AmeriTrust subsidiary Star Insurance Co. must pay the $9 million balance of a $10 million settlement in the death of a 12-year old boy who died after a trench he dug on a Long Branch, New Jersey beach collapsed on him.
Star had maintained that its $10 million excess liability policy should not have to pay anything until after the “other insurance” from the state’s municipal pool, Statewide Insurance Fund (SIF), pitched in. But the New Jersey Supreme Court has ruled that the $10 million in self-insurance provided by the state pool is not the same as primary insurance that must be tapped before Star’s excess coverage can be accessed. The ruling affirmed two lower courts’ opinions.
“Because ‘self-insurance’ is not the same as ‘insurance’ under the law, and because membership in the Fund protects against liability claims through self-insurance rather than by insurance through an authorized carrier, we agree with the trial judge and Appellate Division that Star’s ‘other insurance’ clause is not triggered,” the high court stated.
The boy’s parents filed a negligence action against the beach township of Long Branch, Long Branch Beach Patrol, and seasonal beach police officers who were responsible for patrolling the area.
The parties settled the negligence action for $10 million. A self-insured retention of $1 million has been paid. But payment of the rest of the settlement has been delayed by the dispute between Star and Statewide over which entity should go next in paying.
The parties agreed that Star’s insurance coverage was excess only over “other insurance.” The question was which source — the Fund or Star — has the primary responsibility to pay the remaining settlement amount.
Statewide Insurance Fund (SIF) is a public joint insurance fund created under the Joint Insurance Fund Act. As a member of the SIF, Long Branch was entitled to receive $10 million in liability coverage per occurrence. SIF’s contracting document contains a clause limiting recovery from to liability in excess over other “insurance or self-insurance” coverage — in other words, Long Branch may recover from the SIF only after it exhausts any other insurance or self-insurance coverage.
The court found that by statute, state funds cannot provide insurance in exchange for premiums, as insurance companies typically do; instead, members reduce insurance costs by pooling financial resources, distributing and retaining risk, and paying claims through member assessments. Therefore, joint insurance funds “protect members against liability through self-insurance and ‘self-insurance’ is not insurance.”
Star’s main contention was that, regardless of the joint fund statutory framework, the SIF issued what Star characterized as an insurance policy to Long Branch and is bound by its terms. Star maintained that the SIF provides “insurance,” not “self-insurance” and that its own “other insurance” clause is therefore triggered, making Star’s coverage excess to the “insurance” provided by the SIF.
The high court went beyond the statutory framework to stress the general differences in risk allocation between joint insurance funds (JIF) and commercial general liability carriers as further support for its conclusion.
The court said risk-pooling arrangements, such as JIFs, are different from typical insurance contracts in which an authorized insurer assumes the risk in exchange for a premium. “JIF members decidedly retain the risk typically assumed by carriers. Public entities do not purchase insurance from JIFs; instead, they join JIFs, manage risk, and optimize taxpayer dollars by self-insuring or reducing coverage costs,” the court stated.
The members of a fund undertake substantial risk-bearing and claims payments come from government coffers. “In that sense, JIFs provide ‘self-insurance,’ which is the opposite of “insurance'” the court concluded.
Star Insurance Co. is an AmeriTrust subsidiary. The Michigan-domiciled carrier is licensed and admitted in all 50 states. Star specializes in group property/casualty lines for trade associations, public entities, affinity groups, individual businesses and professionals.
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