By: John P. Lock, Esquire, and Timothy Banks, Esquire
On March 4, 2026, the U.S. Supreme Court ruled that the New Jersey Transit Corporation (“NJ Transit”) is not an arm of the State of New Jersey and thus is not entitled to share in New Jersey’s interstate sovereign immunity. As a result of the Court’s decision, negligence suits arising from accidents involving the transit authority may proceed in the courts of Pennsylvania and New York.
The case arose from two accidents involving NJ Transit buses that occurred outside of New Jersey – one in Pennsylvania and the other in New York. NJ Transit moved to dismiss, arguing it was an arm of the State of New Jersey and, therefore, immune from suit under interstate sovereign immunity. The New York Court of Appeals allowed the suit to proceed, while the Pennsylvania Supreme Court dismissed it, creating a split. The U.S. Supreme Court consolidated the cases and granted certiorari.
What Changed:
State sovereign immunity bars private parties from suing a nonconsenting state (or an “arm” of the state) in that state’s own courts or in the courts of another state. In its decision, the U.S. Supreme Court clarified that the test to be applied in an arm of the state analysis is whether the state structured the entity as a legally separate entity liable for its own judgments.
The clearest evidence of legal separateness is when the state creates a corporation with traditional corporate powers to sue and be sued, hold property, enter into contracts, and incur debt. Courts must look at the statute creating the entity to determine whether such powers were granted. In the case of NJ Transit, the Court placed emphasis on the language “body corporate and politic with corporate succession,” found at N.J. Stat. §27:25-4(a), and language granting typical corporate powers, such as the power to “sue and be sued,” “enter into contracts,” and “purchase, . . . or otherwise acquire, . . . real or personal property,” found at N.J. Stat. §§27:25-5(a), (j), (r).
Courts also must examine whether the entity is liable for its own judgments or whether the state is formally liable. The state’s formal liability for the entity’s judgments makes the entity more likely to be an arm of the state. The U.S. Supreme Court has never found a corporation liable for its own judgments to be an arm of the state, even when the state had significant control, including cases where the state was the sole shareholder, possessed appointment and removal powers, and managed the entity’s affairs. Here, N.J. Stat. §27:25-17 provides “no debt or liability of the corporation shall be deemed or construed to create or constitute a debt, liability, or a loan or pledge of the credit of the State,” which means NJ Transit is liable for its own judgments.
It is important to note that even if an entity is not an arm of the state, the Court has long recognized that a state’s sovereign immunity may still require dismissal of the action if the state is the real party in interest in that particular case. For instance, a damages claim against a state or federal officer in their official capacity is barred by sovereign immunity because “the real party in interest is the government entity, not the named official.”
What Does This Mean For Insurers:
Following the U.S. Supreme Court’s ruling on this matter, insurers should pay extra attention to the quasi-governmental entities they cover. Entities like NJ Transit are unlikely to be considered an arm of the state they serve and should be treated as such. Similar entities might include transit agencies, port authorities, public corporations, and other state-created entities, thereby increasing insurers’ exposure. Disputes that might previously have been dismissed on sovereign immunity grounds will now proceed, increasing defense and indemnity expenses. This may require more carefully drafted policies to address governmental entity status, indemnification obligations, and coverage limits.
Please contact John Lock, Esquire, of Lock Gordon Law Group’s Transportation Law practice group with questions about this article or any other aspect of trucking or transportation law.