Brennan v. Kansas Ins. Guaranty Ass’n.

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IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 102,308
JOHN M. BRENNAN,
Appellee,

v.

KANSAS INSURANCE GUARANTY ASSOCIATION,
Appellant.


SYLLABUS BY THE COURT

1.
One stated purpose of the Kansas Insurance Guaranty Association Act, K.S.A. 40-
2901 et seq., is to avoid financial loss to claimants and policyholders due to insurance
company insolvencies.

2.
The Kansas Insurance Guaranty Association is obligated to pay covered claims
existing prior to the determination of an insurer's insolvency and any other claims arising
within 30 days of that determination.

3.
The Kansas Insurance Guaranty Association Act was designed to put claimants
and policyholders in the same position they would have occupied had the policyholders'
insurance company remained solvent.



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4.
K.S.A. 2010 Supp. 40-2910 requires claimants seeking coverage from the Kansas
Insurance Guaranty Association to first exhaust other available insurance claims.

5.
As originally enacted, the Kansas Insurance Guaranty Association Act did not
require a claimant to first offset amounts paid or payable under a health insurance policy
in determining liability to claimants. An amendment made in 2005 changed the original
statute to broaden the offset provisions and was not intended to simply clarify them.

6.
Courts considering the constitutionality of a statutory amendment expressly
requiring retroactive application must decide whether the amendment's retroactivity will
affect vested rights, thereby violating due process.

7.
When determining whether a statutory amendment affects a vested right, courts
consider: (a) the nature of the right at stake; (b) how the right was affected; and (c) the
nature and strength of the public interest furthered by the legislation. The nature of the
right at stake by itself is not determinative. It must be considered in light of the other
factors.

8.
Under the facts of this case, the retroactivity provision in K.S.A. 2010 Supp. 40-
2910(a) adversely impacted a claimant's vested rights under the Kansas Insurance
Guaranty Association Act by requiring an offset for health care benefits paid on that
claimant's behalf. The retroactivity provision violated that claimant's due process rights.

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9.
Whether a court may sever an unconstitutional provision from a statute while
leaving the remainder in force and effect depends on the legislature's intent. If after
examining the statute a court can determine the act would have passed without the
objectionable portion and operate effectively to carry out the legislature's intent with the
portion stricken, the remainder of the valid law will stand.

Appeal from Reno District Court; RICHARD J. ROME, judge. Opinion filed October 21, 2011.
Affirmed.

David A. Hanson, of Glenn, Cornish, Hanson & Karns, Chartered, of Topeka, argued the cause
and was on the brief for appellant.

Derek S. Casey, of Prochaska, Giroux & Howell, of Wichita, argued the cause, and James R.
Howell, of the same firm, was with him on the briefs for appellee.

The opinion of the court was delivered by

BILES, J.: This appeal arises from a medical malpractice lawsuit. John M. Brennan
sued his physician, who had a $200,000 professional liability insurance policy. The
insurer was declared insolvent after Brennan filed his claim but before he recovered. The
Kansas Insurance Guaranty Association (KIGA) is a statutorily created entity that
substitutes some coverage for certain claims against insolvent insurers. KIGA denied
liability because Brennan received medical reimbursements from his personal health
insurance policy that totaled more than the insolvent insurer's policy limits.

The dispositive issue is whether Brennan's due process rights were violated by a
retroactive statutory amendment permitting KIGA to offset Brennan's personal health
insurance benefits against its liability on the insolvent insurer's policy. The district court
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declared the statute's retroactive feature unconstitutional. As explained below, we agree
that Brennan's due process rights were violated and find the statute may not be
retroactively applied.

FACTUAL AND PROCEDURAL BACKGROUND

The facts are undisputed. In 2000, Brennan sued Jeff Thode, M.D., for medical
malpractice, seeking $2.5 million in damages for injuries sustained during a 1999
treatment. At that time, Dr. Thode's primary professional liability insurer was PHICO
Insurance Company. That policy secured $200,000 in coverage. In addition, Dr. Thode
carried $800,000 in secondary liability coverage with the Kansas Healthcare Stabilization
Fund. The offset controversy arises because Brennan had his own health care insurance
policy, which covered injuries caused by others. That policy paid $500,000 for treatments
related to the injuries Brennan claimed from Dr. Thode's negligence.

In 2002, a Pennsylvania court declared PHICO insolvent, placing the company
into liquidation. It is uncontested that PHICO's insolvency triggered KIGA's statutory
obligation to cover the insurer's obligations to the extent provided by the Kansas
Insurance Guaranty Association Act (Guaranty Act), K.S.A. 40-2901 et seq. But in 2005,
while Brennan's lawsuit against Dr. Thode remained pending, the legislature revised the
Guaranty Act to expressly authorize KIGA to offset the association's liability with
amounts paid by a claimant's medical insurance. The legislation retroactively applied that
offset provision to all claims pending, but not yet paid, effective April 14, 2005. L. 2005,
ch. 92, sec. 4 ("The provisions of this section, as amended, shall apply to all claims which
have not been paid prior to the effective date of this act.").

In September 2005, a settlement agreement was approved in Brennan's litigation
against Dr. Thode, which dismissed Brennan's claim with prejudice in exchange for an
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undisclosed payment by the Healthcare Stabilization Fund. But the agreement did not
resolve the question about KIGA's ability to offset payments made by Brennan's health
care policy. The district court retained jurisdiction over the $200,000 policy issued by
PHICO. To facilitate a resolution to that dispute, Brennan and KIGA stipulated they
would not raise procedural defenses or require Brennan to establish evidence of liability
or damages.

For reasons not clear in the record, KIGA did not formally intervene in Brennan's
case until 2007. Both parties then filed cross-motions for summary judgment seeking a
declaratory judgment on whether KIGA was obligated as a matter of law to pay Brennan
for PHICO's $200,000 policy. There were no issues of material fact.

In summary, the parties disputed whether the amendment changed the law or
clarified it. KIGA argued the 2005 amendment did not change the law and KIGA had
always been entitled under the preamended Act to offset the $500,000 paid by Brennan's
health care policy against KIGA's liability on the insolvent malpractice policy. Brennan,
on the other hand, argued KIGA was not entitled to the offset under the preamended
statute and was statutorily obligated to pay the $200,000 from the moment PHICO was
declared insolvent. Any retroactive application of the 2005 amendment, Brennan
contended, violated his due process rights. He also made an equal protection argument,
claiming the amended statute treated insured and uninsured claimants differently without
a rational basis for the distinction.

The district court agreed with Brennan on both due process and equal protection
grounds and declared application of the revised statute unconstitutional. The district court
found the 2005 amendment substantively changed the prior law by giving KIGA a right
to offset its obligation with Brennan's medical insurance benefits that did not exist under
the original Guaranty Act. The court held that retroactive application of the 2005 revision
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violated due process. It also held there was no rational basis to treat claimants with
insurance differently than those without insurance when determining whether KIGA was
liable for the insolvent insurer's policy.

The district court entered judgment against KIGA for $200,000. KIGA filed a
timely notice of appeal. Jurisdiction is proper under K.S.A. 60-2101(b) (civil statute held
unconstitutional).

ANALYSIS

Standard of Review

Determining a statute's constitutionality is a question of law subject to unlimited
review. But under the separation of powers doctrine, this court presumes statutes are
constitutional and resolves all doubts in favor of a statute's validity. Courts must interpret
a statute in a way that makes it constitutional if there is any reasonable construction that
would maintain the legislature's apparent intent. State v. Laturner, 289 Kan. 727, 735,
218 P.3d 23 (2009).

A statute's interpretation also is a question of law subject to unlimited review. The
legislature's intent governs if it can be ascertained. The first step is to decide whether the
legislature's intent may be determined from the statute's plain language, giving ordinary
words their ordinary meaning. If the legislature's intent is not clear from the statutory
language, a court moves to the second analytical step by applying the canons of
construction or examining legislative history. Double M Constr. v. Kansas Corporation
Comm'n, 288 Kan. 268, 271-72, 202 P.3d 7 (2009).

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In order to reach the merits, we will review the following: (1) the Guaranty Act
and the 2005 amendment at the heart of this controversy; (2) whether the 2005
amendment had retroactive application; (3) whether the 2005 amendment affected
Brennan's vested rights; and (4) remedy. We do not address the district court's equal
protection ruling because our decision on the due process claim renders that exercise
moot.

Overview of the Guaranty Act and 2005 Amendment

The Guaranty Act, K.S.A. 40-2901 et seq., was adopted in 1970. L. 1970, ch. 185,
secs. 1-19. Its stated purpose is

"to provide a mechanism for the payment of covered claims under certain insurance
policies, to avoid excessive delay in payment and to avoid financial loss to claimants or
policyholders because of the insolvency of an insurer, to assist in the detection and
prevention of insurer insolvencies, and to provide an association to assess the cost of such
protection among insurers." K.S.A. 40-2901.

This purpose guides any interpretation of the Guaranty Act, and it is to be liberally
construed to effect these stated purposes. K.S.A. 40-2901. The Act applies to property
and casualty insurance, including the professional liability/medical malpractice insurance
at issue in this case. K.S.A. 40-2902; K.S.A. 40-1102. It was based on the National
Association of Insurance Commissioners' widely adopted Post-Assessment Property &
Liability Insurance Guaranty Model Act. See Hetzel v. Clarkin, 244 Kan. 698, 701, 772
P.2d 800 (1989). The Guaranty Act establishes KIGA as a nonprofit unincorporated legal
entity whose membership statutorily comprises all insurers authorized to write insurance
covered by the Guaranty Act. K.S.A. 40-2904. KIGA assesses annual fees against
member insurers to pay its obligations. The assessment is based on a percentage of
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insurer premiums. K.S.A. 40-2906(a)(3). KIGA uses the money it receives to cover
claims against insolvent insurance companies.

Two specific statutorily imposed duties arise once an insurer is determined to be
insolvent. First, KIGA is deemed the insurer to the extent of its statutory obligation on
the covered claims and has all rights, duties, and obligations of the insolvent insurer as if
the insurer had not become insolvent. K.S.A. 40-2906(a)(2). Second, KIGA is obligated
to pay covered claims existing prior to the insolvency determination and any other claims
arising within 30 days after that determination. K.S.A. 40-2906(a)(1). In cases other than
workers compensation, KIGA's obligation is limited to the face amount of the insolvent
insurer's policy, up to a $300,000 cap. K.S.A. 40-2906(a)(1).

But the Guaranty Act has always limited KIGA's obligations by requiring
claimants seeking coverage from KIGA to first exhaust (offset) any rights under certain
other available insurance claims. K.S.A. 40-2910. This is sometimes referred to as a
"nonduplication of recovery" provision. See Hetzel, 244 Kan. at 702. Those exhaustion
requirements were amended in 2005. L. 2005, ch. 92, sec. 4. The effect of that
amendment, if any, is the subject of this dispute. Therefore, a review of both the original
and amended statute is required because the success of Brennan's due process argument
hinges on whether the 2005 amendment changed KIGA's obligation to Brennan after
PHICO became insolvent. The statute in effect at the time PHICO was declared insolvent
stated:

"Any person having a claim against an insurer under any provision in an
insurance policy other than a policy of an insolvent insurer which is also a covered claim
shall be required to exhaust first his right under such policy. Any amount payable on a
covered claim under this act shall be reduced by the amount of any recovery under such
insurance policy." K.S.A. 40-2910(a).

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At that time, the Act defined "covered claim" as

"an unpaid claim, including one for unearned premiums, which arises out of and is within
the coverage and not in excess of the applicable limits of an insurance policy to which
this act applies issued by an insurer, if such insurer becomes an insolvent insurer after the
effective date of this act and (1) the claimant or insured is a resident of this state at the
time of the insured event; or (2) the property from which the claim arises is permanently
located in this state. 'Covered claim' shall not include any amount due any reinsurer,
insurer, insurance pool or underwriting association, as subrogation recoveries or
otherwise." K.S.A. 40-2903(c).

In 2005, the italicized language below was added to explicitly offset benefits from
health insurance policies. L. 2005, ch. 92, sec. 4. It states:

"Any person having a claim against an insurer under any provision in an
insurance policy other than a policy of an insolvent insurer which is also a covered claim
shall be required to exhaust first his right under such policy. A claim under an insurance
policy shall include a claim under any kind of insurance, whether such claim is a first
party or third party claim, and shall include, without limitation, accident and health
insurance, workers' compensation, Blue Cross and Blue Shield and all other coverages
except for policies of an insolvent insurer. Any amount payable on a covered claim under
this act shall be reduced by the amount of any recovery under such other insurance
policy." (Emphasis added.) K.S.A. 2010 Supp. 40-2910(a).

The parties concede that if PHICO's insolvency had occurred after the 2005
amendment became law, the offset in controversy here would not present a due process
issue under the plain language of the amended statute. But since those are not our facts,
we must next determine whether the legislature could reach back and reduce or eliminate
KIGA's liability for pending claims with this statutory amendment.

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Retroactive Application of the 2005 Amendment

To comply with due process requirements, retroactive legislation cannot abolish a
vested right. See Resolution Trust Corp. v. Fleischer, 257 Kan. 360, 365, 892 P.2d 497
(1995). To decide whether the 2005 amendment's retroactive application violates
Brennan's due process rights by extinguishing a vested right, we must first determine
whether KIGA was entitled to offset its liability with Brennan's health insurance under
the original statute. If the law did not change, Brennan's due process claim fails. But if we
determine that the amendment changed KIGA's obligations from what it was at the time
of PHICO's insolvency, we must then determine whether Brennan's right to payment
vested prior to the statutory change.

Brennan argues KIGA could not offset amounts paid or payable under a health
insurance policy under the provision in effect at the time PHICO became insolvent. He
contends the exhaustion requirement in place at that time was intended to keep the
claimant in the same position he or she would have occupied absent the insurance
company's insolvency. KIGA argues the statute always entitled it to offset health care
policy payments and the 2005 amendments merely clarified this then-existing right, citing
this court's decision in Hetzel to support that interpretation. KIGA also argues the
Guaranty Act's purpose is limited to providing a safety net to protect the insured against
insolvencies, so limitations on a claimant's recovery properly prevent duplicate recovery
and maintain the Act's continued viability. To resolve these conflicting positions, we
examine below the statute's explicit purpose and plain language, how other jurisdictions
have viewed the same or similar statutory language, and whether the legislature
expressed its original intent when it amended the law in 2005.



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(a) Statutory Purpose

We turn first to the statute's explicit language. The original K.S.A. 40-2910
provisions required exhaustion when "[a]ny person [has] a claim against an insurer under
any provision in an insurance policy other than a policy of an insolvent insurer which is
also a covered claim." On its face, this language cannot mean what it explicitly says
because the exhaustion requirement would apply to any "claim against an insurer" even in
unrelated circumstances. For example, if Brennan had pending an automobile liability
claim for damage to his car against an unrelated insurer, this statute on its face would
require that KIGA receive an offset for the automobile claim before paying on the
insolvent PHICO policy. KIGA concedes in its briefs and during oral argument that this
is not permitted. But this example illustrates why the statute lacks the clarity KIGA
contends exists. Indeed, courts across the country are in conflict about what the offset
provision means.

Our court first noted this conflict among jurisdictions in Hetzel, in which we
observed that various states adopted identical language from the model act, but differing
judicial interpretations existed. 244 Kan. at 702. After describing some of those
differences, we relied upon the Kansas statute's legislative history to determine that
KIGA could offset payments made under a claimant's uninsured motorist coverage.
Hetzel, 244 Kan. at 701. In doing so, this court found the statutory language ambiguous.
As such, we will continue to employ statutory construction rules and the statute's
legislative history to determine the intent of the legislature and resolve Brennan's claim.

The Guaranty Act specifically states it should be construed to effect its stated
purposes. Two of those purposes are related to this claim: (1) to provide a means for
paying covered claims under certain insurance policies; and (2) to avoid excessive delay
in payment and to avoid financial loss to claimants or policyholders because of an
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insurer's insolvency. K.S.A. 40-2901. In Hetzel, this court adopted the statement of
purpose identified in an Illinois decision, Lucas v. Illinois Ins. Guaranty Fund, 52 Ill.
App. 3d 237, 367 N.E.2d 469 (1977). Hetzel, 244 Kan. at 703-04. It held:

"'The statutory purpose is to place claimants in the same position that they would have
been in if the liability insurer had not become insolvent. [Citation omitted.] The Act
states that the Fund is intended to protect claimants against financial loss because of the
insolvency of insurance companies. The difference between the amount of the insolvent
insurer's policy limits and the amount paid to claimant by his own insurer is made up by
the Fund. To permit a greater recovery than would have occurred had the insurance
company remained solvent would both extend the Act beyond its purpose and offend
public policy by giving the Act an interpretation which results in a windfall judgment.'"
244 Kan. at 704 (quoting Lucas, 52 Ill. App. 3d at 239).

In Hetzel, the plaintiff sued Charles Clarkin, claiming $750,000 in damages from a
car accident. Clarkin had a $50,000 automobile insurance policy, but his insurer was
insolvent. For her part, Hetzel had a $5,000 personal injury protection (PIP) policy and a
$30,000 uninsured motorist policy. She settled with her uninsured motorist insurer for
$25,000. She then claimed this settlement exhausted her uninsured motorist policy
because that policy allowed her insurer to deduct the amount paid on the PIP policy.
Clarkin moved to dismiss the suit against him, arguing K.S.A. 40-2910 required a
claimant to first exhaust any right under other covered claims. And since Hetzel failed to
fully exhaust her uninsured motorist benefits, Clarkin argued KIGA had no obligation to
pay. This argument assumed Hetzel's uninsured motorist coverage had a $30,000 policy
limit and that limit was not reduced by the $5,000 PIP policy. The district court agreed
and dismissed Hetzel's claim. This court affirmed, holding that a claimant must exhaust
his or her own uninsured motorist coverage and that KIGA may offset its liability by the
amount the plaintiff could have recovered, i.e., the policy limits. 244 Kan. at 705-07.

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The Hetzel result is understandable, given the Guaranty Act's stated statutory
purpose when applied to uninsured motorist coverage. In those instances, a claimant
should not be entitled to recover from KIGA under the insolvent insurer's policy and then
use the fact that the insurer was insolvent to make a claim against claimant's own
uninsured motorist coverage. A double recovery would result from the insolvency.

But turning back to Brennan's case, the question is whether Hetzel's analysis
applies to medical insurance benefits recovered from a claimant's own health care policy.
We believe it does not. Looking first to the Guaranty Act's statutory purpose, Hetzel is
easily distinguishable because uninsured motorist benefits are available to the insured
when there is insolvency. In other words, had Clarkin's automobile insurer remained
solvent, Hetzel would not have had a claim against her uninsured motorist policy. And
allowing her to recover from both KIGA and her uninsured motorist coverage would
result in a windfall because of that duplication. But a claimant receiving benefits under a
health care policy would not receive a windfall. In fact, offsetting the claimant's medical
insurance benefits would reduce the total coverage available.

To use Brennan as an example, had Dr. Thode's insurer not become insolvent,
there would have been $1,000,000 in professional liability insurance coverage to satisfy
Brennan's claim. But under the statutory interpretation advanced by KIGA, the most
Brennan could recover after the insolvency would be $800,000 because of the claimed
offset. If permitted, such an offset would shift the burden created by the insurer's
insolvency onto Brennan and his health care policy carrier instead of having KIGA bear
the loss, which would in turn distribute the claim for the insolvent insurer among all
solvent ones. This outcome cannot be reconciled with the statutory purposes expressed in
the Guaranty Act. For that reason, we find the statutory purpose supports Brennan's
argument that K.S.A. 40-2910 did not allow the offset before the 2005 amendment.

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(b) Other Jurisdictions

Most jurisdictions addressing whether their own guaranty fund may offset medical
insurance benefits under an identical or substantially similar statute to the preamended
version of K.S.A. 40-2910 have found no entitlement to offset medical insurance
benefits. See Pritchett v. Clifton, 738 F.2d 319, 320-21 (8th Cir. 1984) (guaranty
association was not entitled to offset amount injured party recovered under her medical
insurance policy.); Connecticut Ins. Guaranty Assn. v. Zasun, 52 Conn. App. 212, 230,
725 A.2d 406 (1999) (provision was intended "to apply only to prevent duplicate or
windfall recoveries for losses sustained by an insured or a claimant resulting from insurer
insolvency"); Indiana Ins. Guar. Ass'n. v. Blickensderfer,, 778 N.E.2d 439, 446 (Ind.
App. 2002) ("the claim to be offset must be for the same loss as the claim asserted against
[the guaranty association]").

As Brennan notes, Pennsylvania enacted an amendment identical to the changes
made by the Kansas Legislature in 2005, and Pennsylvania courts have addressed a
medical insurance benefits offset under both the original and amended statutes. In Sands
v. PA. Ins. Guaranty Ass'n, 283 Pa. Super. 217, 423 A.2d 1224 (1980), superseded by
statute as recognized in Blickensderfer, 778 N.E.2d at 443 n.3, the Sands court held the
guaranty association was not entitled to offset medical insurance benefits. 283 Pa. Super.
at 225-26. The issue arose again after the amendment was enacted, and the Pennsylvania
Supreme Court then allowed the offset for medical insurance benefits based on statutory
language identical to the amendment enacted in Kansas. Bell v. Slezak, 571 Pa. 333, 346,
812 A.2d 566 (2002). We note the Bell decision came several years before KIGA
proposed the 2005 amendment to the legislature.

Some decisions from other jurisdictions addressing this issue rely on expressly
stated exclusion provisions not contained in the Kansas Guaranty Act. For example,
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Alabama has held its guaranty association may not offset medical insurance benefits or
workers compensation benefits because its guaranty act excludes disability, accident, and
health insurance from its scope of coverage. See Alabama Ins. Guar. Ass'n v. Stephenson,
514 So. 2d 1000, 1002-03 (Ala. 1987) (health insurance); Alabama Ins. Guar. v. Magic
City Trucking, 547 So. 2d 849, 851-53 (Ala. 1989) (workers compensation benefits). But
these decisions provide no support for, or against, the issue in Brennan's case.

Finally, we concede there is limited support in other jurisdictions for finding an
offset allowable under the preamended statute, but none of those cases are directly
analogous. For example, in Illinois that state's guaranty fund was entitled to offset health
insurance, but that decision was based on a different exhaustion provision that allowed
offsets "if the claim under such other policy arises from the same facts, injury, or loss that
gave rise to the covered claim against the Fund." Ill. Comp. Stat. ch. 215 § 5/546; Roth v.
Illinois Insurance Guaranty Fund, 366 Ill. App. 3d 787, 796-98, 852 N.E.2d 289 (2006).
And there are two states holding their guaranty funds were entitled to offset medical
insurance benefits recovered from workers compensation insurers under provisions
identical to the preamended Kansas statute. See Orren v. Smackover Nursing Home, 46
Ark. App. 38, 40, 876 S.W.2d 600 (1994) (state guaranty fund not responsible for paying
medical bills already paid by employee's health care insurance despite fact employer's
workers compensation insurer was insolvent); Mosier v. Oklahoma Prop. and Cas. Ins.,
890 P.2d 878, 880 (Okla. 1995) (no language within the statute limiting the exhaustion
requirement to instances preventing duplicate recovery).

Overall, the majority of authority from other states persuasively supports our
holding that the preamended Kansas statute did not allow an offset for health care
benefits paid to a claimant. Given that the Kansas Guaranty Act was based on a model
law, we find the rulings from our sister states with comparable statutory language
16



reinforcing in our conclusion. The remaining question is whether the legislature changed
or clarified its intent as to the original enactment when it amended the statute.

(c) Expression of Original Intent in 2005

Determining whether the legislature intended to change or clarify an existing law
while amending it is a difficult undertaking without an explicit statement of intent.
Furthermore, the district court did not address KIGA's clarification argument. It relied
solely on Hetzel to find that the original enactment only applied to duplicate recovery
from double coverage and that KIGA would have owed Brennan benefits before the 2005
amendment.

Ordinarily, courts presume the legislature intends to make a substantive change
when it revises an existing law, but this presumption's strength, weakness, or validity
changes according to the circumstances. When an original statute is ambiguous, the
legislative purpose may be to clarify the statute's ambiguities, not to change the law.
Trees Oil Co. v. Kansas Corporation Comm'n, 279 Kan. 209, 229, 105 P.3d 1269 (2005)
(citing State ex rel. Morrison v. Oshman Sporting Goods Co. Kansas, 275 Kan. 763, 773,
69 P.3d 1087 [2003]). A statutory amendment may provide insight into the original
enactment's legislative intent if that enactment was ambiguous. Amendments that
construe or clarify a prior statute "'must be accepted as the legislative declaration of the
meaning of the original act.'" Estate of Soupene v. Lignitz, 265 Kan. 217, 222, 960 P.2d
205 (1998) (quoting 82 C.J.S., Statutes § 384[a], pp. 899-900.) Furthermore, "'an
amendment making a statute directly applicable to a particular case is not a conclusive
admission by the legislature that the statute did not originally cover [it].'" 265 Kan. at 222
(quoting 82 C.J.S., Statutes § 384[b][2], pp. 906-07). But if the amendment contains a
radical change to a statute's phraseology, it is generally perceived as a legislative
17



declaration that the original law did not "'embrace the amended provision.'" 265 Kan. at
222 (quoting 82 C.J.S., Statutes § 384[b][2], pp. 906-07).

The legislative history reflects that KIGA proposed the amendment at issue during
the 2005 legislative session, and a KIGA representative advocated for its adoption before
the Senate and House insurance committees. Minutes of the House Insurance Committee,
February 17, 2005; Minutes of the Senate Financial Institutions and Insurance
Committee, March 16, 2005. In written remarks distributed to both committees, KIGA
self-described the proposed revisions as reinforcing the Guaranty Act's original intent to
make KIGA the payor of last resort and providing clarification that the offset
requirements apply to all related claims under other insurance, stating:

"As in most states, current law in Kansas specifies that a claim that may be
covered under several policies must first exhaust coverage under policies other than the
insolvent insurer and that any covered claim payable by [KIGA] is reduced by any
recovery from such other insurance. These provisions help assure that [KIGA] is the
payor of last resort and also prevents the potential for a double recovery by the claimant.
Our proposed amendments are intended to reinforce these concepts and clarify that the
exhaustion and offset requirements apply to all claims under any kind of insurance,
regardless of whether first party or third party claims, and including claims under
accident and sickness insurance, health insurance and workers' compensation coverage
similar to provisions adopted in some of the other states." (Emphasis added.) Minutes of
the House Insurance Committee, February 17, 2005, attachment 6, p. 9.

But this statement advocating adoption of the amendment is decidedly self-serving
since KIGA was aware of the claims pending against it at the time, including Brennan's
claim. And we note the amendment's text does not contain any declaration that the
legislature intended to clarify the law. See In re Care & Treatment of Hunt, 32 Kan. App.
2d 344, 361, 82 P.3d 861, rev. denied 278 Kan. 845 (2004) (courts may rely on a
18



legislative body's declaration but must do so cautiously if the declaration is not included
in the amendment's text). Even so, KIGA's contention that the amendment is evidence of
the original provision's meaning remains plausible given the law's ambiguous language
containing a very broad exhaustion requirement. The problem with accepting this
contention is that it contradicts the Guaranty Act's stated purpose, which includes
protecting claimants and policyholders from the burdens caused by an insurer's
insolvency. It also flies in the face of the legislative directive that the Guaranty Act be
liberally construed to achieve its stated purposes. K.S.A. 40-2901.

Accordingly, we hold the 2005 amendment changed the original statute to broaden
the offset provisions and was not intended by the legislature to simply clarify already
existing offsets. We turn next to addressing whether Brennan's right to the Guaranty Act's
protections vested prior to the amendment's effective date.

Statutory Amendment Affecting a Vested Right

Generally, a statute operates prospectively unless there is clear language indicating
the legislature intended it to operate retrospectively. Owen Lumber Co. v. Chartrand, 276
Kan. 218, 220, 73 P.3d 753 (2003). Here, the legislature stated its intent to make the
amendment retroactive in K.S.A. 2010 Supp. 40-2910(c) by applying the amendment to
all claims not paid before the effective date of the amendment—just as KIGA had
requested. But even when such legislative intent is clear, courts still must consider
whether a statutory provision's retrospective application will affect vested rights, thereby
violating due process. 276 Kan. at 220-21.

The term "vested rights" describes rights that cannot be abolished by retroactive
legislation. Resolution Trust Corp. v. Fleischer, 257 Kan. 360, 365, 892 P.2d 497 (1995).
It is a conclusory term, and the vested rights analysis is inseparable from the ultimate due
19



process inquiry. See 257 Kan. at 364-65. Kansas courts consider the following three
factors when determining whether legislation created a vested right:

"(1) the nature of the rights at stake (e.g., procedural, substantive, remedial), (2) how the
rights were affected (e.g., were the rights partially or completely abolished by the
legislation; was any substitute remedy provided), and (3) the nature and strength of the
public interest furthered by the legislation." 257 Kan. at 369.

As to the first factor, Brennan argues the coverage provided by the Guaranty Act
is remedial in nature. KIGA argues the amendment is either procedural or remedial
because it provides a means for individuals to get claims against insolvent insurance
companies paid by KIGA. Procedural laws relate to the "'machinery for carrying on the
suit, including pleading, process, evidence, and practice' and 'the mode or proceedings by
which a legal right is enforced, that which regulates the formal steps in an action.'" 257
Kan. at 366. It is clear that this amendment was not procedural. But it is more difficult to
determine whether the amendment was substantive or remedial.

Substantive laws give or define the right, give the right or denounce the wrong, or
create liability against a defendant for a tort committed. 257 Kan. at 366. The two most
recent cases finding an amendment was substantive pertained to amendments
extinguishing a cause of action. In Fleischer, the issue was whether the holder of an
accrued tort action had a vested property right in that cause of action before it reached
final judgment. This court held there was a vested right under the facts. 257 Kan. at 374.
In Kelly v. VinZant, 287 Kan. 509, 197 P.3d 803 (2008), this court held an amendment
eliminating a cause of action under the Kansas Consumer Protection Act against a
medical provider for negligence was substantive because the amendment excluded a
group previously liable under that Act. 287 Kan. at 521.

20



Remedial statutes "'reform or extend existing rights, and having for their purpose
the promotion of justice and the advancement of public welfare and of important and
beneficial public objects, such as the protection of the health, morals, and safety of
society, or of the public generally.'" In re Estate of Brown, 168 Kan. 612, 617, 215 P.2d
203 (1950). K.S.A. 2010 Supp. 40-2910 is more appropriately characterized as
reforming the terms of an existing right because it changed the types of coverage a
claimant was required to exhaust—effectively broadening the circumstances in which
KIGA is allowed to offset other insurance payments. It did not create or extinguish the
previous statute's requirement that a person claiming a recovery from KIGA exhaust
other insurance coverage. Therefore, we conclude it is a remedial statute.

Historically, this finding would terminate the vested rights analysis because courts
grouped procedural and remedial laws together under the rule that there is no vested right
in any particular remedy or method of procedure. Fleischer, 257 Kan. at 366. But this
court recognized that a remedial statute could affect a vested right in Owen Lumber Co.
There the court held that the legislature may retroactively modify remedies by which
rights are enforced, unless the modification has the practical effect of abolishing the right.
276 Kan. at 225. We cited the following explanation from a commentator:

"'The [United States Supreme] Court has recognized that the removal of all or a
substantial part of the remedies for enforcing a private contract may have the same
practical effect as an explicit denial of the right. Thus the relevant factor in determining
the weight to be given to the extent to which a preexisting right is abrogated is not
whether the statute abolishes rights or remedies, but rather the degree to which the statute
alters the legal incidents of a claim arising from a preenactment transaction; the greater
the alteration of these legal incidents, the weaker is the case for the constitutionality of
the statute.' Hochman, The Supreme Court and the Constitutionality of Retroactive
Legislation, 73 Harv. L. Rev. 692, 711-12 (1960)." 276 Kan. at 223.

21



Since a statute may be remedial and affect a vested right, the first factor is not
determinative of the vested rights analysis. The first factor (the nature of the right) must
be balanced against the others, including how the right was affected, whether a substitute
remedy was provided, and the public interest furthered by the legislation. 276 Kan. at
227.

Applying these factors in concert supports a finding that Brennan had a vested
right for three reasons. First, the statutory amendment extinguished Brennan's right to
recover from KIGA and there was no substitute remedy with the insolvent insurance
policy. Second, the Guaranty Act's stated purpose is to avoid financial loss to claimants
or policyholders, and the entire statutory scheme is designed to cover the obligations of
insolvent insurance companies while sharing the burden from those obligations among all
member insurers. Third, the strong statutory language reciting that KIGA was "deemed
the insurer to the extent of its obligations on the covered claims" and "obligated to the
extent of the covered claims" indicate a statutory right arose at the time PHICO was
declared insolvent. K.S.A. 40-2906(a)(1), (2).

As a final point, KIGA argues the general principal that a plaintiff has no vested
right in any rule of law to remain unchanged for his or her benefit. But in Fleischer, this
court held that rule applies to prospective amendments, not to the retroactive application
of legislation to an accrued and pending claim. 257 Kan. at 367-68. KIGA's argument is
without merit.

We find the 2005 amendment adversely impacted a vested right, thereby violating
Brennan's due process rights.



22



Remedy for Unconstitutional Retroactive Amendment

Our holding that the 2005 amendment's retroactive application violates due
process requires us to determine next the proper remedy, i.e., whether the retroactivity
provision is severable from the other statutory provisions enacted in 2005. In Felten
Truck Line v. State Board of Tax Appeals, 183 Kan. 287, 300, 327 P.2d 836 (1958), this
court stated the following test:

"Whether the court may sever an unconstitutional provision from a statute and
leave the remainder in force and effect depends on the intent of the legislature. If from
examination of a statute it can be said that the act would have been passed without the
objectionable portion and if the statute would operate effectively to carry out the
intention of the legislature with such portion stricken, the remainder of the valid law will
stand. Whether the legislature had provided for a severability clause is of no importance.
This court will assume severability if the unconstitutional part can be severed without
doing violence to legislative intent."

We hold the retroactivity provision in the 2005 amendment is severable and
Brennan's rights are governed by the preamended statute. Therefore, we affirm the district
court's entry for judgment against KIGA without allowing an offset for Brennan's
medical insurance benefits received. The remaining provisions in the 2005 amendment
are unaffected by our holding.

Having determined the retroactivity provision violates due process and Brennan's
rights are governed by the preamended K.S.A. 40-2910, this court does not need to reach
Brennan's equal protection argument. See Smith v. Kansas Dept. of Revenue, 291 Kan.
510, 519, 242 P.3d 1179 (2010) (Appellate courts avoid making unnecessary
constitutional decisions when there is a valid alternative ground for relief.).

23



Affirmed.

DAVIS, C.J., and LUCKERT, J., not participating.
GREENE, C.J., and MALONE, J., assigned.
1


1
REPORTER'S NOTE: Judge Thomas E. Malone and Chief Judge Greene, of the
Kansas Court of Appeals, were appointed to hear case No. 102,308 vice Chief Justice
Davis and Justice Luckert, respectively, pursuant to the authority vested in the Supreme
Court by K.S.A. 20-3002(c).