A Statute Trumps the Common Law

Farmers Mut. Fire Ins. Co. of Salem v. New Jersey Property-Liability Ins. Guar. Ass’n, 215 N.J. 552 (2013).  Today’s unanimous opinion by Justice Albin addresses the proper allocation of environmental cleanup costs when one of the insurers on the risk is insolvent.  The key issue was the interplay between Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994), which had established an allocation method, and a 2004 amendment to the New Jersey Property-Liability Guaranty Association Act, N.J.S.A. 17:30A-5 (“PLIGA”).  The Court held that the PLIGA amendment was intended to supersede the common law methodology of Owens-Illinois.

Plaintiff contended that the common law rule of Owens-Illinois took precedence over the PLIGA amendment.  Justice Albin emphatically rejected that argument.  “The common law is the collection of judicially crafted principles– developed in the crucible of the adversarial process– that govern matters that do not fall within the realm occupied by the Legislature.  Legislation has primacy over areas formerly within the domain of the common law.  Legislation represents the will of the people as enacted through their elected representatives.  Only the Constitution– our organic charter– is paramount to legislative enactments.”  Thus, “[l]egislative enactments are never subservient to the common law when the two are in conflict with each other.”

Plaintiff also argued that the 2004 PLIGA amendment unconstitutionally impaired plaintiff’s pre-existing contract rights, in violation of the Contract Clauses of the United States and New Jersey Constitutions.  Justice Albin rebuffed that argument too.  Courts will find a violation of the Contract Clause of either Constitution only when legislation “substantially impairs” a contractual relationship, “lacks a significant and legitimate public purpose,” and is “based upon unreasonable conditions and unrelated to appropriate governmental objectives.”  None of these tests were satisfied.  In a highly regulated industry such as insurance, parties have no expectation that “a naturally fluid regulatory scheme” will remain unchanged.  Absent such an expectation, there is no “substantial impairment” of contracts.  Moreover, the PLIGA amendment was motivated by significant and legitimate public policy goals and imposes reasonable conditions related to appropriate governmental objectives.

The concept that statutes override common law principles seems fundamental.  But the only authorities cited as direct support for that principle in this opinion were United States v. Schooner Peggy, 5 U.S. (1 Cranch) 103,110 (1801), and a 1785 letter from Thomas Jefferson.  Now, however, the Supreme Court of New Jersey has affirmatively stated that principle.  Future New Jersey decisions on this subject will not have to hark back over 200 years to find authority for the idea that statutes trump the common law.