Old Republic Insurance v. Michigan Catastrophic Claims Ass'n

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 12a0468n.06

No. 10-2409
FILED
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT May 02, 2012
LEONARD GREEN, Clerk

OLD REPUBLIC INSURANCE COMPANY, )
)
Plaintiff-Appellant, )
) ON APPEAL FROM THE
v. ) UNITED STATES DISTRICT
) COURT FOR THE EASTERN
MICHIGAN CATASTROPHIC CLAIMS ) DISTRICT OF MICHIGAN
ASSOCIATION, )
)
Defendant-Appellee. )
)
)

BEFORE: GUY, COLE, and ROGERS, Circuit Judges.

ROGERS, Circuit Judge. This case involves a dispute between Old Republic Insurance

Company, an insurer authorized to write auto insurance in Michigan, and the Michigan Catastrophic

Claim Association (MCCA), a private, non-profit association established to spread the risk of

catastrophic claims and ensure that Michigan’s no-fault provision for unlimited personal injury

protection benefits does not place too great a burden on insurers. After the MCCA refused to make

payments to Old Republic on a catastrophic claim, Old Republic brought this litigation to determine

whether the MCCA’s statutorily mandated obligation to indemnify for “ultimate net loss” required

the MCCA to cover risk-sharing arrangements between insurers and insureds. The district court,

however, never reached this issue of first impression, holding instead that Old Republic failed to

establish that it had paid premiums on the vehicle involved in the catastrophic accident. Based on
this finding, the district court held that Old Republic was not eligible to receive indemnification from

the MCCA and therefore granted the MCCA’s motion for summary judgment.

Although a member insurer must prove that it has paid the premium on the specific policy

implicated by a catastrophic claim, summary judgment was not yet warranted in this case. The

record does not yet show the absence of a genuine issue of material fact regarding whether Old

Republic paid sufficient premiums to cover all CSX Corporation vehicles, among them the Tarnoski

vehicle that is at the center of this litigation. A remand is therefore necessary.

This litigation traces back to 2004, when CSX Corporation employee Donald Tarnoski was

severely injured after his truck ran off the road and struck a bridge support. Under Michigan’s no-

fault insurance law, which provides for unlimited personal injury protection benefits,

M.C.L. § 500.3107, Tarnoski received over $600,000 for his catastrophic claim. In 2004, Old

Republic insured CSX Corporation under Business Insurance Policy No. MWTB 18629, which

included the standard Michigan personal injury protection coverage. This policy obligated Old

Republic “to pay personal injury protection benefits to or for an ‘insured’ who sustains ‘bodily

injury’ caused by an ‘accident’ and resulting from the ownership, maintenance or use of an ‘auto’

as an ‘auto.’” R. 45, District Court Order, at 3.

The instant dispute arose when the MCCA refused Old Republic’s request for payments

related to Tarnoski’s accident. After the MCCA sent its final letter denying Old Republic’s request,

Old Republic filed this case in the district court, seeking a declaration of its right to receive

indemnification from the MCCA for the personal injury protection benefits payable to Tarnoski

under Michigan’s No-Fault Act.

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 The MCCA is an unincorporated, non-profit association of insurers, created by the Michigan

legislature in 1978, “in response to concerns that Michigan’s no-fault law provision for unlimited

personal injury protection benefits placed too great a burden on insurers, particularly small insurers,

in the event of ‘catastrophic’ injury claims.” Preferred Risk Mut. Ins. Co. v. MCCA, 449 N.W.2d

660, 661 (Mich. 1989). The MCCA, which was established under M.C.L. § 500.3104, exists “to

indemnify member insurers for losses sustained as a result of the payment of personal protection

insurance benefits” that exceed a statutory threshold. Id. Under § 3104(1), “[e]ach insurer engaged

in writing insurance coverages that provide the security required by section 3101(1)1 within this state,

as a condition of its authority to transact insurance in this state, shall be a member of the [MCCA]

and shall be bound by the plan of operation of the association.” As a member insurer, the MCCA

will indemnify “100% of the amount of ultimate loss sustained under personal protection insurance

coverage in excess” of certain statutory thresholds. M.C.L. § 500.3104(2)(a)-(k). “Ultimate loss”

is defined as the “actual loss amounts that a member is obligated to pay and that are paid or payable

by the member . . . .” M.C.L. § 500.3104(25)(c).

The Michigan legislature granted the MCCA the authority “to charge its members a premium

that would cover the anticipated losses and expenses of the MCCA,” which allows “member insurers

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Section 3101(1) of Michigan’s No-Fault Act states in full:
The owner or registrant of a motor vehicle required to be registered in this state shall
maintain security for payment of benefits under personal protection insurance,
property protection insurance, and residual liability insurance. Security shall only be
required to be in effect during the period the motor vehicle is driven or moved upon
a highway. Notwithstanding any other provision in this act, an insurer that has issued
an automobile insurance policy on a motor vehicle that is not driven or moved upon
a highway may allow the insured owner or registrant of the motor vehicle to delete
a portion of the coverages under the policy and maintain the comprehensive coverage
portion of the policy in effect.

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to spread the risk of catastrophic claims.” Kingsway Gen. Ins. Co. v. Austin, No. 08-12123, 2008 WL

5188263, at *6 (E.D. Mich. Dec. 8, 2008). Under § 3104(7)(d), the MCCA first estimates the

amount it will need to pay unlimited lifetime personal injury protection benefits on all catastrophic

claims and other expenses during the applicable period, then “charges the member insurers

individual premiums based on their respective shares of the state’s auto insurance market.”

Preferred Risk, 449 N.W.2d at 662 n.5. After arriving at the total premium to cover costs, the

MCCA divides that total premium by the total written car years of insurance reported by all member

insurers to deduce an average premium per car. These calculations form the basis of what the

MCCA charges its member insurers, which is adjusted as necessary at the end of the year.

Each member insurer of the MCCA is “charged an amount equal to that member’s total

written car years of insurance providing the security required by section 3101(1) . . . written in this

state during the period to which the premium applies, multiplied by the average premium per car.”

M.C.L. § 500.3104(7)(d). According to § 4.01(h) of the MCCA’s Plan of Operation, “written car

years” is defined as “the number of net direct written vehicle years (or the total number of net direct

written vehicle months divided by twelve, if so reported) of insurance providing to any and all

vehicles . . . the security required by Section[ ] 3101 . . . written in the State of Michigan by each

Member . . . .” R.10-14, MCCA Plan of Operation, at Section 4.01(h). Members are responsible

for determining the appropriate number of car years, and, “[t]he method each Member . . . uses to

calculate Written Car Years for the purpose of reporting such information to the Association shall

be the same method the member uses to calculate the number of written car years the member reports

to its statistical agent.” Id. The Plan of Operation also states that the MCCA “ha[s] the right to audit

and verify any Member’s . . . determination of a premium payable . . . .” Id. at Section 9.05.

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 In its final letter denying Old Republic’s claim for reimbursements related to the Tarnoski

accident, the MCCA stated that it was not obligated to reinsure claims paid under fronting policies

because the member insurer does not incur an “ultimate loss,” as defined by M.C.L. 500.3104(25)(c).

R.10-6, Old Republic’s SJ Motion, Ex. D, May 5, 2008 Letter from MCCA. In addition to the

standard commercial no-fault policy, Old Republic had entered into a reinsurance agreement with

CSX Corporation, R. 10-10, Reinsurance Greement - T265, typically known as a “fronting” policy,

whereby CSX Corporation paid significantly lower premiums in return for assuming financial

responsibility for losses required to be paid under the policy. Under the fronting policy, Old

Republic agreed to administer any claims.

Old Republic filed a declaratory judgment action regarding its right to receive payments from

the MCCA for the personal injury protection benefits payable under CSX Corporation’s fronting

policy. Old Republic then filed a motion for summary judgment on this issue of first impression,

asking that the district court determine that the MCCA’s statutorily mandated obligation to

indemnify for “ultimate net loss” requires the MCCA to cover risk-sharing arrangements between

insurers and insureds. The MCCA opposed this motion and filed its own motion for summary

judgment, claiming—for the first time—that Old Republic had not paid the requisite premiums on

the vehicle involved in the Tarnoski accident, and thus could not be indemnified. Old Republic

requested time to search its records to find proof of the premiums paid, and produced a twenty-five

page document, including a list of 158 CSX Corporation vehicles with their corresponding

identification numbers, model, make, and year. R. 42-2, Supplemental Br. for MCCA, Ex. A, at 4-7.

On the list, there is no clear indication that the vehicle driven by Tarnoski on the day of the accident

was covered.

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 After receiving the information from Old Republic, the MCCA served Old Republic with a

notice of deposition under Rule 30(b)(6), requesting an individual to provide information regarding

“[w]hether Old Republic paid an MCCA assessment for the CSX vehicle . . . for the assessment year

at issue.” R 47-4, Brockhaus Dep., Attachment A, at 3. Old Republic designated two employees

to testify: Vice-President and Controller David Brockhaus and Assistant Controller and Assistant

Vice-President David Kostenbader.

After discovery was completed, the district court heard oral arguments on the cross motions

for summary judgment, and ultimately granted the MCCA’s motion. The district court held that

“[t]he issue of whether the MCCA’s interpretation of ‘ultimate loss’ under Michigan’s No-Fault Act

is correct is not ripe,” R.45, District Court Order, at 8, because Old Republic “failed to establish that

it paid premiums on the vehicle [involved in the Tarnoski accident] owned by CSX Corporation.”

Id. at 7. As failure to pay a premium disqualifies a member insurer from receiving indemnification

from the MCCA, the district court determined that it was not necessary to address the initial issue

raised by Old Republic in its declaratory judgment action. Id. at 8. After reviewing the 25-page

untitled document provided by Old Republic, as well as the depositions from the two Old Republic

executives, the district court held that Old Republic had not provided sufficient admissible evidence

“that it paid the requisite premium to the MCCA on the vehicle involved in the Tarnoski claim,” and

thus could not withstand summary judgment. Id. at 9-10.

Old Republic filed a motion for relief from judgment, arguing that the court had misconstrued

how MCCA assessments are paid by member insurers, and that premiums are paid to the MCCA

based on written car years, not the number of vehicles insured. The district court held that this was

a new argument that was not raised in Old Republic’s previously filed briefs, and thus could not be

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raised on a motion for reconsideration. R.49, District Court Order Re: Relief from Order, at 2. In

addition, to the extent that Old Republic argued that it established a question of fact as to whether

the Tarnoski vehicle was insured under the CSX Corporation policy, the district court held that with

this assertion Old Republic “merely reargue[d] its previous position the Court considered in its Order

dismissing the matter.” Id. Old Republic’s motion for relief from judgment was consequently

denied. Old Republic timely appeals the district court’s grant of summary judgment to the MCCA.

Although Michigan’s No-Fault Act does not require either payment or reporting on a per

vehicle basis, Old Republic must still prove that it paid sufficient premiums to cover all of CSX

Corporation’s vehicles, including the one involved in the Tarnoski accident. It is not clear, however,

whether the district court sufficiently recognized the scheme for how vehicles become covered by

the MCCA. Under the plain language of Michigan’s No-Fault Act and the MCCA’s Plan of

Operation, MCCA premiums are not charged on a per vehicle basis. In both documents, the

premiums charged member insurers are based on “written car years.” For instance, under §

3104(7)(d), it states that “[e]ach member shall be charged an amount equal to that member’s total

written car years of insurance . . . .” Similarly, in the MCCA’s Plan of Operation, the “final premium

assessment” charged each member insurer is “an amount equal to the sum of . . . such member’s total

Written Car Years . . . multiplied by the Average Premium Per Car for the period . . . .” R.10-14,

MCCA Plan of Operation, at Section 9.03(b). The words “per vehicle” or “VIN” are not used in

either document to describe how insurer members’ premiums should be determined or reported.

Although the MCCA determines an average premium per car, M.C.L. § 500.3401(7)(d),

which is multiplied by the member insurer’s reported number of car years, R.10-14, MCCA Plan

of Operation, at Section 9.03(b), the member insurers are only responsible for reporting their number

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of written car years. The number of written car years reported by the insurer member is determined

by the member, and the Plan of Operation specifically states: “The method each Member . . . uses

to calculate Written Car Years for the purpose of reporting such information to the Association shall

be the same method the member uses to calculate the number of written car years the member reports

to its statistical agent.” Id. at Section 4.01(h) (emphasis added).

Though the statute or Plan of Operation could have required member insurers to report the

total number of cars insured on their policies, instead of written car years, such language is absent.

This distinction is important, as the MCCA recognizes in its brief: “Where a member writes a one-

year policy covering two vehicles, the member has written two car-years of insurance; where a

member writes a six-month policy on a single vehicle, the member has written one-half of a written

car year . . . .” Appellee Br. at 23. In this example, if a member insurer were reporting data to the

MCCA for the purpose of calculating premiums, it would report 2.5 written car years, not 3 vehicles

covered. Similarly, Old Republic gives the example of an insured who buys 50 one-year policies

for 50 vehicles, for a total of 50 written car years, and then replaces 10 of the vehicles with newer

cars over the course of the year. While the “written policy years” reported by the insured would still

be 50 years, the insured’s total inventory would be 60 vehicles. Appellant Brief at 29.

The definition of “Written Car Years” from the Plan of Operation, R.10-14, MCCA Plan of

Operation, at Section 4.01(h), supports the examples put forth by both the MCCA and Old Republic.

Section 4.01(h) of the Plan defines “Written Car Years” as “the number of net direct written vehicle

years (or the total number of net direct written vehicle months divided by twelve, if so reported) of

insurance providing to any and all vehicles . . . the security required by Section[ ] 3101 . . . written

in the State of Michigan by each Member . . . as applicable.” (emphasis added). While § 3101(1)

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dictates that all vehicles “driven or moved upon a highway” must be insured, this does not change

the fact that the member insurer is only required to report their coverage needs on a written car year

basis.

The MCCA provides numerous examples from Old Republic’s briefs, motions, and

depositions to argue that Old Republic admitted that it pays premiums on a per vehicle basis.

However, these are not really “admissions”; rather, they are either testaments regarding how Old

Republic calculates its written car years or statements that the premium for the policy covering the

Tarnoski vehicle was paid. In light of the plain language of the statute and the Plan of Operation,

it is clear that premiums are not calculated on a per vehicle basis. R.10-14, MCCA Plan of

Operation, at Section 9.03(b).

Still, the MCCA makes a valid point that, without keeping a record of the vehicles insured,

it would be difficult to determine the appropriate number of written car years and whether a member

insurer had paid its premium correctly. In addition, it would be hard for an insurer to prove that all

vehicles on the road were properly insured, as required by § 3101(1). These concerns relate to the

issue that most directly governs this appeal: whether Old Republic has provided sufficient proof to

survive summary judgment on the factual issue of whether it paid the requisite premium in this case

to be eligible for indemnification by the MCCA under M.C.L. § 500.3104(2).

While the MCCA’s Plan of Operation does not dictate that a member insurer must supply

a list of vehicles, VINs, and matching policy numbers, Michigan case law does require sufficient

proof that the premium for the specific policy implicated by a claim has been paid before the member

insurer may receive indemnification from the MCCA. By focusing on Old Republic’s failure to

provide a list of vehicles and corresponding premium payments, the district court appears to have

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prematurely determined that Old Republic could not prove that it paid sufficient premiums to

warrant indemnification from the MCCA. The fact that Old Republic has not proven that a specific

premium for the Tarnoski vehicle has been paid does not mean that Old Republic could not show

that it paid sufficient premiums for the correct number of car years, and that the Tarnoski vehicle was

part of that total.

A genuine dispute arguably remains as to whether Old Republic could prove that it paid

sufficient premiums to cover all of the CSX Corporation vehicles, including the Tarnoski vehicle.

Old Republic has provided more than “merely colorable” evidence that it has paid premiums for 157

car years of insurance, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). During discovery,

Old Republic provided an untitled list of 158 vehicles with VINs, R. 47-4, Brockhaus Dep, Exhibit

3, though there is a discrepancy between the 157 vehicles discussed by David Brockhaus, Old

Republic’s representative selected to explain its premium payment system, and the 158 vehicles on

the untitled list. Id. at p. 17 (deposition), p. 6 (document). Furthermore, the document does not

contain any indication that the Tarnoski vehicle is on the list, and there is no corresponding number

for the months or years that each car was on the road, making it is impossible to determine if Old

Republic reported the correct number of written car years. Finally, David Brockhaus, Old Republic’s

representative, admitted that he did not know if the list of 157 or 158 vehicles, which allegedly

included the Tarnoski vehicle, was even covered by the CSX Corporation policy. Id. at p. 10, 12-15

(deposition), p. 4-5 (document).

These weaknesses in Old Republic’s case support the conclusion that Old Republic did not

adequately show coverage of the particular vehicle. But given the way that premiums are calculated,

it would be sufficient for Old Republic instead to show that it had properly calculated its total car

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years. The language of the district court’s order suggests that the court was looking for evidence of

a premium tied specifically to the vehicle in the Tarnoski claim. A remand is therefore warranted.

The district court and the MCCA incorrectly suggest that § 9.05 of the Plan of Operation

requires that “a member provide a list of vehicles that correspond to the premium payment made by

the member.” R. 45, District Court Order, at 7; see also, Appellant Br. at 23. Instead, § 9.05 of the

Plan of Operation simply states that the MCCA has “the right to audit and verify any Member’s . .

. determination of a premium payable under this Article.” R.10-14, MCCA Plan of Operation, at

Section 9.05. While the Member “shall provide such documentation supporting its determination

of the premium payable as the Association may request,” id. (emphasis added), there is nothing in

the Plan or the Michigan No-Fault Act to indicate exactly what types of records member insurers

must keep. As long as member insurers keep the requisite information on file, and that information

proves that sufficient premiums have been paid to cover all vehicles that should be covered under

§ 3101(1), then the member insurer is within the parameters of the Plan of Operation.

Presumably, the easiest way to prove that all premiums have been paid and that the member

insurer’s written car years have been correctly calculated would be to keep a list detailing vehicles,

VINs, matching policy numbers, and the length of each policy, including whether cars have been

replaced. However, this is not required. Using the previous example where an insured bought 50

one-year policies for 50 vehicles, for a total of 50 written car years, and then replaced 10 of the

vehicles with newer cars over the course of the year, it is possible to imagine how the insured would

be able to prove a premium had been paid without matching policy premiums to vehicles. If the

insured paid a premium for 50 written car years of insurance, and kept a detailed list of all the

vehicles replaced and the time each car was on the road, to verify that it added up to 50 years, the

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insured would be able to prove that all of its cars were covered without necessarily matching a

premium payment to a vehicle’s VIN.

Even though the plan and statute do not lay out specifics regarding the type of records that

must be kept, Michigan case law does say that the member insurer must be able to prove that

sufficient premiums have been paid before it can receive indemnification from the MCCA for a

claim under a specific policy. This is true because, “[i]n effect, M.C.L. § 500.3104 creates a contract

between the MCCA and insurers wherein the MCCA promises to indemnify insurers for claims paid

by the insurers in excess of $250,000 and the insurers pay a premium to the MCCA for the

coverage.” Liberty Mut. Ins. Co., v. MCCA, 638 N.W.2d 155, 162 (Mich. Ct. App. 2001). Under

this contract, member insurers are required to “pa[y] for the protection of § 3104,” Preferred Risk,

449 N.W.2d at 667, and “an insurer’s failure to pay the premium as required by Michigan no-fault

law prevent[s] an insurer from being indemnified by the MCCA,” Liberty Mut. Ins. Co., 638 N.W.2d

at 158-59 (emphasis added).

In the end, the records at Old Republic, and its reliance on the record keeping by CSX

Corporation, Reply Br. at 2, are “significantly probative” to prevent a grant of summary judgment

in the MCCA’s favor at this time. Anderson, 477 U.S. at 249. However, summary judgment may

yet be available if the MCCA can show there is no genuine issue regarding whether Old Republic

failed to calculate car years properly for its fleet as a whole. If, on the other hand, there is evidence

that the car years were properly calculated, the fact that Old Republic paid benefits on the Tarnoski

vehicle is evidence that the vehicle was among those covered by the policy.

We vacate the district court’s grant of summary judgment, and remand for further

proceedings consistent with this opinion, including the possibility of further discovery.

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