John M. BRENNAN, Appellee,
v.
KANSAS INSURANCE GUARANTY ASSOCIATION, Appellant.
Supreme Court of Kansas.
*106 David A. Hanson, of Glenn, Cornish, Hanson & Kаrns, Chartered, of Topeka, argued the cause and was on the brief for appellant.
Derek S. Casey, of Prochaska, Giroux & Howell, of Wichita, argued the cause, and James R. Howell, of the same firm, was with him on the briefs for appellee.
The opinion of the court was delivered by BILES, J.:
This appeal arises from a medical malpractice lawsuit. John M. Brennan sued his physician, who had a $200,000 professional liability insurance policy. The insurer was declared insolvent after Brennan filed his claim but before he recovered. The Kansas Insurance Guaranty Association (KIGA) is a statutorily created entity that substitutes some coverage for certain claims against insolvent insurers. KIGA denied liability because Brennan received medical reimbursements from his personal hеalth insurance policy that totaled more than the insolvent insurer's policy limits.
The dispositive issue is whether Brennan's due process rights were violated by a retroactive statutory amendment permitting KIGA to offset Brennan's personal health insurance benefits against its liability on the insolvent insurer's policy. The district court declared the statute's retroactive feature unconstitutional. As explained below, we agree that Brennan's due process rights were violated and find the statute may not be retroactively applied.
FACTUAL AND PROCEDURAL BACKGROUND
The facts are undisputed. In 2000, Brennan sued Jeff Thode, M.D., for medical malpractice, seeking $2.5 million in damages for injuries sustained during a 1999 treatment. At that time, Dr. Thode's primary prоfessional liability insurer was PHICO Insurance Company. That policy secured $200,000 in coverage. In addition, Dr. Thode carried $800,000 in secondary liability coverage with the Kansas Healthcare Stabilization Fund. The offset controversy arises because Brennan had his own health care insurance policy, which covered injuries caused by others. That policy paid $500,000 for treatments related to the injuries Brennan claimed from Dr. Thode's negligence.
In 2002, a Pennsylvania court declared PHICO insolvent, placing the company into liquidation. It is uncontested that PHICO's insolvency triggered KIGA's statutory obligation to cover the insurer's obligations to the extent provided by the Kansas Insurance Guaranty Association Act (Guаranty Act), K.S.A. 40-2901 et seq. But in 2005, while Brennan's lawsuit against Dr. Thode remained pending, the legislature revised the Guaranty Act to expressly authorize KIGA to offset the association's liability with amounts paid by a claimant's medical insurance. The legislation retroactively applied that offset provision to all claims pending, but not yet paid, effective April 14, 2005. L.2005, ch. 92, sec. 4 ("The provisions of this section, as amended, shall apply to all claims which have not been paid prior to the effective date of this act.").
In September 2005, a settlement agreement was approved in Brennan's litigation against Dr. Thode, which dismissed Brennan's claim with prejudice in exchange for an undisclosed payment by the Healthcаre Stabilization Fund. But the agreement did not resolve the question about KIGA's ability to offset payments made by Brennan's health care policy. The district court retained jurisdiction over the $200,000 policy issued by PHICO. To facilitate a resolution to that dispute, Brennan and KIGA stipulated they would not raise procedural defenses or require Brennan to establish evidence of liability or damages.
For reasons not clear in the record, KIGA did not formally intervene in Brennan's case until 2007. Both parties then filed cross-motions for summary judgment seeking a declaratory judgment on whether KIGA was obligated as a matter of law to pay Brennan *107 for PHICO's $200,000 policy. There were no issues of material fact.
In summary, the parties disputed whether the amendment changed the law or clarified it. KIGA argued the 2005 amendment did not change the law and KIGA had always been entitled under the preamended Act to offset the $500,000 paid by Brennan's health care policy against KIGA's liability on the insolvent malpractice policy. Brennan, on the other hand, argued KIGA was not entitled to the offset under the preamended statute and was statutorily obligated to pay the $200,000 from the moment PHICO was declared insolvent. Any retroactive application of the 2005 amendment, Brennan contended, violated his due process rights. He also made an equal protection argument, claiming the amended statute treated insured and uninsured claimants differently without a rational basis for the distinction.
The district court agreed with Brennan on both due process and equal protection grounds and declared application of the revised statute unconstitutional. The district court found the 2005 amendment substantively changed the prior law by giving KIGA a right to offset its obligation with Brennan's medical insurance benefits that did not exist under the original Guaranty Act. The court held that retroactive application of the 2005 revision violated due process. It also held there was no rational basis to treat claimants with insurance differently than those without insurance when determining whether KIGA was liable for the insolvent insurer's policy.
The district court entered judgment against KIGA for $200,000. KIGA filed a timely notice of appeal. Jurisdiction is proper under K.S.A. 60-2101(b) (civil statute held unconstitutional).
ANALYSIS
Standard of Review
Determining a statute's constitutionality is a question of law subject to unlimited review. But under the separation of powers doctrine, this court presumes statutes are constitutional and resolves all doubts in favor of a statute's validity. Courts must interpret a statute in a way that makes it constitutional if there is any reasonable construction that would maintain the legislature's apparent intent. State v. Laturner,
A statute's interpretation also is a question of law subject to unlimited review. The legislature's intent governs if it can be ascertained. The first step is to decide whether the legislature's intent may be determined from the statutе's plain language, giving ordinary words their ordinary meaning. If the legislature's intent is not clear from the statutory language, a court moves to the second analytical step by applying the canons of construction or examining legislative history. Double M Constr. v. Kansas Corporation Comm'n,
In order to reach the merits, we will review the following: (1) the Guaranty Act and the 2005 amendment at the heart of this controversy; (2) whether the 2005 amendment had retroactive application; (3) whether the 2005 amendment affected Brennan's vested rights; and (4) remedy. We do not address the district court's equal protection ruling because our decision on the due process claim renders that exercise moot.
Overview of the Guaranty Act and 2005 Amendment
The Guaranty Act, K.S.A. 40-2901 et seq., was adopted in 1970. L.1970, ch. 185, secs. 1-19. Its stated purpose is
"to provide a mechanism for the payment of covered claims under certain insurance policies, to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers." K.S.A. 40-2901.
This purpose guides any interpretation of the Guaranty Act, and it is to be liberally construed to effect these stated purposes. K.S.A. 40-2901. The Act applies to property and casualty insurance, including the professional liability/medical malpraсtice insurance at issue in this case. K.S.A. 40-2902; K.S.A. *108 40-1102. It was based on the National Association of Insurance Commissioners' widely adopted Post-Assessment Property Liability Insurance Guaranty Model Act. See Hetzel v. Clarkin,
Two specific statutorily imposed duties arise once an insurer is determined to bе insolvent. First, KIGA is deemed the insurer to the extent of its statutory obligation on the covered claims and has all rights, duties, and obligations of the insolvent insurer as if the insurer had not become insolvent. K.S.A. 40-2906(a)(2). Second, KIGA is obligated to pay covered claims existing prior to the insolvency determination and any other claims arising within 30 days after that determination. K.S.A. 40-2906(a)(1). In cases other than workers compensation, KIGA's obligation is limited to the face amount of the insolvent insurer's policy, up to a $300,000 cap. K.S.A. 40-2906(a)(1).
But the Guaranty Act has always limited KIGA's obligations by requiring claimants seeking coverage from KIGA to first exhaust (offset) any rights under certain other available insurance claims. K.S.A. 40-2910. This is sometimes referred to as a "nonduplication of recovery" provision. See Hetzel,
"Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim shall be required to exhaust first his right under such policy. Any amount рayable on a covered claim under this act shall be reduced by the amount of any recovery under such insurance policy." K.S.A. 40-2910(a).
At that time, the Act defined "covered claim" as
"an unpaid claim, including one for unearned premiums, which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this act applies issued by an insurer, if such insurer becomes an insolvent insurer after the effective date of this act and (1) the claimant or insured is a resident of this state at the time of the insured event; or (2) the property from which the claim arises is permanently located in this state. `Covered claim' shall not include any amount due any reinsurer, insurer, insurance pool or underwriting аssociation, as subrogation recoveries or otherwise." K.S.A. 40-2903(c).
In 2005, the italicized language below was added to explicitly offset benefits from health insurance policies. L.2005, ch. 92, sec. 4. It states:
"Any person having a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim shall be required to exhaust first his right under such policy. A claim under an insurance policy shall include a claim under any kind of insurance, whether such claim is a first party or third party claim, and shall include, without limitation, accident and health insurance, workers' compensation, Blue Cross and Blue Shield and all other coverages except for policies of an insolvent insurer. Any amount payable on a covered claim under this act shall be reduced by the amount of any recovery under such other insurance policy." (Emphasis added.) K.S.A. 2010 Supp. 40-2910(a).
*109 The parties concede that if PHICO's insolvency had occurred after the 2005 amendment became law, the offset in controversy here would not present a due process issue under the plain language of the amended statute. But since those are not our facts, we must next determine whether the legislature could reach back and reduce or eliminate KIGA's liability for pending claims with this statutory amendment.
Retroactive Application of the 2005 Amendment
To comply with due process requirements, retroactive legislation cannot abolish a vested right. See Resolution Trust Corp. v. Fleischer,
Brennan argues KIGA could not offset amounts paid or payable under a health insurance policy under the provision in effect at the time PHICO became insolvent. He cоntends the exhaustion requirement in place at that time was intended to keep the claimant in the same position he or she would have occupied absent the insurance company's insolvency. KIGA argues the statute always entitled it to offset health care policy payments and the 2005 amendments merely clarified this then-existing right, citing this court's decision in Hetzel to support that interpretation. KIGA also argues the Guaranty Act's purpose is limited to providing a safety net to protect the insured against insolvencies, so limitations on a claimant's recovery properly prevent duplicate recovery and maintain the Act's continued viability. To resolve these conflicting positions, we examine below the statute's explicit purpose and plain language, how other jurisdictions have viewed the same or similar statutory language, and whether the legislature expressed its original intent when it amended the law in 2005.
(a) Statutory Purpose
We turn first to the statute's explicit language. The original K.S.A. 40-2910 provisions required exhaustion when "[a]ny person [has] a claim against an insurer under any provision in an insurance policy other than a policy of an insolvent insurer which is also a covered claim." On its face, this language cannot mean what it explicitly says because the exhaustion requirement would apply to any "claim against an insurer" even in unrelated circumstances. For example, if Brennаn had pending an automobile liability claim for damage to his car against an unrelated insurer, this statute on its face would require that KIGA receive an offset for the automobile claim before paying on the insolvent PHICO policy. KIGA concedes in its briefs and during oral argument that this is not permitted. But this example illustrates why the statute lacks the clarity KIGA contends exists. Indeed, courts across the country are in conflict about what the offset provision means.
Our court first noted this conflict among jurisdictions in Hetzel, in which we observed that various states adopted identical language from the model act, but differing judicial interpretations existed.
The Guaranty Act specifically states it should be construed to effect its stated purposes. Two of those purposes are related to this claim: (1) to provide a means for paying covered claims under certain insurance policies; and (2) to avoid excessive delay *110 in payment and to avoid financial loss to claimants or policyholders because of an insurеr's insolvency. K.S.A. 40-2901. In Hetzel, this court adopted the statement of purpose identified in an Illinois decision, Lucas v. Illinois Ins. Guaranty Fund,
"`The statutory purpose is to place claimants in the same position that they would have been in if the liability insurer had not become insolvent. [Citation omitted.] The Act states that the Fund is intended to protect claimants against financial loss because of the insolvency of insurance companies. The difference between the amount of the insolvent insurer's policy limits and the amount paid to claimant by his own insurer is made up by the Fund. To permit a greater recovery than would have occurred had the insurance company remained solvent would both extend the Act beyond its purpose and offend public policy by giving the Act an interpretation which results in a windfall judgment.'"244 Kan. at 704 ,772 P.2d 800 (quoting Lucas,52 Ill.App.3d at 239 ,10 Ill.Dec. 81 ,367 N.E.2d 469 ).
In Hetzel, the plaintiff sued Charles Clarkin, claiming $750,000 in damages from a car accident. Clarkin had a $50,000 automobile insurance policy, but his insurer was insolvent. For her part, Hetzel had a $5,000 personal injury protection (PIP) policy and a $30,000 uninsured motorist policy. She settled with her uninsured motorist insurer for $25,000. She then claimed this settlement exhausted her uninsured motorist policy because that policy allowed her insurer to deduct the amount paid on the PIP policy. Clarkin moved to dismiss the suit against him, arguing K.S.A. 40-2910 required a claimant to first exhaust any right under other covered claims. And since Hetzel failed to fully exhaust her uninsured motorist benefits, Clarkin argued KIGA had no obligation to pay. This argument assumed Hetzel's uninsured motorist coverage had a $30,000 policy limit and that limit was not reduced by the $5,000 PIP policy. The district court agreed and dismissed Hetzel's claim. This court affirmed, holding that a claimant must exhaust his or her own uninsured motorist coverage and that KIGA may offset its liability by the amount the plaintiff could have recovered, i.e., the policy limits.
The Hetzel result is understandable, given the Guaranty Act's stated statutory purpose when applied to uninsured motorist coverage. In those instances, a claimant should not be entitled to recover from KIGA under the insolvent insurer's policy and then use the fact that the insurer was insolvent to make a claim against claimant's own uninsured motorist coverage. A double recovery would result from the insolvency.
But turning back to Brennan's case, the question is whether Hetzel's analysis applies to medical insurance benefits recovered from a claimant's own health care policy. We believe it does not. Looking first to the Guaranty Act's statutory purpose, Hetzel is easily distinguishable because uninsured motorist benefits are available to the insured when there is insolvency. In other words, had Clarkin's automobile insurer remained solvent, Hetzel would not have had a claim against her uninsured motorist policy. And allowing her to recover from both KIGA and her uninsured motorist coverage would result in a windfall because of that duplication. But a claimant receiving benefits under a health care policy would not receive а windfall. In fact, offsetting the claimant's medical insurance benefits would reduce the total coverage available.
To use Brennan as an example, had Dr. Thode's insurer not become insolvent, there would have been $1,000,000 in professional liability insurance coverage to satisfy Brennan's claim. But under the statutory interpretation advanced by KIGA, the most Brennan could recover after the insolvency would be $800,000 because of the claimed offset. If permitted, such an offset would shift the burden created by the insurer's insolvency onto Brennan and his health care policy carrier instead of having KIGA bear the loss, which would in turn distribute the claim for the insolvent insurer among all solvent ones. This outcоme cannot be reconciled with the statutory purposes expressed *111 in the Guaranty Act. For that reason, we find the statutory purpose supports Brennan's argument that K.S.A. 40-2910 did not allow the offset before the 2005 amendment.
(b) Other Jurisdictions
Most jurisdictions addressing whether their own guaranty fund may offset medical insurance benefits under an identical or substantially similar statute to the preamended version of K.S.A. 40-2910 have found no entitlement to offset medical insurance benefits. See Pritchett v. Clifton,
As Brennan notes, Pennsylvania enacted an amendment identical to the changes made by the Kansas Legislature in 2005, and Pennsylvania courts have addressed a medical insurance benefits offset under both the original and amended statutes. In Sands v. PA Ins. Guaranty Ass'n,
Some decisions from other jurisdictions addressing this issue rely on expressly stated exclusion provisions not contained in the Kansas Guaranty Act. For example, Alabama has held its guaranty association may not offset medical insurance benefits or workers compensation benefits because its guaranty act excludes disability, accident, and health insurance from its scope of coverage. See Alabama Ins. Guar. Ass'n v. Stephenson,
Finally, we concede there is limited support in other jurisdictions for finding an offset allowable under the preamended statute, but none of those cases are directly analogous. For example, in Illinois that state's guaranty fund was entitled to offset health insurance, but that decision was based on a different exhaustion provision that allowed offsets "if the claim under such other policy arises from the same facts, injury, or loss that gave rise to the covered claim against the Fund." Ill. Comp. Stat. ch. 215 § 5/546; Roth v. Illinois Insurance Guaranty Fund,
Overall, the majority of authority from other states persuasively supports our holding that the preamended Kansas statute did not allow an offset for health care benefits paid to a claimant. Given that the Kansas Guaranty Act was based on a model law, we find the rulings from our sister states with comparable statutory language reinforcing in our conclusion. The remaining question is *112 whether the legislature changed or clarified its intent as to the original enactment when it amended the statute.
(c) Expression of Original Intent in 2005
Determining whether the legislature intended to change or clarify an existing law while amending it is a difficult undertaking without an explicit statement of intent. Furthermore, the district court did not address KIGA's clarification argument. It relied solely on Hetzel to find that the original enactment only applied to duplicate recovery from double coverage and that KIGA would have owed Brennan benefits before the 2005 amendment.
Ordinarily, courts presume the legislature intends to make a substantive change when it revises an existing law, but this presumption's strength, weakness, or validity changes according to the circumstances. When an original statute is ambiguous, the legislative purpose may be to clarify the statute's ambiguities, not to change the law. Trees Oil Co. v. Kansas Corporation Comm'n,
The legislative history reflects that KIGA proposed the amendment at issue during the 2005 legislative session, and a KIGA representative advocated for its adoption before the Senate and House insurance committees. Minutes of the House Insurance Committee, February 17, 2005; Minutes of the Senate Financial Institutions and Insurance Committee, March 16, 2005. In written remarks distributed to both committees, KIGA self-described the proposed revisions as reinforcing the Guaranty Act's original intent to make KIGA the payor of last resort and providing clarificаtion that the offset requirements apply to all related claims under other insurance, stating:
"As in most states, current law in Kansas specifies that a claim that may be covered under several policies must first exhaust coverage under policies other than the insolvent insurer and that any covered claim payable by [KIGA] is reduced by any recovery from such other insurance. These provisions help assure that [KIGA] is the payor of last resort and also prevents the potential for a double recovery by the claimant. Our proposed amendments are intended to reinforce these concepts and clarify that the exhaustion and offset requirements apply to all claims under any kind of insurance, regardless of whether first party or third party claims, and including claims under accident and sickness insurance, health insurance and workers' compensation coverage similar to provisions adopted in some of the other states." (Emphasis added.) Minutes of the House Insurance Committee, February 17, 2005, attachment 6, p. 9.
But this statement advocating adoption of the amendment is decidedly self-serving since KIGA was aware of the claims pending against it at the time, including Brennan's claim. And we note the amendment's text does not contain any declaration that the legislature intended to clarify the law. See In re Care Treatment of Hunt,
Accordingly, we hold the 2005 amendment changed the original statute to broaden the offset provisions and was not intended by the legislature to simply clarify already existing offsets. We turn next to addressing whether Brennan's right to the Guaranty Act's protections vested prior to the amendment's effective date.
Statutory Amendment Affecting a Vested Right
Generally, a statute operates prospectively unless there is clear language indicating the legislature intended it to operate retrospectively. Owen Lumber Co. v. Chartrand,
The term "vested rights" describes rights that cannot be abolished by retroactive legislation. Resolution Trust Corp. v. Fleischer,
"(1) the nature of the rights at stake (e.g., procedural, substantive, remedial), (2) how the rights were affected (e.g., were the rights partially or completely abolished by the legislation; was any substitute remedy provided), and (3) the nature and strength of the public interest furthered by the legislation."257 Kan. at 369 ,892 P.2d 497 .
As to the first factor, Brennan argues the coverage provided by the Guaranty Act is rеmedial in nature. KIGA argues the amendment is either procedural or remedial because it provides a means for individuals to get claims against insolvent insurance companies paid by KIGA. Procedural laws relate to the "`machinery for carrying on the suit, including pleading, process, evidence, and practice' and `the mode or proceedings by which a legal right is enforced, that which regulates the formal steps in an action.'"
Substantive laws give or define the right, give the right or denounce the wrong, or create liability against a defendant for a tort committed.
Remedial statutes "`reform or extend existing rights, and having for their purpose the promotion of justice and the аdvancement of public welfare and of important and beneficial public objects, such as the protection of the health, morals, and safety of society, or of the public generally.'" In re *114 Estate of Brown,
Historically, this finding would terminate the vested rights analysis because courts grouped procedural and remedial laws together under the rule that there is no vested right in any particular remedy or method of procedure. Fleischer,
"`The [United States Supreme] Court has recognized that the removal of all or a substantial part of the remedies for enforcing a private contract may have the same practical effect as an explicit denial of the right. Thus the relevant factor in determining the weight to be given to the extent to which a preexisting right is abrogated is not whether the statute abolishes rights or remedies, but rather the degree to which the statute alters the legal incidents of a claim arising from a preenactment transaction; the greater the alteration of these legal incidents, the weaker is the case for the constitutionality of the statute.' Hochman, The Supreme Court and the Constitutionality of Retroactive Legislation, 73 Harv. L.Rev. 692, 711-12 (1960)."276 Kan. at 223 ,73 P.3d 753 .
Since a statute may be remedial and affect a vested right, the first factor is not determinative of the vested rights analysis. The first factor (the nature of the right) must be balancеd against the others, including how the right was affected, whether a substitute remedy was provided, and the public interest furthered by the legislation.
Applying these factors in concert supports a finding that Brennan had a vested right for three reasons. First, the statutory amendment extinguished Brennan's right to recover from KIGA and there was no substitute remedy with the insolvent insurance policy. Second, the Guaranty Act's stated purpose is to avoid financial loss to claimants or policyholders, and the entire statutory scheme is designed to cover the obligations of insolvent insurance companies while sharing the burden from those obligations among all member insurers. Third, the strong statutory language reciting that KIGA was "deemed the insurer to the extent of its obligations on the covered claims" and "obligated to the extent of the covered claims" indicate a statutory right arose at the time PHICO was declared insolvent. K.S.A. 40-2906(a)(1), (2).
As a final point, KIGA argues the general principal that a plaintiff has no vested right in any rule of law to remain unchanged for his or her benefit. But in Fleischer, this court held that rule applies to prospective amendments, not to the retroactive application of legislation to an accrued and pending claim.
We find the 2005 amendment adversely impacted a vested right, thereby violating Brennan's due process rights.
Remedy for Unconstitutional Retroactive Amendment
Our holding that the 2005 amendment's retroactive application violates due process requires us to determine next the proper remedy, i.e., whether the retroactivity provision is severable from the other statutory provisions enacted in 2005. In Felten Truck Line v. State Board of Tax Appeals,
"Whether the court may sever an unconstitutional provision from a statute and leave the remainder in force and effect *115 depends on the intent of the legislature. If from examination of a statute it can be said that the act would have been passed without the objectionable portion and if the statute would operate effectively to carry out the intention of the legislature with such portion stricken, the remainder of the valid law will stand. Whether the legislature had provided for a severability clause is of no importance. This court will assume severability if the unconstitutional part can be severed without doing violence to legislative intent."
We hold the retroactivity provision in the 2005 amendment is severable and Brennan's rights are governed by the preamended statute. Therefore, we affirm the district court's entry for judgment against KIGA without allowing an offset for Brennan's medical insurance benefits received. The remaining provisions in the 2005 amendment are unaffected by our holding.
Having determined the retroactivity provision violates due process and Brennan's rights are governed by the preamended K.S.A. 40-2910, this court does not need to reach Brennan's equal protection argument. See Smith v. Kansas Dept. of Revenue,
Affirmed.
DAVIS, C.J., and LUCKERT, J., not participating.
GREENE, C.J., and MALONE, J., assigned.