Alliance of American Insurers v. Chu (77 N.Y.2d 573, 1991)

OPINION OF THE COURT

Chief Judge Wachtler.

The integrity of the State government, upon which the public is entitled to rely, requires, at the very least, that the State keep its lawfully enacted promises. When our Legislature grants to contributors property rights in the income of a fund and pledges the "full faith and credit of the State of New York” for the safekeeping of that fund it cannot simply ignore the pledge and abrogate those vested rights.

The plaintiffs in this action are a number of insurance companies engaged in writing property and casualty insurance in this State, trade associations representing the insurance industry, and individuals who hold policies issued by the insurance carriers. They claim an interest in the statutorily created Property and Liability Insurance Security Fund (see, Insurance Law former §§333, 334), to which the plaintiff insurance companies made contributions between 1970 and 1973. Plaintiffs seek, along with related relief, a judgment declaring invalid certain aspects of legislation enacted in 1979 by which the State diverted fund earnings to the State’s general fund (see, L 1979, ch 503, § 4) and legislation enacted in 1982 diverting fund assets to the State’s general fund in exchange for a "dry appropriation” (L 1982, ch 55, §§ 90, 92). The lower courts rejected plaintiffs’ challenge and declared chapters 503 and 55 constitutional.

We reverse and sustain plaintiffs’ challenge to the extent of declaring invalid those aspects of the challenged legislation that deprived the fund of earnings attributable to contributions made pursuant to section 3 of chapter 189 of the Laws of 1969. The 1969 legislation granted the contributors rights in the income generated by their contributions, which rights, we conclude, attached to all contributions made to the fund while that legislation remained in effect. The State, therefore, may neither appropriate those earnings to itself nor deprive the fund of assets that would generate such income.

We emphasize that our holding is limited to the legislation affecting the Property and Liability Insurance Security Fund. We are aware that the State maintains a number of similar dedicated funds and has increasingly turned to them as a source of revenue. Our decision in the present case turns on the language of the statutes governing this particular fund. The validity of the State’s actions with respect to other funds will depend on the unique set of statutory provisions governing each of the funds affected and is not controlled by our decision here (cf., Methodist Hosp. v State Ins. Fund, 64 NY2d 365 [transfer of assets from the State Insurance Fund to the State’s general fund upheld on the ground that the statutes governing that fund did not create in the policyholders a property interest in the fund’s surplus]).

I. Statutory Background

The Property and Liability Insurance Security Fund had its roots in 1947 legislation which added to the Insurance Law a new section 333 creating the Motor Vehicle Liability Security Fund (L 1947, ch 801). That fund provided for the payment of claims on motor vehicle liability policies in the event of the insurer’s insolvency. Section 333 required every insurer authorized to write motor vehicle liability policies in this State to file quarterly returns stating the amount of net direct written premiums charged on such policies and to make contributions to the fund based on a percentage of such premiums (Insurance Law § 333 [3]). Contributions were to cease when the net value of the fund equaled 15% of the outstanding claim reserves incurred under policies protected by the fund, and would resume only if the net value of the fund dropped below that level due to the payment of claims (§ 333 [4]).

The fund was to consist of "all payments made to the fund by insurers and of securities acquired by and through the use of moneys belonging to the fund, together with interest and accretions earned upon such payments or investments” (§ 333 [2]). Thus, all of the fund’s earnings accrued to the fund. The State Commissioner of Taxation and Finance was established as the custodian of the fund and was authorized to invest the moneys of the fund only in bonds of the United States or New York State (§ 333 [6]).

Finally, section 333 provided that the fund "shall be separate and apart from any other fund and from all other state moneys, and the faith and credit of the state of New York is pledged for their safekeeping” (§ 333 [6]).

By 1969, the section 333 fund had grown to over $125 million. In that year, the Insurance Department recommended expansion of the fund to cover various forms of property and liability insurance other than automobile insurance (see, Insurance Dept Rep, Public Interest Now in Property and Liability Insurance Regulation). Accordingly, the Legislature created the Property and Liability Insurance Security Fund, governed by a new section 334 of the Insurance Law (L 1969, ch 189, § 3). The new fund took over the assets of the section 333 fund and extended its coverage to virtually all kinds of property and liability insurance.

The 1969 law discontinued contributions from motor vehicle insurers, but the earnings on their prior contributions continued to accrue to the fund. Insurers writing policies on the newly covered lines of insurance were required to make contributions based on a percentage of premiums written in those lines until the fund reached a net value of $200 million. Once the $200 million target was reached, no new contributions were to be required unless the fund was depleted by the payment of claims to a net value of less than $150 million (Insurance Law § 334 [3], [4]).

Most significantly for present purposes, the 1969 law provided that income earned on new contributions to the fund would be either returned to the contributors or credited toward future contributions (§ 334 [5]). The expanded fund was otherwise governed by the provisions that had governed the section 333 motor vehicle fund, including the State’s pledge of faith and credit for the fund’s safekeeping and the requirement that the fund be kept separate and apart from other funds and other State moneys (§ 334 [1]).

Pursuant to the 1969 legislation, plaintiff insurance carriers and others writing policies on the newly covered lines made contributions to the fund from 1970 until 1973, when the net value of the fund exceeded $200 million.

For the purposes of assessing the effects of subsequent legislation, including the two acts challenged here, it is important to note that the 1969 legislation created two categories of fund moneys, distinguished by their source and by the treatment given to the income each generated.

First was that portion of the fund attributable to contributions made by motor vehicle insurers between 1947 and 1969 pursuant to section 333 of the Insurance Law — the former Motor Vehicle Liability Insurance Security Fund. As noted above, after 1969 the income generated by these "section 333” moneys continued to accrue to the fund, but no new contributions by motor vehicle insurers were required.

The second category was that portion of the fund attributable to contributions made by nonmotor vehicle insurers between 1970 and 1973 pursuant to section 334 of the Insurance Law, newly enacted in 1969. Income on these "section 334” moneys was returned to the contributors or credited against future contributions.

Prior to the legislation challenged here, one other major change in the fund’s operation occurred. In 1973, after the fund reached its $200 million target, the Legislature amended sections 333 and 334 to provide that the income earned on section 333 moneys (i.e., moneys attributable to contributions by motor vehicle insurers) would no longer accrue to the fund. Instead, after the payment of claims and administrative expenses, such income was to be credited to the State’s general fund (L 1973, ch 861, §§ 10, ll).* ** Income on section 334 moneys continued to be returned or credited to the contributors.

It appears from the legislative history of the 1973 amendments that the State’s diversion of fund income was designed to offset partially an anticipated loss of revenue that would accompany significant tax cuts benefiting the insurance industry. The tax reform legislation was actively sought by the insurance industry and was enacted along with the amendments to sections 333 and 334 (see, Rep of Div of Budget on S 6494 [1973], at 5; Mem of State Ins Dept to Governor, June 15, 1973, at 4 [both contained in Governor’s Bill Jacket, L 1973, ch 861]).

The 1973 amendments are not in issue in this case and to our knowledge have never been challenged. We emphasize this, because it requires us to assume the validity of those amendments and, therefore, the State’s entitlement to the earnings attributable to section 333 moneys (after the payment of claims and expenses) as we move to our examination of the 1979 and 1982 legislation that is challenged and as we consider the extent to which the challenged acts may deprive plaintiffs of rights in the fund’s income.

II. The Challenged Legislation

A. The 1979 Legislation

Chapter 503 of the Laws of 1979 is the first target of plaintiffs’ complaint. It is challenged to the extent that it diverts to the State earnings of the fund formerly payable to those who had made contributions pursuant to section 334.

The 1979 legislation amended paragraphs (a), (b) and (c) of section 334 (5). Paragraph (a), which previously allowed a return or credit of income allocable to section 334 contributions, was amended to provide that "with respect to such income earned on or after August first, nineteen hundred seventy-nine no such credit nor [sic] return to such insurer shall be allowed.” Paragraph (b), which had provided for payment of income allocable to section 333 contributions to the State’s general fund, was amended to provide that such income, "together with the earnings referred to in paragraph (a) of this subdivision [i.e., section 334 earnings] * * * shall be credited * * * to the general fund of the state treasury; but only when the value of the fund exceeds the sum of two hundred forty million dollars.” Similarly, paragraph (c) was amended to provide that "any income earned on the moneys of the fund * * * shall be credited to the corpus of such fund until the superintendent determines that the net value of such fund is two hundred forty million dollars, and thereafter shall be credited * * * to the general fund of the state treasury”.

Thus, chapter 503 discontinued the practice of returning or crediting to the contributors the income earned on the section 334 contributions made between 1970 and 1973. Instead, all of the income earned on all fund assets was to be credited to the fund. If, after the payment of claims, administrative expenses and other transfers not in issue here, the net value of the fund exceeded $240 million, the excess was to be credited to the State’s general fund.

B. The 1982 Legislation

Chapter 55 of the Laws of 1982 required the transfer of $87 million of the fund’s corpus to the State’s general fund. Similarly affected by chapter 55 were the Aggregate Trust Fund ($50 million), the State Insurance Fund ($190 million) and the Stock Workmen’s Compensation Security Fund ($67 million) (see, L 1982, ch 55, § 92). In exchange for these transfers, chapter 55 made "dry appropriations” to each of the funds in an amount equal to or greater than the amount transferred (see, L 1982, ch 55, §§ 84, 86, 88, 90).

Thus, with respect to the Property and Liability Insurance Security Fund, section 90 of chapter 55 added a new subdivision (6) to section 334 requiring the Governor to include in each year’s budget bill an appropriation of $90 million, to be encumbered by the State Comptroller and to be paid to the fund if such an appropriation is not made in the following year (see, Insurance Law § 334 [6] [a]). Any such appropriation made to the fund is to be included as an asset for the purposes of computing the net value of the fund (§ 334 [6] [b]).

A new subdivision (7) was also added, providing that the transfer of fund assets to the State’s general fund "is deemed a proper and prudent legal undertaking for any state officer with the responsibility for the custody or the investment of the assets of the fund”. Noticeably absent from the 1982 legislation, however, is any provision for the payment of interest to the fund on the moneys diverted for the State’s use.

III. Plaintiffs’ Challenge

A. Related Litigation

All four transfers mandated by section 92 of chapter 55 were promptly challenged. In Methodist Hosp. v State Ins. Fund (64 NY2d 365, supra), we upheld the transfer of $190 million from the State Insurance Fund, concluding that, because the State alone was liable for the payment of claims upon that fund, because the policyholders had no responsibility to contribute to losses, and because the payment of dividends to policyholders was discretionary, the policyholders had no property or contract rights in the assets or earnings of the fund.

In American Ins. Assn. v Chu (64 NY2d 379), however, we dismissed as premature an action challenging the transfers from the other three funds, including the Property and Liability Insurance Security Fund. In that case, the injury alleged by the plaintiffs was the possibility that, as a result of the transfers and the consequent loss of income to the funds, they would have to replenish the funds with new contributions. We deemed this possibility too speculative to give rise to a justiciable controversy and therefore dismissed the complaint.

By 1988, however, the net value of the Property and Liability Insurance Security Fund had fallen below $150 million, triggering plaintiffs’ obligation to resume contributions to the fund. The justiciability obstacle having thus been eliminated, this action ensued, with plaintiffs adding to their complaint a challenge to the 1979 legislation.

B. The Present Challenge

Plaintiffs’ challenge to the 1979 legislation (ch 503) and the 1982 legislation (ch 55) rests on the premise that they hold a property and/or contract right in the income of the fund. According to their various arguments, the State’s taking of a portion of that income by chapter 503 and its diversion of income-producing assets by chapter 55 constituted a taking of their property without compensation, a deprivation of property without due process and an impairment of the State’s contractual obligations to them, all in violation of familiar State and Federal constitutional guarantees (see, US Const, art I, § 10, cl 1; 5th, 14th Amends; NY Const, art I, § 7).

We need reach only plaintiffs’ claim of a property interest in the fund’s income, for we find that argument dispositive. We are mindful, of course, that the legislation carries a presumption of constitutionality and that the plaintiffs bear the burden of demonstrating beyond a reasonable doubt that it is unconstitutional (see, Cook v City of Binghamton, 48 NY2d 323, 330). This principle requires us to avoid interpreting a statute in a way that would render it unconstitutional if such a construction can be avoided and to uphold the legislation if any uncertainty about its validity exists (see, e.g., People v Liberta, 64 NY2d 152, 171, cert denied 471 US 1020; Matter of Second Report of Nov. 1968 Grand Jury, 26 NY2d 200, 205-206). In this case, however, there is no question of statutory interpretation. The effects of the legislation are obvious and acknowledged. If those effects infringe on constitutionally protected rights, we cannot avoid our obligation to say so.

It is settled that constitutionally protected property interests are "created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law” (Board of Regents v Roth, 408 US 564, 577; see, Cleveland Bd. of Educ. v Loudermill, 470 US 532, 538; Matter of Economico v Village of Pelham, 50 NY2d 120, 125). There can be little doubt that, while it remained in effect, section 334, as enacted in 1969, gave the contributors a property interest in income attributable to their contributions by providing for its return or credit to them. Had the Superintendent of Insurance failed to make such payments or credits to them, the contributors could have asserted a legitimate "claim of entitlement” (Board of Regents v Roth, supra, at 577) to the moneys, grounded in the statutory guarantee. This is not disputed.

The question presented here is whether the State may extinguish that property right by the simple expedient of repealing the provision which gives rise to it. With respect to future contributions that might be made pursuant to the revised statutory scheme, we have no doubt that the State has such power. But with respect to contributions already made, a different conclusion must be reached.

The State’s power to alter the rights and obligations that attach to completed transactions is not as broad as its power to regulate future transactions. As we recently noted, "[although a statute is not invalid merely because it reaches back to establish the legal significance of events occurring before its enactment, a traditional principle applied in determining the constitutionality of such legislation is that the Legislature is not free to impair vested or property rights” (Matter of Hodes v Axelrod, 70 NY2d 364, 369-370). This doctrine reflects the deeply rooted principles that persons should be able to rely on the law as it exists and plan their conduct accordingly and that the legal rights and obligations that attach to completed transactions should not be disturbed (see, Hochman, The Supreme Court and the Constitutionality of Retroactive Legislation, 73 Harv L Rev 692, 692-693).

Thus, where legislation has retroactive effects, judicial review does not end with the inquiry generally applicable to economic regulation, i.e., whether the legislation has a rational basis (see, e.g., Nebbia v New York, 291 US 502, 525). Instead, the courts must balance a number of factors, including " 'fairness to the parties, reliance on pre-existing law, the extent of retroactivity and the nature of the public interest to be served by the law’ ” to determine whether the rights affected are subject to alteration by the Legislature (Matter of Hodes v Axelrod, supra, at 370; Matter of Chrysler Props. v Morris, 23 NY2d 515, 518). Relevant to these considerations in the present context are the nature of the obligations explicitly undertaken by the State with respect to the fund and the reasonable expectations of the contributors created by the statutory scheme pursuant to which they made their contributions.

Balancing these factors, we conclude that the contributors’ right to the income attributable to the contributions made while the law granting those rights was in effect may not be extinguished by the State.

Despite the dissent’s protestations, there is nothing novel, unfocused or frightening about the predicate for our holding. Let there be no mistake, our decision rests on the constitutionally based protection against legislative interference with vested rights, a doctrine with a long tradition (see, McKinney’s Cons Laws of NY, Book 1, Statutes § 51 [and 1991 Cum Ann Pocket Part] [and all cases cited therein]). Nor is our decision a throwback to the discredited Lochner era (see, Lochner v New York, 198 US 45) as the dissent suggests (dissenting opn, point II). We are not substituting our judgment for that of the Legislature as to the wisdom of its actions. We are simply giving meaning to the words used by the Legislature. The dissent, on the other hand, never explains how its approach gives any substance to the State’s pledge of "full faith and credit,” for example.

Even the State concedes (and the dissent apparently agrees [dissenting opn, at 600-601]) that a statutory scheme like that in issue here may establish such immutable rights. The Attorney-General points to the statute governing the Life Insurance Guaranty Fund (now codified in Insurance Law § 7504) as an example of such a statute. The Life Insurance Guaranty Fund is funded by mandatory contributions from life insurance companies and exists to pay the claims of persons holding life insurance policies issued by insurers that have become insolvent. The statute provides that the income from the fund "shall belong, and be refunded, to the contributors in proportion to the amounts contributed by them,” that the certificates acknowledging their contributions can be carried as "admitted assets” of the contributors, and that the contributors have a reversionary interest in the fund in the event of its dissolution.

These provisions, the State concedes, grant to the contributors rights in the fund which cannot be revoked. Thus, while the State and the dissent seek to distinguish the statutes in issue here, they do not dispute the principle we apply — that such statutory provisions may create rights that cannot be extinguished by the State. The only dispute is whether the statutes governing the Property and Liability Insurance Security Fund created such rights. We conclude that they did.

As noted, when the insurance company plaintiffs and other carriers made contributions to the fund pursuant to section 334, the law then in effect explicitly granted them the right to the income earned on those contributions. In addition, the law provided a number of assurances that their contributions would be used only for the benefit of the fund and not as the State might otherwise provide in the future. For example, the State pledged its faith and credit for the fund’s safekeeping and promised to keep the fund separate and apart from other State moneys (Insurance Law § 333 [6]). At a minimum, these provisions obligated the State to act in good faith with respect to, the fund and its contributors and to ensure that the fund’s assets and earnings would be available for their intended purposes (cf., Flushing Natl. Bank v Municipal Assistance Corp., 40 NY2d 731, 735-736).

Similarly, the Commissioner of Taxation and Finance was established as "custodian” of the fund (Insurance Law § 333 [6]), a term that implies "responsibility for the protection and preservation of the thing in custody” (Black’s Law Dictionary 384 [6th ed] [custody]). The Commissioner’s control (and hence the State’s control) of the fund was and remains strictly circumscribed. Investments of the fund’s assets have always been limited by statute to a very few, specifically enumerated, income-producing types: government obligations, government-secured certificates of deposit, obligations of public benefit corporations and, only to the extent of one third of the fund’s assets, mortgage loans or deeds of trust (Insurance Law § 333 [6]). Expenditures of the fund’s assets are similarly circumscribed. Payments are authorized only for allowed claims (Insurance Law § 333 [7]) and for those administrative expenses authorized by the Director of the Budget (Insurance Law § 333 [9]).

Finally, the statuté provided assurance that, once the fund reached its $200 million goal, the contributors would not be required to resume payments unless the fund’s value was reduced below $150 million by the payment of claims (Insurance Law § 334 [4]). The law did not contemplate that the State could draw on the fund for other purposes.

All of these limitations established by the Legislature dictate that the contributions made by plaintiffs were not to become State moneys to do with as it wished. Instead, the statutory scheme, viewed as a whole, created in the State obligations to preserve the fund and to use its assets and earnings only for the narrow purposes set forth.

Chapters 503 and 55 have retroactive effects to the extent that they purport to relieve the State of those obligations. The State changed the conditions affecting contributions already made, eliminating the contributors’ right to the income on their contributions and "investing” a sizable portion of the fund’s assets, not in the income-producing options authorized at the time the contributions were made, but in an interest-free loan to itself. In addition, the State’s actions depleted the fund by depriving it of income that otherwise would have been available to pay claims and, ultimately, required the contributors to replenish the fund. In effect, therefore, the State has simply used the contributor’s obligation to replenish the fund as a means of raising revenues for the State’s general purposes.

The only justification the State can offer for the breach of its commitment is the enhancement of the State’s general revenues. It is self-evident that this cannot justify the State’s actions; the State’s commitment to preserve the fund would be meaningless if it could be overcome by its desire to use the funds for other purposes.

We conclude, therefore, that chapters 503 and 55 are invalid to the extent that they deprive the Property and Liability Insurance Security Fund of income on contributions made by insurers pursuant to the 1969 legislation, i.e., the section 334 contributions. We emphasize that our conclusion is based on the fact that the challenged legislation purports to eliminate the plaintiffs’ rights with respect to contributions already made. Nothing in our decision prevents the State from changing the law as it affects future contributions. Nor does our decision preclude the State from making adjustments in the administration of the fund, as it has done in the past by adding categories of permissible fund investments, as long as such changes are consistent with the State’s obligations to preserve the fund and do not unreasonably impair the contributors’ rights in the income allocable to section 334 contributions.

Finally, we note that the case is readily distinguishable from Methodist Hosp. v State Ins. Fund (64 NY2d 365, supra). The statute in issue in that case provided that the payment of dividends was discretionary. Thus, in contrast to the present case, the statute granted no legitimate entitlement to that income and hence no property interest. In Methodist Hosp., therefore, the transfer of moneys from the fund and the consequent loss of income did not upset any rights or obligations that had attached to completed transactions.

Furthermore, the statutes governing the State Insurance Fund provide that the State, and only the State, is responsible for the payment of awards from that fund. The employers who pay premiums for coverage by that fund are under no obligation to contribute to fund losses (Methodist Hosp. v State Ins. Fund, supra, at 377). Thus, the loss of income occasioned by the transfer of State Insurance Fund assets to the State’s general fund deprived the State of assets from which to pay its own obligations and did not trigger resumed contributions from the employers. Here, in contrast, depletion of the fund requires the contributors to make further contributions.

This distinction points up the significance of the State’s pledge of "full faith and credit” for the safekeeping of the Property and Liability Insurance Security Fund, a pledge that was not made with respect to the State Insurance Fund. By that pledge, the State obligated itself to maintain the integrity of the fund in order to protect the contributors from having to replenish the fund unnecessarily and to ensure the availability of funds for the payment of claims.

IV. The Remedy

As it concerns chapter 503, our holding requires the State to reimburse the fund for any income attributable to section 334 contributions that was paid to the State’s general fund and requires the fund to return or credit these amounts to the contributors as provided by section 334 (5) prior to the enactment of chapter 503. To accomplish this, an accounting will be necessary. Plaintiffs allege that pursuant to chapter 503, $37 million of the fund’s earnings were credited to the general fund. The State admits to the $37 million figure, but does not admit that all of this amount was transferred pursuant to chapter 503. Instead, the State asserts only that this amount was transferred pursuant to unspecified statutory authority. It is therefore unclear from the present record how much of this amount represents income on section 334 contributions and how much represents earnings attributable to section 333 contributions that were properly payable to the State pursuant to the unchallenged 1973 amendments.

The reimbursement should include interest on the amounts wrongfully diverted by the State. The parties have not addressed whether the measure of interest should be the statutory rate, whether it should match the performance of the fund during the years the diverted moneys have been unavailable to the fund, or whether some other measure should apply. Accordingly, we leave that issue to be litigated in the proceedings to follow.

With respect to chapter 55, which transferred $87 million of the fund’s corpus to the State’s general fund, it should be noted that the “dry appropriation” required by that legislation is included as a fund asset in determining the fund’s “net value” (Insurance Law § 334 [6] [b], as amended by L 1982, ch 55, § 90) and that the obligation of the insurance companies to resume contributions is tied to the fund’s net value (§ 334 [4]). Thus, the transfer did not directly reduce the fund’s value for purposes of determining whether contributions should resume and therefore did not, by itself, cause any harm to plaintiffs. Plaintiffs were harmed, however, by the loss of income that could have been generated by such moneys had they remained in the fund. It is not clear on this record whether this income would have prevented the fund’s value from dropping below the level at which new contributions were required, but its loss undoubtedly contributed to the fund’s diminution.

We conclude, therefore, that the State must account to the fund for the lost income and, until the moneys are returned to the fund, must continue to pay interest on the amount transferred at a rate equivalent to that which could be earned by the fund if those moneys were invested as authorized by section 333 (6). As long as those moneys are generating a reasonable level of income for the fund, and as long as they are made available for the fund’s purposes if that should become necessary, their use by the State does not offend the contributors’ rights or breach the State’s obligations. Thus, we see no need to order their immediate return.

Plaintiffs also seek a refund of those contributions they were required to make after the fund’s value fell below $150 million in 1988. They are entitled to such relief only if and to the extent that those contributions would not have been required but for the invalid aspects of chapters 503 and 55. This, too, must await the outcome of an accounting.

Finally, we note that the effect of our holding with respect to chapter 503 is to restore the statutory scheme governing the distribution of the fund’s income that was in effect prior to that legislation. This not only restores plaintiffs’ rights in the income allocable to section 334 contributions, but it also eliminates the provision requiring the fund’s balance to exceed $240 million before distribution of any of the fund’s earnings to the State. It revives the scheme put in place by the 1973 amendments, including the State’s right to all earnings attributable to section 333 contributions, less amounts paid for allowed claims and administrative expenses (see, Insurance Law § 334 [5], as amended by L 1973, ch 861).

Thus, against the reimbursement which the State is required to make to the fund, the State should be allowed an offset of any amounts of section 333 earnings that were payable to the State pursuant to the 1973 legislation, but which were not paid due to limitations imposed by chapter 503. In addition, to the extent that the $87 million transferred pursuant to chapter 55 represents section 333 moneys, the State’s payment of interest on those moneys pursuant to this decision must be considered section 333 earnings and must be included in determining what amounts were payable to the State pursuant to the 1973 legislation and which are, therefore, to be included in the offset.

Accordingly, the order of the Appellate Division should be reversed, with costs; plaintiffs’ motion for summary judgment granted; section 4 of chapter 503 of the Laws of 1979 declared invalid except to the extent that it authorizes payments of earnings of the Property and Liability Insurance Security Fund (now known as the Property/Casualty Insurance Security Fund) to offset deficits of the New York Property Insurance Underwriting Association; sections 90 and 92 (4) of chapter 55 of the Laws of 1982 declared invalid to the extent that they deprive the Property and Liability Insurance Security Fund of income on the assets of such fund thereby directed to be transferred to the State’s general fund; and the case remitted to Supreme Court, Albany County, for further proceedings in accordance with this opinion.

. In 1984, the Insurance Law was recodified without substantive change (L 1984, chs 367, 805). Pursuant to the recodification, the Property and Liability Insurance Security Fund is now known as the Property/Casualty Insurance Security Fund and is governed by article 76 of the Insurance Law. Inasmuch as the events relevant to this appeal occurred before the recodification, repeated reference to the former Insurance Law and its terminology is necessary. Throughout this opinion, therefore, statutory references will be to the former Insurance Law unless otherwise noted.

. Section 333 (6) was later amended to allow investments in certain secured certificates of deposit (L 1964, ch 395, § 2), mortgage loans or deeds of trust (L 1970, ch 611, § 1) and obligations of public benefit corporations (L 1971, ch 679).

. Contributions from motor vehicle insurers were discontinued in recognition of the fact that their prior contributions were responsible for the sizable balance taken over by the new fund — more than $125 million at the time the fund’s expansion was proposed. The Insurance Department calculated that a fund of $150 million would be adequate for the fund’s expanded purposes, but suggested that the new contributors be required to bring the fund up to $200 million to achieve a measure of equity between the two groups of contributors (see, Insurance Dept Rep, Public Interest Now in Property and Liability Insurance Regulation, at 62).

Once the initial $200 million target was reached, contributions were to resume only if claims on the fund reduced it to below $150 million. In such an event, the resumed contributions were to be apportioned ratably among those kinds of insurance that had been responsible for claims upon the fund during the preceding year (Insurance Law former § 334 [4]). Thus, it appears that motor vehicle insurers might be required to resume contributions if claims upon motor vehicle policies were responsible for depletion of the fund.

. Specifically, section 333 (2) was amended as follows to exclude from the definition of the fund’s composition income earned after the effective date of the amendment:

"Such fund shall consist of all payments made to the fund by insurers and of securities acquired by and through the use of moneys belonging to the fund, together with interest and accretions earned upon such payments or investments earned prior to January first, nineteen hundred seventy four. ”

In addition, section 334 (5) was amended by adding the following language after the provision requiring income on section 334 moneys to be returned or credited to the contributors:

"all other income so earned on other moneys in the fund (after deducting any amounts paid for allowed claims and administrative expenses during the preceding year) shall be credited * * * to the general fund of the state treasury.”

. The amendment to paragraphs (b) and (c) also provided that up to $15 million per year of such earnings were first to be credited against the deficit, if any, from the operations of the New York Property Insurance Underwriting Association, a statutorily created joint underwriting association providing fire and extended coverage insurance to homeowners and businesses in distressed urban areas where such coverage is not available on the voluntary market. Only fund earnings in excess of the amount used for such purposes were to be credited to the fund and ultimately, if the fund exceeded $240 million, to the State’s general fund. The payments to the underwriting association are not challenged in this litigation. Although no provision for repayment of these moneys was included in the 1979 legislation, repayment was mandated by subsequent legislation (L 1982, ch 55, § 91) and the amounts transferred were repaid with interest.

Hancock, Jr., J.

(dissenting). In what, by any measure, must be termed a remarkable decision, the majority today invalidates two prospective general statutes (L 1979, ch 503, and L 1982, ch 55) which pertain to the Property/Casualty Insurance Security Fund, a fund established and maintained for the purpose of protecting individual insureds and injured parties from risk of loss due to the insolvency of insurance companies. A logical analysis of the majority’s action in invalidating these statutes must start with a statement of four important and highly relevant propositions about which there can be no dispute:

(1) it is a fundamental rule of constitutional law that a court will presume an act of the Legislature to be constitutional and will strike it down as unconstitutional "only as a last resort” (Matter of Ahern v South Buffalo Ry. Co., 303 NY 545, 555, affd 344 US 367; see, Cook v City of Binghamton, 48 NY2d 323, 330),

(2) this fundamental rule has particular force where the statute at issue involves regulatory conditions imposed on a business which is already pervasively regulated (see, e.g., New York v Burger, 482 US 691, revg 67 NY2d 338; Energy Reserves Group v Kansas Power & Light, 459 US 400, 411-412),

(3) writing liability and property insurance is and has long been a pervasively regulated business, and

(4) the two statutes in question involve the regulation of the insurance business and the establishment by the State of mandatory prerequisites for its grant of permission to property and casualty insurers to conduct that business within its borders.

The Court’s holding is a blanket declaration that plaintiffs have been deprived of a "property right” in violation of some or all of the following Federal and State constitutional prohibitions: (1) taking of property without compensation, (2) a deprivation of property without due process, (3) an impairment of contractual obligations (US Const, art I, § 10, cl 1; 5th, 14th Amends; NY Const, art I, § 7).

The predicate for its holding of unconstitutionality is the Court’s finding that plaintiff insurance companies possessed a cognizable "property right” in the fund’s statutory arrangement as it existed prior to the effective dates of the amending statutes. This "property right”, the Court holds, precludes the State from giving effect to the prospective legislation altering the previously existing statutory arrangement. It is apparent that under the majority’s theory the "property right” which is essential to its declaration of unconstitutionality (see, Board of Regents v Roth, 408 US 564, 577) stems from enforceable promissory obligations on the part of the State that it would not pass legislation interfering with plaintiffs’ continued enjoyment of the rights which the State had permitted them to have prior to the effective dates of the statutes. Nowhere in the majority’s several responses to this dissent is this critical point challenged. Indeed, in the very first sentence of the opinion the majority seems to concede it.

As will be demonstrated in point I (infra), none of the several statutes pertaining to the fund, taken separately or in combination contains a basis for a finding of any promissory "property right”. Nor is there the slightest indication in this record of any implied promissory obligation based on plaintiffs’ reliance. The majority’s finding that such cognizable promissory "property rights” exist is without any foundation and squarely contradicts Federal and State law dealing with the rights of the State to change the law.

As will be shown in point II (infra), the majority holding that the statutes in question deprived plaintiffs of some promissory property right under one or more of several listed State and constitutional provisions cannot stand because no such "property right” exists in State law (see, Board of Regents v Roth, supra, at 577). But, beyond that, the majority’s conclusion that this purported promise-based "property right” is a sufficient predicate for overcoming the very strong presumption of constitutionality that these two regulatory statutes enjoy establishes a novel, and, I believe, a startling precedent in the field of constitutional taking. This precedent seems to embrace long-abandoned concepts of substantive and economic due process as a justification for striking down regulatory legislation (see, e.g., Nebbia v New York, 291 US 502, 523, 537; Lochner v New York, 198 US 45).

Finally, it will be shown in point III (infra) that this decision conflicts with and therefore overrules a 1985 holding of this Court (Methodist Hosp. v State Ins. Fund, 64 NY2d 365) rejecting a virtually identical constitutional attack on one of two statutes at issue here.

For these reasons, I must dissent. I would affirm the order of the Appellate Division, which upheld the constitutionality of the statutes.

I

The claim of a "property right” on which plaintiffs’ entire theory hinges must find its basis in an enforceable right existing in State law (see, majority opn, at 585). As the court in Board of Regents v Roth (408 US 564, 577, supra) stated, "[t]o have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. It is a purpose of the ancient institution of property to protect those claims upon which people rely in their daily lives, reliance that must not be arbitrarily undermined. * * * Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law — rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.” (See, Matter of Economico v Village of Pelham, 50 NY2d 120, 125.) A property right of a party in something is the right of that party to enforce an obligation or duty on the part of another party with respect to it (see generally, Holmes, The Common Law, Lecture VII, at 214-215 [1963 ed]). The property right may be the right to enforce a contractual obligation to make someone perform a promised act or respond in damages for not doing so. Obviously, a right —whether it is labeled a "property right” or something else— can only have meaning if there is a corresponding duty which is enforceable under some legal theory.

Here, the "property right” which plaintiffs seek to enforce and the majority recognizes is the obligation of the State not to change the law. There can be no real dispute (see, supra, at 593, n 1) that, regardless of how it is styled, the critical "property right” on which the majority founds its decision depends on the existence of two enforceable promises made by the State: (1) not to pass prospective legislation cutting off plaintiffs’ continued participation in the income to be earned after the effective date of the Laws of 1979 (ch 503) on plaintiffs’ 1970-1973 contributions and (2) not to pass prospective legislation which would have the effect of taking income out of the fund that would otherwise be earned on the corpus, if doing so would contribute to a reduction in the size of the corpus to the point where plaintiffs become bound to make further contributions. Because there is no basis in New York law for enforcing these promissory obligations against the State, there is no cognizable "property right” on which the majority can ground its claim of deprivation under any New York or Federal constitutional provision (see, Board of Regents v Roth, supra, at 577).

A

Let there be no mistake. This case involves a claim that the plaintiffs may block the future effect of legislation which is entirely prospective. Thus, with respect to the Laws of 1979 (ch 503) plaintiffs claim that they have a right to continue to receive the credits or refunds under the previously existing 1969 legislation, as amended in 1973, just as though the Laws of 1979 (ch 503) had not taken effect. Their claim is simply that the State had no right to repeal the provisions of the 1969 legislation and that with respect to income to be earned on the contributions made between 1970 and 1973 they have what amounts to a perpetual annuity. It is this claim to a perpetual annuity on the 1970-1973 contributions which the majority has recognized in its award to plaintiffs of the amount that they would have received if the pre-1979 legislation had continued in effect (majority opn, at 590).

The opinion gives no plausible reason why it accepts this claim. It offers what may be described as a mix of miscellaneous legal theories. For example, it declares that the State should operate with "good faith” and that the legislation, albeit prospective, should somehow be construed as having the effect of retroactive legislation (see, majority opn, at 587-588). This latter claim, of course, is nothing more than an assertion that plaintiffs’ rights to receive future credits or refunds on the 1970-1973 contributions were vested and could not be cut off, i.e., that their right to receive the annuity on this portion of the fund corpus continues ad infinitum. But this claim of vesting comes back full circle to the same underlying contention, the core issue in dispute: that under some legal theory the State had barred itself from giving any effect to legislation which would extinguish plaintiff’s prospective rights to refunds or credits on income earned after August 1, 1979 (see, McKinney’s Cons Laws of NY, Book 1, Statutes § 51 [e], at 97-100).

As another ingredient of its mix, the majority advances what seems to have overtones of a trust or fiduciary theory, although it avoids calling it that. The majority suggests that the responsibilities imposed on the Commissioner of Taxation and Finance as "custodian” for the fund’s safekeeping (see, infra, at 598) create some undefined duty to these plaintiffs, as distinguished from a duty to the public at large or to those members of the public who may have claims against insolvent insurance companies. This theory has no basis in the law. The duties of the Commissioner to act as custodian of the funds and keep them safe are, of course, inherent in his responsibilities — as the public official charged with the fund’s safekeeping —to safeguard these public moneys for the benefit of the public and for the purposes for which the fund was established, i.e., to provide security for injured parties or insureds who suffer losses and have claims against insolvent insurance companies. Nothing in these duties suggests that the Commissioner is entrusted with holding property for the benefit of any private party or entity (see generally, 1 Scott, Trusts § 2.6, at 48; § 14, at 184-185 [4th ed]). Certainly, nothing suggests that the funds are to be held by the Commissioner for the benefit of the plaintiff insurance companies. Significantly, plaintiffs themselves make no such argument. If any group could advance such a claim, it would be the class of injured parties or policyholders, now unidentified, who may at some future time suffer loss because of the insolvency of one or more of the insurance companies. But whatever the merit of this argument, it must be premised on the existence of the very obligation in dispute: that the State had somehow bargained ¿way its fundamental power to prospectively repeal the refund-credit provisions of the 1969 legislation. In these theories taken singly or together as an undifferentiated composite, the majority finds a "property right” of which, it says, plaintiffs have been unconstitutionally deprived.

The majority has also concluded that plaintiffs had a protected property interest of which they were deprived by the Laws of 1982 (ch 55). An analysis of the majority’s basis for the Laws of 1982 (ch 55) "property right” shows immediately that it, too, depends on plaintiffs’ legal right to block the State from passing prospective legislation: i.e., on a legally binding obligation by the State not to pass prospective legislation which would have the effect of depriving the fund of general income, thus contributing to the diminution of the fund below $150 million, the point where plaintiffs would be required to make further contributions (majority opn, at 590).

As with the argument for its Laws of 1979 (ch 503) "property right”, the majority presents a medley of theories for the "property right” it claims was affected by the Laws of 1982 (ch 55). Whether analyzed separately or as a mixture, the various theories do not support a cognizable right under which plaintiffs can deny the State its right to transfer the $87 million of corpus to the general treasury.

Some of the theories under which the majority would invalidate the Laws of 1982 (ch 55) seem to relate to a claimed "property right” in the corpus of the fund, not its income. For example, the majority notes that "the State pledged its faith and credit for the fund’s safekeeping and promised to keep the fund separate and apart from other State moneys” (majority opn, at 587), that the State was obligated "to ensure that the fund’s assets and earnings would be available for their intended purposes” (id., at 587), that "the Commissioner of Taxation and Finance was established as 'custodian’ of the fund (Insurance Law § 333 [6]), a term that implies 'responsibility for the protection and preservation of the thing in custody’ (Black’s Law Dictionary 384 [6th ed] [custody])” (id.), that the Commissioner was limited to "safe investments” of the fund’s assets (id., at 587-588), and that the statutory scheme "viewed as a whole, created in the State obligations to preserve the fund and to use its assets and earnings only for * * * narrow purposes” (id., at 588). Each of these theories suggests that the asserted obligation of the State "to maintain the integrity of the fund in order to protect the contributors from having to replenish the fund unnecessarily” (id., at 590) — on which the majority relies for invalidating the statute (L 1982, ch 55) — is related to a claimed "property right” in the corpus of the fund, not the income.

But plaintiffs do not assert that they have a "property right” in the corpus. And our Court has expressly held that plaintiffs have no such "property right” (see, American Ins. Assn. v Chu, 64 NY2d 379; Methodist Hosp. v State Ins. Fund, 64 NY2d 365, 377, supra). Nowhere in the opinion does the majority tell us that the Court has now changed its mind on this critical point. Thus, because plaintiffs can have no legal interest in the fund corpus, the “property right” predicate for invalidating the Laws of 1982 (ch 55) — like the predicate for invalidating the Laws of 1979 (ch 503) — must depend on some binding “promise” to refrain from passing prospective legislation and reducing the fund to below $150 million (see, majority opn, at 577). As will be seen, there is no recognized legal theory for the enforcement of the alleged promissory obligation of the State with respect to either statute.

A contractual obligation may arise from a promise which is either express or implied. In this case, plaintiffs’ contractual claim must be founded on either: (1) an express promise in the statutory language as it existed before the amendments when the contributions were made or (2) some implied promise based on the claim that the contributions were made in reliance on the contributors’ understanding that the statutes as they then existed would not be amended. Plaintiffs can establish no contractual right under either theory. I turn first to an examination of the statutes to see whether there is any language capable of supporting an express promise.

Section 334 (5), as it existed in 1969, provided:

“The superintendent shall allow each insurer credit for, or shall return to each insurer, that portion of the interest earned during the preceding year on the moneys in the [fund] which is allocable to the contributions paid by such insurer pursuant to this section.” (L 1969, ch 189, § 3.)

This law imposed a present obligation on the Superintendent of Insurance. As long as the law remained in effect the Superintendent was obligated either to credit or return to each insurer its proportionate share of the fund’s previous year’s income. As stated, plaintiffs do not claim that the Superintendent did not fulfill his obligations under the statute or that they did not receive all of their refunds or credits during the period before the statute’s repeal in 1979 (L 1979, ch 503). No language in section 334 (5) suggests that the law was intended to impose an obligation on the Superintendent when the law was no longer in effect, or that the Legislature could not exercise its constitutional power to amend or repeal the law. Thus, nothing in the wording of section 334 (5) can give rise to a contractual or promissory right of any nature. The majority opinion does not suggest otherwise.

What about section 333, as it existed in 1969? Former section 333 (6) provided that the fund "shall be separate and apart * * * from all other state moneys, and the faith and credit of the state of New York is pledged for [the fund’s] safekeeping”; that the "commissioner of taxation and finance shall be the custodian of said fund”; and "that moneys of said fund may be invested by the commissioner of taxation and finance only in [limited low-risk investments]”. Significantly, the statute did not provide that the income should be considered a part of the fund. Indeed, it makes no reference at all to disposition of the income or interest generated by the fund. Thus, no language in section 333 can be relied upon to support the contributors’ claimed right to participate in the fund’s income or to require that such income be retained in the fund.

A review of the provisions concerning another statutorily created fund — the Life Insurance Guaranty Fund (LIGF) — is instructive. The statute governing the LIGF, Insurance Law former § 224 (L 1939, ch 882, as amended by L 1941, ch 481), presently Insurance Law §7504, is quite different from the statutes involved here. Section 7504 (c) provides that the Life Insurance Guaranty Corp., which is charged with administering the LIGF, shall issue certificates showing dates and amounts of contributions made to LIGF. Unlike the fund here, section 7504 (a) expressly prescribes that the "gains and income from investments of the fund shall belong * * * to the contributors” (emphasis supplied). Additionally, section 7504 (e) expressly grants to contributors a reversionary interest in the fund corpus in the event the fund is dissolved "by the repeal of this article or otherwise”. The Legislature’s omission of comparable provisions from the statutes creating the fund in question here is significant. The obvious conclusion is that such omission was intended. (See, Matter of Randy K, 77 NY2d 398, 405, n 4.)

The majority recognizes the differences in the statutes relating to LIGF and the fund involved here (see, majority opn, at 587). Curiously, however, it relies on these differences to support its conclusion that the "statutory provisions may create rights that cannot be extinguished by the State” and that the statutes involved did so (id., at 587). In other words, the majority argues, what the Legislature might have done, but did not do, we should find it intended to do. The majority cites no authority for what it seems to propose as a rule of construction and the logic for it is not apparent.

Nor is there a basis for any suggestion that plaintiffs’ contributions to the fund were made in reliance on some expectancy that the statutes would remain unchanged (majority opn, at 586, 588). Plaintiffs made the contributions because they were mandated by the statute not because of some assurance or belief concerning the disposition of the fund’s income. The statutory provision requiring these contributions is the same as that contained in Insurance Law former § 333 which created the original Motor Vehicle Liability Insurance Security Fund. Subdivision (3) of that statute provided:

"For the privilege of issuing policies insuring against legal liability * * * and in addition to all other requirements of law, every insurer shall pay into the fund [x amount]” (emphasis added).

Compliance with this mandatory provision was simply one of the conditions "in addition to all other requirements of law” imposed as part of the State’s extensive regulation of the insurance industry; if plaintiffs wanted the privilege of doing business in the State they had to make the payments. It is as simple as that.

To suggest that plaintiffs’ contributions were made as part of some bargain or exchange with respect to the anticipated treatment of the income — rather than to comply with a condition required by the sovereign for its permission to conduct the pervasively regulated business of writing insurance policies in the State — belies the record and defies common sense. Is it realistic to think that national insurers, such as Allstate Insurance Co., Government Employees Insurance Co., Liberty Mutual Insurance Co. and State Farm Mutual Insurance Co., were induced to seek permission to transact business in the State of New York because of some tenuous expectancy concerning the State’s management of the fund and that but for that expectancy they would have decided to forego transacting business in one of the largest insurance markets in the Nation? But, in any event, the record contains no evidence of plaintiffs’ claimed reliance, only their bare allegations— hardly enough on which to premise a "property right” as the basis for the majority’s striking down two acts of the Legislature (L 1979, ch 503; L 1982, ch 55) as unconstitutional.

But even assuming that plaintiffs could construct a theory in support of some contractual commitment binding future Legislatures not to alter these statutes, it would still fall far short of the unequivocal and forceful proof required to sustain such a claim under long-settled legal rules. In question here are general statutes of the State of New York enacted by the Legislature for the welfare of the People at large — not private acts intended only to benefit some. It is an established rule and, indeed, a fundamental tenet of our democratic system of government that:

"It is never to be assumed * * * that the state has * * * fettered its power in the future, except upon clear and irresistible evidence that the engagement was in the nature of a private contract, as distinguished from a mere act of general legislation; and that such, in the particular instance, was the actual and deliberate intention of the state authorities.” (People v Roper, 35 NY 629, 633 [emphasis added].)

And further:

“It is true, that the state may, if it will, within the limits prescribed in its organic law, enter into private contracts with its citizens, by which the people and the government are for ever bound; but we are never