IN THE MATTER OBJECTION OF SUN LIFE ASSURANCE COMPANY OF CANADA, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4803-02T54803-02T5

IN THE MATTER OF THE OBJECTION

OF SUN LIFE ASSURANCE COMPANY

OF CANADA AND KEYPORT LIFE

INSURANCE COMPANY TO THE SPECIAL

PURPOSE APPORTIONMENT FOR FY 2002

PURSUANT TO N.J.S.A. 17:1C-19 ET SEQ.

__________________________________________

 

Argued: November 14, 2005 - Decided May 15, 2006

Before Judges A. A. Rodr guez, C. S. Fisher and Yannotti.

On appeal from a final agency decision of the Department of Banking and Insurance, Order #A03-122.

Carol A. LaFond argued the cause for appellants Sun Life Assurance Company of Canada (U.S.) and Keyport Life Insurance Company (LeBoeuf, Lamb, Greene & MacRae, attorneys; Ms. LaFond and Jessica L. Biamonte, on the brief).

Eleanor Heck, Deputy Attorney General, argued the cause for respondent Department of Banking and Insurance (Peter C. Harvey, Attorney General, attorney; Michael Haas, Assistant Attorney General, of counsel; Ms. Heck, on the brief).

PER CURIAM

Appellants Sun Life Assurance Company of Canada (U.S.) and Keyport Life Insurance Company (collectively "Sun Life"), challenge the April 1, 2003 order by the Commissioner of the New Jersey Department of Banking and Insurance (DOBI), that denied their objections to the 2002 special purpose apportionment (SPA) pursuant to N.J.S.A. 17:1C-20. This is a final agency decision appealable to this court. Sun Life argues that the SPA was calculated in an improper manner. We agree and reverse.

N.J.S.A. 17:1C-20 permits the Commissioner to apportion DOBI's expenses among every company engaged in business in New Jersey pursuant to Subtitle 3 of Title 17 "in the proportion that the net premiums received by each of them . . . bears to the sum total of all such net premiums received by all companies." N.J.S.A. 17:1C-20. The term "net premiums received" is defined as "gross premiums written, less return premiums thereon and dividends credited or paid to policy holders." Ibid.

Historically, the Commissioner has calculated the SPA based upon information contained in Schedule T of the companies' annual statements. Schedule T is a standard form used throughout the industry and adopted by the National Association of Insurance Commissioners (NAIC). Column 2 of Schedule T indicates the amount of "life insurance premiums" and column 3 the "net premiums received." The sum of these two columns constitutes the "net premium received."

Prior to January 1, 2001, the amounts reported in Column 3 of Schedule T accurately reflected accurately "net premiums received." However, after January 1, 2001, the NAIC adopted a revised format for Schedule T. This format called for certain "deposit-type contract funds," which were previously reported in Column 5 to be reported in Column 3. These deposit-type funds are monies deposited with annuity providers for contracts that have not "annuitized." In other words, annuitized funds are those that have been collected for an annuity contract prior to the time that the contract-holder exercises the right to receive a stream of payments. Therefore, prior to annuitization, these funds are more akin to investment funds than insurance premiums because they may be withdrawn by the contract-holder at any time. A deposit-type fund does not meet the statutory definition of "net premiums received" upon which the SPA assessment is based.

Apparently, through inadvertence of this reporting change, the Commissioner calculated the SPA for 2002 using the amounts stated in Columns 2 and 3. Sun Life challenged the 2002 SPA, arguing that the apportionment is contrary to N.J.S.A. 17:1C-20 because the "deposit-type" funds paid by annuity holders are not "premiums." The Commissioner rejected these challenges in an order and decision. This appeal followed.

Sun Life contends that "the Commissioner's actions are contrary to law, arbitrary, capricious and unreasonable" because the SPA was not calculated in a manner consistent with N.J.S.A. 17:1C-20. We agree.

From our review, we conclude that the 2002 SPA contravenes N.J.S.A. 17:1C-20 because it is based in part on amounts that are not "premiums." Our holding is buttressed by DOBI's subsequent rule making action on this issue. In 2004, the Commissioner adopted N.J.A.C. 11:2-43 (effective November 2004), allowing companies to deduct consideration derived from "deposit-type" annuities from the amount in Column 3 in order to determine the amount of the SPA. The regulation provides:

An insurer may file a certification with respect to its annuity business based on the amounts reported on its 2002 Schedule T to seek an adjustment in amounts previously paid. To the extent the certification demonstrates a change in the annuity premium amount to which the [SPA] and the fraud assessment apply, the Department shall recalculate the insurer's special purpose apportionment and fraud assessment for that year. Any amounts that may be excluded pursuant to this subchapter shall be deducted from the insurer's premium on which future apportionments and assessments, as applicable, are based.

[N.J.A.C. 11:2-43.4.]

In the statement accompanying the rule change proposal, DOBI concedes that it would be "appropriate" to compute the 2002 and 2003 SPA by excluding deposit-type consideration from the base amount. The statement reads in part:

. . .

[DOBI] has received numerous inquiries as well as objections to inclusion of allocated deposit-type funds previously not subject to the apportionment or the assessment. In rendering a decision on one such objection to the special purpose apportionment on these grounds, the Commissioner, in Order No. A03-122, rejected the objecting companies' arguments solely on the basis that the Department had based its determination of the relevant apportionment on the companies' annuity considerations as reported in Column 3, Schedule T of the annual statement. The Department, however, has continued to evaluate this issue, and has determined that it is appropriate to permit companies transacting annuity business to exclude allocated deposit-type funds solely for purposes of determining the apportionment and the assessment.

[ 36 N.J.R. 2976(a) (emphasis added).]

Given our holding, we need not address Sun Life's other contention that, DOBI "violated the provisions of the New Jersey Administrative Procedures Act," N.J.S.A. 52:14B-1 to - 25.

Accordingly, the SPA issued to Sun Life for the year 2002 is reversed and remanded for a new calculation in accordance with this opinion. Upon recalculation, all amounts paid by Sun Life in excess of its SPA shall be returned in full with interest as authorized by N.J.S.A. 17:1C-25. That section provides in pertinent part:

A company against which a statement of special purpose apportionment is rendered shall pay the amount thereof, and after the payment may in the manner provided by this act at any time within two years from the date of the payment, bring an action at law against the State to recover the amount paid, with legal interest thereon from the date of payment, upon the ground that the special purpose apportionment was excessive, erroneous, unlawful or invalid, in whole or in part.

[N.J.S.A. 17:1C-25 (emphasis added)].

Reversed and remanded. We do not retain jurisdiction.

 

 

Keyport Life Insurance Company merged with and into its holding company affiliate Sun Life Assurance Company of Canada (U.S.) on December 31, 2003. The surviving company is Sun Life Assurance Company of Canada (U.S.).

(continued)

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A-4803-02T5

May 15, 2006