Risk Retention Groups Must Comply with NJ PIP Statute

In American International Insurance Company of Delaware v. 4M Interprise, Inc., a NJ Appellate Court dealt with the issue of whether a risk retention group must comply with the NJ PIP Statute. ?American International Insurance Company of Delaware (AIG), paid out in excess of $200,000.00 in pedestrian PIP medical benefits to its insured before realizing that there was, in fact, no coverage for the claim. Their insured had suffered personal injury after being struck by a taxi cab. The AIG policy covered medical bills incurred as a pedestrian only when struck by an ?automobile.? Under New Jersey Statute, a taxi cab does not fall within the definition of a private passenger automobile.

Accordingly, AIG then looked to the insurer of the taxi cab to reimburse them for the medical expenses paid. The insurer of the taxi cab, Ocean Risk Retention Group, Inc., resisted the claim and litigation ensued. At the trial level, the risk retention group advanced the argument that the New Jersey statutory requirement concerning pedestrian PIP coverage on their motor vehicle policies violated the Federal Liability Risk Retention Act of 1986 and was, therefore, not enforceable. As a corollary, the retention group also argued that it was discriminatory to compel such coverage, while precluding the retention group from participating in the New Jersey Property Liability Insurance Guarantee Association (?PLIGA?) which would step in to pay such benefits, typically, on behalf of any other insolvent commercial insurer.

The risk retention group was unsuccessful at the trial level and the matter was appealed. The retention group reiterated its arguments at the Appellate level that they were exempt from any state law that would regulate its operation ?directly or indirectly,? except for those authorized by the Federal Act. It posited that because insurance policies omitting mandatory coverage are amended as of law to include it, the New Jersey statutory scheme was indirectly regulating risk retention groups by requiring them to include pedestrian PIP coverage.

The Appellate Division?s analysis included some general background information on the purpose and history of the Federal Risk Retention Act, noting that, ?A risk retention group is simply a group of businesses or others who have joined together to set up their own insurance company only to issue insurance policies to themselves.? The original intent of Congress was to ?provide a vehicle by which commercial entities could obtain liability insurance at lower rates.? One portion of the scheme was to exempt these groups from many state laws and regulations that had previously prohibited or restricted their existence. However, the Federal statutory scheme, in its ? 3905(a) fairly clearly states that no exemption from state motor vehicle, no-fault and motor vehicle financial responsibility laws were intended. Although the risk retention group argued that such language needed to be taken in context with additional provisions, its argument was unsuccessful again at the Appellate level.

In addition, the retention group met with no additional success regarding its second argument that it had been discriminated against by being precluded from participation in PLIGA. The Federal statutory scheme clearly exempts retention groups from any state law that would ?require or permit a risk retention group to participate in any insurance insolvency guarantee association in which an insurer licensed in the state is required to belong.? In conformity with that prohibition, New Jersey law makes a risk retention group ineligible for PLIGA. The retention group advanced an argument that it should be required at least limited participation in PLIGA such as to enjoy its benefits with respect to pedestrian PIP, even though it would be precluded from participating more generally in the insolvency fund. The court noted statements in the congressional records that the Federal ban on inclusion in state insolvency associations was meant to be ?a strong incentive to set adequate premiums and establish adequate reviews? for the retention groups. It further noted that the ban against participation in the insolvency associations was ?best viewed as part of the trade off? in exchange for limited state regulations and risk retention groups were ?on their own? if they became insolvent. This was part of the overall Federal scheme to keep costs down. The Appellate Division then went on to note that the Ocean Risk Retention Group failed to establish any discriminatory basis for the way the New Jersey State Statute was implemented.

In sum, a risk retention group will not be accorded any exemption from the New Jersey statutory requirements regarding automobile liability insurance coverage.

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