Opinion ID: 1741734
Heading Depth: 1
Heading Rank: 1

Heading: Oakland Co. Rd. Comm. v. MPCGA

Text: Between 1981 and 1985, the Board of County Road Commissioners for the county of Oakland maintained general liability insurance through Midland Insurance Company. During that period, personal injury claims were made against the road commission, which fell under the coverage provisions of that insurance. In 1986, Midland was deemed insolvent and liquidated. The road commission paid the third-party claims and sought indemnification from the Michigan Property and Casualty Guaranty Association (MPCGA), a statutorily created association of property and casualty insurers licensed to do business in Michigan. See M.C.L. § 500.7901 et seq.; M.S.A. § 24.17901 et seq. The MPCGA has a duty to pay certain obligations of insolvent insurers that come within the act's definition of covered claims. The MPCGA refused to indemnify the road commission because its net worth exceeded the statutory maximum and, therefore, its claims did not constitute covered claims under the act. See M.C.L. § 500.7925(3); M.S.A. § 24.17925(3). To understand the facts as they developed below, an examination of the pertinent statutory language is necessary. Section 7925(1) provides, in part, [2] the following definition of covered claims: Covered claims means obligations of an insolvent insurer which meet all of the following requirements: (a) Arise out of the insurance policy contracts of the insolvent insurer issued to residents of this state or are payable to residents of this state on behalf of insureds of the insolvent insurer. [Emphasis added.] Section 7925 further defines covered claims by setting forth five circumstances in which a claim is excluded from the definition of a covered claim. The relevant exclusion provides: Covered claims shall not include obligations to an insurer, insurance pool, underwriting association, or to a person who has a net worth greater than 1/10 of 1% of the aggregate premiums written by member insurers in this state in the preceding calendar year. [M.C.L. § 500.7925(3); M.S.A. § 24.17925(3)(emphasis added).] Finally, person is defined under the Insurance Code to include an individual, insurer, company, association, organization, Lloyds, society, reciprocal or interinsurance exchange, partnership, syndicate, business trust, corporation, and any other legal entity. [M.C.L. § 500.114; M.S.A. § 24.1114.] In 1985, the calendar year preceding Midland's insolvency, the aggregate premiums written by member insurers totaled $5,820,973,000, yielding the applicable net worth limit of $5,820,973 as set forth in the affidavit of James Lunsted, controller for the MPCGA. In 1985, the road commission's net worth was $18,446,051. In determining the road commission's net worth, Nola Yew, CPA, and semiretired partner in the management consulting service department of an accounting firm, relied on the road commission's financial report for the fiscal year that ended on September 30, 1985, which was prepared by the road commission's own certified public accountants in accordance with generally accepted government accounting standards. She also provided a definition of net worth from Kohler's Dictionary of Accountants, explaining that the net worth of any entity is the recorded assets minus the recorded liabilities. Lastly, she stated that all entities have a net worth. In support of its opposition to the MPCGA's motion for summary disposition, the road commission submitted an amicus curiae brief of the Michigan Municipal League, the work sheet generated by the MPCGA in determining whether the road commission's claim was a covered claim, and the road commission's balance account sheet. All were submitted in support of its position that a genuine issue of material fact existed regarding whether the road commission had a cognizable net worth. The trial court, in its opinion and order granting MPCGA's motion for summary disposition pursuant to MCR 2.116(C)(8), (10), held: The net-worth exclusion did not violate equal protection; the obligations of an insolvent insurer are obligations to an insured, not the claimant; the net-worth exclusion applied to obligations to a person and the road commission fell within the broad definition of person, which includes any other legal entity; the road commission had a net worth evidenced by its own financial statements and the affidavits of Nola Yew; and the road commission provided no authority to dispute this. The Court of Appeals affirmed the trial court's decision in a per curiam opinion. 217 Mich.App. 154, 550 N.W.2d 856 (1996).