Court Opinion

ID: 825085
Source: CourtListenerOpinion
Date Created: 2013-03-01 19:44:30.271684+00
Date Added: 2024-06-11T11:12:58.841577
License: Public Domain

Order                                                                     Michigan Supreme Court
                                                                                Lansing, Michigan

  April 6, 2012                                                                   Robert P. Young, Jr.,
                                                                                            Chief Justice

  3/January 2012                                                                  Michael F. Cavanagh
                                                                                        Marilyn Kelly
                                                                                  Stephen J. Markman
  142670-1                                                                        Diane M. Hathaway
                                                                                      Mary Beth Kelly
                                                                                      Brian K. Zahra,
                                                                                                 Justices
  ATTORNEY GENERAL,
           Plaintiff-Appellant,
  v                                                     SC: 142670
                                                        COA: 290167
                                                        Ingham CC: 08-000917-CZ
  BLUE CROSS BLUE SHIELD OF MICHIGAN,
           Defendant-Appellee.

  _________________________________________/
  ATTORNEY GENERAL,
           Plaintiff-Appellant,
  v                                                     SC: 142671
                                                        COA: 295750
                                                        Ingham CC: 08-000952-CZ
  BLUE CROSS BLUE SHIELD OF MICHIGAN,
           Defendant-Appellee,
  and
  OFFICE OF FINANCIAL AND INSURANCE
  REGULATION and COMMISSIONER OF THE
  OFFICE OF FINANCIAL AND INSURANCE
  REGULATION,
             Respondents.

  _________________________________________/

         On order of the Court, leave to appeal having been granted and the briefs and oral
  arguments of the parties having been considered by the Court, we VACATE our order of
  July 13, 2011. The application for leave to appeal the December 7, 2010 judgment of the
  Court of Appeals is DENIED, because we are no longer persuaded that the question
  presented should be reviewed by this Court.

        MARILYN KELLY, J. (dissenting).
                                                                                             2

        I agree with Justice MARKMAN that the Court of Appeals erred by affirming the
trial court’s decision. However, I reach my conclusion using a different legal analysis.

          I would reverse both the Court of Appeals and the trial court’s decisions and find
Blue Cross Blue Shield of Michigan (BCBSM) in violation of MCL 550.1207(1)(o).
That section allows BCBSM to have ownership and other interests in “domestic, foreign,
or alien insurers” as long as the criteria it lists are met.1 The critical limitation is in MCL
550.1207(1)(o)(iv). This allows BCBSM to have an interest in domestic, foreign, or alien
insurers if the interest “will not result in [BSBSM] owning or controlling part or all of the
insurer . . . and the insurer being acquired is only authorized to sell disability insurance
. . . .”2

          There is no dispute among the parties or in the lower court opinions that BCBSM
could not have directly acquired the three foreign insurers. At issue is whether it could
lawfully acquire the insurers indirectly. I believe it could not. I base that conclusion on
MCL 550.1207(1)(o)(iii), which states that “[a]s used in this subparagraph and
subparagraph (iv), ‘control’ means that term as defined [in MCL 500.115] of the
insurance code . . . .” I rely also on MCL 500.115(b)(i), which defines “control” as
“possession, direct or indirect, of the power to direct or cause the direction of the
management and policies of a person . . . . Control is presumed to exist if any person . . .
directly or indirectly, owns . . . 10% or more of the voting securities of any other person
. . . .” (Emphasis added.) Under MCL 500.114, “person” includes an insurer.

       It is uncontested that through its 100 percent ownership of the Accident Fund,
BCBSM indirectly owns more than 10 percent of the voting securities of the three foreign
insurers. The BCBSM organization chart shows that BCBSM owns 100 percent of the
voting securities of the Accident Fund, which owns 100% of the voting securities of the
three foreign insurers. BCBSM’s 2009 and 2010 consolidated financial statements list
the three foreign insurers as “purchased” subsidiaries. Given that BCBSM indirectly
owns 100 percent of the foreign insurers, it must be presumed that it controls them.

        The trial court reasoned that nothing in MCL 550.1207(1)(o) barred BCBSM’s
subsidiaries from purchasing insurance companies. This simply defies reason. That is
exactly what MCL 550.1207(1)(o) does by including “indirect” ownership in the
definition of “control.” In the context of corporations, a subsidiary is, by definition, a
corporation “in which a parent corporation has a controlling share.”3 Since BCBSM has
not just a “controlling share,” but 100 percent ownership of the Accident Fund, it
1
    MCL 550.1207(1)(o)(i) to (iv).
2
    MCL 550.1207(1)(o)(iv).
3
    Black’s Law Dictionary (8th ed) , p 368.
                                                                                             3

indirectly controls the foreign insurers. The trial court itself stated that BCBSM “does
not directly own, and did not directly acquire or purchase, the insurance companies. If
anything, [BCBSM] only indirectly owns, and only indirectly purchased or acquired, the
companies.”4 This is simply not allowed under MCL 550.1207(1)(o) .

       To put the nail in the coffin, MCL 550.1207(1)(o)(iv) also limits the insurance
companies BCBSM is allowed to have an interest in to insurers “only authorized to sell
disability insurance.” The three foreign insurers acquired are workers’ compensation
insurers. This is not a form of disability insurance; it is a form of casualty insurance.5

       BCBSM violated the restrictions in MCL 550.1207(1)(o) and should be required
to divest itself of its interest in the three foreign insurers. For that reason, I respectfully
dissent.

        MARKMAN, J. (dissenting).

       The facts of this case are as straightforward as the statutory interpretation that
follows. In 1939, Blue Cross/Blue Shield of Michigan (BCBSM), a nonprofit “health
care corporation,” was established by the Michigan Legislature for the purpose of
providing broad health care protection to the people of Michigan. As a “health care
corporation,” BCBSM is generally prohibited from acquiring any interest in “domestic,
foreign, or alien insurers . . . .” MCL 550.1207(1)(o). However, in 1993, the Legislature
amended the Nonprofit Health Care Corporation Reform Act (“Act”), MCL 550.1101 et
seq., and permitted BCBSM to form a “domestic stock insurance company” for the
purpose of “acquiring, owning, and operating the state accident fund,” a for-profit
workers’ compensation carrier. MCL 550.1207(1)(x). Pursuant to the Act, BCBSM
formed the Accident Fund as a “domestic stock insurance company,” which then
acquired the state accident fund. Then, in 2005, the Accident Fund entered into a series
of transactions that resulted in the acquisition of 100 percent of the common shares of
three foreign workers’ compensation insurers. In the present litigation, the Attorney
General challenges the validity of these acquisitions. The lower courts held that the
Attorney General failed to state a claim upon which relief could be granted, and the
majority here denies leave to appeal. Because, in my judgment, the Accident Fund as a
wholly owned subsidiary of BCBSM lacked the authority to engage in these transactions,
I respectfully dissent.

4
  Attorney General v Blue Cross Blue Shield of Mich, order of the Ingham Circuit Court
granting defendant’s motion for reconsideration, entered January 13, 2009 (Case No.
08-917-CZ). (Emphasis added).
5
    MCL 500.624(1)(b).
                                                                                        4

      (1) MCL 550.1207(1)(o) generally prohibits BCBSM, as a “health care
corporation,” from acquiring an interest in “domestic, foreign, or alien insurers.”

       (2) However, the Act provides that, notwithstanding the general prohibition in
subsection (1)(o) against BCBSM acquiring an interest in “domestic, foreign, or alien
insurers,” BCBSM may “establish, own, and operate a domestic stock insurance company
only for the purpose of acquiring, owning, and operating the state accident fund pursuant
to chapter 51 of the insurance code of 1956, 1956 PA 218, MCL 500.5100 to
500.5114 . . . .” MCL 550.1207(1)(x).

        (3) The Accident Fund, as the “domestic stock insurance company” established by
BCBSM under subsection (1)(x), derives its authority from, and is governed by, this
provision, a point acknowledged by BCBSM in its brief on appeal. See Appellee’s Brief
at 28 n 28 (noting that, in contrast to other provisions of MCL 550.1207(1) that do not
apply to the Accident Fund, MCL 550.1207(1)(x) “substantively and markedly” limits its
activities).

       (4) Subsection (1)(x), by using the modifier “only,” confines the permissible
business activities of the Accident Fund when it is “own[ed] and operate[d]” by BCBSM
to “acquiring, owning, and operating the state accident fund pursuant to chapter 51 of the
insurance code of 1956 . . . .”

       (5) The transactions at issue are not authorized by subsection (1)(x) because the
Accident Fund’s acquisition of foreign insurance companies constitutes an act falling
outside the “acquiring, owning, [or] operating the state accident fund.” Rather, it is an
act that expands the scope of its business activities beyond subsection (1)(x).

       (6) Further, no other provision in chapter 51 of the Insurance Code provides
authority for the Accident Fund to acquire additional insurers. Thus, the transactions
were beyond the Fund’s authority.

       (7) Subparagraph (i) of subsection (1)(x) permits the Accident Fund to transact
specified types of insurance “directly or indirectly.” The Court of Appeals infers from
this language that the Fund was permitted to acquire the foreign insurance companies.
However, to accept this inference would be in contravention of established principles of
interpretation. Subsection (1)(x) limits the permissible scope of the Fund’s activities to
“acquiring, owning, and operating the state accident fund pursuant to chapter 51 of the
insurance code . . . .” By immediately thereafter using the phrase “so long as all of the
following are met,” subsection (1)(x) then places additional limitations on the Fund’s
                                                                                                               5

operations through six subparagraphs.6 Rather, however, than reading these additional
limitations in the context of the overarching limitation found in subsection (1)(x), the
Court of Appeals instead reads the additional limitations out of context by disregarding
the primary limitation itself. The failure to give full effect to this sentence renders it
altogether nugatory. And because “[c]ourts must give effect to every word, phrase, and
clause in a statute and avoid an interpretation that would render any part of the statute
surplusage or nugatory,” State Farm Fire & Cas Co v Old Republic Ins Co, 466 Mich
142, 146 (2002), the Court of Appeals’ interpretation is in error.
       (8) Nor does MCL 500.1305(1), which provides authority for a “domestic insurer”
to “acquire 1 or more subsidiaries,” provide authority for the Accident Fund to engage in
the acquisition of the three foreign insurance companies. The Fund, as a legislatively
authorized entity, is not an ordinary “domestic stock insurance company.” The enabling
provision that authorized the Fund’s formation defined the scope of its business activities.
That is, under MCL 550.1207(1)(x), the Fund may only “acquir[e], own[], and operat[e]
the state accident fund pursuant to chapter 51 of the insurance code of 1956, 1956 PA
218, MCL 500.5100 to 500.5114 . . . .” MCL 500.1305(1), which provides authority for
an ordinary domestic insurer to acquire subsidiaries, is found in chapter 13 of the
Insurance Code, not in chapter 51.
       (9) Accordingly, because MCL 500.1305(1) is not found in chapter 51 of the
Insurance Code, it does not govern the Fund’s operation of the state accident fund. In
short, § 1305(1) does not provide authority for the Fund to “acquire 1 or more
subsidiaries,” nor does any other provision of law that has been identified.
        In conclusion, because the Accident Fund as a wholly owned subsidiary of
BCBSM, in my judgment, lacked the authority to engage in the acquisition of the three
foreign insurance companies, the trial court’s determination that the Attorney General
failed to state a claim upon which relief could be granted, and the Court of Appeals’
affirmance, are both in error. Accordingly, I dissent from the majority’s denial of leave
to appeal and would instead reverse the judgment and remand this matter to the trial court
for further proceedings.

6
  That the Legislature specifically intended subsection (1)(x) to govern and confine the
permissible scope of the Accident Fund’s business activities as a wholly owned
subsidiary of BCBSM is further evidenced by these subparagraphs. For example,
subparagraph (i) limits “the insurer” to transacting only specified types of insurance such
as worker’s compensation insurance.

                         I, Corbin R. Davis, Clerk of the Michigan Supreme Court, certify that the
                   foregoing is a true and complete copy of the order entered at the direction of the Court.
                         April 6, 2012                       _________________________________________
       t0403                                                                 Clerk