NJ Supreme Court to Decide Whether Joint Insurance Fund Qualifies as “Insurer”

NJ Supreme Court to Decide Whether Joint Insurance Fund Qualifies as “Insurer”

In Statewide Insurance Fund v. Star Insurance Co., the Supreme Court of New Jersey will decide under what context a joint insurance fund is considered an “insurer” under New Jersey law. The case involves insurance coverage dispute arising from a deadly accident on a Long Branch beach in 2012 which claimed the life of a 12-year-old boy who suffocated after digging a hole in the sand with his family.

Facts of the Case

Ezra Cornman’s family sued the City of Long Branch (Long Branch) and its employees, primarily the Long Branch Beach Patrol, alleging they were negligent and knew or should have known their son’s activity could result in the harm that found him. At the time of the incident, Long Branch was a member of Statewide Insurance Fund (Statewide), a joint insurance fund (JIF), formed pursuant to our joint insurance fund statute, N.J.S.A. 40A:10-36 to -51.

Statewide provided Long Branch $10,000,000 in general liability coverage per occurrence. Long Branch also purchased a policy, effective January 1, 2012, to January 1, 2013, with $10,000,000 in coverage per occurrence under policy number CP 0641963 from defendants Star Insurance Company and Meadowbrook Inc. (collectively, Star).

On April 28, 2017, Statewide filed a complaint against Star seeking a declaratory judgment for excess insurance coverage. Star removed the action to the United States District Court for the District of New Jersey. In March 2018, Statewide filed an amended complaint alleging that under N.J.S.A. 40A:10-36, their coverage was not considered “insurance” for the purposes of applicable “other insurance clauses.” After both sides sought summary judgment, the trial court determined that Star was solely responsible for payment of the settlement on behalf of Long Branch.

Appellate Division Decision

The Appellate Division affirmed, concluding that Statewide is not an insurer pursuant to N.J.S.A. 40A:10-48, which states:

A joint insurance fund established pursuant to the provisions of this act is not an insurance company or an insurer under the laws of this State, and the authorized activities of the fund do not constitute the transaction of insurance nor doing an insurance business. A fund established pursuant to this act shall not be subject to the provisions of Subtitle 3 of Title 17 of the Revised Statutes.

The Appellate Division agreed with the trial court, which found that a joint insurance fund is similar to self-insurance through the pooling of resources and risks by similar public entities. Accordingly, both courts also found that the other insurance clauses were not triggered, and the Star policy is primary for the settlement amount exceeding Long Branch’s self-insurance retention.

Star appealed, and the New Jersey Supreme Court granted certification. The justices agreed to consider the following question: Was plaintiff entitled to summary judgment on the ground that, as a joint insurance fund, it was not an “insurer” under N.J.S.A. 40A:10-48 with respect to the “other-insurance” clause in defendant’s contract with the City of Long Branch? During oral arguments held on November 7, 2022, the New Jersey Supreme Court largely focused on the language of N.J.S.A. 40A:10-48 stating that joint insurance funds are not insurance companies. While several justices appeared skeptical of Star’s argument that Section 48 “needs to be reconciled with the explicit authorization for JIFs to provide insurance coverage,” we will have to wait for the court’s decision.

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