Road service clubs and motor clubs

Issued and entered October 20, 1981 by Nancy A. Baerwaldt, Commissioner of Insurance

In the past, the Insurance Bureau has taken enforcement action, on a case-by-case basis, against road service clubs and motor clubs ("clubs") for transacting insurance without a license. However, the number of recent cases before the Insurance Bureau shows a need for guidelines stating the policy of the Commissioner regarding which activities of clubs constitute the transaction of insurance within the meaning of the Insurance Code.

The Michigan Supreme Court [Continental Auto Club, Inc. v Commissioner of Insurance, 337 Mich 434 (1953)] and the Attorney General [Opinion No. 1534, p 458, (1952)] have ruled that when a club agrees to provide reimbursement for or indemnifies against the expense of certain risks (except on a de minimis basis), the club is transacting insurance. Indemnification against the expenses of towing and emergency road services, legal services, and arrest and bail bond certificates have been specifically included in these rulings. In addition, accident and health coverage provided by clubs is clearly a form of disability insurance under Sections 606 and 3400 of the Insurance Code, MCLA 500.606; MSA 24.1606, and MCLA 500.3400; MSA 24.13400.

Sections 120 and 402 of the Insurance Code, MCLA 500.120; MSA 24.1120, and MCLA 500.402; MSA 24.1402, prohibit transacting insurance in Michigan without possessing a certificate of authority to transact those forms of insurance.

Based on these decisions and provisions of the Insurance Code, the Bureau will continue to take enforcement action against clubs which transact insurance without authorization.

A club will be considered to be in compliance with the Code when it does any of the following:

(a) It independently procures insurance through negotiations which occur entirely outside of this State (MCLA 500.402B; MSA 24.1402b).

(b) It is lawfully issued a master policy by an insurer in a state other than Michigan in which the insurer was authorized to transact insurance (MCLA 500.402B; MSA 24.1402b).

(c) The towing and emergency road services are provided through a service contract arrangement which it has with service stations, garages or other similar establishments.

(d) It has a certificate of authority issued by the commissioner to transact such insurance.

(e) It provides such benefits by purchasing a policy from an insurance company authorized to transact such business in Michigan.

An agreement for provision of services will not be considered insurance because it provides for occasional reimbursement of expenses, if such reimbursement is only incidental to the operation of a plan which taken as a whole has as its principal object and purpose the provision of services rather than indemnity.

A club may, on an optional basis and for a separately stated and identified premium, offer members coverage under a master insurance policy issued to the club by an insurance company authorized to transact such business in Michigan, with notification of insurance (e.g. membership card or certificate) to each club member; or, in the alternative, a club may provide the coverage to all of its members without separate charge and pay the premium from club membership fees.

"Sliding" or requiring club membership for the purchase of automobile insurance is illegal unless membership is a uniform requirement of the insurer as a condition of providing insurance, and the dues, charges, or other conditions for membership are applied uniformly throughout this state, are not expressed as a percentage of premium, and do not vary with respect to the rating classification of the member except for the purpose of offering a membership fee to family units. Membership fees may vary in accordance with the amount or type of coverage if the purchase of additional coverage, either as to type or amount, is not a condition for reduction of dues or fees. [See MCLA 500.2103(1)(g); MSA 24.12103(1)(g)]

LICENSE ACTIVITIES AND COMPLIANCE NOTICE

Agents and other licensees who violate their fiduciary duty as described in Section 1207 of the Insurance Code, MCLA 500.1207; MSA 24.11207, by engaging in fraudulent and/or unscrupulous activities, may be subject to disciplinary action under the Insurance Code. Abuses and consumer fraud associated with the operation of clubs will be referred to the Attorney General for prosecution and/or discipline under the Michigan Consumer Protection Act, MCLA 445.901; MSA 19.418(1). Upon a finding by the Insurance Bureau staff that an agent appears to have been engaging in fraudulent and/or unscrupulous activity, administrative proceedings will be commenced pursuant to Sections 1242 and 1244 of the Code, MCLA 500.1242; MSA 24.11242, and MCLA 500.1244; MSA 24.11244, and the Administrative Procedures Act. These proceedings may result in a fine, the suspension or revocation of the agent's license, or both.

RIGHTS AND PROCEDURES

This bulletin takes effect October 15, 1981. In conformity with Section 3(6) of the Administration Procedures Act of 1969, as amended, MCLA 24.203(6); MSA 3.560(103)(6), these guidelines are a statement of policy which the agency intends to follow, which do not have the force or effect of law, and which bind the agency, but do not bind any other person. The Bureau shall use these guidelines in reviewing all materials filed with the bureau and in determining whether a club is in compliance.