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(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

I/M/O THE COMMISSIONER OF INSURANCE'S ISSUANCE OF ORDERS A92-189 AND A92-212, AND ADOPTION OF N.J.A.C. 11:3-20.5 AND ADOPTION OF N.J.A.C. 11:3-20 - APPENDIX (A-96-93)

    (NOTE: The Court wrote no full opinion in this case. Rather, the Court's affirmance of the judgment of the Appellate Division is based substantially on the reasons expressed in the written opinion of Judge King below.)

    Argued February 28, 1994 -- Decided June 14, 1994

    PER CURIAM

    This appeal addresses whether the Commissioner of Insurance (Commissioner) exceeded his authority in promulgating regulation N.J.A.C. 11:3-20.5(e) (section 20.5(e), under the Excess Profits Law, N.J.S.A. 17:29A-5.6 to 5.16 (EPL), that was intended to implement the mandate of the Fair Automobile Insurance Reform Act of 1990 (the FAIR Act). Provisions of the FAIR Act prevent automobile insurers from passing through to insureds the surtax and assessment costs imposed on insurers to bailout the multi-billion dollar deficit of the New Jersey Automobile Full Insurance Underwriting Association (JUA). Insurers are precluded from including the surtax and assessment costs in the rate base unless absolutely necessary to achieve a fair and reasonable rate of return.

    The specific question posed in this case is whether the Commissioner exceeded his authority in promulgating section 20.5(e) which prohibits automobile insurers from deducting the surtax and assessment costs as an expense in their excess profit report unless the Commissioner permitted the insurer to include the surtax and assessment costs in its rate filing. Selective Insurance Company, Hanover Insurance Company, and State Farm Insurance Company (collectively referred to as insurers) claim that the regulation violates both the express language of, and the intent of, the EPL and is unconstitutional as confiscatory on its face. The Commissioner claims that the appeal is nonjusticiable and should be dismissed because none of the insurers have shown excess profits or have been harmed by the new regulation.

    On the justiciability question, the Appellate Division held that the insurers have the right to challenge the regulation on its face, even though they have not realized any "excess profit." The court noted that appeals may be taken as of right to review final decisions or actions of any state administrative agency or officer and to review the validity of any rule promulgated by such agency or officer.

    The Appellate Division also concluded that section 20.5(e) is not facially confiscatory and upheld the validity of the regulation. The Appellate Division considered reasonable rates and the EPL, noting that the Commissioner must approve rates that are reasonable and adequate and not unfairly discriminatory, taking into account a reasonable profit for the insurer. The court found that the mandate of the FAIR Act was clear. As such, an insurer cannot treat the surtax and assessment costs as expenses in the context of standard ratemaking unless it can demonstrate that they are otherwise unable to earn a constitutionally adequate rate of return. The court noted that none of the insurers have met that burden. The court found that, in view of the explicit commands of the Legislature in preventing direct pass-throughs, it would strain logic to conclude that the Legislature intended to permit indirect pass-through of surtax and assessment costs to policyholders by way of the EPL.

    The Appellate Division further concluded that the Commissioner has ample authority pursuant to the FAIR Act and the intent of the EPL to promulgate section 20.5. The Commissioner has broad authority under the EPL to promulgate regulations governing excess profits that are necessary to implement the

provisions of the FAIR Act. While the EPL provides that "general expenses" are to be included in excess profit reports, the court found that this does not mean that the Commissioner lacks the authority to exclude certain expenses that would otherwise defeat the specific legislative directive and intent of the FAIR Act.

    The Appellate Division noted that the EPL, like the statutory ratemaking scheme, was designed to protect members of the public from improper insurance rates. The court found that, consistent with the FAIR Act's directive, the Commissioner amended the ratemaking regulations to confirm that the FAIR Act surtax and assessment costs could not be automatically incorporated into the expense base for determining rates. Because of the related function of the excess profit reports, the Commissioner correlatively recognized the need to harmonize the excess profit calculation with the treatment of expenses and the ratemaking regulations. The court concluded that any contrary construction of the term "expenses" in the EPL would defeat the anti-pass-through provisions of the FAIR Act intended to protect policyholders from paying the insurers' FAIR Act obligations. Thus, the Commissioner's authority "to take such action as is necessary" to achieve the legislative objective of the FAIR Act, combined with his authority to enact necessary excess profit regulations, made his action in promulgating N.J.A.C. 11:3-20.5 reasonable. The Appellate Division did note that an amendment and clarification of the language in the EPL would have been cleaner; however, that fact does not detract from the Commissioner's power to use his judgment and expertise through rulemaking to implement the legislative will.

    Lastly, the Appellate Division found that the regulation was not confiscatory on its face; it noted that State Farm effectively disposed of arguments that the FAIR Act or regulations promulgated pursuant to that Act are facially confiscatory.

HELD:    Judgment of the Appellate Division is AFFIRMED substantially for the reasons expressed in Judge King's written opinion below. By promulgating N.J.A.C. 11:3-20.5(e), the Commissioner of Insurance did not exceed his authority in prohibiting automobile insurers from deducting the surtax and assessment costs as an expense in their excess profit report unless permitted by the Commissioner to include such costs in its rate filing to insure a reasonable rate of return.

     JUSTICE GARIBALDI, dissenting, in which JUSTICE O'HERN joins, is of the view that the Court upholds N.J.A.C. 11:3-20.5(e), a regulation that requires insurers in calculating their excess profits to exclude from "other expenses" the assessment and surtax costs paid by insurers pursuant to the FAIR Act. However, the FAIR Act surtax and assessment costs are "taxes," "fees," or "general expenses" and, hence, should be deducted in the excess-profits calculation. As such, the regulation's exclusion of the FAIR Act's surtax and assessment costs contravene both the plain language and the intent of the Excess Profit Law.

     JUSTICES CLIFFORD, HANDLER, POLLOCK and STEIN join in this opinion. JUSTICE GARIBALDI filed a separate dissenting opinion in which JUSTICE O'HERN joins. CHIEF JUSTICE WILENTZ did not participate. SUPREME COURT OF NEW JERSEY
A- 96 September Term 1993

IMO THE COMMISSIONER OF
INSURANCE'S ISSUANCE OF
ORDERS A-92-189 AND A-92-212,
AND ADOPTION OF AMENDMENT TO
N.J.A.C. 11:3-20.5 AND
ADOPTION OF N.J.A.C. 11:3-20 -
APPENDIX

        Argued February 28, 1994 -- Decided June 14, 1994

On certification to the Superior Court, Appellate Division, whose opinion is reported at ___ N.J. Super. ___ (1993).

Thomas P. Weidner argued the cause for appellants State Farm Mutual Automobile Insurance Company, Selective Insurance Company, and Hanover Insurance Company (Jamieson, Moore, Peskin & Spicer, attorneys; Mr. Weidner and Lee R. Jamieson, of counsel and on the briefs).

Joseph L. Yannotti, Assistant Attorney General, argued the cause for respondent, Commissioner of Insurance (Alexander P. Waugh, Acting Attorney General of New Jersey, attorney; Mary C. Jacobson, Assistant Attorney General, of counsel; Marilyn S. Silvia, Deputy Attorney General, on the brief).

PER CURIAM

        The judgment is affirmed, substantially for the reasons expressed in the opinion of the Appellate Division, reported at ___ N.J. Super. ___ (1993).

        Justices Clifford, Handler, Pollock, and Stein join in this opinion. Justice Garibaldi has filed a separate dissenting opinion, in which Justice O'Hern joins. Chief Justice Wilentz did not participate.

                            SUPREME COURT OF NEW JERSEY
                             A- 96 September Term 1993

I/M/O The Commissioner of
Insurance's Issuance of Orders
A-92-189 and A-92-212, and Adoption
of Amendment to N.J.A.C. 11:3-20.5
and Adoption of N.J.A.C. 11:3-20 -
Appendix

_____________________________________

GARIBALDI, J., dissenting.
    In l988 the Legislature enacted the present Excess Profits Law (EPL). L. l988, c. ll8. The statute's purpose, according to then-Governor Kean, was to "assure that a complete and accurate assessment of profits and losses is presented by insurers." Governor's Conditional Veto Message to Senate Bill No. 3090, at 2 (Nov. 9, l987) (emphasis added) (hereinafter Conditional Veto Message). The Court today violates the EPL by upholding N.J.A.C. 11:3-20.5(e), which excludes an insurer's actual expenses from the excess-profits calculation.
    The EPL requires insurers to report the sum of profits from underwriting operations and investment income derived from policyholder-supplied funds. N.J.S.A. l7:29A-5.8. If actual operating profit is more than 2.5" above the insurer's 5.3" pre-tax profit allowed under New Jersey rate regulations, an insurer must refund excess profits to policyholders.
    N.J.S.A. l7:29A-5.6(m) provides that in the calculation of the excess profits attributable to underwriting operations,

underwriting incomeSee footnote 1 is the difference between earned premiums and losses, loss adjustment expenses, and "other expenses exclusive of UCJF assessments." "[T]axes, licenses, and fees" and "general expenses" are specifically identified as "other expenses". N.J.S.A. l7:29A-5.7(c)(3), (3)(b), (3)(e). The FAIR surtax and assessment are "taxes," "fees," or "general expenses" and hence should be deducted in the excess-profits calculation.     Nonetheless, the Court today upholds N.J.A.C. ll:3-20.5(e), (Reg. 20.5(e)), a regulation that requires insurers in calculating their excess profits to exclude from "other expenses" the assessments and surtaxes paid by insurers pursuant to the Fair Automobile Insurance Reform Act of l990, L. l990, c. 8 (FAIR). Because the regulation's exclusion of FAIR's surtax and assessment contravenes both the plain language and the intent of the Excess Profits Law, N.J.S.A. l7:29A-5.6 to 5.l6, I respectfully dissent.

    No one disputes that FAIR surtaxes and assessments are "taxes," "fees," or "general expenses" under EPL. N.J.S.A. l7:29A-5.7c(3), (3)(b), (3)(e); In re Comm'r of Ins., 132 N.J. 209, 225 (1993)(observing that FAIR's "`assessments' were to be regarded as `expenses' of the insurance companies").
    Likewise, EPL's plain language dictates that FAIR expenses and most other expenses should be deducted in the excess-profits calculation. That expenses are generally deducted is consistent with the plain meaning of "profits," i.e. "excess of returns over expenditure in a transaction or series of transactions." Webster's Third New Int'l Dictionary 1811 (1976).
    Additionally, the statute specifically excludes an expense, but makes no mention of the FAIR surtax and assessment. The statute provides that "other expenses exclusive of UCJF assessments," ("amounts paid by the insurer to the Unsatisfied Claim and Judgment Fund," N.J.S.A. l7:29A-5.6(n)) are deducted in determining underwriting income. N.J.S.A. 17:29A-5.6(m)(emphasis added). The EPL's specific exclusion of UCJF assessments from the underwriting-income calculation is additional evidence in the statute's plain language that the Legislature did not intend FAIR surtaxes and assessments to be excluded. See N.J.S.A. 17:29A-5.6(m). Had the Legislature also intended to exclude FAIR's assessments and surtaxes from the excess-profits calculation, it would have amended the EPL.

    The Legislature is presumed to be familiar with its prior enactments. See Quaremba v. Allan, 67 N.J. l, l4 (l975); County of Essex v. Comm'r, Dep't of Human Servs., 252 N.J. Super. l, l0-ll (App. Div.), certif. denied, l 27 N.J. 553 (l99l). The presumption is especially strong in this case because when the Legislature imposed the surtaxes and assessments in FAIR, it explicitly declared that FAIR was "a logical, comprehensive and complete revision of the various laws and regulatory schemes that impact, in whatever fashion, on the system and its participants." N.J.S.A. l7:33B-2(f). Nonetheless, the Legislature did not amend the Excess Profits statute in any respect. It did, however, amend virtually every law dealing with automobile insurance. A partial listing of the statutes amended through FAIR includes the New Jersey Automobile Reparations Reform Act, N.J.S.A. 39:6A-l et seq., the Compulsory Motor Vehicle Insurance Law, N.J.S.A. 39:6B-23 et seq., the New Jersey Automobile Full Insurance Availability Act, N.J.S.A. l7:30E-l et seq.; the New Jersey Automobile Insurance Reform Act of l982, N.J.S.A. l7:29A-33 et seq.; the New Jersey Property-Liability Insurance Guaranty Association Act, N.J.S.A. l7:30A-l et seq.; the Department of Insurance Act of l970, N.J.S.A. l7:lC-l et seq.; the New Jersey Antitrust Act, N.J.S.A. 56:9-l et seq., the Rules and Regulations for the Apportionment of Insurance Coverage, N.J.S.A. l7:29D-l, and the Penalty Point Acts, N.J.S.A. 39:5-30.9. It is highly unlikely that the Legislature would fail to amend the Excess Profits Act,

significantly revised just two years earlier, L. l988, c. ll8, if it had in fact intended such an amendment.

conflicts with a statute. Barnert Memorial Hosp., supra, 92 N.J. at 40.
     To uphold a regulation, therefore, the court must determine that the regulation is authorized and consistent with legislative policy. Id. at 39. The regulation challenged here is not.     
    The legislative history establishes that actual results for underwriting and investments are to be used to provide a "more accurate representation of profits." Conditional Veto Message, supra, at 2. I am totally unpersuaded by the Commissioner's suggestion that the new regulation is an effort to obtain a more accurate reflection of an insurer's actual condition.
    Instead, I find that Regulation 20.5(e) precludes an insurer from reflecting a substantial cost of conducting private passenger-automobile business in New Jersey. Here one insurance company reports paying approximately $60 million in surtaxes and assessments from l990 to l992. Another reports $3l million, and another reports $6 million. The Commissioner does not obtain an accurate reflection of the insurers' financial conditions when those compulsory expenses are not considered.
    Likewise, I am unpersuaded that unless the surtaxes and assessments are not excluded as deductions under the EPL, insureds will end up actually paying the surcharges and assessments imposed under FAIR. That is just plain wrong. Under

State Farm v. State, 124 N.J. 32 (1991), the FAIR Act fees are already properly excluded from the ratemaking process. Thus, insureds are guaranteed that their premiums will not increase as a result of the assessment and surtax. To exclude the fees again at the Excess Profits stage provides insureds with a double benefit unauthorized by the anti-pass-through statutes. That second exclusion may permit an insured to receive a refund check. Such a refund check would issue even though any increased profits could not have resulted from the surtax and assessment because the insured never was charged and never paid a higher premium based on the surcharge or the assessments. Under the Court's holding, an insured could receive a refund even if an insurance company did not have any excess profits. Such a refund is equivalent to the Commissioner imposing an additional tax on insurers.
    "The power to raise revenue or to tax is among the most fundamental of governmental powers." In re Comm'r of Ins., supra, l32 N.J. at 226. Moreover,
        [t]he need not to give a "statute any greater effect than its language allows" is "particularly compelling" in the context of considering the power to tax. Kingsley v. Hawthorne Fabrics, Inc., 4l N.J. 52l, 528, l 97 A.2d 673 (l964).
            Rarely does the Legislature extend revenue-raising authority with regulatory authority. When it does, it closely hems in the grant of authority. See Public Serv. Elec. & Gas Co. v. New Jersey Dep't of Envtl. Protection, l0l N.J. 95, l04, 50l A.2d l25 (l985) (finding that Legislature authorized

the agency to administer "cost-based" permit program, not a "revenue-raiser").

evidence exists that the Legislature intended to repeal any provisions of the Excess Profits Law exists.
    Neither the legislative history nor the language of FAIR even hints at an intent to repeal by implication the provisions of EPL. Additionally, FAIR clearly dealt with the surtaxes and assessments in the context of standard ratemaking. Excess-profit calculation is not ratemaking, it is a retrospective review of actual profits and losses.

    Justice O'Hern joins in this dissent.

Footnote: 1Underwriting income is significant because it is a component of actuarial gain, which amount is added in the final calculus to determine whether an insurer has earned excess profits. N.J.S.A. 17:29A-5.8; N.J.S.A. 17:29A-5.6(b).