Court Opinion

ID: 2964889
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:32:38.297993+00
Date Added: 2024-06-11T11:43:03.150854
License: Public Domain

USCA1 Opinion

	

                            United States Court of Appeals
                            United States Court of Appeals
                                For the First Circuit
                                For the First Circuit
                                 ____________________
        No. 97-1354

                            MANUEL MERCADO-BONETA, ET AL.

                              Plaintiffs, Coappellants,

                               DR. ELLIOT M. FERNANDEZ

                               Codefendant, Coappellant

                                          v.

           ADMINISTRACION DEL FONDO DE COMPENSACION AL PACIENTE through the
                        Insurance Commissioner of Puerto Rico,

                                Codefendant, Appellee.
                                 ____________________

                    APPEAL FROM THE UNITED STATES DISTRICT COURT 
                           FOR THE DISTRICT OF PUERTO RICO
                   [Hon. Salvador E. Casellas, U.S. District Judge]
                                               ___________________
                                 ____________________

                                        Before
                                 Lynch, Circuit Judge, and
                                        _____________
                      Hill* and Gibson,** Senior Circuit Judges,
                                          _____________________
                                 ___________________

            Alberto J. Perez-Hernandez, with whom  Rafael E. Garcia-Rodon  was
            __________________________             ______________________
        on brief, for appellants.
            Juan A. Moldes-Rodriguez, Counsel for  Administracion del Fondo de
            ________________________
        Compensacion al Paciente (Patient's Compensation Fund Administration),
        for appellee. 
                                 ____________________

                                  September 10, 1997
                                 ____________________

                            
        ____________________

        * Hon. James C. Hill, of the Eleventh Circuit, sitting by designation.

        ** Hon. John R. Gibson of the Eighth Circuit, sitting by designation.

                      LYNCH,  Circuit Judge.  This case  raises questions
                      LYNCH,  Circuit Judge.
                              _____________

            under the Contract  Clause of the United  States Constitution

            concerning  a  government's   power  to  regulate   insurance

            companies facing insolvency by barring claims asserted  after

            a particular date by insureds.  If that power is upheld, then

            Dr.  Fernandez is  essentially uninsured  on  the malpractice

            claim and  it  may be  that the  malpractice plaintiffs  will

            recover nothing regardless of the merits of their claim.  

                      Manuel Mercado-Boneta brought a medical malpractice

            action against Dr. Elliot Fernandez and  Fernandez's insurer,

            the Patient's Compensation Fund Administration ("PCFA").  Dr.

            Fernandez  also claimed  over against PCFA.   PCFA  moved for

            dismissal  on the  grounds that,  inter alia,  PCFA had  been
                                              __________

            dissolved  by an  act of  the legislature  and was  no longer

            liable on  Dr. Fernandez's  insurance policy.   The  district

            court granted the  motion.  Dr. Fernandez  and Mercado-Boneta

            appeal jointly from that  dismissal, arguing that the act  of

            the  legislature violates the  Contract Clause of  the United

            States  Constitution.   We find no  constitutional violation,

            and affirm.

                                          I.

                      During  the  time of  the alleged  malpractice, Dr.

                                         -2-
                                          2

            Fernandez  was covered by  PCFA under an  occurrence policy.1

            However, PCFA was  abolished before Mercado-Boneta filed  his

            claim  against  Dr.  Fernandez.2    The  Legislature  of  the

            Commonwealth of Puerto Rico abrogated PCFA by Act of Dec. 30,

            1986, Act  No. 4, 1986 P.R.  Laws 869 ("Act No.  4"), stating

                                
            ____________________

            1.    An  occurrence  policy,  which  provides  coverage  for
            occurrences within the  policy period regardless of  when the
            claim  is made, is  distinguished from a  claims-made policy,
            which only  covers the insured  for claims that  are actually
            made during the policy period.  

            2.  Manuel Mercado-Boneta and  his wife  Milagros Molina,  on
            behalf of their minor daughter Veronica Mercado-Molina, filed
            their medical malpractice claim against Dr. Fernandez and his
            insurance  companies on  June 24,  1992,  almost eight  years
            after the alleged malpractice.  Veronica was  born on January
            1, 1983,  and was  treated by Dr.  Fernandez from  that point
            until the end of  June, 1984.  Plaintiffs' complaint  alleges
            that Veronica developed  a high fever in early  1984, and was
            taken  several   times  to   Dr.  Fernandez  who   prescribed
            medications,  but  refused  to  hospitalize  Veronica.    Not
            satisfied with  Dr. Fernandez's treatment of  their daughter,
            plaintiffs took Veronica to another physician who immediately
            hospitalized the child.  Plaintiffs allege that Dr. Fernandez
            was  negligent  in failing  to  properly diagnose  Veronica's
            condition and in failing to hospitalize her.  They claim that
            Dr. Fernandez's negligence caused  Veronica to suffer  severe
            physical  disability and  emotional  distress, including  the
            permanent loss of  approximately 75% of  her hearing in  both
            ears, speech impairment, loss of future income, and emotional
            problems  associated with  living with  a physical  handicap.
            (Plaintiff's  complaint,  appendix  pp.  36-37).   Plaintiffs
            allege  total  damages in  the  amount  of $1,600,000.    Dr.
            Fernandez denies the allegations  of negligence, and  submits
            that Veronica's hearing  impairment was the likely  result of
            head trauma Veronica  suffered when she fell from  a slide in
            January  of  1986.    The record  is  sparse  regarding  when
            plaintiffs  first  became  aware of  Veronica's  hearing  and
            speech  problems.  It appears, however,  that they were aware
            of  the   problem  by   August  of   1986,  when   Veronica's
            pediatrician  referred   her  to  a  hearing  specialist  for
            evaluation  of possible hearing  impairment.  (report  of Dr.
            Zapata, record)

                                         -3-
                                          3

            that  PCFA was not adequately fulfilling its intended purpose

            and was  at risk of  imminent insolvency.  The  operations of

            PCFA were endangered and the insureds and their patients were

            at  risk of not being  compensated for their  losses.  Id. at
                                                                   ___

            871 ("Statement of Motives").

                      Despite  the  legislature's  dissolution  of  PCFA,

            Mercado-Boneta  sued PCFA3 as  an insurer of  Dr. Fernandez.4

            PCFA  moved for  dismissal on  the grounds  that it  had been

            dissolved  by Act  No.  4,  that it  lacked  funds to  assume

            financial responsibility for  claims, and that it  was immune

            from suit in Federal Court under the Eleventh Amendment.  The

            district court granted PCFA's motion to dismiss on the  first

            ground alone.  The court found that PCFA was legally extinct,

            and that Act No. 4 did not permit the Insurance Commissioner,

            as PCFA's legal representative, to honor claims filed against

            PCFA  subsequent to  its  abolition  on  December  30,  1986.

            Because Mercado-Boneta filed his claim against  Dr. Fernandez

            later  than December 30, 1986, the Insurance Commissioner was

            held  not responsible to  Dr. Fernandez for  any liability he

            incurred as  a result of  Mercado-Boneta's claim.   The court

                                
            ____________________

            3.  Act  No. 4 directs  the Insurance Commissioner  of Puerto
            Rico to represent  PCFA in matters pending before  PCFA or in
            actions involving PCFA in the courts.    Act No. 4,   3, 1986
            P.R. Laws 871, 885.   As a result, the Insurance Commissioner
            represents PCFA in this action.

            4.  The  law  of Puerto  Rico  permits  a  plaintiff  to  sue
            defendant's liability  insurer  directly.   26 L.P.R.A.  sec.
            2003.

                                         -4-
                                          4

            also  found that PCFA's  successor for certain  purposes, the

            Insurers' Syndicate, was not responsible for any claims filed

            against PCFA.

                      Both  Mercado-Boneta and  Dr.  Fernandez moved  for

            reconsideration of the dismissal of PCFA on the  grounds that

            Act No. 4, as interpreted by the district court, violated the

            Contract  Clause  of  the United  States  Constitution.   The

            district court held that although Act No. 4 did substantially

            impair a contractual  obligation, the Act was  reasonable and

            necessary  to an important  public purpose, and  thus did not

            violate the Contract Clause. 

                                         II.

                                          A.

                      As   an  initial  matter,  we  note  that  we  have

            jurisdiction to  resolve the merits  of this case.   PCFA has

            raised this issue on appeal.  PCFA argues that  because it is

            an  "arm  of  the  state,"   and  because  the  suit  is  one

            potentially involving  money damages, the  Eleventh Amendment

            bars a federal court from hearing this claim against it.  The

            parties  raised this  issue in the  district court,  but that

            court did not reach the  issue, disposing of the suit against

            PCFA on other grounds.  Whether PCFA is an "arm of the state"

            for Eleventh Amendment (or, for that matter, Contract Clause)

            purposes  is a difficult  question.  Because  we readily find

                                         -5-
                                          5

            that Act No. 4 bars suit against PCFA for claims filed  after

            Dec. 30, 1986, and  that such a result  does not violate  the

            Contract   Clause,   we   pretermit    resolution   of   this

            jurisdictional issue.   See Norton v. Mathews,  427 U.S. 524,
                                    ___ ______    _______

            530-32 (1976) (where merits can be readily resolved  in favor

            of the  party challenging jurisdiction, resolution of complex

            jurisdictional  issue may be  avoided); Birbara v.  Locke, 99
                                                    _______     _____

            F.3d 1233, 1237 (1st Cir. 1996).

                                          B.

                      We  review  de  novo orders  allowing  a  motion to
                                  ________

            dismiss for failure  to state a claim.   Aulson v. Blanchard,
                                                     ___________________

            83 F.3d 1, 3  (1st Cir. 1996).   It is clear,  constitutional

            issues  aside, that Act  No. 4  bars the  claims of  both Dr.

            Fernandez  and Mercado-Boneta.   At  the  time that  Mercado-

            Boneta brought his  malpractice claim against Dr.  Fernandez,

            the  Legislature of  the  Commonwealth  of  Puerto  Rico  had

            expressly abolished PCFA  by Act No. 4, and  replaced it with

            the Insurers' Syndicate.   Act No. 4  at   3, 1986  P.R. Laws

            871, 885.   PCFA was no longer legally  capable of fulfilling

            its obligations under the insurance policy.  The Act  further

            provided that the Insurance Commissioner of Puerto Rico would

            oversee  the  implementation of  the  newly  formed Insurers'

            Syndicate, "it being understood, that the Syndicate shall not

            assume financial responsibility for any claims filed  against

                                         -6-
                                          6

            the  abolished Patient's  Compensation Fund  Administration."

            Id.  According to  the plain  language of  this statute,  the
            ___

            Insurers' Syndicate was not the successor in interest of PCFA

            for purposes of assuming PCFA's liabilities, and could not be

            held liable for claims arising under policies issued by PCFA.

                      Nor could the Insurance Commissioner be held liable

            as  PCFA's  representative  for  claims  filed  against  PCFA

            subsequent to  the enactment of Act No.  4.  Although the Act

            provides that the Insurance Commissioner shall continue to be

            responsible  for claims and procedures initiated with PCFA on

            or before the  enactment of Act No. 4,  it makes no provision

            for claims filed with  PCFA after the enactment of Act No. 4.

            Id.   Act No.  4 exempts PCFA  from liability  on malpractice
            ___

            claims filed after  December 30, 1986, through  the Insurers'

            Syndicate, the Insurance Commissioner, or otherwise. 

                                         C. 

                      Mercado-Boneta5  and Dr.  Fernandez argue  that Act

            No. 4  nonetheless violates the  prohibition in Article  1,  

                                
            ____________________

            5.  Mercado-Boneta lacks standing to assert a Contract Clause
            claim, as he has no  contractual relationship with PCFA.  See
                                                                      ___
            General Motors  v. Romein, 503  U.S. 181, 186-87  (1991) (the
            ______________     ______
            first  step  in  a Contract  Clause  analysis  is determining
            whether a contractual  relationship in fact  exists); McGrath
                                                                  _______
            v. Rhode  Island Retirement Board,  88 F.3d 12, 16  (1st Cir.
               ______________________________
            1996) (in  a Contract  Clause analysis,  "a court must  first
            inquire whether a contract exists").  Dr. Fernandez does have
            standing, however, so we analyze the issue.  

                                         -7-
                                          7

            10, cl. 1 of the United States Constitution, that "[n]o state

            shall . .  . pass any .  . . law impairing  the obligation of

            contracts. .  . ."  Mercado-Boneta and  Fernandez assert that

            under Dr. Fernandez's  occurrence policy with PCFA,  PCFA was

            contractually obligated to reimburse Dr. Fernandez for future

            claims  arising out of  negligent acts which  occurred during

            the time the policy was  in effect.  They argue  that because

            Act No.  4 prevents them  from seeking performance  from PCFA

            under  the  contract,   the  Act   substantially  impairs   a

            contractual  obligation.  They further contend that Act No. 4

            is  not reasonable  and  necessary  to  an  important  public

            purpose.  

                      The threshold  issue in Contract Clause analysis is

            "whether  the  change  in  state  law  has  'operated   as  a

            substantial  impairment  of   a  contractual  relationship.'"

            General  Motors  Corporation  v. Romein,  503  U.S.  181, 186
            ____________________________     ______

            (1991)  (quoting Allied Structural Steel Co. v. Spannaus, 438
                             ___________________________    ________

            U.S. 234, 244 (1978)). This inquiry is broken down into three

            distinct  parts:      "whether   there   is   a   contractual

            relationship,   whether  a   change  in   law   impairs  that

            contractual  relationship,  and  whether  the  impairment  is

            substantial."  Id.  If we find  that a law does substantially
                           ___

            impair  a  contractual  relationship,  we  will  nevertheless

            uphold  the law  if it  is  "reasonable and  necessary to  an

            important  public purpose."   United States Trust  Company of
                                          _______________________________

                                         -8-
                                          8

            New York  v. New  Jersey, 431 U.S.  1, 25  (1976);   see also
            ________     ___________                             ___ ____

            McGrath v. Rhode Island Retirement Board, 88 F.3d 12, 16 (1st
            _______    _____________________________

            Cir. 1996) (citing  Energy Reserves Group  v. Kansas Power  &
                        ______  _____________________     _______________

            Light, 459  U.S. 400, 411-12  (1983)).  This inquiry  is more
            _____

            searching  than the  rational basis  review  employed in  Due

            Process or Equal Protection  analysis. Although deference  is

            due  to  the  legislature,  and   weight  is  given  to   the

            legislature's own  statement of purposes for the law, a court

            must undertake its  own independent inquiry to  determine the

            reasonableness of the  law and the importance of  the purpose

            behind it.  As noted in  McGrath, "a state must do more  than
                                     _______

            mouth the  vocabulary of  the public weal  in order  to reach

            safe harbor . . . ."  88 F.3d at 16.  

                      Because  the  parties  do not  raise  the  issue on

            appeal,  we assume arguendo that  a contract between PCFA and

            Dr. Fernandez indeed existed.6   The parties also agree  that

                                
            ____________________

            6.  We note, however, that in Contract Clause analysis, where
            the state  or a  state  agency is  a party  to the  allegedly
            impaired  contract, the  existence  of a  contract  is not  a
            matter of state contract law, but  of federal law. It is  not
            clear whether appellants  seek to characterize PCFA as an arm
            of the state or as a  private insurance company.  If PCFA  is
            viewed as  an arm  of the state,  in order  to find  that the
            state has committed itself to a contractual obligation, there
            must be a "clear  indication that the legislature intends  to
            bind itself  in a  contractual manner."   Parker  v. Wakelin,
                                                      ______     _______
            1997 WL 436704 (1st Cir. Aug. 11, 1997).  This requirement is
            referred to as the "unmistakability doctrine".  Id.  
                                                            ___
            Even where  the state  is not alleged  to be  a party  to the
            contract,  the  question  of whether  a  contract  exists for
            Contract  Clause purposes  is still  a  question of  federal,
            rather than  state law.   See General  Motors v.  Romein, 503
                                      ___ _______________     ______

                                         -9-
                                          9

            Act No. 4  impairs the contractual relationship  between PCFA

            and Dr. Fernandez,  and that that impairment  is substantial,

            under the second and third prongs of the analysis.  

                      As  to whether  any  impairment is  substantial, we

            note  that in Contract  Clause analysis, the  expectations of

            the parties to the alleged contract play an important role in

            determining the substantiality of the contractual impairment.

            Energy Reserves Group v. Kansas Power and Light Co., 459 U.S.
            _____________________    __________________________

            400, 416 (the complaining party's reasonable expectations had

            not been impaired  by a statute, and  so the statute  did not

            violate the Contract Clause, although it altered the parties'

            obligations).    A  key factor  in  determining  the parties'

            expectations  is  whether  the parties  were  operating  in a

            heavily regulated industry.  Id. at 411 ("In  determining the
                                         ___

            extent  of the  impairment, we  are to  consider  whether the

            industry the complaining party has entered has been regulated

            in the  past.") (citing Allied Structural Steel Co., 438 U.S.
                                    ___________________________

            at 242, n. 13).   In Energy Reserves, the Supreme  Court held
                                 _______________

            that a Kansas statute imposing certain regulations on oil and

            gas contracts did not impair existing contractual obligations

            between an  oil company  and a public  utility.  438  U.S. at

                                
            ____________________

            U.S. 181, 186  (1992) ("The question  whether a contract  was
            made is  a federal question  for purposes of  Contract Clause
            analysis . . . and 'whether it turns on issues of  general or
            purely local law,  we cannot surrender  the duty to  exercise
            our own judgment.'") (quoting Appleby v City of New York, 271
                                          _______   ________________
            U.S. 364, 380 (1926)).  

                                         -10-
                                          10

            416.  The Court found that because the parties were operating

            in  a heavily regulated  industry, and could  readily foresee

            future  regulation  involving  the  subject  matter of  their

            contract,  their expectations  under  the contract  were  not

            significantly affected.  Id.  
                                     ___

                      The parties here  were also in a  heavily regulated

            context.   Insurance companies  in Puerto Rico  operate under

            the  highly  detailed  and comprehensive  Insurance  Code  of

            Puerto Rico.  26  L.P.R.A.   201 et seq.   Among its numerous

            and extensive  provisions,  the Code  permits  the  Insurance

            Commissioner to  liquidate insolvent insurance  companies and

            establish procedures for the resolution of claims against the

            company.  26 L.P.R.A.     4002, 4008, 4019.   The breadth  of

            Puerto  Rico's  regulation  of  the  insurance  industry  was

            acknowledged  in Gonzalez v.  Media Elements, Inc.,  946 F.2d
                             ________     ____________________

            157  (1st  Cir.   1991)  ("Puerto  Rico  has   constructed  a

            comprehensive framework  for  the  liquidation  of  insolvent

            insurance  companies and  the  resolution of  claims  against

            them."); see also  Garcia v. Island Program Designer,  791 F.
                     ________  ______    _______________________

            Supp. 338,  341, rev'd on other grounds,  4 F.3d 57 (1st Cir.
                             ______________________

            1993) (noting that  the Puerto Rico  insurance scheme is  "an

            intricate  and  highly   specialized  administrative  system,

            adopted by  the Commonwealth of  Puerto Rico to  regulate the

            life of insurance companies from incorporation to dissolution

            .  .  . .  [It]  provides  a  comprehensive program  for  the

                                         -11-
                                          11

            rehabilitation   and   liquidation  of   domestic   insurance

            companies  .  . .  .").   Dr.  Fernandez was  aware,  when he

            contracted with PCFA for medical malpractice  insurance, that

            the subject matter of the contract might well undergo further

            regulation, including potential cancellation of the  contract

            in the  event of  PCFA's insolvency. See  Veix v.  Sixth Ward
                                                 ___  ____     __________

            Bldg. &  Loan Ass'n, 310 U.S. 32, 38 (1940) (noting that when
            ___________________

            one  "purchase[s] into an enterprise already regulated in the

            particular to which he now objects, he purchase[s] subject to

            further  legislation  upon  the same  topic.").  Just  as the

            legislature created PCFA  because of an insurance  crisis, it

            was reasonable to expect that the legislature could terminate

            PCFA's existence in  the event that PCFA did  not fulfill its

            purposes,  or a  new crisis  ensued.   This  is exactly  what

            transpired,  and we  do not  believe that  these  events were

            unforeseeable.  

                      Whether  or not there  is a substantial contractual

            impairment7 involved in  this case, we  find, turning to  the

                                
            ____________________

            7.  Dr.  Fernandez  correctly  points out  the  dangers  that
            Contract Clause analysis  would be enervated if the mere fact
            of regulation meant  there was always foreseeability  of more
            regulation and thus no substantial  impairment.  We need  not
            decide  whether there was  indeed a  "substantial" impairment
            here, given  the ease of  the analysis of  the Commonwealth's
            justifications for any impairment.   In that context, we note
            that such an impairment  was foreseeable, and that,  in turn,
            has some bearing  on the level of scrutiny to which Act No. 4
            is subjected.   See Allied Structural Steel Co.,  438 U.S. at
                            ___ ___________________________
            245  ("The severity of impairment  measures the height of the
            hurdle  the state legislation  must clear.");see  also Energy
                                                         _________ ______
            Reserves, 459 U.S. at 411 ("The severity of the impairment is
            ________

                                         -12-
                                          12

            fourth part of  the Contract Clause analysis, that  Act No. 4

            was reasonable and necessary to an important public purpose.

                       Although apparently absolute  on its face,  "[t]he

            Contract  Clause's prohibition of any state law impairing the

            obligation of contracts  must be accommodated to  the State's

            inherent police power to safeguard the vital interests of its

            people."  Energy Reserves, 459  U.S. at 410.  A  court's task
                      _______________

            is "to reconcile the  strictures of the Contract Clause  with

            the  'essential  attributes of  sovereign  power' necessarily

            reserved  by the  States to  safeguard  the welfare  of their

            citizens."  United States Trust, 431 U.S. at 20 (quoting Home
                        ___________________                          ____

            Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 435 (1934)). 
            __________________    _________

                      The  Commonwealth's interests  are revealed  by the

            statutory scheme.  The legislature originally created PCFA in

            1976,  to  "solve   the  problem  of  medical   and  hospital

            malpractice  risks."  Act  No.  4, 1986  P.R.  Laws  869, 869

            ("Statement   of  Motives").    To  achieve  its  goals,  the

            legislature  created  two  insurance  structures:  the  Joint

            Underwriting Association ("JUA") and PCFA.   Id.  The JUA was
                                                         ___

            "composed  of all  insurers  licensed  to  contract  accident

            insurance in  Puerto Rico,  and  its purpose  was to  provide

            medicohospital professional  liability insurance  for medical

            professionals and health service institutions  that could not

                                
            ____________________

            said  to  increase   the  level  of  scrutiny  to  which  the
            legislation will  be subjected.")  (citing Allied  Structural
                                                       __________________
            Steel, 438 U.S. at 245).
            _____

                                         -13-
                                          13

            obtain said insurance on the open market."  Id.  The  goal of
                                                        ___

            the JUA was to distribute profits and losses evenly among all

            insurance underwriters. 

                      The Commonwealth  established the  second insurance

            structure,  PCFA,  to  "provide  medicohospital  professional

            liability coverage in excess of seventy-five thousand dollars

            ($75,000)  per  claim,  furnished by  the  market  and/or the

            Association, up to a limit  of one hundred and fifty thousand

            dollars ($150,000)."  Id.  at 870.  PCFA was to  be funded by
                                  ___

            premiums imposed on the insured, in much the same manner that

            private insurance companies are funded.

                      Neither  the  JUA  nor  PCFA  proved  effective  in

            achieving the Commonwealth's  goals.  In enacting  Act No. 4,

            the  Commonwealth sought  to  eradicate  both structures  and

            create  a  new,  improved   insurance  structure  called  the

            Insurers'  Syndicate.  We  quote, as did  the District Court,

            from the "Statement of Motives" in Act No. 4:

                           It   has   been  proven   that   the
                      Patient's Compensation  Fund has  serious
                      faults which  sooner or later  shall make
                      it a totally inoperative system.  It does
                      not have  an adequate  capital structure,
                      so  that it lacks  the resources  to face
                      adverse fluctuations in  loss occurrence.
                      The  mechanism of  the  demand which  the
                      Fund has to cover operational deficits is
                      inadequate because the  law establishes a
                      maximum   limit    to   the    additional
                      contribution  that  can  be levied  in  a
                      fiscal year.  
                           On the other  hand, if contingencies
                      occur such  as a high  incidence (even in
                      the  case  of losses  under  the $150,000

                                         -14-
                                          14

                      limit)  or high  severity, especially  in
                      limits  between  one  hundred  and  fifty
                      thousand  ($150,000)  and   five  hundred
                      thousand  ($500,000)  dollars,  the  Fund
                      could   find   itself   without  adequate
                      resources to absorb its  losses.  In view
                      of the  ascending trend in  the incidence
                      and   severity   of   the   losses,   the
                      postponement   of    the   payment    for
                      subsequent   fiscal   years   could  only
                      endanger the  Fund's operations  for said
                      years and bring about the protests of the
                      insured (because  of high costs)  and the
                      victims  who   will  not   receive  their
                      payment in time.

            Id. at 871.   The  legislature reasonably  concluded that  if
            ___

            PCFA  were  not   dissolved,  it  would  continue   to  incur

            liabilities and  obligations which  it would  not be  able to

            meet.  Under Contract Clause analysis, a court must  consider

            whether  the  proposed  justification in  fact  serves public
                                                                   ______

            interests and whether its mechanisms to serve those interests

            reflect reasonable and necessary choices.  
                    __________     _________

                      Act No.  4  is in  stark contrast  to the  narrowly

            focused,  private interest-oriented law  that was struck down

            in Allied Structural Steel Company v.  Spannaus, 438 U.S. 234
               _______________________________     ________

            (1978).   The  Supreme Court  there  invalidated a  law which

            mandated  certain  pension  rights  for  certain   employees,

            regardless  of what  the individual  employment contracts  or

            pension plans  provided, because  the law  had an  "extremely

            narrow focus,"  and  was  not  enacted "to  protect  a  broad

            societal interest rather than a narrow class."  Id. at 248-49
                                                            ___

            (The law "applies only to private employers who have at least

                                         -15-
                                          15

            100 employees, at  least one of whom works  in Minnesota, and

            who have established voluntary private  pension plans . . . .

            And  it  applies  only  when  such  an  employer  closes  his

            Minnesota  office  or  terminates  his  pension  plan."). The

            Commonwealth   was  not  legislating  on  behalf  of  private

            interests  when it  enacted Act  No.  4, and  sought only  to

            protect  the legitimate interests  of the public  in having a

            well-functioning medical malpractice insurance system.  

                      The   necessity  analysis   inquires  whether   the

            Commonwealth "impose[d] a drastic impairment when  an evident

            and more  moderate course  would serve  its purposes  equally

            well."  United  States Trust Co.,  431 U.S. at  31.  And  the
                    ________________________

            reasonableness inquiry  requires a determination that the law

            is "reasonable  in light  of the  surrounding circumstances."

            Id.  The Supreme Court has indicated that different levels of
            ___

            deference are afforded  to a  legislature's determination  of

            reasonableness  and  necessity,  depending  on  whether   the

            contracts at issue are public or private in nature.  See U.S.
                                                                 ___ ____

            Trust Co.,  431 U.S. at 25-26.  If  the contract is a private
            _________

            one, then "[a]s is customary in reviewing economic and social

            regulation,  . .  .  courts  properly  defer  to  legislative

            judgment   as  to  the  necessity  and  reasonableness  of  a

            particular measure."   United States  Trust Co., 431  U.S. at
                                   ________________________

            22-23. On  the other  hand, "[w]here  the contract  allegedly

            impaired  is  one  created,  or entered  into,  by  the state

                                         -16-
                                          16

            itself,  less deference8  to a  legislative determination  of

            reasonableness  and  necessity  is  required,  because   'the

            State's self-interest is at stake.'"  Parker v. Wakelin, 1997
                                                  ______    _______

            WL 436704 (quoting  United States Trust Co., 431  U.S. at 25-
                                _______________________

            26).  

                      Here, we find that although PCFA was created by the

            Commonwealth, the insurance contracts  PCFA entered into were

            essentially  more akin to private contracts than public ones.

            We thus accord  considerable deference to the  Commonwealth's

            assessment  of the reasonableness and necessity of Act No. 4.

            We  believe  the  real  issue in  determining  the  level  of

            deference   given   to   a   legislative   determination   of

            reasonableness and necessity is not so much whether the state

            is arguably a nominal party  to the contract, but whether the

            state  is  acting  in its  own  pecuniary  or self-interested

            capacity  by  impairing  a  contractual   obligation  it  has

            undertaken.  See United States Trust Co., 431 U.S. at 26 ("If
                         ___ _______________________

            a  State could reduce  its financial obligations  whenever it

            wanted  to  spend  the  money  for what  it  regarded  as  an

            important public purpose, the  Contract Clause would  provide

                                
            ____________________

            8.  However, even where  public contracts are at  issue, some
            deference is due  a legislature.  See  Local 589, Amalgamated
                                              ___  ______________________
            Transit Union v. Massachusetts,  666 F.2d 618, 642  (1st Cir.
            _____________    _____________
            1981) (even where  public contracts are involved,  courts are
            not required to "reexamine de novo all the factors underlying
                                       _______
            the   legislation   and   to  make   a   totally  independent
            determination" regarding the necessity and reasonableness  of
            the law).  

                                         -17-
                                          17

            no  protection at all.");  Parker v. Wakelin,  1997 WL 436704
                                       ______    _______

            (1st Cir.) (state assessment of  necessity and reasonableness

            is  given less  deference where its  own self-interest  is at

            stake).   If the  state has in  fact altered none  of its own

            financial obligations, then the legislative decision deserves

            significant deference because the state is essentially acting

            not according to its economic interests, but  pursuant to its

            police powers.     

                      The  question then, is  whether and to  what extent

            the   Commonwealth  of  Puerto  Rico  has  lessened  its  own

            financial obligations by abrogating PCFA.  The answer is that

            it has not done  so at all.   The Commonwealth created  PCFA,

            but empowered  it to  act as  an ordinary  insurance company.

            PCFA  entered  into  insurance contracts  and  conducted  its

            affairs as a  more or less independent entity,  overseen by a

            board of directors.  Act of May 30, 1976, Act No. 74, sec. 1,

              41.050(2), 1976 P.R. Laws 223, 228-29 ("Act No. 74").  PCFA

            derived its funds from premiums imposed  on the insureds, Act

            No. 74, at  sec. 1,    41.050(1)(b), 41.060, and  there is no

            indication  that the  Commonwealth ever  intended  to utilize

            state funds to  satisfy any of PCFA's  insurance obligations.

            In  fact,  Act No.  74 provided  that in  the event  that the

            amount of money contributed to PCFA by the insureds were "not

            sufficient to  meet  the  claims made  against  [PCFA]  in  a

            specific  year," the  Commonwealth  would not  contribute any

                                         -18-
                                          18

            funds, but  rather  "the Board  [of  PCFA would]  require  an

            additional proportionate contribution of all the participants

            for that fiscal year." Id. at   41.060(4).  By creating PCFA,
                                   ___

            the Commonwealth sought not to  provide state funds to insure

            medical  professionals, but  merely to  set  up an  insurance

            scheme  that would  provide the  proper setting  in  which to

            resolve  the medical  malpractice insurance  crisis that  was

            occurring at  the time.   Because the Commonwealth  was never

            obligated to fund  PCFA, when PCFA  began to fail it  was the

            public welfare,  not  the Commonwealth's  bank account,  that

            stood to lose.  

                      Act No. 4 was plainly reasonable and necessary.  In

            Chicago Life  Ins. Co. v.  Needles, 113 U.S. 574  (1885), the
            ______________________     _______

            Supreme  Court  upheld  against   Contract  Clause  attack  a

            legislative  decision  to  liquidate  an insolvent  insurance

            company.  In that case, the Court stated:

                      But  can it be  possible that  the state,
                      which  brought   this  corporation   into
                      existence for  the purpose  of conducting
                      the  business   of  life   insurance,  is
                      powerless to  protect the  people against
                      it, when . . . its further continuance in
                      business would  defeat the object  of its
                      creation, and be a fraud upon the public,
                      and on its  creditors and policy-holders?
                      .  . .  The [law  in  question] does  not
                      contain  any  regulation  respecting  the
                      affairs  of any  corporation of  Illinois
                      which is not reasonable in its character,
                      or   which  is   not  promotive   of  the
                      interests   of  all   concerned  in   its
                      management.

                                         -19-
                                          19

            Id. at 582.   In response to  the claim that the  liquidation
            ___

            violated  the  contract rights  of policy-holders,  the Court

            noted that "it  would be a doctrine  new in the law  that the

            existence of  a private  contract of  the corporation  should

            force upon  it a perpetuity  of existence contrary  to public

            policy,  and the nature and objects  of its charter."  Id. at
                                                                   ___

            584.   

                      That the  Act itself  was reasonable  and necessary

            does not end the analysis.  In the end, Dr.  Fernandez's real

            complaint is that, because of  the claims bar date, his claim

            is not among those which will be  funded out of the wind-down

            of  PCFA.    In  an   attempt  to  limit  the  financial  and

            administrative  burdens of  concluding  the  affairs  of  the

            dissolved PCFA, the legislature provided that existing claims

            would  be honored,  while claims  filed with  PCFA  after the

            enactment of Act No. 4  would not.  Although this legislative

            solution may appear unfair  to those physicians who paid  for

            occurrence policies with PCFA and whose  claims were not made

            with PCFA before the claims bar date, it was not unreasonable

            under the circumstances.   In a  sense, Act No.  4 sought  to

            accomplish a sort of legislative triage.   That is, it sought

            to make  an equitable  distribution of  limited resources  by

            providing for existing, but not future claims. 

                      The  Commonwealth   did  not   impose  "a   drastic

            impairment when  an evident  and more  moderate course  would

                                         -20-
                                          20

            serve its purposes  equally well."  United States  Trust Co.,
                                                ________________________

            431 U.S.  at 31.   We  cannot say  that the Commonwealth  was

            obligated  to fund PCFA until all potential occurrence claims

            had  been filed, regardless of PCFA's imminent insolvency and

            inefficacy.   What the legislature  has done in this  case is

            not unlike the situation in bankruptcy wherein creditors must

            file   their  claims  against  a  debtor's  estate  within  a

            relatively short  time period in  order to have  their claims

            recognized.  See  Rule of Bankr.Proc.  3002(c) (in chapter  7
                         ___

            liquidation proof of claims shall  be filed within 90 days of

            creditors'  meeting).  The time limitations for filing claims

            against a bankrupt  have been held to create  an absolute bar

            against asserting the  claim, rather than merely  an issue of

            priority.   See, e.g.,  Robinson v. Mann,  339 F.2d  547, 549
                        _________   ________    ____

            (5th Cir. 1964)  (time limitations for filing  claims against

            debtor's estate "operate as an absolute bar against creditors

            who seek  to present their  claims beyond the  [bar date].");

            Norris Grain Co. v. United  States, 81 B.R. 103, 106 (Bkrtcy.
            ________________    ______________

            M.D.  Fl. 1987)  (claims  bar date  is 'in  the  nature of  a

            statute of  limitations [which] must be strictly observed.'")

            (quoting In re Kay Homes Inc., 57 B.R. 967, 971 (Bkrtcy. S.D.
                     ____________________

            Tex.  1986) (alterations in  original)).  The  purpose behind
                                                     

            the claims bar date in bankruptcy, as in the case before  us,

            is "to provide  the debtor and  its creditors with  finality"

            and  to "insure  the swift  distribution"  of the  liquidated

                                         -21-
                                          21

            estate.  In re Schaffer, 173 B.R. 393, 398 (Bkrtcy. N.D. Ill.
                     ______________

            1994) (quoting  In re Zimmerman,  156 B.R. 192,  199 (Bkrtcy.
                            _______________

            W.D. Mich. 1993)).  See also In re Kolstad, 928 F.2d 171, 173
                                         _____________

            (5th Cir. 1991) ("The deadlines  have a purpose:  they enable

            a debtor and his creditors to know, reasonably promptly, what

            parties  are making  claims against  the estate  and  in what

            general amounts."). "[A]lthough  aware that a bar  date, like

            other limitation periods, would  inevitably cause hardship on

            those who failed  to act  timely, Congress  decided that  the

            goal of finality is of greater benefit to the public than any

            benefit derived  from allowing individual  exceptions to  the

            bar date."  Norris  Grain Co., 81 B.R. at 106  (citing Hoos &
                        _________________                          ______

            Co. v. Dynamics Corporation of America, 570 F.2d 433, 439 (2d
            ___    _______________________________

            Cir.  1978)); see also  Hoos & Co.,  570 F.2d  at 439 (noting
                          ________  __________

            that permitting  bankruptcy court  to consider  allowing late

            claims in individual  cases would "put the  bankruptcy courts

            in the unenviable position of indefinitely having to consider

            claims" and that such a scenario "would destroy the objective

            of  finality which Congress obviously intended to promote.").

                      The  same  principles  are   involved  here.    The

            legislature assigned  to the Insurance Commissioner  the task

            of liquidating PCFA and distributing its assets.  There was a

            strong interest  in  rapidly resolving  and  quantifying  all

            claims  against PCFA.   If  the  Insurance Commissioner  were

                                         -22-
                                          22

            required  to  accept  claims   against  the  liquidated  PCFA

            indefinitely  that would  clearly  contravene the  legitimate

            legislative  goal   of   finality,  and   could  well   delay

            distribution of funds  to any claimant.  Cf.  In re Schaffer,
                                                     ___  ______________

            173 B.R. at  398 ("If creditors of any  stripe were permitted

            to file claims at their discretion . . . . Many estates would

            be  impossible  to   administer.").    In  addition   to  the

            administrative  difficulties   involved  in   permitting  the

            continued filing of claims  against PCFA, due to  the limited

            availability of funds,  known claimants might be  required to

            await the filing  of future claims before  they could collect

            on their own.  Absent a claims bar date, neither the  affairs

            of  PCFA  nor  the  interests  of  pending  claims  could  be

            finalized.   It was reasonable  for the legislature to  set a

            cut-off  date after which time  claims against PCFA would not

            be honored, and Dr. Fernandez's  claim fell on the wrong side

            of that line.   We recognize that this  places Dr. Fernandez,

            Mercado-Boneta,  and  others  like  them  in  an  unfortunate

            situation.   We also  recognize,  however, the  legislature's

            legitimate purpose  in setting  a claims  bar date,  and find

            that it was reasonable and necessary under the circumstances.

                                          D.

                                         -23-
                                          23

                      We  hold that  Act  No.  4  bars  plaintiff's  suit

            against  PCFA,  and that  Act  No.  4  does not  violate  the

            Contract Clause of the United States Constitution.  We affirm

            the District Court's dismissal of this action.  

                                         -24-
                                          24