Opinion ID: 1933492
Heading Depth: 1
Heading Rank: 6

Heading: Does the Commissioner have the Authority to Impose the Transitional Assessments as a Penalty or Enforcement Measure?

Text: In In re Directive of New Jersey Department of Environmental Protection, 110 N.J. 69, 74-75, 539 A. 2d 1181, appeal dismissed, Kimber Petroleum Corp. v. Daggett, 488 U.S. 935, 109 S.Ct. 358, 102 L.Ed. 2d 349 (1988), we held that an agency's power to compel a cleanup implied a power alternatively to exact money from the offender equal to the cost of the cleanup. Were it absolutely clear that insurance companies were ignoring a statutory obligation to clean up the JUA residue, we could more easily infer the Commissioner's authority to exact money for the remedial costs incurred by the MTF. However, the companies have stressed that the Acts (JUA and FAIRA) imposed depopulation quotas on the industry only as a whole and not on individual companies unless the Commissioner had actually assigned specific risks (the high-risk drivers) to a company that refused to issue a policy to the assigned risk. One company likened the pool of high-risk drivers to a lake and asked us to consider how some companies equipped with trawlers and seines were able to harvest their quota from the lake whereas others without such resources (small sales forces, no agents in the field) were unable to land their drivers from the pool. The companies emphasize that the obligation in N.J.S.A. 17:33B-11.c.(5) contemplates that each member's share will be fulfilled by both its sales efforts and the mandatory assignments of the Commissioner. The companies cannot force the consumer to buy. The difficulty with the argument is that it assumes that all parties made an industrious attempt to harvest at the water's edge. That may not have been the case. Some may have thumbed [their] nose[s] at the Commissioner. In re March 24, 1992 Order, supra, 256 N.J. Super. at 172, 606 A. 2d 851. Just as we doubt that the Legislature would have intended to delegate its general revenue-raising authority, we doubt that it would have intended that the Commissioner be powerless to deal with obstructionism beyond a denial of non-renewal privileges. The Commissioner insists that the language of the Act is mandatory: the [MTF] plan shall prescribe the number of voluntary market exposures which shall be written during each six-month period. N.J.S.A. 17:33B-11.c.(5). To interpret those numbers only as goals for individual companies (only the industry having a quota under this view) would conflict with the remainder of the section's provisions for assigning the balance of the exposures. What balance? If the balance of the exposures means the industry's balance, presumably the Commissioner would be required to reassign the unharvested risks among all of the member companies in accordance with their market shares. What then would be the meaning of the credit for the excess that overachievers might receive against apportionment share for later periods? The companies have emphasized the parallel between the statutory procedures for depopulating the JUA and those for the MTF. In effect, the MTF procedures piggybacked on the JUA's depopulation procedures. The loss of the 2% renewal and cancellation privileges for not achieving depopulation quotas was found in the 1988 Reform Act, N.J.S.A. 17:30E-14.h. The first depopulation quotas under FAIRA were to be accomplished at a time when the JUA was still in existence. The Commissioner described MTF as the functional successor to the JUA. One counsel likened the MTF to a lineal descendant of the JUA. In fact, the MTF did not appear at all in FAIRA as originally proposed. See A.1, 204th Leg., 1st Sess. (1990). Because of foreseeable turmoil if the JUA were to collapse on itself on October 1, 1990, the Assembly Appropriations Committee chose to add the MTF to FAIRA rather than to extend the life of the JUA. Committee Statement, A. 1, supra, at 3. In In re Assignment of Exposures, supra , the court noted that FAIRA did not entirely displace the provisions of the 1988 Reform Act. Language that is part of the 1988 Reform Act that appears in the Fair Act is not to be regarded as merely `a remnant' of earlier legislation which somehow slipped into the new law. 248 N.J. Super. at 381, 591 A. 2d 631. The 1988 Reform Act included the penalty provision that [a]ny member company that does not write its apportionment share of any quota established by the commissioner    shall be precluded from nonrenewing automobile insurance policies pursuant to section 26 of this 1988 Act. L. 1988, c. 119, § 25 (codified at N.J.S.A. 17:30E-14.h.). As noted, the 1988 Reform Act had permitted non-renewals in an amount not to exceed 2% of the total number of voluntary market exposures and other non-renewal and cancellation privileges. L. 1988, c. 119, § 26 (codified at N.J.S.A. 17:29C-7.1.b.). However, the 1988 Reform Act added a significant amendment in section 42: In the event the association [the JUA] sustains a financial loss due to any act or omission of any producer, member company or servicing carrier which violates any statutory, contractual or plan of operation requirement, the commissioner may, in addition or as an alternative to the penalties provided in subsections a. and b. of this section, [authorizing the Commissioner to revoke or suspend certificates of authority or licenses to write business for the JUA and/or to assess fines of up to $10,000] order the restitution of any moneys owed to the association, and the reimbursement of reasonable costs of investigation and prosecution. [ L. 1988, c. 119, § 42 (codified at N.J.S.A. 17:30E-17.c.) (emphasis added.)] Our courts have construed that paragraph to authorize the Commissioner to undertake administrative proceedings to recover losses sustained by the association due to the misconduct of any of the association members. In re Certification, 254 N.J. Super. 620, 631, 604 A. 2d 172 (App.Div. 1992). That paragraph of the 1988 Reform Act does not by its terms appear in the Fair Act. On the other hand, it is not repealed. If a servicing carrier of the MTF engaged in the type of misconduct described in In re Certification, supra, would the Commissioner be powerless to remedy the wrong done to the facility because a penalty provision such as N.J.S.A. 17:30E-17.c. did not appear in FAIRA? Would he not have the implied authority to redress a breach of the plan operations? We note that in his May 15, 1990, assignment of shares, the Commissioner had referred to the penalties of N.J.S.A. 17:30E-17 as though applicable to violations of the program. At a minimum, the Commissioner argues that the penalty-enforcement authority under N.J.S.A. 17:33-2 would confer the necessary authority to sanction the non-complying companies. He notes that the Fair Act provisions for depopulation in N.J.S.A. 17:33B-11.c.(5) are within a supplement to a chapter of Subtitle 3, which Subtitle incorporates chapters 17 through 51 of Title 17. Therefore, he argues, the penalties in N.J.S.A. 17:33-2 would apply to violation of the statutory requirements for depopulation. (FAIRA provided enhanced penalties of up to $2,000 for the first violation and $5,000 for each violation thereafter of its take-all-comers provisions. N.J.S.A. 17:33B-21.) We recognize that the 1988 Reform Act and to some extent the Fair Act adopted a carrot and stick approach to the depopulation of the JUA and the MTF. The Legislature designed the flex-rating provisions to encourage the private market to accept exposures more freely from the State pools. It intended the non-renewal and cancellation provisions to give companies more flexibility. We are not so certain that withdrawing those latter carrots would have exhausted the Commissioner's use of a stick. The companies' contentions that the Commissioner is estopped from seeking the assessments or that the MTF plan misled them into waiting for assignments would be substantive defenses to an exercise of such authority; they do not establish that the exercise would be beyond the Commissioner's powers. The claims of detrimental reliance asserted by the companies raise fact-sensitive issues. A hearing would be required to resolve those claims. As we understand the Commissioner's present procedures, he would allow a hearing only on the calculation of the amounts due. That the MTF enabling legislation conferred certain specific penalty powers on the Commissioner may not then have detracted from the enforcement powers that existed under the JUA as assumed or taken over by the MTF. In any event, that the Commissioner did not purport to exercise such authority appears reasonably clear to us. The very concept of the imposition of a penalty involves the concept of fault. Indeed, in his Order, the Commissioner emphasized that the carriers have persistently failed to meet their depopulation quotas and have never attempted to comply with their obligation under the law. The carriers vigorously deny such assertions. No company has violated a direct order assigning risks or failed to submit a compliance plan. Some assert reliance on the language of their share assignments and the MTF's plan of operation that set forth only certain specific penalties but not any threat of assessments. Although the member companies that have been subject to the transitional assessments have participated in various proceedings with the Commissioner concerning the effectuation of their depopulation plans, that the Commissioner's transitional assessments are based on concepts of fault does not appear from this record. In fact, before us, the Attorney General described it as a no-fault system. For example, we note the efforts some of the Cigna companies made to negotiate with the Commissioner concerning the insurers' depopulation quotas. Other companies claim reliance on acceptance of producers and participation in various plans to have met their shares of the quota. Some depopulation plans received neither approval nor disapproval, leading companies to believe that they were fulfilling their obligations. The type of procedure that would result in the assessment of a penalty would necessarily contemplate evaluation of those issues and a hearing to resolve disputed factual issues.