GL E-Note 03-28-2023
New Jersey Supreme Court Rules Joint Insurance Funds Are Not Insurance
By: Lisa Stefano, Esq. and Madison Calkins, Esq.
On February 16, 2023, ruling on a coverage dispute between a public entity joint insurance fund (JIF) and a commercial general liability insurer, the Supreme Court of New Jersey issued a unanimous decision holding that a JIF does not provide “insurance” for a municipality but instead affords liability protection to public entities through “self-insurance.” In Statewide Insurance Fund v. Star Insurance Company, (A-62-21) (086440) (N.J. Supreme Court, February 16, 2023), the Court considered which entity owed Long Branch, New Jersey its next layer of coverage above its self-insured retention and primary coverage layer: Statewide Insurance Fund, the JIF that Long Branch was a member of, or Star Insurance Company, which provided Long Branch with commercial general liability coverage excess of all “other insurance.”
The Court held that a JIF protects its members against liability through self-insurance and that self-insurance is not a type of insurance as contemplated by Star Insurance’s “other insurance” clause. Therefore, the Court found Star Insurance had the primary responsibility to pay the municipality for its loss. The municipality’s loss at issue was the remaining value of a settlement of a negligence suit brought against Long Branch, the Long Branch Beach Patrol, and its seasonal beach police officers by the family of a child who died from the collapse of a hole he had dug in the sand on a Long Branch beach. The trial judge and Appellate Division both found Star to be the party responsible for coverage, holding that a JIF does not provide “insurance.”
Relying on the plain language of the public entity JIF enabling statute, N.J.S.A. 40A:10-36, the Court affirmed the lower courts’ decisions by ruling that “[u]nder 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[.]” Furthermore, the Court distinguished JIFs from insurance on the substantive grounds that they allocate risks in entirely different ways. Specifically, JIFs allow public entities to pool risk to save costs, whereas purchasers of insurance pay a premium to transfer that risk.
Notably, the Statewide Insurance Fund’s contracting document contained its own “other insurance” clause, specifying that its obligations begin after exhausting all other “insurance or self-insurance.”