Michigan Legislation

Michigan Legislation

August 2008
Amendment to the Michigan Insurance Code Brings Captive Insurance Companies, Special Purpose Financial Captives, and Protected Cell Insurance Companies Under the Umbrella of the Michigan Insurance Code Michigan Senate Bill 1061, which was enacted as Public Act No. 29 of 2008 on March 13, 2008, with an effective date of March 13, 2008, amends the Michigan Insurance Code by adding Chapters 46, 47, and 48 to the Code. Chapter 46 allows a captive insurance company, if permitted by its organizational documents, to apply to the Commissioner of the Office of Financial and Insurance Regulation ("OFIR") for a limited certificate of authority to write any and all insurance authorized by Chapter 46 except worker's compensation insurance, long term care insurance, critical care insurance, personal automobile insurance, or homeowners insurance. A pure captive insurance company may not insure any risks other than those of its parent, affiliated companies, controlled unaffiliated business, or a combination thereof. Similarly, an association captive insurance company may not insure any risks other than those of the member organizations of its association and their affiliated companies and an industrial insured captive insurance company may not insure any risks other than those of the industrial insureds that comprise the industrial insured group and their affiliated companies. In addition, Chapter 46 requires captive insurance companies to have and maintain paid-in capital and retained earnings in specific amounts; provides for the confidentiality of information submitted to OFIR; permits the Commissioner to suspend or revoke a certificate of authority for various reasons; imposes a tax on captive insurers' premiums written, and reinsurance premiums; allows the formation of sponsored captive insurers and establishment of protected cells to insure risk of participants, whose recovery would be limited to the assets of the cells; provides that captive insurers would not be required to contribute to a guaranty fund; and creates the "Captive Insurance Regulatory and Supervisions Fund," which would receive 20% of the taxes collected and all fees and assessments received by OFIR and the Department of Treasury under Chapters 46 and 47. As with Chapter 46, Chapter 47 provides for the formation and regulation of special purpose financial captives. A special purpose financial captive may only insure or reinsure the risks of its counterparty. Chapter 47 operates to establish a comprehensive regulatory scheme to accomplish the following: establishes capitalization requirements for special purpose financial captives; allows special purpose financial captives to be set up as various types of entities; imposes a tax on their reinsurance premiums; allows a special purpose financial captive to establish protected cells for the purpose of isolating and identifying the assets and liabilities attributable to the risk ceded to it by a counterparty and the assets and liabilities arising from related insurance securitization; permits special purpose financial captives to issue securities; and provides for the rehabilitation, conservation, or liquidation of special purpose financial captives. Finally, Chapter 48 governs the formation of protected cell companies in Michigan. Among other things, Chapter 48 allows protected cell companies to establish protected cells upon the Commissioner's approval of a plan of operation or amendments; requires the assets and liabilities of a protected cell to be kept separate and separately identifiable from the assets and liabilities of the company?s general account and of other protected cells; requires a protected cell company, with respect to a protected cell, to engage in insurance securitization in order to support the exposures of that protected cell; limits creditors' access to protected cell assets and provides that those assets could not be charged with liabilities arising from any other business of the company; and provides that protected cell companies would not be required to contribute to a guaranty fund. [For more information on this newly enacted law or other captive insurance issues, contact Bob Stocker at 517-487-4715, or e mail him at rstocker@dickinsonwright.com]. New Amendment Imposes Tax on Insurance Companies; not Applicable to Captive Insurance Companies or Special Purpose Financial Captives Michigan Senate Bill 1062, which was enacted as Public Act No. 30 of 2008 on March 13, 2008, with an effective date of March 13, 2008, amends MCL 208.1235, which governs the imposition of taxes on insurance company premiums. This amendment imposes a tax on insurance companies equal to 1.25% of gross direct premiums written on property or risk located or residing in Michigan. This amendment further deems several categories of premiums exempt from the definition of "direct premiums," including premiums on policies not taken, returned premiums on cancelled policies and receipts from the sale of annuities. The tax is in place of all other privilege or franchise fees or taxes imposed by any other state law including the Michigan Business Tax Act, except taxes on real and personal property, taxes collected under the General Sales Tax Act, and taxes collected under the Use Tax Act. The Tax imposed under this amendment does not apply to an insurance company authorized under Chapter 46 or 47 of the Insurance Code, i.e., captive insurance companies and special purpose financial captives. Proposed Amendment to the Michigan Insurance Code Would Require an Insurer to Pay Reasonable Attorney Fees Michigan House Bill 6125 was introduced on May 20, 2008, and would, if enacted, add Section 2090 to the Michigan Insurance Code, MCL 500.2090, mandating that an insurer pay reasonable attorney fees to an attorney who represents an insured in a successful first-party action to recover insurance benefits that are overdue. The mandated attorney fees would be in addition to the benefits recovered and in addition to all other remedies available. Furthermore, if the failure to timely pay benefits was in bad faith, the insured would also receive the greater of $10,000 or three times the amount of benefits withheld. Proposed Amendment to the Michigan Insurance Code would make it an Unfair Method of Competition to Include the Location of the Insured's Residence in the Determination of a Rate for a Policy of Auto or Home Insurance Michigan House Bill 6012 was introduced on April 24, 2008, and would, if enacted, add a new Section, 2004 and amend section 2111 of the Michigan Insurance Code. Section 2004 would deem the practice of including the location of the insured's residence in the determination of a rate for a policy of automobile insurance or home insurance an unfair method of competition and a deceptive act. If enacted, House Bill 6012 would also amend MCL 500.2111(5) to mandate that automobile insurance risks and home insurance risks could not be grouped by territory. Proposed Amendment to the Michigan Insurance Code would Mandate that Insurers Provide Specified Personal Protection Insurance Coverages Michigan Senate Bill 1278 was introduced on April 29, 2008, and would, if enacted, amend MCL 500.3107, et. seq., which governs personal protection insurance benefits. The amendment would require an insurer to provide the option of six specific coverages for allowable expenses consisting of all reasonable charges incurred for reasonably necessary products, services, and accommodations for an injured person's care, recovery, or rehabilitation. Each of these coverages would be applicable to the insured named in the policy, the insured's spouse, and any relative of either domiciled in the same household. The six coverages that an insurer would be required to offer are: 1) up to a maximum of $50,000.00; 2) up to a maximum of $100,000.00; 3) up to a maximum of $200,000.00; 4) up to a maximum of $400,000.00; 5) equal to the current maximum amount of the ultimate loss sustained by the insurer for personal protection insurance coverage under section 3104(2); or 6) no maximum. If an insured failed to select one of the six coverages, an insurer would be required to provide coverage with no maximum limitation. Additionally, Senate Bill 1278 would amend Section 3107(3) to mandate that the above must be provided on a per-individual, per-loss occurrence basis and a person who is not an insured named in a policy, not the insured's spouse, and not a relative of either domiciled in the same household would be entitled only to coverage for allowable expenses consisting of all reasonable charges incurred up to a maximum of $50,000.00. Personal protection insurance benefits would only be payable to the extent that the benefits covering the same loss are not available from other sources. Additionally, a person would not be allowed to recover duplicate benefits for the same expenses or losses incurred with respect to the personal protection coverage; personal protection insurance benefits would not be payable to a nonresident injured in an accident occurring outside of Michigan to the extent that benefits covering the same loss are available from other sources; and allowable expenses within personal protection insurance coverage would not include charges for a hospital room in excess of a reasonable and customary charge for semiprivate accommodations except if the injured person requires special or intensive care, or for funeral and burial expenses in excess of the amount set forth in the policy, which would not be less than $1,750.00 or more than $5,000.00. Proposed Amendment to the Michigan Insurance Code would Require that Health Care Entities Utilize a Uniform Electronic Health Care Professional Credentialing Application Michigan House Bill 5743 was introduced on February 14, 2008, and would, if enacted, amend the Michigan Insurance Code by adding Section 2212c, which would mandate that all health insurers, health care corporations, health maintenance organizations, and credentialing intermediaries use the standard electronic health care professional credentialing application, developed pursuant to Section 16285 of the Public Health Code, when credentialing or re-credentialing a health care professional. (See MCL 333.16285.) A "credentialing intermediary" would mean a person to which a health insurer, health care corporation, or health maintenance organization has delegated credentialing, re-credentialing, or primary source verification processing. This added section would not prohibit any of the aforementioned health care entities from requesting information in addition to that contained in the standard application so long as any requests are made in writing or electronically and use a separate form. Additionally, the aforementioned health care entities would be prohibited from charging a health care professional a fee for the use or submission of the standard application or for completion of requests for additional information. This section, if enacted, would apply 365 days after the effective date of the House Bill. Section 2212c would not apply to any credentialing or re-credentialing that has already been submitted before or on that date. Proposed Amendment would Prohibit a Health Care Corporation from Including a Service as a Covered Benefit If the Certificate Requires a Copayment for that Service of More than 50% Michigan House Bill 5767 was introduced on February 19, 2008 and would, if enacted, amend the Michigan Nonprofit Health Care Corporation Reform Act by adding Section 402d. Section 402d would prohibit a health care corporation from including a health care service as a covered health care benefit under the terms and conditions of the certificate as prescribed in section 402a or in any other communication regarding the certificate, if the certificate requires co-payment for that health care service of more than 50% or a deductible set at an amount that is not expected to be satisfied by more than 80% of the members or enrollees.
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