Source: https://law.justia.com/cases/michigan/supreme-court/1971/386-mich-474-2.html
Timestamp: 2019-04-21 06:05:52+00:00

Document:
FEDEROFF v. EWING SHANNON v. STAR WRECKING COMPANY, INC.
No. 23 October Term 1971, Docket Nos. 53,197, 53,198.
*476 Liss & Newman, for plaintiff Jack Federoff.
Seymour Mandell (Paul B. Newman, of counsel), for defendant William J. Ewing.
E.R. Whinham, Jr., for Peerless Insurance Company, Jack Norman Cresswell and Excess Insurance Company, Ltd.
Honigman, Miller, Schwartz & Cohn (by John Sklar and Asher Rabinowitz), for Director of the Department of Insurance of the State of Illinois and Liquidator of Highway Insurance Company.
Kelman, Loria, Downing & Schneider (by John W. Simpson, Jr.) for plaintiff John H. Shannon.
By these separately reviewed and appellate-consolidated proceedings each plaintiff seeks to obtain continued payment of his adjudicated right to workmen's compensation. Each is totally, permanently and tragically disabled as a result of work-connected accidental injuries occurring in 1959 and 1960. Different employers are liable respectively for payment of such benefits. We surmise both are now uncollectible. Each carried direct coverage under Part IV of the Workmen's Compensation Act with Highway Insurance Company. There is no question of the right of either plaintiff to benefits overdue and to become due. The question is who if at all is to pay, and if so, starting when.
Payment of benefits to each plaintiff duly commenced. Highway became insolvent and was so adjudged by an Illinois judgment. By that judgment, entered in 1967, the Director of Illinois' Department of Insurance was appointed as Highway's statutory *477 liquidator. Later, proceeding ex parte, the Illinois court entered an order enjoining actions "to contest or interfere with the Liquidator's exclusive right, title and interest to funds recoverable under treaties and agreements of insurance heretofore entered into by Highway Insurance Company as the ceding insurer."
Highway was and is reinsured by defendant Peerless Insurance Company and Peerless in turn was and is reinsured by third-party defendant Excess Insurance Company. Highway is here represented by the appointed liquidator. He contends that the sole remedy of each plaintiff, for continued payment of benefits as ordered, lies with and in the Illinois court of liquidation; his claim being that "Michigan employers and employees do not have a direct right of action under the workmen's compensation act upon a reinsurance agreement that indemnifies against loss and requires payment to the liquidator in the event of insolvency of the insurer." The liquidator, allied with and supporting Peerless and Excess, directs our attention to a long list of decisions which the Louisiana Supreme Court cited and followed, May 4 last, in Fontenot v. Marquette Casualty Co. (1971), 258 La 671 (247 So 2d 572).
"The actual payment in cash by the [Highway Insurance] Company of any loss shall be a condition precedent to any recovery under this Agreement, and subject to such condition, the liability of the Reinsurer shall follow that of the Company and shall be subject within the applicable policy limits in all respects to all the general and special stipulations, clauses, waivers and modifications of the Company's [Highway Insurance] policy, binder or other undertaking, and any endorsements thereon."
"The decision of the circuit court granting summary judgment to third-parties defendant is affirmed, but without prejudice to the right of plaintiff Shannon to proceed with an appropriate action before the workmen's compensation department for a determination, pursuant to findings made a part of the record, of the rights and obligations of Star Wrecking Company, Inc., together with those of the reinsurers."
"The Federoff case is remanded to workmen's compensation department for proceedings consistent *479 with this opinion; the Shannon case is affirmed, but without prejudice to plaintiff to pursue relief before the workmen's compensation department."
Leave to review was granted February 19, 1971 (384 Mich 808). The appeal was submitted November 2. The ensuing opinion for vacation of judgments and specific remand has been prepared by the assignee Justice. Recognizing both the clear rights and the pressing needs of the two plaintiffs, it is submitted to the other Justices this 19th day of November.
This Highway-Peerless reinsurance contract, unlike in distinctive respect the contracts of reinsurance which the respective courts considered in Fontenot's list, is governed by and subject to judicial enforcement in strict accord with the purpose, the declared public policy, and the express language of three original and long standing sections of the Michigan Workmen's Compensation Act (§§ 1, 2 and 3 of Part IV [MCLA §§ 414.1-414.3; Stat Ann §§ 17.195-17.197]); in particular one precise sentence which pertinently appears as it did from 1912 to 1969 as a part of said § 3. That sentence by operation of law is read into this Highway-Peerless contract and automatically nullifies those identifiable words of "exculpatory" non-liability (for instance as in Feldman v. Stein Building & Lumber Company , 6 Mich App 180).
"Sec. 3. Every contract for the insurance of the compensation herein provided for, or against liability therefor, shall be deemed to be made subject to the provisions of this act, and provisions thereof inconsistent with this act shall be void. No company shall enter into any such contract for insurance, unless such company shall have been approved by the commissioner of insurance as provided by law."
"The actual payment in cash by the Company of any loss shall be a condition precedent to any recovery under this Agreement, and subject to such condition"
"Notwithstanding anything to the contrary appearing elsewhere in this Agreement, the liability of the Reinsurer shall follow that of the Company and shall be subject within the applicable policy limits in all respects to all the general and special stipulations, clauses, waivers and modifications of the Company's policy, binder or other undertaking, and any endorsements thereon."
*482 The judgments entered by the Court of Appeals are vacated. The record of each appeal to that court is remanded thereto for entry of such instructive orders as may be required for determination by the Workmen's Compensation Department of the compensatory rights, brought up to date, of each plaintiff as against his employer, the respective reinsurers of Highway, and the statutory liquidator of Highway. The Court of Appeals will enter a separate order reversing grant by the circuit court of summary judgment as against plaintiff Shannon and directing continuance of the statutory proceeding now pending in circuit court until the department has concluded its duties so far as same concern plaintiff Shannon.
When the directed awards are made by the department, each plaintiff may if necessary resort to enforcement in the circuit court. Should enforcement be required that court will utilize, independently as needed, all of the remedies and sanctions that are known to law and equity (See Michigan Mutual Liability Company v. Baker , 295 Mich 237), including the power granted the commissioner of insurance by current § 631 of the aforesaid act of 1969.
The amount of plaintiffs' costs in each instance will abide the final result.
T.M. KAVANAGH, C.J., and BLACK, ADAMS, T.E. BRENNAN, T.G. KAVANAGH, SWAINSON, and WILLIAMS, JJ., concurred.
"The issue for determination is whether the rights of a third person damaged by a party who is insured may be exercised in a direct action for his damages against the reinsurer of the tortfeasor's insolvent liability insurer. Contrary to the Court of Appeal, we hold that the treaty or contract of reinsurance here and the law do not permit a direct action by such third person against the reinsurer."
 By the Workmen's Compensation Act of 1969 (No 317), this section appears now as § 621.
No extant mandatory provision is required to bolster our view of sections 1, 2 and 3 as same stood when the rights of Federoff and Shannon to workmen's compensation accrued and became adjudicated. It is worthy of note, however, that the act of 1969 definitely defines "insurer" as meaning "an organization which transacts the business of workmen's compensation insurance within this state." Peerless and Excess both do, and did as pointed out by the appeal board on review of Mr. Federoff's claim. See quotation of the board's opinion, 29 Mich App at 6, 7 and 8.
 For the current text, see 17 Am Jur 2d, Contracts, § 179, pp 541-543.

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