The Michigan Court of Appeals ruled on Tuesday, February 17, 2015, that insurance coverage was not available to an employer (Delphi) merely because the insurers had errantly listed the employer on forms required to be filed with the state to notify it of the existence of workers’ compensation insurance.
Delphi had multiple subsidiaries, some of which had been and were insured by policies issued by the insurers for workers compensation claims coverage. However, Delphi itself was self-insured, and did not therefore require or purchase workers compensation insurance from an insurance carrier. The insurance companies had mistakenly listed Delphi, generally, rather than the insured subsidiaries, on the forms required by the state of Michigan to list and certify the existence of workers compensation insurance coverage for employers.
When Delphi entered bankruptcy reorganization in 2005, because it was self insured, insurance coverage for underlying workers compensation claims filed by employees were assumed by the state’s “self insured security fund” under Michigan law. MCL 418.537(1). However, the state objected in the bankruptcy proceedings, and claimed that the insurers’ listing of “Delphi”, rather than the insured subsidiaries on the state-required notice forms bound the insurers to cover the claims, rather than the state of Michigan’s self-insured security fund.
When Delphi’s obligations were eventually discharged in bankruptcy, the insurers filed an adversary proceeding in the bankruptcy court (essentially the equivalent of a declaratory judgment action) asking the court to rule on the underlying issues regarding errant listing of the employer, Delphi, on the Michigan state workers compensation insurance notice forms. While this was pending the director of Michigan’s Workers Compensation Agency scheduled a “Rule 5” hearing to determine whether the insurers were liable for the Delphi claims under the policies that had been issued to the subsidiary companies.
The bankruptcy court stayed the Rule 5 proceeding. It determined it had jurisdiction to consider the underlying issue. However, the Second Circuit Court of Appeals ruled that while the bankruptcy court had jurisdiction to consider the scope of coverage in the underlying insurance policies, it did not have jurisdiction to consider whether the insurers were nonetheless liable for filing the inaccurate forms in Michigan.
The insurers then filed a declaratory judgment action in the Michigan Court of Claims seeking determination of its coverage obligations under the policies for the Delphi claims. The insurers argued that the policies controlled the obligation of coverage and not the errant listing of the wrong employer on the state-required forms. The Court of Claims agreed and the state appealed.
The Court of Appeals affirmed, holding that the inaccurate designation of Delphi on the state-required notice forms did not trump the contractual language in the insurance policies themselves, which underwrote and insured only the subsidiary company’s workers compensation obligations. Liability for the workers’ compensation claims filed and/or to be filed by Delphi were not covered by the insurers’ policies, which had insured only the subsidiary companies.
This is an interesting and somewhat procedurally complex case, which addresses significant liabilities that, according to the holding, will be borne by the state of Michigan, rather than by the insurers.
However, the holding and the rationale is rather unremarkable. The underlying insurance contracts control the coverage obligations vis-à-vis the listed insureds, not another party that was not underwritten for such coverage.
Read the case here: Ace American, et al. v. Workers Compensation Agency Director, et al.