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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us)


STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6456

July 27, 1987

INSURANCE:

Sale by foreign domiciled risk retention group insurer of no-fault automobile insurance to Michigan residents

By virtue of the preemption of state law by the federal Liability Risk Retention Act of 1986, a foreign domiciled risk retention group insurer not authorized to do business in this state may sell no-fault automobile insurance to Michigan residents.

Honorable Timothy L. Walberg

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion as to whether the federal Liability Risk Retention Act of 1986 preempts the provisions of the Michigan Insurance Code or the Michigan Vehicle Code, which require Michigan residents to purchase no-fault automobile insurance from insurance companies licensed to do business in the State of Michigan.

In 1986, the Product Liability Risk Retention Act of 1981, 15 USC 3901 et seq (Act), was amended by the Liability Risk Retention Act of 1986 to permit the sale of many additional forms of insurance by risk retention groups, including no-fault automobile insurance. The risk retention group may sell insurance to risk purchasing groups in other states without complying with the regulatory statutes of the states.

A risk retention group is defined in 15 USC 3901(a)(4) as any corporation or other limited liability association "whose primary activity consists of assuming and spreading all, or any portion, of the liability exposure of its group members." The Act requires that a risk retention group must be licensed as an insurer in at least one state. If it is licensed in at least one state, it may insure risks in any other state with virtually no state regulation.

A "purchasing group" is defined in 15 USC 3901(a)(5) as follows:

"(A) has as one of its purposes the purchase of liability insurance on a group basis;

"(B) purchases such insurance only for its group members and only to cover their similar or related liability exposure, as described in subparagraph (C);

"(C) is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and

"(D) is domiciled in any State[.]"

Section 3902(a) of the Act, provides:

"Except as provided in this section, a risk retention group is exempt from any state law, rule, regulation or order to the extent that such law, rule, regulation or order would (1) make unlawful, or regulate, directly or indirectly, the operation of a risk retention group...."

Michigan can, however, make such a group comply with the unfair claim settlement practices laws of our state. 15 USC 3902(a)(1)(A). Such a group must pay, on a non-discriminatory basis, taxes which are levied on admitted insurers and surplus lines insurers. 15 USC 3902(a)(1)(B). Such a group must also participate in any assigned risk plan which the state authorizes under law. 15 USC 3902(a)(1)(C). If the domiciliary state does not examine the group's financial condition, then the State of Michigan may determine the group's financial condition in coordination with other states examining the group. 15 USC 3902(a)(1)(E)(i). Risk retention groups domiciled in other states are generally beyond the regulatory power of the State of Michigan.

Section 6 of the Act specifies the permissible state authority. Section 6(a) states:

"Nothing in this chapter shall be construed to exempt a risk retention group or purchasing group authorized under this Act from the policy form or coverage requirements of any State motor vehicle no-fault or motor vehicle financial responsibility insurance law."

More importantly, Sec. 6(d) reads in its entirety as follows:

"Subject to the provisions of section 3902(a)(4) of this title relating to discrimination, nothing in this chapter shall be construed to preempt the authority of a State to specify acceptable means of demonstrating financial responsibility where the State has required a demonstration of financial responsibility as a condition for obtaining a license or permit to undertake specified activities. Such means may include or exclude insurance coverage obtained from an admitted insurance company, an excess lines company, a risk retention group, or any other source regardless of whether coverage is obtained directly from an insurance company or through a broker, agent, purchasing group, or any other person." (Emphasis added.)

Thus, if the financial responsibility statutes of the State of Michigan require that an insurer be licensed in the State of Michigan, then the insurance offered by the risk retention group may not be offered to comply with the financial responsibility laws of the State of Michigan unless the group is authorized to do business in this state.

The motor vehicle owner or operator financial responsibility statutes are contained in the Michigan Vehicle Code, c v, MCL 257.501 et seq; MSA 9.2201 et seq.

Failure to pay a judgment entered by a court in an action arising from the operation of a motor vehicle results in the suspension of the operator's license and vehicle registration by the Secretary of State as provided in the Michigan Vehicle Code, Sec. 512; MCL 257.512; MSA 9.2212.

Restoration of the license is conditioned upon an agreement to pay the judgment and upon proof of financial responsibility for future accidents. MCL 257.515; MSA 9.2215. See also, 1 OAG, 1955, No 2216, p 451 (September 6, 1955). The Legislature has set forth the procedures to satisfy the financial responsibility requirement. Section 517 of the Michigan Vehicle Code, MCL 257.517; MSA 9.2217, reads:

"Proof of financial responsibility when required under this chapter may be given by filing:

"1. A certificate of insurance as provided in section 518 or section 519; or

"2. A bond as provided in section 523; or

"3. A certificate of deposit of money or securities as provided in section 524."

Section 518(a) of the Michigan Vehicle Code, MCL 257.518(a); MSA 9.2218(a), states:

"Proof of financial responsibility may be furnished by filing with the secretary of state the written certificate of any insurance carrier duly authorized to do business in this state certifying that there is in effect a motor vehicle liability policy for the benefit of the person required to furnish proof of financial responsibility...." (Emphasis added.)

Section 519 of the Michigan Vehicle Code, MCL 257.519; MSA 9.2219, applies to non-resident owners of motor vehicles. Section 524 of the Michigan Vehicle Code, MCL 257.524; MSA 9.2224, permits a deposit with the Secretary of State of a sum of money or securities approved by the Secretary of State as proof of financial responsibility. The Michigan Vehicle Code does not permit financial responsibility requirements to be fulfilled by insurance issued by an out-of-state insurance company which is not licensed to do business in the State of Michigan.

It was clearly the intent of Congress that risk retention groups could not fulfill financial responsibility requirements unless the states authorized such insurance to be offered by such groups. During the debate on the amendment to the federal Liability Risk Retention Act of 1986, the following statement was made by Senator Gorton prior to the adoption of the amendment.

"I am particularly pleased, Mr. President, that language contained in the House bill recognizing the right of a State to require proof of financial responsibility before the undertaking of certain activities and to prescribe the manner for meeting that requirement, is retained in this amendment. As I stated on the floor at the time of the passage of the Senate bill, requirements of financial responsibility are usually the result of a State's concern about third parties who might be injured by the insured's activities. In the State of Washington, for instance, many activities require prior proof of insurance by a carrier admitted to do business in the State. Such laws would continue to be valid notwithstanding the fact that they might preclude participation in an out-of-State risk retention group for the purpose of meeting that requirement.

"Mr. President, the Senator from Wisconsin [Mr. Kasten], mentioned an existing risk retention group and one that is likely to be formed if this bill is enacted in his discussion of the bill's financial responsibility provision. He stated that he hoped that the States would not use their authority with respect to financial responsibility to curtail the activities of these groups. I would like to note that that admonition to the States should not be taken to imply that a State cannot impose financial responsibility requirements on the members of those groups. If the State chooses to impose such a requirement, however, it may not make unfair distinctions between risk retention groups and conventional insurers." (Emphasis added.) Cong Record Senate, October 6, 1986, S 15453-S 15454.

While risk retention groups cannot fulfill the financial responsibility provisions of the Michigan Vehicle Code unless they are licensed to do business in this state, they, nonetheless, can issue policies of no-fault insurance to Michigan residents who are not required to provide proof of financial responsibility despite the prohibitions set forth in the Insurance Code of 1956, 1956 PA 218, Secs. 1910 and 3101; MCL 500.1910 and 3101; MSA 24.11910 and 13101.

Act 218, Sec. 1910, requires that insurance shall not be placed with an unauthorized insurer when coverage is available from an authorized insurer. The section also states that there is a rebuttable presumption that no-fault automobile insurance is available from authorized insurers and therefore a surplus lines agent may not obtain a no-fault insurance policy from an insurer which is not licensed to do business in the State of Michigan unless the agent can rebut the presumption that such insurance is available from authorized insurers. This language has been preempted by the provisions of Sec. 3902(a) and (d) of the Liability Risk Retention Act of 1986 since these provisions do not state that the permissible state authority includes the ability to prohibit a risk retention group from issuing no-fault policies.

Section 3101 of the Insurance Code of 1956 sets forth the mandatory requirement that the owner or registrant of a motor vehicle shall maintain security for the payment of benefits under personal protection insurance, property protection insurance and residual liability insurance. Subsection (3) of Sec. 3101 reads:

"Security may be provided under a policy issued by an insurer duly authorized to transact business in this state which affords insurance for the payment of benefits described in subsection (1)...." (Emphasis added.)

However, this section has also been preempted by the federal statute. The only authorization given to the state to limit the operation of a risk retention group is set forth in Sec. 3905(d), supra. The state's authority to prohibit a risk retention group sale of insurance is limited to setting standards for providing financial responsibility in order to obtain the return of a suspended driver's license pursuant to Secs. 513(a) and 516(a)-(d) of the Michigan Vehicle Code, MCL 257.513(a) and 257.516(a)-(d); MSA 9.2213(a) and 9.2216(a)-(d).

When the financial responsibility provisions of the Michigan Vehicle Code are not required to be fulfilled by proof of financial responsibility, the no-fault insurance issued by the risk retention group is not prohibited from being sold in the State of Michigan to members of the purchasing group by virtue of the preemption by the Liability Risk Retention Act of 1986.

It is my opinion, therefore, that by virtue of the preemption of state law by the federal Liability Risk Retention Act of 1986, a foreign domiciled risk retention group insurer not authorized to do business in this state may sell no-fault automobile insurance to Michigan residents. It is my further opinion that a foreign domiciled risk retention group insurer may sell financial responsibility insurance to Michigan residents only if it is duly authorized to do business in this state.

Frank J. Kelley

Attorney General

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