Court Opinion

ID: 72863
Source: CourtListenerOpinion
Date Created: 2010-04-26 07:47:25+00
Date Added: 2024-06-11T09:39:17.307078
License: Public Domain

PUBLISH

                IN THE UNITED STATES COURT OF APPEALS
                       FOR THE ELEVENTH CIRCUIT

                          -------------------------------------------

                               Nos. 96-3657 & 97-2041

                          --------------------------------------------

                          D. C. Docket No. 95-40138-WS

VESTA FIRE INSURANCE CORPORATION, VESTA
INSURANCE CORP., SHEFFIELD INSURANCE
CORPORATION, an Alabama Corporation,

                                                             Plaintiffs-Appellants,

     versus

STATE OF FLORIDA, TOM GALLAGHER, in his
capacity as Insurance Commissioner, STATE
BOARD OF ADMINISTRATION, WILLIAM ASH, JR., in
his capacity as Executive Director,
                                          Defendants-Appellees.

                ----------------------------------------------------------------

                Appeals from the United States District Court
                    for the Northern District of Florida

                ----------------------------------------------------------------

                                     (May 22 , 1998)

Before EDMONDSON and BIRCH, Circuit Judges, and FAY, Senior Circuit Judge.
EDMONDSON, Circuit Judge:

    Plaintiffs appeal the district court’s

grant of summary judgment in favor of

Defendants. In evaluating cross-motions

for summary judgment, the district court

decided that no genuine issues of material

fact existed and that judgment could be

granted to Defendants as a matter of law

on Plaintiffs’ claims that recent Florida

insurance      legislation      violated   the   Due

Process, Taking, and Contract Clauses of the

United States Constitution.           Because we

                            2
conclude that the district court erred in

granting          summary           judgment          about

whether a regulatory taking occurred, we

vacate the grant of summary judgment

on that issue and remand for further

proceedings consistent with this opinion.

                                            1
We affirm on all other issues.

                      Background

  1
    Plaintiffs in this case are insurance companies subject to
the Florida statutes. Defendants include the state agencies
responsible for administering the insurance regulations found
in the statutes.

                              3
   After Hurricane Andrew hit Florida in

1992, insurance companies began to lessen

their potential exposure to policies likely

to result in hurricane damage liability:

residential line policies in Florida.      To

prevent the total withdrawal of insurance

companies        and       the   subsequent

unavailability of insurance if companies

left   the   Florida   market,   the   Florida

legislature passed several statutes.

                       4
   The    first   of   these   statutes    was    a

“Moratorium Statute,” which prohibited the

nonrenewal         and       cancellation        of

residential    line    insurance     policies   for

reasons related to the risk of hurricane

damage.    See 1993 Fla. Laws ch. 93-401 § 1.    The

Moratorium        Statute      was    passed     as

temporary legislation.

   The Florida legislature then passed the

“Moratorium        Phaseout    Statute,”    which

allowed     limited      cancellation           and

                         5
nonrenewal of residential policies. See Fla.

                        2
Stat. § 627.7013;           see also 1993 Fla. Laws ch.

93-410 § 19; 1993 Fla. Laws ch. 93-411 § 1.           The

Moratorium          Phaseout         Statute   provided

that, in a twelve-month period, no insurer

could cancel or nonrenew more than 5% of

   2
       When the summary judgment motions
were      argued        in     the    district      court,
Defendants         said      that    the   moratorium
would     end      in       November        1996.     The
Moratorium Phaseout and related statutes
have since been extended and are not
scheduled to end until 1999. See 1996 Fla. Laws
ch. 96-194 § 13.   Whether          future extensions
might be made is unknown.

                              6
its residential policies in Florida or more

than 10% of its residential policies in a

single   Florida       county.       See   Fla.   Stat.    §

627.7013.             This    phaseout      plan     was

interpreted by Department of Insurance

(DOI)    rules   --    despite   a   Florida      statute

permitting        the        total   withdrawal           of

insurance companies upon 45- days notice,

see Fla. Stat. § 627.4133(2) -- as generally

prohibiting an insurer’s total withdrawal

                             7
from       doing       business        in     the    State   of

           3
Florida.

      In       addition,     legislation was passed

requiring             insurers         to     pay       annual

premiums              to    the       Florida       Hurricane

Catastrophe Fund. This fund is intended to

provide          reinsurance                to      insurance

  3
   The DOI reasoned that the other, more
general withdrawal statute would continue
to apply to other kinds of insurance -- car,
fire,   life     --   and    that       the      new,   specific
Moratorium Phaseout Statute would apply
only    to      companies             issuing      residential
home insurance policies.

                                  8
companies doing business in Florida.            The

reinsurance       provides      protection       to

companies which, following a hurricane,

are unable to pay fully on their policies.

   Plaintiffs wish to withdraw entirely

from the insurance industry in Florida

but have been prohibited from doing so by

                                           4
the Moratorium Phaseout Statute.               This

       Although
       4
                   Plaintiffs     challenge     the
constitutionality of both the Moratorium
Phaseout   and     the       Catastrophe       Fund
legislation, only the Moratorium Phaseout
Statute     directly         implicates        the
Constitution. The required contribution to

                         9
prohibition,   Plaintiffs        argue,   violates

several provisions of the United States

Constitution: (1) the Taking Clause of the

Fifth Amendment; (2) the Contract Clause;

and (3) Plaintiffs’ Substantive Due Process

the fund, absent the Moratorium Phaseout
Statute, is a constitutional exercise of the
State of Florida’s police power.          See, e.g.,
Meriden Trust & Safe Deposit Co. v. FDIC, 62
F.3d 449, 454-55 (2d Cir. 1995).          Thus, the
constitutionality    of     the     Moratorium
Phaseout   Statute   is    the    focus   of   this
opinion.

                      10
                                                         5
rights under the Fourteenth Amendment.

 5
     Plaintiffs claim that their Substantive
Due Process rights were violated. Plaintiffs’
argument focuses on the right to freedom
of    association,   but        this   case   does    not
involve infringement of that right. Also,
because      the    regulation          about        which
Plaintiffs     complain          is    economic,       the
legislation is presumed valid unless no
rational basis exists for its enactment.
See Usery v. Turner Elkhorn Mining Co., 96
S.Ct. 2882, 2892 (1976).               We cannot say
Florida lacked a rational basis for passing
this legislation.     Plaintiffs’ Substantive
Due Process claim is without merit, and we
do not discuss further that claim.
     Also without merit is Plaintiffs’ claim
that the district court erred by ruling on
the motions for summary judgment before
ruling on Plaintiffs’ motion to compel
discovery.    We,    therefore,          affirm        the

                           11
   Plaintiffs     filed    complaints      alleging

                                              6
these    constitutional         violations.       Both

Plaintiffs   and    Defendants         moved       for

summary judgment.              Plaintiffs, however,

did not move for summary judgment on

the issue of regulatory taking.           Instead,

Plaintiffs argued that summary judgment

was precluded because genuine issues of

district court’s decision on these issues.
    6
        Two cases by insurance companies
against the Defendants were consolidated
in this appeal.

                          12
material fact existed on that claim.    The

district court granted summary judgment

in favor of Defendants on all claims.

                 Discussion

   The district court’s grant of summary

judgment is reviewed by this court de novo.

See Real Estate Financing v. Resolution

Trust Corp., 950 F.2d 1540, 1543 (11th Cir.

1992).   Summary judgment is appropriate

                     13
only when “there is no genuine issue as to

any material fact and . . . the moving

party      is   entitled   to   a    judgment   as   a

matter of law.”         Fed.R.Civ.P. 56(c); see also

Hale v. Tallapoosa County, 50 F.3d 1579, 1581

(11th Cir. 1995).

I.   The Taking Clause

     The    Taking      Clause       of   the   Fifth

Amendment           states,     in   relevant   part,

                           14
“nor shall private property be taken for

public use, without just compensation.” U.S.

Const.   amend.    V;   see    also   Penn    Cent.

Transp. Co. v. New York City, 98 S.Ct. 2646,

2658     (1978)     (applying         the     Fifth

Amendment     to    the      States   through   the

Fourteenth   Amendment).               “The   Fifth

Amendment’s       guarantee       that      private

property shall not be taken for a public use

without just compensation was designed to

bar [the] Government from forcing some

                        15
people alone to bear public burdens which,

in all fairness and justice, should be borne

by the public as a whole.”     Armstrong v.

United States, 80 S.Ct. 1563, 1569 (1960).

   Plaintiffs allege substantial financial

losses as a result of the prohibition of

withdrawal from Florida, coupled with the

forced contributions to the Catastrophe

Fund.   This   statutory    scheme,   Plaintiffs

argue, precludes them from allocating their

companies’ resources as they see fit and

                       16
forces them to suffer net economic losses

in       the   Florida    market,          resulting    in   a

taking of their “property” without just

compensation in violation of the Fifth

Amendment                to        the     United      States

                    7
Constitution.

     Plaintiffs argued an additional issue:
     7

that the district court erred because it
treated        Plaintiffs’          taking      challenge    as
“facial”       instead        of    as    an    “as   applied”
constitutional challenge.                   We believe the
district        court     properly           addressed      the
challenge in this case as an “as applied”
challenge.        Plaintiffs             now,   and   in    the
district        court,        challenged        the    Florida
statutes only as applied to Plaintiffs. Thus,

                                   17
   A.   Per Se Takings

   Whether      government         conduct,      in

relation   to   private      property,   works   a

taking involves the courts in an ad hoc,

factual inquiry.   See Penn Central, 98 S.Ct.

we do not consider the statutory scheme’s
constitutionality on its face.       We discuss
(as     urged      by        Plaintiffs)      the
constitutionality of the statutes only “as
applied” to Plaintiffs.       Compare Agins v.
City of Tiburon, 100 S.Ct. 2138, 2141 (1980)
(facial challenge), with Penn Central, 98
S.Ct. 2646, 2661-62 (as applied challenge).

                        18
at   2659.     But,    certain     invasions   of

private     property    are    deemed   “takings”

without regard to the state’s interest in

possessing or otherwise using the property:

per se takings. See New Port Largo, Inc. v.

Monroe County, 95 F.3d 1084, 1089 (11th Cir.

1996) (“In addition to physical invasions of

property,    the   Supreme      Court   has   also

accorded ‘categorical [per se] treatment,’

invariably    requiring       compensation,    to

cases     ‘where      regulation     denies    all

                         19
economically beneficial or productive use

of    land.’”)    (emphasis        added)     (citation

omitted).

     Plaintiffs     argue        that   the    statutes

establishing the Moratorium Phaseout and

the Catastrophe Fund are per se takings

because of the compulsory nature of the

government         act:    the    statutes    make     it

mandatory for all insurance companies

currently        doing    business      in   Florida   to

remain in that market and contribute to

                           20
the fund.     But, the mandatory nature of

the government’s act does not place these

statutes in the per se takings category:

neither a physical invasion nor a denial

of all beneficial use of “property” has been

shown.      As     the    district       court   properly

pointed     out:    “[t]he       compelled    insurance

contracts     still      belong     to   Plaintiffs;    the

insureds     must        still    pay     Plaintiffs    all

required    premiums;            Plaintiffs      can   still

cancel      or      nonrenew              policies     for

                             21
[nonhurricane      related    reasons];     [and]

Plaintiffs   can    still    apply   for    rate

increases . . . .” District Court Order at 20.

   Plaintiffs also argue that these statutes

effect a government takeover of private

insurance companies, resulting in per se

takings.     But   the   cases   relied    on   by

Plaintiffs -- United States v. Pewee Coal Co.,

71 S.Ct. 670 (1951), and United States v.

United Mine Workers, 67 S.Ct. 677 (1947) --

                     22
are not comparable to this case. In Pewee

Coal    and    United       Mine    Workers,    the

government took total, direct control of

private businesses.          This case does not

present       that   kind    of    occupation   or

takeover, and it does not present a per se

taking.

   B.   Regulatory Takings

                        23
      Plaintiffs also allege that a regulatory

(non per se) taking is effected by the

             8
statutes.             The    current      standard         for

evaluating            such    claims      is    found       in

Connolly         v.   Pension      Benefit       Guaranty

Corp., 106 S.Ct. 1018 (1986).         In Connolly, the

Supreme Court recognized three factors

  8
   At the outset, we recognize that insurance contracts can be
property subject to an unconstitutional taking under the Fifth
Amendment. See Lynch v. United States, 54 S.Ct. 840, 843
(1934) (“Valid contracts are property . . . .”); see also
Ruckelshaus v. Monsanto Co., 104 S.Ct. 2862, 2873 (1984). “If
regulation goes too far it will be recognized as a taking.”
Pennsylvania Coal Co. v. Mahon, 43 S.Ct. 158, 160 (1922). But,
“that legislation disregards or destroys existing contractual
rights [like the right to cancel an insurance contract] does not
always transform the regulation into an illegal taking.”
Connolly v. Pension Benefit Guar. Corp., 106 S.Ct. 1018, 1025
(1986).

                              24
that should be considered to identify a

regulatory taking: (1) the economic impact

of the challenged rule, regulation, or statute

on the plaintiff; (2) the extent to which

the     regulation        interferes        with

investment-backed expectations; and (3)

the nature of the challenged action. See id.

at 1026 (citations omitted).         Plaintiffs

contend, and we agree, that the district

court   failed   to   consider   properly   these

factors    and    that    genuine    issues   of

                        25
material fact exist to preclude summary

judgment on this claim.

      1.   Economic Impact on Plaintiffs

      Plaintiffs point to their economic loss

in         the   Florida     market        and   the

approximately $1 million premium paid to

the        Catastrophe     Fund   as   a   negative

economic impact.            Plaintiffs also argue

                           26
that   the     nature       of     the     Moratorium

Phaseout     Statute       --    the   potential   for

another extension -- requires them to stay

in     the     Florida          insurance      market

indefinitely,        creating          a    substantial

economic impact. But Defendants say that

the    possibility         for     rate      increases

counteracts          the        negative      economic

impact.      Plaintiffs’ applications for rate

increases, however, have been denied.               We

believe      that,    when         considering      the

                           27
economic    impact    on     Plaintiffs,    the

potential for future extensions of the

Moratorium        Phaseout       cannot      be

determined; and the potential for future

rate increases is no answer to Plaintiffs’

ongoing    economic       loss   when      rate

increases have been applied for and have

been denied.

   The district court should have considered

what   economic   impact     Plaintiffs    have

suffered and will suffer as a result of the

                     28
challenged statutes.    The parties dispute

exactly   what   return     Plaintiffs   have

enjoyed in the Florida market since the

moratorium and whether that return is

reasonable.   Defendants, and the district

court in its decision, relied heavily on the

fact that the moratorium would end in

1996. But now, in 1998, the moratorium still

exists and is scheduled to exist until June

1999.   Thus, the extent of the economic

impact on Plaintiffs remains a material

                       29
fact that must be determined based upon

                                                                9
an expiration of the moratorium in 1999.

     2.   Investment-Backed Expectations

     Plaintiffs         also        allege      that        the

limitations on their withdrawal from the

 9
    The extension of the moratorium statutes into 1999 occurred
after Plaintiffs filed their complaint. Thus we expect Plaintiffs
will be permitted to file supplemental pleadings, which would
include the economic effect of the moratorium statutes due to
the latest extension. See Fed.R.Civ.P. 15(d) (providing for the
filing of supplemental briefs, upon motion of a party, “setting
forth transactions or occurrences or events which have
happened since the date of the pleading sought to be
supplemented”).

                               30
Florida     market    interfere       with     their

investment-backed        expectations.           The

district court did not address this factor.

   In general, “[t]hose who do business in

the regulated field [of insurance] cannot

object if the legislative scheme is buttressed

by subsequent amendments to achieve the

legislative end.” Connolly, 106 S.Ct. at 1027

(internal      quotations       and     citations

omitted).     This   case,   however,   does    not

present the typical situation of simple

                        31
regulation       as   a   condition     of   doing

business: the statutes require the doing of

business.

   The Supreme Court has written these

words about the constitutionality of a

taking:     “A    different      case   would     be

presented were the statute, on its face or

as applied, to compel a landowner over

objection    to   rent     his   property    or   to

refrain in perpetuity from terminating

a tenancy.”       Yee v. City of Escondido, 112

                          32
S.Ct. 1522, 1529 (1992); see also Lewis v.

Safeco Ins. Co. of America, 414 N.Y.S.2d

823,    861   (1978)   (“[T]his     law    expressly

requires that . . . insurance companies, like

the    defendants,         renew        automobile

insurance      policies    and,     accordingly,   it

warrants careful review.”). This case may

be    that    “different       case”:     insurance

companies must refrain, potentially in

perpetuity, from terminating contracts.

“While [a state’s] police power may limit

                          33
and restrict the uses to which an owner

may put his property, it may not compel

him to use such property for a particular

purpose if he prefers to abandon such a use

thereof.” Department of Pub. Works v. City

of San Diego, 10 P.2d 102, 105 (Cal. Ct. App.

1932).

   Interference with investment-backed

expectations occurs when an inadequate

history of similar government regulation

exists:   where the earlier regulation does

                     34
not   provide    companies      with   sufficient

notice that they may be subject to the new

or additional regulation. See Connolly, 106

S.Ct. at 1027.    Plaintiffs argue that the

moratorium       statutes       interfere      with

reasonable          investment-backed

expectations.      Plaintiffs     contend      that

whatever regulation Plaintiffs may have

anticipated when they entered the Florida

market   they    could   not    anticipate     that

withdrawal   from        that   market   --   should

                         35
additional     regulation              become     too

burdensome    --   would    be    prohibited.      The

district court, however, did not consider

whether the regulation at issue should have

been anticipated by Plaintiffs, particularly

the    Moratorium    Phaseout          Statute   which

prohibits Plaintiffs’ total withdrawal from

doing business in Florida.

      Interference   with        the   investment-

backed   expectations      must        be   considered

with the other factors: the government’s

                       36
interest      and    the   economic      impact    on

Plaintiffs.      Genuine issues of material

fact exist about what investment-backed

expectations        Plaintiffs    had    when     they

entered    the      Florida     market   and    what

impact the moratorium statutes have had

on Plaintiffs’ expectations.          So, summary

judgment was inappropriate.

   3.   Nature of the Government Action

                           37
   In addition, Plaintiffs argue that the

nature of the government acts supports

the takings claim. Plaintiffs contend that

the compulsory nature of the legislation

alone     results   in    a   taking;    but   all

government regulation is compulsory in

nature.     “[I]t cannot be said that the

Taking     Clause   is    violated      whenever

legislation requires one person to use his

or her assets for the benefit of another.”

Connolly, 106 S.Ct. at 1025.    But the nature

                         38
of   the   state’s     interest       is   critical   in

determining          whether      a        taking     has

occurred.    See id.      When important public

interests are served, a taking is less likely

to have occurred. See Keystone Bituminous

Coal Ass’n v. DeBenedictis, 107 S.Ct. 1232,

1242-43 (1987).

     No doubt can exist that the general

regulation    of     insurance        is    within    the

State’s police powers.          See 15 U.S.C. §§ 1012

(“The   business     of   insurance,        and   every

                           39
person engaged therein, shall be subject to

the laws of the several States which relate

to   the   regulation     or    taxation      of   such

business.”).      After        Hurricane      Andrew,

several     insurance          companies      became

insolvent,      unable   to     pay   their   policies.

Other      companies      sought      to    withdraw

altogether      from     the    Florida    insurance

market.        This withdrawal could have had

serious negative effects on Florida’s real

estate market and on the economy of the

                          40
State. The moratorium was intended as a

stabilizing force in the market and was

within the State of Florida’s police power.

The government interest in this case was

the   public   welfare     of     the   residents   of

Florida. But the nature of the government

interest and its importance, given all the

circumstances, as well as the extent of the

regulations’ harsh impact on Plaintiffs’

interests      must   be        determined   by     the

district court.

                           41
   The district court erroneously granted

Defendants’        motion     for   summary

judgment      without       considering    the

financial rate of return for Plaintiffs

and the impact on Plaintiffs’ investment-

backed expectations.    “These ‘ad hoc, factual

inquiries’ must be conducted with respect

to specific property, and the particular

estimates     of    economic    impact    and

ultimate valuation relevant in the unique

circumstances.”     Hodel v. Virginia Surface

                      42
Mining and Reclamation Ass’n, Inc., 101

S.Ct. 2352, 2370 (1981).       Without knowing

the economic impact of the legislation and

the Plaintiffs’ reasonable expectations, the

necessary study of competing interests

cannot    be   accomplished        and    summary

judgment       cannot     be   granted.            See

generally   Penn   Central,        98    S.Ct.   2646,

2659-61     (discussing      the    variety         of

interests involved and to be considered in

a taking case).

                        43
II.         Contract Clause

        The Contract Clause of the United States

Constitution provides that “[n]o State shall

.   .   .   pass   any   .   .   .   Law   impairing      the

Obligation of Contracts.”                  U.S. Const. art. 1,

§ 10. “Although the language of the Contract

Clause is facially absolute, its prohibition

must be accommodated to the inherent

police power of the State ‘to safeguard the

                                 44
vital interests of its people.’”               Energy

Reserves Group, Inc. v. Kansas Power and

Light Co., 103 S.Ct. 697, 704 (1983) (citation

omitted).

   Three    factors     are    considered         when

evaluating    a     claim    that       the   Contract

Clause has been violated: (1) whether the law

substantially       impairs         a    contractual

relationship;     (2)   whether          there    is    a

significant and legitimate public purpose

for   the    law;    and      (3)       whether        the

                        45
adjustments of rights and responsibilities

of the contracting parties are based upon

reasonable    conditions   and    are   of   an

appropriate nature.    See id. at 704-05.

   Plaintiffs make a sufficient showing

that the Florida legislation substantially

impaired     the   contracts     between     the

insurance companies and their insureds.

Insurance provides coverage of a specified

risk for a specified time.     At the end of

that   time,       insurance      companies

                      46
reevaluate the risk and decide whether they

wish to remain the insurers of that risk.

“Total    destruction     of    contractual

expectations   is   not   necessary   for    a

finding of substantial impairment.”         Id.

at 704.   Under the Moratorium Phaseout,

Plaintiffs   are    forced     to   continue

contractual relationships that otherwise,

pursuant to the terms of the contracts,

could be rightfully terminated.

                     47
      Assuming a substantial impairment to

Plaintiffs’    contracts     exists,   the   State

“must have a significant and legitimate

public purpose behind the regulation.”          Id.

“[T]he public purpose need not be addressed

to an emergency or temporary situation.”

Id.     at    705.       Defendants           have

demonstrated a legitimate public purpose:

protection and stabilization of the Florida

economy,      particularly    the   real     estate

market.       See generally Allied Structural

                       48
Steel Co. v. Spannaus, 98 S.Ct. 2716 (1978);

Home Building & Loan Ass’n v. Blaisdell, 54

S.Ct. 231 (1934).

     Once a legitimate purpose is identified,

we    must    look    to   whether   the   state’s

adjustments           of    the   rights     and

responsibilities of the contracting parties

are based upon reasonable conditions and

are    of   an      appropriate   nature.     See

Energy Reserves, 103 S.Ct. at 705.         “Unless

the State itself is a contracting party . . .

                           49
courts         properly             defer     to    legislative

judgment              as     to      the     necessity       and

reasonableness of a particular measure.”

Id. (internal citations and quotations

omitted).         The State was no party to the

                                      10
insurance contracts;                       so based upon the

          Plaintiffs
         10
                               argue        that   we   cannot
consider              the     legislature’s         purported
purposes for the statutes because the State
is   a        third-party            beneficiary        to   the
contracts based upon its control of the
Catastrophe Fund.                   The law of Florida does
not support this theory.                     See Thompson v.
Commercial Union Ins. Co., 250 So.2d 259,
262           (Fla.     1971)        (To     be    third-party
beneficiary,               “[t]he     clear       intent     and

                                    50
legislature’s judgment, the statutes’ impact

on existing insurance contracts cannot

be   said     to      be    an      unconstitutional

impairment.

                      Conclusion

     No     factual      disputes   exist   about    the

Contract Clause, Substantive Due Process, or

purpose      of    the     contract    [must   be]   to
directly and substantially benefit the third
party.”).

                             51
Per Se Taking claims; so summary judgment

was appropriate for Defendant on those

claims.     But,   summary       judgment     was

incorrect     on        Plaintiffs’   claim    of

regulatory    taking      resulting   from    the

Florida insurance statutes.

   AFFIRMED        in    part;   VACATED      and

REMANDED in part.

                         52