Opinion ID: 202647
Heading Depth: 3
Heading Rank: 3

Heading: The Insurance Premiums

Text: 75
76 The JUA argues that the premiums collected and withheld by the [Secretary] are the private property of the [JUA] under the plain language of Law 253. According to the JUA, although the premiums pass through Flores Galarza's hands before reaching the JUA, the premiums are never funds of the Commonwealth. To the contrary, the JUA argues, given that the JUA's responsibility for the compulsory insurance comes into effect at the time the premiums are paid to the Secretary of the Treasury, the premium has to belong to the [JUA] at that time. Flores Galarza, the JUA argues, is thus merely a fiduciary who holds the premiums for the benefit of the JUA, as demonstrated by the 2002 Amendment's reference to the Secretary of the Treasury's collection service performed in favor of the [JUA]. P.R. Laws Ann. tit. 26, § 8055(c). Flores Galarza, on the other hand, contends that Law 253 does not entitle JUA to ownership of the collected premiums until they are transferred to it by [Flores Galarza]. Therefore, Flores Galarza argues, because Law 253 does not state when the Secretary must transfer the insurance premiums to the JUA, his retention of the $173 million in premiums was not a withholding of private property—it was merely a temporary retention or delay in the transfer of funds which did not yet belong to the JUA. 77 In our view, Law 253 supports the JUA's claim of a property right to that portion of the insurance premiums not owed to privately insured motorists or their insurers (Earned Premiums 30 ). Law 253 created the JUA for [t]he main purpose of ... provid[ing] the compulsory liability insurance to the applicants for said insurance that have been rejected by private insurers. Id. § 8055(b). As an insurer, the JUA is entitled to the Earned Premiums. Law 253 gives the JUA the power to hold property, and provides that the JUA shall receive premiums from the Secretary and that the Secretary shall transfer these premiums to the JUA. While the Secretary collects the insurance premiums and holds them for some unspecified amount of time before relinquishing them to the JUA, the Secretary is not an insurer—he is merely the custodian of these funds. As a custodian, the Secretary has no entitlement to the premiums, and his woefully undeveloped argument that the premiums do not vest in the JUA until the Secretary transfers them does not convince us otherwise. Cf. Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 162, 101 S.Ct. 446, 66 L.Ed.2d 358 (1980) ([T]he State's having mandated the accrual of interest does not mean the State or its designate is entitled to assume ownership of the interest.). The JUA has successfully alleged an entitlement to the Earned Premiums under Law 253, and therefore a property interest in those funds. See id. at 161, 101 S.Ct. 446 (recognizing interest earned on private funds as property entitled to protection under Fifth Amendment); see also Brown, 538 U.S. at 235, 123 S.Ct. 1406; Phillips v. Wash. Legal Found., 524 U.S. 156, 170-72, 118 S.Ct. 1925, 141 L.Ed.2d 174 (1998). 78 We thus proceed to the second step of the takings analysis (i.e., whether the property was taken). The JUA argues that Flores Galarza's withholding of the Earned Premiums constituted a permanent physical occupation and a per se taking for which just compensation must be paid. Specifically, the JUA contends that Flores Galarza physically took, albeit temporarily, $173 million of its insurance premiums, before transferring a large portion of those premiums to the JUA pursuant to the 2002 Settlement. The JUA's assertion of a property right in the Earned Premiums, together with its allegation of a physical appropriation of those funds, is sufficient to allege the taking of a constitutionally protected property interest in those premiums under the first prong of the qualified immunity analysis. See Webb's, 449 U.S. at 164-65, 101 S.Ct. 446 (holding that taking of interest earned on private funds was a taking). 79
80 While the JUA's alleged property right to the Earned Premiums is supported by Law 253, the same cannot be said for the JUA's alleged property right to the duplicate premiums paid by those already covered by privately obtained insurance policies (Duplicate Premiums). These premiums, Flores Galarza argues, constitute a double payment for the same insurance, and, therefore, do not belong to the JUA, but rather belong to privately insured motorists or their insurers who are entitled to reimbursement. We agree. 81 Based on the law in effect at the time the premiums were withheld, the JUA was obliged to return the Duplicate Premiums to those requesting reimbursement. If no claim was made to these premiums after seven years, that money would lapse to the general fund of the Commonwealth Treasury. See P.R. Laws Ann. tit. 26, §§ 2603, 2606-2607. Thus, even if no one claimed the Duplicate Premiums within the requisite seven years, these funds became the property of the Commonwealth—not the JUA. Just as the Secretary is a custodian of the Earned Premiums for the benefit of the JUA, the JUA is a custodian of the Duplicate Premiums for the benefit of either those entitled to reimbursement or, if the premiums go unclaimed, the Commonwealth. 82 The 2002 Amendment, which requires the JUA to transfer the Duplicate Premiums to the Secretary after just two years, explicitly recognizes the JUA's lack of a property right to the Duplicate Premiums. The Statement of Motives section of the 2002 Amendment states that 83 during the existence of the Association, certain funds have been accumulated that do not belong to it . . . [which] results from the fact that a great number of [privately insured] consumers ... pay the corresponding [compulsory liability insurance] premium . . . when they obtain the motor vehicle license for the first time or when they renew it, but they do not request the Association to reimburse the money as is their right. 84 (Emphasis added.) 85 Although claiming a right to all of the insurance premiums, the JUA concedes that a portion of the premiums collected by the Secretary (i.e., the Duplicate Premiums placed in the Reserve) may belong to third parties: either motor vehicle owners with private insurance or private insurers who reimbursed their insureds. The JUA consequently admits that a large portion of the $73 million Reserve is the property of others. Given the lack of support for the JUA's claimed property right to the Duplicate Premiums, the JUA fails to allege a taking of this portion of the premiums under the first prong of the qualified immunity analysis. 86
87 Our determination that the JUA has not alleged a property interest in the Duplicate Premiums does not extend to the remainder of the Reserve Fund—the Overstated Reserve Funds—which consists of the cushion set aside by the JUA to ensure that the Reserve was large enough to meet all of the requests for reimbursement by insureds who purchased private insurance. As noted earlier, the $73 million Reserve held back by the Commonwealth allegedly contained approximately $10 million in excess funds—money that, as it turned out, was not needed for reimbursement because fewer individuals than estimated had purchased their own policies, which meant, in turn, that less of the Reserve than anticipated constituted Duplicate Premiums. 88 According to the JUA, since the [Overstated Reserve Funds] came from the [JUA] and do not, in fact, belong to others, they should have been accounted for as income for the [JUA]. Flores Galarza contends that since these funds are merely portions of the Reserve, which, in turn, is merely an accounting tool for allocating the Duplicate Premiums, the JUA has no proprietary interest[] in the[se] moneys. 89 The Statement of Motives section of the 2002 Amendment, which was in place prior to Flores Galarza's appropriation of the Overstated Reserve Funds in November 2002, explicitly provides that the $73 million Reserve consists of funds that do not belong to it [the JUA] as the result of the double payment of insurance premiums by some drivers. The 2002 Amendment therefore requires the JUA to immediately transfer to the Secretary the funds known in its annual statement as `Funds Retained by the Insurer Belonging to Others'— that is, the $73 million Reserve—and to continue doing so every two years. There is, however, no carve-out for the cushion portion of the Reserve that consists of Overstated Funds. In fact, the 2002 Amendment provides that the Reserve funds transferred to the Secretary necessarily include any reserve excess, and that this reserve excess may be used as resources in the General Fund. P.R. Laws Ann. tit. 26, § 8055(l). 90 The JUA argues, in essence, that to the extent the Amendment directs the transfer of the Overstated Reserve Funds to the Commonwealth, the provision effects a taking of the JUA's property. Under Law 253, the JUA is obliged to insure drivers who might otherwise be uninsurable; the premiums for that insurance are initially collected by the Secretary. The JUA argues that all of those collected funds, other than the Duplicate Premiums, constitute the Earned Premiums and thus belong to it. Indeed, the Insurance Commissioner's adjustment of the Reserve percentage in 2001 to more accurately reflect the percentage of traditionally insured vehicle owners indicates the Commonwealth's recognition that the JUA is entitled to any funds above the amount representing Duplicate Premiums. Notably, the Amendment identifies the funds to be transferred to the Commonwealth every two years as funds Belonging to Others. Presumably, any such funds that do not belong to others belong to the JUA. We therefore conclude that the JUA has alleged the taking of a constitutionally protected property interest in the Overstated Reserve Funds.