# Jurisdictional Statement — Motor Club of America Insurance v. New Jersey > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385010_0254%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Jurisdictional Statement - **Published:** January 1, 1983 - **Citation:** 460 U.S. 1064 ## Text 82-1158 Supreme Court of the United. EEE Ocroser Term, 1982 \——~——————____ MOTOR CLUB OF AMERICA INSURANCE COMPANY, A Corporation of the State of New Jersey, Appellant, Vs. STATE OF NEW JERSEY, STATE OF NEW JERSEY DEPARTMENT OF INSURANCE and JAMES J. SHEERAN, NEW JERSEY COMMISSIONER OF INSURANCE, Appellees. On Appeal from the Supreme Court of New Jersey Ae ema ARERR RE SAE NAR A SNARES A RN SA JURISDICTIONAL STATEMENT 8... Srantey Weiss, Counsel for Appellant Rosert EK. Turrz CarPENTER, Bennett & Morrissey, Attorneys for Appellant, Motor Club of America Insurance Company, 744 Broac Street, Newark, New Jersey 07102. (201) 622-7711 Adams Press Corp., 50 Park Place, Newark, New Jersey 07102—(201) 623-8611 Questions Presented by the Appeal 1. Do the allegations of Appellant’s Complaint* that its assets and equity have been drastically eroded and its earn- ing power substantially destroyed by New Jersey’s auto- aobile insurance regulatory system which, since 1975, has caused Appellant to incur continuing operating losses and prohibited its withdrawal from such losing business, state claims that Appellees have effected a taking of Appellant’s property for a public use without the payment of just com- pensation required by the Fourteenth Amendment to the United States Constitution? 2. If Appellant’s Complaint does state valid claims, have the Courts below denied Appellant federal due process of law by depriving Appellant of the opportunity to prove those claims at a trial? 3. Was it error for the Courts below to preclude a mem- ber of a regulated industry from ever recovering for past takings of its property through excessive regulation by holding that just compensation may only be awarded for *In addition to Appellant, the parties to the action in the State court were: James J. Sheeran, Commissioner of Insur- ance; New Jersey Department of Insurance; and the State of New Jersey. Subsequent to the institution of the action, Joseph F. Murphy was named Commissioner of Insurance in place of James J. Sheeran. Pursuant to R. 4:34-4 of the New Jersey Court Rules, (A. 135a) Mr. Murphy is deemed to have been sub- stituted as a defendant in place of Mr. Sheeran. Appellant’s parent company, subsidiaries (except wholly-owned subsidiaries) and affiliates are as follows: Motor Club of America; Motor Club of America Enterprises, Inc. d/b/a Motor Club of America; Motor Club of America Finance Company; Teachers Underwriting Agency; Automobile Association of New Jersey; Modern Care Centers of America, Inc. ii takings occurring subsequent to the entry of a declaratory judgment determining that the regulatory system was effecting such takings; and was it further error for the Courts below to hold that Appellant may never seek such declaratory judgment? 4. To the extent that the judgment below is based upon the availability, under N.J.S.A. 17:29A-24 (A. 81a), of judicial review of rate making decisions or implicit find- ings of laches, waiver, or consent by Appellant; (a) are any of such grounds legally sufficient to bar Appellant’s claim for just compensation, and (b) does it not deprive Appel- lant of federal due process of law to deny it the oppor- tunity to prove at trial its contention (acknowledged by the trial court) that the right to judicial review of automobile insurance rate making may be illusory and its further con- tentions that a fully developed factual record will not sup- port findings of laches, waiver, or consent in this case? TABLE OF CONTENTS PAGE Questions PreseNnTED BY THE APPEAL i PARTIES TO THE PROCEEDING i TaBLeE oF AUTHORITIES Vv Oprnions BeLow 1 JURISDICTION 2 ConstituTionAL Provisions, Sratutres, REGULATIONS anp Court Ru.es STATEMENT OF THE CASE 5 RatsinG THE F'epERAL QUESTIONS 14 THE QUESTIONS ARE SUBSTANTIAL 16 ConcLusion a 29 APPENDIX: Opinion and Judgment of the Superior Court of New Jersey, Appellate Division (June 28,1982) la Opinion of the Superior Court of New Jersey, Chancery Division (Honorable William A. Dreier, J.S.C.) (June 2, 1981) 5a Order of the Superior Court of New Jersey, Chancery Division (Honorable William A. Dreier, J.8.C.) (July 6, 1981) 19a Order of the Supreme Court of New Jersey Dismissing Appeal and Denying Petition for Certification (October 14, 1982) 2la iv TABLE Ol’ CONTENTS PAGE Notice of Appeal to the Supreme Court of the United States (December 29, 1982) .................. 23a Verified Complaint (October 27, 1980) ................ 26a Exhibit A to Verified Complaint .................... 43a Exhibit B to Verified Complaint .................... 47a Affidavit of David Green (November 12, 1980) .. 48a Order of the Appellate Division in Automobile Insurance Plans Service Ojfice v. James J. Sheeran, No. A-1024-77 (April 25, 1978).. ........ 63a Affidavit of Robert J. Schraeder (November 12, 1980) 65a Appendix A to Schraeder Affidavit ................ 68a Appendix B to Schraeder Affidavit ................ 73a Appendix C to Schraeder Affidavit ................ T4a Statutory Material, Regulations, and Court Rules 75a TABLE or AUTHORITIES Vv PAGE Table of Authorities Cases Cited Aaron v. United States, 311 F.2d 798 (Ct. of Cl. 1963) 2% Armstrong v. United States, 364 U.S. 40 (1960) ........ 18 Automobil Insurance Plans Service Office v. James J. Sheeran, No. A-1024-77 April 25, 1978 ................ 10 Board of Pub. U. Comm’rs v. N.Y. Telephone Co., SEE PRIS CE EMME: setdicslndsensilaasonnioaiibcn Shcsiciisimtaniceaiiobiseigs 19 Brooks-Scanlon Co. v. R.R. Comm’n, 251 U.S. 396 (1920) 15, 19, 29 Bullock v. Railroad Comm’n, 254 U.S. 513 (1921) ... 19 Federal Power Comm. v. Hope Natural Gas Co., 329 U.S. 591 (1944) 19, 25, 29 Garrity v. New Jersey, 385 U.S. 493 (1967) ................. 26 Hilkovsky v. United States, 504 F.2d 1112 (Ct. of Cl. 1974) 24 In re Intrastate Industrial Sand Rates, 66 N.J. 12, 327 A.2d 427 (1974) 8, 25 In re N.J. Power & Light Co., 15 N.J. 82, 104 A. 2d 1 (1954) 8, 24 In re Revision of Rates of Toms River Water Co., 82 N.J. 201, 412 A.2d 430 (1980) 8 In re Valuation Proceedings Under §§ 303(c) and 306 of the Regional Rail Reorganization Act, 439 F. Supp. 1351 (Sp.Ct. RRRA 1977) 28 Insurance Co. of North America v. Howell, 80 N.J. Super. 236, 193 A.2d 386 (App. Div. 1963) ................ 8 vi TABLE OF AUTHORITIES PAGE In the Matter of Jersey Central P & L Co., 166 N.J. Super. 540, 400 A.2d 128 (App.Div. 1979) .............. 25 Johnson v. Zerbst, 304 U.S. 458 (1938) ...........--..000- 26 Marbury v. Madison, 1 Cranch 137 (1803) ................ 17 Matthews v. Huwe, 269 U.S. 262 (1925) 2.00.02... 3 Monongahela Navigation Co. v. United States, 148 U.S. 312 (1892) 25, 29 New Haven Inclusion Cases, 399 U.S. 392 (1970) ...... 19 North Countries Hydroelectric Cv. v. U.S., 118 F. Supp. 375 (Ct. of Cl. 1954) 22 Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978) 18 Pennsylvania Coal Company v. Mahon, 260 U.S. 393 (1922) 18, 22 Railroad Comm’n v. Eastern Texas R.R., 264 U.S. 79 (1924) 19 Regional Rail Act Cases, 419 U.S. 102 (1974) ..15, 19, 20, 29 San Diego Gas & Electric Co. v. San Diego, 450 U.S. 621 (1981) 19, 20, 29 Sheeran v. Nationwide Mutual Ins. Co., 80 N.J. 548, 404 A.2d 625 (1979) 7 Smyth v. Ames, 169 U.S. 466 (1898) decree modified 171 U.S. 361 (1898) 18, 19 Sullivan v. Texas, 207 U.S. 416 (1908) 3 Tumey v. Ohio, 273 U.S. 510 (1927) 23 Tyson and Brother v. Barton, 273 U.S. 418 (1922) ...... 22 Union Pacific R. Co. v. Public S. Comm. of Mo., 248 U.S. 67 (1918) 26, 29 United States v. Dickinson, 331 U.S. 745 (1947) ....22, 24, 29 TABLE OF AUTHORITIES vii PAGE United States Constitution Cited Fifth Amendment 4 Fourteenth Amendment i, 3, 4,15 New Jersey Constitution Cited Article I, Paragraph 20 3, 4 Statutes Cited 28 U.S.C. §1257(2) 3 N.JS.A. 2A:14-1 4, 21 N.J.S.A. 17:29A-1(f) 4,9 N.J.S.A. 17:29A-2 4,9 N.J.S.A. 17:29A-3 4,9 N.J.S.A. 17:29A-6 4 N.J.S.A. 17:29A-7 4,8 N.J.S.A. 17:29A-14 4,8 N.J.S.A. 17:29A-24 ii, 4 N.J.S.A. 17:29D-1 4,7 N.J.S.A. 17:30-8 4,12, 15 N.J.S.A. 17:30C-1 through 30C-31 4, 12, 15, 27 N.J.S.A. 17:30C-3 13 N.J.S.A. 17:30C-4 13 N.J.S.A. 17:30C-9a 13 viii TABLE OF AUTHORITIES PAGE N.J.S.A. 17:30C-9b 13 N.J.S.A. 17:30C-15 2,13 N.J.S.A. 17:300-17 13 N.J.S.A. 17:32-13 4,11 N.J.S.A. 39:6A-1 through 6A-20 6 N.J.S.A. 39:6A-3 4,7 N.J.S.A. 39:6A-4 5, 7 N.J.S.A. 39:6A-4a 7 N.J.S.A. 39:6A-4b-4e 7 N.J.S.A. 39:6A-8 5, 7 N.J.S.A. 39:6A-10 5, 7 L. 1975, C. 113, § 31 4,12 Regulations Cited N.J.A.C., Title 11, Ch. 3 7 N.J.A.C. 11:3-1.13 5, 7 N.J.A.C. 11:3-1.16 5, 9, 26 N.J.A.C. 11:3-8.1 5, 7 New Jersey Court Rules Cited R, 2:2-1(a) (1) 2,5 R. 4:34-4 i, 5 TABLE OF AUTHORITIES ix PAGE Other Authorities Cited Conning & Company, Regulatory Review Property & Casualty Industry, pp. 5-24, October, 1980 .............. 6 Soulor, “Subsidization of Insurance—1979,” Alliance of American Insurers, p. 11, September, 1981 .......... ll NO. In THE Supreme Court of the United States Octoser Term, 1982 ’" MOTOR CLUB OF AMERICA INSURANCE COMPANY, A Corporation of the State of New Jersey, Appellant, vs. STATE OF NEW JERSEY, STATE OF NEW JERSEY DEPARTMENT OF INSURANCE and JAMES J. SHEERAN, NEW JERSEY COMMISSIONER OF INSURANCE, Appellees. On Appeal from the Supreme Court of New Jersey A. wv JURISDICTIONAL STATEMENT Opinions Below The opinion of the Superior Court of New Jersey, Chan- cery Division, and that of the Superior Court of New Jer- sey, Appellate Division, which are not reported opinions, appear in the appendix hereto (A, 1a through A. 18a). The Supreme Court of New Jersey did not write an opinion in this case. 2 Jurisdiction In October, 1980, Appellant Motor Club of America In- surance Company, a New Jersey insurance carrier, com- menced this action in the Chancery Division of the Superior Court of New Jersey against Appellees, the State of New Jersey, the State Department of Insurance, and the Com- missioner of Insurance. Appellant sought just compensa- tion for the taking of its property by New Jersey’s system regulating the automobile insurance industry in that state and certain other relief.” Appellant contends that the cumu- lative impact of the regulatory system on Appellant since 1975 has been to cross the constitutional perimeter of per- missible regulation and to take Appellant’s property with- out the payment by Appellee, State of New Jersey, of con- stitutionally mandated just compensation in violation of the State and Federal Constitutions. In October, 1982, without a prior trial or other proceed- ing for the development of the facts, the New Jersey Su- preme Court entered Orders which summarily dismissed Appellant’s appeal and denied Appellant’s petition for cer- tification.** The effect of the Orders was to allow to stand the June 28, 1982 judgment of the Appellate Division of the New Jersey Superior Court, which required the dis- missal of Appellant’s Complaint in its entirety for failure * Appellant also sought to enjoin Appellees from commencing (on the grounds of capital impairment) delinquency proceed- ings against it which under N.J.S.A. 17:30C-15 (A. 94a), would lead to the appointment of Appellee, Commissioner, as receiver. ** Appellant appealed as of right to the Supreme Court of New Jersey on the basis that the case involves substantial questions arising under both the Federal and State Constitutions (N.J. Court Rules 2:2-1(a)(1)) (A. 135a). Appellant also, as a matter of caution, sought review in the State Supreme Court by filing a Petition for Certification. 3 to state a claim upon which relief may be granted, and which denied Appellant leave to amend that Comp’ int. The New Jersey Supreme Court’s order which dis- missed Appellant’s appeal to that Court was necessarily grounded upon that Court’s determination that no substan- tial constitutional issue was presented by that appeal. Therefore, that Order is a final judgme.t affirming the Ap- pellate Division’s June 28, 1982 judgment, T'umey v. Ohio, 273 U.S. 510, 515 (1927); Matthews v. Huwe, 269 U.S, 262 (1925). It is therefore the Dismissal Order of the New Jersey Supreme Court, filed on October 14, 1982, which is now presented to this Court for Review.* The Notice of Appeal to this Court (A. 23a) was filed in the New Jersey Supreme Court on December 29, 1982. Because Appellant’s claim drew into question, under both the State and Federal Constitutions, the validity of several important New Jersey statutes and the regulatory scheme thereunder as applied to Appellant, and because the deci- sion of the New Jersey Supreme Court necessarily up- held the validity, as applied, of those statutes and the regulatory system, Appellant seeks review in this Court by direct appeal pursuant to 28 U.S.C. § 1257(2).** *Had Appellant sought review in the New Jersey Supreme Court only by means of its petition for certification, and not by direct appeal, the denial of the petition for certification would not have consti’ ‘ted a final judgment, subject to review by this Court. Instead, the earlier judgment of the Appellate Divi- sion would be reviewable here, Sullivan v. Texas, 207 U.S. 416 (1908). ** We respectfully contend that the interpretation by the Courts below of New Jersey’s Constitutional provision prohibiting the taking of private property for public use without just compen- sation, N.J. Const. Art. I, {[20, also places that provision in direct violation of the Fourteenth Amendment of the Federal Constitution, 4 Constitutional Provisions, Statutes, Regulations and Court Rules Fifth Amendment, United States Constitution: ... nor shall private property be taken for public use, without just compensation. Fourteenth Amendment, United States Constitution: .. nor shall any State deprive any person of life, liberty, or property, without due process of law. Article I, 20, New Jersey Constitution: Private property shall not be taken for public use without just compensation... New Jersey Laws*: N.WJS.A, 2A :14-1 N.J.S.A. 17:29A-1(f) N.J.S.A. 17:29A-2 N.J.S.A. 17:29A-3 N.J.S.A. 17:29A-6 N.J.S.A. 17:29A-7 N.J.S.A. 17:29A-14 N.J.S.A. 17:29A-24 N.J.8S.A. 17:29D-1 N.J.8.A. 17:30-8 Laws of 1975, Ch, 113, § 31 N.J.8S.A. 17:30C-1 through 300-31 N.JS.A. 17:32-18 N.wWJ.S.A. 39:6A-3 *The Statutory Material, Regulations, and New Jersey Court rae reproduced in the Appendix hereto at A. 75a through | N.J.S.A. 39:6A-4 N.J.S.A. 39:6A-8 N.WJ.S.A. 39:6A-10 Regulations: N.J.A.C, 11:3-1,13 N.WJ.A.C, 11:8-1.16 NJAC, 11:3-8.1 New Jersey Court Rules: R, 2:2-1(a) R, 4:34-4 Statement of the Case Appellant, the major subsidiary of Motor Club of America (“MCA”), was incorporated in New Jersey in 1928, and has, throughout its history, been principally engaged in insuring New Jersey automobile risks.* Ap- pellant has been managed for its entire business existence by members of the family which founded it and its cor- porate parent, and, through the early 1970s, it prospered as a relatively small, stable, and profitable company. ‘Thus, at year-end 1973, its surplus as to policyholders was $21,- 026,296 on a statutory insurance accounting basis, and its stockholders’ equity was $26,098,990 on the basis of generally accepted accounting principles (A, 5la, 52a, 58a). However, beginning in the year 1975, and continuing, without interruption, beyond the filing of the Complaint *By way of example, in 1979, more than 77% of Appel- lant’s net premiums were on account of New Jersey automobile policies and 90% of its net premiums were on account of all New Jersey policies (A. 27a). 6 herein in October, 1980, Appellant has suffered massive losses from its automobile business, During the years 1975 through 1979 those losses aggregated $31,634,621 (A. 56a). Thus, despite capital contributions of $10,- 250,000 to Appellant between 1976 and 1979 by its cor- porate parent, MCA, and by other companies affiliated with MCA, Appellant’s surplus to policyholders at De- cember 31, 1979 had been eroded to $3,209,0c) on a statu- tory basis and its stockholders’ equity reduced to $10,038,- 000 on a GAAP basis (A, 53a), But for the $10,250,000 contributed to Appellant (A. 58a) (and absent any con- sideration of the value of the present claims of Appellant) Appellant would have been insolvent, Appellant contended and was prepared to prove that the drastic, adverse turn in its circumstances between 1975 and October, 1980, was directly caused by sweeping changes, introduced in the 1970s, in the system governing the automobile insurance business in New Jersey—changes which have brought massive operating losses to all auto- mobile insurers in New Jersey and have marked New Jer- sey’s regulatory system as the most oppressive and unsue- cessful in the nation,* In large measure the fundamental changes to the regula- tory system were accomplished with the 1972 enactments of New Jersey statutes requiring compulsory liability in- surance and “no-fault” insurance after January 1, 1973, N.J.S.A. 39:6A-1 through 6A-20, Those laws set forth cer- tain mandatory provisions which must be included in all automobile policies or made available at the insured’s op- *A 1980 industry poll taken by Conning & Company in- dicated that 100% of the responding companies listed New Jersey as the worst state in the Union in which to do automobile in- surance business (Conning & Company, Regulatory Review Prop- erty & Casualty Industry, pp. 5-24, October, 1980), 7 tion, ¢.g., no fault personal injury protection benefit fea- tures which include unlimited medical protection (N.J.S.A. 39:6A-4a) (A, Lila, 112a); mandatory and additional in- come continuation benefits, essential service benefits, sur- vivor benefits, and funeral expense benefits (N.J.S.A. 39 :6A- 4b through 4e; N.J.S.A. 89:6A-10) (A. 112a-1l5a); and compulsory liability coverage in the amounts of $15,000/ 30,000/$5,000 (N.J.S.A. 39;6A-3) (A. 110a). Despite the no- fault features, the statute provides only a token exemption from tort. liability for personal injuries in the form of a $200 medical bill threshold, N.J.S.A. 39:6A-8 (A, 113a). The governing statutes further require that every owner or registered owner of a car registered or principally gar- aged in New Jersey have such automobile insurance, (N.J. S.A. 39:6A-3; 6A-4; GA-10), They also direct that the New Jersey insurance industry, through the Automobile Insur- ance Plan,* provide that coverage, regardless of the suit- ability of » narticular person as a risk from an underwrit- ing perspective, N.J.S.A. 17:29D-1 (A, 82a). Furthermore, New Jersey automobile policies are cancellable only on limited grounds, and (with unimportant exception) are sub- ject to indefinite renewal despite their demonstrable un- profitability, Sheeran v. Nationwide Mutual Ins. Co., 80 N.J. 548, 404 A.2d 625 (1979); N.J.S.A. 39:6A-3 (A. 111a); N.J.A.C, 11:3-8,1°* (A, 127a). *The Automobile Insurance Plan is set forth in the New Jersey Administrative Code, Title 11, Chapter 3 (“N.J.A.C., Title ll, Ch, 3”). **In the case of assigned risk policies under the Automobile Insurance Plan, the insurer is obligated to keep the risk for three years, after which the risk returns to the pool for re- assignment if other insurance is not available (which is vir- tually always the case), N.J.A.C, 11:3-1.13 (A, 115a). The drop- ping of particular assigned risks after three years (or the can- cellation of policies for nonpayment of premium during the three year period) does not alleviate the burden upon the insurer be- cause new assigned risks necessarily replace the old ones as a matter of course. 8 In addition to mandating the nature and content of the automobile insurance policy and its required purchase by all New Jersey automobile owners, the statute vests Appel- lee, Commissioner of Insurance, with control over the ap- proval of rates and premiums to be charged for those poli- cies, N.J.S.A. 17:29A-7, N.J.S.A. 17:29A-14 (A. 79a, 80a). This control, exercised by a required prior approval of changes in rates, is of particular significance in light of the massive and continuing increases in the actual cost of the product which the State requires to be sold. Because all vehicle owners must purchase the product, irrespective of their ability to pay premiums which would cover those costs and which would be compensatory to the insurers, Appel- lees have considerable motivation, and through the Com- missioner’s control of rate approvals, the opportunity to keep rates and premiums at a minimum. Moreover, the statutory scheme provides no built-in protection against “regulatory lag,” i.¢., there are no provisions authorizing interim rates while rate applications are pursued, and there is no provision limiting the time within which rate deci- sions must be made.* Furthermore, in New Jersey rates may be set prospectively, only, In re N.J. Power & Light Co., 15 N.J. 82, 104 A.2d 1 (1954); In re Intrastate Indus- trial Sand Rates, 66 N.J. 12, 23, 327 A.2d 427, 433 (1974). They cannot be put into effect retroactively, even to the date of the application, Jn re Revision of Rates of Toms River Water Co., 82 N.J. 201, 412 A.2d 430 (1980) ; and this is so even if the regulatory lag is unreasonable, id, 213, 214. “The provision in N.J.S.A. 17:29A-7 which requires the Com- missioner to act within 90 days of the filing of a rating system, applies only to filings of original systems. It does not apply to filings seeking approvals of rate changes, Jnsurance Co. of North America v. Howell, 80 N.J. Super. 236, 193 A.2d 386 (App.Div. 1963). 9 With respect to both the voluntary market and the resi- dual market, Appellant is a subscriber or member of statutorily recognized rating organizations, N.J.S.A. 17: 29A-1(f) ; 29A-2; 29A-3 (A. 75a, 76a, 77a), which file and prosecute rate change applications on behalf of their mem- bers and subscribers.* For reasons which we discuss, infra, pp. 26-27 Appellant lacks the power to effectively chal- lenge the determinations which are periodically made as a result of the ratin,: organizations’ filings, and those deter- minations have, in the main, established the rates and pre- miums charged by Appellant. In practice, this rate making system resulted in sub- stantial abuses under the Appellee, Commissioner Sheer- an, who routinely not only delayed and severely cut legitimate applications for rate changes but also coerc- ively conditioned his grants of relief upon the withdrawal of pending applications and the substitution in their stead of new applications for the lesser amounts he was pre- pared to grant rather than the greater amounts to which the applicants were entitled. * Appellant is a: subscriber to Insurance Services Office (“ISO”) which files for its subscribers and members rate applications ap- plicable to the voluntary market. Appellant is a subscriber to Automobile Insurance Plan Services Office (“AIPSO”) which makes similar filings for rate approvals applicable to the residual market. With respect to the voluntary market, insurers may file rate applications, individually. While some of the larger insurers do make such individual filings, smaller companies such as Appellant cannot, on an actuarial basis, produce information upon which they could base individual filings. Unlike the case of the voluntary market, all insurers must be subscribers to AIPSO for purposes of the residual market and be bound by the uniform rates set as the result of AIPSO filings. N.J.A.C. 11:3-1.16 (A. 116a). 10 We contend that what typically occurred was as fol- lows: