Commissioner of Ins. v. Albino

Decision Date30 September 1997
Docket NumberDocket No. 194261
Citation225 Mich.App. 547,572 N.W.2d 21
PartiesCOMMISSIONER OF INSURANCE of the State of Michigan, Plaintiff-Appellee, v. George R. ALBINO, William H. Alexander, John D. Allan, William Benton, Conrad M. Black, Bennett A. Brown, Patrick D. Burns, Paul G.S. Cantor, William D. Douglas, Mark E. Edwards, Kenneth E. Field, Nan-B de Gaspe Beaubien, Irving R. Gerstein, Anthony F. Griffiths, Sir Anthony S. Jolliffe, Thomas E. Ladner, George E. Mara, Robert W. Martin, David McCamus, Ceryl E. McLean, Andre Monast, Michael Regester, John Rhind, Michael Rosenfelder, Borden D. Rosiak, Michael J. White, Adam H. Zimmerman, Harrit Trust and Savings Bank, Ernst & Young LLP, Defendants, Ernst & Young-Canada, Defendant/Appellant.
CourtCourt of Appeal of Michigan — District of US

Bodman, Longley & Dahling, LLP by James J. Walsh and Sarah Heisler Gidley, Detroit, and Cadwalader, Wickersham & Taft by Gregory M. Petrick and Jane K. Rushton, New York City, for plaintiff-appellee.

Butzel Long by Philip J. Kessler and Timothy E. Galligan, Detroit (Davis, Polk & Wardwell by Daniel F. Kolb, Robert R. Strang, and Jerome G. Snider, New York City, and Sutherland, Asbill & Brennan, by John A. Chandler, Elizabeth Vranicar Tanis, and Amelia Toy Rudolph, Atlanta, GA, of counsel), for Ernst & Young-Canada.

Before JANSEN, P.J., and SAAD and M.D. SCHWARTZ *, JJ.

SAAD, Judge.

I Nature of the Case

This case arises out of the financial collapse of Confederation Life Insurance Company (CLIC), the largest insurance insolvency in North American history.

A foreign partnership, Ernst & Young-Canada (E & Y-Canada), challenges the Michigan courts' power to adjudicate a breach of contract and tort case brought against it by the Michigan Commissioner of Insurance (Insurance Commissioner or IC). The IC charged E & Y-Canada, as the public auditor of CLIC, with breach of contract, professional malpractice, and fraud in submitting fraudulently deceptive and misleading audits to the IC. E & Y-Canada's audits allegedly concealed the wrongful removal by CLIC of $600 million from a trust required by Michigan law to be held for the benefit of, among others, Michigan policyholders of CLIC.

E & Y-Canada says that it has no physical presence in Michigan and that Michigan courts lack jurisdiction to adjudicate the IC's claims against it because it lacks sufficient contacts or other nexus with Michigan. The IC, on the other hand, says that Michigan courts may exercise limited personal jurisdiction 1 over E & Y-Canada consistent with Michigan's long-arm statute, M.C.L. § 600.725; M.S.A. § 27A.725, and the Due Process Clause of the United States Constitution, U.S. Const., Am. XIV. The IC rests his jurisdictional case primarily on his allegation that E & Y-Canada knew that its fraudulently deceptive audits would be submitted to and relied upon by the IC and Michigan policyholders. The IC further supports its assertion of personal jurisdiction on the grounds that (1) CLIC is a Michigan resident by virtue of using Michigan as its state of entry to do business in the United States, (2) E & Y-Canada knew its audit of CLIC was a statutory predicate to CLIC's doing business in Michigan and the United States, and that (3) E & Y-Canada conducted its 1991, 1992, and 1993 audits with this Michigan corporation with full knowledge of applicable law regulating the insurance industry, and with knowledge of the catastrophic financial losses its accounting practices would cause Michigan residents/policyholders.

The circuit court held that it has jurisdiction to hear the IC's case against E & Y-Canada. In this interlocutory appeal, we affirm and remand for further proceedings.

II Facts

CLIC, which is not a party to this matter, was a mutual insurance company organized under the laws of Canada, with its principal office in Toronto, Ontario, Canada. CLIC did business in Canada, Michigan, elsewhere in the United States, and in the United Kingdom. Since 1964, Michigan has been the "state of entry" 2 for CLIC in the United States.

Michigan's Insurance Code permits an alien insurer to use Michigan as a "state of entry" to conduct business throughout the United States by qualifying as an insurer here; this process requires an alien insurer to establish a trust account and provide extensive documents and records to the IC. M.C.L. § 500.431(a)-(c); M.S.A. § 24.1431(a)-(c). The purpose of the trust account is to ensure that, if the insurer becomes insolvent, there will be sufficient assets available in the United States to satisfy United States policyholders' claims. The Insurance Commissioner is the primary regulator of alien insurance companies (including CLIC) that operate in Michigan. See M.C.L. §§ 500.222-500.224, 500.403, 500.404, 500.411; M.S.A. §§ 24.1222-500.1224, 24.1403, 24.1404, 24.1411.

In August 1994, the Superintendent of Financial Institutions Canada (CLIC's primary Canadian regulator) took control of CLIC's assets, pursuant to Canadian law. Liquidation proceedings are ongoing in Canada. On August 16, 1994, an order of rehabilitation was entered in Michigan, in favor of the Michigan Insurance Commissioner, CLIC's primary United States regulator. See Comm'r of Ins. v. Arcilio, 221 Mich.App. 54, 57, 561 N.W.2d 412 (1997).

Defendant E & Y-Canada is a partnership of Canadian chartered accountants (the Canadian equivalent of CPAs) headquartered in Toronto. E & Y-Canada audited the financial statements of CLIC for 1991, 1992, and 1993, and gave a favorable opinion regarding CLIC's financial position. That opinion was contained in a letter to CLIC's policyholders and directors that appeared in CLIC's annual statements. E & Y-Canada has never done business in Michigan, has no employees or property in Michigan, and has provided no auditing or accounting services in Michigan. CLIC engaged E & Y-Canada in Canada and paid E & Y-Canada in Canada. E & Y-Canada never directly sent any of its audit opinions or reports to anyone in Michigan, including the Michigan Insurance Bureau. Yet, it knew that its audit opinions would be sent to and relied upon by the IC and Michigan policyholders.

The Michigan Insurance Code requires insurers (including alien insurers, see M.C.L. § 500.1005; M.S.A. § 24.11005) to obtain statements from their accountants that are to be filed with the IC. M.C.L. § 500.1009(2); M.S.A. § 24.11009(2) also requires an insurer to obtain a "letter of awareness" from its accountant:

The insurer shall obtain a letter from the insurer's independent public accountant and shall file a copy with the commissioner stating that the independent public accountant is aware of the insurance code's provisions and the rules and regulations of the state of domicile's insurance department that relate to accounting and financial matters and affirming that he or she will express his or her opinion on the financial statements as to whether they conform to the accounting practices prescribed or otherwise permitted by that department, specifying the exceptions as he or she believes appropriate.

This "letter of awareness" is to be filed with the IC by the insurer.

On November 27, 1992, E & Y-Canada issued its "letter of awareness" to the board of directors of CLIC. That letter stated that the "letter is furnished solely for you to comply with Section 1009(2) of the Michigan Insurance Code and should be used for no other purpose."

We also note CLIC's December 31, 1992, Audit Profile, authored by E & Y-Canada, which states in relevant part:

In accepting an audit engagement, we assume a responsibility to the policyholders of Confederation Life, the Superintendent of Financial Institutions and other foreseeable parties who rely on the information presented in the financial statements of Confederation Life Insurance Company and its subsidiaries. Our primary objective in fulfilling this responsibility is to discharge our statutory obligation under the Insurance Companies Act which requires us to issue an audit opinion to the policyholders and directors of the Company. [Emphasis added.]

This lawsuit was filed in the Ingham Circuit Court by the IC, in his capacity as rehabilitator, 3 on June 28, 1995. Plaintiff's theory is that CLIC looted the trust fund established in Michigan in order to cover losses in other parts of CLIC's business. Plaintiff named as defendants the officers and directors of CLIC, CLIC's individual accountants, and the accounting partnership that audited CLIC's books and finances. According to plaintiff, E & Y-Canada knew that CLIC was diverting funds from the Michigan trust fund to cover losses elsewhere and knew that CLIC was on the brink of financial collapse, and nevertheless repeatedly represented to policyholders and to the IC that CLIC was financially sound. Plaintiff claims that CLIC replaced trust assets with worthless promissory notes of a CLIC subsidiary, something that E & Y-Canada should have known.

Defendant E & Y-Canada moved for dismissal, asserting that Michigan courts have no jurisdiction over it because E & Y-Canada has no contacts with Michigan. E & Y-Canada argued that Michigan did not obtain jurisdiction over it simply because E & Y-Canada's client (CLIC) did business in Michigan and filed opinions with the Michigan Insurance Bureau. E & Y-Canada also argued that it did not matter that E & Y-Canada could foresee that these documents would be filed in Michigan, because the conduct and contacts of E & Y-Canada determine personal jurisdiction, not the conduct or contacts of a third party.

Plaintiff argued that E & Y-Canada worked for a Michigan resident, because CLIC became a Michigan domicilary by virtue of M.C.L. § 500.431a; M.S.A. § 24.1431(a). Plaintiff also argued that the annual statements issued by E & Y-Canada were directed to all policyholders, including those in Michigan, that E & Y-Canada well knew that its audit work would be...

To continue reading

Request your trial
4 cases
  • Vargas v. Hong Jin Crown Corp.
    • United States
    • Court of Appeal of Michigan — District of US
    • November 15, 2001
    ...itself in a suit in Michigan does not offend traditional notions of `fair play and substantial justice.' "Comm'r of Ins. v. Albino, 225 Mich.App. 547, 559, 572 N.W.2d 21 (1997), quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 320, 66 S.Ct. 154, 90 L.Ed. 95 (1945). See also Starbrite Dis......
  • Gutierrez v. Cayman Islands Firm
    • United States
    • Texas Court of Appeals
    • March 27, 2002
    ...it issued would be used in the United States, it subjected itself to personal jurisdiction in New York); Comm'r of Ins. v. Albino, 225 Mich.App. 547, 572 N.W.2d 21, 27-28 (1997) (holding personal jurisdiction was warranted because Ernst & Young, over the course of several years, sent to Mic......
  • Commissioner of Ins. of State of Michigan v. Albino, 194261
    • United States
    • Michigan Supreme Court
    • December 23, 1997
    ...Andre Monast, Michael D. Regerster, NO. 110756. COA No. 194261. Supreme Court of Michigan December 23, 1997 Prior Report: 225 Mich.App. 547, 572 N.W.2d 21. Disposition: Motion for immediate consideration is GRANTED. Leave to appeal is DENIED. Motion to maintain confidentiality is DENIED as ......
  • Commissioner of Ins. of State v. Albino, 194261
    • United States
    • Michigan Supreme Court
    • November 25, 1997
    ...John A. Rhind, Michael Rosenfelder, Borden NO. 110756. COA No. 194261. Supreme Court of Michigan November 25, 1997 Prior Report: 225 Mich.App. 547, 572 N.W.2d 21. Disposition: Motion for immediate consideration, the motion for enforcement of automatic stay, and the application for leave to ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT