Insurance Coverage Not Available to Employer Mistakenly Listed as Insured on State-Required Workers Compensation Forms

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.

 

 

About cjtucker06

Owner of law firm since July 2014; Handles all types of appellate matters and assists other lawyers with complex litigation and insurance coverage issues; Admitted to the Supreme Court of the United States, the Sixth Circuit Court of Appeals and the State Bar of Michigan; Expertise in prosecuting and defending appeals with several significant successes in the Sixth Circuit Court of Appeals, the Michigan Supreme Court and the Michigan Court of Appeals; Author of briefs amicus curiae in the Michigan Supreme Court for the Michigan Defense Trial Counsel and the Insurance Institute of Michigan; Represents Insurance Companies, Major International Business, Governmental Entities, Law Enforcement Officers and County Sheriffs. Board of Directors, Michigan Defense Trial Counsel Amicus Committee Co-Chair, Michigan Defense Trial Counsel Military - Retired Major in the Judge Advocate General (JAG) Corps of the United States Army, Brigade Judge Advocate and Staff JAG officer for the Maneuver Training Center, Camp Grayling, Michigan; Recipient of the Army's Meritorious Service Medal (the highest medal of honor available to Soldiers serving in non-combat roles); 2012 Graduate of the Judge Advocate Officer Advanced Course, at The Judge Advocate Legal Center and School, Charlottesville, Virginia. United States Navy Reserves, Combat Warfare Qualification, January 1989 to July 2003 Former law clerk to Justice Stephen J. Markman, Michigan Supreme Court, Research Attorney, Michigan Court of Appeals. Insurance Coverage Associate Plunkett Cooney; Environmental Law Attorney at Squire Sanders, now Squire Patton Boggs; Master's Degree in Environmental Law; Environmental Law Scholar, ALI/ABA Washington, D.C., Juris Doctorate, Vermont Law School, Environmental Editor, Vermont Law Review; Treasurer and Finalist, Moot Court Advisory Board.
Gallery | This entry was posted in Administrative Law, Appeals, Appeals and Legal Research, Appellate Lawyer, Business and Commercial Litigation, Contract Law, Insurance and Indemnity, Insurance Coverage, Insurance Coverage Disputes, Insurance Law, Insurance Lawyer, May It Please the Court, Michigan Court of Appeals Unpublished Opinions, Recent Judicial Dispositions, Workers' Compensation Cases and tagged , , , , , , , , . Bookmark the permalink.

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