On February 16, 2023, the New Jersey Supreme Court returned its unanimous decision in Statewide Insurance Fund v. Star Insurance Company, ruling that “self insurance” is not “other insurance” for purposes of determining the precedence of overlapping coverage. The opinion was written by Judge Douglas M. Fasciale.
As 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 responsible for patrolling the area where the accident occurred. The underlying matter was settled, but payment of the funds to the family required resolution of a critical “insurance coverage” issue. The word ‘insurance’ is in quotation marks because, as explained below, in this case the decisive factor is whether participation in a common insurance fund constitutes insurance.
More specifically, at the time of the accident, Long Branch was taking various steps to protect itself from liability. In that regard, Long Branch was a member of the Statewide Insurance Fund, a public entity of the Joint Insurance Fund (JIF) established under the Joint Insurance Fund Act. The Fund provided its members, including Long Branch, with liability insurance for $10 million per claim, and its contractual documents contained a provision limiting the Fund’s recovery to liability in excess of 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 and providing liability coverage of $10 million per claim with a $1 million deductible ( SIR) provided. Under the terms of his policy, Star’s coverage was excessive over any “other insurance company.”
After the $1 million SIR was met, the cover issue arose as to the precedence of cover between Star and the JIF. In this regard, Star claimed that its coverage exceeded that of JIF, which constituted “other insurance,” while JIF argued that because it was not “insurance,” its coverage was excessive.
The Supreme Court sided with the JIF. In that decision, the court reviewed the JIF enabling statute and concluded that a municipality’s participation in such a fund was self-insurance rather than insurance. In particular, the court found that JIFs are not “insurance” since they are not subject to insurance laws or related regulations, but are created under a separate enabling law. Simply put, the court concluded: “JIFs cannot insure members; Instead, JIFs allow members to self-insure, spreading risk and reducing insurance costs.” In a JIF, the risk of loss is borne by its members, who are required to fund a reserve amount to pay for losses that a member can ultimately be held liable.
Given the dichotomy between “insurance” and “self-insurance,” the court turned to the issue of the priority of the coverages provided by JIF and Star. In short, because it was determined that the JIF’s coverage was not “insurance,” the court concluded that Star’s coverage was primary and the JIF’s deductible. The most important point to emphasize is that the Other Insurance Star provision only required that its coverage would exceed the coverage of the Other Insurance, which was not the case with the JIF’s self-insurance. Given this conclusion, there were no two sources of “insurance coverage” to compare.
We will continue to monitor all major insurance claims heard by courts in our jurisdictions.