STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6744

December 16, 1992

MUNICIPALITIES:

Investment of funds of a group self-insurance pool

INSURANCE:

Investment of funds of a group self-insurance pool

A group self-insurance pool is required, pursuant to MCL 124.11(1); MSA 5.4085(6.11)(1), to invest only in those securities and investments permitted for insurers under the Insurance Code of 1956.

Honorable Georgina Goss

State Representative

The Capitol

Lansing, MI

You have asked a question which may be stated as follows:

Two or more municipal corporations may by intergovernmental contract form a group self-insurance pool to provide certain insurance coverage for pool members and their employees as authorized by the intergovernmental contracts between municipal corporations act, 1951 PA 35, MCL 124.5 et seq; MSA 5.4085(6.5) et seq. as added by 1982 PA 138.

Municipal corporations are required to invest their general fund assets under applicable statutes which generally limit or prevent investment in stock. See, for example, 1943 PA 20, MCL 129.91 et seq; MSA 3.843(1) et seq, and OAG, 1977-1978, No 5308, p 458 (May 31, 1978), dealing with the investment of surplus funds by municipalities.

Your question requires consideration of whether member funds deposited with the self-insurance pool are assets of the pool which must be invested as directed by MCL 124.11(1); MSA 5.4085(6.11)(1), or are assets of the contributing municipal member and subject to that member's investment limitations.

Under the terms of the intergovernmental contract in question, the board governing the self-insurance pool shall determine the "contributions" to be made by each member to pay necessary obligations of the pool, and the amount of funds to be deposited by each member to pay "losses and allocated loss adjustment costs that are an obligation of the member." Recent financial statements of the pool disclose that the pool holds and manages member funds to pay indemnification and allocated losses and adjustment expenses that fall within the member's retentions. When the member funds become insufficient, the member is responsible for replenishing the fund. The contributions made and the funds deposited are assets of the self-insurance pool subject to supervision and control of the Commissioner of Insurance. MCL 124.8; MSA 5.4085(6.8). Thus, the member funds are contributions to be treated as assets of the pool when transferred pursuant to the statute and the intergovernmental agreement.

While the pool is not an insurance company or insurer under the laws of this state, MCL 124.6; MSA 5.4085(6.6), its assets "shall be invested in those securities and investments permitted for insurers in this state under the Insurance Code of 1956 [MCL 500.100 et seq; MSA 24.1100 et seq]." MCL 124.11(1); MSA 5.4085(6.11)(1).

A study of the legislative history of MCL 124.11; MSA 5.4085(6.11), as added by 1982 PA 138, is instructive. 1982 PA 138 was originally introduced as SB 348. Section 11 of SB 348 purported to confer permissive authority upon the pool to make its investments pursuant to the Insurance Code of 1956 in that assets of the pool "may be invested" in securities and investments permitted for insurers under the Insurance Code of 1956. (Emphasis added.) Senate Legislative Analysis, SB 348, June 29, 1981, confirms that SB 348, as originally introduced, provided that "[a] pool's assets could be invested as permitted for insurers under the Insurance Code." (Emphasis added.)

The House, however, adopted a substitute (H-1) for SB 348. 1982 Journal of the House 924. As substituted by the House, section 11 provided that the assets of the pool "SHALL BE INVESTED IN THOSE SECURITIES AND INVESTMENTS PERMITTED FOR INSURERS IN THIS STATE UNDER THE INSURANCE CODE OF 1956." 1982 Journal of the House 4345. (Emphasis added.)

SB 348, section 11 was enacted without further change. Senate Legislative Analysis, SB 348, May 17, 1982, noted that under SB 348 as enrolled "[a] pool's assets would have to be invested in securities and investments as permitted for insurers under the Insurance Code." (Emphasis added.)

The underlying intent of the Legislature may be ascertained by review of the legislative history of the statute. Luttrell v Dept of Corrections, 421 Mich 93, 103; 365 NW2d 74 (1984). Meaning must be given to the change made by the House to substitute the word "shall" for the word "may" in MCL 124.11; MSA 5.4085(6.11), as imposing a mandatory duty upon a group self-insurance pool. See, Ladies of the Maccabees v Comm'r of Ins, 235 Mich 459, 465; 209 NW 581 (1926).

It is my opinion, therefore, that a group self-insurance pool is required, pursuant to MCL 124.11(1); MSA 5.4085(6.11)(1), to invest only in those securities and investments permitted for insurers under the Insurance Code of 1956.

Frank J. Kelley

Attorney General