Case Name: STATE of Oklahoma, ex rel., John P. CRAWFORD, Insurance Commissioner as Receiver for American Standard Life and Accident Insurance Company, Petitioner, and Oklahoma Life and Health Insurance Guaranty Association, Intervening Petitioner, Appellees, v. The GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Respondent, Appellant
Court: Oklahoma Supreme Court
Jurisdiction: Oklahoma
Decision Date: 1998-02-03
Citations: 954 P.2d 1235
Docket Number: No. 84563
Parties: STATE of Oklahoma, ex rel., John P. CRAWFORD, Insurance Commissioner as Receiver for American Standard Life and Accident Insurance Company, Petitioner, and Oklahoma Life and Health Insurance Guaranty Association, Intervening Petitioner, Appellees, v. The GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Respondent, Appellant.
Judges: ¶ 17 SUMMERS, V.C.J., and LAVENDER, HARGRAVE and WATT, JJ., and JOHNSON and LANE, S.JJ., concur (in lieu of KAUGER, C. J., who recused and SIMMS, J., who disqualified).
Reporter: Pacific Reporter 2d
Volume: 954
Pages: 1235–1247

Head Matter:
1997 OK 10
STATE of Oklahoma, ex rel., John P. CRAWFORD, Insurance Commissioner as Receiver for American Standard Life and Accident Insurance Company, Petitioner, and Oklahoma Life and Health Insurance Guaranty Association, Intervening Petitioner, Appellees, v. The GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Respondent, Appellant.
No. 84563.
Supreme Court of Oklahoma.
Feb. 3, 1998.
Joe Heaton, G.M. Fuller, Fuller, Tubb & Pomeroy, Oklahoma City, Oklahoma, Michael R. Hassan, Forrest B. Lammiman, Lord, Bis-sell & Brook, Chicago, Illinois, for Appellee Insurance Commissioner.
Michael D. Coleman, James W. Rhodes, J. Angela Abies, Kerr, Irvine, Rhodes & Abies, for Appellee Guaranty Association.
C. Wayne Litchfield, Oklahoma City, Oklahoma, Cecilia Kempler, John S. Kinzey, Jr., LeBoeuf, Lamb, Greene & MacRae, L.L.P., New York, New York, for Appellant.
Michael E. Surguine, National Association of Insurance Commissioners, Kansas City, Missouri, Amicus Curiae.
Marjorie McCullough, Jay M. Galt, White, Coffey, Galt & Fite, P.C., Oklahoma City, Oklahoma, Phillip E. Stano, American Council of Life Insurance, Washington D.C., Ami-cus Curiae.
Burck Bailey, John Joseph Snider, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Oklahoma, Amicus Curiae, National Aliance of Life Companies.
Debra J. Hall, Reinsurance Association of America, Washington, D.C., Amicus Curiae.
Haven Tobias, Gerald P. Green, Pierce, Couch, Hendrickson, Baysinger & Green, Oklahoma City, Oklahoma, Amicus Curiae, The Kempton Group.

Opinion:
WATT, Justice,
FACTS AND PROCEDURAL HISTORY
¶ 1 In 1986 Guardian Life Insurance Company and Life Insurance Company of Pennsylvania made a reinsurance agreement. American Standard Life Insurance Company acquired Life Insurance Company of Pennsylvania's rights and obligations under the Agreement in 1987. On November 1, 1988, an amendment to 36 O.S. § 1928, § 1928.B.4, became effective. Prior to this amendment § 1928 mandated that the credits and debts between a failed insurance company and its reinsurer would be offset so that only the balance was owed. The 1988 amendment fundamentally changed the law and deprived such a reinsurer of the right to offset its debts against amounts owed to it by a failed insurer where the insurer's debt was the result of a reinsurance agreement that was "structured so as to avoid reasonable risk transfer and indemnification criteria." Id.
¶ 2 The Receiver sued Guardian on July 1, 1992 seeking a declaratory judgment that Guardian had no right to offset claims against premiums under its reinsurancé agreement with American Standard Life, but was obligated to pay one-hundred percent of the claims thereunder, and could only collect premiums far later, if at all, as American Standard Life's general creditor. The litigation has continued to this day. Because of the narrow issue upon which our decision in this appeal turns, it is necessary to discuss in detail only a few of the many issues of fact and law presented below.
¶ 3 The parties agree that the purpose of § 1928.B.4 was to avoid granting a reinsurer a post-insolvency right to setoff where the true purpose of the reinsurance agreement had been to lend or rent surplus in order to allow an insurer to mask its financial weakness. The trial court found as a fact that Guardian's reinsurance agreement with American Standard Life was such a lending or renting of surplus, because the Agreement had been "structured to avoid reasonable risk transfer and indemnification criteria." Id. Thus, held the trial court, Guardian was not entitled to the benefit of the offset provision in its Agreement with American Standard Life. The trial court entered judgment against Guardian for $16,745,636.00, plus interest, and imposed a continuing obligation on Guardian to pay all benefits due on every life insurance policy it had agreed to rein-sure, beginning with the date of the reinsurance agreement, January 28,1986.
¶ 4 The Oklahoma Life and Health Insurance Guaranty Association intervened in the action because it guarantees payment of any claims on American Standard Life policies at issue here, if any, held by Oklahoma residents.
¶ 5 The trial court's factual finding that the Agreement was a lending and not a reinsurance transaction does not end the inquiry. We must first decide whether § 1928.B.4 can be given retroactive application. If it cannot, Guardian is entitled to prevail as a matter of law. It is undisputed that Guardian's Agreement with American Standard Life gave Guardian the right to offset, and that this right was created prior to the effective date of § 1928.B.4. Unless § 1928.B.4 can be applied retroactively Guardian is entitled to the fruits of its bargain with American Standard Life.
ISSUE
¶ 6 May § 1928.B.4 be applied retroactively so as to deprive Guardian of its contractual right of offset? We hold that it may not.
DISCUSSION
¶ 7 The Legislature clearly had the power to enact § 1928.B.4 and thereby deprive a reinsurer of its contractual right to offset prospectively where the reinsurance agreement did not truly transfer risk. The issue here though is whether § 1928.B.4 may be applied retroactively so as to deprive Guardian of its right to offset, which right Guardian had both under the Agreement and Oklahoma law prior to the passage of § 1928.B.4.
Section 1928.B4 Applies Prospectively Only
¶ 8 New legislation operates prospectively only "unless the Legislature clearly expresses a contrary intent. If doubt exists, it must be resolved against a retroactive effect." Forest Oil Corp. v. Corporation Com'n of Oklahoma, 1990 OK 58 ¶ 11, 807 P.2d 774, 781. There is no indication in the statutory language that the Legislature intended for the statute to apply retroactively. Indeed to have attempted to have the statute destroy vested rights such as Guardian's would have raised serious constitutional issues. Unit Petroleum Company v. Oklahoma Water Resources Board, 898 P.2d 1275 (Okla.1995).
¶ 9 The Receiver and the Guaranty Association contend that the amendment to § 1928 was both proper and constitutional. The Receiver claims the transactions giving rise to the claims at issue here arose after the passage of § 1928.B.4 and the application of the statute is, therefore, not retroactive. This argument is unconvincing. The insurance policies upon which premiums were paid after § 1928.B.4 became effective were bought by their owners long before § 1928.-B.4's passage. Thus, Guardian's rights and obligations were fixed long before the Legislature passed § 1928.B.4. The mere fact that policy owners continued to pay premiums after the effective date of the act does not change the result.
¶ 10 The Receiver claims that § 1928.B.4 was passed in response to a federal court decision, Grimes v. Crown Life Insurance Company, 857 F.2d 699 (10th Cir.1988), which allowed a reinsurer to offset its obligation to pay claims against its right to receive premiums. While this may be so, it does not show that the Legislature intended that the amended statute should apply retroactively.
¶ 11 The Guaranty Association argues that the statute was not applied retroactively because it could not be applied until after American Standard Life was placed in receivership, and Guardian's rights against American Standard Life and its rights against the Receiver as receiver of American Standard Life's insolvent estate are two different things. This argument fails for two reasons: First, it ignores that the effect of applying the statute would have been to rewrite Guardian's contract. Second, if the statute did not have retroactive application because it did not come into play until American Standard Life's insolvency it could never apply retroactively. This argument, once again, ignores the fact that Guardian's rights to setoff were based on a contract made long before the Legislature passed § 1928.B.4.
¶ 12 Both the Receiver and the Guaranty Association argue that the statute could be applied retroactively because it affected only Guardian's remedies. If a statute affects only a remedy and not a substantive right it will be held to apply retroactively, . Forest Oil Corp. 807 P.2d at 781, but this rule does not apply here because the effect of applying the statute would have been to rewrite Guardian's contract. Thus, Guardian's substantive rights would have been affected, not merely its remedies.
¶ 13 In 1997 the Legislature clarified the 1988 amendment to the Guaranty Act upon which the Commissioner relies. The 1988 amendment to the Act, 36 O.S.1988 Supp. § 1928.B.4, prohibits enforcement of setoff rights in reinsurance agreements that were in fact loans. The 1997 amendment provides, "It is the intent of the Legislature that the provisions [of 36 O.S.1988 Supp. § 1928.B.4] shall only apply to life and accident and health reinsurance agreements mode and entered into after November 1, 1988. [Emphasis added.] Guardian's contract was made in 1986, and American Standard became a party to it in 1987. As No vember 1, 1988 was the effective date of the 1988 amendment to the Act, it is obvious that the Legislature passed the 1997 amendment as a clarification of the 1988 statute. When a statute is passed to clarify an earlier statute it will be given retroactive effect, and when such an amendment occurs between the trial and the appellate decision "the reviewing court must apply the latest version of the law." Texas County Irrigation and Water Resources Association v. Oklahoma Water Resources Board, 1990 OK 121 ¶ 6, 803 P.2d 1119. It is thus clear that the Legislature intended the 1997 amendment to have retroactive effect.
¶ 14 The Receiver and the Guaranty Association also argue that Guardian's claim as a general creditor against American Standard Life's insolvent estate for a prorated portion of American Standard Life's premium income — payable only after deduction of expenses and pro rata payment to other general creditors — is the equivalent of Guardian's right to offset. This argument continues to overlook the fact that Guaranty's right to offset was expressly called for in its contract. Thus, the effect of applying the statute would be to substitute for Guardian's contractual right to setoff an entirely different right to make a claim as a general creditor. As noted earlier, the difference is substantive, not procedural.
¶ 15 The Receiver had a right to challenge the Agreement at any time after it was appointed Receiver for American Standard Life but it did not do so. Instead the Receiver insisted on enforcing Guardian's obligations to pay claims under the Agreement's terms, but avoiding American Standard Life's express obligation to seek from Guardian only the net difference between claims made and premium income. For the reasons stated above § 1928.B.4 gave the Receiver no such right. The trial court is instructed to enter judgment for Guardian and against the Receiver and the Guaranty Association.
¶ 16 CERTIORARI PREVIOUSLY GRANTED, COURT OF CIVIL APPEALS' OPINION VACATED, TRIAL COURT'S JUDGMENT REVERSED AND MATTER REMANDED WITH INSTRUCTIONS
¶ 17 SUMMERS, V.C.J., and LAVENDER, HARGRAVE and WATT, JJ., and JOHNSON and LANE, S.JJ., concur (in lieu of KAUGER, C. J., who recused and SIMMS, J., who disqualified).
¶ 18 HODGES, OPALA, and ALMA WILSON, JJ., dissent.
. 36 O.S. § 1928 provides in material part as follows:
A. 1. In all cases of mutual debts or mutual credits between the insurer and another person in connection with any action or proceeding under this article, such credits and debts shall be offset and the balance only shall be allowed or paid, except as provided in subsection B of this section.
B. No offset shall be allowed if:
4. The obligation of the insurer was the result of a life or accident and health reinsurance agreement that contains terms or conditions structured to avoid reasonable risk transfer and indemnification criteria .
. We need not decide the issue of the constitutionality of applying the statute retroactively because we have found that the Legislature did not intend for it to be retroactively applied. Nevertheless, we observe that retroactive application of the statute would likely have been unconstitutional in the circumstances existing here.