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American Economy Ins. Co. v State of New York

Court of Appeals of New York

 September 7, 2017, Argued; October 24, 2017, Decided

No. 96


 [**129]  [*140]  [***97]    Fahey, J.

Workers' compensation insurance is a heavily regulated area of the law. Any modification almost always has a prospective impact and can sometimes have a retroactive impact on the parties to the insurance coverage contract. At issue here is the New York State Legislature's 2013 amendment to Workers' Compensation Law § 25-a.

We conclude that, assuming the amendment has a retroactive impact by imposing unfunded costs upon plaintiffs for policies finalized before the amendment's effective date, that retroactive impact is constitutionally permissible.

Plaintiffs are approximately 20 insurance companies that write workers' compensation insurance policies in New York. They challenge the legislature's 2013 amendment to Workers' Compensation Law § 25-a, which closed the Special Fund for Reopened Cases (the Fund) to new applications after January 1, 2014.

 [*141] A. The Fund's Background

The Fund was established in 1933. Its original purpose was to ensure that injured workers with "closed" [****2]  cases that unexpectedly "reopened" after many years due to, for example, "a recurrence of malady, a progress in disease not anticipated, or a pathological development not previously prognosticated" (Matter of Ryan v American Bridge Co., 243 App Div 496, 498, 278 NYS 612 [3d Dept 1935], affd 268 NY 502, 198 NE 375 [1935]), would continue to receive necessary benefits, even if the insurance carrier had become insolvent. The Fund was also created to protect insurance carriers and employers from uncertain future liability costs they might [***98]   [**130]  incur in these "stale" cases (see id. at 498-499).

The Fund was initially financed with a one-time assessment on insurance carriers, but that funding eventually became inadequate, and in 1948 the legislature authorized the Workers' Compensation Board (the Board) to impose annual assessments on carriers to maintain the Fund. The carriers were permitted to pass those assessments on to their insureds through policyholder surcharges. The cost of the Fund was therefore ultimately borne by New York employers, not insurance carriers.

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30 N.Y.3d 136 *; 87 N.E.3d 126 **; 65 N.Y.S.3d 94 ***; 2017 N.Y. LEXIS 3195 ****; 2017 NY Slip Op 07385

 [1]  American Economy Insurance Company et al., Respondents, v State of New York et al., Appellants.

Subsequent History: US Supreme Court certiorari denied by Am. Econ. Ins. Co. v New York, 2018 U.S. LEXIS 3440 (U.S., June 4, 2018)

Prior History: Appeal, on constitutional grounds, from an order of the Appellate Division of the Supreme Court in the First Judicial Department, entered April 14, 2016. The Appellate Division (1) reversed, on the law, a judgment of the Supreme Court, New York County (Donna M. Mills, J.), which had dismissed the complaint upon an order of that Supreme Court granting defendants' motion to dismiss and denying plaintiffs' cross motion for summary judgment; (2) in effect denied defendants' motion to dismiss; (3) reinstated the complaint; (4) in effect granted plaintiffs' cross motion for summary judgment to the extent of declaring that Workers' Compensation Law § 25-a (1-a) as retroactively applied to policies issued before October 1, 2013 is unconstitutional; and (5) directed the Clerk to enter an amended judgment.

American Economy Ins. Co. v State of New York, 139 AD3d 138, 31 NYS3d 456, 2016 N.Y. App. Div. LEXIS 2801 (Apr. 14, 2016), reversed.

Disposition: Order reversed, without costs, and judgment granted in favor of defendants declaring that Workers' Compensation Law § 25-a (1-a) as applied to policies issued before October 1, 2013 is not unconstitutional.


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Insurance Law, Claim, Contract & Practice Issues, Premiums, Workers' Compensation & SSDI, Coverage, Types of Insurance, Governments, Legislation, Effect & Operation, Retrospective Operation, Administrative Proceedings, Awards, Types of Awards, Constitutional Law, Case or Controversy, Constitutionality of Legislation, Inferences & Presumptions, Evidence, Burdens of Proof, Proof Beyond Reasonable Doubt, Congressional Duties & Powers, Contracts Clause, Application & Interpretation, Scope, Bill of Rights, Fundamental Rights, Eminent Domain & Takings, Statutory Remedies & Rights, Substantive Due Process, The Judiciary, Constitutionality of Legislation