In Statewide Insurance Fund v. Star Insurance Company (A-62-21/086440) (Decided February 16, 2023), the Supreme Court of New Jersey held that a public entity joint insurance fund (JIF) established under the Joint Insurance Fund Act affords liability protection to public entities through “self-insurance,” not insurance. Accordingly, the “other insurance” clause of the city of Long Branch’s policy with Star Insurance Company (Star) was not triggered because “self-insurance” protection through JIF membership is not “other insurance.”
Facts of Statewide Insurance Fund v. Star Insurance Company
The insurance dispute arose from a tragic accident on a Long Branch beach that claimed the life of a 12-year-old boy. The boy’s parents filed a negligence action against Long Branch, Long Branch Beach Patrol, and seasonal beach police officers who were responsible for patrolling the area. Following settlement of the underlying negligence action, a coverage issue arose as to the primacy of coverage between Star and the JIF.
At the time of the accident, Long Branch took various measures to protect itself from liability. Long Branch joined the Statewide Insurance Fund and purchased a commercial general liability policy from Star. As a member of the Fund, Long Branch was entitled to receive $10 million in liability coverage per occurrence. The Fund’s contracting document contains a clause limiting recovery from the Fund to liability in excess over other “insurance or self-insurance” coverage.
Under the Star policy, Long Branch had $10 million in liability insurance coverage, excess to a $1 million self-insured retention (SIR). The parties agreed that Star’s insurance coverage is excess only over “other insurance.” However, they disputed who had the primary responsibility to pay the remaining settlement amount. The trial judge concluded that membership in the Fund did not trigger Star’s “other insurance” clause and that Star had the primary responsibility, and the Appellate Division affirmed.
NJ Supreme Court Decision in Statewide Insurance Fund v. Star Insurance Company
The New Jersey Supreme Court unanimously affirmed, holding that that Star’s “other insurance” clause was not triggered because “self- insurance” protection through JIF membership is not “other insurance.” Accordingly, it further found that Star’s coverage was primary.
The New Jersey Supreme Court first addressed the nature of a JIF and the liability protection it provides. In its analysis, the court noted that the JIF Act expressly distinguishes JIFs from insurance companies and exempts them from regulatory provisions in Code sections devoted to insurance. It also found that the general differences in risk allocation between JIFs and commercial general liability carriers reinforced the conclusion that JIF members are self-insured. As Justice Douglas M. Fasciale explained in the court’s opinion:
We hold that a JIF established under N.J.S.A. 40A:10-36 affords liability protection to public entities through “self-insurance.” Under the plain language of N.J.S.A. 40A:10-48, a JIF “is not an insurance company or an insurer under the laws of this State” and its “authorized activities . . . do not constitute the transaction of insurance nor doing an insurance business.” By the statute’s plain terms, JIFs cannot provide insurance in exchange for premiums, as insurance companies typically do; instead, JIF members reduce insurance costs by pooling financial resources, distributing and retaining risk, and paying claims through member assessments. Therefore, JIFs protect members against liability through “self-insurance.” “Self-insurance” is not insurance.
Because it found that the JIF’s coverage was not “insurance,” the New Jersey Supreme Court further concluded that Star’s coverage was primary. “Because ‘self-insurance’ is not the same as ‘insurance’ under the law, and because membership in the Fund protects against liability claims through self-insurance rather than by insurance through an authorized carrier, Star’s ‘other insurance’ clause is not triggered,” the court explained.