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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. 6553

December 16, 1988

INSURANCE:

Limited liability pools--liquor liability insurance

Limited liability pools--term of existence

Property and Casualty Guaranty Association--limited liability pool member of

Property and Casualty Guaranty Association--assessment on limited liability pool

INTOXICATING LIQUORS:

"Claims made" insurance policy as proof of financial responsibility of licensee

Liquor liability insurance issued by limited liability pool

TAXATION:

Liability of limited liability pool

The existence of a limited liability pool is not terminated upon a finding by the Commissioner of Insurance that the specific type of liability insurance is now readily available at a reasonable price and the pool may continue to solicit and issue new and renewal policies.

The life of a limited liability pool is determined by the duration set forth in the original articles of incorporation and may be extended as provided in MCL 500.5222; MSA 24.15222.

A limited liability insurance pool is a member of the Property and Casualty Guaranty Association as provided in MCL 500.7901 et seq; MSA 24.17901 et seq, and is subject to pay an annual assessment equal to any other insurer.

A limited liability pool can assess its members under MCL 500.6500 et seq; MSA 24.16500 et seq, a maximum amount equal to the annual premium only.

A liquor liability insurance policy issued to a retail liquor licensee by a limited liability pool providing coverage of $50,000 per occurrence satisfies the requirement that a licensee provide proof of financial responsibility as set forth in MCL 436.22a(2); MSA 18.993(1)(2).

A retail liquor licensee may purchase liability insurance from a surplus lines insurance company which is not a member of the Property and Casualty Guaranty Association.

A "claims made" insurance policy which contains the required two-year extension attachment satisfies the proof of financial responsibility requirement set forth in the Michigan Liquor Control Act, MCL 436.22a; MSA 18.993(1).

A limited liability pool is subject to the same state taxes as other domestic insurers.

Honorable Raymond M. Murphy

State Representative

State Capitol

Lansing, Michigan 48909

You have requested my opinion on several questions regarding business liability insurance.

Your first question concerns limited liability pools which are formed pursuant to Chapter 65 of the Insurance Code of 1956, as added by 1986 PA 173, MCL 500.6500 et seq; MSA 24.16500 et seq, if following a public hearing, the Commissioner of Insurance determines that a designated type of business liability insurance is not readily available or is not available at a reasonable premium. You express concern as to what happens to such a limited liability pool if the Commissioner of Insurance subsequently determines that that type of business liability insurance is readily available at a reasonable premium.

Your first question is divided into two parts:

(a) Must such a limited liability pool stop soliciting and writing insurance policies for that line or class of insurance, both as to new and renewal policies?

(b) May the limited liability pool continue its business of writing new and renewal policies and soliciting new policies?

Chapter 65, which was added to the Insurance Code of 1956 by 1986 PA 173, supra, authorized the creation of limited liability pools to issue specified liability insurance policies when the Commissioner of Insurance, after a hearing, determines that such liability insurance is not readily available or not available at a reasonable price. 1986 PA 173 also amended section 5200, MCL 500.5200; MSA 24.15200; which now reads:

"(1) This chapter applies only to domestic stock, mutual, and cooperative plan insurers, including limited liability pools; ...

"(2) For additional provisions applicable only to:

"....

"(d) Limited liability pools, see chapter 65." (Emphasis added.)

Chapter 52 of the Insurance Code of 1956, which is specifically made applicable to limited liability pools, concerns the corporate powers of domestic insurance companies and provides that only two sections of the chapter apply to foreign insurers. It is clear from this amendment that limited liability pools have the corporate powers of a Michigan insurance company. These powers include those contained in sections 5222 and 5224, MCL 500.5222 and 500.5224; MSA 24.15222 and 24.15224. Section 5222 provides for the extension of the corporate life of any insurance corporation whose term is about to expire by limitation. This section allows such a corporation to extend its life by not less than 30 years from the expiration of the existing term. MCL 500.5222; MSA 24.15222. Section 5224, MCL 500.5224; MSA 24.15224, applies where the corporation's life has expired because the stockholders or members failed to extend it under section 5222, supra, prior to the expiration of the corporation's existence. This section also provides a mechanism for liquidation of a domestic insurance company whose charter has expired.

The actual initial corporate existence of a domestic insurance company is determined by the provisions of its articles of incorporation. Those articles are controlled by Chapter 50 of the Insurance Code of 1956, which provides in section 5010, MCL 500.5010; MSA 24.15010:

"The corporate existence of any company incorporated under or subject to this code shall not exceed 30 years, unless a longer term is provided in the articles of incorporation. Any company hereafter incorporated under this code may incorporate for a period of any specific number of years, not less than 30, or multiples of 30, or in perpetuity, provided that the legislature may shorten such terms by future laws."

It is my opinion, in answer to your first question, that a finding by the Commissioner of Insurance that the specific type of liability insurance is now readily available at a reasonable price does not terminate the existence of a limited liability pool, and the pool may continue to solicit and issue new and renewal policies. It is my further opinion that the life of such a pool will depend on the duration set forth in the original articles of incorporation and may be extended as provided in MCL 500.5222; MSA 24.5222.

Your second question may be stated as follows:

Is a limited liability pool operating under Chapter 65 of the Insurance Code of 1956 a member of the Property and Casualty Guaranty Association pursuant to Chapter 79 of the Insurance Code of 1956? If so, are limited liability pools subject to annual assessments to the property and casualty guaranty fund?

Chapter 79 of the Insurance Code of 1956, MCL 500.7901 et seq; MSA 24.17901 et seq, establishes the Property and Guaranty Association which assesses all insurers authorized to transact insurance in this state other than life or disability insurance. Section 7911(1), MCL 500.7911(1); MSA 24.17911(1), provides:

"To implement this chapter, there shall be maintained within this state, by all insurers authorized to transact in this state insurance other than life or disability insurance, ... an association of those insurers to be known as the property and casualty guaranty association, hereafter referred to as the 'association'. Each insurer shall be a member of the association, as a condition of its authority to continue to transact insurance in this state." (Emphasis added.)

Section 6500, being MCL 500.6500; MSA 24.16500, states:

"This chapter applies only to pools formed to transact liability insurance as defined in section 6506, on the cooperative or assessment plan." (Emphasis added.)

Thus, it is clear that under Chapter 65 of the Insurance Code of 1956 a limited liability pool is authorized to transact liability insurance in the State of Michigan. Therefore, such a pool must be a member of the Property and Casualty Guaranty Association under section 7911, supra, which requires each insurer to be a member of the association as a condition of its authority to continue to transact insurance in this state. The limited liability pool would pay an annual assessment in the manner as all other members of the pool as provided in section 7941, MCL 500.7941; MSA 24.17941.

It is my opinion, in answer to your second question, that a limited liability insurance pool is a member of the Property and Casualty Guaranty Association as provided in MCL 500.7901 et seq; MSA 24.17901 et seq, and is subject to pay an annual assessment equal to any other insurer.

Your third question is:

Whether the assessment authorized by Chapter 65 of the Insurance Code against a member of a limited liability pool is limited to the amount of the last annual premium, or whether the assessment is determined by the amount of the annual premium (in the aggregate) for each year in which the insured was a member of the pool.

Section 6540, MCL 500.6540, MSA 24.16540, in part, provides:

"Every policy issued or delivered in this state by any pool subject to this chapter shall set forth on the first page thereof, in addition to the regular specified premiums, the fact that the member is liable to be assessed to the extent needed to pay that member's proportional share of claims and expenses, and to maintain the reserves required by this chapter. However, in no event shall a member be liable for any assessment under this section which is greater than the annual premium expressed in the policy."

The above language plainly states that an assessment can in no event be greater than the annual premium expressed in the policy. That means that the maximum assessment cannot exceed the total amount of the premium a member pays for the year of the assessment. This compares with other sections of the Insurance Code which provide for assessments. For example, cooperative plan insurers formed under Chapter 64 of the Insurance Code of 1956, MCL 500.6400 et seq; MSA 24.16400 et seq, are assessed in two different manners under section 6440, MCL 500.6440; MSA 24.16440. The first type of assessment is not limited to the amount of the premium on the policy. Instead, section 6440 provides that "the member is liable to be assessed to the extent needed to pay said member's aliquot share of claims and expenses, and to maintain the reserves required by this chapter." However, section 6440 also provides a special assessment for policies for disability and loss of position policies. These policies are identified as non-assessable policies as long as the contingency reserve is maintained in the amount of $200,000, but "in no event shall the holder of any such policy, or any renewal thereof, be liable for a greater amount than the premiums expressed in the policy."

It is the manifest intent of the Legislature to provide for an assessment no greater than the annual premium expressed in the policy. To permit a limited liability pool to collect an assessment for prior years would provide an assessment greater than the annual premium expressed in the policy. Thus, the Legislature has selected the second type of assessment for limited liability pools.

It is my opinion, in answer to your third question, that a limited liability pool can assess its members under MCL 500.6500 et seq; MSA 24.16500 et seq, a maximum amount equal to the annual premium only.

Your fourth question is:

Does a liquor liability insurance policy issued to a member of a limited liquor liability pool providing coverage of $50,000 per occurrence satisfy the requirement that a licensee provide proof of financial responsibility for the purpose of subsection (2) of MCL 436.22a; MSA 18.993(1)?

The statute in question, subsection (2) of section 22a of the Michigan Liquor Control Act as amended by 1986 PA 176, MCL 436.22a(2); MSA 18.993(1)(2), provides as follows:

"Except as otherwise provided in subsection (3), beginning April 1, 1988, before the renewal or approval and granting of a retail license, a retail licensee or applicant for a retail license shall file with the commission proof of financial responsibility providing security for liability under section 22(4) of not less than $50,000.00. The proof of financial responsibility may be in the form of cash, unencumbered securities, a policy or policies of liquor liability insurance, a constant value bond executed by a surety company authorized to do business in this state, or membership in a group self-insurance pool authorized by law that provides security for liability under section 22." (Emphasis added.)

This subsection specifically states that the proof of financial responsibility may be membership in a group self-insured pool authorized by law to provide security for liability under section 22. If the Commissioner of Insurance authorizes the creation of a liquor liability self-insurance pool, then membership in such a pool constitutes proof of financial responsibility. Even if there was no specific reference to membership in a group self-insurance pool, such a pool would be issuing a policy or policies of liquor liability insurance and would be included under subsection (2) of section 22a, supra. Since policies issued by non-admitted surplus lines companies fulfill this requirement, then certainly a policy issued by a domestic liquor liability pool under Chapter 65 of the Insurance Code of 1956, MCL 500.6500 et seq; MSA 24.16500 et seq, would fulfill the requirements of MCL 436.22a; MSA 18.993(1).

It is my opinion, in answer to your fourth question, that a liquor liability insurance policy issued to a retail liquor licensee by a limited liability pool providing coverage of $50,000 per occurrence satisfies the requirement that a licensee provide proof of financial responsibility as set forth in MCL 436.22a(2); MSA 18.993(1)(2).

Your fifth question is:

Must a retail liquor licensee purchase an insurance policy from an insurer that is a member of the Property and Casualty Guaranty Association, if the Commissioner of Insurance declares that liquor liability insurance is readily available within the State of Michigan at a reasonable premium?

The purchase of a policy from a limited liability pool is the purchase of an insurance policy from an insurer which is a member of the Property and Casualty Guaranty Association. The proof of financial responsibility requirements set forth in section 22a, MCL 436.22a; MSA 18.993(1), can be fulfilled by a surplus lines company, by virtue of MCL 500.1901 et seq; MSA 24.11901 et seq, which by law cannot be a member of the Property and Casualty Guaranty Association. MCL 500.7911(2); MSA 24.17911(2). There is nothing in Sec. 22a, MCL 436.22a; MSA 18.893(1), which requires that an insurance carrier be an admitted carrier in Michigan because, in recent years, liquor liability insurance has been available almost exclusively from surplus lines carriers which are not admitted to do business in the State of Michigan. Less than two percent of liquor liability insurance was sold by admitted companies in 1986. Availability and Pricing of Liquor Liability Insurance, A Report By the Michigan Commissioner of Insurance (December, 1987).

It is my opinion, in answer to your fifth question, that a retail liquor licensee may purchase liability insurance from a surplus lines insurance company which is not a member of the Property and Casualty Guaranty Association.

Your sixth question is:

Does a "claims made" policy which provides coverage for only those claims which occur and which are reported within the life of the policy satisfy the proof of financial responsibility requirement set forth in section 22a of the Michigan Liquor Control Act?

Section 22(5), MCL 436.22(5); MSA 18.993(5), provides in part:

"An action under this section shall be instituted within two years after the injury or death."

Section 22f, MCL 436.22f; MSA 18.993(6), provides:

"The insurance policy hereinbefore mentioned shall cover the liability imposed by section 22 of Act No. 8 of the Public Acts of the Extra Session of 1933, as amended, and shall contain the following conditions:

"That no condition, provision, stipulation or limitation contained in the policy, or any other endorsement thereon, shall relieve the insurer from liability (within the statutory limits provided by section 22a of Act No. 8 of the Public Acts of the Extra Session of 1933, as amended), for the payment of any claim for which the insured may be held legally liable under section 22 of said act."

A policy of liquor liability insurance must cover a claim for the year it is incurred plus a period of two years after the date of injury or death. The Commissioner of Insurance has required all "claims made" policies to have an attached rider which provides coverage for the policy year plus an additional two years. Therefore, the only "claims made" policies which may be sold in the State of Michigan must have the required rider attached. With the required rider attached, the "claims made" policy does fulfill the financial responsibility requirements of Sec. 22a, MCL 436.22a; MSA 18.993(1).

It is my opinion, in answer to your sixth question, that a "claims made" insurance policy which contains the required two-year extension attachment satisfies the proof of financial responsibility requirement set forth in the Michigan Liquor Control Act, MCL 436.22a; MSA 18.993(1).

Your final question is:

Whether a limited liability pool is subject to the same taxation on its business as other insurers admitted by the Insurance Bureau, or whether it is taxed as a surplus lines insurer pursuant to Chapter 19 of the Insurance Code of 1956, MCL 500.1901 et seq; MSA 14.11901 et seq.

A limited liability pool is admitted by the Commissioner of Insurance to do the business of insurance in the State of Michigan. In fact, it is a domestic insurer and as such, would pay the same taxes as any other domestic insurer. A surplus lines insurer is an insurer from another state which has not been admitted to do business in the State of Michigan. Such an insurer pays taxes through the person who purchases the insurance from the surplus lines company. MCL 550.1951; MSA 24.11951.

As stated above, a limited liability pool is not a surplus lines insurer; it is a domestic insurer licensed under the laws of the State of Michigan, more specifically, Chapter 65 of the Insurance Code of 1956, MCL 500.6500 et seq; MSA 24.16500 et seq. As a domestic insurer, it is subject to state taxes in the same manner as all other domestic insurers.

It is my opinion, in answer to your final question, that a limited liability pool is subject to the same state taxes as other domestic insurers.

Frank J. Kelley

Attorney General


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