First, the good part of the recent opinion issued by the New York Supreme Court Appellate Division, First Department (dun dun) in American Economy Ins. Co. v. New York, No. 16095 (Apr. 14, 2016):
Plaintiffs also established that the amendment, as applied retroactively, violates the Contract Clause of the US Constitution because it retroactively impairs an existing contractual obligation to provide insurance coverage “[w]here *** the insurer does not have the right to terminate the policy or change the premium rate” (Health Ins. Assn. of Am. v Harnett, 44 NY2d 302, 313  [internal quotation marks omitted] [asterisks in original]; see US Const, art I, § 10, cl 1). Defendants failed to show that the impairment is “reasonable and necessary to serve” “a significant and legitimate public purpose *** such as the remedying of a broad and general social or economic problem” (19th St. Assoc. v State of New York, 79 NY2d 434, 443  [internal quotation marks omitted] [asterisks in original]). Indeed, the legislation’s stated purpose of preventing a windfall to insurance carriers was based upon the erroneous premise that premiums already cover this new liability.Retroactive application would also constitute a regulatory taking in violation of the Takings Clause (see US Const Amend V; NY Const, art I, § 7[a]; Eastern Enterprises, 524 US at 528-529 [“it imposes severe retroactive liability on a limited class of parties that could not have anticipated the liability, and the extent of that liability is substantially disproportionate to the parties’ experience”]).Plaintiffs have therefore established that the amendment, as applied retroactively to policies issued before October 1, 2013, is unconstitutional.
Slip op. at 13-14.
New York state amended its workers compensation statutes which since 1933 had provided for a special fund to cover claimants whose claims were closed, and then later reopened. The fund -- appropriately titled the "reopened case fund" -- was funded by assessments against the insurance companies, and insurance companies relied on the existence of the funds when they established their premiums.
In 2013, New York amended the statute to close the reopened case fund to newly reopened claims (say that three times), which meant that any reopened claims that would have been transferred to the reopened case fund would become the obligation of the insurance carriers.
The insurance companies, unhappy because the premiums which they had charged to employers before the amendment did not account for their future liability for reopened claims, sued (presuming that the reopened case fund would cover those claims). They asserted the amendments imposed on them additional liability retroactively, which they claimed was a taking and impaired their existing contracts.
As noted above, the Appellate Division agreed. It rejected the state's argument that this was just one of those economic regulations, and the court should as a consequence wash its hands of the matter. The court held this was the legislature imposing retroactive liability, or more precisely, the legislature "retroactively deprived them of the entirety of the benefit of [the] right [to transfer eligible cases to the reopened case fund] and created a new class of unfunded liability." Slip op. at 12.
Is the Appellate Division's opinion the last word on this issue? We're guessing not.