American International Insurance Company of Delaware v. 4M Interprise Inc., A-3490-11T2; Appellate Division; opinion by Grall, J.A.D.; decided and approved for publication July 18, 2013. Before Judges Grall, Simonelli and Koblitz. On appeal from the Law Division, Hudson County, L-1666-10. DDS No. 23-2-0698 [20 pp.]

The Federal Liability Risk Retention Act of 1986 (LRRA) exempts risk retention groups from many, but not all, state laws regulating insurers. The primary issues on this appeal are whether the state violates LRRA by requiring risk retention groups to provide pedestrian personal injury protection (pedestrian-PIP) benefits in conformity with N.J.S.A. 17:28-1.3 or by precluding them from participating in the New Jersey Property-Liability Insurance Guaranty Association (PLIGA), which pays pedestrian-PIP benefits for commercial liability insurers who are members.

Caple Guthrie, who was insured under an automobile liability policy issued by plaintiff American International Insurance Company of Delaware (AIG), was struck and injured by a taxicab insured by defendant Ocean Risk Retention Group Inc. (ORRG). AIG paid more than $200,000 of Guthrie's medical expenses before realizing that the vehicle involved was a taxi and its insurer, not AIG, was obligated to pay Guthrie's pedestrian-PIP benefits.

AIG filed this suit seeking reimbursement from ORRG, defendant 4M Interprises Inc. — the owner of the taxi insured by ORRG — and, in the event ORRG was not responsible, defendant PLIGA. The trial court determined that ORRG, not AIG, owed the pedestrian-PIP benefits, compelled ORRG and AIG to arbitrate ORRG's equitable share and dismissed AIG's claim against PLIGA. ORRG appeals.

Held: The Federal Liability Risk Retention Act of 1986 does not exempt risk retention groups from the coverage requirements of a state motor vehicle no-fault insurance law, and precludes a state from requiring or permitting a risk retention group to participate in PLIGA, an insurance solvency guaranty association.

ORRG's primary claims are (1) that LRRA exempts risk retention groups from N.J.S.A. 17:28-1.3; and (2) that New Jersey violates LRRA by discriminating against risk retention groups.

A risk retention group is a group of businesses or others who join together to set up their own insurance company only to issue insurance policies to themselves. Through LRRA, Congress intended risk retention groups to provide a vehicle by which commercial entities could obtain commercial liability insurance at lower rates. Cost reduction would be achieved by exempting risk retention groups from many state laws and regulations that prohibited or restricted risk retention groups.

Some of LRRA's provisions — the exemptions — protect risk retention groups from state law. Other provisions of LRRA — the exceptions — restrict the protection afforded risk retention groups by the exemptions and permit state regulation. Thus, the exceptions authorize state regulation despite an exemption that would otherwise insulate a risk retention group from state law.

ORRG's objection to N.J.S.A. 17:28-1.3 is defeated by § 3905(a). The mandate in N.J.S.A. 17:28-1.3 for pedestrian-PIP benefits is part of New Jersey's no-fault motor vehicle insurance law. Section 3905(a) plainly states that LRRA does not exempt risk retention groups from the coverage requirements of a state's no-fault motor vehicle insurance law, and it also precludes a construction of any other provision of LRRA to prohibit such state regulation. The plain meaning of § 3905(a) ends the inquiry.

Nonetheless, ORRG relies on § 3905 (b) to argue that pedestrian-PIP coverage is not liability insurance ORRG may provide. But ORRG provides no argument supporting its characterization of pedestrian-PIP coverage as a line of insurance other than liability insurance. The pedestrian-PIP coverage mandated by N.J.S.A. 17:28-1.3 is a component of a policy of liability insurance covering, among other things, liability for "bodily injury" as part of this state's no-fault motor vehicle insurance law.

The appellate panel rejects ORRG's claim that LRRA exempts it from complying with N.J.S.A. 17:28-1.3.

The panel also rejects ORRG's claim that New Jersey discriminates against risk retention groups by barring their participation in PLIGA's program for payment of pedestrian-PIP benefits. Section 3902(a)(4) exempts risk retention groups from a state regulation to the extent it would "otherwise, discriminate against a risk retention group or any of its members." The burden of showing discrimination in violation of LRRA is on the risk retention group.

ORRG's complaint is that PLIGA pays pedestrian-PIP benefits due under policies of motor vehicle liability insurance issued by commercial carriers in conformity with N.J.S.A. 17:28- 1.3 but does not pay those benefits on such policies issued by a risk retention group. The different treatment of commercial insurers and risk retention groups is a function of PLIGA's authority to assess commercial insurers who are members of PLIGA to cover its obligations — authority PLIGA does not have over risk retention groups whose membership in PLIGA is barred by federal law.

LRRA exempts risk retention groups from any state law that would "require or permit a risk retention group to participate in any insurance insolvency guaranty association in which an insurer licensed in the state is required to belong." PLIGA's primary role is minimization of loss to claimants or policyholders because of the insolvency of an insurer. Consequently, a risk retention group is ineligible to become a member of, contribute to, or derive any benefit from PLIGA.

ORRG's claim is that PLIGA discriminates by denying risk retention groups limited membership in PLIGA — membership that would permit them to enjoy PLIGA's benefits with respect to pedestrian-PIP benefits without participating in the insolvency fund. Because ORRG presents no argument as to how a risk retention group could participate in PLIGA's payment of pedestrian-PIP benefits on equal footing with PLIGA members without indirectly participating in and funding functions related to the insolvency guaranty association, it fails to show that New Jersey discriminates against these groups in any manner other than that required by § 3902(a)(2).

The nondiscriminatory explanation for PLIGA's assessment and responsibility for pedestrian-PIP benefits is grounded in LRRA, and, for that reason, it is "an acceptable justification." This justification precludes any inference of discriminatory intent in violation of LRRA. ORRG has not provided any evidence of disparate impact, which would require a showing that ORRG's complaint is about something that is not part of the trade-off LRRA requires.

For appellant — John M. Bashwiner (Bashwiner & Deer; Joseph A. Deer on the brief). For respondents: American International Insurance Company of Delaware — Sandra S. Grossman (Law Offices of Steven G. Kraus); New Jersey Property-Liability Insurance Guaranty Association — Mark M. Tallmadge (Bressler, Amery & Ross).