Policyholders on the Hook for Insolvent Insurers’ Allocated Share in New Jersey
By Ilan Rosenberg on January 19, 2016
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On January 12, 2016, the New Jersey Superior Court, Appellate Division, issued a non-precedential opinion in Ward Sand & Materials Co. v. Transamerica Ins. Co., et al. The long–anticipated ruling found that, in long-tail claims, insureds are responsible for the share of liability allocated to insurers that became insolvent prior to December 22, 2004.
In Ward Sand, the insured – which accepted a township’s municipal waste in the 1970s and was later sued for contribution towards site cleanup – sought to have a prior allocation ruling revised based on the New Jersey Supreme Court’s decision in Farmers Mutual, which held that the 2004 amendment to the New Jersey Property-Liability Insurance Guaranty Association Act (“PLIGA Act”), N.J.S.A. 17:30A-1 et. seq. required solvent insurers to pay within their policy limits for the share of any long-tail claim otherwise covered by an insolvent insurer. Farmers Mut. v. N.J. Prop.-Liab. Ins. Guar. Ass’n., 215 N.J. 522, 544 (2013) (previously discussed here). Five of Ward Sand’s insurers on the risk had, by then, become insolvent. It was undisputed that these insurers were declared insolvent prior to the effective date of the 2004 amendment to the PLIGA Act. The insured argued that (1) the 2004 amendment to the PLIGA Act, understood in light of Farmers Mutual, was intended to be corrective and curative and, therefore, had retroactive effect and (2) even if the 2004 amendment was not retroactive, the reasoning of the Farmers Mutual Court clarified principles that predate the amendment such that all coverage available from a solvent carrier must be exhausted prior to the policyholders’ obligation to pay the insolvent insurer’s share.
The trial court disagreed, and the Appellate Division affirmed, finding that the 2004 amendment to the PLIGA Act could only be given prospective effect, and did not control allocation issues for insurers that became insolvent prior to its enactment. Relying on Farmers Mutual, the Appellate Division held that for the years in which PLIGA is standing in the place of an insolvent carrier in a long-tail environmental contamination case, the insured – not the solvent insurer – is compelled to make payments under the Owens-Illinois allocation scheme before accessing statutory benefits under the PLIGA Act.
The decision is non-precedential and Ward Sand will almost certainly seek review by the Supreme Court of New Jersey. Nevertheless, Ward Sand represents an important victory for solvent insurers, which never contracted to cover the insolvent policy periods or layers.