United States Court of Appeals,
Nos. 96-3657, 97-2041.
VESTA FIRE INSURANCE CORPORATION, Vesta Insurance Corp., Sheffield Insurance
Corporation, an Alabama Corporation, Plaintiffs-Appellants,
STATE OF FLORIDA, Tom Gallagher, in his capacity as Insurance Commissioner, State Board
of Administration, Ash Williams, Jr., in his capacity as Executive Director, Defendants-Appellees.
May 22, 1998.
Appeals from the United States District Court for the Northern District of Florida. (No. 95-40138-
WS), William Stafford, Judge.
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 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.
We affirm on all other issues.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.
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
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 nonrenewal of residential policies. See Fla. Stat. § 627.7013;2 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 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 from
doing business in the State of Florida.3
In addition, legislation was passed requiring insurers to pay annual premiums to the Florida
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.
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.
Hurricane Catastrophe Fund. This fund is intended to provide reinsurance to insurance 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 the Moratorium Phaseout Statute.4 This 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 rights under the
Plaintiffs filed complaints alleging these constitutional violations.6 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 material fact existed on that claim. The district court granted summary
Although 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 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.
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., 428 U.S. 1
, 14-16, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (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 district court's decision on these issues.
Two cases by insurance companies against the Defendants were consolidated in this appeal.
judgment in favor of Defendants on all claims.
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 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, "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, 438 U.S. 104
, 121-23, 98 S.Ct. 2646, 2658, 57 L.Ed.2d 631
(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 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, 364 U.S. 40
, 49, 80 S.Ct. 1563, 1569, 4 L.Ed.2d 1554 (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 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 Constitution.7
Plaintiffs argued an additional issue: 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.
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, 438 U.S. at 123-25, 98 S.Ct. 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 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 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 [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
Plaintiffs now, and in the district court, challenged the Florida statutes only as applied to
Plaintiffs. Thus, 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, 447 U.S. 255
, 259-61, 100 S.Ct. 2138, 2141, 65 L.Ed.2d 106
(1980) (facial challenge), with Penn Central, 438 U.S. 104
, 127-31, 98 S.Ct. 2646, 2661-62 (as
companies, resulting in per se takings. But the cases relied on by Plaintiffs""United States v. Pewee
Coal Co., 341 U.S. 114
, 71 S.Ct. 670, 95 L.Ed. 809 (1951), and United States v. United Mine
Workers, 330 U.S. 258
, 67 S.Ct. 677, 91 L.Ed. 884 (1947)""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
Plaintiffs also allege that a regulatory (non per se) taking is effected by the statutes.8 The
current standard for evaluating such claims is found in Connolly v. Pension Benefit Guaranty Corp.,
475 U.S. 211
, 106 S.Ct. 1018, 89 L.Ed.2d 166 (1986). In Connolly, the Supreme Court recognized
three factors 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 224-26, 106 S.Ct. at 1026 (citations omitted). Plaintiffs contend, and we agree, that the district
court failed to consider properly these factors and that genuine issues of 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
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, 292 U.S. 571
577-79, 54 S.Ct. 840, 843, 78 L.Ed. 1434 (1934) ("Valid contracts are property ...."); see also
Ruckelshaus v. Monsanto Co., 467 U.S. 986
, 1003, 104 S.Ct. 2862, 2873, 81 L.Ed.2d 815
(1984). "If regulation goes too far it will be recognized as a taking." Pennsylvania Coal Co. v.
Mahon, 260 U.S. 393
, 415, 43 S.Ct. 158, 160, 67 L.Ed. 322 (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., 475 U.S. 211
, 224, 106 S.Ct. 1018, 1025, 89 L.Ed.2d 166 (1986).
premium paid to the Catastrophe Fund as a negative economic impact. Plaintiffs also argue 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 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 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 fact that must be
determined based upon an expiration of the moratorium in 1999.9
2. Investment-Backed Expectations
Plaintiffs also allege that the limitations on their withdrawal from the 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
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").
legislative scheme is buttressed by subsequent amendments to achieve the legislative end."
Connolly, 475 U.S. at 227, 106 S.Ct. at 1027 (internal quotations and citations omitted). This case,
however, does not present the typical situation of simple 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, 503 U.S. 519
, 528, 112 S.Ct. 1522, 1529, 118 L.Ed.2d 153 (1992); see also
Lewis v. Safeco Ins. Co. of America, 98 Misc.2d 856, 861, 414 N.Y.S.2d 823 (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 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, 122 Cal.App. 159, 10 P.2d 102, 105
Interference with investment-backed expectations occurs when an inadequate history of
similar government regulation exists: where the earlier regulation does not provide companies with
sufficient notice that they may be subject to the new or additional regulation. See Connolly, 475
U.S. at 226-28, 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 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 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
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, 475 U.S. at 223, 106 S.Ct. at 1025. But the nature 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, 480 U.S. 470
, 485-88, 107 S.Ct. 1232, 1242-43, 94 L.Ed.2d 472 (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 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 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.
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 Mining and Reclamation Ass'n, Inc., 452 U.S. 264
101 S.Ct. 2352, 2370, 69 L.Ed.2d 1 (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, 438 U.S. 104
123-29, 98 S.Ct. 2646, 2659-61 (discussing the variety of interests involved and to be considered
in a taking case).
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 vital interests of its people.' " Energy Reserves Group,
Inc. v. Kansas Power and Light Co., 459 U.S. 400
, 410, 103 S.Ct. 697, 704, 74 L.Ed.2d 569 (1983)
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 adjustments of rights
and responsibilities of the contracting parties are based upon reasonable conditions and are of an
appropriate nature. See id. at 410-13, 103 S.Ct. 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 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 411, 103 S.Ct. 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.
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 412, 103 S.Ct. 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 Steel Co. v. Spannaus, 438 U.S. 234
, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978); Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398
54 S.Ct. 231, 78 L.Ed. 413 (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, 459 U.S. at 412-13, 103 S.Ct. at 705. "Unless
the State itself is a contracting party.. . 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 insurance contracts;10 so based upon the legislature's
judgment, the statutes' impact on existing insurance contracts cannot be said to be an
No factual disputes exist about the Contract Clause, Substantive Due Process, or 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
AFFIRMED in part; VACATED and REMANDED in part.
Plaintiffs 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 purpose of the contract [must be] to directly and substantially benefit the third