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
JENNIFER M. GRANHOLM, ATTORNEY GENERAL
INSURANCE:
LICENSES AND PERMITS:
PREEMPTION, FEDERAL:
Conflict between section 1905(3) of the Insurance Code and section 3903(c) of the federal Liability Risk Retention Act of 1986
The residency requirement of section 1905(3) of the Insurance Code, as applied to agents and brokers for insurance purchasing groups under section 1835(3) of the Code, is preempted by section 3903(c) of the federal Liability Risk Retention Act of 1986
The residency requirement of section 1905(3) of the Insurance Code, as applied to agents and brokers for insurance purchasing groups under section 1835(3) of the Code, is preempted by section 3903(c) of the federal Liability Risk Retention Act of 1986.
Opinion No. 7074
January 24, 2001
Frank M. Fitzgerald, Commissioner
Office of Financial and Insurance Services
Department of Consumer and Industry Services
P.O. Box 30220
Lansing, MI 48909-7720
You have asked whether the residency requirement of section 1905(3) of the Insurance Code, as applied to agents and brokers for insurance purchasing groups by section 1835(3) of the Insurance Code, is preempted by section 3903(c) of the federal Liability Risk Retention Act of 1986.
The federal Liability Risk Retention Act of 1986 (LRRA), 15 USC 3901 et seq, was enacted by Congress in response to what it perceived as a critical shortage of commercial liability insurance. The LRRA exempts insurance purchasing groups1 from certain state-imposed restrictions that Congress determined were preventing these groups from gaining the advantages of collective purchasing. It was argued that these advantages, e.g., better loss and expense experience, could help increase the availability of liability insurance. HR Rep No 99-865, 99th Cong, 2d Sess, at 7-8 (1986) reprinted in part in 1986 USCCAN 5303-5305.
Section 3903(c) of the LRRA provides that:
A State may require that a person acting, or offering to act, as an agent or broker for a purchasing group obtain a license from that State, except that a State may not impose any qualification or requirement which discriminates against a nonresident agent or broker.
Thus, the LRRA authorizes states to require that agents or brokers for insurance purchasing groups be licensed by the state but expressly prohibits any state requirements that discriminate against a nonresident agent or broker.
The insurance business in Michigan is regulated by the Insurance Code of 1956, 1956 PA 218, MCL 500.100 et seq; MSA 24.1100 et seq. Chapter 12 of the Code addresses the qualifications and licensure of agents for insurance companies authorized to do business in Michigan. Because this chapter explicitly authorizes licensure of both residents and nonresidents, it presents no apparent conflict with section 3903(c) of the LRRA.
Chapter 19 of the Code governs the sale of a class of insurance called "surplus lines insurance," defined as "insurance in this state procured from or continued or renewed with an unauthorized insurer . . . whether effected by mail or otherwise." Section 1903(1)(d). An "[u]nauthorized" insurer, in turn, is an insurer not authorized by the state insurance commissioner to transact insurance business in Michigan. Section 108(2). Typically, surplus lines insurance provides unusual coverages not readily available from authorized insurers. The stated purpose of chapter 19 of the Code is to protect persons seeking insurance while still "[p]ermitting stable and reputable insurers to write surplus lines insurance in this state." Section 1902(b). To this end, section 1905(1) provides that a person may not "solicit insurance, bind coverage, or in any other manner act as an agent or broker in the transaction of surplus lines insurance unless licensed under" chapter 19 of the Code. Significantly, however, section 1905(3) restricts the availability of surplus lines licensure to persons who are residents of the State, providing in pertinent part that "[a] person licensed as a resident agent in this state may obtain a surplus lines license . . . ." (Emphasis added.)
Chapter 18 of the Code regulates the practices of insurance purchasing groups and risk retention groups2 in Michigan. Section 1835 provides:
(1) A person, firm, association, or corporation shall not act or aid in any manner in soliciting, negotiating, or procuring liability insurance in this state from a risk retention group unless the person, firm, association, or corporation is licensed under chapter 12 or chapter 19.
(2) A person, firm, association, or corporation shall not act or aid in any manner in soliciting, negotiating, or procuring liability insurance in this state for a purchasing group from an authorized insurer or a risk retention group chartered in this state unless the person, firm, association, or corporation is licensed under chapter 12.
(3) A person, firm, association, or corporation shall not act or aid in any manner in soliciting, negotiating, or procuring liability insurance from an insurer not authorized to do business in this state on behalf of a purchasing group doing business in this state unless the person, firm, association, or corporation is licensed under chapter 19.
(4) For the purpose of acting as an agent or broker for a risk retention group or purchasing group under subsections (1) or (2), the requirement of residence in this state shall not apply. However, licensure of a nonresident under chapter 19 shall be for the limited purpose of soliciting, negotiating, or procuring liability insurance from a risk retention group not chartered in this state.
Thus, pursuant to section 1835, an agent or broker procuring insurance for a purchasing group in Michigan must be licensed under either chapter 12 or chapter 19. More specifically, if the insurance is procured from an authorized insurer or a risk retention group chartered in Michigan, licensure must be obtained under chapter 12. Section 1835(2). Since chapter 12 expressly authorizes licensure of both residents and nonresidents, this requirement does not conflict with 15 USC 3903(c). If the insurance in question is to be procured from an insurer not chartered in or authorized to do business in Michigan, however, a license must be obtained under chapter 19 of the Code. Section 1835(3). Because the latter chapter imposes a residency requirement, it does directly conflict with 15 USC 3903(c), at least when applied to agents and brokers for insurance purchasing groups.
Section 1835(4) of the Code creates a limited exception to the residency requirement of section 1905(3) and may well represent an attempt by the Michigan Legislature to avoid a direct conflict with 15 USC 3903(c). Regrettably, however, the exception in subsection (4) of that section is specifically limited to subsections (1) and (2) of section 1835. Subsection (3) is omitted from this exception and thus facially requires persons procuring insurance for purchasing groups from insurers not authorized to do business in Michigan to be a Michigan resident licensed under Chapter 19.
The federal preemption doctrine has its origin in the Supremacy Clause of article VI, cl 2, of the United States Constitution. Ryan v Brunswick Corp, 454 Mich 20, 27; 557 NW2d 541 (1997). Whether a federal statute preempts state law is a question of congressional intent. Hawaiian Airlines, Inc v Norris, 512 US 246, 252; 114 S Ct 2239; 129 L Ed 2d 203 (1994). "However, there is a strong presumption against preemption of state law, and preemption will be found only where it is the clear and unequivocal intent of Congress." Martinez v Ford Motor Co., 224 Mich App 247, 252; 568 NW2d 396 (1997). The analysis of preemption issues "must be guided by respect for the separate spheres of governmental authority preserved in our federalist system." Alessi v Raybestos-Manhattan Inc, 451 US 504, 522; 101 S Ct 1895; 68 L Ed 2d 402 (1981). Nevertheless, it is clear that under the Supremacy Clause of the United States Constitution, federal law preempts state law where Congress so intends. Fidelity Federal Savings & Loan Ass’n v de la Cuesta, 458 US 141, 152; 102 S Ct 3014; 73 L Ed 2d 664 (1982), Ryan, 454 Mich at 27.
Here, the intent of Congress is manifest. In section 3903(c) of the LRRA, Congress has authorized states to require licensure of persons acting as agents or brokers for purchasing groups, but has explicitly provided that "a State may not impose any qualification or requirement which discriminates against a nonresident agent or broker." 15 USC 3903(c). Michigan is, therefore, precluded from imposing the residency requirement contained in section 1905(3) of the Insurance Code upon agents and brokers for insurance purchasing groups subject to the federal act.
Section 3903(c) of the LRRA also expressly affirms the traditional authority of the states to require licensure of agents and brokers. Therefore, except for the preemption noted above, the Commissioner’s authority to enforce the Insurance Code3 is unaffected by section 3903(c) of the LRRA. Accordingly, a nonresident who acts or aids in any manner in soliciting, negotiating, or procuring surplus lines insurance on behalf of a purchasing group doing business in this state must first obtain a surplus lines license from the Commissioner under chapter 19. Such a nonresident must satisfy all of the requirements for licensure under chapter 19, except the residency requirement. Licensure under chapter 19 of a nonresident under these circumstances only authorizes the nonresident to act as an agent or broker in obtaining surplus lines coverage for a purchasing group.
It is my opinion, therefore, that the residency requirement of section 1905(3) of the Insurance Code, as applied to agents and brokers for insurance purchasing groups under section 1835(3) of the Code, is preempted by section 3903(c) of the federal Liability Risk Retention Act of 1986.
JENNIFER M. GRANHOLM
Attorney General
1 An "insurance purchasing group" is an organization formed by members with similar or related potential liability in connection with their related, similar, or common business, trade, product, services, premises, or operations. One of its purposes is to purchase liability coverage on a group basis for its members. LRRA, section 3901(5). See also Code, section 1801(g).
2 Like an insurance purchasing group, a "risk retention group" is an organization formed by members with similar or related potential liability in connection with their related, similar, or common business, trade, product, services, premises, or operations. However, instead of simply purchasing liability coverage for its members, a risk retention group functions as an insurer, spreading the risk of loss among its members. See Code, section 1801(h).
3 Executive Order No. 2000-4 transferred all "authority, powers, duties, functions and responsibilities" of the Commissioner of Insurance to the Commissioner of the Office of Financial and Insurance Services.