Property-Liability Guaranty Association (PLIGA)
Issue
If an insurance company in New Jersey becomes insolvent and unable to pay its claims against it, the New Jersey Property-Liability Guaranty Association will immediately become liable to pay claims. PLIGA, however, is statutorily obligated to pay no more than $300,000 per claim.This amount was established in law over 30 years ago and is no longer satisfactory to provide protection for an insured or a plaintiff.
On February 1, 2006 the State Supreme Court, in Johnson v. Braddy, held that an insured, whose insurance company becomes insolvent, is personally liable for a judgment above the $300,000 statutory liability limit of PLIGA. This is so even if the insured had an insurance policy greater than the PLIGA limit.
The Court recognized that this decision would have a negative impact on defendants who took all appropriate steps to obtain insurance to protect against personal liability. The Court held:
We recognize the potentially catastrophic effect that this ruling may have on responsible citizens who have purchased insurance to protect themselves and the victims of accidents in which they are involved. In this matter, for example, the insured may be exposed to up to a $700,000 payment representing the difference between the $300,000 PLIGA cap and the $1 million excess insurance threshold purchased by defendants. Such payments could wipe out a party that acted in good faith to procure insurance. The situation is exacerbated, according to the parties, because insurance to cover the insolvency of a primary carrier is simply not available.
We therefore commend this issue to the Legislature for such remedial action as it deems appropriate. Here, the interests of innocent victims are pitted against those of our citizens who have done everything in their power to protect themselves from exposure to tort claims but whose efforts have been thwarted by the insolvency of an insurer. Reconciling those competing interests, while difficult, is not an insurmountable task. One obvious approach would be to alter the PLIGA cap so that it is co-extensive with the insurance coverage purchased from the insolvent insurer. . . .
Impacts on Physicians and Other Defendants – Given the ruling of Johnson v. Braddy, the potential impact of a liquidation of an insurance company on the physician community is enormous. Physicians are required by law to obtain liability policies of at least $1 million per incident. In the last five years, one medical liability insurance carrier has filed for bankruptcy (PHICO) and another is in involuntary runoff (MIIX). The threat that MIIX or another company may become insolvent is real, if not now, then in the future. Physicians could potentially lose their life savings. The whole situation is one of indefinite uncertainty, anxiety, and potential chaos.
Of course, the potential impact to physicians is also the same as other defendants, although only physicians are required by law to carry $1 million policies. The Braddy case, in fact, involved a trucking company whose employee caused an accident. That company, although well insured, will now face potential financial ruin.
Impacts on Patients and Other Plaintiffs – The impact on patients who have legitimately been injured by a physician can also be great. The same is true for other injured persons. Even though PLIGA will pay $300,000, it may be very difficult and lengthy to obtain any monies beyond that amount. If a carrier is insolvent, any amount above the PLIGA limit will first have to be sought from the Liquidator. Claims will have to be submitted in certain timeframes and assets distributed under set formulas. This could take years and only provide monies to patients with judgments. Those whose cases are still pending or have not yet been filed by the submission deadline may be left out.
Once an insurance company’s assets are liquidated, to the extent there are any, the plaintiff can then seek the personal assets of the defendant. This too is not an easy task. It is time consuming and uncertain. Many attorneys do not even want to attempt to pursue personal assets. Further, once an insurer is declared insolvent, attorneys may not even want to take the case given the limits of PLIGA and the uncertain ability to recover any monies above that. Thus, many injured patients may be left without recourse to the courts.
MSNJ Position – MSNJ believes there is a legislative solution to the problem. For medical liability cases, and perhaps for other cases as well, PLIGA should pay up to $1 million, but not to exceed the policy limit. The money necessary to increase these claim payments would come from the existing statutory provision assessing a surcharge on insurance premiums of 2% of their yearly premiums. If necessary, this surcharge could be increased. This assessment would be passed along to policyholders.
It is not known at this point if the existing 2% surcharge would be sufficient to cover these potentially increased costs. While the Legislature has set a 2% limit on the surcharge, PLIGA currently only assesses a surcharge of 1.75%. Raising the PLIGA cap to $1 million for medical liability only cases would have the least impact on the surcharge. Raising it for all policies would more likely have an impact and cause a need to raise the surcharge. It should be noted that this proposal would only afford additional protection for policies above the $300,000 limit, thus not all claims would pose an additional impact on PLIGA’s existing resources. While an increased cost, this proposal would ensure that the insured will be protected if their insurance company ever becomes insolvent, a relatively small price to pay.
MSNJ further believes that whatever the PLIGA limit is, there should be a cutoff of liability for the insured above that amount. This limitation on personal liability is necessary because of the increased risks incurred by relying on a state agency to defend and provide insurance to the insured. It is a rare situation where PLIGA would be invoked but it is important to maintain reasonable protections for both the insured and the injured person.
Status – The Assembly Financial Institutions and Insurance Committee has held hearings on Assembly Bill No. 2859, sponsored by Assemblyman Cohen (D-20) that would raise the PLIGA limit to $500,000 and provide protection to the insured from personal liability above that amount. MSNJ testified in favor of this bill. The Senate counterpart is Senate Bill No. 1675, by Senator Gill (D-34).