Title: Alabama Insurance Guaranty Association v. Mercy Medical Association

State: alabama

Issuer: Alabama Supreme Court

Document:

Rel: 02/15/2013
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
OCTOBER TERM, 2012-2013
____________________
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____________________
Alabama Insurance Guaranty Association
v.
Mercy Medical Association and Catholic Health East, Inc.
Appeal from Jefferson Circuit Court
(CV-09-903450)
MAIN, Justice.
The 
Alabama 
Insurance 
Guaranty 
Association 
("AIGA") 
filed
an action against Mercy Medical Association, an Alabama
nonprofit corporation ("Mercy Medical"), and Catholic Health
East, Inc., a Pennsylvania nonprofit corporation ("CHE"),
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seeking to recover money it had paid on behalf of Mercy
Medical and CHE on workers' compensation claims filed by
employees of Mercy Medical as well as a judgment declaring its
right to reimbursement of statutory benefits to be paid on the
employees' claims in the future.   AIGA, Mercy Medical, and
1
CHE each moved for a summary judgment.  The trial court
entered a summary judgment in favor of Mercy Medical and CHE,
concluding, as a matter of law, that AIGA was not entitled to
reimbursement for payments made for claims prior to August 1,
2009 (the effective date of amendments to the act creating the
AIGA, § 27-42-1 et seq., Ala. Code 1975 ("the AIGA Act")),
payments made after August 1, 2009, and future payments made
on behalf of Mercy Medical and CHE on the employee's workers'
compensation claim because the AIGA Act as it existed
following amendments in 2000 ("the 2000 AIGA Act") applied,
not the AIGA Act as amended in 2009 ("the 2009 AIGA Act") as
AIGA paid several workers' compensation claims, which
1
were at issue in the underlying action.  However, because AIGA
made most of those payments more than six years before AIGA
filed the underlying action, and this Court has held in a
separate action brought by AIGA that a six-year statute of
limitations applied to AIGA's claims for reimbursement, only
the workers' compensation claim related to Brenda Keao was not
time-barred.  See Ex parte Water Works & Sanitary Sewer Bd. of
Montgomery, 93 So. 3d 94 (Ala. 2012).
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urged by AIGA.  Specifically, the trial court determined (1)
that the 2000 AIGA Act applied because it was in effect at the
time of the insolvency of Reliance National Insurance Company
("Reliance"), CHE's workers' compensation insurer, and at the
time the workers' compensation judgment was entered against
Mercy Medical, (2) that the 2009 AIGA Act did not apply
retroactively because the 2009 amendments to the AIGA Act
substantively changed the law, and (3) that, under the 2000
AIGA Act, Mercy Medical's net worth did not exceed
$25,000,000, so AIGA could not recover any amounts it had paid
on behalf of Mercy Medical.   AIGA appealed.  For the
following reasons, we affirm.
I.  Facts and Procedural History
In 1999, Brenda Keao, an employee of Mercy Medical, was
injured in a workplace accident.  Because Mercy Medical is one
of CHE's Regional Health Corporations ("RHCs") and 
because 
CHE
provides its RHCs with insurance services, CHE secured from
Reliance workers' compensation coverage for itself and all of
its RHCs.   Thus, at the time of Keao's accident, Mercy
2
CHE, which provides assistance and support to charitable
2
health organizations such as Mercy Medical, paid the premiums
and was named as the insured on the Reliance workers'
compensation insurance policy.  Mercy Medical, which operates
3
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Medical had workers' compensation insurance through Reliance. 
Reliance was a member insurer of AIGA, which is "a nonprofit
unincorporated legal entity," § 27–42–6, Ala. Code 1975,
established under the AIGA Act.  The purpose of the AIGA Act
is "to provide a mechanism for the payment of covered claims
under certain insurance policies, to avoid excessive delay in
payments and to avoid financial loss to claimants or
policyholders because of the insolvency of an insurer, to
assist in the detection and prevention of 
insurer 
insolvencies
and to provide an association to assess the cost of such
protection among insurers."  § 27–42–2, Ala. Code 1975.  
In October 2001, Reliance was declared insolvent and
Keao's workers' compensation claim was forwarded to AIGA. 
AIGA retained defense counsel and defended Mercy Medical in
Keao's workers' compensation action.  In late 2002, the trial
court ruled that Mercy Medical had employed Keao and that Keao
was entitled to permanent total-disability benefits under the
Workers' Compensation Act.  Mercy Medical appealed, and this
Court, on certiorari review from the Court of Civil Appeals,
health-care facilities in Daphne and Mobile, was added to
CHE's policy by endorsement on November 1, 1999.  According to
the record, Mercy Medical was reorganized in 1997, and CHE
became Mercy Medical's sole member at that time.
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held that the receipt of disability benefits did not preclude
the payment of workers’ compensation benefits.  See Ex parte
Keao, 900 So. 2d 442 (Ala. 2004); Mercy Med. v. Keao, 900 So.
2d 443 (Ala. Civ. App. 2004).
In November 2009, AIGA filed an action against Mercy
Medical and CHE, seeking reimbursement for benefits AIGA had
paid 
on 
Mercy 
Medical's 
behalf 
for 
Keao's 
workers'
compensation claim both before and after August 1, 2009, as
well as a judgment declaring its right to reimbursement of any
statutory benefits to be paid on Keao's workers' compensation 
claim in the future.   AIGA based its action on the 2009 AIGA
3
Act, claiming that the 2009 amendments to the AIGA Act applied
retroactively.  AIGA contended that it was entitled to
reimbursement because Mercy Medical and CHE were "high net
worth" insureds under the 2009 AIGA Act.  See § 27–42–5(7),
Ala. Code 1975 (defining "high net worth insured").  Mercy
Medical and CHE filed answers denying that either entity was
AIGA also sought reimbursement for other workers'
3
compensation claims that it had paid and that were at issue in
this action.  However, those payments were made more than six
years before AIGA filed the underlying action and are time-
barred.  See Ex parte Water Works & Sanitary Sewer Bd. of 
Montgomery, 93 So. 3d 94 (Ala. 2012) (holding that six-year
statute 
of 
limitations 
applied 
to 
AIGA's 
claim 
for
reimbursement). See note 1.
5
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required to reimburse AIGA under the AIGA Act because, they
contended, the 2009 AIGA Act did not apply in this case. 
Instead, Mercy Medical and CHE claimed that the 2000 AIGA Act,
as it existed at the time of the Reliance insolvency and at
the time the judgment was entered in Keao's workers'
compensation action, controlled.  AIGA, Mercy Medical, 
and 
CHE
filed summary-judgment motions and briefs in support of their
summary-judgment motions.  The trial court, after considering
the evidentiary submissions and the briefs and after hearing
oral arguments, entered a summary judgment in favor of Mercy
Medical and CHE.  In its summary-judgment order, the trial
court determined (1) that the 2000 AIGA Act applied because it
was the law in effect at the time of Reliance's insolvency and
at the time the judgment was entered in Keao's workers'
compensation action, (2) that the 2009 AIGA Act did not apply
retroactively because the revisions to the Act were
substantive, not remedial, and (3) that AIGA was not entitled
to reimbursement because, under the 2000 AIGA Act, Mercy
Medical's net worth did not exceed $25,000,000.
II.  Standard of Review
"'[B]ecause the underlying facts are not
disputed and this appeal focuses on the application
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of the law to those facts, there can be no
presumption of correctness accorded to the trial
court's ruling.'  Beavers v. County of Walker, 645
So. 2d 1365, 1373 (Ala. 1994) (citing First Nat'l
Bank of Mobile v. Duckworth, 502 So. 2d 709 (Ala.
1987)).  A ruling on a question of law carries no
presumption of correctness, and appellate review is
de novo.  See Rogers Found. Repair, Inc. v. Powell,
748 So. 2d 869 (Ala. 1999); Ex parte Graham, 702 So.
2d 1215 (Ala. 1997)."  
Ex parte City of Brundidge, 897 So. 2d 1129, 1131 (Ala. 2004).
III.  Analysis
AIGA essentially presents three arguments on appeal. 
First, AIGA argues that its right of reimbursement, under both
the 2000 AIGA Act and the 2009 AIGA Act, vests upon the
payment of benefits to the claimant on behalf of the insured. 
Alternatively, citing Ex parte Water Works & Sanitary Sewer
Board of Montgomery, 93 So. 3d 94 (Ala. 2012), AIGA argues
that the 2009 AIGA Act should apply to all payments of claims 
occurring after August 1, 2009.  Second, AIGA argues that the
2009 AIGA Act applies retroactively because, it argues, the
2009 amendments to the AIGA Act were remedial and simply 
defined, among the things, "net worth" and "high net worth
insured" and provided the methodology for calculating an
insured's net worth.  Last, AIGA argues that, under either or
both the 2000 AIGA Act and the 2009 AIGA Act, it was entitled
7
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to recover money it had paid on behalf of Mercy Medical
because Mercy Medical's net worth exceeded $25,000,000, even
under the 2000 AIGA Act.  We consider these arguments in turn.
A.  Vesting of Right to Reimbursement
AIGA contends that its right to reimbursement from its
member insurers vests upon its payment of benefits.  Mercy
Medical and CHE submit that AIGA's right to reimbursement
vests at the time of the insolvency of the insured.  We
conclude, based on the plain language of § 27-42-2, which
states the purpose behind the AIGA Act, that the right to
reimbursement vests at the time of the insured's insolvency.  
4
Although this Court has not yet considered what law
applies to an insurance-guaranty matter such as this, the
plain language of the AIGA Act is instructive.  Section
27-42-2, Ala. Code 1975, provides: "The purpose of this
chapter is to provide a mechanism for the payment of covered
claims under certain insurance policies, to avoid excessive
delay in payments and to avoid financial loss to claimants or
Mercy Medical and CHE do not argue that the guaranty-
4
association law that applied to the insurance coverage Mercy
Medical had in place at the time of Keao's injury should
govern in a case such as this.  We therefore do not consider
the question here.
8
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policyholders because of the insolvency of an insurer, to
assist in the detection and prevention of 
insurer 
insolvencies
and to provide an association to assess the cost of such
protection among insurers."  The clear purpose of the AIGA Act
is to protect policyholders, like Mercy Medical, from
financial losses resulting from the insolvency of 
the 
insurer. 
Additionally, § 27-42-4, Ala. Code 1975, states: 
"This 
chapter
shall be liberally construed to effect the purpose under
Section 27-42-2 which will constitute an aid and guide to
interpretation."  Accordingly, the legislature has directed a
liberal construction of the AIGA Act in favor of claimants and
insureds or policyholders.  Both the 2000 AIGA Act and the
2009 AIGA Act consistently refer to the date of the insurer's
insolvency as the date on which critical determinations are
made.  The claim against AIGA does not accrue until the
insurer is declared insolvent.  The date of insolvency
triggers AIGA's obligation to handle the claim and to make all
decisions regarding the disposition of a covered claim.  Thus,
we conclude that the date of the insurer's insolvency controls
in determining when AIGA's right to reimbursement vests.
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To the extent AIGA argues that the 2009 AIGA Act should
apply to all payments on claims occurring after August 1,
2009, its argument is misplaced.  AIGA cites Ex parte Water
Works, supra, for the proposition that each payment on a
workers' compensation claim gives rise to a new statutory
right to be considered under the law in effect at the time of
the payment.  In Ex parte Water Works, supra, this Court, in
considering the applicable statute of limitations to AIGA's
reimbursement claims, did not agree with the arguments
advanced by AIGA.  Instead, this Court, affirming the judgment
of the Court of Civil Appeals, applied the AIGA Act in effect
on the date AIGA became obligated to make a claims payment in
determining that a six-year statute-of-limitations period
began to run when a payment was made, regardless of whether
AIGA was aware of the insured's net-worth status at that time. 
The parties do not dispute that Reliance was declared
insolvent in 2001.  The 2000 AIGA Act, therefore, not the 2009
AIGA Act, governs AIGA's right to reimbursement in this case. 
B.  Retroactive Application of 2009 AIGA Act
We next consider which AIGA Act applies in regard to net-
worth provisions: the 2000 AIGA Act or the 2009 AIGA Act. 
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AIGA contends that the 2009 amendments to the AIGA Act
defining "net worth" and "high net worth insured" are remedial
changes to the net-worth provisions in the 2000 AIGA Act, in
that they simply clarified how an insured's "net worth" is
determined and the methodology for calculating an insured's 
"net worth."  Therefore, AIGA argues, the trial court erred in
determining that the 2009 amendments to the 2000 AIGA Act
defining "net worth" and "high net worth insured" were
substantive changes to the 2000 AIGA Act and, therefore,
cannot 
be 
applied 
retroactively 
to 
consolidate 
Mercy 
Medical's
and CHE's net worth for purposes of determining whether Mercy
Medical's net worth exceeded $25,000,000, thereby giving AIGA
the right to recoup statutory benefits paid on Keao's workers'
compensation claim.  Mercy Medical and CHE argue that the 2009
amendments to the 2000 AIGA Act substantively changed the law
and should not apply retroactively to allow the consolidation
of Mercy Medical's and CHE's net worth in determining Mercy
Medical's net worth.
Generally, retrospective application of a statute is not
favored, absent an express statutory provision or clear
legislative intent that the enactment apply retroactively as
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well as prospectively.  See Kittrell v. Benjamin, 396 So. 2d
93, 94 (Ala. 1981) (citing City of Brewton v. White's Auto
Store, Inc., 362 So. 2d 226, 227 (Ala. 1978) (providing that
we "indulge every presumption in favor of construing actions
of the legislature to have a prospective operation unless the
legislature's intention is otherwise stated in express terms,
or [its actions] clearly, explicitly, and unmistakably permit
of no other meaning")).  In this case, the 2009 AIGA Act does
not expressly address whether the legislature intended 
that §§
27–42–5(7)(defining "high net worth insured") and (11)
(defining 
"net 
worth") 
have 
retroactive 
application. 
Regardless, whether a statute may be applied retroactively
turns on whether the statute affects substantive 
or 
procedural
rights.  Ex parte Burks, 487 So. 2d 905, 907 (Ala. 1985); 
Kittrell, 396 So. 2d at 95 (a statute can have retroactive
application if it affects procedural as opposed 
to 
substantive
rights).  Substantive laws are those that create, enlarge,
diminish, or destroy vested rights.  See Ex parte Bonner, 676
So. 2d 925, 926 (Ala. 1995).  "Substantive law" is "[t]he part
of law that creates, defines, and regulates the rights,
duties, and powers of parties,"  Black's Law Dictionary 1567
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(9th ed. 2009), as opposed to "adjective, procedural, or
remedial law," which is "'favored by the courts, and [its]
retrospective application is not obnoxious to the spirit and
policy of the law,'" and which is "exemplified by [laws] that
'"impair no contract or vested right, [and do not disturb past
transactions,] but preserve and enforce the right and heal
defects in existing laws prescribing remedies."'" Ex parte
Bonner, 676 So. 2d at 926 (quoting Ex parte Burks, 487 So. 2d
at 907, and Jones v. Casey, 445 So. 2d 873, 875 (Ala. 1983),
quoting in turn Dickson v. Alabama Mach. & Supply Co., 18 Ala.
App. 164, 165, 89 So. 843, 844 (1921)).
Under the 2000 AIGA Act, insureds whose net worth
exceeded $25,000,000 on December 31 of the year preceding
their insurer's insolvency are either not entitled to
statutory benefits under the AIGA Act or are required to
reimburse AIGA for statutory benefits expended on behalf of
the insured.  §§ 27-42-5(4) and 27-42-11(d), Ala. Code 1975,
of the 2000 AIGA Act.  Section 27-42-11(d), as it read
following the 2000 amendment to the recoupment provision in
the AIGA Act provided:
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"(d) The association shall have the right to
recover from the following persons the amount of any
covered claim paid on behalf of the person:
"(1) An insured whose net worth on
December 31 of the year immediately
preceding the date the insurer becomes an
insolvent 
insurer 
exceeds 
twenty-five
million dollars ($25,000,000) and whose
obligations, including obligations under
workers' compensation insurance coverages,
to other persons are satisfied in whole or
in part by the payments.
"(2) Any person who is an affiliate of
the insolvent insurer and whose liability
obligations under workers' compensation
insurance coverages, to other persons are
satisfied in whole or in part by the
payments."
Under the 2000 AIGA Act, a "covered claim" was defined
as:
"(4) COVERED CLAIM. ... 'Covered Claim' shall
not include any amount due any reinsurer, insurer,
insurance pool, or underwriting association, as
subrogation recoveries or otherwise, nor shall
'covered claim' include any first party claims by an
insured whose net worth exceeds twenty-five million
dollars ($25,000,000) on December 31 of the year
prior to the year in which the insurer becomes an
insolvent insurer; provided that an insured's net
worth on that date shall be deemed to include the
aggregate net worth of the insured and all of its
subsidiaries as calculated on a consolidated basis."
§ 27-42-5(4), Ala. Code 1975. 
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Effective August 1, 2009, the legislature substantially
revised the 2000 AIGA Act, adding, among other things,
provisions to define "affiliate," "control," "net worth," and
"high net worth insured" and to clarify the method for
calculating an insured's "net worth."  §§ 27-42-5(2), (5),
(7), and (11), Ala. Code 1975.  Under the 2009 AIGA Act, AIGA
has "the right to recover from a high net worth insured all
amounts paid by [AIGA] to or on behalf of such insured,
whether for indemnity, defense, or otherwise," and "[AIGA]
shall have the right to recover from any person who is an
affiliate of the insolvent insurer all amounts paid by [AIGA]
to or on behalf of such person, whether for indemnity,
defense, or otherwise."  §§ 27–42–11(e) and (f), Ala. Code
1975.  The 2009 AIGA Act defines "affiliate," "control," "net
worth," and "high net worth insured" as follows:
"(2) Affiliate.  A person who directly, or
indirectly, through one or more intermediaries,
controls, is controlled by, or is under common
control with another person on December 31 of the
year immediately preceding the date the insurer
becomes an insolvent insurer. 
"....
"(5) Control.  The possession, direct or
indirect, of the power to direct or cause the
direction of the management and policies of a
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person, whether through the ownership of voting
securities, by contract other than a commercial
contract for goods or nonmanagement services, or
otherwise, unless the power is the result of an
official position with or corporate office held by
the person. Control shall be presumed to exist if a
person, directly or indirectly, owns, controls,
holds with the power to vote, or holds proxies
representing, 10 percent or more of the voting
securities of any other person.  This presumption
may be rebutted by a showing that control does not
exist in fact. 
"....
"(7)  High Net Worth Insured.  Any insured whose
net worth exceeds twenty-five million dollars
($25,000,000) on December 31 of the year prior to
the year in which the insurer becomes an insolvent
insurer; provided that an insured's net worth on
that date shall be deemed to include the aggregate
net worth of the insured and all of its subsidiaries
and affiliates as calculated on a consolidated
basis.
"....
"(11)  Net worth. The total assets of a person,
less the total liabilities against those assets as
determined in accordance with generally accepted
accounting principles. A person's net worth shall be
deemed to include the aggregate net worth of the
person and all of its subsidiaries and affiliates as
calculated on a consolidated basis."
§§ 27–42–5, Ala. Code 1975.
A plain reading of the 2009 AIGA Act reveals that the new
definitions of "affiliate," "control," "high net worth
insured," and "net worth" are substantive changes the
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retroactive application of which would adversely affect and
impair the rights of those insured and covered by the AIGA
Act, including Mercy Medical.  In this case, the definitions
of "affiliate," "control," "high net worth insured," and "net
worth" in the 2009 AIGA Act significantly narrow the 
determination of net worth under the 2000 AIGA Act, and in
turn narrow the rights of policyholders and insureds under the
AIGA Act.  In essence, AIGA contends that because the addition
in the 2009 AIGA Act of the definitions was intended to
"clarify" or "amend" provisions in the 2000 AIGA Act (i.e., by
defining 
"affiliate," 
"control," 
"high 
net 
worth 
insured," 
and
"net worth"), this Court should presume that the legislature
intended the 2009 AIGA Act to apply retroactively.  
Although it is true that procedural or remedial statutes
may operate retrospectively even absent a clear legislative
intent in favor of retroactivity, see Ex parte Bonner, 676 So.
2d at 926, that is not the case with respect to amendments
that constitute a substantive change, either by creating new
rights or taking away vested rights. Id.  That is, if a
statute accomplishes a remedial purpose by creating new
substantive rights or by imposing new legal burdens, the
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presumption against retroactivity would still apply.  See Ex
parte Burks, 487 So. 2d at 907.
AIGA's argument to the contrary, a plain reading of the
2009 AIGA Act reveals that the new definitions of "affiliate,"
"control," "high net worth insured," and "net worth" are
substantive changes because their retroactive application
would adversely affect and impair the rights of those covered
by the AIGA Act, including Mercy Medical.  In this case, the
definitions of "affiliate," "control," "high net worth
insured," and "net worth" in the 2009 AIGA Act significantly
narrow Mercy Medical's rights by changing the methodology for
calculating its net worth.  Thus, we conclude that the 2009
AIGA Act does not apply retroactively in this case because the
2009 AIGA Act substantively changed the law.
C.  Reimbursement by Mercy Medical and CHE
Last, we consider Mercy Medical's net worth for purposes
of reimbursement under the 2000 AIGA Act.  AIGA contends that,
even applying the 2000 AIGA Act, CHE's net worth should be
considered in determining Mercy Medical's net worth.  Mercy
Medical and CHE respond that, under the plain language of the
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2000 AIGA Act, CHE's net worth should not be considered and
AIGA is not entitled to reimbursement from Mercy Medical.
As set out above, the 2000 AIGA Act was the act in effect
at the time of Reliance's insolvency and/or at the time AIGA's
coverage obligations were reduced to a liquidated sum by the
judgment in Keao's workers' compensation action.  Under the
plain language of § 27-42-5 and § 27-42-11 of the 2000 AIGA
Act, quoted above, Mercy Medical, the insured, had assets of
less than $25,000,000.  Section 27-42-5 states that an
insured's net worth includes "the net worth of the insured and
all of its subsidiaries as calculated on a consolidated
basis."  Mercy Medical had no subsidiaries.  Thus, Mercy
Medical's net worth, for the purposes of the 2000 AIGA Act,
was less than $25,000,000.  
Likewise, the 2000 AIGA Act also provides which insureds
must 
reimburse 
AIGA 
for 
claim 
payments. 
 
Section
27-42-11(d)(1) clearly stated that AIGA could recover any
amounts it had paid "on behalf of" an insured whose net worth
exceeds $25,000,000 and whose liability obligations are
satisfied in whole or in part by the payments.  AIGA paid
amounts to satisfy Mercy Medical's legal obligation to Keao,
19
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Mercy Medical's employee.  However, because Mercy Medical's
net worth was below $25,000,000, Mercy Medical is not
obligated to reimburse AIGA for those payments made by AIGA.
Similarly, under the 2000 AIGA Act, CHE is not obligated
to reimburse AIGA either.  CHE is not a subsidiary of Mercy
Medical.  Instead, it is Mercy Medical's sole member, a legal
status very different from that of a subsidiary.  Further, the
payments made to Keao by AIGA were not made on CHE's behalf. 
The payments to Keao were solely the legal responsibility of
Mercy Medical, and AIGA's payments were those it was
statutorily obligated to make "on behalf of" Mercy Medical.
Accordingly, we conclude that neither Mercy Medical nor CHE
owe reimbursement to AIGA under the 2000 AIGA Act.
IV.  Conclusion
For the foregoing reasons, we conclude that the
applicable law governing the vesting of AIGA's right to 
reimbursement of claims paid is the law in effect on the date
of the insurer's insolvency.  We also conclude that the
addition of the net-worth definitions in the 2009 AIGA Act are
substantive and do not apply retroactively in this case. 
Finally, 
we 
conclude 
that 
AIGA 
is 
not 
entitled 
to
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reimbursement from Mercy Medical or CHE because, under the
2000 AIGA Act, Mercy Medical's net worth did not exceed
$25,000,000 and the payments were not made on behalf of CHE. 
Accordingly, we affirm the trial court's judgment in favor of
Mercy Medical and CHE.  
AFFIRMED.
Moore, C.J., and Bolin, Murdock, and Bryan, JJ., concur.
21