United States Fidelity & Guaranty Co. v. McKeithen

Revised September 25, 2000

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 99-30475

UNITED STATES FIDELITY & GUARANTY CO., et al.,

Plaintiffs,

UNITED STATES FIDELITY AND GUARANTY CO; FIDELITY & GUARANTY
INSURANCE CO; FIDELITY & GUARANTY INSURANCE UNDERWRITERS, INC;
ARGONAUT INSURANCE COMPANY; ARGONAUT MIDWEST INSURANCE COMPANY;
ARGONAUT SOUTHWEST INSURANCE COMPANY; COMMERCIAL UNION INSURANCE
COMPANY; AMERICAN CENTRAL INSURANCE; AMERICAN EMPLOYERS’
INSURANCE COMPANY; EMPLOYERS FIRE INSURANCE COMPANY; THE NORTHERN
ASSURANCE COMPANY OF AMERICA; UNITED STATES FIRE INSURANCE
COMPANY; NORTH RIVER INSURANCE COMPANY; INSURANCE COMPANY OF
NORTH AMERICA; BANKER’S STANDARD INSURANCE COMPANY; CENTURY
INDEMNITY CO; CIGNA FIRE UNDERWRITERS INSURANCE COMPANY; CIGNA
INSURANCE CO; CIGNA PROPERTY & CASUALTY INSURANCE COMPANY; CIGNA
SPECIALITY INSURANCE COMPANY; INDEMNITY INSURANCE COMPANY OF
NORTH AMERICA; PACIFIC EMPLOYERS INSURANCE COMPANY; HARTFORD
INSURANCE COMPANY; HARTFORD FIRE INSURANCE COMPANY; HARTFORD
INSURANCE COMPANY OF THE MIDWEST; HARTFORD INSURANCE COMPANY OF
THE SOUTHEAST; ]HARTFORD UNDERWRITERS INSURANCE COMPANY; TWIN
CITY FIRE INSURANCE COMPANY; TRAVELERS INSURANCE COMPANY;
TRAVELERS INDEMNITY COMPANY OF AMERICA; THE TRAVELERS INDEMNITY
COMPANY; THE TRAVELERS INDEMNITY COMPANY OF CONNECTICUT; THE
TRAVELERS INDEMNITY COMPANY OF ILLINOIS; CHARTER OAK FIRE
INSURANCE COMPANY; PHOENIX INSURANCE COMPANY; AETNA CASUALTY &
SURETY COMPANY; CIGNA INDEMNITY INSURANCE COMPANY; LIBERTY MUTUAL
INSURANCE COMPANY; LIBERTY MUTUAL FIRE INSURANCE COMPANY; LIBERTY
INSURANCE CORPORATION,

Plaintiffs-Appellants,
v.

W. FOX MCKEITHEN, etc., et al.,

Defendants,
W. FOX McKEITHEN, Louisiana Secretary of State; KEN DUNCAN,
Louisiana State Treasurer; GLYNN VOISIN, Judge, Director of
Workers’ Compensation of Louisiana; JAMES H. BROWN, Louisiana
Commissioner of Insurance; MADLYN B. BAGNERIS, Secretary of
Social Services of Louisiana, in their official capacities as
members of the Louisiana Workers’ Compensation Second Injury
Board; CHRIS WEAVER, Acting Secretary, Louisiana Department of
Labor,

Defendants-Appellees.

Appeal from the United States District Court for the
Middle District of Louisiana

September 15, 2000

Before JONES, DUHÉ, and WIENER, Circuit Judges.

EDITH H. JONES, Circuit Judge:

Plaintiffs, United States Fidelity & Guaranty Company and

various other private insurance companies, appeal the district

court’s summary judgment upholding a Louisiana statute that altered

the funding formula for the Louisiana Workers’ Compensation Second

Injury Fund. Because, as applied to the plaintiffs, the statute in

question violates the Takings Clause of the United States

Constitution, we REVERSE the judgment and REMAND for further

proceedings.

I. BACKGROUND

In 1974, the Louisiana legislature established the

Workers’ Compensation Second Injury Fund (“SIF”). See 1974 La.

Acts, No. 165, § 1 (the “1974 Act”). The SIF’s stated purpose was

2
to encourage the hiring and retention of disabled workers. Under

the previous workers’ compensation system, an employee’s current

employer was responsible for payment of disability benefits even

though the worker’s disability was partly attributable to a prior

accident or disability not involving the current employer. As a

result, an employer faced higher insurance costs when hiring a

previously disabled worker than it would for an able-bodied worker,

and the hiring of previously-injured employees was concomitantly

discouraged.

The SIF removed from the ordinary course of insurance an

employer’s hiring of previously-injured workers. Under the SIF, if

an employer became liable to pay compensation to a disabled worker

as a result of a second injury, the SIF reimbursed the employer (if

the employer was self-insured) or the employer’s workers’

compensation insurer (if the employer was insured) for benefits

paid to the employee. As designed, the SIF was cost-neutral to

workers’ compensation insurers while spreading the costs of second

injury benefits among all employers in the State of Louisiana.

This policy was implemented in two ways. First, when an injured

worker filed a second injury claim with an insurer, the insurer

paid the claim but obtained reimbursement from the SIF. The

insurer was thus an intermediary, with the SIF serving as the

ultimate payor of benefits. Claims for serial injuries no longer

3
formed part of an employer’s loss profile on which its worker’s

compensation premiums were directly based.

Second, the insurer acted as a conduit through which the

SIF passed on reimbursement costs and administrative expenses to

insured employers. (The SIF assessed self-insured employers

directly.) Under the 1974 Act, insurers were assessed a

legislatively-fixed percentage of workers’ compensation insurance

premiums collected during the applicable year. See La. Rev. Stat.

§ 23:1377(B)(1974). Louisiana regulators interpreted the 1974 Act

to allow insurers to pass these assessments on to employers by

including them in the “expense component” of workers’ compensation

insurance rates. By including the assessment in the premiums

billed to insureds, the insurers were reimbursed by employers, on

a dollar-for-dollar basis. The assessments were ultimately borne

by the employers proportionately, and the State of Louisiana thus

avoided the administrative difficulties of collecting small

assessments from thousands of insured employers. Insurers also

collected lower premiums in recognition of the fact that they no

longer covered the costs of workers’ second injury claims. This

system assured that insurers bore none of the SIF’s costs and

received no net benefit from the SIF.

In 1995, the Louisiana legislature enacted Act 188, which

amended the 1974 Act. See 1995 La. Acts, No. 188 (“Act 188"),

codified at La. Rev. Stat. §§ 23:1371-1378. Act 188 did not change

4
the purpose or organization of the SIF, but it did change the

method of assessing insurers’ annual contributions to the SIF.

Instead of basing assessments on a percentage of premiums collected

in Louisiana, Act 188 moved to a percentage of workers’

compensation benefits paid by the insurer or self-insured in the

previous calendar year. While the previous system based

assessments on an insurer’s current volume of transactions --

specifically, premiums collected under policies written

contemporaneously with the assessment -- Act 188 predicates

assessments on the insurer’s volume of business written in earlier

years.1

In addition to changing the SIF’s assessment formula, Act

188 was made retroactive to insurance policies written before the

Act’s passage. Thus, Act 188 applies to any policy written before

its effective date2 if that policy resulted in the payment of

1
According to the plaintiff insurance companies, there is
typically a long gap, or tail, between the date of a policy’s
issuance and the date when a claim is paid under that policy. This
“tail” exists for three reasons. First, workers suffering total or
partial permanent disability are entitled to benefits for some
years during which they would have had, but for the injury, an
earnings capacity. Second, if an injury is fatal, workers’
surviving family members are entitled to death benefits -- the
worker’s spouse until death or remarriage and any children until
they reach the age of majority. Finally, occupational diseases
such as asbestosis have long latency periods, and workers suffering
from these diseases might not file claims until years or decades
after exposure to the asbestosis or other disease-causing
substance.
2
Act 188 was effective June 12, 1995. La. Rev. Stat. §
23:1377.

5
benefits after the effective date. Act 188 was also made expressly

applicable to workers’ compensation insurers who, prior to the

Act’s passage, had withdrawn from the Louisiana market or had

substantially reduced their underwriting in the state.3

The plaintiffs represent the class of insurers that,

prior to 1995, withdrew from the Louisiana market or substantially

reduced their underwriting in the state.4 In April 1996, they

initiated this action, alleging that application of Act 188 to pre-

enactment insurance contracts violated the Takings Clause, the

Contract Clause, and the Equal Protection Clause of the U.S.

Constitution. They named as defendants, in their official

capacities, the members of the Louisiana Workers’ Compensation

Second Injury Board (the “Board”), the Louisiana Secretary of

Labor, and the State’s Commissioner of Insurance (collectively, the

“state officials”), all of whom are responsible for implementing or

3
Act 188 provides that “[a]ny property and casualty
insurer that has discontinued writing workers’ compensation
insurance in this State . . . shall continue to be liable for
payment of any assessment to the [SIF] on account of any benefits
paid.” La. Rev. Stat. § 23:1377(C)(2).
4
Two of the plaintiff families of affiliated companies,
United States Fidelity & Guaranty Company and Crum & Forster (d/b/a
U.S. Fire and North River) effectively withdrew from the Louisiana
market. The remaining plaintiffs substantially reduced their
underwriting in the State. For example, the plaintiffs offered
evidence that one insurer reduced its premium volume from $62
million to $2 million from 1990 to 1994. Another insurer reduced
its volume from $88 million to $5 million during the same period,
and another reduced its volume from $74 million to $8 million.

6
enforcing Act 188.5 The complaint sought declaratory and

injunctive relief.

The parties filed cross-motions for summary judgment, and

the case was referred to a magistrate judge, who recommended that

the state officials’ motion be granted on the Contract Clause and

Equal Protection claims and that the plaintiffs’ motion be granted

on the Takings Clause claim. After timely objections by the

parties, the district court granted summary judgment in favor of

the state officials on all claims and dismissed the case.

Plaintiffs now appeal the disposition of their Contract

Clause and Takings Clause claims.6

II. DISCUSSION

The Takings Clause of the Fifth Amendment provides:

“[N]or shall private property be taken for public use, without just

compensation.” U.S. Const. amend V.7 The purpose of the Takings

Clause is to prevent the government from “forcing some people alone

5
The complaint also named the Louisiana Attorney General
as a defendant in his official capacity, but he was later dismissed
by stipulation of the parties.
6
We review the district court’s grant of summary judgment
de novo. Voting Integrity Project, Inc. v. Bomer, 199 F.3d 773,
774 (5th Cir. 2000); Norman v. Apache Corp., 19 F.3d 1017, 1021
(5th Cir. 1994). As the facts are uncontested, the questions
before us are those of law, including characterizing the legal
effect of the facts.
7
The Fifth Amendment applies to the states through the
Fourteenth Amendment. Williamson County Regional Planning Comm’n
v. Hamilton Bank of Johnson City, 473 U.S. 172, 105 S.Ct. 3108,
3111 (1985).

7
to bear public burdens, which, in all fairness and justice, should

be borne by the public as a whole.” Eastern Enterprises v. Apfel,

524 U.S. 498, 522, 118 S.Ct. 2131, 2146 (1998), (quoting Armstrong

v. United States, 364 U.S. 49, 49, 80 S.Ct. 1563, 1569 (1960)).

This case does not present a classic taking in which the

government directly appropriates private property for its own use.

See Eastern Enterprises, 524 U.S. at 522. Rather, the alleged

taking arises from an economic regulation -- a “public program

adjusting the benefits and burdens of economic life to promote the

common good.” Id., citing Penn Central Transp. Co. v. New York

City, 438 U.S. 104, 124, 98 S.Ct. 2646, 2659 (1978). The inquiry

into a challenged regulation’s constitutionality involves an

evaluation of the “justice and fairness” of the government action.

Id. at 523. Although this inquiry involves no set formula and is

necessarily ad hoc and fact intensive, the Supreme Court has

identified three factors of “particular significance” to a

regulatory takings clause analysis: (1) the economic impact of the

regulation on the claimant; (2) the extent to which the regulation

has interfered with reasonable investment-backed expectations; and

(3) the character of the government action. Id. at 523,24, citing

Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 224-25,

106 S.Ct. 1018, 1026 (1986).

It must be acknowledged that a plaintiff bears a

substantial burden in proving that government action inflicts an

8
unconstitutional taking. See United States v. Sperry Corp., 493

U.S. 52, 60 (1989). Further, the complexity of the issue manifests

itself in the variety of relevant Supreme Court decisions. See,

e.g., Eastern Enterprises, 524 U.S. at 541-42 (KENNEDY, J.,

concurring in the judgment and dissenting in part and citing

numerous cases). Nevertheless, a review of the justice and

fairness of Act 188 in light of the three listed factors leads to

the same conclusion reached by the magistrate judge: as applied to

the plaintiffs’ insurance contracts entered into before the law’s

effective date, Act 188 unconstitutionally takes the plaintiffs’

property without just compensation.8

A. Economic Impact

In examining the economic impact of Act 188, not only the

financial burden it imposes but also the proportionality between

that burden and the insurers’ experience with the SIF must be

considered. See Eastern Enterprises, 524 U.S. at 530.

Additionally relevant are any parts of Act 188 by which plaintiffs

can “moderate and mitigate” the economic impact. Id., 524 U.S. at

527.

There is no doubt that Act 188 imposes a considerable,

novel financial burden on the plaintiffs. Under the SIF funding

scheme established by the 1974 Act, insurers paid a net amount of

8
Because we invalidate Act 188 as applied to plaintiffs
under the Takings Clause, we will pretermit and express no opinion
on the plaintiffs’ Contract Clause claim.

9
zero for claims made on the Second Injury Fund and collected SIF

premiums from their insureds only to pass-through the SIF

assessments. In contrast, Act 188 charges insurers based on

benefits paid under insurance policies written before the law’s

effective date, and it affords these plaintiffs no means to recoup

the charge. Insurers that have maintained a substantial presence

in the Louisiana market can still pass the cost of these

assessments to their insureds. But plaintiff insurers that have

discontinued writing policies in Louisiana charge no ongoing

premiums in the State through which the assessments can be passed.

Likewise, plaintiff insurers that have substantially reduced their

volume of business cannot, as a practical matter, pass the

assessments through to employers; their reduced premium base would

require uncompetitively high rates that would drive them out of the

market.9 The magistrate judge found that Act 188 cost the

plaintiffs $5 million in 1995, and plaintiffs themselves estimate

without contradiction that Act 188 will cost them $45 million in

the future. These sums represent a substantial liability. See

Eastern Enterprises, 524 U.S. at 529-32 (finding a substantial

economic impact where the plaintiff had been assessed $5 million in

one year and faced even greater future liabilities).

9
These plaintiffs’ evidence that they would have to raise
rates to noncompetitive levels to pass on the costs of the new
assessments went uncontradicted by defendants.

10
 The defendants contend, however, that plaintiffs have

suffered no negative impact because plaintiffs in 1995 received a

total reimbursement benefit of over six million dollars thanks to

Act 188. This is specious. The reimbursement touted by defendants

did not cover the assessments now paid by the plaintiff insurers.

Even after the passage of Act 188, insurers or self-insured

employers continue to be reimbursed by the SIF for the benefits

they have paid to reinjured workers. The fundamental structure of

the SIF has not been altered, but the imposition of part of its

cost upon insurers without opportunity for pass-through is new.

In essence, the State of Louisiana is the troll under the

bridge, extracting money from businesses whose sole activity is

sending money into the state. This amounts to a transfer of

plaintiffs’ assets to the state or to third parties for public use.

The newly-created liability reflects no proportionality

to the plaintiffs’ experience with the SIF. For over twenty years

before Act 188, plaintiffs were an intermediary for the SIF. They

collected assessments from employers and received SIF reimbursement

for payment of second injury benefits. They received no net

benefits and incurred no net costs. Defendants do not argue that

the policy and purpose of the SIF have changed since its inception

in 1974. But under Act 188, plaintiffs must make significant net

contributions to the fund. Act 188 thus imposes costs on parties

that never profited from the SIF.

11
 Defendants argue that the plaintiffs are still receiving

SIF reimbursement even though, if Act 188 is invalidated, they

would no longer be paying assessments to SIF. Again, defendants

ignore that, under both the 1974 and 1988 Acts, entitlement to

reimbursement arises from payment of second injury benefits, not

from assessments. The purpose of the SIF program has consistently

been to remove the direct cost of serial injuries from the risk-

adjusted insurance market and to replace it by pay-as-you go

funding. Even the insurers that no longer do business in Louisiana

incur no windfall from this program, as they receive no net profit

from SIF reimbursements and never in the past collected premiums

for the risk of second injuries.

Defendants also fail to show that plaintiffs could have

mitigated or moderated the impact of Act 188. Act 188 offered no

gradual phase-in period. If plaintiffs refuse to pay the

assessments, they are subject to substantial penalties, including

a civil penalty equal to 20 percent of the amount assessed but

unpaid. Though defendants suggest that plaintiffs could choose to

write more workers’ compensation policies in the state, the

mitigating measures must be found in the challenged regulation

itself. See Connolly, 475 U.S. at 226 (finding that the challenged

statute itself contained provisions by which the plaintiff could

mitigate liability).

12
B. Interference with Reasonable Investment-Backed Expectations

Retroactivity is generally disfavored in the law. See

Eastern Enterprises, 524 U.S. at 532, 118 S.Ct. at 2131 (citing

Bowen v. Georgetown Univ. Hospital, 488 U.S. 204, 208, 109 S.Ct.

468, 469-70 (1988)). Retroactive legislation, as opposed to the

prospective kind, can present more severe problems of unfairness

because it can upset legitimate expectations and settled

transactions. See General Motors Corp. v. Romein, 503 U.S. 181,

191, 112 S.Ct. 1105, 1112 (1992).

The magistrate judge found that Act 188's retroactive

application reached back at least twenty years to upset the

plaintiffs’ reliance on the cost-neutrality of the 1974 funding

scheme. We agree.10

Defendants do not dispute the extent of the reach-back.

Instead, they assert that the companies’ alleged economic

expectations are unreasonable because the insurance industry is

heavily regulated and because the plaintiffs knew of the SIF’s need

for annual funding and knew that benefits-based assessments are

prescribed in many other states.

None of these factors -- extensive regulation, SIF’s pay-

as-you-go status, or other states’ policies -- made it objectively

10
The district court erred in finding that Act 188 did not
operate retroactively. In changing the assessment formula for
contracts written before its effective date, Act 188 attaches new
legal consequences to past acts. This is the very definition of
retroactivity. See Landgraf v. USI Film Products, 511 U.S. 244,
269 n. 23, 114 S.Ct. 1483, 1499 n. 23 (1994).

13
reasonable to expect that Louisiana would decide to shift the cost

of funding the SIF from in-state employers to insurers who had

withdrawn, wholly or partly, from writing insurance in Louisiana

and who could not recoup the costs of this forced underwriting.

While plaintiffs might have been on notice that there could be a

change away from premium-based assessments, there was no evidence

that the plaintiffs should have suspected abandonment of cost-

neutrality.11 There was no evidence that the cost of financing the

SIF was ever intended to be borne by insurers, that there existed

any rationale or policy for imposing the cost on insurers, or that

the state was contemplating shifting the burden of funding onto

insurers.

And while the majority of states do not use the premium-

based assessment method for their SIF’s, and that method might have

posed certain administrative problems for Louisiana, insurers could

hardly have foreseen the retroactive imposition of a benefits-based

method.

Finally, the mantra that insurance is a regulated

industry will not cover all sins of retroactivity. The coal

11
Indeed, if cost-neutrality is abandoned, Louisiana must
afford insurers some way to recoup the costs of their underwriting
of second injury claims. Otherwise, the state would be requiring
the insurers to bear a burden imposed on no other part of society.
Insurers could then easily decide to withdraw from the state en
masse rather than accept this burden. It is not an accident that
Louisiana thus decided to abandon cost-neutrality only as to a few
insurers who had already substantially abandoned new underwriting
there.

14
industry had been heavily regulated with respect to miners’ health

benefits, but the Supreme Court was not persuaded that the

retroactive liability in Eastern Enterprises could have been

anticipated. See Eastern Enterprises, 524 U.S. at 534-36. Here,

Louisiana’s abandonment of cost-neutrality has shifted onto these

plaintiffs -- for the first time -- costs attributable to the SIF.

Contrary to the state’s contention, the insurers did not have a

stake in the SIF that would justify a reasonable expectation that

they might be required to subsidize it. Insurers are only one tiny

group among the employers who formerly shared the cost of the SIF.

More important, because the fund was cost-neutral to them, they

never received a net benefit from it. Except for reasons of

administrative convenience, the SIF was intended to be a non-

insurance-based compensation program. Regulation of the insurance

business was actually extended in a novel way when Act 188 imposed

non-reimbursable assessments on these plaintiffs.

In short, there was no pattern of conduct on the state’s

part that could have given the plaintiffs sufficient notice that

cost-neutrality would end. See Eastern Enterprises, 524 U.S. at

498 (examining the government’s pattern of involvement in the

regulated field in order to determine whether plaintiff had

sufficient notice of the challenged regulation).

The magistrate judge also found, and we agree, that the

defendants failed to show an adequate justification for the

15
retroactive application of Act 188. There are no indications in

the law itself, in the legislative history, or in the record of

this case that the SIF was financially insecure, or that employers

were having trouble bearing the costs of operating the SIF.

Defendants justified Act 188 by relying on evidence of

administrative difficulties in computing premium-based assessments

for self-insureds, but they do not explain how retroactive

application of Act 188 helps to alleviate this problem.

C. Nature of the Government Action

The district court found that Act 188 was “a rational

attempt by the state to impose the costs inherent in a certain type

of business activity on those who have profited from the fruits of

the business in question.” This characterization, as has been

repeatedly explained, is wrong. Insurers were perhaps the only

party that did not benefit from the 1974 SIF funding scheme.

Employers profited from the creation of the SIF because the costs

of second-injury benefits were spread across all employers.

Workers, especially disabled workers, profited because the SIF made

it cheaper to hire them. The State of Louisiana profited because

the SIF furthered state policy on the employment of disabled

workers. But insurers did not profit from the SIF, though neither

did they suffer any detriment.

The district court also erred in finding that Act 188

provides for “just compensation.” Act 188 does not prohibit

16
insurers from recovering the costs of assessments through the rate-

making process, but the district court overlooked that plaintiffs

cannot avail themselves of the rate-making process. As applied to

the plaintiffs’ pre-enactment contracts, the statute does not

provide “just compensation.”

The nature of the government action here is thus unusual.

Without identifying a compelling problem, such as the financial

insecurity of the SIF, the state enacted a solution that “singles

out certain [parties] to bear a burden that is substantial in

amount, based on the [parties’] conduct far in the past, and

unrelated to any commitment that the [parties] made or to any

injury they caused . . . .” Eastern Enterprises, 524 U.S. at 537.

III. CONCLUSION

A final word is in order about the controlling caselaw.

We have applied principles espoused in a series of Supreme Court

cases, each of which goes out of its way to emphasize the fact-

specific nature of a Takings Clause decision. See, e.g., Eastern

Enterprises, 524 U.S. at 523; Connolly, 475 U.S. at 224. While

Eastern Enterprises seems factually closest to this case -- because

of its long period of retroactivity, the imposition of unforeseen

liability, and application to companies no longer in the market --

its takings clause rationale was accepted by only four justices,

with Justice Kennedy concurring on a due process basis. See

Eastern Enterprises, 524 U.S. at 539 (KENNEDY, J., concurring in the

17
judgment and dissenting in part). Insofar as Justice Kennedy’s

specific dispute with the rest of the majority rested on the extent

to which a regulatory taking must refer to an identifiable property

interest or fund, we believe that dispute would be muted -- or

mooted -- here. The assessments against these plaintiffs arise

from the specific fund of benefits they pay to claimants in

Louisiana each year. Further, the assessments are charged by the

insurers against the fund of reserves set aside from the premiums

collected under specific insurance policies. Otherwise, Justice

Kennedy’s due process analysis focuses on retroactivity and is

essentially harmonious with the reasoning of the other four

justices. See id. at 547-50 (KENNEDY, J., concurring in the

judgment and dissenting in part).

The defendants rely on Connolly v. Pension Benefit

Guaranty Corp., 475 U.S. 211, 106 S.Ct. 1018 (1986), as the

closest-fitting case to this one. In Connolly, however, the Court

noted that employers were continuously aware, during the entire

period of retroactivity, not only that Congress was studying the

funding mechanism for multiemployer pension plans but also that

statutory withdrawal liability might be required. See Connolly,

475 U.S. at 226-27. In addition, the employers in Connolly were

held responsible for pension plans for their employees or employees

subject to multiemployer plans, see id. at 225. These plaintiffs,

having previously been mere conduits for payments from and

18
assessments to the SIF, are uniquely being forced to defray the

cost of the SIF for other people’s employees. Finally, there was

rough proportionality in Connolly between an employer’s assessment

and its experience with the plan to which it had contributed, and

provisions of the retroactive law moderated and mitigated its

potential unfairness. See id. at 225-26. No such proportionality

or mitigation exists in this case.

Act 188 as applied to plaintiffs’ pre-enactment contracts

retroactively imposes a heavy economic burden on those who could

not reasonably anticipate the liability. The extent of the

liability is disproportionate to the plaintiffs’ experience with

the SIF, and the legislation is unnecessary to substantially

advance a legitimate state interest. See Eastern Enterprises, 524

U.S. at 528-29. To this extent, the statute effects an

unconstitutional taking of plaintiffs’ property without just

compensation. The judgment of the district court is REVERSED, and

the case is REMANDED for entry of appropriate injunctive relief.

REVERSED and REMANDED.

19