Michigan hazard insurance and class action

Author: LegalEase Solutions

QUESTIONS PRESENTED

1) Must the sale of any hazard insurance in Michigan be by a licensed individual and by a company licensed in Michigan?


2) Regarding a tire hazard warranty or extended warranties, is there an exception in Michigan law or Michigan insurance law that allows the sale of these policies outside the typical requirements for all other insurance? 


3) May consumers file a class action suit for violations of law pertaining to the above,  or does only the attorney general have right to proceed against parties for violations of the insurance code?

 

 SHORT ANSWERS

  1. A person acting as an insurer in Michigan requires a certificate of authority granted by the commissioner.[1] Further, license is essential for a person to sell insurance in Michigan.[2]
  2. Road hazard insurance is not an exception to the license requirement to sell insurance.
  3. The Michigan Insurance Code does not create a private right of action, and therefore, parties aggrieved by a violation of the Code do not have the right to seek redress in court as individuals, in a class or otherwise.

 

RESEARCH FINDINGS

  1. Requirement of license to sell insurance

“The Michigan Insurance Code, M.C.L. § 500.120, requires all transactions of insurance business in Michigan to comply with Michigan law. Further, M.C.L. § 500.402a defines transactions of insurance business as the collection of premiums and the issuance of contracts of insurance to state residents as doing business in Michigan.” Spray v UNUM Life Ins Co of America, 749 F Supp 800, 804 (WD Mich 1989).

The Insurance Code of 1956 requires an insurer to have certificate of authority to issue insurance policy or to transact insurance. Per MCL § 500.402 “No person shall act as an insurer and no insurer shall issue any policy or otherwise transact insurance in this state except as authorized by a subsisting certificate of authority granted to it by the commissioner pursuant to this code.” Additionally, license is essential to sell insurance in Michigan. Thus, “[a] person shall not sell, solicit, or negotiate insurance in this state for any line of insurance unless the person is licensed for that qualification in accordance with this chapter.” MCL § 500.1201a.

But, MCL § 500.1201a does not apply to “excess and surplus lines agents and brokers licensed under chapter 19” (M.C.L.A § 500.1901 et seq.). MCL § 500.1201a. “Surplus lines insurance’ means insurance in this state procured from or continued or renewed with an unauthorized insurer.” MCL § 500.1903. However, a person selling surplus lines insurance needs to comply with the requirements set out in MCL § 500.1905 (3).

Insurer as used in the code means, “any individual, corporation … and any other legal entity, engaged or attempting to engage in the business of making insurance or surety contracts.” MCL § 500.106. Further, “a person required to be licensed under the laws of this state to sell, solicit, or negotiate insurance” is referred to as ‘Insurance producer.” MCL § 500.1201.

Also, “[a] person must possess numerous statutory qualifications in order to become, and to fulfill, the role of a licensed insurance agent.” Harts v Farmers Ins Exch, 461 Mich 1, 12; 597 NW2d 47, 53 (1999) (citing MCL § 500.1201). MCL § 500.1201 defines license “as a document issued by this state’s commissioner authorizing a person to act as an insurance producer for the qualifications specified in the document.” However, “[t]he license itself does not create any actual, apparent, or inherent authority in the holder to represent or commit an insurer.” Id.

The “hazards of fire, explosion, transportation, collision, loss by legal liability for damage to property resulting from the maintenance and use of automobiles, and loss by burglary or theft or both” are covered under Automobile insurance (limited). MCL § 500.620.

Therefore, a license and certificate of authority is required by an individual or corporation to engage in the sale of hazard insurance in Michigan.

  1.  Does Michigan carve an exception to insurance code for road side hazard? Neither Michigan law nor the Michigan Insurance Code carves out an exception to the requirement of license to sell road side hazard or assistance insurance. “A person shall not sell, solicit, or negotiate insurance in this state for any line of insurance unless the person is licensed for that qualification in accordance with this chapter.” MCL § 500.1201a. Therefore, road hazard insurance is not an exception to the license requirement to sell insurance.
  2. May consumers file a class action suit for violations of law pertaining to the above,  or does only the attorney general have right to proceed against parties for violations of the insurance code?

MCL § 500.230 precludes a private party from recovering penalties specified in the code unless otherwise provided.” Young v Michigan Mut Ins Co, 139 Mich App 600, 605; 362 NW2d 844, 846 (1984) (citing Dasen v. Frankenmuth Mutual Ins. Co., 39 Mich.App. 582, 197 N.W.2d 835 (1972)). Further, Young v Michigan Mut Ins Co, 139 Mich App 600, 605; 362 NW2d 844, 847 (1984) has held that a private cause of action cannot be alleged under MCL § 500.230:

In the absence of any authority supporting the maintenance of a private cause of action founded upon any other section of the UTPA, the Court concludes that section 230 of the Insurance Code of 1956, M.C.L.A. § 500.230, governs the enforcement of the UTPA and that plaintiff may not assert a private cause of action based on other alleged violations of the UTPA.

Id. (quoting Barker v Underwriters at Lloyd’s, London, 564 F Supp 352, 355 (ED Mich 1983)).

MCL § 500.230

Every penalty provided for by this code, if not otherwise provided for, shall be sued for and recovered in the name of the people by the prosecuting attorney of the county in which the insurer or the agent or agents so violating shall be situated; and shall be paid into the treasury of said county; such penalties may also be sued for and recovered in the name of the people, by the attorney general, and, when sued for and collected by him, shall be paid into the state treasury.

CONCLUSIONS

The Michigan insurance code requires a person to have license to sell insurance. Road hazard insurance is not an exception to this rule. Further, MCL § 500.230 provides every penalty under the code to be sued for and recovered in the name of the people by the county prosecuting attorney. Thus, insurance code does not provide for private cause of action.

[1] M.C.L. § 500.120

[2] MCL § 500.1201a