobile insurance claims, including eliminating the UCJF and transferring its powers and duties to NJPLIGA, the Guaranty Association Act at N.J.S.A. 17:30A-8a(3) authorizes NJPLIGA to assess member insurers in amounts necessary to reimburse an insurer for medical expenses in excess of $75,000 per person per accident (EMB) (as provided for in N.J.S.A.39:6-73.1), for injuries covered under an automobile insurance policy issued prior to January 1, 2004.

The Commissioner’s Recoupment Order is mandated by N.J.S.A.17:30A-16a, which also requires the Commissioner to promulgate rules by which member insurers can recoup assessments paid to NJPLIGA pursuant to N.J.S.A. 17:30A-8a(3) by way of a surcharge on premium.  N.J.S.A. 17:30A-16c provides that member insurers shall recoup amounts assessed for reimbursement of EMB.  To comply with the statutory mandate, the Commissioner adopted administrative rules at N.J.A.C. 11:1-6 (September 3, 1991) which require that upon a determination that a surcharge on premium is necessary to permit member insurers to recoup assessments paid to NJPLIGA, the Commissioner shall by order permit member insurers to impose a surcharge on the net direct written premium for policies to which the Guaranty Association Act applies.  The Commissioner adopted amendments to those rules effective December 15, 2003, to reflect enactment of N.J.S.A. 17:30A-16c relating to recoupment of assessment on behalf of the UCJF.  This means that to the premium charged for certain property/liability insurance policies, insurers may add an additional fee referred to as a “policyholder surcharge.”

By notice issued August 1, 2017, each member insurer was assessed by NJPLIGA in an amount equal to 0.6% of the net direct written premiums on insurance policies issued by the member insurer to which the Guaranty Association Act provides.  The assessment payments are due on or before September 15, 2017.  The Recoupment Order permits member insurers to recoup the amount of the assessments so paid by imposing a surcharge on the net direct written premiums written by the member insurer on policies to which the Guaranty Association Act applies, also in the amount of 0.6%.

Given that the total net direct premium for all lines of insurance to which the Guaranty Association Act applies for the calendar year ended December 31, 2016 was approximately $15.9 billion, the surcharge should permit member insurers to recoup in the aggregate the assessment paid to the Association pursuant to N.J.S.A. 17:30A-8a(3) over a reasonable time and as is otherwise consistent with the time period for recoupment set forth at N.J.S.A. 17:30A-16c.

By Order No. A16-111, July 26, 2016, (the 2016 Order), the Commissioner permitted insurers to recoup the assessment due on or before September 15, 2016 by imposing a surcharge in the amount of 0.6% on policies to which the Guaranty Association Act applied that were issued or renewed on or after October 1, 2016.

The Commissioner had previously issued an order in 1994 (Order No. A94-224) (the 1994 Order) which established procedures to be utilized by member insurers with regard to the recoupment of all subsequent assessments, and confirmed that to the extent a member insurer has recouped or recoups an amount in excess of any prior assessment, that insurer shall utilized those excess monies as an “offset” to the recoupment of the assessments due September 15, 2017 and shall not impose any surcharge to recoup that assessment unless and until the offset is exhausted, assuming that member insurer has not fully recouped the amount of prior assessments.  Finally, the Recoupment Order determines that it is reasonable to permit member insurers to impose a surcharge on policies that are issued or renewed on or after October 1, 2017 and requires insurers imposing a surcharge pursuant to the Order to comply with the requirements as set forth at N.J.A.C. 11:1-6 and the 1994 Order with regard to the procedures established to recoup or utilize excess monies as an offset.

The Commissioner’s recent Recoupment Order outlines the prior administrative action employed to permit an equitably and orderly recoupment of NJPLIGA assessment obligations.  It also serves as a reminder that, despite diligent efforts by state insurance regulators to regulate towards solvency and protect policyholders, those policyholders will ultimately bear the brunt of an insurer insolvency.

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