MCGLINCHEY AND ITS AFTERMATH:
CONSTITUTIONALITY OF PUBLIC ACT 93-77

By: William F. Gallagher and Cynthia C. Bott

I. BACKGROUND

In McGlinchey v. Aetna Casualty & Surety Company, 224 Conn. 133, 617 A.2d 445 (1992) and Hotkowski v. Aetna Life & Casualty Company, 224 Conn. 145, 617 A.2d 451 (1992) the Connecticut Supreme Court interpreted the two year limitations provision in the automobile liability insurance contracts[fn1a] as running from the date of the accident without regard to the coexisting condition precedent provision that all liability policies must be exhausted before underinsured motorist coverage could be claimed. In construing these provisions the court found no ambiguity and held that the contractual limitation period was not tolled until the claimant had a reasonable opportunity to liquidate a claim against the tortfeasor. The decision elicited a strong and unified response from the plaintiff's bar: the decisions were unreasonable in that they created an impossible burden upon an injured victim to present a claim before knowing of its existence. Public Act 93-77, An Act Concerning Uninsured Motorist and Underinsured Motorist Coverage was enacted by the legislature to alleviate the affect of the McGlinchey and Hotkowski decisions on the ability of claimants to pursue underinsured motorist coverage.

Public Act 93-77 consists of the following sections. First, it amends § 38a-290 of the Connecticut General Statutes. Section 38a-290 had provided that "[n]o insurance company doing business in this state shall limit the time within which any suit shall be brought against it or, with respect to subdivision (d) of this section, any claim shall be submitted to arbitration on . . . (d) the uninsured motorist provisions of a motor vehicle insurance policy to a period less than two years from the date of the accident . . ." Subparagraph (d) was deleted in Public Act 93-77 and § 38a-290 amended to state, "This section shall not apply to suits and arbitration claims under the uninsured or underinsured motorist provisions of a motor vehicle insurance policy."

Second, Public Act 93-77 amended § 38a-336 of the Connecticut General Statutes as follows:

No insurance company doing business in this State may limit the time within which any suit may be brought against it or any demand for arbitration on a claim be made on the uninsured or underinsured motorist provisions of a motor vehicle policy to a period of less than three years from the date of the accident, provided, in the case of an underinsured motorist claim the insured may toll any applicable limitation period (1) by notifying such insurer prior to the expiration of the applicable limitation period, in writing, of any claim which the insured may have for underinsured motorist benefits and (2) by commencing suit or demanding arbitration under the terms of the policy not more than 180 days from the date of exhaustion of the limits of liability under all automobile bodily injury liability bonds or automobile insurance policies applicable at the time of the accident by settlements or final judgments after any appeals.

Third, Public Act 93-77 added a savings provision for uninsured and underinsured motorist claims pending on December 8, 1992 or brought after this date and prior to the effective date of the Act in which a settlement has not been reached or a final judgment has not been rendered prior to the effective date of the Act.

Finally, the Act provided that it was effective upon passage.

II. CONSTITUTIONALITY OF PUBLIC ACT 93-77

The constitutionality of Public Act 93-77 already has been attacked. In Aetna Life & Casualty Company v. Marie Braccidiferro, A.C. No. 115,[fn2a] the issue raised by Aetna was whether a claim upon underinsured motorist benefits was barred when made more than two years after the date of the accident which formed the basis of the claim. The case was pending on appeal when the legislature passed Public Act 93-77. On June 1, 1993 the Appellate Court ordered supplemental briefs addressing the effect of Public Act 93-77 on the issues in the case.

In response to the directive of the Appellate Court Aetna argued that the Act was unconstitutional because it violates (1) Article I § 1 of the Connecticut Constitution; (2) Article I § 10 of the United States Constitution; and if the Act was applied retroactively (3) Article I § 10 of the Connecticut Constitution and the Fourteenth Amendment of the United States Constitution. The following discussion will present an overview of arguments that can be articulated in upholding the constitutionality of the Act.

A. Equal Protection Analysis:

Legislative enactments carry a strong presumption of constitutionality. "[A] party challenging the constitutionality of a validly enacted statute bears the heavy burden of proving the statute unconstitutional beyond a reasonable doubt." Beccia v. Waterbury, 192 Conn. 127, 133, 470 A.2d 1202 (1984).

A legislature may afford different treatment for classes of person in its legislation but in order to avoid the constitutional prohibitions established by the equal protection provisions of the United States and Connecticut Constitutions[fn3a] such classification must be reasonable with a fair and substantial relationship to the purpose of the statute. Under what is commonly referred to as the rational basis test, the challenged legislation must rationally promote a legitimate government purpose. See, e.g., Zapata v. Burns, 207 Conn. 496, 505, 542 A.2d 700 (1988); McGowan v. Maryland, 366 U.S. 420, 426 (1961).

Arguably, as a threshold matter, Public Act 93-77 does not create classifications. It is uniform legislation affecting the entire insurance industry and its consumers.

Assuming that Public Act 93-77 does create different classes of person, the enactment of laws, such as Public Act 93-77, that limit "the time within which an action may be brought are the result of a legitimate legislative determination which balances the rights and duties of competing groups." . . ." Ecker v. West Hartford, 205 Conn. 219, 239-240, 530 A.2d 1056 (1987). Public Act 93-77 therefore is presumptively the result of legitimate legislative determination. Moreover, the legislative history indicates that the legislature, in enacting Public Act 93-77, was attempting to address the inequities created by the McGlinchey and Hotkowski decisions, judicial economy and the interaction of § 38a-336(b) and these decisions.

During debate on Public Act 93-77 Representative Radcliffe stated that

the individual under McGlinchey is in a catch 22 situation.

He has to first exhaust the $22,000.00 policy before making an

underinsured motorist claim, but can't do that until his rights

in a court have been determined. That might take more than two

years to do that. What this amendment does is it says, those

limits can be litigated.

(H.R.Proc., 1993 Sess., April 21, 1993, p. 114). Representative Radcliffe also stated as follows:

So this will clear up an ambiguity. It does not prejudice the

rights of any insurance company or litigant for that matter,

and simply tells a party that if you really don't know if you

have an underinsured motorist claim after two years, your

rights are going to be preserved in the event that it's

determined that you do.

(Id. at p. 115). Representative Radcliffe, in describing the problems with the interaction between the McGlinchey decision and § 38a-336(b) of the Connecticut General Statutes addressed concerns of judicial economy:

There are also considerations of judicial economy involved,

because what we're really telling litigants is, you have to

bring a law suit against the original responsible party, the

tortfeasor or the underlying policy and then before the two

years has elapsed under the contract, you may have to bring an

underinsured motorist claim before you even know whether that

claim exists because you haven't exhausted the first policy.

(Id. at p. 115).

These considerations of the problems created by the interaction between the McGlinchey and Hotkowski decisions and § 38a-336(b) of the General Statutes, and of judicial economy demonstrate a legitimate legislative purpose. The treatment afforded the insurers and their consumers is reasonable and rationally related to the purpose of the Act.

Nor does Public Act 93-77 create exclusive public emoluments or privileges that would be violative of Article I § 10 of the Connecticut Constitution.[fn4a]

[N]o enactment creating a preference can withstand

constitutional attack if the sole objective of the general

assembly is to grant personal gain or advantage to an

individual. Its validity is contingent, at least in part, upon

its furthering a public purpose; if enacted with that end in

view, legislation can be sustained even though it may

incidentally confer a direct benefit upon an individual or a

class.

State ex rel. Higgins v. Civil Service Commission, 139 Conn. 102, 106, 90 A.2d 862 (1952) (emphasis added, citations omitted).

Public Act 93-77 was not intended, as its sole objective, to grant personal gain or advantage to an individual. It is uniform legislation with a legitimate public purpose that affects the entire insurance industry and its consumers. The fact that it possibly has an incidental effect of benefitting a claimant does not render the Act unconstitutional.

B. Contract Clause Analysis:

Article I § 10 of the United States Constitution provides in pertinent part: "No State shall . . . pass any . . . law impairing the obligation of contracts . . ." This prohibition is not absolute but "must be accommodated to the inherent police power of the State . . ." Energy Reserves Group, Inc. v. Kansas Power & Light Company, 459 U.S. 400, 410, 103 S.Ct. 697, 74 L.Ed.2d 569 (1983).

In determining whether Public Act 93-77 violates the Contract Clause "the first inquiry must be whether the State law has, in fact, operated as a substantial impairment of the contractual relationship." Allied Structural Steel Company v. Spannaus, 438 U.S. 234, 244, 98 S.Ct. 2716, 57 L.Ed.2d 727 rehearing denied, 439 U.S. 886, 99 S.Ct. 233, 58 L.Ed.2d 201 (1978). "Factors to be weighed are the severity of the impairment, the extent to which it frustrates a party's reasonable contractual expectations and the extent to which the subject matter of the impairment has been regulated in the past." Schieffelin & Co. v. Department of Liquor Control, 194 Conn. 165, 178, 479 A.2d 1191 (1987). "Minimal alteration of contractual obligations may end the inquiry at its first stage." Spannaus, 438 U.S. at 245, 98 S.Ct. at 2723. "If, however, the impairment is severe, the legislation will be subjected to an increased level of scrutiny." Schieffelin & Co., 194 Conn. at 178. "If one buys into an enterprise already regulated in the particular to which he now objects, he buys subject to further legislation upon the same topic." Spannaus, 438 U.S. at 242, 98 S.Ct. at 2721; Schieffelin & Co., 194 Conn. at 178.

In weighing these factors, Public Act 93-77 does not constitute a substantial impairment of a contractual relationship. First, with regard to the severity of an impairment, parties to contracts containing exhaustion provisions and a two year limit within which to bring an action have long held divergent views on the correct interpretation of these conflicting condition precedent provisions. For the first time in McGlinchey and Hotkowski, the Supreme Court ruled that these provisions were not ambiguous and that the two year period was not tolled until the tortfeasor's underlying coverage had been exhausted. A modification by legislation (Public Act 93-77) to the McGlinchey resolution of these conflicting provisions cannot be viewed as anything more than a minimal impairment of contractual obligations.

Second, the insured reasonably expected that she was entitled to underinsured motorist benefits once the underlying tortfeasor's coverage had been exhausted. She paid a premium for underinsured motorist benefits yet coverage would be illusory under the circumstances if she were denied benefits because of a two year limitation period that would be impossible for her to meet when the condition precedent of exhaustion could not be met within that time period.

Finally, the insurance industry is heavily regulated and insurance contracts must be consistent with the insurance statutory and regulatory scheme of Connecticut. Uninsured and underinsured provisions are incorporated into all automobile liability insurance contracts. Lane v. Aetna Casualty & Surety Company, 203 Conn. 258, 265, 524 A.2d 616 (1987). When entering into the contract the insurer must have realized that it was subject to further legislation on this topic. Spannaus, 438 U.S. at 242, 98 S.Ct. at 2721; Schieffelin & Co., 194 Conn. at 178. Regulation of the insurance industry made it reasonably foreseeable that the issues of a limitations period and exhaustion requirements in uninsured and underinsured motorist coverage statutes could be subject to further legislation.

The reasonable expectations of claimants are not impaired by Public Act 93-77. In weighing the factors enunciated by the Spannaus and the Schieffelin & Co. courts, supra, Public Act 93-77 does not constitute a substantial impairment of the parties' obligations. Therefore it does not violate the Contract Clause of the United States Constitution.

Nevertheless even if a substantial impairment of a contractual relationship was found by a court, Public Act 93-77 would still pass constitutional muster: The legislature had a legitimate public purpose in providing reasonable and fair guidelines for initiating uninsured and underinsured motorist actions and in limiting the effect of the McGlinchey and Hotkowski decisions on the already overloaded judicial system. See, United States Trust Co. v. New Jersey, 431 U.S. 1, 22, 97 S.Ct. 1505, 52 L.Ed.2d 92, reh. denied, 431 U.S. 975, 97 S.Ct. 2942, 53 L.Ed.2d 1073 (1977). A regulation need not be concerned with an emergency or temporary situation to have a significant and legitimate public purpose behind it which will overcome constitutional deficiencies. See, Energy Reserves Group, Inc., 459 U.S. at 412, 103 S.Ct. at 705 (since its decision in Home Building and Loan Association v. Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78 L.Ed.2d 413 (1934) the United States Supreme Court has indicated that the public purpose need not be addressed to an emergency or temporary situation). Moreover, the state may prohibit the continuance in the future of "those things already in existence which are deemed injurious to the rights and interests of its citizens so as to justify such an exercise of the power whether the continuance of the things is provided for by contract or not." Elida Inc. v. Harmon Realty Corporation, 177 Conn. 218, 224, 413 A.2d 1226 (1979), quoting Union Dry Goods Company v. Georgia Public Service Corporation, 248 U.S. 372, 377, 39 S.Ct. 117, 63 L.Ed. 309 (1979). Public Act 93-77 addresses legitimate and significant governmental purposes that are within the police power of the state.

Should a court find a substantial impairment of contractual relationships, the legitimate and significant public purpose for such an impairment must be accomplished by means that are appropriate to the legislative purpose. See, Energy Reserves Group Inc., 459 U.S. 412, 103 S.Ct. at 705. This is the "final factor in the contracts clause equation . . ." Schieffelin & Co., 194 Conn. at 184. Public Act 93-77 was a prompt response to the conflict between the McGlinchey and Hotkowski decisions and Connecticut General Statute § 38a-336(b). The means chosen to implement public policy were appropriate. "When considering this aspect of the constitutional problem, . . . courts properly defer in large measure to the legislative judgment as to the necessity and reasonableness of a particular measure." Id.; see also, Energy Reserves Group, Inc., 459 U.S. at 412, 103 S.Ct. at 705. The legislative history demonstrates the view of the legislature that Public Act 93-77 was necessary and reasonable. Public Act 93-77 clarified the requirements concerning notice and limitation periods for uninsured and underinsured motorist insurance actions; protected the reasonable expectations of the consumers of automobile insurance; and served to reduce the judicial workload of the state. The means employed by the legislature to accomplish these objectives were reasonable and appropriate to the legislative purpose.

C. Retroactive Application of Public Act 93-77:

Due Process Analysis:

"The general rule is that laws are to be interpreted as operating prospectively and considered as furnishing a rule for future cases only, unless they contain language unequivocally and certainly embracing past transactions." Massa v. Nastri 125 Conn. 144, 146-147, 3 A.2d 839 (1939). The savings clause contained in § 3 of Public Act 93-77 states that it applies to any "uninsured or underinsured motorist claim or action pending on December 8, 1992, or brought after said date and prior to the effective date of this Act . . ." This language is clear and unequivocal. Due to the intent of the legislature as expressed in this language Public Act 93-77 may be applied retroactively.

The issue then becomes whether the retroactive application of Public Act 93-77 runs afoul of the constitutional guarantees afforded by Article I § 10 of the Connecticut Constitution[fn5a] and the Fourteenth Amendment of the United States Constitution[fn6] by divesting the insurer of substantive rights without due process of law. An insurance company will argue that an underinsured motorist policy providing that written demand for arbitration be brought within two years of the date of the accident is a vested right and that Public Act 93-77 imposes new obligations which violate its due process rights.

Public Act 93-77 should not be subject to constitutional scrutiny since it authorizes a contractual reduction of the six year statute of limitations for contracts to a period of three years and is thus a purely procedural provision which effects the remedy rather than the substantive rights of the parties. "In civil cases, . . . unless considerations of good sense and justice dictate otherwise, it is presumed that procedural statutes have been traditionally viewed as affecting remedies, not substantive rights, and therefore leave the pre-existing scheme intact." Miller v. Kirshner, 225 Conn. 185, 203, ___ A.2d ___ (1993).

In Miller, the defendant claimed that the trial court, by improperly applying § 46-160, as amended by Public Act 89-360, to hold the defendant liable for past child support from the date of the child's birth rather than from three years preceding the granting of the paternity petition, made him liable for an additional two and a half years of past child support and thus affected his substantive rights. The court held that Public Act 89-360

[D]id not create the right of a mother to receive support for a

child born out of wedlock; it merely expanded the period of

time for which such support could be received. The amendment to

§ 46b-160, therefore, was not directed to the right itself, but

to the remedy. This type of amendment is generally a distinctly

procedural matter.

Id. at 203-04. The defendant in Miller argued that the amendment created new monetary liability and therefore affected his substantive rights. Id.

However, just as Public Act 89-360 in Miller did not unconstitutionally divest the defendant of substantive rights without due process of law, Public Act 93-77 does not unconstitutionally divest an insurance company of its substantive rights without due process of law. Public Act 93-77 merely expanded the period of time for which an insured could bring an arbitration action against the insurer for uninsured motorist benefits. It did not create the right of the insured to the benefits. Prior to Public Act 93-77, Section 38a-290 was merely an authorization by the legislature for insurance companies to reduce the six year statute of limitations normally applied to contract actions to two years for claims submitted to arbitration on uninsured motorist provisions of a automobile insurance policy. Public Act 93-77 is a modification of that authorization to a three year limitation period. There is no basis to treat the statutorily authorized limitation period contained in the insurance policy differently than the statute of limitations for contract claims, or, for that matter, any statute of limitations.

The statutorily authorized reduction of the limitations period contained in § 38a-290 and Public Act 93-77 operates as a procedural limitation on available remedies rather than a substantive limitation on the rights conferred by statute. A statute of limitations has been defined as follows:

A statute prescribing limitations to the right of action on

certain described causes of action . . . that is, declaring

that no suit shall be maintained on such causes of action . . .

unless brought within a specified period of time after the

right accrued. Statutes of limitation are statutes of repose,

and are such legislative enactments as prescribe the periods

within which actions may be brought upon certain claims or

within which certain rights may be enforced.

Bridgeport v. Debek, 210 Conn. 175, 184, 554 A.2d 728 (1989) quoting Black's Law Dictionary (5th ed. 1979). Although § 38a-290 and Public Act 93-77 do not prescribe a specific time limitation, they do statutorily authorize a minimum time limitation and, as such, should be treated no differently than any other procedural statute of limitations.

A statute of limitations is generally considered to be

procedural, especially where the statute contains only a

limitation as to time with respect to a right of action and

does not itself create the right of action. This is so because

it is considered that the limitation merely acts as a bar to a

remedy otherwise available . . . Where, however, a specific

limitation is contained in the statute that creates the right

of action and establishes the remedy . . . the statute of

limitations is considered substantive . . . rather than

procedural . . .

Moore v. McNamara, 201 Conn. 16, 22-23, 513 A.2d 660 (1986) (citations omitted).

Public Act 93-77 contains only a limitation as to time with respect to a right of action and does not create the right of action. If the procedural limitation period is removed, the right of action still exists in § 38a-336. Thus, the statute authorizing a reduction of the statute of limitations is procedural and remedial, not directed to substantive rights, and can be applied retroactively without divesting an insurer of a substantive right without due process of law. Miller v. Kirshner, 225 Conn. at 203-204. The fact that an insurance company may no longer have the ability to bar a claim for arbitration is merely an incident of the procedural modification imposed by Public Act 93-77. The Act does not create new liability.