Jarrad v. INTEGON NAT. INS. CO., Docket No. 126176.

• Decision Date: 03 May 2005
• Docket Number: Docket No. 126176.
• Parties: Arthur T. JARRAD, Plaintiff-Appellee, v. INTEGON NATIONAL INSURANCE COMPANY, Defendant-Appellant.
• Court: Michigan Supreme Court

696 N.W.2d 621

472 Mich. 207

Arthur T. JARRAD, Plaintiff-Appellee, v. INTEGON NATIONAL INSURANCE COMPANY, Defendant-Appellant.

Docket No. 126176.

Supreme Court of Michigan.

May 3, 2005.

Sinas, Dramis, Brake, Boughton & McIntyre, P.C. (by George T. Sinas and L. Page Graves), Lansing, MI, for the plaintiff.

Garan Lucow Miller, P.C. (by James L. Borin and Daniel S. Saylor), Detroit, MI, for the defendant.

CORRIGAN, J.

In this no-fault coordination-of-benefits case, the trial court and the Court of Appeals ruled that an employer's self-funded long-term disability plan may not be coordinated with no-fault wage loss benefits. We hold that a self-funded long-term disability plan constitutes "other health and accident coverage" that is subject to coordination under MCL 500.3109a. We therefore reverse the judgment of the Court of Appeals, and remand the matter to the trial court for entry of an order granting summary disposition for defendant.

I. UNDERLYING FACTS AND PROCEDURAL HISTORY

Plaintiff sustained injuries in an automobile accident. At the time of the accident, he was employed by the Michigan Department of Corrections. Under a collective bargaining agreement, the state provided a long-term disability (LTD) plan that covered plaintiff. An insurance company administered the plan and processed benefit payments, but the plan was self-funded by deductions from employees' paychecks and employer contributions.

Following the accident, plaintiff began receiving monthly payments of $2,220.04 under the LTD plan. Under the coordination-of-benefits clause in plaintiff's no-fault policy, defendant, plaintiff's no-fault insurer, deducted the LTD benefits from its no-fault wage loss payments, for a net amount of $1,467.76 a month for three years following the accident.¹ Plaintiff filed this action to challenge the coordination of benefits. The parties filed cross-motions for summary disposition. The trial court granted summary disposition for plaintiff.

The Court of Appeals affirmed in a two-to-one decision.² The majority noted that MCL 500.3109a permits coordination of no-fault benefits with "other health and accident coverage...." The majority explained that in LeBlanc v. State Farm Mut. Automobile Ins. Co., 410 Mich. 173, 204, 301 N.W.2d 775 (1981), this Court had construed the word "coverage" as "a word of precise meaning in the insurance industry, [that] refers to protection afforded by an insurance policy, or the sum of the risks assumed by a policy of insurance." While this definition has expanded under Court of Appeals case law to include medical benefits received from health plans typically provided by insurers, the majority opined that no such expansion of the term "coverage" has occurred regarding work-loss benefit plans.

Moreover, the majority construed Spencer v. Hartford Accident & Indemnity Co., 179 Mich.App. 389, 445 N.W.2d 520 (1989), to preclude coordination where an employee receives "wage loss benefits from his employer through a formal wage continuation plan pursuant to a collective bargaining agreement." The majority distinguished Rettig v. Hastings Mut. Ins. Co., 196 Mich.App. 329, 492 N.W.2d 526 (1992), because in that case LTD benefits were provided under an insurance policy, rather than directly by the employer under a collective bargaining agreement.

Judge Zahra, the dissenting Court of Appeals judge in this case, opined that the self-funded LTD plan constituted "other health and accident coverage" that is subject to coordination under MCL 500.3109a. Unlike Spencer, where the employer paid wage continuation benefits directly to the employee, the instant case involves an insurance-type benefit paid by a third party from accumulated payroll contributions. The dissent would have followed Rettig, in which the Court of Appeals held that LTD benefits "constitute protection typically provided by health insurance plans, which include payments for medical expenses resulting from an accident as well as wage-loss replacement benefits." Rettig, supra at 333, 492 N.W.2d 526 (emphasis added).

Judge Zahra also opined that the self-funded nature of the plan was not dispositive, because in drafting § 3109a, the Legislature used the broad term "coverage" rather than "insurance." Moreover, case law reflects that the phrase "other health and accident coverage" includes coverage typically provided by an insurance company, regardless of whether it is actually provided by an insurance company in a particular case. For example, Michigan courts have held that "other health and accident coverage" includes: military medical benefits paid by the federal government, Tatum v. Gov't Employees Ins. Co., 431 Mich. 663, 431 N.W.2d 391 (1988); Medicare benefits, LeBlanc, supra;

medical benefits provided under a union plan, Lewis v. Transamerica Ins. Corp. of America, 160 Mich.App. 413, 408 N.W.2d 458 (1987); services offered by health maintenance organizations, United States Fidelity & Guaranty Co. v. Group Health Plan of Southeast Michigan, 131 Mich.App. 268, 345 N.W.2d 683 (1983); and medical and disability benefits provided by the Army and Veterans Administration, Bagley v. State Farm Mut. Automobile Ins. Co., 101 Mich.App. 733, 300 N.W.2d 322 (1980).

Defendant applied for leave to appeal in this Court. We held oral argument on whether to grant the application or take other peremptory action permitted by MCR 7.302(G)(1).³

II. STANDARD OF REVIEW

We review de novo the decision whether to grant summary disposition. Maiden v. Rozwood, 461 Mich. 109, 120, 597 N.W.2d 817 (1999). Moreover, the meaning of the phrase "other health and accident coverage" in MCL 500.3109a is a question of law that is also reviewed de novo. Jenkins v. Patel, 471 Mich. 158, 162, 684 N.W.2d 346 (2004).

III. DISCUSSION

A. Legal Background

MCL 500.3109a states:

An insurer providing personal protection insurance benefits shall offer, at appropriately reduced premium rates, deductibles and exclusions reasonably related to other health and accident coverage on the insured. The deductibles and exclusions required to be offered by this section shall be subject to prior approval by the commissioner and shall apply only to benefits payable to the person named in the policy, the spouse of the insured and any relative of either domiciled in the same household.

In Nyquist v. Aetna Ins. Co., 84 Mich.App. 589, 269 N.W.2d 687 (1978), the plaintiffs argued that Blue Cross-Blue Shield benefits were not insurance⁴ and therefore could not be coordinated with no-fault benefits. The Court of Appeals concluded that coordination was permitted, noting "that § 3109a uses the word `coverage' rather than `insurance'; the use of the broader term militates against plaintiffs' restrictive reading of the section at issue." Nyquist, supra at 592, 269 N.W.2d 687. Moreover, the plaintiffs' restrictive reading would subvert the statutory purpose of eliminating duplicative coverage.

An employee's use of accumulated sick leave, however, is not subject to coordination. In Orr v. DAIIE, 90 Mich.App. 687, 282 N.W.2d 177 (1979), the Court of Appeals noted that the word "coverage" means protection by an insurance policy, and that the Legislature thus intended to limit coordination to health and accident insurance coverage. Sick leave does not fall within this definition. The plaintiff's sick bank could fluctuate depending on usage. Thus, "[a]ny rate reduction granted based upon this fluctuating benefit could not be actuarially sound. However, a rate based upon another policy of insurance with fixed limits of liability would enable the insurance company to offer appropriately reduced premium rates." Id. at 690-691, 282 N.W.2d 177.

In LeBlanc, supra, this Court held that Medicare benefits were "health and accident coverage" subject to coordination. This Court stated that because the Legislature did not modify the statutory phrase "other health and accident coverage" with the word "private," the Legislature "intended to give unrestrained application of § 3109a to health and accident coverage from whatever source." LeBlanc, supra at 202

, 301 N.W.2d 775 (emphasis added). "Thus, both private and non-private plans were within the scope of the bill." Id. at 203, 301 N.W.2d 775.

The LeBlanc Court also stated: "`Coverage,' a word of precise meaning in the insurance industry, refers to protection afforded by an insurance policy, or the sum of the risks assumed by a policy of insurance." Id. at 204, 301 N.W.2d 775. This Court concluded that Medicare constituted "other health and accident coverage" because the Court perceived "no just reason to differentiate Medicare from other, more traditional, forms of health and accident coverage which irrefutably are within the scope of § 3109a. Just like any so-called private insurer, Medicare compensates providers of medical and hospital services on behalf of participants who require health care." Id. at 205, 301 N.W.2d 775. This Court found it "inconsequential" that, in other contexts, "Medicare has been deemed not to be insurance in the usual sense of the term: the same has been said of Blue Cross and Blue Shield plans which, according to Nyquist, fall within § 3109a."⁵Id.

In United States Fidelity, supra, the Court of Appeals held that services offered by a health maintenance organization (HMO) were health and accident coverage for purposes of § 3109a. The Court of Appeals acknowledged that HMOs "have a unique character. Rather than providing health insurance and paying for the bills after the insured has been treated by a doctor, an HMO is a prepaid plan where the participant pays before hand for the services themselves.... Under traditional definitions, a health maintenance organization does not sell insurance." United States Fidelity, supra at 272

, 345 N.W.2d 683 (emphasis added).

But MCL 500.3109a; MSA 24.13109(1) does not refer to "insurance" but to "health and accident coverage". Not only have medical and disability benefits from the

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