New Jersey recently passed a noteworthy insurance fraud law and is about to pass an anti-indemnification law in the field of transportation.

First and foremost, it is now an insurance fraud in New Jersey for in-state drivers to deceptively register and insure their vehicles in states with lower premiums. Effective May 7, 2015, N.J.S.A. 2C:21-4.6 has been amended so that any person who operates a motor vehicle in New Jersey which is insured by a policy in another state has committed insurance fraud if that person maintains a principal residence in New Jersey or principally garages the vehicle in New Jersey and has knowingly represented to any insurance company or producer in the other state which results in obtaining that motor vehicle insurance policy that he (1) maintains a principal residence in another state when he, in fact, resides in New Jersey or (2) has his motor vehicle principally garaged in the other state, when the motor vehicle is principally garaged in New Jersey.

The amendment does provide exceptions for policies written in states where, in accordance with the laws of that other state, the insured is permitted to obtain the policy based on a second residence or if he is attending an educational institution in that state and if it is fully disclosed where the insured’s principal residence is and where the vehicle is principally garaged.

This legislation is significant because New Jersey car insurance premiums rank among the highest in the nation. According to a recent study by Insure.com, New Jersey ranked tenth out of the 50 U.S. states with an average annual premium of $1,595. (The variance among the states’ average rates ranged from $805 to $2,476 annually, with a national average rate of $1,311 per year in this “apples to apples” study.) The NAIC, which analyzes the average yearly expenditure on car insurance regardless of the amount of coverage purchased or type of car insured, found that the average annual expenditure was highest in New Jersey at $1,219.93 yearly. Naturally, the high cost of car insurance in this state is what drives the consumer to commit this type of insurance fraud by trying to work around New Jersey’s mandatory insurance laws and obtain auto insurance coverage in another state at a much lower cost. Carriers need to be aware of this new provision when investigating and reporting instances of insurance fraud to state authorities. (For a full copy of the amended statute, see http://www.njleg.state.nj.us/2014/Bills/A2500/2281_I1.PDF.)

Additionally, the legislature has joined the majority of states in passing an anti-indemnification bill in the transportation field. Forty-two states across the country already have such laws on the books and New Jersey is about to rank among them. On June 25, 2015, the State Assembly unanimously passed House Bill A3282, referring it to the State Senate (as Senate Bill S1380) for concurrence. This bill makes void and unenforceable any provision in a motor carrier transportation contract that indemnifies, defends, or holds harmless the promisee to a contract from liability for loss or damage resulting from the negligence, intentional acts, or omissions of the promisee. For the purposes of the bill, “motor carrier transportation contract” means a contract, agreement, or understanding concerning: (1) the transportation of property for compensation or hire by a motor carrier; (2) the entrance on property by a motor carrier for the purpose of loading, unloading, or transporting property for compensation or hire; or (3) a service incidental to the transportation of property for compensation or hire by a motor carrier, or the entrance on property by a motor carrier for the purpose of loading, unloading, or transporting property for compensation or hire, including, but not limited to, the storage of property.

If the Senate approves the bill without changes, it will go to the state’s governor. The governor may do one of three things: sign it, conditionally veto it (returning it for changes), or veto it absolutely. Generally speaking, it will become law if the governor signs it or if 45 days passes without gubernatorial action on it. If the governor vetoes the bill, it may still become law if the legislature overrides the veto by a 2/3 vote. The law takes effect on the day specified in its text or, if unspecified, the next July 4th.

Keep a close eye out for updates on the status of this bill, as the enactment of this law will invalidate specific indemnity provisions in motor carrier transportation contracts. If the law is enacted, the only remaining states without this type of legislation will include New Hampshire, Vermont, New York, Rhode Island, Ohio, Delaware, and Mississippi.

This type of transportation legislation has been enacted in the majority of states over concern that shippers have had about “vicarious liability” for trucking accidents. Many shippers have attempted to include broad indemnity clauses in their transportation contracts due to uncertainty over their carrier selection obligations under the Federal Motor Carrier Safety Administration’s (FMCSA) Compliance, Safety, Accountability (CSA) and Safety Measurement System (SMS). Some of these contract provisions essentially attempt to make the carrier indemnify the shipper even when the shipper’s negligence may have caused or contributed to the accident or injury.

The New Jersey “anti-indemnification” statute, as in so many other states with similar legislation, does not, as the name suggests, prohibit indemnification provisions altogether. Rather, the purpose is to prohibit indemnification provisions requiring the carrier to indemnify the shipper for accidents, injuries, claims, or damages that are caused by the negligent or wrongful acts of the shipper. In other words, these statutes do not prohibit an indemnification provision requiring the carrier to indemnify the shipper for negligent or wrongful acts of the carrier. The law, once enacted, will simply codify the inability of the shipper to transfer the risk of its negligence to the motor carrier.

For additional information on these and other legislative updates, contact Matthew Mitchell (mmitchell@c-wlaw.com) or Patricia Holden (pholden@c-wlaw.com).