Academic journal article Harvard Law Review

Constitutional Law - Contracts Clause - Louisiana Supreme Court Permits Retroactive Extension of Prescriptive Period in Insurance Contracts

Academic journal article Harvard Law Review

Constitutional Law - Contracts Clause - Louisiana Supreme Court Permits Retroactive Extension of Prescriptive Period in Insurance Contracts

Article excerpt

CONSTITUTIONAL LAW -- CONTRACTS CLAUSE -- LOUISIANA SUPREME COURT PERMITS RETROACTIVE EXTENSION OF PRESCRIPTIVE PERIOD IN INSURANCE CONTRACTS. -- State v. All Property & Casualty Insurance Carriers, 937 So. 2d 313 (La. 2006).

Disasters--whether of human or natural origin--expose citizens to extreme hardship, and legislative responses deserve considerable judicial deference even when they substantially impair contract rights. As both a constitutional and a policy matter, however, boundaries must still be drawn. The Contracts Clause, along with the Due Process and Takings Clauses, has traditionally marked these limits, although its application has suffered from a lack of clarity and consistency. (1) Recently, in State v. All Property & Casualty Insurance Carriers, (2) the Supreme Court of Louisiana upheld a retroactive extension of the prescriptive period (3) for filing insurance claims relating to Hurricanes Katrina and Rita against a Contracts Clause challenge. Although the court relied on the proper four-prong test developed by the U.S. Supreme Court in Energy Reserves Group, Inc. v. Kansas Power & Light Co., (4) it applied the test erroneously by overlooking relevant precedent and failing to address the full implications of the facts. This mistaken decision absolves the legislature of responsibility for leaving the insured at risk, thereby incentivizing the very sort of shortsighted policymaking that the retroactive law was enacted to correct.

Hurricanes Katrina and Rita struck on August 29 and September 25 of 2005, respectively, leaving a severely dislocated population and a bevy of potential insurance claims in their wake. (5) The Louisiana statute governing insurance contracts provided a minimum prescriptive period of only one year (6)--shorter than that of any other Gulf Coast state (7)--and created the prospect of numerous disadvantaged policy holders forfeiting their claims. (8) To forestall such a scenario, the Louisiana Legislature passed two acts (the Acts) that together extended the prescriptive period for claims arising out of Hurricanes Katrina and Rita for an additional year. (9) The Attorney General sought a declaratory judgment finding the Acts constitutional and petitioned the Supreme Court of Louisiana for certiorari. (10) Exercising its supervisory jurisdiction, the court granted the writ and remanded the case to the state district court for an expedited hearing. (11) After the district court found the Acts constitutional, (12) the Attorney General requested immediate review, which the Louisiana Supreme Court granted. (13)

The court unanimously affirmed the judgment of the state district court. Writing for the court, Justice Traylor first construed the Acts to apply Retroactively (14) and then found them to be substantive in nature. (15) Turning to the issue of constitutionality, the court began by addressing respondent insurers' claim that the Acts violated the "virtually identical" (16) provisions of the Federal and State Contracts Clauses, (17) applying the four-step test set out by the U.S. Supreme Court in Energy Reserves. (18) First, Justice Traylor reasoned that although extensive prior regulation of the insurance industry lessened the severity of the impairment, (19) the Acts effected "more than minimal alteration of the insurers' contractual obligations." (20) The court therefore found a constitutionally cognizable impairment, satisfying the first two prongs of the Contracts Clause test and mandating consideration of the Acts' public purpose. (21) Moving to the third prong, the court reasoned that "the public purpose requirement is primarily designed to prevent a state from embarking on a policy motivated by a simple desire to escape its financial obligations." (22) Justice Traylor then cited the legislature's own stated purpose for Act 802--to "prevent additional hardship to property owners who have already been overwhelmed and daunted by ... hardships" (23)--and accepted it as "significant and legitimate. …

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