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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. 5674

April 2, 1980

INSURANCE:

Powers of Commissioner of Insurance

Arbitration clause in hospital professional liability insurance policy

HOSPITALS:

Arbitration of malpractice claims

The Commissioner of Insurance may require professional liability insurance policies to conform to the requirements of 1956 PA 218, Sec. 3061(2), but is not empowered to impose any sanctions for the failure of any hospital to comply with the terms of a hospital professional liability insurance policy incorporating the provisions of this statute.

E. C. Mackey

Acting Commissioner

Michigan Insurance Bureau

Department of Commerce

1048 Pierpont

Lansing, Michigan 48910

You have requested my opinion concerning what sanctions, if any, the Commissioner of Insurance may impose upon hospital professional liability insurers and insured hospitals in the event an insured hospital fails to comply with the provisions of the Insurance Code of 1956, 1956 PA 218, ch 30A, et seq, as added by 1975 PA 141, MCLA 500.3051 et seq.; MSA 24.13051 et seq.

1956 PA 218, supra, Sec. 3061(2) states:

'(2) The commissioner shall require that the malpractice insurer and the insured hospital have accomplished substantial participation in arbitration by the independent hospital staff of a hospital. Substantial participation shall be deemed established if within 1 year of the effective date of the approval of the form of a malpractice policy, a particular insured hospital has achieved independent hospital staff participation accounting for 75% of patient treatment or admissions; in the second year 85% of such treatment or admissions; and in the third year 90% of such treatment or admissions.'

In 1956 PA 218, supra, Sec. 3053, the legislature has provided:

'(1) As a condition of doing business in this state a malpractice insurer shall not offer a policy of professional liability insurance to any hospital unless the policy contains a provision in the form and upon such other conditions as the commissioner shall approve, which requires the insured to offer a form of arbitration agreement to each patient treated or admitted.

'(2) The commissioner shall approve the form of policy conditioned upon a finding that the arbitration agreement offered together with the procedures and other documents used in connection with any arbitration comply with the provisions of this chapter and rules as may be promulgated pursuant to section 3059 after consultation with the advisory committee.'

Your questions fall into two parts: (1) What sanctions, if any, may be imposed upon a hospital professional liability insurer and an insured hospital in the event the hospital fails to achieve substantial participation in arbitration by independent hospital staff, as required by 1956 PA 218, Sec. 3061(2), supra, and (2) what action, if any, the Commissioner of Insurance may take to enforce the provisions of 1956 PA 218, Sec. 3053, supra, which makes it mandatory for hospital professional liability insurance policies to contain a clause which requires the insured hospital to offer a form of arbitration agreement to each patient treated or admitted.

Amendatory 1975 PA 141 was enacted to alleviate a medical malpractice insurance crisis which has developed in this State. The legislature simultaneously enacted 1975 PA 140, adding Chapter 50A to the RJA, 1961, MCLA 600.5040 et seq; MSA 27A.5040 et seq, to govern arbitration of medical malpractice claims. 1956 PA 218, ch 30A et seq, supra, requires the Commissioner of Insurance to supervise the provisions of hospital professional liability insurance policies and sets forth certain requirements, or qualifications, which must be met by hospitals seeking medical malpractice insurance.

1956 PA 218, Sec. 3061(2), supra, states that the Commissioner shall require the malpractice insurer and the insured hospital to accomplish substantial participation in arbitration by independent hospital staff. The section sets forth levels of participation which are deemed substantial. The statute itself provides no sanctions for the failure of an insured hospital to attain a required level of arbitration participation by independent hospital staff.

The second part of your question relates to 1956 PA 218, Sec. 3053, supra, which provides that as a condition of doing business in this State, a hospital professional liability insurer shall not offer a policy of professional liability insurance to any hospital unless the policy contains a provision which requires the insured to offer a form of arbitration agreement to each patient treated or admitted. This section imposes a duty upon the Commissioner of Insurance to approve the form of the insurance policy upon the condition that the arbitration requirements of the statute and promulgated rules are fulfilled.

The Commissioner of Insurance has no authority to require insureds to offer a form of arbitration agreement to each patient treated or admitted, but only the authority to require that such a provision be included in policies of professional liability insurance offered to hospitals. Enforcement of this contract provision is the responsibility of the insurance company rather than the Commissioner of Insurance. Failure of the hospital to comply with this condition of the contract of insurance may be raised by the insurance company as a defense to a claim upon the policy by the hospital. This alone should be sufficient to bring about compliance by the hospitals. The Commissioner of Insurance has no authority to promulgate rules which relate to the implementation of the policy provision described in 1956 PA 218, Sec. 3053, supra, but may promulgate rules which condition the right of an insurer to do business in the State upon the inclusion of such a provision in a professional liability insurance policy.

While the Commissioner of Insurance may wish to monitor the implementation of the arbitration process, 1956 PA 218, ch 30a, et seq, supra, does not authorize him to impose any sanctions. The Commissioner of Insurance may only require the inclusion of such provision in a hospital professional liability insurance policy.

It is my opinion, therefore, that the Commissioner of Insurance may require that professional liability insurance policies conform to the requirements of 1956 PA 218, ch 30A, et seq, supra, but may not impose sanctions for failure of any hospital to comply with the terms of a hospital professional liability insurance policy incorporating the provisions of 1956 PA 218, Sec. 3061(2), supra.

Frank J. Kelley

Attorney General


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