Court Opinion

ID: 3018425
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:19:08.950363+00
Date Added: 2024-06-11T11:40:01.185388
License: Public Domain

_____________

                              No. 95-1754
                             _____________

Honeywell, Inc.; Honeywell       *
Pension and Retirement           *
Committee, on their own behalf   *
and on behalf of the Honeywell   *
Retirement Investment Plan;      *
Investment Plus Plan of          *
Honeywell, Inc.; Honeywell       *
Retirement Savings Plan; First   *
Trust National Association,          *
                                     *
           Plaintiffs-Appellants,    *   Appeal from the United States
                                     *   District Court for the
     v.                              *   District of Minnesota.
                                     *
Minnesota Life and Health       *
Insurance Guaranty Association,      *
                                     *
           Defendant-Appellee.       *        [PUBLISHED]

                             _____________

                    Submitted:   October 22, 1996

                          Filed: April 2, 1997
                             _____________

Before RICHARD S. ARNOLD, Chief Judge, McMILLIAN, JOHN R. GIBSON,
      FAGG, BOWMAN, WOLLMAN, MAGILL, BEAM, LOKEN, HANSEN, MORRIS SHEPPARD
ARNOLD, and MURPHY, Circuit Judges, en banc.
                              _____________

HANSEN, Circuit Judge.

     The plaintiffs (collectively referred to as Honeywell) appeal the
district court's1 grant of summary judgment for the defendant,

     1
      The Honorable Richard H. Kyle, United States District Judge
for the District of Minnesota.
Minnesota Life and Health Insurance Guaranty Association (the Association),
in this declaratory judgment suit.    At issue is whether an amendment to a
Minnesota statute, which amendment applies retroactively, violates either
the Contract Clause or the Due Process Clause of the Constitution of the
United States.    The district court granted the Association's motion for
summary judgment and dismissed Honeywell's complaint, concluding that the
amendment passes constitutional muster.

     A panel of this court unanimously affirmed the judgment of the
district court.   Honeywell v. Minnesota Life & Health Ins. Guaranty Assoc.,
86 F.3d 766 (1996).   Honeywell requested en banc review.   We granted this
request, vacated the panel's opinion on August 27, 1996, and heard the case
en banc.   We now affirm the judgment of the district court.

                               I.   BACKGROUND

     Honeywell, Inc. is a Delaware corporation with its principal place
of business in Minnesota.   Honeywell sponsors certain defined contribution
benefit and retirement plans for its employees.     These plans include the
Honeywell Retirement Investment Plan, the Investment Plus Plan of Honeywell
Inc., and the Honeywell Retirement Savings Plan.     The current trustee of
the Honeywell plans is First Trust National Association, which has its
principal place of business in Minnesota.

     The Association is a nonprofit Minnesota corporation created pursuant
to the Minnesota Life and Health Insurance Guaranty Association Act (the
Act), Minn. Stat. Ann. §§ 61B.01-61B.16 (West

                                      2
1986).2     The Association exists to protect the contractual rights of policy
owners and beneficiaries of life insurance policies, health insurance
policies, and annuity contracts (subject to certain definitions and
limitations), when the insurer that issued the life insurance, health
insurance, or annuity contract becomes financially unable to perform its
obligations.        See Minn Stat. Ann. § 61B.02, subd. 2.        See also Minnesota
Life & Health Ins. Guar. Assoc. v. Department of Commerce, 400 N.W.2d 769,
770 (Minn. Ct. App. 1987).           To provide this protection, all insurance
companies that deal in life, health, and annuity contracts and elect to do
business     in    Minnesota   are   required   to   join   and   contribute   to   the
Association.       Minnesota Life, 400 N.W.2d at 770.       The dispute in this case
arose following the 1991 insolvency of an out-of-state member insurance
company and the 1992 enactment by the Minnesota legislature of an amendment
that retroactively redefines the term "contractual obligation" under the
Act.
        In 1988, the Honeywell plans' trustee, who was a Minnesota resident
(as is the current trustee), invested in Guaranteed Investment Contracts
(GICs) issued by Executive Life Insurance Company of California (ELIC), a
member of the Association.           GICs are unallocated annuity contracts, or
annuity contracts "not issued to or owned by a named individual."                   Id.
GICs are investments made by the trustee for the benefit of the plan
participants and are considered covered policies under the Act.                See id.
at 775 (holding that GICs are covered annuities under Minn. Stat. § 61B.03,
subd.
3 (1984)).        The Honeywell GICs expressly name the Honeywell trustee

        2
      This Act has been repealed and was replaced in 1993 with
Minn. Stat. Ann. §§ 61B.18 - 61B.32 (West Supp. 1996).         The
legislature provided, however, that §§ 61B.01 - 61B.16, as amended
in 1992, remain applicable to the subject of this suit. Honeywell,
Inc. v. Minnesota Life & Health Ins. Guar. Assoc., 518 N.W.2d 557,
558 n.4 (Minn. 1994). The issue in this case deals with a 1992
amendment to the Act, and not the new 1993 version of the Act.

                                           3
as the policy owner, and not the individual plan participants for whom the
investment was made.       Honeywell, 518 N.W.2d at 561.

     In 1991, ELIC became insolvent and unable to fulfill its contractual
obligations on the Honeywell GICs, which amounted to $111,000,000.                 By
letter dated January 10, 1992, the Honeywell trustee, as the resident
policy owner, submitted to the Association a claim for guaranty coverage
under the Act.   Honeywell sought coverage for ELIC's entire obligation to
the Honeywell trustee, which would inure not only to the benefit of
Honeywell's    9,000   Minnesota   resident     plan   participants   but   also   to
Honeywell's 27,000 nonresident plan participants.
     The     Association    neither   granted    nor   denied   Honeywell's   claim
initially.    ELIC's insolvency had also affected approximately 10,000 other
Minnesota residents who were employed in Minnesota by other companies whose
plan trustees owned GICs but which trustees were not Minnesota residents.
At that time, the Act required the Association to guarantee the covered
policies of "residents" to whom any "contractual obligation" was owed from
an out-of-state insurer.      Minn. Stat. Ann. § 61B.06, subd. 2 (West 1986).
See Honeywell, 518 N.W.2d at 558.        The term "resident," defined as "any
person who resides in this state at the time the impairment is determined
and to whom contractual obligations are owed," Minn. Stat. Ann. § 61B.03,
subd. 13 (West 1986), was broad enough to include a trustee who resided in
Minnesota.     Honeywell, 518 N.W.2d at 560-61.            The term "contractual
obligation," defined as "any obligation under covered policies," Minn.
Stat. Ann. § 61B.03, subd. 5 (West 1986), was broad enough to include a GIC
obligation owed to a resident trustee.          Honeywell, 518 N.W.2d at 560-61.
Thus, as then codified, the Act, combined with ELIC's insolvency, created
the potential that all the Honeywell plan participants, thousands of whom
were not residents of Minnesota, might be

                                         4
entitled to coverage under the Minnesota Act because their plan trustee
happened to be a Minnesota resident.         Whereas, many other Minnesota non-
Honeywell employed resident plan participants, who worked for companies
whose plan trustee resided in a different state, might not be entitled to
any coverage because their trustee (the one to whom the contractual
obligation was owed) was not a Minnesota resident.

     Faced    with   this    dilemma,   on   January   21,   1992,   the    Minnesota
Department of Commerce (which supervises and regulates the Association and
to whom appeals may be taken from the Association's determinations, see
Minn. Stat. Ann. § 61B.09(c)), issued an opinion, advising the Association
chairman on the coverage problems created by the ELIC insolvency:

           The Department believes it is the clear intent of the Act
     to cover the people of Minnesota.       Accordingly, it is the
     Department's position that the Guaranty Association Act
     provides coverage to Minnesota resident employees who are the
     beneficiaries of defined-contribution pension plans funded by
     Guaranteed Investment Contracts purchased from Executive Life.

           Consistent with that position the Department has
     determined that non-resident employees of such a plan,
     regardless of the residency of the trustee or plan sponsor, are
     not covered under the Act.

(Appellee's App. at GA-59.)

     Subsequently, on April 27, 1992, the governor signed into law an
amendment to the definition of the term "contractual obligation," in a
purported attempt to retroactively "clarify" the statutory coverage in a
manner consistent with the Department of Commerce opinion.           Honeywell, 518
N.W.2d   at   562.     The    1992   amendment,    which     specifically     applies
retroactively, narrowed the

                                         5
definition     of    "contractual     obligation"        to    specifically       exclude     any
obligation owed "to nonresident participants of a covered plan or to the
plan sponsor, employer, trustee, or other party who owns the contract; in
such cases, the association is obligated under this chapter only to
participants in a covered plan who are residents of the state of Minnesota
on the date of impairment."         1992 Minn. Laws, ch. 540.            Thus, the amendment
expressly provides coverage only to plan participants who are Minnesota
residents.     In light of the opinion of the Department of Commerce and the
retroactive 1992 amendment, the Association took the position that its
guaranty     obligation     to   Honeywell        covers      only    those    Honeywell      plan
participants who resided in Minnesota when ELIC became insolvent.

      Honeywell then brought an action for declaratory and injunctive
relief   and    monetary    damages      in   Minnesota       state    court     based   on    the
Association's refusal to fully guaranty the whole of the trustee's claim.
Honeywell sought a declaration that retroactive application of the 1992
amendment violates both the Contract Clause and the Due Process Clause of
the Constitution because Honeywell's entitlement to coverage and payment
under the prior statute had fully accrued before the enactment of the 1992
amendment.     The Association removed the case to federal district court
pursuant to 28 U.S.C. § 1441.
      After removal, the parties filed cross motions for summary judgment.
The   district      court   ruled   in    favor     of     Honeywell,     holding    that     the
retroactive      abrogation      of      Honeywell's          guaranty        coverage   rights
impermissibly destroyed vested rights in violation of both the Contract
Clause   and the Due Process Clause of the Constitution.                             After the
Association moved for reconsideration, however, the district court vacated
its initial opinion and certified two questions to the Supreme Court of
Minnesota:       (1)    Did the 1992 amendment to the Act's definition of
"contractual obligation"

                                              6
effect a substantive change in the Association's obligations or merely
clarify existing obligations?        (2)   Is the annuity contract owner's (the
trustee's)   right   to   guaranty    payment   from   the   Association   a   purely
statutory right or is it contractual in nature?              The Supreme Court of
Minnesota ruled on the certified questions, holding that (1) the 1992
amendment to the definition of "contractual obligation" substantively
changed the Association's coverage obligations, and (2) the right to
payment from the Association is a purely statutory right under state law.
See Honeywell, 518 N.W.2d at 563.

     After the Supreme Court of Minnesota responded to the certified
questions, the parties again filed cross motions for summary judgment.
This time, the district court granted the Association's motion for summary
judgment, concluding that retroactive application of the 1992 amendment did
not violate either the Contract Clause or the Due Process Clause, and
dismissed Honeywell's complaint with prejudice.          Honeywell appeals.

                                II.    DISCUSSION

     Honeywell contends that its preamendment right to insurance guaranty
coverage is contractual in nature and that retroactive application of the
amendment constitutes the impairment of its contractual rights in violation
of the Contract Clause.      Honeywell also argues that the 1992 amendment
arbitrarily and irrationally destroyed its accrued, vested right to
guaranty coverage, in violation of the Due Process Clause.            We begin our
analysis with the Contract Clause.

                                           7
                                 A.    CONTRACT CLAUSE

        The Constitution provides, "No State shall . . . pass any Law
impairing the Obligation of Contracts . . . ."                U.S. CONST. art. I, § 10,
cl.   1.        Read    literally,    this    constitutional       prohibition     bans   any
interference with contracts, but cases interpreting the clause clearly
indicate that this prohibition "is not an absolute one and is not to be
read with literal exactness like a mathematical formula."                     Home Bldg. &
Loan Ass'n v. Blaisdell, 290 U.S. 398, 428 (1934).                         Instead, when a
litigant contends that a legislative amendment has impermissibly impaired
contractual obligations, our inquiry initially focuses on "whether the
change in state law has `operated as a substantial impairment of a
contractual relationship.'"          General Motors Corp. v. Romein, 503 U.S. 181,
186 (1992) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234,
244 (1978)) (other citation omitted).               Three basic components are essential
to this inquiry:        (1) Does a contractual relationship exist, (2) does the
change in the law impair that contractual relationship, and if so, (3) is
the impairment substantial?             Id.        If we conclude that a substantial
impairment of a contractual relationship exists, we must then carefully
examine     "the nature and purpose of the state legislation."                        Allied
Structural Steel Co., 438 U.S. at 244.

        We first consider whether a contractual relationship exists.                 In this
case, the district court certified to the state supreme court the question
of whether the Association's guaranty obligation to GIC owners, such as the
Honeywell trustee, is a contractual or a statutory obligation.                    The Supreme
Court    of     Minnesota   determined       that    the   right   to   payment    from   the
Association is a purely statutory right under state law.                    Honeywell, 518
N.W.2d     at    563.     Honeywell    first       contends   that   the   district    court
erroneously

                                               8
certified a question of federal constitutional law to the state court.

      While federal courts "accord respectful consideration and great
weight to the views of the State's highest court," the determination of
whether the Act created a contractual obligation "is a federal question for
purposes of Contract Clause analysis, and whether it turns on issues of
general or purely local law, we can not surrender the duty to exercise our
own judgment."     Romein, 503 U.S. at 187 (internal quotations omitted).
Contrary to Honeywell's assertion, however, the district court did not
avoid its duty to determine the constitutional issue by certifying a
question to the state supreme court.            Instead, the district court gave
proper   consideration      to   the   state    court's    views   but   independently
determined that the right to payment under the Act is not contractual
within the meaning of the Contract Clause.         We review de novo the district
court's judgment on this constitutional question.              See United States v.
Bates, 77 F.3d 1101, 1104 (8th Cir.), cert. denied, 117 S. Ct. 215 (1996).

      Our independent review leads us to agree with the district court that
the rights at issue are statutory in nature and therefore, no contractual
relationship existed between Honeywell and the Association.               Two factors
lead us to this conclusion:       (1) the Act itself does not create a contract,
and (2) the GICs do not specifically incorporate the terms of the Act.
      First, the Act's guaranty is not itself a contract between the
Association and those who qualify for the Act's protection.               "In general,
a   statute   is   itself   treated    as   a   contract    when   the   language   and
circumstances evince a legislative intent to create private rights of a
contractual nature enforceable against the State."           United States Trust Co.
v. New Jersey, 431 U.S. 1, 17 n.14

                                            9
(1977).   The right to payment under the Act is not enforceable against the
state of Minnesota but is an obligation imposed upon the Association.              The
Association is a nonprofit legal entity and not a state agency.                  Minn.
Stat. Ann. § 61B.04, subd. 1 (West 1986).              See also Minn. Stat. Ann.
§ 61B.21, subd. 1 (West Supp. 1996).        Even if the Association were a state
agency, the Act contains no "clear indication that the legislature intends
to bind itself contractually," which is necessary in order to overcome the
general   presumption   "that   a   law    is   not   intended   to   create   private
contractual or vested rights but merely declares a policy to be pursued
until the legislature shall ordain otherwise."            National R.R. Passenger
Corp. v. Atchison, Topeka & Santa Fe Ry., 470 U.S. 451, 465-66 (1985)
(quotations omitted).      Rather, the Act creates an insurance guaranty
association with attendant statutory obligations to safeguard the financial
well-being of Minnesota residents to whom contractual obligations are owed
by its member insurance companies.          The Act does not create a contract;
instead, it creates a statutory safety net to protect the economic well-
being of Minnesota resident policy owners in the event a member insurer
becomes insolvent.
     Second, while the Association has the power to enter into contracts,
Minn. Stat. Ann. § 61B.06, subd. 9(a) (West 1986), the Association is not
a party to the GICs involved here.        The GICs at issue are contracts between
the Honeywell trustee and the impaired ELIC, not the Association.                  The
Honeywell trustee did not specifically bargain for protection under the
Act, and the Act is not expressly or impliedly incorporated into the terms
of the GICs.    "For the most part, state laws are implied into private
contracts regardless of the assent of the parties only when those laws
affect the validity, construction, and enforcement of contracts."              Romein,
503 U.S. at 189.     The Association's statutory obligation to guaranty the
insurance coverage of residents protected by the Act

                                          10
does not in any way affect the validity, construction, or enforcement of
ELIC's obligation on the GICs.     Moreover, there is no evidence that the
GICs were created in pursuance of the statutory obligation.      Cf. Coombes
v. Getz, 285 U.S. 434, 442, 448 (1932) (upholding the contractual liability
created pursuant to a state constitutional rule of law that was repealed).
The 1992 amendment merely altered definitions under the Act, which in turn
affect the Association's statutory obligation to the Honeywell trustee, but
the amendment did not alter or affect any bargained-for agreement between
the Association and the Honeywell trustee.       The Contract Clause does not
"protect against all changes in legislation, regardless of the effect of
those changes on bargained-for agreements."      Romein, 503 U.S. at 190.

     We conclude that the Association's obligations are statutory in
nature rather than contractual.     Absent the existence of a contractual
relationship, our Contract Clause inquiry is finished.       Accordingly, we
affirm the district court's conclusion that the 1992 amendment did not
unconstitutionally impair a contractual relationship in violation of the
Contract Clause.

                              B.   DUE PROCESS

     Honeywell's due process claim presents a closer question.      Honeywell
argues that retroactive application of the 1992 amendment defeats its
vested right to payment under the Act, in violation of the Due Process
Clause.   Honeywell relies on Coombes, 285 U.S. at 439-48, where the Supreme
Court held unconstitutional the repeal of a California state constitutional
provision that provided a cause of action against corporate directors.      The
Court stated in absolute terms that "neither vested property rights nor the
obligation of contracts of third persons may be destroyed or

                                     11
impaired."   Id. at 442.   More specifically, the Court in Coombes held, "a
contractual obligation arose; and the right to enforce it, having become
vested, comes within the protection of both the contract impairment clause
in Art. 1, § 10, and the due process of law clause in the Fourteenth
Amendment, of the Federal Constitution."       Id. at 448.   Honeywell also
relies on Ettor v. City of Tacoma, 228 U.S. 148, 158 (1913), where the
Supreme Court held that a statutory right to compensation for property
damage caused by the city in the course of grading streets, which right to
compensation was complete before a repeal of the cause of action, was a
vested property right that could not be retroactively destroyed.   Claiming
that these cases control the outcome of the case at hand, the Honeywell
trustee asserts a vested right to payment under the Act as it existed when
ELIC became insolvent, prior to the 1992 amendment.

     The Association, on the other hand, urges us to follow more recent
Supreme Court precedents in which the Court reviews economic legislation
with a very deferential eye and does not accord vested rights status to
economic rights.   The Association observes that under this modern approach,
due process is satisfied as long as a reasonable legislative purpose
supports the retroactive application of the legislation.     The Association
contends that the retroactive 1992 amendment is supported by a reasonable
legislative purpose, and alternatively, that no vested rights accrued in
favor of the Honeywell trustee upon ELIC's insolvency.
     In one sense, both arguments are right.    The Supreme Court has never
expressly overruled the reasoning of Ettor and Coombes, which accords great
protection to accrued statutory causes of action.   In the area of economic
legislation, however, we cannot ignore the abundance of cases where
substantive due process has evolved into a deferential rational basis
analysis.    We believe that an

                                     12
understanding of the historical context of Ettor and Coombes is essential
to divine accurately the present weight of their authority on the issue
before us.   See Hammond v. United States, 786 F.2d 8, 11 (1st Cir. 1986)
(questioning the continued vitality of Coombes and Ettor because recent
cases have retroactively abridged economic and real property rights without
always carefully distinguishing these prior cases).               See also W. David
Slawson, Constitutional and Legislative Considerations in Retroactive
Lawmaking, 48 Cal. L. Rev. 216, 232 (1960) ("The decision [of Coombes v.
Getz] seems far too rigid in its conception of permissible legislative
change and would almost certainly not be followed today.").

     Ettor and Coombes were decided during what is referred to in the
history of American jurisprudence as the Lochner era, named for the pivotal
case of judicial activism, Lochner v. New York, 198 U.S. 45 (1905)
(invalidating   maximum   work   hours    legislation   as   an    unconstitutional
exercise of police power).       Cases of that era frequently invalidated
statutes that limited economic autonomy in a manner thought by the Court
to be unnecessary or unwise, but in more recent decisions, the Court
plainly sees its role differently:       "[W]e do not sit as a super legislature
to weigh the wisdom of legislation nor to decide whether the policy which
it expresses offends the public welfare."           Day-Brite Lighting, Inc. v.
Missouri, 342 U.S. 421, 423 (1952).           The reasoning prevalent during the
"Lochner [era] has been implicitly rejected many times."             Whalen v. Roe,
429 U.S. 589, 597 & n.18 (1977).     See also United States v. Carlton, 512
U.S. 26, 114 S. Ct. 2018, 2023-24 (1994) (recognizing that three tax cases
from the Lochner era "were decided during an era characterized by exacting
review of economic legislation under an approach that `has long since been
discarded'" (citation omitted)); Planned Parenthood of S.E. Pa. v. Casey,
505 U.S. 833,

                                         13
861 (1992) (recognizing that the demise of Lochner era reasoning began in
West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937)).

     Within two years of the Coombes decision, substantive due process
analysis in the area of retroactive economic legislation began to be framed
in terms of reasonableness, drifting away from the Lochner era's strict
protection of economic freedom and vested rights.   See Blaisdell, 290 U.S.
at 438 (upholding as an emergency measure a mortgage moratorium law that
impaired obligations on mortgage contracts).    The Court acknowledged that
even the expressly protected obligation of contracts (and similarly, we
believe, the concept of vested rights) may be impaired by economic
legislation if "the legislation is addressed to a legitimate end and the
measures taken are reasonable and appropriate to that end."       Id.   This
rational basis substantive due process test appears to have supplanted the
legislatively restrictive vested rights mode of analysis, and allows
legislatures more freedom in dealing with economic situations.   See, e.g.,
James L. Kainen, The Historical Framework for Reviving Constitutional
Protection for Property and Contract Rights, 79 Cornell L. Rev. 87, 119
(Nov. 1993) ("Modern jurists reject the categorical logic of vesting and
consider the statute's justifications under the rubric of substantive due
process."); Charles B. Hochman, The Supreme Court and the Constitutionality
of Retroactive Legislation, 73 Harv. L. Rev. 692, 696-97 (1959-60) (noting
that the vested rights analysis has been replaced by balancing three
factors:    (1) the nature and strength of the public interest served by the
statute, (2) the extent to which the statute modifies or abrogates a
preenactment right, and (3) the nature of the right altered by the
statute).
     In 1976, the Court announced, "It is by now well established that
legislative Acts adjusting the burdens and benefits of economic life come
to the Court with a presumption of

                                     14
constitutionality, and that the burden is on the one complaining of a due
process violation to establish that the legislature has acted in an
arbitrary and irrational way."       Usery v. Turner Elkhorn Mining Co., 428
U.S. 1, 15 (1976).       These authorities leave no doubt that, even though
Coombes and Ettor have never been overruled by the Supreme Court, the
modern framework for substantive due process analysis concerning economic
legislation requires only an inquiry into whether the legislation is
reasonably related to a legitimate governmental purpose.                    Given the
criticism surrounding the Court's Lochner era decisions in general, coupled
with the development of judicial deference to economic legislation since
then, we join those who question the continued validity of the vested
rights analysis of Coombes and Ettor when reviewing the constitutionality
of economic legislation, recognizing as we must that only the Supreme Court
itself can overrule its precedents.            We rely instead on the more recent
Supreme Court pronouncements of substantive due process analysis for
economic legislation, which articulate a rational basis test.
       Our task, then, is to determine whether the retroactive application
of the 1992 amendment is justified by a rational legislative purpose, or
whether it is illegitimate and arbitrary.           Retroactive legislation, like
prospective legislation, must meet the reasonableness test of due process.
Usery, 428 U.S. at 17.     "But that burden is met simply by showing that the
retroactive application of the legislation is itself justified by a
rational legislative purpose."     Pension Benefit Guar. Corp. v. R. A. Gray
& Co., 467 U.S. 717, 730 (1984).     Retroactive economic legislation has been
upheld as reasonable even in circumstances where it destroys a settled
expectancy or imposes a new liability.          See, e.g., Carlton, 114 S. Ct. at
2022-23 (upholding a curative measure that took away an expected and relied
upon   deduction   for   estate   tax);    Gray,    467   U.S.   at   734   (upholding
retroactive application of

                                          15
ERISA's withdrawal liability as supported by rational legislative purpose);
Usery, 428 U.S. at 19-20 (upholding retroactive aspects of Black Lung
Benefits Act of 1972, which required employers to compensate former
employees disabled by a work-related disease).          The Court has repeatedly
noted that although certain economic liabilities or burdens were not
anticipated,   nevertheless,   "`"our    cases    are   clear   that   legislation
readjusting rights and burdens is not unlawful solely because it upsets
otherwise settled expectations."'"           Concrete Pipe & Prod. v. Constr.
Laborers Pension Trust, 113 S. Ct. 2264, 2287 (1993) (quoting Gray, 467
U.S. at 729, quoting Usery, 428 U.S. at 16).

     Using these standards, we conclude that the 1992 amendment redefining
"contractual obligation" was neither arbitrary nor illegitimate.         The state
has a legitimate interest in regulating the insurance industry, easing the
economic burdens of its own residents, and ensuring the economic life of
an association created by its statute to protect its residents.                The
general purpose of the Act at issue in this case "is to protect the future
financial stability of individuals,"         Minnesota Life & Health Ins., 400
N.W.2d at 773, and the preamendment Act expressly provided protection to
"residents" to whom "contractual obligations" are owed.                Minn. Stat.
§ 61B.06, subd. 2 (1986).        The 1992 amendment serves to narrow the
definition of contractual obligation, explicitly providing coverage only
to resident plan participants.    This is a legitimate purpose.
     The 1992 amendment is also curative in nature, even though it worked
a substantive change in the law.        See Honeywell, 518 N.W.2d at 560-63
(holding that the amendment worked a substantive change in the law because
before the amendment, it plainly entitled resident policy owners, including
trustees, to coverage).   Curative legislation corrects an unintended and
unanticipated mistake in the

                                        16
underlying legislation, which went undetected until some time after the
original enactment.            Certainly, legislatures have the authority to cure
inadvertent defects in their legislation.               See Carlton, 114 S. Ct. at 2022
(upholding Congress's attempt to cure a defect in the tax code).                               In
Carlton, the Court concluded that Congress's purpose in retroactively
taking away an estate tax deduction, even though the decedent's executor
had    relied    upon    it,    was    neither    illegitimate      nor   arbitrary     because
"Congress acted to correct what it reasonably viewed as a mistake in the
original       1986    provision      that   would    have     created    a    significant     and
unanticipated revenue loss."                 114 S. Ct. at 2023.              We also note the
observation of one commentator that "the individual who claims that a
vested right has arisen from the defect is seeking a windfall since, had
the legislature's . . . action had the effect it was intended to and could
have had, no such right would have arisen."                    Hochman, supra at 705.
        Here,    the    Minnesota      legislature      acted    reasonably      when   it    gave
retroactive effect to the 1992 amendment in order to cure a drafting defect
that might have inadvertently left thousands of Minnesota residents without
coverage under the Act due to the ELIC debacle.                           We agree with the
observation of the Supreme Court of Minnesota:                     "Given that unallocated
annuity contracts were not prevalent at the time of the statute's enactment
in     1977,    the    legislature      likely    did    not    contemplate       how   the    Act
specifically applied to these contracts."                    Honeywell, 518 N.W.2d at 561.
Absent retroactive effect, an unintended gap in coverage would have left
many Minnesota resident workers (whose trustee resided elsewhere) without
coverage, while an unintended windfall in favor of nonresident workers who
had a Minnesota trustee would have strained the financial capabilities of
the Association and required Minnesota residents to pay higher premiums to
finance the Association's obligation to out-of-state residents.                         In sum,
"the

                                                 17
interest in the retroactive curing of such a defect in the administration
of government outweighs the individual [trustee's] interest in benefiting
from the defect."          Hochman, supra at 705-06.            Thus, we conclude that
retroactive application of the 1992 amendment was a rational means by which
to accomplish the state's legitimate goals.

     Honeywell contends that retroactive application is arbitrary and
irrational because there is no connection linking the Honeywell trustee to
the ELIC failure that triggered coverage and because the amendment has a
disparate impact on non-residents.         Neither contention has merit.            We have
already determined that the retroactive application of the amendment was
rational and prevented an unanticipated gap in coverage for resident plan
participants and an unexpected windfall for nonresident plan participants.
Because the context here is curative in nature, there is no need to
demonstrate any connection of the Honeywell trustee to the ELIC failure in
order for the legislation to be rational.            We agree with the Association's
contention that the amendment actually eliminates the arbitrary aspect of
the prior legislation under which Minnesota residents may or may not have
had coverage for their plan funds, depending solely upon the arbitrary
residence    of    their   plan   trustee,    over     which    they   have   no   control.
Additionally, the disparate impact results only from the state's legitimate
interest    in    maintaining     the   welfare   of   its     own   citizens,     not   from
arbitrariness or discrimination.         Retroactive application does not deprive
nonresidents of any rights (except the expectation of coverage based on the
arbitrary residence of their trustee), and it does not place any added
burdens or liabilities on nonresidents.
     To the extent Honeywell argues that this case is fully controlled by
Coombes and Ettor, we also disagree.              As already noted, we question the
continued vitality of these cases.

                                             18
Furthermore, even assuming they remain authoritative, we conclude that they
do not control the outcome in this situation.         In our view, Ettor and
Coombes do not stand for the proposition that an inviolable vested right
exists whenever a statutory economic right accrues.    In Coombes, the Court
expressly protected what had become a vested contract right, independent
of the statute.   285 U.S. at 448.    We have previously concluded that no
contract rights are implicated by the 1992 amendment.     This case involves
legislation of economic matters which exist only by statute and have not
been integrated into a private contract, and Honeywell did not even make
choices in reliance on the preamendment Act.   In Ettor, the Court protected
a cause of action that provided a remedy for property damage to private
property that occurred while the city graded streets for public use.     228
U.S. at 156.   In the present case, neither the state nor the Association
caused a harm and then took away a remedy for the injury caused, as the
city and state did in Ettor.

     In sum, Coombes and Ettor are not directly applicable to the case at
hand because each involves an element distinguishable from the type of
economic legislation at issue here.   Thus, even if Coombes and Ettor apply,
they do not dictate a conclusion that accrued economic rights under the
preamendment Act rise to the level of a vested right.    Rather, in spite of
the expectancies that may have been based upon the preamendment Act, the
retroactive 1992 amendment was a rational means by which to accomplish the
legitimate economic goal of ensuring the welfare of Minnesota resident
workers.

                                      19
                               III.   CONCLUSION

     Finding no violation of either the Contract Clause or the Due Process
Clause through retroactive application of the 1992 amendment, we affirm the
judgment of the district court.

LOKEN, Circuit Judge, with whom BOWMAN, Circuit Judge, joins, concurring.

     I concur in Part II.B. of the court's opinion, concluding that the
Minnesota   statute   at   issue   does    not    violate   Honeywell's    right    to
substantive due process, except to the extent that the rollover paragraph
on pages 18 and 19 is inconsistent with my view of the Contract Clause
issue.   As to that issue, I respectfully disagree with the court's
conclusion that no contract has been impaired, but I agree that there has
been no unconstitutional impairment.       Accordingly, I concur in the court's
decision to affirm.

     As the court explains, the modern Contract Clause analysis is (1) has
the State impaired a contract, (2) is the impairment substantial, and (3)
is the statute nevertheless a permissible exercise of the State's police
power.   See General Motors v. Romein, 503 U.S. 181, 186 (1992); Energy
Reserves, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983).              The
latter two factors are interrelated.             "The severity of the impairment
measures the height of the hurdle the state legislation must clear."
Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978).
     1. Was There a Contract.         My starting point on this question is
Coombes v. Getz, 285 U.S. 434, 440-42 (1932), in which California repealed
a constitutional provision holding corporate directors personally liable
to creditors for embezzled or misappropriated corporate funds.            In holding
that the repeal

                                          20
unconstitutionally impaired a creditor's contract with a corporation, the
Court described the repealed liability as "in its nature contractual."
Justice Cardozo in dissent observed that to call the liability contractual
was "a legal fiction . . . borrowed from the law of quasi contracts."          But
he nonetheless agreed that the Contract Clause may protect a creditor's
"contract   with   a   corporation   secured   in   certain   contingencies   by a
statutory liability."

     To me, Coombes confirms that a statute may create a contract between
private parties that the Contract Clause protects.       See also Steamship Co.
v. Joliffe, 69 U.S. 450, 456-57 (1864) (statute created contract between
shipping company and harbor pilots); Hawthorne v. Calef, 69 U.S. 10, 22
(1864) (statute providing that stock is security for railroad's creditors
created contract between creditors and shareholders).          All recent Supreme
Court cases analyzing whether a statute had created a contract for Contract
Clause purposes dealt with obligations of the State, rather than, as in
Coombes, obligations the State has compelled private parties to assume.
But that should not alter the analysis.         For example, even if a statute
mandates the terms of a fire insurance policy, the policy is still a
contract.   Accord In re Workers' Compensation Refund, 46 F.3d 813, 818 (8th
Cir. 1995).
     In this case, the statute created the Guaranty Association, a private
non-profit entity consisting of all insurers wishing to do business in the
State, and required that entity to guarantee the "covered policies" of its
members in the event of an insolvency.         That third party guaranty looks
much like the statutory liability in Coombes.         "In determining whether a
particular statute gives rise to a contractual obligation, it is of first
importance to examine the language of the statute."                National R.R.
Passenger Corp. v. Atchison, Topeka & S.F. Ry., 470 U.S. 451, 466 (1985).

                                        21
Here, the statute uses the word "guaranty" in its title and provides that
the   Association   "shall    .    .    .   guarantee,     assume,   or    reinsure"   the
obligations of its members.             Minn. Stat. § 61B.06, subd. 1 (1986).           A
guaranty is a contract under Minnesota law.               See Baker v. Citizens State
Bank of St. Louis Park, 349 N.W.2d 552, 557-58 (Minn. 1984).                    In these
circumstances,    Honeywell       has   had   a     "contract"   impaired,    either   its
underlying investment contracts with ELIC or, more directly, the guaranty
by the Guaranty Association.            The contrary conclusion of the Minnesota
Supreme Court, though entitled to deference in its construction of state
law, is not binding on us for Contract Clause purposes.                   See Romein, 503
U.S. at 187.

      2. Was the Contract Substantially Impaired.                Total destruction of a
contract is a substantial impairment.                  Home Building & Loan Ass'n v.
Blaisdell, 290 U.S. 398, 431 (1934).               At first glance, this case seems to
involve total destruction of the guaranty rights of non-resident Honeywell
employees.     But that ignores the nature of the guaranteed contracts.                 As
a GIC trade association monograph explained, "GICs are assets of the
pension plan.     Individual employees do not own any part of a GIC, nor do
employees have any individual rights under the contract."                  Thus, properly
viewed, the impairment is partial -- a reduction in the Association's
guaranty obligation to the Honeywell Plan.              (Whether that loss to the Plan
must ultimately be borne only by non-resident beneficiaries is an issue not
before us.)

      Though partial, the impairment is quantitatively substantial -- based
on the percentage of non-resident Honeywell employees, the statutory
amendment deprived the Plan of some 75% of its guaranty claim against the
Association.     In addition, the impairment was not merely incidental to
another legislative purpose; the statute was

                                              22
enacted to impair.         Compare Energy Reserves, 459 U.S. at 418; Exxon v.
Eagerton, 462 U.S. 176, 194 n.14 (1983).

     Beyond the sheer magnitude of an impairment, the Supreme Court looks
at whether the impaired term was central to the contract, whether settled
expectations have been disrupted, and whether the impaired right was
reasonably relied on.           See El Paso v. Simmons, 379 U.S. 497, 514 (1965);
Spannaus, 438 U.S. at 243 n.14.             In general, when an industry is heavily
regulated, parties are considered to have less reasonable expectation that
legislation will not alter their contractual arrangements.                      See Energy
Reserves,    459    U.S.   at     411.      These     other   factors    cut   against     the
substantiality of this impairment.               As in Veix v. Sixth Ward Bldg. & Loan
Ass'n of Newark, 310 U.S. 32, 38 (1940), the industry is both heavily
regulated and "regulated in the particular to which [Honeywell] now
objects," since the State created the impaired guaranty.                 Honeywell cannot
show substantial reliance on the Association's guaranty when it purchased
the GICs in 1988 because the Association has broad power to unilaterally
impose     conditions      on     its     guaranty     obligations,      subject      to   the
Commissioner's approval, including the power to declare a moratorium on
payments.     See Minn. Stat. § 61B.06, subds. 1-3 (1986); Honeywell v.
Minnesota Life & Health Ins. Guar. Ass'n, 518 N.W.2d 557, 563 (Minn. 1994).
     On     the    other   hand,        recent    Eighth   Circuit    cases    have    looked
unfavorably on retroactive legislation impairing contracts, even in heavily
regulated industries.           See Workers' Compensation Refund, 46 F.3d at 820
(statute    confiscating         excess     reinsurance       premiums    invalid      though
reinsurance plan documents incorporated changes in state law); Holiday Inns
Franchising, Inc. v. Branstad, 29 F.3d 383, 384 (8th Cir.), (statute
retroactively restricting franchisor termination rights invalid), cert.
denied, 115 S. Ct. 613 (1994); Minnesota Ass'n of Health Care Facilities,
Inc. v. Minnesota Dept.

                                                 23
of Public Welfare, 742 F.2d 442, 451 (8th Cir. 1984) (statute retroactively
reducing nursing home rates for medicaid patients invalid "because it
disrupts settled and completed financial arrangements under contracts made
in reliance on existing law"), cert. denied, 469 U.S. 1215 (1985).

     On balance, I conclude this impairment is substantial.        Honeywell
lost 75% of its guaranty benefit.   Cf. Spannaus, 438 U.S. at 247 (statute
imposing $185,000 pension charge on employer closing state office was
substantial impairment).   Thus, on the sliding scale the Supreme Court uses
for the last two Contract Clause factors, this impairment requires close
scrutiny of the State's justification.

     3. Is the Substantial Impairment Justified.      The economic interests
of a state may justify its impairing contracts, see, e.g., Blaisdell, 290
U.S. at 437, but the Contract Clause imposes limits on that power.
"Legislation adjusting the rights and responsibilities of contracting
parties must be upon reasonable conditions and of a character appropriate
to the public purpose justifying its adoption."      United States Trust Co.
of New York v. New Jersey, 431 U.S. 1, 22 (1977).   Given the deference paid
to state legislatures, especially when the State is not a party to the
impaired contract, most claims founder on this aspect of the modern
Contract Clause analysis.    The Supreme Court looks hard at whether there
is a legitimate public purpose and then defers to the legislative judgment
as to the reasonableness of a particular remedy.    See Energy Reserves, 459
U.S at 412-13.
     Of particular importance in this case, the Court has stated that it
is reasonable to amend a statute to eliminate unforeseen consequences or
windfall benefits, even if that impairs existing contracts.        See U.S.
Trust, 431 U.S. at 31 & n.30; Energy Reserves,

                                     24
459 U.S. at 412.    For example, the Court in U.S. Trust explained that the
amendment in El Paso was valid because it simply limited parties "to those
gains reasonably to be expected from the [original] contract."   Conversely,
the amendment struck down in U.S. Trust was not in response to windfall
benefits or unforeseen consequences because it repealed a provision
expressly prohibiting the use of Port Authority revenues for transportation
subsidies.

     In this case, the Minnesota Legislature based its initial 1977
statute on the NAIC Model Life & Health Guaranty Association Act.        The
Model Act at that time provided that the association must guarantee all
obligations of an insolvent domestic insurer.   For an insolvent foreign or
out-of-state insurer, however, the association only guaranteed "the covered
policies of residents," and it would have "no liability" if that insurer's
home State provided "substantially similar" protection "for residents of
other states."   See Minn. Stat. § 61B.06, subds. 2 and 4 (1986).   In other
words, if every State had enacted this Model Act and uniformly applied it,
the association in an insolvent U.S. insurer's home State would pay all
guaranty claims.    But if an offshore insurer grabbed everyone's money and
went under, each State's association would guarantee the covered policies
of that State's residents.

     In this environment, Honeywell's guaranty claim for its investment
in ELIC GICs posed a substantial unforeseen consequence in Minnesota for
three reasons.     First, the legislators who enacted the initial Minnesota
statute in 1977 did not foresee that, unlike regulators in most every other
State, Minnesota's Commissioner would take the position in the 1980s,
before ELIC became insolvent, that GICs are "covered policies," and the
Supreme Court of Minnesota would agree in Minnesota Life & Health Guar.
Ass'n v. Department of Commerce, 400 N.W.2d 769, 773-74 (1987).        As a
result

                                     25
of this lack of uniform implementation, when Honeywell sent its ELIC claims
to all fifty States, it received blanket denials from most everyone except
Minnesota.

     Second, the Legislature did not foresee that "covered policies" would
include group annuities in which a single contract holder, rather than
thousands of beneficiaries, is the "resident."            One can argue that this
issue was reasonably foreseeable.        But I see no indication that even the
drafters of the various Model Acts anticipated the problem before 1985.
That the issue was unforeseen is confirmed by the fact that any careful
drafter familiar with ERISA insurance-funded group life and health plans
would not try to solve this complex an issue with the single word
"resident."

     Third, Honeywell took the position that the $300,000 statutory
ceiling on the Association's liability "for all benefits . . . with respect
to any one life," Minn. Stat. § 61B.06, subd. 8 (1986), does not apply to
its GIC claims.   That exposed the Association to a $111,000,000 claim, far
more than any State has allowed in expressly covering GICs.                See Minn.
Stat. § 61B.19, subd. 4(6) (1996) ($7,500,000 limit on claims regarding
"unallocated    annuities   of   a   retirement   plan");    1985   NAIC   Model   Act
§ 3(c)(2)(B) ($5,000,000 limit).

     Faced with this surprising confluence of factors that produced a
genuinely    unforeseen   consequence    and   arguable     windfall   benefit,    the
Legislature enacted an amendment that reduced the Association's statutory
guaranty to a level that Honeywell (or any other plan sponsor) should
reasonably have expected from the statute as originally enacted:             because
GICs are not "covered policies" in California, ELIC's home State, the
Minnesota Association must guarantee ELIC's GIC obligations to Minnesota
residents; therefore,

                                         26
the Honeywell Plan is entitled to a guaranty benefit equal to that portion
of its GIC contracts that represent investments on behalf of its Minnesota
resident beneficiaries.

     In enacting this amendment, the State acted in furtherance of the
legitimate economic interests of its citizens.3   The effect of its action
was to reduce a state-mandated private benefit in a manner not inconsistent
with the reasonable expectations of the parties to that "contract."     In
these circumstances, I concur in the court's conclusion that Minnesota did
not unconstitutionally impair the Contract Clause rights of the Honeywell
Plan trustee or the Plan's ultimate employee beneficiaries.

RICHARD S. ARNOLD, Chief Judge, with whom McMILLIAN, MAGILL, BEAM, and
MORRIS SHEPPARD ARNOLD, Circuit Judges, join, dissenting.

     I   agree with Judge Loken that a contract was impaired by the
Minnesota Legislature’s amendment of section 61B.     I also believe that
impairment was substantial within the meaning of the Contracts Clause, and
not sufficiently justified.   I therefore respectfully dissent.
     The lead opinion holds that there was no contract to be impaired when
the Minnesota Legislature amended § 61B to exclude out-of-state-resident
life-insurance policyholders and other beneficiaries from its coverage.
As Judge Loken’s opinion

     3
      As the court observes in its substantive due process
discussion, because the Association's liabilities are unfunded --
claims are paid by post-insolvency assessments of the remaining,
solvent members -- it does not take a team of actuaries to deduce
that if Minnesota compels the Association to bestow uniquely
generous guaranty benefits on the non-Minnesota customers of this
year's insolvent insurer, ELIC, the Association's members must
eventually recoup those benefits by imposing higher insurance
premiums on future Minnesota policyholders.

                                    27
explains, it is settled law that obligations between private parties which
are mandated by statute may nonetheless be contractual and enforceable as
such.     The statute which created the Minnesota Life and Health Insurance
Guaranty Association states that the Association was created to protect the
rights    of   policyowners   and   other   beneficiaries   by   guaranteeing   the
obligations owed them by insurance companies.        Minn. Stat. § 61B.02 subd.
2 (1990) (“The purpose of sections 61B.01 to 61B.16, is to protect
policyowners, death benefit certificate holders, insureds, beneficiaries,
annuitants, payees, and assignees of life insurance policies, health
insurance policies, annuity contracts and supplemental contracts . . ..”).
The duty to guarantee the obligations of member insurance companies appears
to be the Association’s primary reason for existence.        The power to collect
assessments from member companies exists to enable the Association to
fulfill that duty.    A guaranty is itself a kind of contract, an undertaking
to fulfill the obligation of another if that other is in default.

        It seems improbable that the Legislature would create a separate,
nonprofit legal entity and endow it with the power to collect assessments
from member insurance companies without demanding reciprocal performance
from the Association.    The words of the statute belie such a possibility:
“If   a   domestic insurer is an impaired insurer [unable to meet its
obligations to     policyholders and other beneficiaries], the association
shall . . . guarantee, assume, or reinsure, or cause to be guaranteed,
assumed, or reinsured, the covered policies of the impaired insurer . . ..”

                                        28
Minn. Stat. 61B.06 subd. 1(b); see also § 61B.06 subd. 2 (pertaining to
foreign insurers).      The lead opinion today holds the Association did not
owe   a   contractual duty to guarantee all covered policies because a
legislature must exhibit a clear indication that it intends to bind itself
contractually before it will be considered to be so bound.        The Legislature
in the instant case did not bind itself, however; it bound the Association.
The Legislature created the Association to collect membership fees from
insurance companies and to assume the obligations of those companies should
they become “impaired.”         I therefore agree with Judge Loken that the
obligations owed by the Association, even though their origin is in the
statute, are nonetheless contractual and not merely “statutory.”

        It follows that the Minnesota Legislature’s amendment of the statute
was an impairment of a contract.           Two sets of contractual relationships
were impaired by the Legislature’s action:              that between Honeywell’s
trustee and the Association, and that between the trustee and ELIC.              The
former is affected because the Association, under the amended statute, is
released from most of its duty to guarantee the obligation owed the
trustee.    The latter is affected because the trustee contracted with ELIC
under     the prior version of the statute, and consequently under the
assumption that the GICs were fully guaranteed by the Association.
        Judge Loken’s concurring opinion concludes that there was only a
partial destruction of the contract in this case, because the amendment
merely diminished the Association’s obligation to guarantee the GICs,
rather     than   destroying   that    obligation   completely.   As   Judge   Loken
recognizes, a substantial impairment need not be a total destruction to
violate the Contracts Clause.         I agree that the impairment in this case was
substantial.      Indeed, the Minnesota Legislature chose which investments to
protect and

                                           29
which    to   abandon at the level of the individual, according to the
individual’s state of residence.   It specifically intended to abrogate the
Association’s duty to guarantee a given obligation based on the individual
investor to whom that duty was owed.      It therefore seems appropriate to
view the Legislature’s action as a complete destruction of those individual
contractual relationships.

        The Supreme Court has held that the Constitution does not prevent a
legislature from working a substantive change in the law, and impairing
contracts thereby, as long as it had sufficient justification for doing so.
“[L]egislation adjusting the rights and responsibilities of contracting
parties” will not violate the Contracts Clause if it is created “upon
reasonable conditions and of a character appropriate to the public purpose
justifying its adoption.”    Allied Structural Steel v. Spannaus, 438 U.S.
234, 244 (1978) (internal quotation omitted).

        One possible justification for the amendment could be to avoid
unforeseen consequences or windfall benefits.        Under that view, the
Legislature could not have foreseen that Minnesota’s Association would be
the only one which guaranteed GICs as “covered policies.”   To the contrary,
it was not only foreseeable, but readily ascertainable, that other states
did not treat GICs the way Minnesota did.   Minnesota’s Commissioner and its
State Supreme Court both came to that conclusion in the 1980s.
        Minnesota also, it is argued, could not have intended to guarantee
coverage of policies based simply on the residence of a trustee.        The
coverage mandated by such a rule, the argument continues, is far more
expansive than the Legislature could have anticipated.          Perhaps the
Legislature did not anticipate that the Association would incur such a
large obligation.    But it should have; the language of the statute is not
so ambiguous that such a

                                     30
reading should be surprising.    Under the subdivision which applies to out-
of-state impaired insurers, the statute requires the Association to
“guarantee, assume, or reinsure or cause to be guaranteed, assumed, or
reinsured, the covered policies of residents, and shall make or cause to
be made prompt payment of the impaired insurer’s contractual obligations
which are due and owing to residents.”      Minn. Stat. § 61B.06 subd. 2.   It
was clear when Honeywell applied for coverage of its ELIC GICs that GICs
were already “covered policies” in Minnesota.       The ambiguity is allegedly
whether “residents” could foreseeably have included a trustee which held
several “covered policies” on behalf of both resident and non-resident
beneficiaries.   The statute defines “resident” in § 61B.03: “‘Resident’
means any person who resides in this state at the time the impairment is
determined and to whom contractual obligations are owed.”            “Person,”
according to the statute, “means any individual, corporation, partnership,
association or voluntary organization.”     Minn. Stat. § 61B.03 subd. 12-13.
The   drafters   should   have   realized    that   individual   corporations,
partnerships, associations, and voluntary organizations could hold numerous
covered   policies on behalf of employees or other beneficiaries.           I
therefore cannot agree that the Legislature’s amendment of the statute is
justified because of unforeseeable consequences.
      That the amendment imposed a retroactive change raises the “hurdle”
the state must clear in order to justify a substantial impairment of
contracts.   Legislation which makes prospective changes affecting private
contracts is an appropriate and commonplace legislative function; private
contracting parties, especially in regulated industries, should expect that
laws and regulations may change and affect their future dealings.           We
examine the state’s justification for retroactive changes more carefully
because the opposite is generally true:      private

                                      31
contracting parties should and do expect that the conditions under which
they contracted will remain in effect unless and until there is a change.
They do not normally expect lawmakers to change the basic assumptions
underlying those agreements so as to affect legal obligations incurred, or
rights vested, in the past.      See Minnesota Ass’n of Health Care Facilities,
Inc. v. Minnesota Dep’t of Pub. Works, 742 F.2d 442, 450-51 (8th Cir. 1984)
(upholding prospective change but striking down retroactive change because
it   “disrupt[ed]    settled    and    completed   financial    arrangements       under
contracts made in reliance on existing law”), cert. denied, 469 U.S. 1215
(1985); Holiday Inns Franchising, Inc. v. Branstad, 29 F.3d 383, 385 (8th
Cir.) (observing that retroactive changes which alter prior contractual
relationships have “almost uniformly been declared unconstitutional,” and
that “this is a datum on which [parties] are presumably allowed to rely
while bargaining”), cert. denied, 115 S. Ct. 613 (1994).
      The Minnesota Legislature in this case deliberately effected a
retroactive change in the law to allow the Association to avoid a $110
million    payout.     The     Minnesota    Supreme   Court    has   held   that    the
Legislature’s amendment was a change, and not a clarification of the
statute.   Honeywell, Inc. v. Minnesota Life & Health Ins. Guar. Ass’n, 518
N.W.2d 557, 562 (Minn. 1994).         The Legislature’s action was a deliberate,
retroactive change in the law which altered the settled contractual duties
of the Association, and greatly impaired Honeywell’s right to payment.               The
size of the payout, while substantial, does not seem to me to provide
sufficient justification for the change.           Indeed, the large size of the
payout serves only to underscore the substantiality of the obligation that
the Legislature has nullified.

      Many reasons underlay the determination of the Framers to create a
new Constitution.     Perhaps none was more prominent than

                                           32
their conviction that States should not be allowed to destroy or water down
contracts for the payment of money.   The Contracts Clause “was perhaps the
strongest single constitutional check on state legislation during our early
years as a Nation . . ..”   Allied Structural Steel Co. v. Spannaus, supra,
438 U.S. at 241 (footnote omitted).   I regret that this Court today shrinks
from   enforcing this part of the Constitution, which is designed to
safeguard a basic human right, the right to make private contracts.   It is
not a coincidence that most of the people injured by this statute cannot
vote for the Minnesota Legislature.

       I respectfully dissent.

       A true copy.

            Attest:

                  CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                      33