The Interplay Between a Joint Insurance Fund and "Other Insurance" Clauses


The Supreme Court of New Jersey recently affirmed the Appellate Division’s ruling that a statutorily created Joint Insurance Fund (JIF) was not considered a commercial insurer for purposes of funding a settlement between Long Branch, New Jersey (Long Branch) and the family of a deceased 12-year-old boy.

The facts of the case are that the boy was vacationing with his family in Long Branch. The young boy suffocated when sand collapsed on him while he dug a hole in the beach, as first-responders were unable to rescue him in time. The family sued Long Branch and its employees alleging negligence. 

At the time of the incident, Long Branch was a member of Statewide Insurance Fund (Statewide), a statutorily created JIF. Statewide provided Long Branch $10 million in general liability coverage per occurrence. Long Branch also purchased a policy from Star Insurance Company (Star) also with $10 million in coverage per occurrence. Per the terms of its policy, Star’s coverage was excess over any “other insurance.”

At trial, Statewide argued that it was not obligated to fund the settlement because its coverage was not “insurance” pursuant to the New Jersey statute for purposes of applying Star’s other insurance provision. The trial court agreed granting Statewide’s motion for summary judgment and declaring that Star was solely responsible for payment of the settlement. The Appellate Division affirmed holding that Statewide — as a JIF — was statutorily protected from being considered insurance by third-party carriers per N.J.S.A. 40A:10-36 to -51, which provides:

A joint insurance fund established pursuant to the provisions of this act is not an insurance company or an insurer under the laws of this State, and the authorized activities of the fund do not constitute the transaction of insurance nor doing an insurance business. 

The Supreme Court agreed with the Appellate Division that Long Branch's membership in Statewide did not trigger Star’s "other insurance" clause. Specifically, the court analyzed the plain language of N.J.S.A. 40A:10-36 to -51 holding that Long Branch’s participation in the JIF constituted self-insurance rather than insurance because the JIF is not subject to New Jersey’s insurance statutes, N.J.S.A.  17:17-2 to -20 (Corporations and Institutions for Finance and Insurance) and related regulations. Instead, the court noted that the JIF was created pursuant to N.J.S.A. 40A:10-36 to -51 stating that:

Applying the clear and plain terms of N.J.S.A. 40A:10-48, we hold that JIFs cannot insure members; instead, JIFs enable members to self-insure, spread risk, and reduce insurance costs.

Based on its analysis of the statute and caselaw from other jurisdictions, which distinguished between self-insurance and commercial insurance, the court concurred with the trial judge and Appellate Division holding that Star’s “other insurance” clause was not triggered. As a result, Star’s insurance policy was held to be primary for purposes of financing the settlement of the negligence action against Long Branch.

Comment: “Other insurance” clauses are designed to govern the priority of coverage when multiple policies insuring the same entity are triggered for the same claim. Here, the CGL insurer’s “other insurance” clause was not triggered because “self-insurance” protection through JIF membership does not qualify as another policy of insurance triggering the “other insurance” provision. Additionally, the Court held that Star’s policy did not encompass self-insurance available to members of a JIF. Therefore, in the future, insurers may look to broaden the language of their “other insurance” clauses to expressly include an insured’s “self-insurance” to bring it under the purview of their “other insurance” provisions.

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