New England Mut. Life Ins. Co. v. Gray

• Decision Date: 22 June 1984
• Docket Number: Civ. A. No. 83CV-6322-AA.
• Parties: NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY, a Massachusetts Corporation, Plaintiff, v. Dennis A. GRAY, Defendant.
• Court: U.S. District Court — Western District of Michigan

590 F. Supp. 615

NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY, a Massachusetts Corporation, Plaintiff, v. Dennis A. GRAY, Defendant.

Civ. A. No. 83CV-6322-AA.

United States District Court, E.D. Michigan, S.D.

June 22, 1984.

James E. Brenner, Mark W. McInerney, Fischer, Franklin, Ford, Simon & Hogg, Detroit, Mich., for plaintiff.

Richard C. Elconin, Monroe, Mich., for defendant.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge.

This case is before the Court on cross-motions for summary judgment, pursuant to Fed.R.Civ.P. 56. For the reasons stated herein, the motion of defendant is granted, and the motion of plaintiff is denied.

FACTS

The parties have submitted a stipulation of facts in this case. In August of 1978, plaintiff New England Mutual issued a group policy of insurance to North Star Steel Company, which policy provided various insurance benefits to the employees of North Star. The policy was issued and delivered to North Star's corporate headquarters in Minnesota. Defendant Gray was an employee of North Star, who worked at the company's facility in Monroe, Michigan. Mr. Gray received a certificate of insurance from New England Mutual, which was delivered to him in Michigan.

The policy contained two provisions which are of particular importance to these motions. The first page of the policy contained the following statement:

Jurisdiction of issue: State of Minnesota

. . . . .

The Policy is delivered in the Jurisdiction of Issue, and is governed by the laws of that jurisdiction.

The policy also contained a right of subrogation operating in favor of New England Mutual, expressed as follows:

If benefits are paid by the Insurance Company defined elsewhere as New England Mutual Life Insurance Company for expenses resulting from injury for which a third party is liable, the Insurance Company shall be entitled to reimbursement from the proceeds of any recovery from such third party, whether by judgment, settlement or otherwise, after the deduction of reasonable and necessary expenditures, including attorneys fees, incurred in effecting such recovery, to the extent of the total amount of benefits paid.

In August of 1982, Gray was involved in a motor vehicle accident, in which he suffered personal injuries requiring medical treatment. He made claims for benefits under the New England Mutual policy, and received over $41,000 for payment of medical expenses.

Gray was also covered by a policy of insurance issued by the Trans-Automotive Insurance Co., which paid certain medical expenses for personal injuries incurred in the operation of a motor vehicle. Trans-Automotive was obligated under Michigan's No Fault Insurance Act, M.C.L.A. 500.3101 et seq. to pay these benefits.

Gray has also made additional claims for benefits under the New England Mutual policy totaling over $31,000. When New England Mutual learned that Gray was receiving benefits under the Trans-Automotive policy for the same medical expenses for which New England Mutual had paid benefits, New England Mutual requested that Gray reimburse it under the terms of the subrogation provision reproduced above. When Gray refused, New England Mutual brought this action for declaratory judgment, requesting this Court to declare that New England Mutual is entitled to reimbursement of the benefits which it paid to Gray to the extent that benefits covering the same expenses were paid by Trans-Automotive, that New England Mutual is not obligated to pay Gray's pending claims for $31,775 because benefits for the expenses for which these claims are made have already been paid by Trans-Automotive, and that New England Mutual is entitled to be reimbursed for any future benefits which it pays to Gray to the extent that Gray obtains overlapping benefits from Trans-Automotive or some other source.

DISCUSSION

Gray has raised two defenses to New England Mutual's claim that it is entitled to reimbursement under the subrogation provision of the insurance policy. First, Gray argues that the subrogation provision, as written, applies only to recovery of damages by the insured against a tortfeasor and does not apply to recovery from a person liable to the insured under a contract. Because the payment of benefits by Trans-Automotive did not constitute a recovery of damages in a tort action, but an amount owing because of a separate contract, and indeed because the No Fault Insurance Act has in this case eliminated tort actions against the party at fault in an automobile accident, Gray reasons that New England Mutual is not entitled to reimbursement from the benefits paid to Gray by Trans-Automotive. Second, Gray argues that New England Mutual's subrogation provision is not enforceable, because New England failed to have the provision approved by the Michigan Commissioner of Insurance, as is required by M.C.L.A. 500.3606(2).¹

THE FAILURE OF NEW ENGLAND MUTUAL TO HAVE ITS POLICY APPROVED BY THE MICHIGAN COMMISSIONER OF INSURANCE

Taking Gray's second defense first, the Court concludes that New England Mutual is not entitled to enforce the subrogation provision of the insurance policy because it failed to file a copy of the policy with the Michigan Commissioner of Insurance and obtain his approval of the policy. New England Mutual argues that it was not required to submit the policy for the approval of the Michigan Commissioner, because the policy was not "issued or delivered" in Michigan.

The Court holds as a matter of law that when an insurer issues a group disability policy, beneficiaries of which live and are employed in Michigan, and sends a certificate of insurance to the beneficiary/employees in this state, it has "issued or delivered" a policy of insurance in this state, and must therefore comply with the terms of M.C.L.A. 500.3606. The fact that the terms of the policy were negotiated in another state, or that the policy was executed by the parties to the policy in another state, does not vitiate this result.

The Court acknowledges New England Mutual's argument that it is burdensome to require an insurer to submit its policies for approval to the administrative agencies of the states in which every beneficiary of the policy is located. Nonetheless, the Court concludes that Michigan has a sufficient interest in the application of its law for the protection of its residents in such a case as this to require that the hardship must be borne by insurers. Cf. Guardian Life Ins. Co. v. Insurance Commissioner, 293 Md. 629, 446 A.2d 1140 (1982) (holding that Maryland law controls the operation of a group health insurance policy that covers employees who live and work in Maryland, notwithstanding the fact that the policy was executed in Rhode Island, and contained a provision that the law of Rhode Island would control the operation and effect of the policy).

The question then arises, if New England Mutual has failed to submit its group health policy to the Michigan Commissioner for his approval, what is the result of this failure? The statute is silent as to the consequences of such a failure, and there appears to be no case law on the subject. The Court concludes that when the insurer has failed to fulfill its statutory obligation to obtain the approval of the Commissioner of Insurance for a policy that covers employees who live and work in this state, it will be denied the benefits of a subrogation provision contained in the policy. The purpose of the submission and approval requirement of M.C.L.A. 500.3606 is to make certain that the provisions of Chapter 36 of the Insurance Code, dealing with group disability insurance, are complied with and the beneficiaries of such policies are protected against departures from the law. Only by holding the insurer bound to its promises set forth in the policy, but denying it the benefits of its subrogation provision, can the policy underlying § 500.3606 be fulfilled. The Court would work an anomalous result by holding the policy to be of no effect whatsoever, and discharging the insurer of its contractual obligation to pay benefits as a result of its failure to comply with statutory requirements, especially after the insurer has received the premiums paid by Gray's employer.

New England Mutual cites the case of Boseman v. Connecticut General Life Ins. Co., 301 U.S. 196, 57 S.Ct. 686, 81 L.Ed. 1036 (1937) for the proposition that when an insurance policy is executed in one state, and the terms of the policy are expressly made subject to the law of that state, the court will refer to the law of that state in the event of a conflict of laws between the laws of that state and the state in which the beneficiary lived and suffered the liability creating accident.

Boseman involved a group disability insurance policy issued by the defendant insurer to Gulf Oil Co. The policy was executed in Pennsylvania, and expressly made subject to the laws of that state. The policy contained a provision that all claims for permanent and total disability incurred by a covered employee must be made within 60 days of the termination of employment. The provision was valid under Pennsylvania law. Petitioner Boseman lived and worked in Texas when he suffered the totally disabling injury. Texas law declared that any stipulation in a contract requiring notice as a condition precedent to the right to sue thereon was invalid unless it gave a period of notice of at least 90 days.

The Boseman court concluded that Pennsylvania, and not Texas law applied to the insurance policy, and that the petitioner's claims were barred for failure to give timely notice under the terms of the contract. Boseman clearly involved a true conflict of laws, inasmuch as application of the Pennsylvania law rendered the notice requirement valid and enforceable, and precluded petitioner's claims, while application of Texas law rendered the notice requirement invalid, and permitted petitioner's claims to go forward.

In this case, on the other hand, there is no real conflict...