Certified Question, In re

• Decision Date: 01 November 1994
• Docket Number: No. 1,Docket No. 99562,1
• Parties: In re CERTIFIED QUESTION. FUN 'N SUN RV, INC. v. MICHIGAN. Calendar,
• Court: Michigan Supreme Court

Page 468

527 N.W.2d 468

447 Mich. 765

In re CERTIFIED QUESTION FUN 'N SUN RV, INC. v. MICHIGAN.

Docket No. 99562.

Calendar No. 1, Nov. Term, 1994.

Supreme Court of Michigan.

Argued Nov. 1, 1994.

Decided Dec. 30, 1994.

Law, Weathers & Richardson, P.C. by James Wernstrom, Douglas W. Van Essen, Ellen S. Carmody, David W. Center, Grand Rapids, for plaintiffs.

Frank J. Kelley, Atty. Gen., Thomas L. Casey, Sol. Gen., Richard F. Zapala, George H. Weller, Asst. Attys. Gen., Lansing, for defendants.

Donald S. Young, Thomas M. Pastore, Sp. Asst. Attys. Gen., Detroit, for defendants State Administrative Bd. and Acc. Fund Director E.L. Cox.

Jordan Rossen, Gen. Counsel, M. Elizabeth Bunn, Associate Gen. Counsel, Greenspon, Scheff & Washington, P.C., George B. Washington, for amicus curiae Intern. Union, United Auto., Aerospace and Agr. Implement Workers of America (UAW).

Joseph A. Fink, Jeffery V. Stuckey, William C. Bertrand, Jr., Dickinson, Wright, Moon, Van Dusen & Freeman, Lansing, for amicus curiae Blue Cross and Blue Shield of Michigan.

Opinion

ROBERT P. GRIFFIN, Justice.

This matter is before us as the result of an executive message of Governor John M. Engler dated May 6, 1994, in which he requested this Court, pursuant to MCR 7.305(A), to address and resolve the question:

Is that portion of 1993 P.A. 198; i.e. M.C.L. § 418.701a; M.S.A. § 17.237(701a), which makes that consideration for the sale of the State Accident Fund the property of the state, constitutional and in conformance with the law?

Having granted the request, 446 Mich. 1201 --- N.W.2d ---- (1994), we now answer that the challenged portion of the statute is constitutional. ¹

I

Underlying the certified question presented in the instant case is a lawsuit, Fun 'N Sun RV, Inc. v. Michigan, filed September 21, 1993, in the Court of Claims by two Accident Fund policyholders. ² They allege, inter alia, that they and other similarly situated policyholders are owners of any surplus accumulated by the fund in excess of the amount needed to cover liabilities, that the fund's assets are held by the state in trust for the policyholders, and that the policyholders are entitled to distribution of any surplus or profit of a potential sale of the fund by the state. ³

While this suit and a motion for summary disposition filed by the defendants were pending, the Legislature passed, and on October 19, 1993, the Governor signed, a series of bills that became effective April 1, 1994, as 1993 P.A. 195-200. ⁴ Of particular significance for purposes of the matter before us is 1993 P.A. 198, now § 701a of the Worker's Disability Compensation Act, M.C.L. § 418.101 et seq.; M.S.A. § 17.237(101) et seq., which declares in part:

(1) The state administrative board ... may authorize the executive director of the state accident fund to enter into and consummate, under terms and conditions approved by the state administrative board, an agreement in the name of the state of Michigan for the sale of all or substantially all of the assets of the state accident fund to a permitted transferee, and assumption of all or substantially all of the liabilities of the state accident fund by the permitted transferee subject to the following conditions:

* * * * * *

(2) The consideration in the transaction ... shall be the property of the state of Michigan.

On March 9, 1994, the Court of Claims issued an opinion denying defendants' motion for summary disposition. Relying primarily on Comm'r of Ins. v. Advisory Bd. of the Michigan State Accident Fund, 173 Mich.App. 566, 434 N.W.2d 433 (1988), the court concluded that "the policyholders of the Accident Fund have a vested right to the assets, monies and surpluses of the Accident Fund...."

On June 15, 1994, the State Administrative Board announced its approval of an agreement for the sale and transfer of the fund's assets and liabilities to Blue Cross and Blue Shield of Michigan for consideration in the sum of $291,000,000.

One provision of the legislation authorizing such a sale, § 701a(2), provides that except for one percent to be used for winding up the affairs of the Accident Fund, the consideration received by the state is to go into the "rainy day fund" established pursuant to § 351 of 1984 P.A. 431. Another provision indicates that any agreement for sale of the Accident Fund, § 701a(3)(a), is to be consummated by December 31, 1994, 1993 P.A. 198, § (3)(1).

Before turning to the arguments presented in support of plaintiffs' challenge to the constitutionality of 1993 P.A. 198, M.C.L. § 418.701a; M.S.A. § 17.237(701a), ⁵ an overview of the historical context preceding this dispute is provided to aid our analysis.

II

In 1912, worker's disability compensation was first adopted and implemented in this state. The original legislation included provisions to establish the Accident Fund as an optional source from which employers could obtain liability insurance. ⁶ The Accident Fund was to be administered by the Commissioner of Insurance under a statutory directive that the fund be "neither more nor less than self-supporting...." Id. In 1917, an advisory board nominated by the policyholders was established to "advise with the Commissioner of Insurance as to the means and methods of administering the affairs of said accident fund...." ⁷ 1917 P.A. 206, § 13.

In 1969, the original legislation, as amended, was repealed and replaced by M.C.L. § 418.701 et seq.; M.S.A. § 17.237(701) et seq. as part of a general revision of worker's compensation law. The basic statutory framework relating to the fund remained intact, including the mandate that its purpose was not profit making, but to be neither more nor less than self-supporting.

In 1976, the Attorney General issued an opinion, stating that the Accident Fund is a state agency and that the fund's employees are subject to civil service classification. ⁸ Instead of settling a dispute, the opinion seemed to revitalize a continuing controversy between the Commissioner of Insurance and the Advisory Board over who had control of the Accident Fund.

In 1981, the Advisory Board filed a suit in federal district court against the Commissioner of Insurance, seeking a ruling that the fund was not a state agency. Accident Fund v. Baerwaldt, 545 F.Supp. 1030 (W.D.Mich.1982). The board did not prevail on this issue; however, several policyholders who joined in the suit as plaintiffs enjoyed more success with their claim that the assets of the fund were held in trust and could not be taken by the state for general purposes. In a consent judgment, the commissioner agreed that under the then-existing statutory scheme the "assets, monies and funds held for or by the Michigan State Accident Fund" could not be borrowed, taken, or placed in the general fund by the state, or "used for purposes inconsistent with the Worker's Disability Compensation Act of 1969 and its amendments...." ⁹

More litigation followed in 1983, when the Commissioner of Insurance filed a suit, which, among other things, challenged the authority of the Advisory Board to increase rates without his approval. However, the central issue presented for review to the Court of Appeals in Comm'r of Ins., supra, was whether the Accident Fund is a state agency.

The Court of Appeals held that the fund is a state agency and that it is not a mutual insurance company. The Court determined that the fund was subject to the supervisory and administrative control of the Commissioner of Insurance and that its employees were entitled to civil service classification. The Court also addressed a counterclaim of the Advisory Board that the state has no equity interest, or interest other than as trustee, in the fund's monies, reserves, or surplus. Referring to two statutory provisions in the WDCA, §§ 705 ¹⁰ and 711, the Court of Appeals stated:

Clearly, under the statute, the Commissioner of Insurance, acting in concert with the State Treasurer, has the authority to hold the funds of the Accident Fund and to invest those funds. MCL 418.705; MSA 17.237(705); see also McAvoy [v. HB Sherman Co., 401 Mich. 419, 450, 258 N.W.2d 414 (1977) ] (state control over Second Injury Fund). However, it must also be noted that MCL 418.711; MSA 17.237(711) provides that the Accident Fund shall be neither more nor less than self-supporting. We interpret this provision to mean that just as the state does not subsidize the Accident Fund, neither can it receive any "profits" from the fund to expend for other purposes. Thus, while the State of Michigan holds the assets of the Accident Fund in trust and, through the Commissioner of Insurance and the State Treasurer, has control over those funds and the authority to invest the funds, it can withdraw no money from the fund to use for any other state expenditures and those funds may only be expended to further the purpose of the Accident Fund. [173 Mich.App. p. 588, 434 N.W.2d 433 (emphasis added).] ¹¹

At the time the fund was created, and until as recently as 1990, § 711 provided direction that the Accident Fund was to be "neither more nor less than self-supporting...." However, in 1990, comprehensive changes were made by enactment of legislation, the described purpose of which was to put "the Fund on an equal footing with private insurers in the marketplace and ensure that it did not compete unfairly with them." ¹²

In addition to repealing § 711 (which required the fund "to be neither more nor less than self-supporting"), enactment of 1990 P.A. 157 effected a number of fundamental changes in the structure and operation of the Accident Fund. The act, inter alia, (1) made the Accident Fund an "autonomous entity in the department of commerce"; (2) provided for an executive director to be appointed by the Governor for a four-year term; (3) added § 711a, which substituted for § 711 a provision that rates were to be as low as possible consistent with sound actuarial standards; (4) included a new § 712, providing for a one-time...