Opinion ID: 1284735
Heading Depth: 1
Heading Rank: 4

Heading: commercial union assurance companies

Text: The third possible source of recovery is the Commercial Union Assurance Companies (CU) which had contracted to reinsure GMP at the time of plaintiff's injury. [4] CU agreed to reimburse GMP for payments such as workmen's compensation if the total payments in a year exceeded the reinsured's retention  a figure equal to the annual premium. The contract contained 18 conditions, number 11 of which provides: In the event of bankruptcy or insolvency of the reinsured which prevents the reinsured from making any payment    the company will make such payment directly and on behalf of the reinsured and    any payment so made by the company shall be a full and final discharge of any liability on the part of the company to the reinsured in respect to such payment; provided, however, the company shall be under no liability whatsoever to make any such direct payment or part thereof, which would not be in excess of the reinsured's retention   . In the event the company makes any such direct payment, it shall be subrogated, to the extent of such payment, to all rights of recovery therefor of any person entitled to such payment against any person or organization. (Emphasis added.) Payments include the amount the reinsured shall have actually paid    for compensation and other benefits required of the reinsured by the workmen's compensation law. Upon remand, the WCAB found that the accrued liability, rather than actual payment of the retention amount, provided the threshold beyond which CU's payments would commence. The panel discussed the Federoff case upon which plaintiff now strongly relies in arguing that CU is responsible for all of the benefits awarded to him. Federoff involved claims by employees who were receiving benefits. The employer's insurer, Highway Insurance Company, became insolvent. Highway's reinsurer, Peerless Insurance Company, refused to pay the employees directly because the reinsurance contract said actual payment    by [Highway]    shall be a condition precedent to Peerless' obligation. Otherwise, the liability of the reinsurer shall follow that of [Highway]. In other words, no matter how much was owed to plaintiff, if the employer's insurer could not make actual money payment, plaintiff never would be paid anything by the reinsurance company. Our Court said the Highway-Peerless reinsurance contract    is governed by and subject to judicial enforcement in strict accord with the purpose, the declared public policy, and the express language of our workmen's compensation act. 386 Mich 479. The Court emphasized this language now found in MCLA 418.621(1); MSA 17.237(621)(1). Every contract for the insurance of the compensation provided in this act for or against liability therefore, shall be deemed to be made subject to the provisions of this act and provisions inconsistent with this act are void. Federoff was explained in Woody v American Tank Co, 49 Mich App 217, 229; 211 NW2d 666 (1973): [S]ince the reinsurer was admittedly on the risk, over and above payments by the defunct primary insurer, the exculpatory language in the reinsurance contract was void. In our case, the WCAB said Federoff does not increase the life of the liability covered by a reinsurance contract. CU's liability does not come to life until GMP's accrued liability exceeds the reinsured's retention. We agree with the WCAB that Federoff is inapposite to the case at bar. The WCAB opinion refers also to MCLA 418.621(2); MSA 17.237(621)(2) [5] which is argued to opposite conclusions by plaintiff and CU. Plaintiff maintains it is a principle of Michigan law that the relationship between the injured worker and the insurer is governed by statute rather than by the contract of insurance and urges us to hold that the mandatory contract provisions of MCLA 418.621(2); MSA 17.237(621)(2) apply to every workmen's compensation insurance contract including reinsurance. Plaintiff also points to MCLA 418.651; MSA 17.237(651) which gives the person entitled to    compensation    the right to enforce in his own name    the liability of any insurance company    who may have insured, in whole or in part, the liability for such compensation. CU argues that its policy with GMP is not subject to MCLA 418.621(2); MSA 17.237(621)(2) because that section does not apply to self-insurers. CU acknowledges its reinsurance obligation once GMP's accrued liability exceeds the reinsured's retention amount. However, CU argues vigorously that it should not be treated as a primary insurer. Also spotlighted is the fact that the statute does not require an authorized self-insurer to purchase any additional workmen's compensation insurance coverage. The reinsurance contract covering GMP's liabilities over a basic (retention) amount was initially voluntary. If GMP had not so contracted with CU, plaintiff would have no legal recourse to any benefits excepting those from the employer through the bankruptcy proceedings. CU maintains with merit that we cannot properly rewrite its contract with GMP to impose upon CU an obligation which it never agreed to assume and which is not statutorily required of a self-insurer. The WCAB reached the proper decision. It said any insurance contract to secure in whole or in part the employer's liability incurred under the terms of the Worker's Disability Compensation Act must comply with MCLA 418.621(2); MSA 17.237(621)(2). However, neither this nor Federoff means that any policy of insurance    does insure and protect the employee when the employer is financially unable to pay the claim. In Federoff, the life of the liability had begun; here, it has not: When a policy is issued only as security of a part of the liability incurred by the employer    we find no authority in the statute or case law which permits this appeal board to modify that contract to hold that it also secures the liability retained by the employer as a self-insurer. The board held that the liability retained by the employer must accrue to activate and give `life' to the reinsurance policy. The compensation accruing to plaintiff prior to the effective period of the liability    is subject to the bankruptcy proceedings    and/or Supreme Court review of the Court of Appeals holding.