MICHIGAN MUTUAL INSUR CO V DIRECTOR DEPT CONSUMER & INDUSTRY SERV
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STATE OF MICHIGAN
COURT OF APPEALS
MICHIGAN MUTUAL INSURANCE
COMPANY, and MICHIGAN WORKERS'
COMPENSATION PLACEMENT FACILITY,
FOR PUBLICATION
June 1, 2001
9:00 a.m.
Plaintiffs-Appellants,
No. 214395
Ingham Circuit Court
LC No.98-088229-CZ
v
DIRECTOR, DEPARTMENT OF CONSUMER
AND INDUSTRY SERVICES, COMMISSIONER
OF INSURANCE, and MICHIGAN INSURANCE
BUREAU,
Defendants-Appellees.
Updated Copy
August 17, 2001
Before: Wilder, P.J., and McDonald and Doctoroff, JJ.
WILDER, P.J.
Plaintiffs appeal as of right from an order granting summary disposition to defendants
pursuant to MCR 2.116(C)(10). We reverse and remand.
I. Factual Background and Procedural History
This case arises out of the reassignment of the Insurance Bureau hearing referees to the
Office of Legal Services (OLS), both of which agencies are part of the Department of Consumer
and Industry Services (CIS). In 1965, the Legislature enacted the Executive Organization Act
(EOA), MCL 16.101 et seq., establishing nineteen principal departments of the executive branch
of the state of Michigan's government. See MCL 16.104. After establishing the principal
departments, the Legislature transferred various bureaus, boards, commissions, and agencies into
one of the nineteen departments using three types of transfers: type I, type II, and type III. MCL
16.103.1 In MCL 16.325, the Legislature created the Department of Commerce (now part of the
CIS), and in MCL 16.329 the Department of Insurance (Insurance Bureau) and the Office of the
1
Under a type I transfer, an agency is merely identified as being within a particular department,
but the agency continues to perform its functions as prescribed by statute. Under a type II
transfer, the agency loses autonomous control of its functions to the principal department. Under
type III transfer, the agency is abolished altogether.
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Commissioner of Insurance were transferred to the Department of Commerce by a type I transfer.
In addition, in passing the EOA, the Legislature specifically noted that "all powers, duties and
functions vested in the office of governor are continued, except as otherwise provided" for in the
EOA. MCL 16.110. One of these "powers" is the extensive authority the Governor has to
reorganize the executive branch of the government as provided by Const 1963, art 5, § 2.2 To
this end, the EOA specifically provided the Governor with the power to reorganize the various
components of the executive branch by executive order. MCL 16.134(2)3
Until 1997, the Insurance Bureau had a staff of three hearing referees who heard only
contested cases involving the Michigan Insurance Code, MCL 500.100 et seq. These hearing
referees reported to and were supervised by the commissioner. On October 4, 1997, Acting
Commissioner Dominic D'Annunzio and the director of the OLS, Edward Rodgers, entered into a
memorandum of understanding, effective immediately, transferring the three hearing referees
formerly assigned to the Insurance Bureau to the OLS and providing that the hearing referees
would thereafter be under the supervision of the CIS director. The memorandum of
understanding further provided that the commissioner would authorize all hearing referees in the
OLS to hear contested cases involving insurance disputes pursuant to § 212 of the Insurance
Code, MCL 500.212. Pursuant to the memorandum, the OLS would provide the commissioner
with a monthly status report indicating dates on which hearings had been held, recent filings and
any scheduled hearing dates, hearing referees would adhere to the commissioner's interpretation
of the Insurance Code and rules, and hearing referees would be precluded from dismissing cases
and would only recommend dismissal, sanctions, or remedies depending on their findings and
conclusions. Also on October 4, 1997, the acting commissioner signed a designation of authority
appointing the twelve hearing referees at the OLS to conduct contested case hearings pursuant to
§ 212 of the Insurance Code, MCL 500.212, and the Administrative Procedures Act (APA), MCL
24.201 et seq.
2
Const 1963, art 5, § 2 states, in part:
Subsequent to the initial allocation, the governor may make changes in the
organization of the executive branch or in the assignment of functions among its
units . . . . Where these changes require the force of law, they shall be set forth in
executive orders and submitted to the legislature. . . . Unless disapproved in both
houses by a resolution concurred in by a majority of the members elected to and
serving in each house, each order shall become effective at a date thereafter to be
designated by the governor.
3
MCL 16.134(2) provides, in part:
Whenever the governor makes changes in the organization of the
executive branch or the assignment of the functions among its units which require
the force of law, such changes shall be set forth in executive orders and copies of
the orders shall be submitted to the legislature as provided in section 2 of article 5
of the state constitution. Unless disapproved in both houses by a resolution
concurred in by a majority of the members elected to and serving in each house
within the constitutional time period, such executive orders shall become effective
at the date designated by the governor.
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Plaintiff Michigan Mutual Insurance Company sells worker's compensation insurance and
other types of insurance to employers in the state of Michigan. Plaintiff Michigan Worker's
Compensation Insurance Facility is a statutorily created nonprofit association of worker's
compensation insurers that provides insurance in the involuntary market to employers who would
not otherwise be able to get coverage. Under the name Amerisure, Michigan Mutual sells
insurance in the involuntary market on behalf of the facility to high risk employers, including
nonparty Precision Steel Shearing. The rates used for employers serviced by the facility are
based on the number of past worker's compensation claims filed by the employer and the nature
of the work performed. Precision Steel Shearing requested a recalculation of the rates it was
charged by Amerisure, naming both Michigan Mutual and the facility as respondents. Precision
Steel Shearing petitioned for a contested case proceeding before the commissioner pursuant to
the administrative rules of the Insurance Bureau. Hearing referee James Karpen of the OLS was
assigned to hear the matter. Karpen was not one of the three hearing referees transferred from
the Insurance Bureau to the OLS, but was one of the twelve hearing referees originally assigned
to the OLS. Plaintiffs answered Precision Steel Shearing's petition for a contested case, denying
the allegations that the insurance premium was not calculated correctly and challenging the
jurisdiction of the tribunal on the basis that the assignment of hearing referee Karpen to this case
violated the EOA, the APA, and the Insurance Code.
Plaintiffs then filed the instant lawsuit in the circuit court, claiming that the transfer of
hearing referees from the Insurance Bureau to the OLS in the CIS violated the EOA because it
divested the commissioner of complete adjudicatory power over insurance proceedings and
granted independent, adjudicatory power to the hearing referees contrary to the mandate of the
statute. Plaintiffs sought a declaratory judgment stating that the transfer of the supervisory
authority over the hearing referees violated the EOA, and also sought injunctive relief barring
hearing referees who were not designated, authorized, and supervised by the commissioner from
hearing administrative matters regarding the Insurance Code.
Defendants filed a motion for summary disposition pursuant to MCR 2.116(C)(4) and
(10), arguing that the circuit court lacked jurisdiction over the matter because plaintiffs failed to
exhaust their administrative remedies before filing suit and because more than fourteen days had
elapsed between the time hearing referee Karpen was assigned to the matter and the date
plaintiffs filed this action. Defendants also argued that injunctive relief was inappropriate
because plaintiffs did not demonstrate that they would suffer irreparable harm or allege that they
were likely to prevail on the merits of their claim.
The trial court granted defendants' motion for summary disposition, stating first, without
elaboration, that it "retain[ed] jurisdiction" over the matter. The trial court then ruled that
plaintiffs were not entitled to injunctive relief because they had not established that they were
likely to prevail on the merits or would suffer irreparable harm. The trial court reasoned:
In this case, the Memorandum of Understanding states that the
Commissioner retains the power to select and appoint an ALJ where a statute
requires an ALJ that is not a civil service employee. Moreover, the memorandum
provides that OLS supply the Commissioner of Insurance with a monthly status
report on hearings, filings, and other activity. It is clearly noted that ALJ will
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continue to adhere to interpretations of the Insurance Code and previous rulings of
the Commissioner; ALJs will not dismiss cases and, dependent on their findings,
ALJs will only make recommendations as to the appropriate disposal of cases—
the Commissioner retains the final authority.
In light of the Memorandum of Understanding, this Court finds that the
transfer of the ALJs is within the purview of the Executive Organization Act. As
such, Plaintiffs fail to demonstrate that they are likely to prevail on the merits.
The Court now turns to the issue of irreparable harm. It is apparent that
absent an adverse finding by the ALJ in its contested case proceeding, Plaintiff
will be unable to demonstrate irreparable harm. Further, Plaintiff may appeal an
adverse decision by the ALJ. Thus, Plaintiff has not demonstrated that the
transfer of the ALJs will result in irreparable harm to their contested case.
Accordingly, the trial court granted summary disposition to defendants. Plaintiffs appealed.
II. Standard of Review
We review a trial court's grant of summary disposition de novo. Spiek v Dep't of
Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998). Summary disposition pursuant to
MCR 2.116(C)(10) tests whether there is factual support for a claim and is reviewed to determine
whether the affidavits, pleadings, depositions, or any other documentary evidence establish a
genuine issue of material fact to warrant a trial. Id.
Statutory interpretation is a question of law that is reviewed de novo. Oakland Co Bd of
Co Rd Comm'rs v Michigan Property & Casualty Guaranty Ass'n, 456 Mich 590, 610; 575
NW2d 751 (1998).
III. Discussion
In this appeal, we are asked to decide whether defendants violated the EOA by divesting
the commissioner of certain adjudicative functions through an internal departmental
reorganization (i.e., a memorandum of understanding) rather than through an executive order
from the Governor. We conclude that the trial court erred in granting summary disposition to
defendants on plaintiffs' claim for a declaratory judgment because questions of fact exist
regarding whether the ability of the commissioner to adjudicate independently of the CIS director
has been maintained with the transfer of hearing referees from the Insurance Bureau to the OLS.
Initially, we note that on February 3, 2000, Governor John Engler issued Executive Order
No. 2000-4, effective April 3, 2000, which abolished the Insurance Bureau and the
Commissioner of Insurance, and created the Office of Financial and Insurance Services (OFIS) as
a type I agency within the CIS. The new OFIS shall be headed by a Commissioner of Financial
and Insurance Services who shall be appointed by the Governor. By a type III transfer, the
executive order transferred all the authority, powers, duties, functions, and responsibilities of the
Commissioner of Insurance and the Insurance Bureau to the Commissioner of the OFIS and the
OFIS, respectively. Because the newly created OFIS is a type I agency, it is required to exercise
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all powers and functions independently of the head of the CIS. Therefore, although the agency
required to exercise the adjudicative functions at issue in this case has changed by virtue of the
executive order and the issue raised in this case is unlikely to appear in future cases, because the
alleged violation of the EOA created by the memorandum of understanding was a pertinent issue
at the time, we will nonetheless consider plaintiffs' claims.
A. Executive Organization Act
Plaintiffs claim that the trial court erred in granting defendants' motion for summary
disposition under MCR 2.116(C)(10) because the type I transfer of the Insurance Bureau and the
office of commissioner to the CIS, and the corresponding transfer of supervision of hearing
referees within the Insurance Bureau from the commissioner to the OLS in the CIS, violated the
EOA. According to plaintiffs, the transfer by a memorandum of understanding rather than by
executive order directly violated the EOA because it effectively removed many of the
commissioner's functions, including the power to adjudicate insurance matters independently of
the head of the department.
As noted above, pursuant to Const 1963, art 5, § 2, the Governor has extensive authority
to reorganize the executive branch of government. House Speaker v Governor, 443 Mich 560,
587; 506 NW2d 190 (1993). Indeed, art 5, § 2 "enables the Governor to enact laws affecting the
executive branch, just as the Legislature can" by issuing executive orders and submitting them to
the Legislature. House Speaker, supra at 578-579. In the absence of a legislative veto, the
Governor's executive orders make changes in the organization of the executive branch or in the
assignment of functions to various departments in order to ensure efficient administration.
Straus v Governor, 459 Mich 526, 534; 592 NW2d 53 (1999); Soap & Detergent Ass'n v Natural
Resources Comm, 415 Mich 728, 743; 330 NW2d 346 (1982). See also Const 1963, art 5, § 2
and MCL 16.134. The Governor's power includes the authority to delegate, assign, or transfer
existing power, responsibility, or authority within, among, or across the principal departments
and is limited only by constitutional provisions that would inhibit the Legislature itself. Straus,
supra at 534.
The EOA was enacted to allow the Governor to reshape the executive branch of
government. Straus, supra; Soap & Detergent, supra at 742-743. See also Const 1963, art 5, § 2;
MCL 16.110 and 16.134. The EOA empowers the Governor to transfer an existing department,
board, commission, or agency to another principal department and it designates three
classifications for such transfers:
(a) Under this act, a type I transfer means the transferring intact of an
existing department, board, commission or agency to a principal department
established by this act. When any board, commission, or other agency is
transferred to a principal department under a type I transfer, that board,
commission or agency shall be administered under the supervision of that
principal department. Any board, commission or other agency granted a type I
transfer shall exercise its prescribed statutory powers, duties and functions of rulemaking, licensing and registration including the prescription of rules, rates,
regulations and standards, and adjudication independently of the head of the
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department. Under a type I transfer all budgeting, procurement and related
management functions of any transferred board, agency or commission shall be
performed under the direction and supervision of the head of the principal
department.
(b) Under this act, a type II transfer means transferring of an existing
department, board, commission or agency to a principal department established by
this act. Any department, board, commission or agency assigned to a type II
transfer under this act shall have all its statutory authority, powers, duties and
functions, records, personnel, property, unexpended balances of appropriations,
allocations or other funds, including the functions of budgeting and procurement,
transferred to that principal department.
(c) Under this act, a type III transfer means the abolishing of an existing
department, board, commission, or agency and all its statutory authority, powers,
duties, functions, records, personnel, property, unexpended balances of
appropriations, allocations or other funds, are transferred to that principal
department as specified under this act.
(d) Any department, board, commission or agency not enumerated within
this act, but established by law within a department, board, commission or agency
shall continue within the department, board, commission or agency within which
it had previously been established, and shall continue to exercise all its powers,
duties and functions within the principal department established by this act.
[MCL 16.103.]
Under subsection a, the transferred board, office, commission, or agency is given some
area of independent authority and the statutory powers and functions, including adjudication,
shall be exercised independently of the department head and without interference of supervision
by the head of the department to which it was transferred. Soap & Detergent, supra at 749. See
also OAG, 1965-1966, No 4479, p 212, 215 (March 9, 1966). However, although substantive
functions vested by law in an agency or officer shall not be removed from that agency or officer,
MCL 16.107(a),4 under a type I transfer, the transferred body is subject to having its policies
defined and its functions administered under the supervision of the principal department head in
order to promote economy and efficiency. Soap & Detergent, supra at 749. In contrast, a
department, board, commission, or agency reassigned to a principal department by a type II
4
MCL 16.107(a) provides:
Except as provided by law or within this act, the head of each principal
department with the approval of the governor is authorized to establish the
internal organization of his department and allocate and reallocate duties and
functions to promote economic and efficient administration and operation of the
department. No substantive function vested by law in any officer or agency
within the principal department shall be removed from the jurisdiction of such
officer or agency under the provisions of this section.
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transfer loses its autonomous control over its functions. Id. at 748-749. Moreover, type III
transfers abolish existing boards or commissions and reassign their functions to a principal
department. MCL 16.103(c); Soap & Detergent, supra at 749.
Our research has not revealed any case law interpreting the transfer provisions of the
EOA as they relate to hearing referees and adjudication of contested cases. We note, however,
that where the plain and ordinary meaning of language used by the Legislature is clear, judicial
construction is neither necessary nor permitted. Lorencz v Ford Motor Co, 439 Mich 370, 376;
483 NW2d 844 (1992); Heinz v Chicago Rd Investment Co, 216 Mich App 289, 295; 549 NW2d
47 (1996). Here, use of the term "shall" in subsection a of the statute governing transfers, MCL
16.103(a), indicates mandatory rather than discretionary action, In re Hall-Smith, 222 Mich App
470, 472; 564 NW2d 156 (1997), and illustrates the Legislature's clear intent that all the
commissioner's adjudicatory powers remain intact following the type I transfer of the department
to the CIS. Indeed, had the Legislature intended to confer discretionary power to the CIS director
to divest the commissioner of adjudicative powers over contested cases, it would have expressly
stated so in the statute. Alternatively, the Legislature could have made the transfer of the office
of the commissioner and Insurance Bureau to the CIS a type II or type III transfer, permitting the
CIS to assume the commissioner's powers and functions. However, the Legislature did not do so
and we must therefore enforce the statute as written.
After reviewing the record, we find that plaintiffs have introduced sufficient evidence to
create a factual dispute regarding whether, pursuant to the memorandum of understanding,
effective October 4, 1997, ultimate supervisory authority over the hearing referees and their cases
rested with the OLS and the CIS director or the commissioner. Affidavits submitted by the
parties in support of and in opposition to defendants' motion for summary disposition reveal
conflicting interpretations of the commissioner's supervisory role over hearing referees after the
transfer. An affidavit submitted by Kathleen Wilbur, the director of CIS, stated that she would
not allow the adjudicatory independence of the commissioner to be affected by the transfer.
However, despite her "promise" not to "attempt to control, restrict, modify or limit what any
designated [hearing referee] does in any contested case under the Commissioner's jurisdiction,"
Wilbur's affidavit does not dispute that the CIS director and the OLS have the ability and power
to interfere with this independence if they desired, contrary to the express mandate in the EOA
that the commissioner retain all substantive adjudicative functions vested by law for a type I
transfer. MCL 16.107(a). See MCL 500.210; 1993 AACS, R 500.2135 (one of the
commissioner's statutory duties is the adjudication of contested insurance cases). Additionally,
Joseph Olson, a former Commissioner of Insurance, stated in his affidavit that before the transfer
of hearing referees to the OLS, the hearing referees assigned to the Insurance Bureau reported to
him and he had exclusive power to evaluate the hearing referees and monitor their case loads.
Olson noted, however, that when hearing referees from the Bureau of Occupational and
Professional Regulation (BOPR) were briefly assigned to hear Insurance Bureau proceedings, the
BOPR hearing referees would often ignore his instructions regarding the handling of cases and
enter default judgments against parties despite his orders that they had no authority to do so.
Olson stated that because the BOPR hearing referees did not report to the commissioner, he had
no supervisory authority over hearing referees from other bureaus, and he was unable to take
effective action to prevent them from acting contrary to his directions.
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Further, the record shows that under the system in effect after the transfer, the OLS, not
the commissioner, assigns hearing referees to contested cases and issues notices of hearing.
Further, the OLS is required to assign hearing referees with insurance experience only when
requested and, then, selection of the particular hearing referee rests with the OLS unless a statute
requires a hearing referee who is not a civil service employee, in which case the commissioner
will select and appoint the hearing referee. It is undisputed that before October 1997, the
commissioner appointed hearing referees with considerable experience in interpreting the
Insurance Code and ruling on insurance issues to contested cases. In other words, under the
posttransfer scheme, the hearing referees' employment is supervised entirely by the director of the
OLS, designated by the director of the CIS, not the commissioner as required by the Insurance
Code, MCL 500.212(3), and the APA, MCL 24.279 (Commissioner of Insurance is authorized to
designate the persons who will serve as presiding officers in contested cases over which the
commissioner has authority).
The trial court found that, in light of the provisions in the memorandum of understanding,
the commissioner would retain final authority over contested cases and, thus, the transfer of
hearing referees was within the purview of the EOA. However, a thorough review of the record
reveals that the trial court's conclusion does not fully recognize the transfer's effect on the
commissioner's supervisory role over hearing referees. Indeed, following the reorganization, the
commissioner no longer sets hearing referee salaries, evaluates their work, retains disciplinary
authority over them, or selects the particular hearing referee to hear a case. In short, the
commissioner's ability to exercise complete independent authority over the hearing referees,
without interference from the OLS or CIS director, is impaired. The EOA expressly requires
that, under a type I transfer, "prescribed statutory powers, duties and functions of . . .
adjudication" must be exercised independently of the head of the department. We find that by
transferring ultimate supervisory authority over hearing referees from the commissioner to the
director of the CIS, and reserving only the final decision for the commissioner through the
memorandum of understanding under the guise of "administrative efficiency," factual questions
exist regarding whether defendants have usurped the commissioner's authority over several
critical stages of the administrative hearing process, contrary to the mandates of the EOA.
For these reasons, we conclude that questions of fact exist concerning whether the
transfer of hearing referees from the Insurance Bureau under the commissioner to the OLS in the
CIS pursuant to the memorandum of understanding impairs the commissioner's ability to
adjudicate administrative contested cases independently of the CIS director—or whether the
commissioner's substantive adjudicative functions have been impermissibly removed.
Accordingly, the trial court erred in granting summary disposition under MCR 2.116(C)(10) to
defendants with regard to plaintiffs' declaratory judgment action.
B. Injunctive Relief
With respect to plaintiffs' claim for injunctive relief, we find that the trial court did not err
in refusing to grant an injunction. Although we conclude from our analysis above that plaintiffs
demonstrated a likelihood that they would prevail on the merits of their claim, plaintiffs
nonetheless failed to demonstrate irreparable injury if injunctive relief was not granted. See
Michigan Coalition of State Employee Unions v Civil Service Comm, 236 Mich App 96, 102;
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600 NW2d 362 (1999), citing AFL-CIO v Secretary of State, 230 Mich App 1, 14; 583 NW2d
701 (1998). As the trial court properly noted, plaintiffs may appeal any adverse ruling of the
hearing referee.5
Reversed and remanded. We do not retain jurisdiction.
/s/ Kurtis T. Wilder
/s/ Gary R. McDonald
/s/ Martin M. Doctoroff
5
Plaintiffs also argue that the trial court erred in applying the standards for injunctive relief when
deciding their request for a declaratory ruling. In view of our decision to reverse the trial court's
order granting summary disposition to defendants, we need not address this issue.
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