Opinion ID: 1933492
Heading Depth: 1
Heading Rank: 2

Heading: The Nature of the Market Transition Facility

Text: The Market Transition Facility is quite unlike the JUA. The JUA was initially operated by industry representatives. Neither the insurers that acted as servicing carriers nor automobile insurers as a group were liable for the losses paid on policies issued by the JUA. On the other hand, the Commissioner operates the MTF. Furthermore, [e]very insurer authorized to transact automobile insurance in this State shall be a member of the facility and shall share in its profits and losses as provided by the commissioner pursuant to the provisions of subsection d. of this section [concerning apportionment]. N.J.S.A. 17:33B-11.a. The Act required the Commissioner to appoint an advisory board of industry representatives. However, the Commissioner clearly was the chief executive of the MTF. In re May 10, 1991 Orders, 252 N.J. Super. 260, 275, 599 A. 2d 906 (App.Div. 1991), certif. denied, 127 N.J. 565, 606 A. 2d 376 (1992). Under the Act, the MTF was to issue automobile-insurance policies for a two-year period, ending September 30, 1992. The MTF could not issue or renew any policies on or after October 1, 1992. N.J.S.A. 17:33B-11.c. The Commissioner was to promulgate a plan of operation in consultation with the advisory board to provide (1) the applicable levels of coverage available through the facility; (2) the premiums, which should be based primarily on the JUA rates; (3) the procedures for changing rates; (4) for the issuance of policies through servicing carriers, employing the JUA staff at the discretion of the Commissioner; (5) the procedures for depopulation of the facility with a goal of 0% population at the end of the two-year period; and, among other things, [s]uch other provisions as are deemed necessary for the operation of the facility. N.J.S.A. 17:33B-11.c.(1)-(9). Several Appellate Division opinions track the MTF's troubled operating history. Among the issues decided in those opinions are: should the Commissioner have increased rates substantially on October 1, 1990, despite the Fair Act's requirement that the MTF initially use the JUA rates, which, even with RMECs, had created significant deficits? In re May 10, 1991 Orders, supra, 252 N.J. Super. 260, 599 A. 2d 906; does the Commissioner have the authority to assign a producer's (either an agent or a broker) entire book of business to an insurer in fulfilling the insurer's quota obligations? In re Assignment of Exposures, supra, 248 N.J. Super. 367, 591 A. 2d 631; what procedures should the Commissioner employ in setting rates under the MTF? In re May 10, 1991 Orders, supra; what authority did the Commissioner have to assign the producers to private carriers? In re July 2, 1992 Order, 261 N.J. Super. 292, 618 A. 2d 894 (App.Div. 1993). The two-year life span of the MTF was nearly consumed before all of the issues of its operation had been resolved.
To facilitate an understanding of this case, we set forth a limited chronology of some of the events that led to the Order under review. We intend nothing more than a sketch of those proceedings and express no view on their effect on any later proceedings involving the MTF.  March 12, 1990  The Fair Act becomes law.  May 15, 1990  The Commissioner assigns to the companies their initial shares of depopulation quotas. He warns the companies that any member company that has not written its apportionment share shall be precluded from nonrenewing policies for a 12-month period in accordance with N.J.S.A. 17:29C-7.1, as amended; that quarterly reports of exposures written would be required; and that any member company which fails to comply with the provision of the Program shall be subject to penalties as authorized by law, including the provisions of N.J.S.A. 17:30E-17.  October 1, 1990  MTF begins operations; Commissioner orders 10.3% increase in MTF rates over JUA rates; first quota period passes without achievement of 68% voluntary-market target.  October 26, 1990  Commissioner notifies companies of April 1, 1991, apportionment shares.  January 5, 1991  Commissioner adopts Mandatory Depopulation Assignment Plan (MDAP), effectuating statutory authority to assign unfulfilled quota exposures to member companies.  January 17, 1991  MTF seeks 28% increase in rates. (The Fair Act did not begin to eliminate flat charges and RMECs until April 1991.)  January 24, 1991  Commissioner issues MDAP orders to forty-four companies, informing them that they would be assigned exposures because of their failure to meet October 1, 1990, quotas. The companies later appeal.  February 15, 1991  Commissioner informs companies that Appellate Division has stayed his MDAP orders and that no assignments would be made until the court had rendered its final decision.  April 1, 1991  Second depopulation-quota period passes.  May 10, 1991  Commissioner grants 18.6% rate increase, to be effective June 15, 1991. That increase yielded 12.3% in revenues.  May 20, 1991  Appellate Division renders its decision on the January 24, 1991, MDAP orders, affirming the orders in part and invalidating the orders in part. In re Assignment of Exposures, supra, 248 N.J. Super. 367, 591 A. 2d 631.  October 1, 1991  Third depopulation quota period passes.  November 14, 1991  Commissioner issues quota shares for April 1, 1992, quota period.  November 19, 1991  Appellate Division acts on Commissioner's May 10, 1991, rate orders; reflects on cascading events; orders Commissioner to develop rate-setting process; accepts Commissioner's commitment to operate the MTF on a no-profit, no-loss basis; orders Commissioner to act speedily under brief time table to set appropriate rates and to respond to legitimate demands for relevant records. In re May 10, 1991 Orders, supra, 252 N.J. Super. 260, 599 A. 2d 906.  December 20, 1991  In response to Appellate Division's November 19, 1991, decision, Commissioner increases MTF rates 14.9%, effective January 15, 1992, for new and renewal policies; announces intention to increase rates further.  December 31, 1991  Commissioner reassigns exposures under modified MDAP; companies appeal the assignments.
On January 24, 1992, the MTF requested a rate increase of 16.8% to be effective April 1, 1992. That rating period was to carry the MTF through its final period of operation to its planned phase-out on October 1, 1992. On March 24, 1992, the Commissioner issued his Order, No. A92-158. After implementing an eligibility-point forgiveness program that would exonerate prospectively MTF drivers who had incurred only a few points for minor violations and had no at-fault accidents during a previous three-year period, the Commissioner found that the overall needs of the MTF required an additional 12.6% in revenues. Order at 1-2. However, the Commissioner determined not to impose that cost on the automobile drivers in the MTF pool, pointing out that in the brief period of MTF's operation he had already raised rates 42%. Instead, he decided to impose transition assessments on the insurers. He proposed that insurers that failed to satisfy the Act's depopulation requirements pay a larger share of the MTF deficit in recognition of their failures and the consequent additional costs to the MTF. Order at 2-3. He imposed a $180 transition assessment on such companies for each exposure that was not depopulated per quota period, roughly $1.00 per day, per driver. Order at 56. Concurrent with the rate-making decision, the Commissioner proposed an amendment to the MTF's plan of operation to permit those assessments. Order at 2. The assessments would yield approximately $169 million, $37 million of which would constitute additional revenue for the April 1, 1992, quota period, and $132 million to offset the existing deficit from the prior quota periods, October 1, 1990, April 1, 1991, and October 1, 1991. Ibid. The Commissioner considered inappropriate the application of the assessments for prior periods against future revenues, but found that the revenue that the transition assessments for April 1, 1992, would generate could be conservative[ly] estimate[d] at $37 million. Order at 59-60. That income would reduce the MTF's indicated rate need by 16.1% and obviate the need for a rate increase in the final period of the MTF. Order at 60-61. The Commissioner thus denied, on March 24, 1992, MTF's request for an additional rate increase for its final period of operation. The Commissioner also ordered implementation of the transition-assessment program. The Commissioner viewed this result as a necessary implication of the 1988 Reform Act and the Fair Act, which had ordered the crucial steps of depopulation. He noted that many companies accepted responsibility for depopulation and complied with the law. Of the total sixty-seven New Jersey insurers or insurer groups, approximately fifteen succeeded in meeting their depopulation quotas for each of the periods ending October 1, 1990, April 1, 1991, and October 1, 1991. Six of New Jersey's top ten insurers met twenty-one of their twenty-four target depopulation dates. Order at 8-9. The Commissioner noted that in exchange for the additional premium income from the new business, the insurers accepted the costs associated with the business, including the surcharges and assessments necessary to pay off the JUA deficit, which could not simply be passed through in the form of higher rates. Order at 9. He reflected on the history of resistance to the MDAP and ensuing litigation, the appeals to the revised orders issued on December 31, 1991, and a recently-enacted law, L. 1991, c. 462, that had caused further revisions in the MDAP. Order 10-11. In considering the substantial rate increases [of 42%] the MTF insureds have had to endure within just one year and the failure by a number of carriers to meet depopulation goals despite the mandatory nature of these quotas, the Commissioner concluded that MTF insureds should not have to bear the burden of some MTF-member-insurers' failure to depopulate. Order at 51. Relying on statutory authority to include in the MTF's plan of operation such other provisions as are deemed necessary for the operation of the facility, N.J.S.A. 17:33B-11.c.(9), the Commissioner found that the proper operation of the MTF requires the exercise of this residual power to impose assessments upon those insurers which have failed to meet their depopulation obligation for the quota periods during the MTF's existence beginning October 1, 1990. Order at 53. The insurance companies appealed the Commissioner's Order to the Appellate Division. The court set an accelerated briefing schedule. On May 1, 1992, the Appellate Division invalidated the March 24 order and directed the Commissioner to implement forthwith the 12.6% MTF rate increase already found by him to be necessary. In re March 24, 1992 Order, 256 N.J. Super. 158, 161, 606 A. 2d 851 (1992). The Appellate Division ruled that the Commissioner's determination that there was an MTF need of 12.6% required him to raise rates. The court reasoned: The law does not permit him to purposely set deficit rates and rely on the alternative funding source of a cash call to the voluntary market insurers.    [To impose] transitional assessments on certain insurers on the thesis that they did not meet their depopulation apportionment shares is unauthorized by statute, either to prevent future deficits or to reduce past deficits. [ Ibid. ] The Commissioner sought a stay of the Appellate Division ruling pending review in this Court. We denied the stay but granted the Commissioner's petition for certification to review the matter, 130 N.J. 15, 611 A. 2d 653 (1992). The 12.6% rate increase went into effect. Given the MTF deficit, a rollback of those rates is not a realistic option. The validity of the transitional assessments alone is before us.