1

Plaintiffs in this case are insurance companies subject to the Florida statutes. Defendants

include the state agencies responsible for administering the insurance regulations found in the

statutes. 

United States Court of Appeals,

Eleventh Circuit.

Nos. 96-3657, 97-2041.

VESTA FIRE INSURANCE CORPORATION, Vesta Insurance Corp., Sheffield Insurance

Corporation, an Alabama Corporation, Plaintiffs-Appellants,

v.

STATE OF FLORIDA, Tom Gallagher, in his capacity as Insurance Commissioner, State Board

of Administration, Ash Williams, Jr., in his capacity as Executive Director, Defendants-Appellees.

May 22, 1998.

Appeals from the United States District Court for the Northern District of Florida. (No. 95-40138-

WS), William Stafford, Judge.

Before EDMONDSON and BIRCH, Circuit Judges, and FAY, Senior Circuit Judge.

EDMONDSON, Circuit Judge:

Plaintiffs appeal the district court's grant of summary judgment in favor of Defendants. In

evaluating cross-motions for summary judgment, the district court decided that no genuine issues

of material fact existed and that judgment could be granted to Defendants as a matter of law on

Plaintiffs' claims that recent Florida insurance legislation violated the Due Process, Taking, and

Contract Clauses of the United States Constitution. Because we conclude that the district court erred

in granting summary judgment about whether a regulatory taking occurred, we vacate the grant of

summary judgment on that issue and remand for further proceedings consistent with this opinion.

We affirm on all other issues.1

Background
 2

When the summary judgment motions were argued in the district court, Defendants said that

the moratorium would end in November 1996. The Moratorium Phaseout and related statutes

have since been extended and are not scheduled to end until 1999. See 1996 Fla. Laws ch. 96-

194 § 13. Whether future extensions might be made is unknown. 

 3

The DOI reasoned that the other, more general withdrawal statute would continue to apply to

other kinds of insurance—car, fire, life—and that the new, specific Moratorium Phaseout Statute

would apply only to companies issuing residential home insurance policies. 

After Hurricane Andrew hit Florida in 1992, insurance companies began to lessen their

potential exposure to policies likely to result in hurricane damage liability: residential line policies

in Florida. To prevent the total withdrawal of insurance companies and the subsequent

unavailability of insurance if companies left the Florida market, the Florida legislature passed

several statutes.

The first of these statutes was a "Moratorium Statute," which prohibited the nonrenewal and

cancellation of residential line insurance policies for reasons related to the risk of hurricane damage.

See 1993 Fla. Laws ch. 93-401 § 1. The Moratorium Statute was passed as temporary legislation.

The Florida legislature then passed the "Moratorium Phaseout Statute," which allowed

limited cancellation and nonrenewal of residential policies. See Fla. Stat. § 627.7013;2

 see also

1993 Fla. Laws ch. 93-410 § 19; 1993 Fla. Laws ch. 93-411 § 1. The Moratorium Phaseout Statute

provided that, in a twelve-month period, no insurer could cancel or nonrenew more than 5% of its

residential policies in Florida or more than 10% of its residential policies in a single Florida county.

See Fla. Stat. § 627.7013. This phaseout plan was interpreted by Department of Insurance (DOI)

rules—despite a Florida statute permitting the total withdrawal of insurance companies upon 45-

days notice, see Fla. Stat. § 627.4133(2)—as generally prohibiting an insurer's total withdrawal from

doing business in the State of Florida.3

In addition, legislation was passed requiring insurers to pay annual premiums to the Florida
 4

Although Plaintiffs challenge the constitutionality of both the Moratorium Phaseout and the

Catastrophe Fund legislation, only the Moratorium Phaseout Statute directly implicates the

Constitution. The required contribution to the fund, absent the Moratorium Phaseout Statute, is a

constitutional exercise of the State of Florida's police power. See, e.g., Meriden Trust & Safe

Deposit Co. v. FDIC, 62 F.3d 449, 454-55 (2d Cir.1995). Thus, the constitutionality of the

Moratorium Phaseout Statute is the focus of this opinion. 

 5

Plaintiffs claim that their Substantive Due Process rights were violated. Plaintiffs' argument

focuses on the right to freedom of association, but this case does not involve infringement of that

right. Also, because the regulation about which Plaintiffs complain is economic, the legislation

is presumed valid unless no rational basis exists for its enactment. See Usery v. Turner Elkhorn

Mining Co., 428 U.S. 1, 14-16, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (1976). We cannot say

Florida lacked a rational basis for passing this legislation. Plaintiffs' Substantive Due Process

claim is without merit, and we do not discuss further that claim.

Also without merit is Plaintiffs' claim that the district court erred by ruling on the

motions for summary judgment before ruling on Plaintiffs' motion to compel discovery. 

We, therefore, affirm the district court's decision on these issues. 

 6

Two cases by insurance companies against the Defendants were consolidated in this appeal. 

Hurricane Catastrophe Fund. This fund is intended to provide reinsurance to insurance companies

doing business in Florida. The reinsurance provides protection to companies which, following a

hurricane, are unable to pay fully on their policies.

 Plaintiffs wish to withdraw entirely from the insurance industry in Florida but have been

prohibited from doing so by the Moratorium Phaseout Statute.4

 This prohibition, Plaintiffs argue,

violates several provisions of the United States Constitution: (1) the Taking Clause of the Fifth

Amendment; (2) the Contract Clause; and (3) Plaintiffs' Substantive Due Process rights under the

Fourteenth Amendment.5

Plaintiffs filed complaints alleging these constitutional violations.6 Both Plaintiffs and

Defendants moved for summary judgment. Plaintiffs, however, did not move for summary judgment

on the issue of regulatory taking. Instead, Plaintiffs argued that summary judgment was precluded

because genuine issues of material fact existed on that claim. The district court granted summary
 7

Plaintiffs argued an additional issue: that the district court erred because it treated Plaintiffs'

taking challenge as "facial" instead of as an "as applied" constitutional challenge. We believe

the district court properly addressed the challenge in this case as an "as applied" challenge. 

judgment in favor of Defendants on all claims.

Discussion

 The district court's grant of summary judgment is reviewed by this court de novo. See Real

Estate Financing v. Resolution Trust Corp., 950 F.2d 1540, 1543 (11th Cir.1992). Summary

judgment is appropriate only when "there is no genuine issue as to any material fact and ... the

moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Hale v.

Tallapoosa County, 50 F.3d 1579, 1581 (11th Cir.1995).

I. The Taking Clause

The Taking Clause of the Fifth Amendment states, in relevant part, "nor shall private

property be taken for public use, without just compensation." U.S. Const. amend. V; see also Penn

Cent. Transp. Co. v. New York City, 438 U.S. 104, 121-23, 98 S.Ct. 2646, 2658, 57 L.Ed.2d 631

(1978) (applying the Fifth Amendment to the States through the Fourteenth Amendment). "The

Fifth Amendment's guarantee that private property shall not be taken for a public use without just

compensation was designed to bar [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." Armstrong v.

United States, 364 U.S. 40, 49, 80 S.Ct. 1563, 1569, 4 L.Ed.2d 1554 (1960).

Plaintiffs allege substantial financial losses as a result of the prohibition of withdrawal from

Florida, coupled with the forced contributions to the Catastrophe Fund. This statutory scheme,

Plaintiffs argue, precludes them from allocating their companies' resources as they see fit and forces

them to suffer net economic losses in the Florida market, resulting in a taking of their "property"

without just compensation in violation of the Fifth Amendment to the United States Constitution.7
Plaintiffs now, and in the district court, challenged the Florida statutes only as applied to

Plaintiffs. Thus, we do not consider the statutory scheme's constitutionality on its face. We

discuss (as urged by Plaintiffs) the constitutionality of the statutes only "as applied" to Plaintiffs. 

Compare Agins v. City of Tiburon, 447 U.S. 255, 259-61, 100 S.Ct. 2138, 2141, 65 L.Ed.2d 106

(1980) (facial challenge), with Penn Central, 438 U.S. 104, 127-31, 98 S.Ct. 2646, 2661-62 (as

applied challenge). 

A. Per Se Takings

 Whether government conduct, in relation to private property, works a taking involves the

courts in an ad hoc, factual inquiry. See Penn Central, 438 U.S. at 123-25, 98 S.Ct. at 2659. But,

certain invasions of private property are deemed "takings" without regard to the state's interest in

possessing or otherwise using the property: per se takings. See New Port Largo, Inc. v. Monroe

County, 95 F.3d 1084, 1089 (11th Cir.1996) ("In addition to physical invasions of property, the

Supreme Court has also accorded "categorical [per se] treatment,' invariably requiring compensation,

to cases "where regulation denies all economically beneficial or productive use of land.' ") (emphasis

added) (citation omitted).

Plaintiffs argue that the statutes establishing the Moratorium Phaseout and the Catastrophe

Fund are per se takings because of the compulsory nature of the government act: the statutes make

it mandatory for all insurance companies currently doing business in Florida to remain in that market

and contribute to the fund. But, the mandatory nature of the government's act does not place these

statutes in the per se takings category: neither a physical invasion nor a denial of all beneficial use

of "property" has been shown. As the district court properly pointed out: "[t]he compelled

insurance contracts still belong to Plaintiffs; the insureds must still pay Plaintiffs all required

premiums; Plaintiffs can still cancel or nonrenew policies for [nonhurricane related reasons]; [and]

Plaintiffs can still apply for rate increases...." District Court Order at 20.

Plaintiffs also argue that these statutes effect a government takeover of private insurance
 8

At the outset, we recognize that insurance contracts can be property subject to an

unconstitutional taking under the Fifth Amendment. See Lynch v. United States, 292 U.S. 571,

577-79, 54 S.Ct. 840, 843, 78 L.Ed. 1434 (1934) ("Valid contracts are property ...."); see also

Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003, 104 S.Ct. 2862, 2873, 81 L.Ed.2d 815

(1984). "If regulation goes too far it will be recognized as a taking." Pennsylvania Coal Co. v.

Mahon, 260 U.S. 393, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322 (1922). But, "that legislation

disregards or destroys existing contractual rights [like the right to cancel an insurance contract]

does not always transform the regulation into an illegal taking." Connolly v. Pension Benefit

Guar. Corp., 475 U.S. 211, 224, 106 S.Ct. 1018, 1025, 89 L.Ed.2d 166 (1986). 

companies, resulting in per se takings. But the cases relied on by Plaintiffs—United States v. Pewee

Coal Co., 341 U.S. 114, 71 S.Ct. 670, 95 L.Ed. 809 (1951), and United States v. United Mine

Workers, 330 U.S. 258, 67 S.Ct. 677, 91 L.Ed. 884 (1947)—are not comparable to this case. In

Pewee Coal and United Mine Workers, the government took total, direct control of private

businesses. This case does not present that kind of occupation or takeover, and it does not present

a per se taking.

B. Regulatory Takings

 Plaintiffs also allege that a regulatory (non per se) taking is effected by the statutes.8

 The

current standard for evaluating such claims is found in Connolly v. Pension Benefit Guaranty Corp.,

475 U.S. 211, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986). In Connolly, the Supreme Court recognized

three factors that should be considered to identify a regulatory taking: (1) the economic impact of

the challenged rule, regulation, or statute on the plaintiff; (2) the extent to which the regulation

interferes with investment-backed expectations; and (3) the nature of the challenged action. See id.

at 224-26, 106 S.Ct. at 1026 (citations omitted). Plaintiffs contend, and we agree, that the district

court failed to consider properly these factors and that genuine issues of material fact exist to

preclude summary judgment on this claim.

1. Economic Impact on Plaintiffs

Plaintiffs point to their economic loss in the Florida market and the approximately $1 million
 9

The extension of the moratorium statutes into 1999 occurred after Plaintiffs filed their

complaint. Thus we expect Plaintiffs will be permitted to file supplemental pleadings, which

would include the economic effect of the moratorium statutes due to the latest extension. See

Fed.R.Civ.P. 15(d) (providing for the filing of supplemental briefs, upon motion of a party,

"setting forth transactions or occurrences or events which have happened since the date of the

pleading sought to be supplemented"). 

premium paid to the Catastrophe Fund as a negative economic impact. Plaintiffs also argue that the

nature of the Moratorium Phaseout Statute—the potential for another extension—requires them to

stay in the Florida insurance market indefinitely, creating a substantial economic impact. But

Defendants say that the possibility for rate increases counteracts the negative economic impact.

Plaintiffs' applications for rate increases, however, have been denied. We believe that, when

considering the economic impact on Plaintiffs, the potential for future extensions of the Moratorium

Phaseout cannot be determined; and the potential for future rate increases is no answer to Plaintiffs'

ongoing economic loss when rate increases have been applied for and have been denied.

The district court should have considered what economic impact Plaintiffs have suffered and

will suffer as a result of the challenged statutes. The parties dispute exactly what return Plaintiffs

have enjoyed in the Florida market since the moratorium and whether that return is reasonable.

Defendants, and the district court in its decision, relied heavily on the fact that the moratorium

would end in 1996. But now, in 1998, the moratorium still exists and is scheduled to exist until June

1999. Thus, the extent of the economic impact on Plaintiffs remains a material fact that must be

determined based upon an expiration of the moratorium in 1999.9

2. Investment-Backed Expectations

Plaintiffs also allege that the limitations on their withdrawal from the Florida market interfere

with their investment-backed expectations. The district court did not address this factor.

In general, "[t]hose who do business in the regulated field [of insurance] cannot object if the
legislative scheme is buttressed by subsequent amendments to achieve the legislative end."

Connolly, 475 U.S. at 227, 106 S.Ct. at 1027 (internal quotations and citations omitted). This case,

however, does not present the typical situation of simple regulation as a condition of doing business:

the statutes require the doing of business.

The Supreme Court has written these words about the constitutionality of a taking: "A

different case would be presented were the statute, on its face or as applied, to compel a landowner

over objection to rent his property or to refrain in perpetuity from terminating a tenancy." Yee v.

City of Escondido, 503 U.S. 519, 528, 112 S.Ct. 1522, 1529, 118 L.Ed.2d 153 (1992); see also

Lewis v. Safeco Ins. Co. of America, 98 Misc.2d 856, 861, 414 N.Y.S.2d 823 (1978) ("[T]his law

expressly requires that ... insurance companies, like the defendants, renew automobile insurance

policies and, accordingly, it warrants careful review."). This case may be that "different case":

insurance companies must refrain, potentially in perpetuity, from terminating contracts. "While [a

state's] police power may limit and restrict the uses to which an owner may put his property, it may

not compel him to use such property for a particular purpose if he prefers to abandon such a use

thereof." Department of Pub. Works v. City of San Diego, 122 Cal.App. 159, 10 P.2d 102, 105

(1932).

 Interference with investment-backed expectations occurs when an inadequate history of

similar government regulation exists: where the earlier regulation does not provide companies with

sufficient notice that they may be subject to the new or additional regulation. See Connolly, 475

U.S. at 226-28, 106 S.Ct. at 1027. Plaintiffs argue that the moratorium statutes interfere with

reasonable investment-backed expectations. Plaintiffs contend that whatever regulation Plaintiffs

may have anticipated when they entered the Florida market they could not anticipate that withdrawal

from that market—should additional regulation become too burdensome—would be prohibited. The
district court, however, did not consider whether the regulation at issue should have been anticipated

by Plaintiffs, particularly the Moratorium Phaseout Statute which prohibits Plaintiffs' total

withdrawal from doing business in Florida.

Interference with the investment-backed expectations must be considered with the other

factors: the government's interest and the economic impact on Plaintiffs. Genuine issues of material

fact exist about what investment-backed expectations Plaintiffs had when they entered the Florida

market and what impact the moratorium statutes have had on Plaintiffs' expectations. So, summary

judgment was inappropriate.

3. Nature of the Government Action

 In addition, Plaintiffs argue that the nature of the government acts supports the takings

claim. Plaintiffs contend that the compulsory nature of the legislation alone results in a taking; but

all government regulation is compulsory in nature. "[I]t cannot be said that the Taking Clause is

violated whenever legislation requires one person to use his or her assets for the benefit of another."

Connolly, 475 U.S. at 223, 106 S.Ct. at 1025. But the nature of the state's interest is critical in

determining whether a taking has occurred. See id. When important public interests are served, a

taking is less likely to have occurred. See Keystone Bituminous Coal Ass'n v. DeBenedictis, 480

U.S. 470, 485-88, 107 S.Ct. 1232, 1242-43, 94 L.Ed.2d 472 (1987).

No doubt can exist that the general regulation of insurance is within the State's police

powers. See 15 U.S.C. §§ 1012 ("The business of insurance, and every person engaged therein, shall

be subject to the laws of the several States which relate to the regulation or taxation of such

business."). After Hurricane Andrew, several insurance companies became insolvent, unable to pay

their policies. Other companies sought to withdraw altogether from the Florida insurance market.

This withdrawal could have had serious negative effects on Florida's real estate market and on the
economy of the State. The moratorium was intended as a stabilizing force in the market and was

within the State of Florida's police power. The government interest in this case was the public

welfare of the residents of Florida. But the nature of the government interest and its importance,

given all the circumstances, as well as the extent of the regulations' harsh impact on Plaintiffs'

interests must be determined by the district court.

The district court erroneously granted Defendants' motion for summary judgment without

considering the financial rate of return for Plaintiffs and the impact on Plaintiffs' investment-backed

expectations. "These "ad hoc, factual inquiries' must be conducted with respect to specific property,

and the particular estimates of economic impact and ultimate valuation relevant in the unique

circumstances." Hodel v. Virginia Surface Mining and Reclamation Ass'n, Inc., 452 U.S. 264, 295,

101 S.Ct. 2352, 2370, 69 L.Ed.2d 1 (1981). Without knowing the economic impact of the legislation

and the Plaintiffs' reasonable expectations, the necessary study of competing interests cannot be

accomplished and summary judgment cannot be granted. See generally Penn Central, 438 U.S. 104,

123-29, 98 S.Ct. 2646, 2659-61 (discussing the variety of interests involved and to be considered

in a taking case).

II. Contract Clause

 The Contract Clause of the United States Constitution provides that "[n]o State shall ... pass

any ... Law impairing the Obligation of Contracts." U.S. Const. art. 1, § 10. "Although the language

of the Contract Clause is facially absolute, its prohibition must be accommodated to the inherent

police power of the State "to safeguard the vital interests of its people.' " Energy Reserves Group,

Inc. v. Kansas Power and Light Co., 459 U.S. 400, 410, 103 S.Ct. 697, 704, 74 L.Ed.2d 569 (1983)

(citation omitted).

 Three factors are considered when evaluating a claim that the Contract Clause has been
violated: (1) whether the law substantially impairs a contractual relationship; (2) whether there is

a significant and legitimate public purpose for the law; and (3) whether the adjustments of rights

and responsibilities of the contracting parties are based upon reasonable conditions and are of an

appropriate nature. See id. at 410-13, 103 S.Ct. at 704-05.

Plaintiffs make a sufficient showing that the Florida legislation substantially impaired the

contracts between the insurance companies and their insureds. Insurance provides coverage of a

specified risk for a specified time. At the end of that time, insurance companies reevaluate the risk

and decide whether they wish to remain the insurers of that risk. "Total destruction of contractual

expectations is not necessary for a finding of substantial impairment." Id. at 411, 103 S.Ct. at 704.

Under the Moratorium Phaseout, Plaintiffs are forced to continue contractual relationships that

otherwise, pursuant to the terms of the contracts, could be rightfully terminated.

Assuming a substantial impairment to Plaintiffs' contracts exists, the State "must have a

significant and legitimate public purpose behind the regulation." Id. "[T]he public purpose need not

be addressed to an emergency or temporary situation." Id. at 412, 103 S.Ct. at 705. Defendants

have demonstrated a legitimate public purpose: protection and stabilization of the Florida economy,

particularly the real estate market. See generally Allied Structural Steel Co. v. Spannaus, 438 U.S.

234, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978); Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398,

54 S.Ct. 231, 78 L.Ed. 413 (1934).

Once a legitimate purpose is identified, we must look to whether the state's adjustments of

the rights and responsibilities of the contracting parties are based upon reasonable conditions and

are of an appropriate nature. See Energy Reserves, 459 U.S. at 412-13, 103 S.Ct. at 705. "Unless

the State itself is a contracting party.. . courts properly defer to legislative judgment as to the

necessity and reasonableness of a particular measure." Id. (internal citations and quotations
 10Plaintiffs argue that we cannot consider the legislature's purported purposes for the statutes

because the State is a third-party beneficiary to the contracts based upon its control of the

Catastrophe Fund. The law of Florida does not support this theory. See Thompson v.

Commercial Union Ins. Co., 250 So.2d 259, 262 (Fla.1971) (To be third-party beneficiary, "[t]he

clear intent and purpose of the contract [must be] to directly and substantially benefit the third

party."). 

omitted). The State was no party to the insurance contracts;10 so based upon the legislature's

judgment, the statutes' impact on existing insurance contracts cannot be said to be an

unconstitutional impairment.

Conclusion

No factual disputes exist about the Contract Clause, Substantive Due Process, or Per Se

Taking claims; so summary judgment was appropriate for Defendant on those claims. But,

summary judgment was incorrect on Plaintiffs' claim of regulatory taking resulting from the Florida

insurance statutes.

AFFIRMED in part; VACATED and REMANDED in part.