Opinion ID: 1548590
Heading Depth: 1
Heading Rank: 2

Heading: Retrospective Law

Text: The majority concludes that the Act constitutes a retrospective law, but, in our view, does not fully analyze this issue. In testing legislation against Part I, Article 23, we conduct a two-part analysis to determine if it is unconstitutionally retrospective. Fournier, 158 N.H. at 218, 965 A.2d 1091. First, we discern whether the legislature intended the law to apply retroactively. Id. When the legislature is silent as to whether a statute should apply prospectively or retrospectively, our interpretation turns on whether the statute affects the parties' substantive or procedural rights. There is a presumption of prospectivity when a statute affects substantive rights. In re Estate of Sharek, 156 N.H. 28, 30, 930 A.2d 388 (2007) (quotation omitted). Where the statute is remedial or procedural in nature, however, the presumption is reversed, and the statute is usually deemed to apply retroactively to those pending cases which on the effective date of the statute have not yet gone beyond the procedural stage to which the statute pertains. Appeal of Wal-Mart Stores, 145 N.H. 635, 638, 765 A.2d 168 (2000) (quotation omitted). In the final analysis, however, the question of retrospective application rest[s] on a determination of fundamental fairness, because the underlying purpose of all legislation is to promote justice. Id. (quotation and brackets omitted). If we find that the statute applies retroactively, we then inquire whether such retroactive application is constitutionally permissible. Fournier, 158 N.H. at 218, 965 A.2d 1091. This second inquiry concerns whether the legislation at issue impairs vested rights. See In re Estate of Sharek, 156 N.H. at 30, 930 A.2d 388. Unless otherwise inhibited by either the State or Federal Constitutions, the Legislature may change existing laws, . . . statutory or common, at its pleasure, but in so doing, it may not deprive a person of a property right theretofore acquired under existing law. Id. (quotation omitted). Those rights are designated as vested rights, and to be vested, a right must be more than a mere expectation based on an anticipation of the continuance of existing law; it must have become a title, legal or equitable, to the present or future enforcement of a demand, or a legal exemption from the demand of another. Id. (quotation omitted). Rather than analyze the issue, the majority apparently assumes that the Act applies retroactively. Even if we were to agree, we believe that the policyholders have failed to establish that they have a vested right to any excess surplus. We believe that the pertinent regulations and insurance policies do not confer upon the policyholders a vested right either to the surplus itself or to its use for their benefit. To determine the nature of the policyholders' right to the surplus, we first set forth the pertinent regulatory language. New Hampshire Administrative Rules, Ins 1703.07 governs the policies at issue in this case (those issued on or after January 1, 1986). In light of the majority's holding that only policyholders with current JUA policies may bring Contract Clause claims, for the purposes of our discussion, we will assume that the regulations currently in effect are incorporated into the policies at issue. To the extent that the majority suggests that the policyholders have a vested right in the law regulating their JUA contracts remaining unchanged, the majority is mistaken. No person has a vested interest in any rule of law, entitling him to insist that it shall remain unchanged for his benefit. Estabrook v. American Hoist & Derrick, Inc., 127 N.H. 162, 171, 498 A.2d 741 (1985) (quotation omitted), overruled on other grounds by Young v. Prevue Products, Inc., 130 N.H. 84, 88, 534 A.2d 714 (1987), and Thompson v. Forest, 136 N.H. 215, 219, 614 A.2d 1064 (1992); New York Cent. R.R. Co. v. White, 243 U.S. 188, 198, 37 S.Ct. 247, 61 L.Ed. 667 (1917). Rule 1703.07(c) provides: If premiums written on [JUA] business exceed the amount necessary to pay losses and expenses, the board shall apply such excess to repay [insurer] members for assessments previously levied, in proportion to the amount paid by each [insurer] member. See N.H. Admin. Rules, Ins 1702.01, 1703.01(b), (i). Rule 1703.07(d) provides: If premiums . . . exceed the amount necessary to pay losses and expenses and to reimburse members for all assessments pursuant to Ins 1703.07(c), then with review and approval by the [Commissioner of the New Hampshire Insurance Department] as being consistent with the purposes of this chapter, the board shall authorize the application of such excess in one or both of the following ways: (1) Against and to reduce future assessments of the [JUA]; or (2) Distribute the excess to such health care providers covered by the [JUA] as is just and equitable. We next set forth the policy language, which provides, in pertinent part: The named insured shall participate in the earnings of the [JUA], to such extent and upon such conditions as shall be determined by the board of directors of the [JUA] in accordance with law and as made applicable to this policy. . . . The plain meaning of the regulatory and policy language demonstrates that the policyholders have no vested, enforceable right to any surplus amount. Under the regulation, the policyholders have a right to the surplus itself only if: (1) the board declares an excess; (2) the board decides that it need not retain the funds against and to reduce future assessments against insurer members; (3) the board decides to distribute the excess to the policyholders under such terms as are just and equitable; and (4) the insurance commissioner approves this distribution as being consistent with the [regulatory] purposes of the JUA. N.H. Admin. Rules, Ins 1703.07(d). Only if these contingencies occur, would the policyholders have a claim to the surplus. A contingent interest is, by definition, not a vested right, and, therefore, is not constitutionally protected. See In the Matter of Goldman & Elliott, 151 N.H. 770, 774, 868 A.2d 278 (2005). Similarly, under the terms of the policy the policyholders shall participate in the JUA's earnings only to such extent and upon such conditions as shall be determined by the JUA's board in accordance with law. The phrase [t]he named insured shall participate in the JUA's earnings is modified by the phrase to such extent and upon such conditions as the board may determine. In this context, the use of the word shall does not transform the policyholders' hopes for a future discretionary distribution into a fixed, certain and absolute right that the board must allow them to participate in the JUA's earnings. Id. At best, the regulatory and policy language together confer upon the policyholders mere expectancies based upon the anticipated continuance of the present laws, the existence of a . . . surplus, as well as the board's exercise of its discretion, with the commissioner's approval, to distribute the surplus to the policyholders. Butler Weldments v. Liberty Mut. Ins., 3 S.W.3d 654, 659 (Tex.Ct.App.1999). Mere expectancies are not vested rights as a matter of law. In the Matter of Goldman & Elliott, 151 N.H. at 774, 868 A.2d 278; see 2 N. Singer & J.D. Shambie Singer, Sutherland Statutory Construction § 41.6, at 456-57 (2009) (The mere expectation of a future benefit or contingent interest does not create a vested right.). Perhaps to avoid this result, the majority holds that the regulatory and policy language taken together confers upon the policyholders a vested contractual right in the treatment of any excess surplus. (Emphasis added.) The policyholders, the majority asserts, have a vested right not necessarily in distribution of the funds, but in the treatment of the funds for their benefit. The majority explains that the policyholders' vested rights are beneficial, rather than possessory. . . . [E]ither they benefit from the surplus by its reinvestment for application against future assessments; or they benefit from the surplus by receipt of a dividend. We first observe that whatever benefit the policyholders would receive from the JUA's retention of the surplus is derivative. The future assessments to which the regulation refers are levied against insurers, not insureds. See N.H. Admin. Rules, Ins 1703.07, 1703.08, 1703.13. The primary beneficiaries of the JUA's decision to retain any surplus are, therefore, the JUA's member insurers, not the policyholders. Additionally, we believe that the majority errs when it concludes that the policyholders' so-called beneficial interest in the surplus is entitled to constitutional protection under Part I, Article 23. Part I, Article 23 protects only vested rights. See In re Estate of Sharek, 156 N.H. at 30, 930 A.2d 388. By definition, a beneficial interest is not a vested right as a matter of law. See Nordic Inn Condo. Owners' Assoc. v. Ventullo, 151 N.H. 571, 575-76, 864 A.2d 1079 (2004); cf. Dubois v. Smith, 135 N.H. 50, 59, 599 A.2d 493 (1991) (noting that beneficiary interest is not a vested property right). To be vested, a right must become a title, legal or equitable, and cannot be a mere expecta[ncy]. In re Estate of Sharek, 156 N.H. at 30, 930 A.2d 388 (quotations omitted). A beneficial interest is only an expectancy and not legal title, and, therefore, is not a vested right. See Nordic Inn Condo. Owners' Assoc., 151 N.H. at 575-76, 864 A.2d 1079. Accordingly, a beneficial interest is not a vested right entitled to constitutional protection under Part I, Article 23. See In re Estate of Sharek, 156 N.H. at 31, 930 A.2d 388 (testator's right to name a beneficiary is no more vested than beneficiary's right to take under a will). The majority concludes that the policyholders' beneficial rights are vested merely because they are contractual. The majority further concludes, without citation, that the policyholders' rights vested upon issuance of their policies. To the contrary, not all rights created by contract are vested, and, therefore, inviolable for the purposes of Part I, Article 23. See Hayes v. LeBlanc, 114 N.H. 141, 145, 316 A.2d 187 (1974) (Part I, Article 23's prohibition against retrospective laws was not intended to prevent the legislature from amending laws which regulate contracts in the public interest where such laws have proven inadequate to accomplish their task.). The United States Supreme Court has long recognized that a statute does not violate the [Constitution] simply because it has the effect of restricting, or even barring altogether, the performance of duties created by contracts entered into prior to its enactment. If the law were otherwise, one would be able to obtain immunity from state regulation by making private contractual arrangements. Exxon Corp. v. Eagerton, 462 U.S. 176, 190, 103 S.Ct. 2296, 76 L.Ed.2d 497 (1983) (citation and quotation omitted); see East New York Bank v. Hahn, 326 U.S. 230, 232, 66 S.Ct. 69, 90 L.Ed. 34 (1945). As Justice Holmes put it: One whose rights, such as they are, are subject to state restriction, cannot remove them from the power of the State by making a contract about them. The contract will carry with it the infirmity of the subject matter. Hudson Water Co. v. McCarter, 209 U.S. 349, 357, 28 S.Ct. 529, 52 L.Ed. 828 (1908); see Exxon Corp., 462 U.S. at 190, 103 S.Ct. 2296. The majority relies upon Ohio State Life Insurance Co. v. Clark, 274 F.2d 771 (6th Cir.), cert. denied, 363 U.S. 828, 80 S.Ct. 1599, 4 L.Ed.2d 1523 (1960), and Alliance of American Insurers v. Chu, 77 N.Y.2d 573, 569 N.Y.S.2d 364, 571 N.E.2d 672 (1991), to support its contention that the policyholders' beneficial interests are entitled to constitutional protection. Both cases are inapposite. In Chu, 569 N.Y.S.2d 364, 571 N.E.2d at 678, the issue of whether the policyholders had vested rights was undisputed. The court stated that because it was not disputed that had the State failed to give the contributors payment or credits attributable to their contribution, they could have asserted a legitimate claim of entitlement to the moneys, grounded in the statutory guarantee. Chu, 569 N.Y.S.2d 364, 571 N.E.2d at 678 (quotation and citation omitted). Moreover, Chu is factually distinguishable from the instant case. In Chu, the relevant statutes mandated that income earned would be either returned to the contributors or credited toward their future contributions. Chu, 569 N.Y.S.2d 364, 571 N.E.2d at 675. Here, whether the policyholders receive a distribution from the surplus is entirely at the discretion of the JUA's board of directors. See Methodist Hosp. of Brooklyn v. State Ins. Fund, 64 N.Y.2d 365, 486 N.Y.S.2d 905, 476 N.E.2d 304, 309, appeal dismissed, 474 U.S. 801, 106 S.Ct. 32, 88 L.Ed.2d 26 (1985). Clark is also factually distinguishable. In that case, ownership of the surplus retained by a life insurance company, which primarily wrote policies on a mutual plan, but also wrote policies on a stock plan, was expressly granted to its policyholders. Clark, 274 F.2d at 773, 777. The company's charter stated that the company's surplus  shall belong to the holders of policies on the mutual plan and shall be apportioned and distributed on such equitable plan as the directors may provide. Id. at 777. Neither the JUA's governing regulations nor its insurance policies contain similarly unconditional language granting the policyholders ownership of the surplus. The majority's entire discussion of vested rights is premised upon its assumption that the JUA operates like a mutual insurance company. However, the JUA is not a mutual insurance company. [A] mutual company is owned by the policyholders. [1 Essentials of Insurance Law] New Appleman on Ins. L. Libr. Ed. (MB) § 1.08[4][c], at 1-83 (Oct.2009) (emphasis omitted). It is organized and operated for the benefit of its policyholders who are by virtue of their policies members of the company, Methodist Hosp. of Brooklyn, 486 N.Y.S.2d 905, 476 N.E.2d at 308, and is managed by people elected by the policyholders. Kelso & Irwin, P.A. v. State Ins. Fund, 134 Idaho 130, 997 P.2d 591, 596 (2000). In a mutual insurance company: Each member pays a premium in advance, usually in an amount slightly larger than what is necessary to cover that individual's expected loss plus a fair share of administrative expenses. In lieu of paid-in capital to guarantee solvency, the mutual company relies on an accumulated surplus. Depending on the company's losses and expenses and the amount of investment income earned on the reserves, the company may refund a portion of the premium to the policyholder at the end of the year in the form of a dividend. . . . Some mutuals . . . have the option to assess the members for sums (usually not exceeding the amount of the premium) necessary to cover unanticipated large losses. New Appleman on Ins. L. Libr. Ed., supra § 1.08[4][c], at 1-83. Unlike the policyholders of a mutual insurance company, the policyholders here are not members of the JUA and have no vote or say in [its] administration. Methodist Hosp. of Brooklyn, 486 N.Y.S.2d 905, 476 N.E.2d at 308-09; see N.H. Admin. Rules, Ins 1702, 1703.04. The JUA is administered by a board whose members are appointed by the insurance commissioner, pursuant to regulations adopted by the commissioner. See N.H. Admin. Rules, Ins 1703.04(a) (board is comprised of seven voting members appointed by commissioner), 1703.04(p) (requiring JUA to invest premiums in certain manner), 1703.12 (providing that JUA shall be subject to examination by the Commissioner and requiring JUA to submit certain reports to same). Nor is there any evidence in the record that the policyholders paid slightly larger premiums so as to cover administrative expenses. While the JUA has some of the features of a mutual insurance carrier, there is no indication that the legislature intended it to be owned by its policyholders in the same way that a private mutual insurance company is owned by its policyholders. See Kelso & Irwin, P.A., 997 P.2d at 596. The majority also places great weight on the fact that the insurance policies at issue describe themselves as participating. The majority observes that participating policies in other contexts have in common a policyholder's entitlement to share in the company's excess surplus. See, e.g., Gulf Life Ins. Co. v. United States, 35 Fed. Cl. 12, 13 (1996) ([A] participating policy has a higher stated premium than the nonparticipating policy for the same insurance, but the policyholder expects to receive premium rebates in the form of policyholder dividends. These dividends are returned to policyholders based on the company's experience or the discretion of its management.), aff'd, 118 F.3d 1563 (Fed. Cir.1997). The JUA policies, however, are not participating simply because they say they are. See Concord Hosp. v. N.H. Medical Malpractice Joint Underwriting Assoc., 137 N.H. 680, 683, 633 A.2d 1384 (1993). Moreover, nothing in the record demonstrates that the policyholders have paid higher premiums than they would have paid for non-JUA insurance. Because the policyholders have failed to establish a vested, constitutionally protected right either to the surplus itself or to its use for their benefit, the Act does not violate Part I, Article 23's prohibition against retrospective laws. Having concluded that the Act is not an unconstitutional retrospective law, we next analyze whether it otherwise violates Part I, Article 23 because it substantially impairs the policyholders' contractual rights.