HEALTH CARE ASSN WORKERS COMP FUND V BUREAU OF WORKERS DISABILITYAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
HEALTH CARE ASSOCIATION WORKERS
February 15, 2005
DIRECTOR OF THE BUREAU OF WORKER'S
COMPENSATION, DEPARTMENT OF
CONSUMER and INDUSTRY SERVICES,
Ingham Circuit Court
LC No. 01-093038-CZ
Official Reported Version
Before: Donofrio, P.J., and Markey and Fort Hood, JJ.
Plaintiff Health Care Association Workers Compensation Fund, a worker's compensation
self-insurer group, brought this suit to challenge the constitutionality of a portion of MCL
500.2016.1 Specifically, plaintiff challenges the constitutionality of the addition of language to
MCL 500.2016(1)(a) and (3) precluding a worker's compensation self-insurer group from
conditioning the payment of a dividend, i.e., a payout of money from surplus funds to an
employer member, on continued participation in the group. The circuit court denied plaintiff 's
motion for summary disposition and entered judgment in favor of defendant. Plaintiff appeals as
of right, and, although we do not conclude that the statute at issue is unconstitutional on its face
or as applied, we do conclude that defendant's interpretation of the statute constitutes retroactive
application. We affirm in part, reverse in part, and remand.
Substantive Facts and Procedure
Plaintiff is a self-insurer group that contracts annually with member employers to fund
worker's compensation liability. Plaintiff sought in the circuit court to prohibit defendant, the
director of the Bureau of Worker's Compensation in the former Department of Consumer and
Industry Services (now the Worker's Compensation Agency in the Department of Labor and
As amended by 1998 PA 457, with immediate effect on January 4, 1999.
Economic Growth), from enforcing the additional provisions in MCL 500.2016(1)(a) and (3).
Particularly, in its complaint, plaintiff sought declarative and injunctive relief with regard to its
contention that the language in MCL 500.2016 precluding it from withholding dividends, i.e.,
refunds of surplus funds, from an employer who decided to discontinue participation with
plaintiff was unconstitutional, either in its entirety or as applied to contracts that preexisted the
enactment of the pertinent statutory language. After entertaining oral argument, the circuit court
issued an opinion rejecting plaintiff 's challenges to the constitutionality of MCL 500.2016.
Now, on appeal, three of the four issues presented by plaintiff constitute facial challenges
to the constitutionality of the relevant provisions of MCL 500.2016, while plaintiff 's remaining
issue more narrowly challenges the constitutionality of the application of those provisions to
contracts that were entered into before January 4, 1999, the effective date of 1998 PA 457. We
will reach each of the issues in turn.
Standard of Review
The resolution of a summary disposition motion is reviewed de novo. Corley v Detroit
Bd of Ed, 470 Mich 274, 277; 681 NW2d 342 (2004). Likewise, we review the constitutionality
of a statute de novo. DeRose v DeRose, 469 Mich 320, 326; 666 NW2d 636 (2003).
First, plaintiff argues that the circuit court erred when it denied plaintiff 's request for a
declaratory judgment that the amendments to MCL 500.2016 create a new obligation in violation
of article 1, § 10 of the Michigan Constitution of 1963.
MCL 500.2016 provides, in relevant part:
(1) In addition to other provisions of law, the following practices as
applied to worker's compensation insurance including worker's compensation
coverage provided through a self-insurer's group are defined as unfair methods of
competition and unfair and deceptive acts or practices in the business of
(a) As a condition of receiving a dividend for the current or a previous
year, requiring an insured to renew or maintain worker's compensation insurance
with the insurer beyond the current policy's expiration date or requiring a member
to continue participation with a worker's compensation self-insurer group.
* * *
(3) This section also applies to worker's compensation self-insurers'
Const 1963, art 1, § 10, the Contract Clause of the Michigan Constitution, provides that no law
"impairing the obligation of contract shall be enacted." The federal Contract Clause, US Const,
art I, § 10, similarly provides that no state shall "pass any . . . Law impairing the Obligation of
Contracts . . . ."
The purpose of the Contract Clause "is to protect bargains reached by parties by
prohibiting states from enacting laws that interfere with preexisting contractual arrangements."
Studier v Michigan Pub School Employees' Retirement Bd, 260 Mich App 460, 474; 679 NW2d
88 (2004), lv gtd 471 Mich 875 (2004). However, the Contract Clause prohibition on state laws
impairing the obligations of contract is not absolute. Id. Rather, the "prohibition must be
'accommodated to the inherent police power of the State "to safeguard the vital interests of its
people."'" Id., quoting Energy Reserves Group, Inc v Kansas Power & Light Co, 459 US 400,
410; 103 S Ct 697; 74 L Ed 2d 569 (1983), quoting Home Bldg & Loan Ass'n v Blaisdell, 290 US
398, 434; 54 S Ct 231; 78 L Ed 413 (1934).
A three-pronged test is used to analyze Contract Clause issues. The first prong considers
whether the state law has operated as a substantial impairment of a contractual relationship. The
second prong requires that legislative disruption of contractual expectancies be necessary to the
public good. The third prong requires that the means chosen by the Legislature to address the
public need be reasonable. In re Certified Question (Fun 'N Sun RV, Inc v Michigan), 447 Mich
765, 777; 527 NW2d 468 (1994); Studier, supra at 474-475. In other words, if the impairment of
a contract is only minimal, there is no unconstitutional impairment of contract. However, if the
legislative impairment of a contract is severe, then to be upheld it must be affirmatively shown
that (1) there is a significant and legitimate public purpose for the regulation and (2) that the
means adopted to implement the legislation are reasonably related to the public purpose. Wayne
Co Bd of Comm'rs v Wayne Co Airport Auth, 253 Mich App 144, 163-164; 658 NW2d 804
(2002), citing Blue Cross & Blue Shield of Michigan v Governor, 422 Mich 1, 23; 367 NW2d 1
Obviously, application of MCL 500.2016 to contracts entered into by plaintiff before the
effective date of the amendments could impair some contracts that plaintiff had entered into
because it precludes plaintiff from enforcing contractual provisions that would allow it to
withhold dividends from a former member who has ceased participation with plaintiff. But we
conclude it unnecessary to ultimately determine whether the impairment of contract caused by
the pertinent language in MCL 500.2016 constitutes a substantial impairment. As we mentioned
earlier, even a statute that substantially impairs a contractual provision does not violate the
Contract Clause if there is a significant and legitimate public purpose for the regulation and the
means adopted to implement the legislation are reasonably related to the public purpose. Wayne
Co Bd of Comm'rs, supra at 164. Importantly, in the context of resolving a Contract Clause
issue, our Supreme Court has noted the principle that "'[a]s is customary in reviewing economic
and social regulation . . . courts properly defer to legislative judgment as to the necessity and
reasonableness of a particular measure.'" Romein v Gen Motors Corp, 436 Mich 515, 536; 462
NW2d 555 (1990), quoting United States Trust Co v New Jersey, 431 US 1, 22-23; 97 S Ct 1505;
52 L Ed 2d 92 (1977).
The pertinent language of MCL 500.2016 serves the purpose of fostering competition in
the market for worker's compensation coverage by precluding a self-insurer group from
conditioning receipt of a dividend, i.e., a refund of surplus funds, on continued participation with
the group. While this might not benefit worker's compensation recipients directly, lower costs to
employers and competition generally benefit employers throughout the economy and thereby
indirectly aid the state economy in the aggregate. Indeed, it seems that the Legislature could
reasonably view eliminating unduly anticompetitive practices as serving the public interest. See,
e.g., Bristol Window & Door, Inc v Hoogenstyn, 250 Mich App 478, 486-487; 650 NW2d 670
(2002) (discussing existence of common-law rule against enforcing agreements for unreasonable
restraint of trade even "before any statutory scheme of business regulation existed in Michigan").
Further, requiring a member of a self-insurer group to forfeit its proportionate share of
surplus funds in distribution of dividends as a consequence of leaving the self-insurer group
could also reasonably be viewed as an unduly anticompetitive act if a group has no legitimate
business interest worthy of protection. Effectively abrogating contractual provisions allowing
such a withholding of dividends from employers who cease participation in the group could
likewise be viewed by the Legislature as reasonably necessary to bring an immediate end to an
unduly anticompetitive practice.
We conclude that the pertinent language of MCL 500.2016 does not violate the federal or
Michigan Contract Clause as applied because, granting appropriate deference to legislative
judgment, there is a significant and legitimate public purpose for such an impairment of contract
and the means adopted to implement the legislation are reasonably related to the public purpose.
Within this issue, plaintiff also makes an argument to the effect that the Legislature may
not have intended the relevant amendments made by 1998 PA 457 to MCL 500.2016 to apply to
contracts entered into before the effective date of that act. This argument is completely outside
the scope of the relevant statement of the question presented, which presents only a Contract
Clause issue. Because of the improper presentation, we could decline to consider this question.
MCR 7.212(C)(5); McGoldrick v Holiday Amusements, Inc, 242 Mich App 286, 298; 618 NW2d
98 (2000). Despite the error in presentation, we will consider the merits of the issue because we
have all the facts and law before us, and it is a significant issue.
The interpretation and application of a statute is a question of law that this Court reviews
de novo. Macomb Co Prosecutor v Murphy, 464 Mich 149, 157; 627 NW2d 247 (2001). The
primary goal of judicial interpretation of statutes is to ascertain and give effect to the intent of the
Legislature. Neal v Wilkes, 470 Mich 661, 665; 685 NW2d 648 (2004). It is presumed that the
Legislature intended the plain and obvious meaning it expressed. Pohutski v City of Allen Park,
465 Mich 675, 683; 641 NW2d 219 (2002). If the terms of a statute are ambiguous, judicial
construction is appropriate. Murphy, supra at 158. The Court must apply a reasonable
construction that considers the purpose of the statute and the harm it is designed to remedy. Id.
The Court must give effect to every word, clause, and sentence, presuming that each is used for a
purpose. Pohutski, supra at 683-684. Likewise, the Court should avoid a statutory construction
that renders any portion of the statute surplusage or nugatory. Id. at 684. The provisions of a
statute must be read within the context of the entire statute so as to produce a harmonious and
consistent enactment. Murphy, supra at 159-160.
During the course of oral argument, the parties agreed that participants in the plan that
had both paid into the plan and left the plan before adoption of the amendments (i.e., their
contracts expired before the effective date of the amendments) are not encompassed in the class
of participants affected by the statute. As such, those participants are not entitled to
reimbursement because the statute is inapplicable. Additionally, the parties agreed that the
statute does apply to those participants who entered into contracts after the effective date of the
amendments. Thus, those participants are entitled to reimbursement because the statute is
applicable. The parties only disagree regarding those participants that had active annual
contracts both before and after the effective date of the amendments. Each of the parties argues
that the statutory language is clear and supports its individual interpretation of the statute.
Defendant interprets the statute to allow the Bureau of Worker's Compensation to apply
the statute to contract years before the adoption of the amendments, specifically pointing to the
language "current or a previous year" in MCL 500.2016(1)(a). Plaintiff refers to the same
language, but argues that the language means that the statute can only be applied to current or
previous contract years commencing after adoption of the amendments. After scrutinizing the
plain language of the statute, and carefully considering the interpretations offered by the parties,
we agree with the latter interpretation.
Contrary to defendant's assertions, this case does involve the retroactive application of
legislation. While defendant asserts that the Bureau of Worker's Compensation is properly
applying the relevant provisions of MCL 500.2016 with regard to the obligations of worker's
compensation self-insurer groups as of the effective date of 1998 PA 457, i.e., January 4, 1999,
the bureau is actually applying these requirements to contracts entered into before that date.
Under these facts, it is self-evident that applying a statute to contracts entered into before the
effective date of the provision constitutes "retroactive" application of the statute, even if the
contracts are related to conduct that occurred after the effective date of the amendments of MCL
500.2016. For that reason, we conclude that the proper application of MCL 500.2016 requires
that conduct related to contracts that were entered into before the effective date of the pertinent
provisions of MCL 500.2016 be excepted from the application of the statute.
Plaintiff next argues that the circuit court erred when it denied plaintiff 's request to
enjoin defendant from enforcing the amendments of MCL 500.2016. We find portions of
plaintiff 's argument regarding this issue somewhat convoluted. However, plaintiff appears to
argue that the language of MCL 500.2016 applicable to worker's compensation self-insurer
groups is somehow invalid or unconstitutional because the Legislature can only regulate such
self-insurer groups in the Worker's Disability Compensation Act (WDCA), MCL 418.101 et
seq., or because the remainder of the Insurance Code is only concerned with the activities of
insurance companies. We have found no plausible reason to conclude that any part of MCL
500.2016 is invalid on either basis.
While MCL 500.2016 is part of the Insurance Code, plaintiff has not presented, and we
have not discovered, any constitutional provision that could reasonably be interpreted as either
precluding the Legislature from adopting regulations applicable to worker's compensation selfinsurer groups or that requires the Legislature to only regulate such self-insurer groups in the
WDCA. Rather, the Legislature has general plenary power to enact legislation subject only to
prohibitions of federal law or the Michigan Constitution. People v Cooper, 236 Mich App 643,
663-664; 601 NW2d 409 (1999) ("an enacted statute in force regarding any subject or
establishing any type of rule is valid as long as it does not contravene a provision of the
Michigan Constitution or federal law"). Thus, contrary to plaintiff 's implication, there is no flat
prohibition against the Legislature including a provision in the Insurance Code that is applicable
to worker's compensation self-insurer groups.
Plaintiff also indicates that MCL 500.2016 is inconsistent with other statutory provisions,
particularly other provisions within the Insurance Code. Even if that assertion were accurate,
and to whatever extent it is accurate, this would not render MCL 500.2016 invalid or
unconstitutional. Rather, it might require the use of certain statutory construction tools or
application of principles for interpreting ambiguous statutes. See Jones v Enertel, Inc, 467 Mich
266, 270-271; 650 NW2d 334 (2002) (specific statutory language prevails over inconsistent
general language), and Mayor of Lansing v Pub Service Comm, 470 Mich 154, 166; 680 NW2d
840 (2004) (a statutory provision is ambiguous if it irreconcilably conflicts with another
Plaintiff also contends that defendant does not have authority to enforce provisions of
MCL 500.2016 against worker's compensation self-insurer groups such as plaintiff. Plaintiff
begins by asserting that the enforcement of Insurance Code provisions is entrusted to the
Insurance Commissioner, but the Insurance Commissioner does not have authority to regulate a
worker's compensation self-insurer group because the Insurance Commissioner only has
authority to regulate parties engaged in the business of insurance. In particular, plaintiff points
to MCL 500.2028, which provides the Insurance Commissioner the power—upon probable
cause—"to examine and investigate into the affairs of a person engaged in the business of
insurance in this state to determine whether the person has been or is engaged in any unfair
method of competition or in any unfair or deceptive act or practice prohibited by [MCL 500.2001
to MCL 500.2050.]" (Emphasis added.) On the basis of its assertion that it is not engaged in the
business of insurance, plaintiff argues that neither the Insurance Commissioner nor defendant has
authority to enforce the provisions of MCL 500.2016.
It is true, from our reading of the Insurance Code, that there is no provision that expressly
states that the Insurance Commissioner has authority to regulate worker's compensation selfinsurer groups. Also, it seems essentially undisputed that such self-insurer groups have not
historically been considered to be engaged in the business of insurance so as to be normally
subject to regulation by the Insurance Commissioner. Nevertheless, when 1998 PA 457 went
into effect on January 4, 1999, it added the pertinent language to MCL 500.2016(1)(a) that
defines it as an unfair method of competition and unfair and deceptive act or practice "in the
business of insurance" for a worker's compensation self-insurer group to condition a member's
receipt of a dividend for the current or a previous year on continued participation with the selfinsurer group.
By the plain language of MCL 500.2016, a worker's compensation self-insurer group
such as plaintiff employs an unfair method of competition and engages in an unfair or deceptive
act or practice "in the business of insurance" if it commits the proscribed act of withholding
payment of a dividend on the basis of an employer's discontinuance of participation with the selfinsurer group. Accordingly, even if a worker's compensation self-insurer group is not considered
to be engaged in the business of insurance for any other purpose, by the express language of
MCL 500.2016 it is engaged in a proscribed practice in the business of insurance if it engages in
the conduct it is prohibited from committing by MCL 500.2016(1)(a).
As we stated earlier, MCL 500.2028 grants the Insurance Commissioner power, with
probable cause, to examine and investigate the affairs of a person engaged in the business of
insurance to determine if the person has engaged in an unfair method of competition or unfair or
deceptive act or practice prohibited by MCL 500.2016. A "[p]erson" is defined for purposes of
the Insurance Code to include "any other legal entity." MCL 500.114. Clearly, (1) plaintiff is a
legal entity, and (2) by the applicable statutory language it would be engaged in the business of
insurance if it violated MCL 500.2016(1)(a). For these reasons, we conclude that, when 1998
PA 457 amended MCL 500.2016, plaintiff and any other worker's compensation self-insurer
group that violated MCL 500.2016(1)(a) would be subject to regulation by the Insurance
Commissioner. Martin v Beldean, 469 Mich 541, 546; 677 NW2d 312 (2004) (clear and
unambiguous statutory language should be enforced as written.)
However, on August 25, 1999, when Executive Order No. 1999-5,2 went into effect,
Governor John Engler transferred the relevant authority of the Insurance Commissioner over
worker's compensation self-insurer groups to the Bureau of Worker's Compensation. The
pertinent portion of Executive Order No. 1999-5 reads as follows:
All the authority, powers, duties, functions, grants and responsibilities of
the Insurance Bureau to determine unfair methods of competition and unfair and
deceptive acts or practices as applied to workers' compensation coverage provided
through a self-insurer's group, provided for in [1998 PA 457], being [MCL
500.2016], are hereby transferred to the Bureau of Workers' Disability
Plaintiff argues in cursory fashion that the Governor could not amend the law by executive order
to transfer enforcement power from one department to another department. This argument is
erroneous. Under Const 1963, art 5, § 2, the Governor has the authority to transfer power
"'within, among or across'" executive departments. Straus v Governor, 459 Mich 526, 534; 592
NW2d 53 (1999). Such an action by the Governor "'has the status of enacted legislation'" and a
presumption of constitutionality. 3 Id. Accordingly, contrary to plaintiff 's argument, Governor
Engler had the power by executive order to effectively amend MCL 500.2016 by transferring the
power to enforce its provisions with regard to worker's compensation self-insurer groups from
the Insurance Commissioner to the Bureau of Worker's Compensation.
Plaintiff argues that the circuit court erred in denying plaintiff 's request for a declaratory
judgment because the enactment of the portion of 1998 PA 457 amending MCL 500.2016
violated the Title-Object Clause of the Michigan Constitution, Const 1963, art 4, § 24, because it
embraces two objects within the title of the Insurance Code: (1) the business of insurance and
(2) worker's compensation self-insurers. Const 1963, art 4, § 24 provides:
This executive order represents the promulgation of Executive Reorganization Order No. 19993 and is codified at MCL 418.3.
Such an executive order is subject to being blocked by a legislative veto mechanism, Straus,
supra, 459 Mich at 534, but Executive Order No. 1999-5 was not blocked by legislative veto.
No law shall embrace more than one object, which shall be expressed in
its title. No bill shall be altered or amended on its passage through either house so
as to change its original purpose as determined by its total content and not alone
by its title.
The Title-Object Clause states that a law may not embrace more than one object.
Pohutski, supra at 691. The object of a law is its general purpose or aim. The "'one object'"
provision is to be "construed reasonably, not in so narrow or technical a manner that the
legislative intent is frustrated." Id. Also, our Supreme Court has stated in the context of a TitleObject Clause issue that "'all possible presumptions should be afforded to find constitutionality.'"
Id. at 690, quoting Advisory Opinion re Constitutionality of 1972 PA 294, 389 Mich 441, 464;
208 NW2d 469 (1973). Legislation does not violate the Title-Object Clause merely because "it
contains more than one means of attaining its primary object . . . ." Pohutski, supra at 691.
However, if an act "'contains "subjects diverse in their nature, and having no necessary
connection,"' it violates the Title-Object Clause." Id., quoting City of Livonia v Dep't of Social
Services, 423 Mich 466, 499; 378 NW2d 402 (1985) (citations omitted).
Plaintiff 's argument depends on characterizing the regulation of worker's compensation
self-insurer groups as an object distinct from the regulation of insurance and surety businesses.
We reject this argument because it is reasonable to regard both types of regulations as part of an
overall object of regulating the provision of insurance coverage. Although worker's
compensation self-insurer groups generally may not be considered to be in the business of
insurance for purposes of regulation by the Insurance Commissioner, like insurance companies
their basic function is to pool risks by receiving premiums under agreements in return for
agreeing to cover certain types of occurrences. Thus, it is reasonable to regard those self-insurer
groups as providing insurance coverage although they are not for-profit insurance companies.
We conclude that the inclusion in 1998 PA 457 of the pertinent language in MCL
500.2016 regulating worker's compensation self-insurer groups did not violate the Title-Object
Clause. It was merely a means of attaining the primary object of regulating the provision of
insurance coverage. Regulating practices of a worker's compensation self-insurer group is not a
diverse subject from regulating insurance companies that provide worker's compensation
coverage. Instead, it is reasonably viewed as a substantially similar subject. Plaintiff has not
established that the enactment by 1998 PA 457 of the relevant language in MCL 500.2016
violated the Title-Object Clause.
Finally, plaintiff argues that the circuit court erred in denying plaintiff 's request for a
declaratory judgment because the enactment of the part of 1998 PA 457 amending MCL
500.2016 was a constitutionally prohibited amendment of the WDCA by implication because it
directly affects self-insurers regulated only by the Bureau of Worker's Compensation and not by
the Insurance Commissioner.
Const 1963, art 4, § 25 provides: "No law shall be revised, altered or amended by
reference to its title only. The section or sections of the act altered or amended shall be reenacted and published at length."
Plaintiff 's argument depends on its contention that the language added to MCL 500.2016
by 1998 PA 457 "amended" MCL 418.611 by imposing a new regulation on worker's
compensation self-insurer groups to be enforced by the Insurance Commissioner. However,
plaintiff has cited nothing in MCL 418.611 providing that only the Bureau of Worker's
Compensation may regulate such self-insurer groups concerning any matter. Likewise, plaintiff
has not substantiated its claim that the regulations imposed or authorized by MCL 418.611 on
such self-insurer groups are the only regulations to which they are subject. Accordingly, the
imposition of a new regulation on such self-insurer groups in MCL 500.2016 does not amend
MCL 418.611 by implication and plaintiff 's argument fails.
Application of the pertinent language of MCL 500.2016 to conduct occurring after the
effective date of its enactment, but related to contracts entered into before that date, does not
violate the Contract Clauses of the federal or state constitution. However, when the statute is
interpreted and applied as suggested by defendant, it does constitute a retroactive application of
the statute. Plaintiff has not established that the Legislature lacked the power to regulate
worker's compensation self-insurer groups in the Insurance Code or that defendant does not have
the power to enforce MCL 500.2016 against such self-insurer groups. And plaintiff has not
established that 1998 PA 457 violated the Title-Object Clause by enacting the relevant language
of MCL 500.2016. Finally, 1998 PA 457 did not amend MCL 418.611 by implication.
Affirmed in part, reversed in part, and remanded for entry of an order consistent with this
opinion. We do not retain jurisdiction.
/s/ Pat M. Donofrio
/s/ Jane E. Markey
/s/ Karen M. Fort Hood