Insurance takes back seat to State’s defense and indemnity obligations under the Tort Claims Act

The New Jersey Appellate Division recently held that when the New Jersey Attorney General’s office is obligated to defend and indemnify a local public entity under the Tort Claims Act (“TCA”), the State must fund the defense and indemnity; it cannot turn to the local public entity’s insurance.  State of New Jersey v. County of Ocean, A-3665-19, 2021 WL 5113835 (N.J. Super. Ct. App. Div. Nov. 4, 2021). 

The case arose out of a personal injury lawsuit against a detective employed by the Ocean County, New Jersey Prosecutor’s Office who was operating a county vehicle in the scope of her employment when the vehicle was involved in an accident.  The plaintiff sued the County, the detective, and the Prosecutor’s Office.  In response to the County’s request for defense and indemnity from the Attorney General, the Attorney General agreed to defend and indemnify the Prosecutor’s Office and the detective.  More than a year later, the Attorney General’s office asserted that the State’s obligations to defend and indemnify were secondary to the mandatory insurance coverage that the County must maintain on its motor vehicles pursuant to N.J.S.A. 40A:10-3.  Litigation between the State and the County on this issue ensued.

The Appellate Division acknowledged that N.J.S.A. 40A:10-3 requires the County to maintain certain insurance on its motor vehicles.  Nonetheless, the Appellate Division concluded that where the State has an obligation to defend and indemnify an entity pursuant to the TCA, the State cannot use the County’s insurance to pay for the defense and indemnity.  The Appellate Division rejected the State’s argument that N.J.S.A. 59:10A-5 allows the State to choose any appropriate insurance policy, including the County’s insurance, to pay for the County’s defense and indemnity.  The Appellate Division explained that N.J.S.A. 59:10A-5 allows the Attorney General to designate who shall provide a defense to an entity entitled to a defense under the TCA, but the statute does not provide the State with the ability to designate who shall bear the costs of indemnity.  

The Appellate Division relied primarily on the New Jersey Supreme Court decision of Wright v. State, 169 N.J. 442, 445 (2001).  In Wright, the Supreme Court noted that by statute, the State is required to indemnify employees for whom a defense is provided.  As such, the Wright Court found that “at least for purposes of the State’s obligation under the [TCA], the concepts of indemnification and the provision of defense costs are wedded together.”  In Wright, the New Jersey Supreme Court held that the State had an obligation to defend and indemnify county prosecutorial employees sued on the basis of actions taken in the discharge of their law enforcement duties. 

Based upon the holding in Wright, the Appellate Division concluded that “if the State is obligated to defend, regardless of who the State then designates to defend, the State bears the corresponding cost of indemnification.” 

Comment

The State of New Jersey v. County of Ocean decision reiterates and follows the holding in Wright that where the State has a duty to defend, it also has a duty to indemnify.  The decision makes clear that the State will be responsible for funding that defense and indemnification.  The State cannot turn to a local public entity’s insurance as the source of funding.