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Recent Court Decisions Identifying Statutes for Legislative Action:
A Report to the Michigan Law Revision Commission and Recommendations to the Legislature
I. Introduction
As part of its statutory charge to examine current judicial decisions for the purpose of
discovering defects in the law and to recommend needed reform, the Michigan Law Revision
Commission undertook a review of eight Michigan Court of Appeals' opinions and one
Michigan Supreme Court decision. These nine cases identify statutes and common law rules as
candidates for legislative reform. The eight Court of Appeals' opinions are:
Parker v. Board of Education of the Byron Center Public Schools, 229 Mich.
App. 565, 582 N.W.2d 859 (1998)(no statute of limitations for sexual misconduct
charges in teacher dismissal hearings)
Van v. Zahorik, 227 Mich. App. 90, 575 N.W.2d 566 (1997)(extension of the
equitable parent doctrine)
Omne Financial, Inc. v. Shacks, Inc., 226 Mich. App. 397, 573 N.W.2d 641
(1997)(validity of contractual choice-of-venue clause)
Haberl v. Rose, 225 Mich. App. 254, 570 N.W.2d 664 (1997)(tort liability of
government employee while driving her own vehicle in the course of her government
employment)
Freeman v. Hi Temp Products, Inc., 229 Mich. App. 92, 580 N.W.2d 918
(1998)(whether substantial compliance with dissolution notice provisions of Business
Corporation Act is sufficient)
Williams v. Williams, 229 Mich. App. 318, 581 N.W.2d 777 (1998)(parental
consent exception to eavesdropping statute).
Ramsey v. Kohl, 1998 WL 643092 (Sept. 18, 1998)(whether an insurer is entitled
to assert a worker's compensation lien against the proceeds of a legal malpractice
settlement)
Burchett v. RX Optical, 1998 WL 709329 (Oct. 9, 1998)(whether the Elliott-Larsen Civil Rights Act, the Handicappers' Civil Rights Act, or the Whistleblowers'
Protection Act creates an independent cause of action for a person injured by the
deprivation of another person's rights under these three Acts)
The Michigan Supreme Court decision is Oakland County Board of County Road
Commissioners v. Michigan Property & Casualty Guaranty Association, 456 Mich. 590, 575
N.W.2d 751 (1998)(whether the net-worth exclusion of M.C.L. § 500.7925 applies to public and
governmental entities). The Michigan Supreme Court also issued two opinions in 1998 dealing
with issues that the Commission previously considered in 1996.
The first opinion, Nemeth v. Abonmarche Development, Inc., 457 Mich. 16, 576 N.W.2d
641 (1998), considered whether an award of attorneys fees should be deemed an aspect of costs
under MEPA. The Supreme Court deferred that issue to the Legislature. In its 1996 Annual
Report, the Commission took up this same question in its Report on Recent Court Decisions and
recommended that the Legislature take no action.
In the second opinion, Rogers v. Detroit, 457 Mich. 125, 579 N.W.2d 840 (1998), the
Supreme Court examined the question whether police officers should be immune from suit in
actions brought by bystanders injured in a high-speed pursuit. The Court deferred that question
to the Legislature. The Commission also took this issue up in 1996 in its Report on Recent
Court Decisions and recommended that no action be taken by the Legislature.
II. Recommendation to the Legislature.
The Commission recommends that the Legislature review the contractual venue clause
issue decided in Omne Financial, Inc. v. Shacks, Inc., and clarify whether pre-dispute,
contractual venue selection clauses are valid in Michigan.
With respect to the other Court of Appeals decisions and the one Supreme Court opinion
discussed in this Report, the Commission recommends that the Legislature take no action.
III. No Limitations Period for Bringing Sexual Misconduct Charges in Teacher Dismissal
Hearing.
A. Background.
In teacher dismissal proceedings brought under the teacher tenure act, M.C.L. §§ 38.71 et seq.; M.S.A. §§ 15.1971 et seq., there is no statute of limitations regarding charges of sexual
misconduct that are brought against a teacher. The State Tenure Commission considered this
issue in Matson v. City of Berkley School Dist. Bd. of Educ. (88-25), and refused to allow
evidence of sexual misconduct that took place twenty-three years before the filing of the charges.
However, in two more recent cases, Waara v. Van Buren Public Schools Bd. of Educ. (93-33),
and Bergerow v. Kentwood Public Schools Bd. of Educ. (95-36), the Commission allowed
evidence of sexual misconduct that allegedly occurred thirteen and twenty years, respectively,
before the charges were filed.
In a related matter, Lemmerman v. Fealk, 449 Mich. 56; 534 N.W.2d 695 (1995), the
Supreme Court considered limitations periods for civil actions brought by plaintiffs who alleged
that they were sexually abused forty to fifty years before the actions were filed. In these
"repressed memory" cases the Court determined that the policy goals of the statute of limitations
to prevent stale, fraudulent, or speculative claims outweighed the plaintiffs' rights to maintain
their claims because of the lack of objective verification and indicia of reliability for their
underlying claims.
B. The Parker Decision.
The appellant Parker was discharged from his position as a tenured teacher by the Byron
Center Public School District, based on allegations of sexual misconduct by a former student.
Parker allegedly engaged in sexual contact with the student 16 years earlier. He denied the
charges, but the State Tenure Commission affirmed his dismissal and rejected his statute of
limitations defense.
The Court of Appeals distinguished the "repressed memory" cases on the basis that in the
instant case the former student's memory had not been repressed. Rather, she had failed to come
forward out of feelings of guilt.
C. Discussion.
Despite the Commission's decisions in the Waara and Bergerow cases noted above, the
Legislature has not acted to include a statute of limitations in the teacher tenure act for charges
relating to sexual misconduct. The Court of Appeals in Parker took this legislative inaction as
tacit approval of the current state of the law. The Court thus declined to establish a bright-line
time limit for bringing allegations of sexual misconduct under the teacher tenure act,
particularly when the Legislature has chosen not to impose a statutory time limit. The Court
added that the Commission's dismissal proceedings in this case were not only punitive but also
prophylactic, i.e., to prevent this teacher from sexually abusing a student in the future. Finally,
as far as the risk to a defendant of being unable to defend against stale claims, the Court stated
that it is questionable whether conduct such as that engaged in by appellant would ever be too
remote to support a tenured teacher's dismissal.
Question Presented
Should the Legislature amend the teacher tenure act by adding a statute of limitations for
charges of teacher sexual misconduct?
Recommendation
The Commission recommends that the Legislature take no action.
IV. Codification and Extension of the Equitable Parent Doctrine to a Non-Biological
Father Who Is Not Married to the Child's Mother.
A. Background.
The equitable parent doctrine originated in Atkinson v Atkinson, 160 Mich. App. 601, 408
N.W.2d 516 (1987). In the Atkinson case a child was born during the parties' marriage.
Subsequently, the plaintiff husband, who was not the child's biological father, filed for divorce
and sought custody or visitation of the child. The defendant wife defended on the ground that the
plaintiff was not the biological father of the child. The trial court ruled that because of the lack of
a biological relationship, the plaintiff did not have any parental rights. The Court of Appeals
reversed and remanded, holding that, under the circumstances, the plaintiff was an equitable
parent with rights equivalent to those of a biological parent.
An equitable parent is, in short, entitled to all rights and subject to all duties of a natural
parent. However, the equitable parent doctrine has been applied in Michigan only in cases in
which the child was born while the parties were married.
B. The Van v. Zahorik Decision.
Plaintiff and defendant were not married, but did cohabit from 1986 to 1991. Plaintiff
claimed that although the parties ceased living together in 1991, they continued to have a
"sporadic" relationship for several years. During the course of their relationship, two children
were born, one in 1989 and the other in 1993. Plaintiff alleged that defendant told him that he
was the father of the children. According to plaintiff, he cared for and supported both children
during and after his relationship with defendant. However, plaintiff alleged that from the time he
began a relationship with another woman, defendant denied him the opportunity to exercise his
normal parenting time with the minor children. Plaintiff therefore filed a complaint seeking to
establish his paternity.
In the paternity action defendant denied telling plaintiff that he was the father of the
children. Blood tests confirmed that he was not in fact the biological father. Defendant moved
for summary disposition, claiming that because plaintiff was not the biological father and could
not establish that he was the equitable parent of the children, he had no parental rights. Plaintiff
argued that he qualified as an equitable parent.
The Court of Appeals affirmed the trial court's ruling that because plaintiff and defendant
were never married, plaintiff had no grounds upon which to claim he was entitled to equitable
relief in the form of parental rights.
C. Discussion.
The equitable parent doctrine has not been free from criticism, but remains good law in
Michigan. See York v. Morofsky, 225 Mich. App. 333, 571 N.W.2d 524 (1997). Nevertheless.
the Court of Appeals in Van v. Zahorik expressed reservations about the doctrine, suggesting
that the existence and extent of such rights should be legislatively determined due to the social
implications and public policy of such a decision. Considering that the Legislature has enacted a
comprehensive statutory scheme governing children's rights in the Child Custody Act, M.C.L. §§
722.21 et seq.; M.S.A. §§ 25.312(1) et seq., expansive judicial action would infringe upon
occupied, legislative ground. Accordingly, the Court of Appeals declined to extend the equitable
parent doctrine to the facts of the Van case, noting that "as a general rule, making social policy is
a job for the Legislature, not the courts. . . . In our opinion, accepting plaintiff's position would,
in effect, contravene established policy of this state and establish a right with social implications
more appropriately addressed by the Legislature."
Questions Presented
1. Should the equitable parent doctrine be legislatively repealed? Should it be codified?
2 If codified, should the equitable parent doctrine be extended to cover cases where
the non-biological parent is not married to the natural parent of the child?
Recommendation
The Commission recommends that the Legislature take no action.
V. The Validity of Contractual Choice-of-Venue Clauses.
A. Background.
In Michigan, the venue statute applicable to contract claims, M.C.L. § 600.1621; M.S.A.
§ 27A.1621, has no express provision that allows parties to agree contractually to a venue other
than the one provided for in the statute. Case law concerning venue adds two rules, namely, that
venue is determined at the time a suit is filed, and agreements in which the parties stipulate a
proper venue after a cause of action has arisen are valid.
B. The Omne Financial Decision.
In this case a lease provision selected Oakland County as the proper venue for any cause
of action arising under the lease. When the lessee failed to satisfy the terms of the lease, Omne
Financial filed suit in Oakland County per the terms of the contractual venue provision. The trial
court denied defendant's motion that venue was improper.
The Court of Appeals reversed. It declined to create a rule that binds parties to a pre-dispute agreement on venue. The Court held that such provisions are not binding on Michigan
courts and reversed and remanded for a determination whether venue was proper in Oakland
County independent of the venue selection clause in the lease.
C. Discussion.
Despite the overarching rule of freedom of contract, the Court stated that it would be
improper for a court to enforce a pre-dispute venue selection clause. In the Court's view, to
permit parties to avoid by contract the statutory provisions regarding venue would undermine the
power of the Legislature.
Cutting against the majority's position is the fact that the Legislature drafted the venue
statute against the general backdrop of contract law that permits contracting parties to fashion
their own bargain subject to rules on fraud, overreaching, adhesion contracts, and
unconscionability. In addition, in Michigan parties are free to agree to pre-dispute forum
selection and choice-of-law clauses. See, e.g., M.C.L. § 600.475 (Michigan's version of the
Model Choice of Forum Act that validates pre-dispute forum selection clauses). Finally, unless
a defendant makes a timely objection, defects in venue are waived. Despite the waivability of
the venue defense, the Court of Appeals essentially treats the venue statute as mandatory law in
the pre-dispute context which binds the parties and limits their freedom of contract.
Question Presented
Should M.C.L. § 600.1621 be amended to authorize pre-dispute venue selection clauses?
Recommendation
The Commission recommends that the Legislature review the contractual venue
clause issue decided in Omne Financial, Inc. v. Shacks, Inc., and clarify whether
pre-dispute, contractual venue selection clauses are valid in Michigan.
VI. The Applicability of Governmental Tort Immunity to Government Employees Who
Drive Their Own Vehicles While on Government Business.
A. Background.
The Government Tort Liability Act, M.C.L. § 691.1407; M.S.A. § 3.996(107), grants
broad immunity from liability to government employees for torts committed while performing a
government function that do not amount to gross negligence. M.C.L. § 691.1405; M.S.A. §
3.996(105) does provide, however, that "Governmental agencies shall be liable for bodily injury
and property damage resulting from the negligent operation by any officer, agent, or employee
of the governmental agency, of a motor vehicle of which the governmental agency is owner . . . .
"
B. The Haberl Decision.
Defendant Rose collided with plaintiffs' car while Rose was acting within the scope of
her government employment but driving her own car. Haberl brought a negligence action
against Rose for injuries sustained in the accident. While not contesting the negligence claim,
Rose moved for summary disposition, arguing the claim was barred by governmental tort
immunity. Plaintiff responded that defendant was not protected by governmental immunity
because she was liable under the motor vehicle civil liability act, M.C.L. § 257.402, M.S.A. §
9.2101. The trial court entered judgment in Rose's favor based on a jury finding that defendant
was acting in a governmental capacity. The Court of Appeals vacated the judgment and
remanded the case for entry of a judgment on the jury's verdict of damages for the plaintiff.
The Court of Appeals summarized that "[t]here are really two parallel theories of liability
here; defendant claims immunity from common-law negligence as the driver of the vehicle by
virtue of MCL 691.1407; MSA 3.996(107) because she was a governmental employee in the
course of her employment when the accident occurred. However, she enjoys no such immunity
from the duties imposed on her as the owner of the vehicle by MCL 257.401(1); MSA
9.2101(1)." The Court continued that "were we to reach the result requested by defendant, the
following anomalous results would follow: (1) if a government employee negligently caused an
accident while driving a government-owned vehicle, the injured person would have redress
against the owner of the vehicle, the government, MCL 691.1405; MSA 3.996(105); (2) if a
government employee negligently caused an accident while driving a motor vehicle owned by a
third person, the injured person would have redress against the owner of the vehicle, the third
person, MCL 257.401; MSA 9.2101; (3) if, however, a government employee negligently caused
an accident while driving a motor vehicle owned by that employee, the injured person would
have no redress."
The Court held that such a result would be directly counter to the policy of the
government-owned vehicle exception, M.C.L. § 691.1405; M.S.A. § 3.996(105). If such an
immunity is intended for government employees driving their own vehicles in the course of their
government employment, then the Legislature is responsible for such a change.
Question Presented
Should M.C.L. § 691.1407(2) be amended to provide government employees with
immunity from tort liability for negligence as vehicle owners?
Recommendation
The Commission recommends that the Legislature take no action.
VII. Substantial Compliance With the Dissolution Notice Provisions of the Business
Corporation Act.
A. Background.
Michigan businesses may dissolve under the Business Corporation Act (BCA), M.C.L. §
450.1842; M.S.A. § 21.200. A business dissolved under the BCA may notify current and
potential claimants against the business either by mail stating a deadline for filing a claim, or by
publication limiting allowable claims to one year from the date of publication. The notice of
dissolution must be posted after the business certificate of dissolution as a Michigan business
corporation is filed with the Bureau of Corporations and Securities. Any claims against the
dissolved business filed more than one-year after the date of notice are disallowed.
B. The Freeman Decision.
High Temp Products submitted to the Bureau of Corporations and Securities its
certificate of dissolution on October 14, 1993. The certificate was not stamped "filed" until
October 25, 1993. High Temp Products sent mail notice to known creditors and claimants,
including the plaintiffs, before October 25, 1993. Similarly, newspaper notice of the dissolution
was published on October 25, 1993. All claims in the present case were filed sometime after
October 25, 1994. Hi Temp Products' motion for summary disposition on the ground of the
BCA one-year statute of limitations was denied.
The Court of Appeals affirmed the circuit court's order. The Court held that unless
publication occurred or notice was sent to plaintiffs after the certificate of dissolution was filed,
such publication or notice is invalid. High Temp Products' argument that the submission of the
certificate of dissolution for filing on October 14, 1993, was substantial compliance with the
statutory requirement was rejected because it was not explicitly provided for in the statute. The
Court concluded that "[i]f the statutory language is clear and unambiguous, judicial construction
is neither required nor permitted, and courts must apply the statute as written."
C. Discussion.
In order for a corporation that has dissolved to take advantage of the protections against
creditors' claims afforded by the BCA, it must furnish or publish notice "at any time after the
effective date of dissolution." The BCA provides that the dissolution of a corporation "shall be
effected by the filing of a certificate of dissolution on behalf of the corporation."
The statute clearly requires notice after filing, and that filing is accomplished when the
document is endorsed and stamped "filed."
Question Presented
Should a rule of substantial compliance be added to the Business Corporation Act in
connection with filing procedures for dissolution?
Recommendation
The Commission recommends that the Legislature take no action.
VIII. A Parental Consent Exception to the Eavesdropping Statute.
A. Background.
The Michigan eavesdropping statute, M.C.L. §§ 750.539 et seq.; M.S.A. §§ 28.807 et seq., makes it a felony to electronically eavesdrop on a conversation without the consent of all
the parties thereto. Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18
U.S.C. §§ 2510 et seq., makes electronic eavesdropping punishable "(e)xcept as otherwise
specifically provided in this chapter." One such exception is if a party to the conversation
consents to the interception of the conversation.
Courts in Utah, Alabama, Kentucky, Mississippi, and West Virginia have extended the
consent exception to include vicarious consent by a parent on behalf of a minor child to
intercepting and using communications with a third party where such action is in the child's best
interests.
B. The Williams Decision.
The defendant tape-recorded telephone calls between his son and the plaintiff, the boy's
mother, neither of whom were aware of the recordings. Upon learning of the tape recordings,
plaintiff filed a three-count action, claiming violations of the federal wiretapping act, the
Michigan eavesdropping statute, and the common-law tort of invasion of privacy. The defendant,
who had sole legal and physical custody of his son at the time of the tape recording, argued that
he had the authority to give consent on Jason's behalf to the interception of the telephone
conversations. The trial court granted the father's motion for summary disposition.
The Court of Appeals reversed. It rejected the defendant's argument that the
conversations should not be considered "the private discourse of others," the phrase used in the
Michigan eavesdropping statute, because defendant was a vicarious participant in the
conversation, i.e., "a party to the communication," by virtue of his role as custodial parent.
Noting that statutory construction requires determining the Legislature's intent, the Court found
no indication in the Michigan eavesdropping statute that the Legislature intended to create a
parental consent exception for conversations involving minor children. "Unlike the judiciary,"
the Court added, "the legislative branch of government is able to hold hearings and sort through
the competing interests and policies at stake."
C. Discussion.
The Michigan eavesdropping statute clearly requires the "consent of all parties thereto."
There is no indication that the Legislature intended to create an exception for a custodial parent
of a minor child to consent on the child's behalf to interceptions of conversations between the
child and a third party. Similarly, the federal wiretapping act states that any exceptions to its
prohibitions are "specifically provided in this chapter." 18 U.S.C. § 2511(1).
Question Presented
Should the Michigan eavesdropping statute be amended to include an exception that
permits a custodial parent of a minor child to consent on the child's behalf to
interceptions of conversations between the child and a third party?
Recommendation
The Commission recommends that the Legislature take no action.
IX. Whether An Insurance Carrier That Has Paid Worker's Compensation Benefits Has a
Lien in the Form of A Legal Malpractice Action Against the Attorneys Who Allegedly
Mishandled the Injured Worker's Personal Injury Lawsuit.
A. Background.
As a general matter, an employer or worker's compensation insurance carrier that has
paid out benefits to an injured employee has a statutory entitlement to reimbursement from any
recovery that the employee ultimately obtains in a third-party tort action. See M.C.L. § 418.827, M.S.A. § 17.237(827). Reimbursement is allowed only where the compensable injury was
caused under circumstances creating liability in a third party, and only to the extent that the
benefits were paid for the same injury.
B. The Ramsey Decision.
Plaintiff Ramsey filed a worker's compensation claim against his employer for injuries
suffered due to exposure to industrial chemicals. He received $65,000 in benefits.
Subsequently, Ramsey hired the Kohl law firm to pursue a products liability claim against the
manufacturer of the chemicals. His lawsuit was dismissed for failure to properly serve the
complaint.
Ramsey thereafter brought a legal malpractice lawsuit against the Kohl firm. The
worker's compensation insurance carrier moved to intervene in the legal malpractice action, but
its motion was denied. Ramsey settled with the law firm for $335,000.
In a case of first impression, the Court of Appeals rejected the insurance carrier's
argument that it had a statutory lien against any recovery Ramsey received in his legal
malpractice action. Turning to the specific language of the worker's compensation statute, and
employing the plain meaning rule of statutory construction, the Court held that the language of
the statute was clear: worker's compensation liens are limited to those third-party actions in
which recovery is sought from persons liable for causing the injury for which compensation was
payable. Because Ramsey's lawyers did not cause the injury for which compensation was paid,
no statutory lien could be placed on the legal malpractice settlement.
C. Discussion.
Despite the general policy against multiple recoveries for the same injury reflected in the
worker's compensation statute, the Court of Appeals in Ramsey declined to enforce the general
policy suggested by the statute at the expense of the specific language of the statute. Courts in
other jurisdictions have split on this issue. Some courts have permitted such liens based on the
general policy of the worker's compensation statute (the 7th Circuit, Massachusetts, New Jersey,
Oregon). Other courts have rejected this argument because of the absence of express statutory
language authorizing such liens under these circumstances (Arizona, Illinois, and Iowa).
Question Presented
Should the Worker's Compensation Act be amended to authorize liens against legal
malpractice recoveries stemming from the compensable injury?
Recommendation
The Commission recommends that the Legislature take no action.
X. Derivative Liability Under the Elliott-Larsen Civil Rights Act, the Handicappers' Civil
Rights Act, and the Whistleblowers' Protection Act.
A. Background.
The Elliott-Larsen Civil Rights Act, M.C.L. § 37.2101, M.S.A. § 3.548(101), prohibits
discrimination on the basis of sex, race, national origin, religion, height, weight, or marital status
in employment, housing, use of public accommodations, public service, and educational
facilities.
The Handicappers' Civil Rights Act parallels Elliott-Larsen, and extends the protection
of Elliott-Larsen to person with handicaps. The HCRA has the same purposes and the identical
civil enforcement provisions as Elliott-Larsen. The Court of Appeals treats claims under the
HCRA in a manner similar to those brought under Elliott-Larsen.
The Whistleblowers' Protection Act is designed to protect employees who report
violations of the law to a public body. The civil enforcement provision of the WPA is
substantively the same as those of Elliott-Larsen and the HCRA.
None of the three laws expressly creates a derivative right of action.
B. The Burchett Decision.
Burchett was terminated from her employment for allegedly complaining about her
employer's purported violations of the wage and hour laws. On the day Burchett informed the
owner that their wage and hour practices were illegal, she experienced vaginal bleeding. The
next week, she was placed on a two-week disability leave. Before the end of that two-week
period, she was discharged by her employer allegedly for having a bad attitude. She filed a
lawsuit against her former employer alleging violations of Elliott-Larsen, the HCRA, and the
WPA. Following the premature birth of her son, she amended her complaint naming her son as a
party, alleging that his birth was premature as a result of stress brought on by her employer, and
seeking damages under these three acts for his prenatal injuries.
The Court of Appeals rejected Burchett's claims on behalf of her son. Recognizing that
remedial statutes are to be liberally construed to suppress the evil and advance the remedy, the
Court was nevertheless constrained to conclude that nowhere in the language of these three laws
could one find legislative intent authorizing derivative causes of action. Because the conduct
complained of under the three Acts was directed at Burchett and not her son, the Court
concluded that Burchett's son cannot maintain a cause of action against the defendant under
Elliott-Larsen, the HCRA, or the WPA. The Court added that "because these areas of the law
have been so extensively addressed by the Legislature, we are not prepared to recognize a new
derivative cause of action in the area of civil rights or the WPA for prenatal injuries inflicted
upon the child of the person whose rights were violated."
C. Discussion.
This case raises an issue distinct from the one addressed by the Michigan Supreme Court
in Eide v. Kelsey-Hayes Co., 431 Mich. 26 (1988). There, the Court was asked to decide
whether a derivative claim for loss of consortium could be brought under Elliott-Larsen. The
Court noted that a claim for loss of consortium exists at common law and needs no statutory
authorization. The only question was whether Elliott-Larsen repealed the common law action for
loss of consortium when the loss of society and companionship arises from alleged violations of
the civil rights act. The Court concluded that there was nothing in Elliott-Larsen that precluded
a derivative action for loss of consortium.
The Commission notes that in 1998 the Legislature enacted P.A. 211, codified at M.C.L.
§ 600.2922a, that authorizes a civil damages action against "[a] person who commits a wrongful
or negligent act against a pregnant individual . . . if the act results in a miscarriage or stillbirth by
that individual or physical injury to the embryo or fetus."
Question Presented
Should the Elliott-Larsen Civil Rights Act, the Handicappers' Civil Rights Act, and the
Whistleblowers' Protection Act be amended to allow a derivative claim for injuries
suffered as a consequence of the violation of these Acts?
Recommendation
The Commission recommends that the Legislature take no action.
XI. The Applicability of the "Net-Worth" Exclusion of the Property and Casualty
Guaranty Association Act to Public and Governmental Entities.
A. Background.
The Property and Casualty Guaranty Association Act (PCGAA) was enacted to protect
insureds and third-party claimants who rely on the existence of insurance but whose insurer
becomes insolvent and is unable to provide indemnification. The PCGAA is designed to serve
as a safety net. However, claims from insureds whose net worth exceeds a statutory limit
(explained below) are excluded because they are able to absorb the loss.
Between 1981 and 1985 the Oakland County Road Commission carried general liability
insurance through Midland Insurance Co. During that period personal injury claims were made
against the Road Commission. In 1986, Midland became insolvent and liquidated. The Road
Commission paid the third-party claims and sought indemnification from the Michigan Property
and Casualty Guaranty Association (MPCGA). The MPCGA is a statutorily-created association
of insurers whose duty it is to pay certain obligations of insolvent insurers. The MPCGA denied
the Road Commission's claims for indemnification on the ground that the Commission's net
worth ($18,446,051) was greater than 1/10 of 1% of the aggregate premiums written by MPCGA
member insurers in the state in the preceding calendar year ($5,820,973), thus making the
Commission's claim one that is not covered under the PCGAA.
B. The MPCGA Decision.
In the Supreme Court, MPCGA maintained that it had no duty to reimburse the Road
Commission because the Commission's net worth exceeded the statutory maximum and,
therefore, its claims were not covered under the Act, M.C.L. § 500.7925(3), M.S.A. §
24.17925(3). For purposes relevant to this Report, the Supreme Court addressed two issues of
statutory interpretation: (1) whether the "net worth" exclusion of the PCGAA applies to insureds
or to third-party claimants, and (2) whether the Road Commission is a "person" within the
meaning of the PCGAA claim exclusion provision.
The Supreme Court agreed with the MPCGA that the net-worth exclusion applies to
insureds, not to third-party claimants; that the Road Commission is a person covered under the
PCGAA; and that its claim is not covered because its net worth exceeds the 1/10 of 1% statutory
limit. In response to the Road Commission's assertion that it was not covered under the net-worth exclusion because it is not a "person" within the meaning of the Act, the Court stated that
the Commission was essentially arguing that the Legislature made an unwise decision by
providing for the application of the term "person" to public and governmental entities.
Arguments that a statute is unwise or results in bad policy should be addressed to the
Legislature, the Court concluded.
Question Presented
Should the PCGAA be amended to except governmental entities from the net-worth
exclusion of the Act?
Recommendation
The Commission recommends that the Legislature take no action.
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