The Michigan Supreme Court Erases Insurer Exemption from the Michigan Consumer Protection Act

The Michigan Consumer Protection Act ("MCPA" or "Act") was established to offer an expanded remedy for consumers affected by misleading business practices. The MCPA forbids “[u]nfair, unconscionable, or deceptive methods, acts, or practices in the conduct of trade or commerce” and lists numerous specific prohibited practices. “Trade or commerce” is defined as “the conduct of a business providing goods, property, or service primarily for personal, family, or household purposes." The MCPA applies to personal-lines policies, i.e., homeowners, personal automobile, life, disability, and similar coverages purchased for personal, family, or household purposes, but not commercial line policies. The Act enumerates conduct that could feasibly occur in connection with personal lines insurance, including but not limited to:

Entering into a consumer transaction in which the consumer waives a right, benefit, or immunity provided by law, unless the waiver is clearly stated and specifically consented to;

Failing to promptly restore a deposit, down payment, or other payment in a rescinded or terminated transaction;

Gross discrepancies between the oral representations of the seller and the written agreement covering the same transaction, or failure to provide the promised benefits;

Failing to reveal facts that are material to the transaction in light of representations of fact made in a positive manner.

In 1999 and 2007, the Michigan Supreme Court issued two opinions that exempted insurance companies from liability under the MCPA. Smith v Globe Life Ins Co and Liss v Lewiston-Richards, Inc. This recently changed when the Michigan Supreme Court reversed both cases in Attorney General v Eli Lilly and Company.

Eli Lilly originated from an investigation by the Michigan Attorney General ("AG") into Eli Lilly's insulin-pricing practices. The circuit court found probable cause to issue investigative subpoenas to Eli Lilly based on potential violations of the MCPA. The AG alleged probable cause to believe Eli Lilly had violated the Act by charging a price grossly exceeding that of similar products or services and making certain promotional claims.

The AG simultaneously filed a separate action for declaratory relief requesting the circuit court to declare that it could investigate possible MCPA violations and that it was not barred by the regulatory-authorization exemption under the Act. The declaratory action was dismissed by the circuit court based on the exemption which the Michigan Court of Appeals affirmed.

The Michigan Supreme Court ultimately reversed the Court of Appeals and rejected Smith and Liss, finding that both opinions improperly rewrote the exemption subsection of the MCPA by adding the word "general" before "transaction," a term that does not appear in the statute, and ignored the statutory phrase "specifically authorized" by merely considering whether a defendant's business line is licensed or subject to a regulatory scheme, rather than whether the specific conduct challenged by the plaintiff is legally sanctioned.

Under the rule of Eli Lilly, a court must assess whether the alleged improper transaction or conduct violates the MCPA and not whether the general business line of the defendant is authorized under regulatory or administrative law.