
USCA1 Opinion

	




                            United States Court of Appeals                            United States Court of Appeals                                For the First Circuit                                For the First Circuit                                 ____________________        No. 97-1354                            MANUEL MERCADO-BONETA, ET AL.                              Plaintiffs, Coappellants,                               DR. ELLIOT M. FERNANDEZ                               Codefendant, Coappellant                                          v.           ADMINISTRACION DEL FONDO DE COMPENSACION AL PACIENTE through the                        Insurance Commissioner of Puerto Rico,                                Codefendant, Appellee.                                 ____________________                    APPEAL FROM THE UNITED STATES DISTRICT COURT                            FOR THE DISTRICT OF PUERTO RICO                   [Hon. Salvador E. Casellas, U.S. District Judge]                                               ___________________                                 ____________________                                        Before                                 Lynch, Circuit Judge, and                                        _____________                      Hill* and Gibson,** Senior Circuit Judges,                                          _____________________                                 ___________________            Alberto J. Perez-Hernandez, with whom  Rafael E. Garcia-Rodon  was            __________________________             ______________________        on brief, for appellants.            Juan A. Moldes-Rodriguez, Counsel for  Administracion del Fondo de            ________________________        Compensacion al Paciente (Patient's Compensation Fund Administration),        for appellee.                                  ____________________                                  September 10, 1997                                 ____________________                                    ____________________        * Hon. James C. Hill, of the Eleventh Circuit, sitting by designation.        ** Hon. John R. Gibson of the Eighth Circuit, sitting by designation.                      LYNCH,  Circuit Judge.  This case  raises questions                      LYNCH,  Circuit Judge.                              _____________            under the Contract  Clause of the United  States Constitution            concerning  a  government's   power  to  regulate   insurance            companies facing insolvency by barring claims asserted  after            a particular date by insureds.  If that power is upheld, then            Dr.  Fernandez is  essentially uninsured  on  the malpractice            claim and  it  may be  that the  malpractice plaintiffs  will            recover nothing regardless of the merits of their claim.                        Manuel Mercado-Boneta brought a medical malpractice            action against Dr. Elliot Fernandez and  Fernandez's insurer,            the Patient's Compensation Fund Administration ("PCFA").  Dr.            Fernandez  also claimed  over against PCFA.   PCFA  moved for            dismissal  on the  grounds that,  inter alia,  PCFA had  been                                              __________            dissolved  by an  act of  the legislature  and was  no longer            liable on  Dr. Fernandez's  insurance policy.   The  district            court granted the  motion.  Dr. Fernandez  and Mercado-Boneta            appeal jointly from that  dismissal, arguing that the act  of            the  legislature violates the  Contract Clause of  the United            States  Constitution.   We find no  constitutional violation,            and affirm.                                          I.                      During  the  time of  the alleged  malpractice, Dr.                                         -2-                                          2            Fernandez  was covered by  PCFA under an  occurrence policy.1            However, PCFA was  abolished before Mercado-Boneta filed  his            claim  against  Dr.  Fernandez.2    The  Legislature  of  the            Commonwealth of Puerto Rico abrogated PCFA by Act of Dec. 30,            1986, Act  No. 4, 1986 P.R.  Laws 869 ("Act No.  4"), stating                                            ____________________            1.    An  occurrence  policy,  which  provides  coverage  for            occurrences within the  policy period regardless of  when the            claim  is made, is  distinguished from a  claims-made policy,            which only  covers the insured  for claims that  are actually            made during the policy period.              2.  Manuel Mercado-Boneta and  his wife  Milagros Molina,  on            behalf of their minor daughter Veronica Mercado-Molina, filed            their medical malpractice claim against Dr. Fernandez and his            insurance  companies on  June 24,  1992,  almost eight  years            after the alleged malpractice.  Veronica was  born on January            1, 1983,  and was  treated by Dr.  Fernandez from  that point            until the end of  June, 1984.  Plaintiffs' complaint  alleges            that Veronica developed  a high fever in early  1984, and was            taken  several   times  to   Dr.  Fernandez  who   prescribed            medications,  but  refused  to  hospitalize  Veronica.    Not            satisfied with  Dr. Fernandez's treatment of  their daughter,            plaintiffs took Veronica to another physician who immediately            hospitalized the child.  Plaintiffs allege that Dr. Fernandez            was  negligent  in failing  to  properly diagnose  Veronica's            condition and in failing to hospitalize her.  They claim that            Dr. Fernandez's negligence caused  Veronica to suffer  severe            physical  disability and  emotional  distress, including  the            permanent loss of  approximately 75% of  her hearing in  both            ears, speech impairment, loss of future income, and emotional            problems  associated with  living with  a physical  handicap.            (Plaintiff's  complaint,  appendix  pp.  36-37).   Plaintiffs            allege  total  damages in  the  amount  of $1,600,000.    Dr.            Fernandez denies the allegations  of negligence, and  submits            that Veronica's hearing  impairment was the likely  result of            head trauma Veronica  suffered when she fell from  a slide in            January  of  1986.    The record  is  sparse  regarding  when            plaintiffs  first  became  aware of  Veronica's  hearing  and            speech  problems.  It appears, however,  that they were aware            of  the   problem  by   August  of   1986,  when   Veronica's            pediatrician  referred   her  to  a  hearing  specialist  for            evaluation  of possible hearing  impairment.  (report  of Dr.            Zapata, record)                                         -3-                                          3            that  PCFA was not adequately fulfilling its intended purpose            and was  at risk of  imminent insolvency.  The  operations of            PCFA were endangered and the insureds and their patients were            at  risk of not being  compensated for their  losses.  Id. at                                                                   ___            871 ("Statement of Motives").                      Despite  the  legislature's  dissolution  of  PCFA,            Mercado-Boneta  sued PCFA3 as  an insurer of  Dr. Fernandez.4            PCFA  moved for  dismissal on  the grounds  that it  had been            dissolved  by Act  No.  4,  that it  lacked  funds to  assume            financial responsibility for  claims, and that it  was immune            from suit in Federal Court under the Eleventh Amendment.  The            district court granted PCFA's motion to dismiss on the  first            ground alone.  The court found that PCFA was legally extinct,            and that Act No. 4 did not permit the Insurance Commissioner,            as PCFA's legal representative, to honor claims filed against            PCFA  subsequent to  its  abolition  on  December  30,  1986.            Because Mercado-Boneta filed his claim against  Dr. Fernandez            later  than December 30, 1986, the Insurance Commissioner was            held  not responsible to  Dr. Fernandez for  any liability he            incurred as  a result of  Mercado-Boneta's claim.   The court                                            ____________________            3.  Act  No. 4 directs  the Insurance Commissioner  of Puerto            Rico to represent  PCFA in matters pending before  PCFA or in            actions involving PCFA in the courts.    Act No. 4,   3, 1986            P.R. Laws 871, 885.   As a result, the Insurance Commissioner            represents PCFA in this action.            4.  The  law  of Puerto  Rico  permits  a  plaintiff  to  sue            defendant's liability  insurer  directly.   26 L.P.R.A.  sec.            2003.                                         -4-                                          4            also  found that PCFA's  successor for certain  purposes, the            Insurers' Syndicate, was not responsible for any claims filed            against PCFA.                      Both  Mercado-Boneta and  Dr.  Fernandez moved  for            reconsideration of the dismissal of PCFA on the  grounds that            Act No. 4, as interpreted by the district court, violated the            Contract  Clause  of  the United  States  Constitution.   The            district court held that although Act No. 4 did substantially            impair a contractual  obligation, the Act was  reasonable and            necessary  to an important  public purpose, and  thus did not            violate the Contract Clause.                                          II.                                          A.                      As   an  initial  matter,  we  note  that  we  have            jurisdiction to  resolve the merits  of this case.   PCFA has            raised this issue on appeal.  PCFA argues that  because it is            an  "arm  of  the  state,"   and  because  the  suit  is  one            potentially involving  money damages, the  Eleventh Amendment            bars a federal court from hearing this claim against it.  The            parties  raised this  issue in the  district court,  but that            court did not reach the  issue, disposing of the suit against            PCFA on other grounds.  Whether PCFA is an "arm of the state"            for Eleventh Amendment (or, for that matter, Contract Clause)            purposes  is a difficult  question.  Because  we readily find                                         -5-                                          5            that Act No. 4 bars suit against PCFA for claims filed  after            Dec. 30, 1986, and  that such a result  does not violate  the            Contract   Clause,   we   pretermit    resolution   of   this            jurisdictional issue.   See Norton v. Mathews,  427 U.S. 524,                                    ___ ______    _______            530-32 (1976) (where merits can be readily resolved  in favor            of the  party challenging jurisdiction, resolution of complex            jurisdictional  issue may be  avoided); Birbara v.  Locke, 99                                                    _______     _____            F.3d 1233, 1237 (1st Cir. 1996).                                          B.                      We  review  de  novo orders  allowing  a  motion to                                  ________            dismiss for failure  to state a claim.   Aulson v. Blanchard,                                                     ___________________            83 F.3d 1, 3  (1st Cir. 1996).   It is clear,  constitutional            issues  aside, that Act  No. 4  bars the  claims of  both Dr.            Fernandez  and Mercado-Boneta.   At  the  time that  Mercado-            Boneta brought his  malpractice claim against Dr.  Fernandez,            the  Legislature of  the  Commonwealth  of  Puerto  Rico  had            expressly abolished PCFA  by Act No. 4, and  replaced it with            the Insurers' Syndicate.   Act No. 4  at   3, 1986  P.R. Laws            871, 885.   PCFA was no longer legally  capable of fulfilling            its obligations under the insurance policy.  The Act  further            provided that the Insurance Commissioner of Puerto Rico would            oversee  the  implementation of  the  newly  formed Insurers'            Syndicate, "it being understood, that the Syndicate shall not            assume financial responsibility for any claims filed  against                                         -6-                                          6            the  abolished Patient's  Compensation Fund  Administration."            Id.  According to  the plain  language of  this statute,  the            ___            Insurers' Syndicate was not the successor in interest of PCFA            for purposes of assuming PCFA's liabilities, and could not be            held liable for claims arising under policies issued by PCFA.                      Nor could the Insurance Commissioner be held liable            as  PCFA's  representative  for  claims  filed  against  PCFA            subsequent to  the enactment of Act No.  4.  Although the Act            provides that the Insurance Commissioner shall continue to be            responsible  for claims and procedures initiated with PCFA on            or before the  enactment of Act No. 4,  it makes no provision            for claims filed with  PCFA after the enactment of Act No. 4.            Id.   Act No.  4 exempts PCFA  from liability  on malpractice            ___            claims filed after  December 30, 1986, through  the Insurers'            Syndicate, the Insurance Commissioner, or otherwise.                                          C.                       Mercado-Boneta5  and Dr.  Fernandez argue  that Act            No. 4  nonetheless violates the  prohibition in Article  1,                                              ____________________            5.  Mercado-Boneta lacks standing to assert a Contract Clause            claim, as he has no  contractual relationship with PCFA.  See                                                                      ___            General Motors  v. Romein, 503  U.S. 181, 186-87  (1991) (the            ______________     ______            first  step  in  a Contract  Clause  analysis  is determining            whether a contractual  relationship in fact  exists); McGrath                                                                  _______            v. Rhode  Island Retirement Board,  88 F.3d 12, 16  (1st Cir.               ______________________________            1996) (in  a Contract  Clause analysis,  "a court must  first            inquire whether a contract exists").  Dr. Fernandez does have            standing, however, so we analyze the issue.                                           -7-                                          7            10, cl. 1 of the United States Constitution, that "[n]o state            shall . .  . pass any .  . . law impairing  the obligation of            contracts. .  . ."  Mercado-Boneta and  Fernandez assert that            under Dr. Fernandez's  occurrence policy with PCFA,  PCFA was            contractually obligated to reimburse Dr. Fernandez for future            claims  arising out of  negligent acts which  occurred during            the time the policy was  in effect.  They argue  that because            Act No.  4 prevents them  from seeking performance  from PCFA            under  the  contract,   the  Act   substantially  impairs   a            contractual  obligation.  They further contend that Act No. 4            is  not reasonable  and  necessary  to  an  important  public            purpose.                        The threshold  issue in Contract Clause analysis is            "whether  the  change  in  state  law  has  'operated   as  a            substantial  impairment  of   a  contractual  relationship.'"            General  Motors  Corporation  v. Romein,  503  U.S.  181, 186            ____________________________     ______            (1991)  (quoting Allied Structural Steel Co. v. Spannaus, 438                             ___________________________    ________            U.S. 234, 244 (1978)). This inquiry is broken down into three            distinct  parts:      "whether   there   is   a   contractual            relationship,   whether  a   change  in   law   impairs  that            contractual  relationship,  and  whether  the  impairment  is            substantial."  Id.  If we find  that a law does substantially                           ___            impair  a  contractual  relationship,  we  will  nevertheless            uphold  the law  if it  is  "reasonable and  necessary to  an            important  public purpose."   United States Trust  Company of                                          _______________________________                                         -8-                                          8            New York  v. New  Jersey, 431 U.S.  1, 25  (1976);   see also            ________     ___________                             ___ ____            McGrath v. Rhode Island Retirement Board, 88 F.3d 12, 16 (1st            _______    _____________________________            Cir. 1996) (citing  Energy Reserves Group  v. Kansas Power  &                        ______  _____________________     _______________            Light, 459  U.S. 400, 411-12  (1983)).  This inquiry  is more            _____            searching  than the  rational basis  review  employed in  Due            Process or Equal Protection  analysis. Although deference  is            due  to  the  legislature,  and   weight  is  given  to   the            legislature's own  statement of purposes for the law, a court            must undertake its  own independent inquiry to  determine the            reasonableness of the  law and the importance of  the purpose            behind it.  As noted in  McGrath, "a state must do more  than                                     _______            mouth the  vocabulary of  the public weal  in order  to reach            safe harbor . . . ."  88 F.3d at 16.                        Because  the  parties  do not  raise  the  issue on            appeal,  we assume arguendo that  a contract between PCFA and            Dr. Fernandez indeed existed.6   The parties also agree  that                                            ____________________            6.  We note, however, that in Contract Clause analysis, where            the state  or a  state  agency is  a party  to the  allegedly            impaired  contract, the  existence  of a  contract  is not  a            matter of state contract law, but  of federal law. It is  not            clear whether appellants  seek to characterize PCFA as an arm            of the state or as a  private insurance company.  If PCFA  is            viewed as  an arm  of the state,  in order  to find  that the            state has committed itself to a contractual obligation, there            must be a "clear  indication that the legislature intends  to            bind itself  in a  contractual manner."   Parker  v. Wakelin,                                                      ______     _______            1997 WL 436704 (1st Cir. Aug. 11, 1997).  This requirement is            referred to as the "unmistakability doctrine".  Id.                                                              ___            Even where  the state  is not alleged  to be  a party  to the            contract,  the  question  of whether  a  contract  exists for            Contract  Clause purposes  is still  a  question of  federal,            rather than  state law.   See General  Motors v.  Romein, 503                                      ___ _______________     ______                                         -9-                                          9            Act No. 4  impairs the contractual relationship  between PCFA            and Dr. Fernandez,  and that that impairment  is substantial,            under the second and third prongs of the analysis.                        As  to whether  any  impairment is  substantial, we            note  that in Contract  Clause analysis, the  expectations of            the parties to the alleged contract play an important role in            determining the substantiality of the contractual impairment.            Energy Reserves Group v. Kansas Power and Light Co., 459 U.S.            _____________________    __________________________            400, 416 (the complaining party's reasonable expectations had            not been impaired  by a statute, and  so the statute  did not            violate the Contract Clause, although it altered the parties'            obligations).    A  key factor  in  determining  the parties'            expectations  is  whether  the parties  were  operating  in a            heavily regulated industry.  Id. at 411 ("In  determining the                                         ___            extent  of the  impairment, we  are to  consider  whether the            industry the complaining party has entered has been regulated            in the  past.") (citing Allied Structural Steel Co., 438 U.S.                                    ___________________________            at 242, n. 13).   In Energy Reserves, the Supreme  Court held                                 _______________            that a Kansas statute imposing certain regulations on oil and            gas contracts did not impair existing contractual obligations            between an  oil company  and a public  utility.  438  U.S. at                                            ____________________            U.S. 181, 186  (1992) ("The question  whether a contract  was            made is  a federal question  for purposes of  Contract Clause            analysis . . . and 'whether it turns on issues of  general or            purely local law,  we cannot surrender  the duty to  exercise            our own judgment.'") (quoting Appleby v City of New York, 271                                          _______   ________________            U.S. 364, 380 (1926)).                                           -10-                                          10            416.  The Court found that because the parties were operating            in  a heavily regulated  industry, and could  readily foresee            future  regulation  involving  the  subject  matter of  their            contract,  their expectations  under  the contract  were  not            significantly affected.  Id.                                       ___                      The parties here  were also in a  heavily regulated            context.   Insurance companies  in Puerto Rico  operate under            the  highly  detailed  and comprehensive  Insurance  Code  of            Puerto Rico.  26  L.P.R.A.   201 et seq.   Among its numerous            and extensive  provisions,  the Code  permits  the  Insurance            Commissioner to  liquidate insolvent insurance  companies and            establish procedures for the resolution of claims against the            company.  26 L.P.R.A.     4002, 4008, 4019.   The breadth  of            Puerto  Rico's  regulation  of  the  insurance  industry  was            acknowledged  in Gonzalez v.  Media Elements, Inc.,  946 F.2d                             ________     ____________________            157  (1st  Cir.   1991)  ("Puerto  Rico  has   constructed  a            comprehensive framework  for  the  liquidation  of  insolvent            insurance  companies and  the  resolution of  claims  against            them."); see also  Garcia v. Island Program Designer,  791 F.                     ________  ______    _______________________            Supp. 338,  341, rev'd on other grounds,  4 F.3d 57 (1st Cir.                             ______________________            1993) (noting that  the Puerto Rico  insurance scheme is  "an            intricate  and  highly   specialized  administrative  system,            adopted by  the Commonwealth of  Puerto Rico to  regulate the            life of insurance companies from incorporation to dissolution            .  .  . .  [It]  provides  a  comprehensive program  for  the                                         -11-                                          11            rehabilitation   and   liquidation  of   domestic   insurance            companies  .  . .  .").   Dr.  Fernandez was  aware,  when he            contracted with PCFA for medical malpractice  insurance, that            the subject matter of the contract might well undergo further            regulation, including potential cancellation of the  contract            in the  event of  PCFA's insolvency. See  Veix v.  Sixth Ward                                                 ___  ____     __________            Bldg. &  Loan Ass'n, 310 U.S. 32, 38 (1940) (noting that when            ___________________            one  "purchase[s] into an enterprise already regulated in the            particular to which he now objects, he purchase[s] subject to            further  legislation  upon  the same  topic.").  Just  as the            legislature created PCFA  because of an insurance  crisis, it            was reasonable to expect that the legislature could terminate            PCFA's existence in  the event that PCFA did  not fulfill its            purposes,  or a  new crisis  ensued.   This  is exactly  what            transpired,  and we  do not  believe that  these  events were            unforeseeable.                        Whether  or not there  is a substantial contractual            impairment7 involved in  this case, we  find, turning to  the                                            ____________________            7.  Dr.  Fernandez  correctly  points out  the  dangers  that            Contract Clause analysis  would be enervated if the mere fact            of regulation meant  there was always foreseeability  of more            regulation and thus no substantial  impairment.  We need  not            decide  whether there was  indeed a  "substantial" impairment            here, given  the ease of  the analysis of  the Commonwealth's            justifications for any impairment.   In that context, we note            that such an impairment  was foreseeable, and that,  in turn,            has some bearing  on the level of scrutiny to which Act No. 4            is subjected.   See Allied Structural Steel Co.,  438 U.S. at                            ___ ___________________________            245  ("The severity of impairment  measures the height of the            hurdle  the state legislation  must clear.");see  also Energy                                                         _________ ______            Reserves, 459 U.S. at 411 ("The severity of the impairment is            ________                                         -12-                                          12            fourth part of  the Contract Clause analysis, that  Act No. 4            was reasonable and necessary to an important public purpose.                       Although apparently absolute  on its face,  "[t]he            Contract  Clause's prohibition of any state law impairing the            obligation of contracts  must be accommodated to  the State's            inherent police power to safeguard the vital interests of its            people."  Energy Reserves, 459  U.S. at 410.  A  court's task                      _______________            is "to reconcile the  strictures of the Contract Clause  with            the  'essential  attributes of  sovereign  power' necessarily            reserved  by the  States to  safeguard  the welfare  of their            citizens."  United States Trust, 431 U.S. at 20 (quoting Home                        ___________________                          ____            Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 435 (1934)).             __________________    _________                      The  Commonwealth's interests  are revealed  by the            statutory scheme.  The legislature originally created PCFA in            1976,  to  "solve   the  problem  of  medical   and  hospital            malpractice  risks."  Act  No.  4, 1986  P.R.  Laws  869, 869            ("Statement   of  Motives").    To  achieve  its  goals,  the            legislature  created  two  insurance  structures:  the  Joint            Underwriting Association ("JUA") and PCFA.   Id.  The JUA was                                                         ___            "composed  of all  insurers  licensed  to  contract  accident            insurance in  Puerto Rico,  and  its purpose  was to  provide            medicohospital professional  liability insurance  for medical            professionals and health service institutions  that could not                                            ____________________            said  to  increase   the  level  of  scrutiny  to  which  the            legislation will  be subjected.")  (citing Allied  Structural                                                       __________________            Steel, 438 U.S. at 245).            _____                                         -13-                                          13            obtain said insurance on the open market."  Id.  The  goal of                                                        ___            the JUA was to distribute profits and losses evenly among all            insurance underwriters.                       The Commonwealth  established the  second insurance            structure,  PCFA,  to  "provide  medicohospital  professional            liability coverage in excess of seventy-five thousand dollars            ($75,000)  per  claim,  furnished by  the  market  and/or the            Association, up to a limit  of one hundred and fifty thousand            dollars ($150,000)."  Id.  at 870.  PCFA was to  be funded by                                  ___            premiums imposed on the insured, in much the same manner that            private insurance companies are funded.                      Neither  the  JUA  nor  PCFA  proved  effective  in            achieving the Commonwealth's  goals.  In enacting  Act No. 4,            the  Commonwealth sought  to  eradicate  both structures  and            create  a  new,  improved   insurance  structure  called  the            Insurers'  Syndicate.  We  quote, as did  the District Court,            from the "Statement of Motives" in Act No. 4:                           It   has   been  proven   that   the                      Patient's Compensation  Fund has  serious                      faults which  sooner or later  shall make                      it a totally inoperative system.  It does                      not have  an adequate  capital structure,                      so  that it lacks  the resources  to face                      adverse fluctuations in  loss occurrence.                      The  mechanism of  the  demand which  the                      Fund has to cover operational deficits is                      inadequate because the  law establishes a                      maximum   limit    to   the    additional                      contribution  that  can  be levied  in  a                      fiscal year.                             On the other  hand, if contingencies                      occur such  as a high  incidence (even in                      the  case  of losses  under  the $150,000                                         -14-                                          14                      limit)  or high  severity, especially  in                      limits  between  one  hundred  and  fifty                      thousand  ($150,000)  and   five  hundred                      thousand  ($500,000)  dollars,  the  Fund                      could   find   itself   without  adequate                      resources to absorb its  losses.  In view                      of the  ascending trend in  the incidence                      and   severity   of   the   losses,   the                      postponement   of    the   payment    for                      subsequent   fiscal   years   could  only                      endanger the  Fund's operations  for said                      years and bring about the protests of the                      insured (because  of high costs)  and the                      victims  who   will  not   receive  their                      payment in time.            Id. at 871.   The  legislature reasonably  concluded that  if            ___            PCFA  were  not   dissolved,  it  would  continue   to  incur            liabilities and  obligations which  it would  not be  able to            meet.  Under Contract Clause analysis, a court must  consider            whether  the  proposed  justification in  fact  serves public                                                                   ______            interests and whether its mechanisms to serve those interests            reflect reasonable and necessary choices.                      __________     _________                      Act No.  4  is in  stark contrast  to the  narrowly            focused,  private interest-oriented law  that was struck down            in Allied Structural Steel Company v.  Spannaus, 438 U.S. 234               _______________________________     ________            (1978).   The  Supreme Court  there  invalidated a  law which            mandated  certain  pension  rights  for  certain   employees,            regardless  of what  the individual  employment contracts  or            pension plans  provided, because  the law  had an  "extremely            narrow focus,"  and  was  not  enacted "to  protect  a  broad            societal interest rather than a narrow class."  Id. at 248-49                                                            ___            (The law "applies only to private employers who have at least                                         -15-                                          15            100 employees, at  least one of whom works  in Minnesota, and            who have established voluntary private  pension plans . . . .            And  it  applies  only  when  such  an  employer  closes  his            Minnesota  office  or  terminates  his  pension  plan."). The            Commonwealth   was  not  legislating  on  behalf  of  private            interests  when it  enacted Act  No.  4, and  sought only  to            protect  the legitimate interests  of the public  in having a            well-functioning medical malpractice insurance system.                        The   necessity  analysis   inquires  whether   the            Commonwealth "impose[d] a drastic impairment when  an evident            and more  moderate course  would serve  its purposes  equally            well."  United  States Trust Co.,  431 U.S. at  31.  And  the                    ________________________            reasonableness inquiry  requires a determination that the law            is "reasonable  in light  of the  surrounding circumstances."            Id.  The Supreme Court has indicated that different levels of            ___            deference are afforded  to a  legislature's determination  of            reasonableness  and  necessity,  depending  on  whether   the            contracts at issue are public or private in nature.  See U.S.                                                                 ___ ____            Trust Co.,  431 U.S. at 25-26.  If  the contract is a private            _________            one, then "[a]s is customary in reviewing economic and social            regulation,  . .  .  courts  properly  defer  to  legislative            judgment   as  to  the  necessity  and  reasonableness  of  a            particular measure."   United States  Trust Co., 431  U.S. at                                   ________________________            22-23. On  the other  hand, "[w]here  the contract  allegedly            impaired  is  one  created,  or entered  into,  by  the state                                         -16-                                          16            itself,  less deference8  to a  legislative determination  of            reasonableness  and  necessity  is  required,  because   'the            State's self-interest is at stake.'"  Parker v. Wakelin, 1997                                                  ______    _______            WL 436704 (quoting  United States Trust Co., 431  U.S. at 25-                                _______________________            26).                        Here, we find that although PCFA was created by the            Commonwealth, the insurance contracts  PCFA entered into were            essentially  more akin to private contracts than public ones.            We thus accord  considerable deference to the  Commonwealth's            assessment  of the reasonableness and necessity of Act No. 4.            We  believe  the  real  issue in  determining  the  level  of            deference   given   to   a   legislative   determination   of            reasonableness and necessity is not so much whether the state            is arguably a nominal party  to the contract, but whether the            state  is  acting  in its  own  pecuniary  or self-interested            capacity  by  impairing  a  contractual   obligation  it  has            undertaken.  See United States Trust Co., 431 U.S. at 26 ("If                         ___ _______________________            a  State could reduce  its financial obligations  whenever it            wanted  to  spend  the  money  for what  it  regarded  as  an            important public purpose, the  Contract Clause would  provide                                            ____________________            8.  However, even where  public contracts are at  issue, some            deference is due  a legislature.  See  Local 589, Amalgamated                                              ___  ______________________            Transit Union v. Massachusetts,  666 F.2d 618, 642  (1st Cir.            _____________    _____________            1981) (even where  public contracts are involved,  courts are            not required to "reexamine de novo all the factors underlying                                       _______            the   legislation   and   to  make   a   totally  independent            determination" regarding the necessity and reasonableness  of            the law).                                           -17-                                          17            no  protection at all.");  Parker v. Wakelin,  1997 WL 436704                                       ______    _______            (1st Cir.) (state assessment of  necessity and reasonableness            is  given less  deference where its  own self-interest  is at            stake).   If the  state has in  fact altered none  of its own            financial obligations, then the legislative decision deserves            significant deference because the state is essentially acting            not according to its economic interests, but  pursuant to its            police powers.                           The  question then, is  whether and to  what extent            the   Commonwealth  of  Puerto  Rico  has  lessened  its  own            financial obligations by abrogating PCFA.  The answer is that            it has not done  so at all.   The Commonwealth created  PCFA,            but empowered  it to  act as  an ordinary  insurance company.            PCFA  entered  into  insurance contracts  and  conducted  its            affairs as a  more or less independent entity,  overseen by a            board of directors.  Act of May 30, 1976, Act No. 74, sec. 1,              41.050(2), 1976 P.R. Laws 223, 228-29 ("Act No. 74").  PCFA            derived its funds from premiums imposed  on the insureds, Act            No. 74, at  sec. 1,    41.050(1)(b), 41.060, and  there is no            indication  that the  Commonwealth ever  intended  to utilize            state funds to  satisfy any of PCFA's  insurance obligations.            In  fact,  Act No.  74 provided  that in  the event  that the            amount of money contributed to PCFA by the insureds were "not            sufficient to  meet  the  claims made  against  [PCFA]  in  a            specific  year," the  Commonwealth  would not  contribute any                                         -18-                                          18            funds, but  rather  "the Board  [of  PCFA would]  require  an            additional proportionate contribution of all the participants            for that fiscal year." Id. at   41.060(4).  By creating PCFA,                                   ___            the Commonwealth sought not to  provide state funds to insure            medical  professionals, but  merely to  set  up an  insurance            scheme  that would  provide the  proper setting  in  which to            resolve  the medical  malpractice insurance  crisis that  was            occurring at  the time.   Because the Commonwealth  was never            obligated to fund  PCFA, when PCFA  began to fail it  was the            public welfare,  not  the Commonwealth's  bank account,  that            stood to lose.                        Act No. 4 was plainly reasonable and necessary.  In            Chicago Life  Ins. Co. v.  Needles, 113 U.S. 574  (1885), the            ______________________     _______            Supreme  Court  upheld  against   Contract  Clause  attack  a            legislative  decision  to  liquidate  an insolvent  insurance            company.  In that case, the Court stated:                      But  can it be  possible that  the state,                      which  brought   this  corporation   into                      existence for  the purpose  of conducting                      the  business   of  life   insurance,  is                      powerless to  protect the  people against                      it, when . . . its further continuance in                      business would  defeat the object  of its                      creation, and be a fraud upon the public,                      and on its  creditors and policy-holders?                      .  . .  The [law  in  question] does  not                      contain  any  regulation  respecting  the                      affairs  of any  corporation of  Illinois                      which is not reasonable in its character,                      or   which  is   not  promotive   of  the                      interests   of  all   concerned  in   its                      management.                                         -19-                                          19            Id. at 582.   In response to  the claim that the  liquidation            ___            violated  the  contract rights  of policy-holders,  the Court            noted that "it  would be a doctrine  new in the law  that the            existence of  a private  contract of  the corporation  should            force upon  it a perpetuity  of existence contrary  to public            policy,  and the nature and objects  of its charter."  Id. at                                                                   ___            584.                         That the  Act itself  was reasonable  and necessary            does not end the analysis.  In the end, Dr.  Fernandez's real            complaint is that, because of  the claims bar date, his claim            is not among those which will be  funded out of the wind-down            of  PCFA.    In  an   attempt  to  limit  the  financial  and            administrative  burdens of  concluding  the  affairs  of  the            dissolved PCFA, the legislature provided that existing claims            would  be honored,  while claims  filed with  PCFA  after the            enactment of Act No. 4  would not.  Although this legislative            solution may appear unfair  to those physicians who paid  for            occurrence policies with PCFA and whose  claims were not made            with PCFA before the claims bar date, it was not unreasonable            under the circumstances.   In a  sense, Act No.  4 sought  to            accomplish a sort of legislative triage.   That is, it sought            to make  an equitable  distribution of  limited resources  by            providing for existing, but not future claims.                       The  Commonwealth   did  not   impose  "a   drastic            impairment when  an evident  and more  moderate course  would                                         -20-                                          20            serve its purposes  equally well."  United States  Trust Co.,                                                ________________________            431 U.S.  at 31.   We  cannot say  that the Commonwealth  was            obligated  to fund PCFA until all potential occurrence claims            had  been filed, regardless of PCFA's imminent insolvency and            inefficacy.   What the legislature  has done in this  case is            not unlike the situation in bankruptcy wherein creditors must            file   their  claims  against  a  debtor's  estate  within  a            relatively short  time period in  order to have  their claims            recognized.  See  Rule of Bankr.Proc.  3002(c) (in chapter  7                         ___            liquidation proof of claims shall  be filed within 90 days of            creditors'  meeting).  The time limitations for filing claims            against a bankrupt  have been held to create  an absolute bar            against asserting the  claim, rather than merely  an issue of            priority.   See, e.g.,  Robinson v. Mann,  339 F.2d  547, 549                        _________   ________    ____            (5th Cir. 1964)  (time limitations for filing  claims against            debtor's estate "operate as an absolute bar against creditors            who seek  to present their  claims beyond the  [bar date].");            Norris Grain Co. v. United  States, 81 B.R. 103, 106 (Bkrtcy.            ________________    ______________            M.D.  Fl. 1987)  (claims  bar date  is 'in  the  nature of  a            statute of  limitations [which] must be strictly observed.'")            (quoting In re Kay Homes Inc., 57 B.R. 967, 971 (Bkrtcy. S.D.                     ____________________            Tex.  1986) (alterations in  original)).  The  purpose behind                                                                 the claims bar date in bankruptcy, as in the case before  us,            is "to provide  the debtor and  its creditors with  finality"            and  to "insure  the swift  distribution"  of the  liquidated                                         -21-                                          21            estate.  In re Schaffer, 173 B.R. 393, 398 (Bkrtcy. N.D. Ill.                     ______________            1994) (quoting  In re Zimmerman,  156 B.R. 192,  199 (Bkrtcy.                            _______________            W.D. Mich. 1993)).  See also In re Kolstad, 928 F.2d 171, 173                                         _____________            (5th Cir. 1991) ("The deadlines  have a purpose:  they enable            a debtor and his creditors to know, reasonably promptly, what            parties  are making  claims against  the estate  and  in what            general amounts."). "[A]lthough  aware that a bar  date, like            other limitation periods, would  inevitably cause hardship on            those who failed  to act  timely, Congress  decided that  the            goal of finality is of greater benefit to the public than any            benefit derived  from allowing individual  exceptions to  the            bar date."  Norris  Grain Co., 81 B.R. at 106  (citing Hoos &                        _________________                          ______            Co. v. Dynamics Corporation of America, 570 F.2d 433, 439 (2d            ___    _______________________________            Cir.  1978)); see also  Hoos & Co.,  570 F.2d  at 439 (noting                          ________  __________            that permitting  bankruptcy court  to consider  allowing late            claims in individual  cases would "put the  bankruptcy courts            in the unenviable position of indefinitely having to consider            claims" and that such a scenario "would destroy the objective            of  finality which Congress obviously intended to promote.").                      The  same  principles  are   involved  here.    The            legislature assigned  to the Insurance Commissioner  the task            of liquidating PCFA and distributing its assets.  There was a            strong interest  in  rapidly resolving  and  quantifying  all            claims  against PCFA.   If  the  Insurance Commissioner  were                                         -22-                                          22            required  to  accept  claims   against  the  liquidated  PCFA            indefinitely  that would  clearly  contravene the  legitimate            legislative  goal   of   finality,  and   could  well   delay            distribution of funds  to any claimant.  Cf.  In re Schaffer,                                                     ___  ______________            173 B.R. at  398 ("If creditors of any  stripe were permitted            to file claims at their discretion . . . . Many estates would            be  impossible  to   administer.").    In  addition   to  the            administrative  difficulties   involved  in   permitting  the            continued filing of claims  against PCFA, due to  the limited            availability of funds,  known claimants might be  required to            await the filing  of future claims before  they could collect            on their own.  Absent a claims bar date, neither the  affairs            of  PCFA  nor  the  interests  of  pending  claims  could  be            finalized.   It was reasonable  for the legislature to  set a            cut-off  date after which time  claims against PCFA would not            be honored, and Dr. Fernandez's  claim fell on the wrong side            of that line.   We recognize that this  places Dr. Fernandez,            Mercado-Boneta,  and  others  like  them  in  an  unfortunate            situation.   We also  recognize,  however, the  legislature's            legitimate purpose  in setting  a claims  bar date,  and find            that it was reasonable and necessary under the circumstances.                                          D.                                         -23-                                          23                      We  hold that  Act  No.  4  bars  plaintiff's  suit            against  PCFA,  and that  Act  No.  4  does not  violate  the            Contract Clause of the United States Constitution.  We affirm            the District Court's dismissal of this action.                                           -24-                                          24
