Opinion ID: 770385
Heading Depth: 2
Heading Rank: 2

Heading: Interference with Reasonable Investment-Backed Expectations

Text: 21 Retroactivity is generally disfavored in the law. See Eastern Enterprises, 524 U.S. at 532, 118 S.Ct. at 2131 (citing Bowen v. Georgetown Univ. Hospital, 488 U.S. 204, 208, 109 S.Ct. 468, 469-70 (1988)). Retroactive legislation, as opposed to the prospective kind, can present more severe problems of unfairness because it can upset legitimate expectations and settled transactions. See General Motors Corp. v. Romein, 503 U.S. 181, 191, 112 S.Ct. 1105, 1112 (1992). 22 The magistrate judge found that Act 188's retroactive application reached back at least twenty years to upset the plaintiffs' reliance on the cost-neutrality of the 1974 funding scheme. We agree. 10 23 Defendants do not dispute the extent of the reach-back. Instead, they assert that the companies' alleged economic expectations are unreasonable because the insurance industry is heavily regulated and because the plaintiffs knew of the SIF's need for annual funding and knew that benefits-based assessments are prescribed in many other states. 24 None of these factors -- extensive regulation, SIF's pay-as-you-go status, or other states' policies -- made it objectively reasonable to expect that Louisiana would decide to shift the cost of funding the SIF from in-state employers to insurers who had withdrawn, wholly or partly, from writing insurance in Louisiana and who could not recoup the costs of this forced underwriting. While plaintiffs might have been on notice that there could be a change away from premium-based assessments, there was no evidence that the plaintiffs should have suspected abandonment of cost-neutrality. 11 There was no evidence that the cost of financing the SIF was ever intended to be borne by insurers, that there existed any rationale or policy for imposing the cost on insurers, or that the state was contemplating shifting the burden of funding onto insurers. 25 And while the majority of states do not use the premium-based assessment method for their SIF's, and that method might have posed certain administrative problems for Louisiana, insurers could hardly have foreseen the retroactive imposition of a benefits-based method. 26 Finally, the mantra that insurance is a regulated industry will not cover all sins of retroactivity. The coal industry had been heavily regulated with respect to miners' health benefits, but the Supreme Court was not persuaded that the retroactive liability in Eastern Enterprises could have been anticipated. See Eastern Enterprises, 524 U.S. at 534-36. Here, Louisiana's abandonment of cost-neutrality has shifted onto these plaintiffs-- for the first time -- costs attributable to the SIF. Contrary to the state's contention, the insurers did not have a stake in the SIF that would justify a reasonable expectation that they might be required to subsidize it. Insurers are only one tiny group among the employers who formerly shared the cost of the SIF. More important, because the fund was cost-neutral to them, they never received a net benefit from it. Except for reasons of administrative convenience, the SIF was intended to be a non-insurance-based compensation program. Regulation of the insurance business was actually extended in a novel way when Act 188 imposed non-reimbursable assessments on these plaintiffs. 27 In short, there was no pattern of conduct on the state's part that could have given the plaintiffs sufficient notice that cost-neutrality would end. See Eastern Enterprises, 524 U.S. at 498 (examining the government's pattern of involvement in the regulated field in order to determine whether plaintiff had sufficient notice of the challenged regulation). 28 The magistrate judge also found, and we agree, that the defendants failed to show an adequate justification for the retroactive application of Act 188. There are no indications in the law itself, in the legislative history, or in the record of this case that the SIF was financially insecure, or that employers were having trouble bearing the costs of operating the SIF. Defendants justified Act 188 by relying on evidence of administrative difficulties in computing premium-based assessments for self-insureds, but they do not explain how retroactive application of Act 188 helps to alleviate this problem.