U.S. Fidelity & Guar. v. McKeithen

• Decision Date: 15 September 2000
• Docket Number: No. 99-30475,99-30475
• Citation: 226 F.3d 412
• Parties: (5th Cir. 2000) UNITED STATES FIDELITY & GUARANTY CO., et al., Plaintiffs, UNITED STATES FIDELITY AND GUARANTY CO; FIDELITY & GUARANTY INSURANCE CO; FIDELITY & GUARANTY INSURANCE UNDERWRITERS, INC; ARGONAUT INSURANCE COMPANY; ARGONAUT MIDWEST INSURANCE COMPANY; ARGONAUT SOUTHWEST INSURANCE COMPANY; COMMERCIAL UNION INSURANCE COMPANY; AMERICAN CENTRAL INSURANCE; AMERICAN EMPLOYERS' INSURANCE COMPANY; EMPLOYERS FIRE INSURANCE COMPANY; THE NORTHERN ASSURANCE COMPANY OF AMERICA; UNITED STATES FIRE INSURANCE COMPANY; NORTH RIVER INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; BANKER'S STANDARD INSURANCE COMPANY; CENTURY INDEMNITY CO; CIGNA FIRE UNDERWRITERS INSURANCE COMPANY; CIGNA INSURANCE CO; CIGNA PROPERTY & CASUALTY INSURANCE COMPANY; CIGNA SPECIALITY INSURANCE COMPANY; INDEMNITY INSURANCE COMPANY OF NORTH AMERICA; PACIFIC EMPLOYERS INSURANCE COMPANY; HARTFORD INSURANCE COMPANY; HARTFORD FIRE INSURANCE COMPANY; HARTFORD INSURANCE COMPANY OF THE MIDWEST; HARTFORD INSURANCE COMPANY OF THE SOUTHEAST; ]HARTFORD UNDERWRITERS INSURANCE COMPANY; TWIN CITY FIRE INSURANCE COMPANY; TRAVELERS INSURANCE COMPANY; TRAVELERS INDEMNITY COMPANY OF AMERICA; THE TRAVELERS INDEMNITY COMPANY; THE TRAVELERS INDEMNITY COMPANY OF CONNECTICUT; THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS; CHARTER OAK FIRE INSURANCE COMPANY; PHOENIX INSURANCE COMPANY; AETNA CASUALTY & SURETY COMPANY; CIGNA INDEMNITY INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY; LIBERTY MUTUAL FIRE INSURANCE COMPANY; LIBERTY INSURANCE CORPORATION, Plaintiffs-Appellants, v. W. FOX MCKEITHEN, etc., et al., Defendants, W. FOX McKEITHEN, Louisiana Secretary of State; KEN DUNCAN, Louisiana State Treasurer; GLYNN VOISIN, Judge, Director of Workers' Compensation of Louisiana; JAMES H. BROWN, Louisiana Commissioner of Insurance; MADLYN B. BAGNERIS, Secretary of Social Services of Louisiana, in their official capacities as members of the Louisiana Workers' Compensation Second Injury Board; CHRIS WEAVER, Acting Secretary,
• Court: U.S. Court of Appeals — Fifth Circuit

Page 412

226 F.3d 412 (5th Cir. 2000)

UNITED STATES FIDELITY & GUARANTY CO., et al., Plaintiffs UNITED STATES FIDELITY AND GUARANTY CO; FIDELITY & GUARANTY INSURANCE CO; FIDELITY & GUARANTY INSURANCE UNDERWRITERS, INC; ARGONAUT INSURANCE COMPANY; ARGONAUT MIDWEST INSURANCE COMPANY; ARGONAUT SOUTHWEST INSURANCE COMPANY; COMMERCIAL UNION INSURANCE COMPANY; AMERICAN CENTRAL INSURANCE; AMERICAN EMPLOYERS' INSURANCE COMPANY; EMPLOYERS FIRE INSURANCE COMPANY; THE NORTHERN ASSURANCE COMPANY OF AMERICA; UNITED STATES FIRE INSURANCE COMPANY; NORTH RIVER INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; BANKER'S STANDARD INSURANCE COMPANY; CENTURY INDEMNITY CO; CIGNA FIRE UNDERWRITERS INSURANCE COMPANY; CIGNA INSURANCE CO; CIGNA PROPERTY & CASUALTY INSURANCE COMPANY; CIGNA SPECIALITY INSURANCE COMPANY; INDEMNITY INSURANCE COMPANY OF NORTH AMERICA; PACIFIC EMPLOYERS INSURANCE COMPANY; HARTFORD INSURANCE COMPANY; HARTFORD FIRE INSURANCE COMPANY; HARTFORD INSURANCE COMPANY OF THE MIDWEST; HARTFORD INSURANCE COMPANY OF THE SOUTHEAST; ]HARTFORD UNDERWRITERS INSURANCE COMPANY; TWIN CITY FIRE INSURANCE COMPANY; TRAVELERS INSURANCE COMPANY; TRAVELERS INDEMNITY COMPANY OF AMERICA; THE TRAVELERS INDEMNITY COMPANY; THE TRAVELERS INDEMNITY COMPANY OF CONNECTICUT; THE TRAVELERS INDEMNITY COMPANY OF ILLINOIS; CHARTER OAK FIRE INSURANCE COMPANY; PHOENIX INSURANCE COMPANY; AETNA CASUALTY & SURETY COMPANY; CIGNA INDEMNITY INSURANCE COMPANY; LIBERTY MUTUAL INSURANCE COMPANY; LIBERTY MUTUAL FIRE INSURANCE COMPANY; LIBERTY INSURANCE CORPORATION, Plaintiffs-Appellants, v. W. FOX MCKEITHEN, etc., et al., Defendants W. FOX McKEITHEN, Louisiana Secretary of State; KEN DUNCAN, Louisiana State Treasurer; GLYNN VOISIN, Judge, Director of Workers' Compensation of Louisiana; JAMES H. BROWN, Louisiana Commissioner of Insurance; MADLYN B. BAGNERIS, Secretary of Social Services of Louisiana, in their official capacities as members of the Louisiana Workers' Compensation Second Injury Board; CHRIS WEAVER, Acting Secretary, Louisiana Department of Labor, Defendants-Appellees.

No. 99-30475

UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

September 15, 2000

Appeal from the United States District Court for the Middle District of Louisiana Before JONES, DUHE, and WIENER, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Plaintiffs, United States Fidelity & Guaranty Company and various other private insurance companies, appeal the district court's summary judgment upholding a Louisiana statute that altered the funding formula for the Louisiana Workers' Compensation Second Injury Fund. Because, as applied to the plaintiffs, the statute in question violates the Takings Clause of the United States Constitution, we REVERSE the judgment and REMAND for further proceedings.

I. BACKGROUND

In 1974, the Louisiana legislature established the Workers' Compensation Second Injury Fund ("SIF"). See 1974 La. Acts, No. 165, § 1 (the "1974 Act"). The SIF's stated purpose was to encourage the hiring and retention of disabled workers. Under the previous workers' compensation system, an employee's current employer was responsible for payment of disability benefits even though the worker's disability was partly attributable to a prior accident or disability not involving the current employer. As a result, an employer faced higher insurance costs when hiring a previously disabled worker than it would for an able-bodied worker, and the hiring of previously-injured employees was concomitantly discouraged.

The SIF removed from the ordinary course of insurance an employer's hiring of previously-injured workers. Under the SIF, if an employer became liable to pay compensation to a disabled worker as a result of a second injury, the SIF reimbursed the employer (if the employer was self-insured) or the employer's workers' compensation insurer (if the employer was insured) for benefits paid to the employee. As designed, the SIF was cost-neutral to workers' compensation insurers while spreading the costs of second injury benefits among all employers in the State of Louisiana. This policy was implemented in two ways. First, when an injured worker filed a second injury claim with an insurer, the insurer paid the claim but obtained reimbursement from the SIF. The insurer was thus an intermediary, with the SIF serving as the ultimate payor of benefits. Claims for serial injuries no longer formed part of an employer's loss profile on which its worker's compensation premiums were directly based.

Second, the insurer acted as a conduit through which the SIF passed on reimbursement costs and administrative expenses to insured employers. (The SIF assessed self-insured employers directly.) Under the 1974 Act, insurers were assessed a legislatively-fixed percentage of workers' compensation insurance premiums collected during the applicable year. See La. Rev. Stat. § 23:1377(B)(1974). Louisiana regulators interpreted the 1974 Act to allow insurers to pass these assessments on to employers by including them in the "expense component" of workers' compensation insurance rates. By including the assessment in the premiums billed to insureds, the insurers were reimbursed by employers, on a dollar-for-dollar basis. The assessments were ultimately borne by the employers proportionately, and the State of Louisiana thus avoided the administrative difficulties of collecting small assessments from thousands of insured employers. Insurers also collected lower premiums in recognition of the fact that they no longer covered the costs of workers' second injury claims. This system assured that insurers bore none of the SIF's costs and received no net benefit from the SIF.

In 1995, the Louisiana legislature enacted Act 188, which amended the 1974 Act. See 1995 La. Acts, No. 188 ("Act 188"), codified at La. Rev. Stat. §§ 23:1371-1378. Act 188 did not change the purpose or organization of the SIF, but it did change the method of assessing insurers' annual contributions to the SIF. Instead of basing assessments on a percentage of premiums collected in Louisiana, Act 188 moved to a percentage of workers' compensation benefits paid by the insurer or self-insured in the previous calendar year. While the previous system based assessments on an insurer's current volume of transactions -- specifically, premiums collected under policies written contemporaneously with the assessment -- Act 188 predicates assessments on the insurer's volume of business written in earlier years.¹

In addition to changing the SIF's assessment formula, Act 188 was made retroactive to insurance policies written before the Act's passage. Thus, Act 188 applies to any policy written before its effective date² if that policy resulted in the payment of benefits after the effective date. Act 188 was also made expressly applicable to workers' compensation insurers who, prior to the Act's passage, had withdrawn from the Louisiana market or had substantially reduced their underwriting in the state.³

The plaintiffs represent the class of insurers that, prior to 1995, withdrew from the Louisiana market or substantially reduced their underwriting in the state.⁴ In April 1996, they initiated this action, alleging that application of Act 188 to pre-enactment insurance contracts violated the Takings Clause, the Contract Clause, and the Equal Protection Clause of the U.S. Constitution. They named as defendants, in their official capacities, the members of the Louisiana Workers' Compensation Second Injury Board (the "Board"), the Louisiana Secretary of Labor, and the State's Commissioner of Insurance (collectively, the "state officials"), all of whom are responsible for implementing or enforcing Act 188.⁵ The complaint sought declaratory and injunctive relief.

The parties filed cross-motions for summary judgment, and the case was referred to a magistrate judge, who recommended that the state officials' motion be granted on the Contract Clause and Equal Protection claims and that the plaintiffs' motion be granted on the Takings Clause claim. After timely objections by the parties, the district court granted summary judgment in favor of the state officials on all claims and dismissed the case.

Plaintiffs now appeal the disposition of their Contract Clause and Takings Clause claims.⁶

II. DISCUSSION

The Takings Clause of the Fifth Amendment provides: "[N]or shall private property be taken for public use, without just compensation." U.S. Const. amend V.⁷ The purpose of the Takings Clause is to prevent the government from "forcing some people alone to bear public burdens, which, in all fairness and justice, should be borne by the public as a whole." Eastern Enterprises v. Apfel, 524 U.S. 498, 522, 118 S.Ct. 2131, 2146 (1998), (quoting Armstrong v. United States, 364 U.S. 49, 49, 80 S.Ct. 1563, 1569 (1960)).

This case does not present a classic taking in which the government directly appropriates private property for its own use. See Eastern Enterprises, 524 U.S. at 522. Rather, the alleged taking arises from an economic regulation -- a "public program adjusting the benefits and burdens of economic life to promote the common good." Id., citing Penn Central Transp. Co. v. New York City, 438 U.S. 104, 124, 98 S.Ct. 2646, 2659 (1978). The inquiry into a challenged regulation's constitutionality involves an evaluation of the "justice and fairness" of the government action. Id. at 523. Although this inquiry involves no set formula and is necessarily ad hoc and fact intensive, the Supreme Court has identified three factors of "particular significance" to a regulatory takings clause analysis: (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with reasonable investment-backed expectations; and (3) the character of the government action. Id. at 523,24, citing Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 224-25, 106 S.Ct. 1018, 1026 (1986).

It must be acknowledged that a plaintiff...