Class Likens Insurers’ Nonprofit to Slush Fund

DETROIT (CN) - Major insurers have turned the nonprofit Michigan Catastrophic Claims Association into a multibillion-dollar "political tool" to keep premiums high and "advance the insurance industry agenda of passing legislation capping no-fault benefits," a class action claims in Federal Court.

Lead plaintiff William Todorovich sued the Michigan Catastrophic Claims Association, its director Gloria Freeland, Michigan Office of Financial and Insurance Regulation Commissioner Kevin Clinton, and five insurance companies: Auto Club Insurance Association, Auto-Owners Insurance Co., Citizens Insurance Co. of America, Farmers Insurance and State Farm.

The Michigan No-Fault Insurance Act of 1976 provides unlimited medical care for catastrophic injuries related to a car accident, according to the complaint. The Act established the nonprofit Michigan Catastrophic Claims Association (MCCA), as a reinsurer for auto insurance companies.

The Act provides that the MCCA charge a "total premium sufficient to cover the expected losses and expenses of the association which the association will likely incur during the period the premium is applicable," according to the complaint.

Todorovich says he has paid a yearly premium to the MCCA for more than 30 years. He says: "(T)he MCCA was never established to allow for this unregulated, private organization to accumulate billions of dollars in excess 'reserves' and, instead of fulfilling its statutory purpose, the MCCA has become both a political tool using its unregulated power to set the MCCA premium at unnecessarily high levels in order to advance the insurance industry agenda of passing legislation capping no-fault benefits. As will become clear from this complaint, the passing of such legislation will benefit the insurance industry as a whole, but mostly the five (5) member insurers comprising the Board of Directors of the MCCA and will allow the MCCA to 'distribute' the 'excess reserves', not to the members of the public who paid them, but to the member insurance companies.

"Since its inception on July 1, 1978 through June 30, 2011, the MCCA has paid on a total of 13,522 open claims and over the 33 years encompassed in the MCCA's own reporting, has paid a cumulative total of $8,992,396,235.00.

"Despite having paid less than 9 billion dollars over the 33 year existence of the MCCA, at the time of the filing of this complaint, the 'excess reserves' sitting in the MCCA fund exceed fourteen billion ($14,000,000,000.00) dollars, or approximately $1700.00 for every 'plated' vehicle in the State of Michigan. In actuality, the per-insured vehicle will be much, much higher because as the MCCA unnecessarily increases the cost of insurance, the number of uninsured drivers similarly increases.

"To illustrate the unjustifiable hoarding of over 14 billion dollars, the members of the public may recall when the Governor John Engler determined in 1998 the MCCA surplus of a mere $2.9 billion dollars was excessive and coerced the MCCA into returning approximately '$180 to each vehicle owner and to limit future assessments.'" (References to exhibits omitted.)

The MCCA Board of Directors is comprised of representatives of the five largest insurance companies in Michigan and its board meetings are closed to the public, Todorovich says.

"Through a long term scheme, which is kept secret from the public, defendants have conspired to abuse their powers as members of the Board of Directors by 1) using fallacious accounting methods to overstate estimated losses over the life of claims; 2) failed to use investment income as a method of reducing or offsetting the premium ultimately assessed against members of the driving public; [and] 3) used the increased and falsely inflated loss estimates to shift the cost of insurance to the MCCA assessment in an effort to advance the insurance industries political agenda of eliminating unlimited medical benefits," Todorovich claims.

He claims that "the public's willingness to accept reductions in no-fault benefits is tied directly to the amount of money the public is required to pay in order to comply with the compulsory requirement that each vehicle must be covered by a policy of no-fault insurance.

"Thus, the higher the rate to insure a vehicle in Michigan, the more likely the public is willing to bend to the demands of the insurance industry and allow reductions in benefits in the futile hope of receiving some form of rate relief."

Todorovich adds: "In short, the MCCA continues to 'cook the books' relying upon implausible and impossible scenarios to justify continuously increasing its annual assessment when in reality a reduction in the assessment would be appropriate. The MCCA's unrelenting annual increase in the MCCA assessment is designed to conceal the true agenda of the MCCA which is to force a financially burdened electorate to support elimination of the best auto insurance system in the nation, thereby allowing the member insurance companies to 'loot' the excess reserves in the fund (i.e. the fourteen billion ($14,000,000,000.00) dollars) for the greedy corporate purposes of the insurance companies comprising the board of directors."

Todorovich wants the MCCA premium reduced and punitive damages for fraud and unjust enrichment.

He is represented by Craig Romanzi with Romanzi Atnip in Waterford, Mich.

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