League General Ins. Co. v. Michigan Catastrophic Claims Ass'n

• Decision Date: 16 July 1990
• Docket Number: No. 82417,82417
• Citation: League General Ins. Co. v. Michigan Catastrophic Claims Ass'n, 458 N.W.2d 632, 435 Mich. 338 (Mich. 1990)
• Parties: LEAGUE GENERAL INSURANCE COMPANY, Plaintiff-Appellee, v. The MICHIGAN CATASTROPHIC CLAIMS ASSOCIATION, Defendant-Appellant, and Attorney General and Commissioner of Insurance, Intervening Defendants.
• Court: Michigan Supreme Court

Page 632

458 N.W.2d 632

435 Mich. 338

LEAGUE GENERAL INSURANCE COMPANY, Plaintiff-Appellee, v. The MICHIGAN CATASTROPHIC CLAIMS ASSOCIATION, Defendant-Appellant and Attorney General and Commissioner of Insurance, Intervening Defendants.

No. 82417.

Supreme Court of Michigan.

Argued Dec. 6, 1989.

Decided July 16, 1990.

[435 Mich. 339] Honigman Miller Schwartz and Cohn, John D. Pirich, Timothy Sawyer Knowlton, Lansing, for intervening plaintiffs-appellees, Midwest Mut. Ins. Co., Foremost Ins. Co., Progressive Cas. Ins. Co.

John D. Pirich, P.C., Noah Eliezer Yanich, Kevin J. Moody, Miller, Canfield, Paddock and Stone, Lansing, for intervening plaintiffs-appellees, Midwest Mut. Ins. Co., Foremost Insurance Co., Progressive Cas. Ins. Co., American Sec. Ins. Co., Associates Ins. Co. (formerly Emmco Ins. Co.), and Dairyland Ins. Co.

[435 Mich. 340] Dykema Gossett, Donald S. Young, Kathleen McCree Lewis, Marybeth Targett, Detroit, for defendant-appellant.

OPINION

CAVANAGH, Justice.

We determine in this case whether the Michigan Catastrophic Claims Association (MCCA) ¹ is a state agency, and therefore subject to the Administrative Procedures Act. ² We hold that it is not and reverse the decision of the Court of Appeals. ³

I FACTS

The Michigan automobile no-fault act was adopted by the Legislature in 1972, M.C.L. § 500.3101⁴ et seq.; M.S.A. § 24.13101 et seq. The act requires that insurers pay or reimburse their policyholders' lifetime medical expenses. There is no dollar limit on an insurer's liability for medical, hospital, and rehabilitation benefits under the statute; thus, where injuries are severe, the resulting claims may be extremely high. The cost of covering an insured's catastrophic losses--amounts of more than $250,000--could be overwhelming to an individual insurance company.

Following implementation of the no-fault act, more insurers and reinsurers became aware of the potential for enormous liabilities under the personal protection insurance coverage provisions. Consequently, the MCCA was created in 1978 ⁵ to serve as the means for reimbursing each member insurer for all "ultimate loss sustained under personal protection insurance coverages in excess of $250,000.00 in each loss occurrence." M.C.L. § 500.3104(2); M.S.A. § 24.13104(2).

In this case, the MCCA, an unincorporated, nonprofit association of private insurers, adopted a statutorily required "plan of operation," promulgated by its board of directors. The plan includes a method to calculate premiums for catastrophic claim coverage and generate funds to pay for those claims. Pursuant to the plan, the MCCA is authorized to make and collect premium assessments from member ⁶ insurers. M.C.L. § 500.3104(7)(d), (e); M.S.A. § 24.13104(7)(d), (e).

The MCCA charged its members for two premium payments, the first being sent out in February 1979. League General Insurance Company, a no-fault insurer required to be a member of the MCCA and, thus, subject to its premium assessments, did not pay the premium. Instead, League General brought an action in Ingham Circuit Court against the MCCA, claiming that the premiums were arbitrary and unreasonable. The MCCA, in turn, filed a counterclaim for the unpaid assessments.

Michigan Mutual Insurance Company brought a similar action in which it alleged that the MCCA was a state agency subject to the APA, that the MCCA had not complied with the rule-making requirements of the APA ⁷ in adopting its operating plan, and, accordingly, that its plan and its assessments were invalid. The Commissioner of Insurance was joined as a party defendant, and the actions were joined for trial. ⁸

The trial court ruled that the MCCA was a state agency, that its operating plan was a "rule" subject to the APA, and that it could not levy premiums against plaintiff until the plan had been properly promulgated pursuant to the APA. The trial court indicated, however, that the MCCA could offset indemnification payments to nonpaying member insurers to the extent of their unpaid premium assessments if the MCCA promptly promulgated its plan pursuant to APA standards. The MCCA appealed. League General cross appealed. The Attorney General intervened.

The Court of Appeals affirmed the lower court's decision regarding the MCCA's state agency ⁹ status and that its plan of operation was null and void. ¹⁰ The MCCA appealed; this Court denied leave on July 11, 1988. On July 27, 1988, the Legislature passed 1988 P.A. 277, which amended M.C.L. § 24.203(2); M.S.A. § 2.560(103)(2) and statutorily pronounced the MCCA not to be a state agency subject to the APA. ¹¹ Consequently, this Court granted the MCCA's motion for reconsideration and application for leave to appeal in a September 28, 1988, order, limited to two issues: (1) whether the amendment operated retroactively, and (2) if so, whether the statute was constitutional. On July 25, 1989, however, the Court determined it was necessary to ascertain whether the MCCA was a state agency before the passage of 1988 P.A. 277, and issued a supplemental order to that effect. This is the sole issue before us today.

II ANALYSIS

Under the APA, M.C.L. § 24.203(2); M.S.A. § 3.560(103)(2), an "agency" is defined as "a state department, bureau, division, section, board, commission, trustee, authority or officer, created by the constitution, statute, or agency action."

As we determined in Hanselman v. Wayne Co. Concealed Weapon Licensing Bd., 419 Mich. 168, 351 N.W.2d 544 (1984), the proper interpretation of this statute requires the presence of two characteristics for an "agency." The entity at issue must be a "state" unit or position and must be created by the constitution, by statute, or by agency action. If these two requirements are met, and it is not specifically exempted, ¹² an "agency" is subject to the provisions of the APA. 419 Mich. at 182, 351 N.W.2d 544.

In Hanselman, this Court had to determine whether the Wayne County Concealed Weapon Licensing Board was an "agency" within the meaning of the APA, so that it would be required to comply with APA provisions. There was no dispute that the licensing board was created by statute ¹³ and that it was not specifically exempted from the APA. ¹⁴ However, we had to ascertain whether the board was a state board in which case it would have been an agency under the APA and subject to those provisions.

The Court of Appeals in the instant case did not embark upon this two-pronged inquiry. It found that because the MCCA statute creates a board of directors, ¹⁵ and "boards" are specifically included within the APA's definition of agency, "[t]hat alone leads to the conclusion that the CCA's board of directors, in effect the association itself, must abide by the APA." 165 Mich.App. at 284, 418 N.W.2d 708. Only then did the Court note the oft-cited test enunciated in In re Advisory Opinion re Constitutionality of 1966 PA 346, 380 Mich. 554, 571, 158 N.W.2d 416 (1968), as applied by the trial court. The Court of Appeals looked to our decision in Hanselman for guidance in applying Advisory Opinion to determine whether the licensing board was a state or local agency. After a very brief analysis, the Court of Appeals determined that application of the Advisory Opinion test led to the conclusion that the MCCA was indeed a state agency.

In Advisory Opinion, the Court had to ascertain whether the "state" housing development authority was an instrumentality of state government. We recognized:

"We must ... look behind the name to the thing named. We must examine its character, its relations, and its functions to determine, indeed, whether it is an agency or instrumentality of State government." 380 Mich. at 571, 158 N.W.2d 416.

As we stated in Hanselman, the Advisory Opinion was not exactly analogous to the facts in that case; however, the analysis was appropriate to determine whether the board is a state board. 419 Mich. at 184, 351 N.W.2d 544.

We believe the Court of Appeals erred (a) in not engaging in the dual analysis required to determine whether the MCCA's board was a "state" board, and (b) in applying the Advisory Opinion test and concluding that the MCCA was a state agency.

The Court of Appeals found that the nature of the MCCA and its relation to the state rendered it a state agency. The reasons were: (1) the MCCA was created by statute, (2) the Commissioner of Insurance appoints the directors and serves as ex officio member of the board of directors, (3) the MCCA levies mandatory assessments against its members, and (4) it has the power to adopt rules and hear complaints.

As we stated in Hanselman, supra, the fact that an entity is created by statute does not dispositively indicate "state" status. 419 Mich. at 187, 351 N.W.2d 544. See also Schlega v. Detroit Bd. of Zoning Appeals, 147 Mich.App. 79, 81, 382 N.W.2d 737 (1985). Likewise, it does not automatically follow that the MCCA's board can be classified as having state status.

Second, the Court of Appeals stated that the Commissioner of Insurance appoints the MCCA's directors and serves as ex officio member of the board of directors. The Court of Appeals apparently was focusing on M.C.L. § 500.3104(11); M.S.A. § 24.13104(11). ¹⁶

Despite the fact that the commissioner appoints the five directors to the MCCA board, ¹⁷ the commissioner does not possess ostensible and pervasive control because of this appointment power. Although the commissioner serves as an ex officio board member, the commissioner has no voting power ¹⁸ and is not counted for purposes of determining whether a quorum is present.

Plaintiff, throughout the proceedings below, also emphasized the commissioner's involvement in adoption of the MCCA plan. No later than sixty days after its initial meeting, the board is required to submit the proposed plan of operation to the commissioner for approval. If no plan is submitted within this sixty-day period, the commissioner must formulate and effectuate a plan after consulting with the...