Allen v. Michigan Property & Cas. Guar. Ass'n

• Decision Date: 15 December 1983
• Docket Number: Docket No. 65533
• Citation: 129 Mich.App. 271,341 N.W.2d 500
• Parties: Mary Lee ALLEN, Plaintiff-Appellant, v. MICHIGAN PROPERTY AND CASUALTY GUARANTY ASSOCIATION, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 500

341 N.W.2d 500

129 Mich.App. 271

Mary Lee ALLEN, Plaintiff-Appellant, v. MICHIGAN PROPERTY AND CASUALTY GUARANTY ASSOCIATION Defendant-Appellee.

Docket No. 65533.

Court of Appeals of Michigan.

Submitted April 5, 1983.

Decided Sept. 28, 1983.

Released for Publication Dec. 15, 1983.

Marston, Sachs, Nunn, Kates, Kadushin & O'Hare, P.C. by David K. Barnes, Jr., Detroit, for plaintiff-appellant.

Dykema, Gossett, Spencer, Goodnow & Trigg by Craig L. John and Mary Ellen Darin, Bloomfield Hills, for defendant-appellee.

Before WAHLS, P.J., and GRIBBS and WARSHAWSKY ^*, JJ.

PER CURIAM.

Plaintiff appeals as of right from the trial court's June 17, 1982, order granting summary judgment in favor of defendant.

Plaintiff commenced a civil action against Dr. Harry M. Gallup, seeking damages for the alleged negligent treatment of her foot ailment. On June 28, 1979, plaintiff obtained a judgment against Dr. Gallup in the amount of $15,000, plus costs and interest. Dr. Gallup was insured by All-Star Insurance Company, a Wisconsin corporation which had been ordered into liquidation prior to the time plaintiff obtained her judgment against Dr. Gallup. All-Star was engaged in the insurance business in Michigan only as a surplus lines carrier.

Plaintiff, being unable to satisfy her judgment, filed a claim for payment with defendant Michigan Property and Casualty Guaranty Association. Under the Property and Casualty Guaranty Association Act (hereinafter, the Act), M.C.L. § 500.7901 et seq.; M.S.A. § 24.17901 et seq., defendant association is required to pay certain obligations of member insurers who have become insolvent. Defendant denied plaintiff's claim. Plaintiff then commenced this action alleging that payment was due under the Act. Defendant filed a motion for summary judgment under GCR 1963, 117.2(1) and (3), alleging that defendant was not liable to plaintiff under the Act because All-Star was not an "insolvent insurer" and the claim was not a "covered claim" within the meaning of the Act. The trial court granted the motion and summary judgment was entered. ¹

In interpreting the Act, we employ certain well-established principles of statutory construction governing insurance laws. Since the insurance business is one affected with a public interest, laws applicable to insurance are to be liberally construed in favor of the policyholders, creditors and the general public. Statutes relative to insurance will be construed in the most beneficial way which their language will permit to prevent absurdity, hardship or injustice, to favor public convenience and to oppose all prejudice to public interests. The statute is to be given a reasonable construction looking to its purpose and the object it seeks to accomplish. Attorney General ex rel. Ins. Comm'r v. Michigan Property & Casualty Guaranty Ass'n., 80 Mich.App. 653, 657-658, 263 N.W.2d 918 (1978); Dearborn National Ins. Co. v. Comm'r of Ins., 329 Mich. 107, 44 N.W.2d 892 (1950); Comm'r of Ins. v. American Life Ins. Co., 290 Mich. 33, 287 N.W. 368 (1939).

The Act was designed to protect insureds and persons with claims against insureds from potentially catastrophic loss in the event the insurer becomes insolvent. Such persons have a right to rely on the existence of an insurance policy and are not likely to be in a position to evaluate the financial stability of the insurance company and have no control over the time at which their claims against the company may arise. Metry, Metry, Sanom & Ashare v. Michigan Property & Casualty Guaranty Ass'n, 403 Mich. 117, 121, 267 N.W.2d 695 (1978).

The parties agree that plaintiff's claim arose prior to the 1980 amendments to the Act and that the case is governed by the statutory provisions in existence prior to 1980. ²

The association created under the Act is comprised of:

" * * * all insurers authorized to transact in this state any of the kinds of insurance specified in section 7925 * * *. Every such insurer shall be a member of the association, as a condition of its authority to continue to transact insurance in this state." 1972 P.A. 207, § 7911. (Emphasis added.)

An authorized insurer is one who possesses a subsisting certificate of authority issued by the Commissioner of Insurance. M.C.L. § 500.108(1); M.S.A. § 24.1108(1).

The association is required to pay and discharge covered claims under § 7931. The term "covered claims" is defined in § 7925.

"(1) 'Covered claims' means obligations of an insolvent insurer which: (i) arise out of the insurance policy contracts of the insolvent insurer issued to residents of this state or are payable to residents of this state on behalf of insureds of the insolvent insurer, (ii) were unpaid by the insolvent insurer, (iii) are presented as a claim to the receiver in this state or the association on or before the last date fixed for the filing of claims in the domiciliary delinquency proceedings, (iv) were incurred or existed prior to, on, or within 30 days after the date the receiver was appointed, and (v) arise out of policy contracts of the insolvent insurer issued for all kinds of insurance except life and disability insurance." 1972 P.A. 207, § 7925. (Emphasis added.)

The terms "insolvent insurer" and "member insurer" are defined in § 7921:

" 'Insolvent insurer' means a member insurer for which a domiciliary or ancillary receiver has been appointed in this state after the effective date of this chapter." 1969 P.A. 277, § 7921(b).

" 'Member insurer' means an insurer required to be a member of the association in accordance with the provisions of section 7911." 1969 P.A. 277, § 7921(a).

Accordingly, defendant association was required to pay plaintiff's unsatisfied judgment against All-Star's insured only if All-Star was an insolvent insurer within the meaning of the Act. In order to be an insolvent insurer, All-Star must have been an insurer who was required to be a member of the association under § 7911. Under § 7911, the critical question is whether All-Star was an insurer authorized to transact insurance in this state. Plaintiff contends that since All-Star was permitted to transact insurance in this state it was authorized within the meaning of § 7911. We do not agree.

As noted previously, All-Star was a surplus lines insurance carrier. ³ In Attorney General, supra, 80 Mich.App. p. 661, 263 N.W.2d 918, the Court defined surplus lines insurers as:

"[U]nauthorized, out-of-state insurers permitted to write policies for Michigan residents who are unable to obtain suitable coverage at reasonable rates from Michigan-authorized insurers. See MCLA 500.1840 et seq.; MSA 24.11840 et seq."

A more thorough explanation is provided in OAG, 1979-1980, No. 5612, p. 509 (December 20, 1979):

"Surplus lines carriers are insurance companies which are neither chartered nor licensed to sell insurance in the State of Michigan. The purpose of such carriers has been expressed as follows:

" ' * * * Historically, the function of surplus lines insurance was to provide lines of insurance that were in excess of the lines, or amounts of a particular line, which could be absorbed by the insurance companies admitted to do business within a state. Today it has come to mean any insurance placed with insurance companies not admitted to do business in a particular state. Non-admitted insurers provide valuable services in addition to their historic function. First, non-admitted insurers are often responsible for the introduction of wholly new lines of insurance coverage in areas in which admitted companies have shown little interest. Moreover, they can write insurance risk by risk, whereas their admitted counterparts, because of the restrictions imposed by state regulation and the belief that actuarial tables based on extensive sampling are necessary, are confined to writing only class insurance. The ability to so individualize insurance coverage enables such insurers, through the use of non-standard forms, to tailor their policies to the exact needs of the insured, and also to perform a valuable service in writing deductibles. Finally, the existence of surplus lines insurers provides an escape from the rigid rate and form regulations imposed by states on admitted insurers * * *.'

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"Surplus lines carriers are permitted to do business in Michigan without being licensed and without being required to meet the prerequisites of licensure, such as maintaining minimum capital, surplus, and reserves. The activity is permitted by the legislature not for the benefit of the carriers involved, but for the protection of the citizens...