The Supreme Court of New Jersey Holds that “Self-Insurance” Is NOT “Other Insurance”
On February 16, 2023, the Supreme Court of New Jersey handed down its unanimous decision in Statewide Insurance Fund v. Star Insurance Company and held that, for purposes of determining the priority of overlapping insurance coverage, “self-insurance” is not “other insurance.” The opinion was drafted by Justice Douglas M. Fasciale.
By way of background, the underlying case stemmed from a tragic accident in which a 12-year-old boy was killed when a tunnel he was digging on the beach collapsed on him. The boy’s parents filed a lawsuit against the City of Long Branch, the Long Branch Beach Patrol, and seasonal beach police officers who were responsible for patrolling the area where the accident occurred. The underlying matter was settled, but the payment of the monies to the family required a determination of a critical issue of “insurance” coverage. The word insurance is in quotation marks because, as discussed below, the key issue in the case is whether participation in a Joint Insurance Fund constitutes insurance.
More specifically, at the time of the accident, Long Branch took various steps to protect itself from liability. In this regard, Long Branch was a member of the Statewide Insurance Fund, which is a public entity Joint Insurance Fund (JIF) created under the Joint Insurance Fund Act. The Fund provided its members, including Long Branch, with $10 million in liability coverage per occurrence, and its contracting documents included a provision that limited recovery from the Fund to liability that was excess over any other “insurance or self-insurance” coverage.
Relevant to the present claim, Long Branch was also insured under a commercial general liability (CGL) policy issued by Star Insurance Company, which provided $10 million in liability coverage per occurrence, excess to a $1 million Self-Insured Retention (SIR). Per the terms of its policy, Star’s coverage was excess over any “other insurance.”
After the $1 million SIR was satisfied, the coverage issue arose as to the primacy of coverage between Star and the JIF. In this regard, Star contended that its coverage was excess to the JIF’s, which constituted “other insurance,” while the JIF argued that its coverage was excess because it was not “insurance.”
The Supreme Court sided with the JIF. In so holding, the court examined the JIF enabling statute and concluded that a municipality’s participation in such a fund was self-insurance rather than insurance. Specifically, the court found that JIFs are not “insurance” as they are not subject to the insurance statutes or associated regulations but, rather, are created pursuant to a separate enabling statute. Simply put, the court concluded, “JIFs cannot insure members; instead, JIFs enable members to self-insure, spread risk and reduce insurance costs.” In a JIF, the risk of a loss is borne by its members, who are required to fund a reserve amount to pay losses for which a member may ultimately be held liable.
With the dichotomy between “insurance” and “self-insurance” in mind, the court turned to the question of the priority of the coverages afforded by the JIF and Star. In short, because the JIF’s coverage was determined not to be “insurance,” the court concluded that Star’s coverage was primary and the JIF’s excess. The key point to be emphasized is that Star’s “Other Insurance” provision mandated only that its coverage would be excess to “other insurance” coverage, which the JIF’s self-insurance was determined not to be. Given that conclusion, there were not two sources of “insurance” coverage to be compared.
We will continue to monitor all key insurance cases that are handed down by courts in our jurisdictions. Please feel free to contact our Practice Group should you have any questions regarding the Supreme court of New Jersey’s holding.
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