The insurance industry has won a key victory following a court decision to nullify a 2013 amendment to the New York Workers’ Compensation Law.
The Appellate Division, First Department, held that the provision – which retroactively imposed an additional $62 million in liabilities under the state-mandated coverage – was unconstitutional.
Specifically, the contract clause provides that “no state shall pass any law impairing the obligation of contracts.”
“[The amendment] retroactively impairs an existing contractual obligation to provide insurance coverage where the insurer does not have the right to terminate the policy or change the premium rate,” wrote Justice David Saxe, who penned the opinion for American Economy Insurance v. State of New York.
The unanimous decision reversed that of Justice Donna Mills in September 2014, which upheld the law.
The amendment was enacted three years ago by the New York State Legislature in an attempt to close a fund established in 1933. The retroactive application of it was quickly challenged by the insurance industry, represented by American Economy.
Saxe and the two others on the panel agreed.
“The closure of the fund, by ending plaintiffs’ right to transfer eligible cases to the fund, retroactively deprived them of the entirety of the benefit of this right and created a new class of unfunded liability,” the court wrote.
It also violated the takings clause in both the US and state constitution’s bill of rights by establishing a regulatory taking, the justices held.
“The record fails to reflect that the legislature amended the statute with an understanding of the impact it would have on policies issued before October 1, 2013,” the opinion said.
