Louisiana Ins. Guaranty Ass'n v. Guglielmo, 9276

• Decision Date: 19 March 1973
• Docket Number: No. 9276,9276
• Parties: LOUISIANA INSURANCE GUARANTY ASSOCIATION v. Dudley A. GUGLIELMO, Commissioner of Insurance, et al.
• Court: Court of Appeal of Louisiana — District of US

Page 720

276 So.2d 720

LOUISIANA INSURANCE GUARANTY ASSOCIATION v. Dudley A. GUGLIELMO, Commissioner of Insurance, et al.

No. 9276.

Court of Appeal of Louisiana, First Circuit.

March 19, 1973.

Rehearing Denied May 14, 1973.

Writ Refused June 28, 1973.

E. Leland Richardson, Dale, Owen, Richardson, Taylor & Mathews, Baton Rouge, for appellant.

Richard E. Britson and John P. Campbell, III, Baton Rouge, for Insurance Commissioner.

Before LANDRY, TUCKER and PICKETT, JJ.

LANDRY, Judge.

This appeal by plaintiff (Association) is from an adverse judgment in favor of defendant (Commissioner) rendered in Appellant's declaratory action for judicial interpretation of Appellant's liability for a 'covered claim' as defined in LSA-R.S. 22:1375--1394, inclusive, known as the Insurance Guaranty Association Law (Act). The trial court held that 'covered claim', as used in LSA-R.S. 22:1379(3), includes claims which arose prior to September 1, 1970, the effective date of the Act. We affirm.

Appellant's chief complaint is that the trial court's interpretation gives the Act retroactive effect which violates Federal and State Constitutional provisions prohibiting laws which impair contractual obligations or disturb vested rights.

The express purpose of the Act, as stated in Section 1376, is to provide a mechanism for payment of covered claims under certain insurance policies to avoid excessive delay in payment, and prevent financial loss to claimants or policyholders because of the insolvency of an insurer. Additionally, the Act seeks to assist in the detection and prevention of insurer insolvencies, and to provide a means to assess the cost of the protection it affords among insurers.

The scope of the Act, as established in Section 1377, encompasses all kinds of direct insurance except life, health and accident, title, disability, mortgage guaranty and ocean and marine insurance.

Section 1380 creates the Association as a nonprofit, unincorporated legal entity composed of all insurers defined as 'member insurer' in Section 1379. A member insurer is defined in Section 1379(5) as any insurer who writes insurance within the ambit of Section 1377, and who is licensed to transact insurance in this state. Section 1381 provides for a board of directors to govern the Association's affairs and defines its powers and duties.

In pertinent part, the Association's powers and duties are defined in Section 1382(1), (a) and (b), as follows:

'(1) The association shall:

(a) Be obligated to the extent of the covered claims existing prior to the determination of the insurer's insolvency, or arising after such determination but prior to the first to occur of the following events: (1) expiration of thirty days after the date of such determination of insolvency, (2) expiration of the policy, or (3) replacement or cancellation of the policy at the instance of the insured if he does so within thirty days of the determination, but such obligation shall include only that amount of each covered claim, except return premiums, which is in excess of one hundred dollars and is less than fifty thousand dollars, nor shall a claim for the portion of unearned premium in excess of seven hundred and fifty dollars be allowed. Notwithstanding the foregoing, the association shall pay the full amount of any covered claim arising out a workmen's compensation policy. In no event shall the association be obligated to a policyholder or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from which the claim arises.

(b) Be deemed the insurer to the extent of its obligation on the covered claims and to such extent shall have all rights, duties and obligations of the insolvent insurer as if the insurer had not become insolvent.' (Emphasis by the Court.)

Assessment to insurers of the amount required to pay the Association's obligations is authorized pursuant to Section 1382(1), (c).

A covered claim is defined in Section 1379(3), as follows:

'(3) 'Covered claim' means an unpaid claim, including one for unearned premiums, Which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this Part applies Issued by an insurer, if such insurer becomes an insolvent insurer after September 1, 1970 and (a) the claimant or insured is a resident of this state at the time of the insured event; or (b) the property from which the claim arises is permanently located in this state. 'Covered claim' shall not include insurance pool, or underwriting association, insurance pool, or underwriting association, as subrogation recoveries or otherwise.' (Emphasis by the Court.)

An insolvent insurer is defined in Section 1379(4) as:

'. . . (a) an insurer authorized to transact insurance in this state either at the time the policy was issued or when the insured event occurred and (b) determined to be insolvent by a court of competent jurisdiction.'

In Section 1394, it is provided the effective date of the Act shall be September 1, 1970.

A liberal construction of the Act is mandated by Section 1378, which recites:

'This Part shall be liberally construed to effect the purpose under section 22:1376, which shall constitute an aid and guide to interpretation.'

Following the Act's effective date, two of the Association's members, United Bonding Insurance Company and Home Owners Insurance Company, were judicially declared insolvent. Included in the outstanding unpaid claims against said insurers were some that arose prior to September 1, 1970. The pivotal issue is the Association's liability vel non for those claims which arose before September 1, 1970. Appellant concedes liability for all claims arising subsequent to September 1, 1970. Appellant also concedes the constitutionality of the Act, but argues that the interpretation given by the trial court renders such application unconstitutional.

In concluding that covered claims include those which arose prior to September 1, 1970, the lower court reasoned that the legislature had not expressly provided that September 1, 1970, bore any relation to the time when a covered claim could arise, which the legislature could easily have done if it so desired. In effect the court found that the date September 1, 1970, as used in the Act, relates only to the time of insolvency, which alone determines the Act's applicability. Additionally, the lower court found that the Act, as interpreted, does not impair contractual obligations or disturb vested rights because the only contracts involved are insurance contracts by insurers who become insolvent. The lower court also noted that even before insolvency occurs, a claimant has an action under his policy which action is contractual in nature, but that this circumstance alone does not impose liability on the Association . It does, however, according to the trial court, represent a potential liability of the Association which matures or accrues upon a determination of insolvency which must postdate September 1, 1970. When it accrues, the liability of the Association is statutory, not contractual. In effect, the trial court reasoned that, upon a determination of insolvency, the Association's statutory liability replaces the contractual obligation of the insolvent insurer. Finally, the trial court held that since the Association's liability can arise only after the effective date of the Act, the Act is prospective in operation, consequently the decreed application cannot impair contractual rights or disturb vested interests.

The Association alleges numerous specifications of errors which may be summarized as follows: (1) The trial court correctly held the Act prospective in application, but nevertheless gave it retroactive effect in holding that covered claims include those which arose prior to the Act's effective date; (2) the trial court erred in holding that the mere existence of a claim on September 1, 1970, does not give rise to the Association's liability, but that such liability results from subsequent insolvency alone, and (3) the lower court erred in not holding that both the claim must arise and the insolvency occur subsequent to September 1, 1970, and in so failing, applied the Act retroactively in violation of La.Const. Art . 4, Sec. 15, U.S.Const. Art. 1, Sec. 10, LSA-C.C. art. 8, and LSA-R .S. 1:2.

The question is one of statutory interpretation to which the following rules apply:

The universal and most effective way of determining the true meaning and intent of a doubtful or ambiguous statute is to consider its reason and spirit, or the cause which prompted its enactment by the legislature. LSA-C.C. art. 18; Gautreau v. Board of Electrical Examiners, La.App., 167 So.2d 425.

The court's objective in construing a statute is to ascertain the legislative intent and interpret the law so as to give it the meaning the lawmaker obviously intended, and not to construe the legislation so rigidly as to give it a preposterous or strange meaning. State v. Seals, 255 La. 1005, 233 So.2d 914.

Statutes must be given a reasonable interpretation. Labit v. Terrebonne Parish School Board, La.App., 49 So.2d 431.

In contending that the Act in question may not be given retroactive effect, the Association cites and relies upon the following well established rules and statutory provisions governing statutory interpretation:

No section of the Louisiana Revised Statutes may be construed to be retroactive unless it is expressly so provided. LSA-R.S. 1:2.

Laws are presumed prospective in effect, not retroactive. State ex rel. Tulane Homestead Association v. Montgomery, 185 La. 777, 171 So. 28; State v. Alden Mills, La.App., 8 So.2d 98.

If the language used by the legislature does not clearly show intent that a statute should have retroactive effect, the statute must be construed to operate prospectively only. Long v. Northeast Soil Conservation District of La., 226 La. 824, 77 So.2d 408.

The Association also cites and...