Michigan Court of Appeals; Docket No. 287153; Published
Judges Bandstra, Borrello, and Shapiro; unanimous; per curiam
Official Michigan Reporter Citaiton: 288 Mich. App. 706, Link to Opinion 
Leave denied by the Michigan Supreme Court 2/7/2011, Link to Order
STATUTORY INDEXING:
Indemnity dollar thresholds [3104]
Reimbursement of member claims [3104]
TOPICAL INDEXING:
Not applicable
CASE SUMMARY:
In this unanimous published per curiam opinion involving insurer claims to the Michigan Catastrophic Claims Association (MCCA), the Court of Appeals held that deductibles can be included in the calculation of an insurer’s “ultimate loss” for purposes of determining whether the insurer is entitled to reimbursement from the MCCA. However, the court also held that the MCCA is entitled to reimbursement of the deductible and can bring an action against the policyholder as the insurer’s subrogee.
This consolidated appeal involves two insurers, American Home Assurance Company and Ace American Insurance Company (AAIC). In the claim involving American Home, American Home sought reimbursement of $380,863.66 in personal injury protection benefits paid to Jeffrey Olson after Olson was hit by a vehicle owned by Cassens Transport Company. According to American Home, they paid PIP benefits totaling $705,863.60. American Home stated that under MCL 500.3104(2)(c), it was entitled to reimbursement from the MCCA for its “ultimate loss” exceeding $325,000, and, therefore, it was entitled to reimbursement in the amount of $380,863.66. The MCCA denied the claim because the policy Cassens Transport obtained from American Home provided for a $500,000 deductible. According to the MCCA, once the deductible was taken into account, American Home’s ultimate loss did not exceed $325,000. The trial court agreed with the MCCA and granted its motion for summary disposition.
The Court of Appeals disagreed with the trial court that deductible amounts could not be included in an insurer’s calculation of “ultimate loss” for purposes of determining whether it was entitled to reimbursement from the MCCA. Nevertheless, it ultimately affirmed, because under Article X, 10.06 of the MCCA’a Article of Operation, the MCCA is entitled to payment of any amount an insurer recovers from a third-party for which the MCCA has provided payment. In this regard, the court stated:
“In the case of plaintiff American Home, American Home paid the claimant PIP benefits totaling $705,863.60. Although the insurance policy between American Home and Cassens contained a clause requiring Cassens to pay a $500,000 deductible, MCL 500.3105(1) obligates a member insurer to pay PIP benefits regardless of a policyholder’s payment of a deductible in an insurance policy or the existence of a deductible clause in the policyholder’s policy. Because American Home was obligated to pay and did pay $705,863.60, the ‘ultimate loss’ under MCL 500.3104(25)(c) was $705,863.60. That amount clearly exceeded the $325,000 statutory threshold, which would have obligated the MCCA to pay American Home the excess amount of $380,863.80. Thus, the trial court erred in concluding that an insurer’s ‘ultimate loss’ did not include amounts the insurer received from the policyholder as payment for the deductible.
However, we conclude that the trial court’s result was ultimately correct because under Article X, § 10.06 of the MCCA’s plan of operation, a member insurer must turn over to the MCCA any amount it recovers from a third party for which the member has already been reimbursed by the MCCA.”
In the claim involving the AAIC, the AAIC issued a no-fault insurance policy to Waste Management with a $1,000,000 deductible, and a 40% “quota share limit.” In this case, Alice Cobb was seriously injured when a Waste Management vehicle hit her. AAIC waived the deductible and paid $2,168,193.22 in PIP benefits on Cobb’s behalf. It then sought reimbursement from the MCCA for amounts over $375,000 under MCL 500.4104(2)(e). The MCCA denied the claim in part, stating that because of the $1,000,000 deductible and taking into account Waste Management’s quota share limit, it was only liable for $467,277.29. The trial court agreed with the MCCA and granted its motion for summary disposition.
In reversing, the Court of Appeals noted that the $1,000,000 deductible was properly included in the calculation of ultimate loss. However, it noted that unlike the situation involving American Home, AAIC chose not to recover the $1,000,000 deductible. The court noted that such precedent would allow insurers to offer commercial policies with high deductibles while advising their clients that they will never have to pay the deductibles because the MCCA will ultimately bear the loss. The court explained that the MCCA was not designed to subsidize large deductibles. Therefore, although it found that the MCCA was liable to reimburse AAIC, it held that the MCCA is subrogated to the rights of the insurer, in that it may bring an action against the policyholder for the amount of the deductible if the policyholder fails to do so. In this regard, the court stated:
“AAIC argues that the deductible must be included in calculating its ‘ultimate loss’ because the full PIP amounts are ‘payable’ by AAIC to the claimant regardless of the existence of the deductible provision in the insurance policy. As discussed above, this is the proper understanding of ‘ultimate loss,’ so that AAIC’s ‘ultimate loss’ was the over $2 million in benefits that it paid. Thus, its payments exceeded the $375,000 statutory threshold in MCL 500.3104(20(e), thereby triggering the MCCA obligation to repay AAIC the amounts above the $375,000 threshold. However, because AAIC elected not to recover these monies, this is not the end of the analysis as such a result would allow insurance companies to claim that they have no duty to reimburse the MCCA for monies which the insurer is legally entitled to receive pursuant to its contract with its policyholder. This would permit insurers to offer commercial policies with high deductibles and lower premiums and advise its potential insureds that they will never have to pay the deductible because the MCCA will ultimately be responsible for those amounts. The MCCA was not set up to subsidize large commercial deductibles and we decline to create a system that would require it to do so.
. . . Under such circumstances, we hold that the MCCA is subrogated to the rights of the insurer such that it may bring action against the policyholder for the amount of the deductible if the insurer fails to do so and that it may recover the costs of such an action from the insurer.”
