DEPARTMENT OF STATE

                       BUREAU OF DEPARTMENT SERVICES

                  CERTIFICATES OF NO-FAULT SELF-INSURANCE


(By authority conferred on the secretary of state by sections 204 and  501 of 
Act No. 300 of the Public Acts of  1949,  as  amended,  being  SS257.204  and 
257.501 of the Michigan Compiled Laws)


R  257.531   Definitions.
  Rule 1. (1) As used in these rules:
  (a) "Act" means Act No. 300 of the Public  Acts  of   1949,   as   amended, 
being S257.1 et seq. of the Michigan Compiled Laws.
  (b) "Applicant" means a motor vehicle  registrant  who   is   required   to 
maintain security for the payment of benefits under section   3101   of   the 
no-fault law and who applies for a certificate of self-insurance.
  (c) "Casualty insurance company" means an insurer authorized, as defined in 
section 108 of Act No. 218 of the Public  Acts  of  1956,  as  amended, being 
S500.108   of   the   Michigan   Compiled   Laws,   to   transact    casualty 
insurance business in this state,  or  an   eligible   unauthorized   insurer 
recognized by the commissioner of insurance pursuant to   section   1920   of 
Act No. 218 of the Public Acts of 1956, as amended, being  S500.1920  of  the 
Michigan Compiled Laws.
  (d) "Motor vehicle" means a vehicle, including a   trailer,   operated   or 
designed for operation upon a public highway by power  other  than   muscular 
power which has more than 2 wheels and is required to  be  registered   under 
the act. Motor vehicle does not include a motorcycle or a moped.
  (e) "No-fault law" means sections 3101 to 3179 of  Act  No.  218   of   the 
Public Acts of 1956, as amended,  being  SS500.3101  to   500.3179   of   the 
Michigan Compiled Laws.
  (f) "Qualified actuary" means a member in good standing  of  the   American 
academy of actuaries or the casualty actuarial society.
  (2) A term defined in the act has the same meaning when   used   in   these 
rules, unless defined otherwise in this rule.

  History:  1993 AACS.


R  257.532   Security equivalent; qualifications for  certificate;  excess
  insurance requirement.
  Rule 2. (1) A certificate of self-insurance that is  issued   pursuant   to 
these rules constitutes security equivalent to that afforded by  a  policy of 
insurance that provides for the  payment  of   benefits   pursuant   to   the 
no-fault law.
  (2) Pursuant to section 531 of the act and section 3101  of  the   no-fault 
law, the secretary of state may issue a certificate of  self-insurance  to an 
applicant who possesses all the following qualifications:
  (a) Registers in the applicant's  name  more  than   25   motor   vehicles, 
excluding trailers, in Michigan.
  (b) Agrees, in writing, to comply with all  of  the   provisions   of   the 
no-fault law, the financial responsibility law contained in  chapter   V   of 
the act, and these rules.
  (c) Has not been declared bankrupt within the  5-year  period   immediately 
preceding the date of application.
  (d) Possesses a net worth of more than $5,000,000.00  and   complies   with 
the provisions of subrule (3) of this rule.
  (e)  Possesses  a  sound  financial  condition   and   utilizes   financial 
practices and methods that would not bring into question   its   ability   to 
pay claims fully and in a timely manner.
  (f) Establishes a fully funded loss reserve as described  in  R 257.536.
  (g) Has not had a certificate of self-insurance denied   or   canceled   by 
this state or any  other  state  within  1  year  preceding   the   date   of 
application.
  (h) Submits to the secretary of state  a  completed   application   for   a 
certificate of self-insurance with all required documents attached.
  (3)  If  an  applicant  possesses  a  net  worth  that   is    less    than 
$20,000,000.00,  the  applicant  shall,  in  addition    to    meeting    the 
qualifications specified in subrule (2) of this rule, secure and  maintain an 
excess insurance policy, as described in R 257.537, with policy   limits  and 
retention amounts that are acceptable to the secretary of state.
  (4) Except as provided in subrule (6) of this rule, a  parent  company  and 
its subsidiaries shall make separate applications for the   issuance   of   a 
certificate of self-insurance pursuant to these rules.
  (5) Except for a parent company and its wholly owned subsidiaries making  a 
combined application for the issuance  of  a  certificate  of  self-insurance 
pursuant to the provisions of subrule (6) of this rule,  a   parent   company 
and its subsidiaries shall not  combine  or  commingle   net   worth,   motor 
vehicle registrations, or loss reserves for the purpose  of   qualifying   or 
maintaining qualification for a certificate of  self-insurance  pursuant   to 
these rules.
  (6) A parent company and  its  wholly  owned  subsidiaries   may   make   a 
combined application for the issuance of a certificate  of  self-insurance if 
either of the following provisions is satisfied:
  (a) Both the parent company and each wholly owned  subsidiary  included  in 
the  combined  application  otherwise  meet  the   qualifications   for   the 
issuance of a certificate of self-insurance set forth in this rule.
  (b) Both of the following conditions are met:
  (i) Both the parent company and each wholly owned  subsidiary  included  in 
the combined application enter into an  indemnity   agreement   jointly   and 
severally binding each entity for any liability under   the   no-fault   law, 
the financial responsibility law contained in chapter V of   the   act,   and 
these rules. The language and form of the agreement shall  be   approved   by 
the secretary of state.
  (ii)  For  each  wholly  owned  subsidiary  included   in   the    combined 
application, the parent company guarantees its  subsidiary's  liability   for 
payment of benefits under the no-fault law,  the   financial   responsibility 
law contained in chapter V of the act,  and  these  rules.   The   form   and 
substance of the guarantees shall be approved by the secretary  of  state.

  History:  1993 AACS.


R  257.533   Application; form; completeness; signature;  effective  date;
  accompanying documents.
  Rule 3. (1) A person who seeks to qualify as a self-insurer shall submit an 
application for a certificate of self-insurance  to  the  secretary  of state 
on a form provided by the secretary of state.
  (2) The application for a certificate of   self-insurance   shall   contain 
complete answers to all questions and shall be signed by   the   person   who 
makes  the   application   or   by   the    applicant's    duly    authorized 
representative.
  (3) An application shall be submitted to the secretary of  state  not  less 
than 30 days before the desired effective date of the certificate.
  (4) An  application  shall  be  accompanied  by  all   of   the   following 
documents:
  (a)  A  statement  of  financial  status  which  has   been   prepared   in 
accordance with generally accepted accounting   practices   and   principles, 
which has been certified by  a  certified  public   accountant,   and   which 
covers a 1-year period ending not more than 12 months before  the   date   of 
application.
  (b) A copy of the declaration sheet of any policy   of   excess   insurance 
that is intended to be used as partial security.
  (c) Either of the following:
  (i) A written estimate of loss reserve that is prepared  by   a   qualified 
actuary.
  (ii) A written estimate of loss reserve which is  prepared  in   conformity 
with the loss reserve methodology that is approved for  utilization  by   the 
self-insurer by a qualified actuary within the  2-year   period   immediately 
preceding the date of the self-insurer's original  application  pursuant   to 
the provisions of these rules and which is certified by an owner, officer, or 
director of the self-insurer.
  (iii) A written estimate of loss reserve that is prepared  by  a   casualty 
insurance company.
  (d) A copy of  a  written  authorization  that   designates   a   specified 
employee of the applicant, or another authorized person,   to   receive   and 
process claims that are submitted to the applicant.
  (e) A copy of a claim form that shall be used by a person  who  submits   a 
claim to the applicant for benefits due  to   suffering   accidental   bodily 
injury or  property  damage  arising  out  of   the   ownership,   operation, 
maintenance, or use of a motor vehicle that is registered or  owned  by   the 
applicant.
  (f) A list of all motor vehicles that are registered in  Michigan  in   the 
name of the applicant at the  time  of  application  or  that   are   to   be 
self-insured under a certificate of self-insurance issued to the applicant as 
determined at the time of application. The vehicles shall  be  identified  by 
all of the following:
  (i) Make.
  (ii) Model.
  (iii) Year.
  (iv) Vehicle identification number (VIN).
  (v) Registration number.
  (5) A claim form that accompanies an application shall   include   all   of 
the following information:
  (a) A statement of a claimant's right to  personal   protection   insurance 
benefits, property protection insurance benefits,  and   residual   liability 
insurance benefits under the no-fault law.
  (b) A statement of a self-insurer's responsibility to pay   claims   in   a 
timely manner.
  (c) An instruction that directs claimants to contact   the   secretary   of 
state concerning a self-insurer's failure to  fulfill  its   responsibilities 
under the no-fault law.

  History:  1993 AACS.


R  257.534   Application; review; hearing; certificate duration; renewals.
  Rule 4. (1) Upon receipt of an application for an  original  certificate of 
self-insurance, the  secretary   of   state   shall   promptly   review   the 
application and all supporting documents. Within 20   days   after   receipt, 
the secretary of state shall notify the applicant that  the  application  has 
been approved or denied.
  (2) If an application has been denied,  the  applicant   may   request   an 
administrative hearing  to  review  the  denial.  This   hearing   shall   be 
conducted in accordance with the procedures set forth in   R   257.539.   The 
secretary of state shall affirm or  reverse  the  denial   based   upon   the 
record made at the hearing.
  (3)  If  an  applicant  meets  the  qualifications  for   receipt   of    a 
certificate of self-insurance, the secretary  of  state   shall   issue   the 
applicant  a  formal  certificate  which  indicates  that   status    as    a 
self-insurer is conferred. An original certificate  of  self-insurance  shall 
expire 1 year after the effective date of the certificate.
  (4) A self-insurer may apply for a renewal certificate of self-insurance 45 
days before the expiration  of  the  previously   issued   certificate.   The 
renewal  application  shall  be  accompanied  by   the   documents   required 
pursuant to the provisions of R 257.533(4). If a   renewal   application   is 
submitted and approved, the existing certificate of  self-insurance  shall be 
extended for 1 year from the date of expiration. A renewal  application that  
is   submitted   after   the   expiration   of   the    previously     issued 
certificate shall be considered an application for an original certificate of 
self-insurance.

  History:  1993 AACS.


R  257.535   Additional reports.
  Rule 5. The secretary of state may require a self-insurer  or  applicant to 
submit additional reports,  including  an   accident   and   claim   activity 
report or a statement of claims and losses, and   any   relevant   additional 
information that is necessary to determine the continuing  ability   of   the 
self-insurer or applicant to pay present and future  claims.  Any  additional 
report, statement, or information that is required shall be   made   upon   a 
form which is provided by the secretary of state  and  shall   be   due   not 
later than 30 days after being requested by the secretary of  state.  If  the 
secretary of state does not receive the additional  report,   statement,   or 
information within the 30-day period, the   self-insurer's   certificate   of 
self-insurance may be  canceled  or  the  applicant's   application   for   a 
certificate of self-insurance may be denied.

  History:  1993 AACS.


R  257.536   Loss   reserve;   use;   amount;    funding;    expenditures;
  commingling; trust or escrow account.
  Rule 6. (1) A loss reserve shall be utilized to  pay   claims   which   are 
anticipated during the certification year  and  which   are   submitted   for 
payment during that year and to pay claims that  have   been   incurred   and 
submitted before the certification year, but have not yet been  paid  by  the 
applicant or self-insurer.
  (2) Except as provided in subrule (7) of this rule, a  fully  funded   loss 
reserve consists of an amount of  money,  as  determined   by   a   qualified 
actuary, as determined by utilization of a  reserve   methodology   for   the 
self-insurer as approved by a qualified actuary, or  as   determined   by   a 
casualty insurance company, that is sufficient to  compensate  claimants  for 
all benefits which are due for claims that are to  be  paid   or   that   are 
anticipated to be paid during the  certification  year   and   all   benefits 
which are due for claims incurred before the certification year,  but  are to 
be paid or are anticipated to  be  paid  during   the   certification   year, 
including all benefits that may be due during the  certification   year   for 
claims which  can  be  anticipated  or  are  incurred   but   not   reported, 
exclusive of  that  portion  of  any  claim  that  is   covered   by   excess 
insurance.
  (3) Before the beginning  of  a  certification  year,   an   applicant   or 
self-insurer shall fully fund its loss reserve account.
  (4) Loss reserve funds shall only be expended to  pay   claims   that   are 
incurred  and  submitted   under   the   no-fault    law,    the    financial 
responsibility law contained in chapter V of the act, and these rules.
  (5) Loss reserve funds shall be kept in a segregated  account   and   shall 
not be commingled with other funds of the applicant  or   self-insurer.   The 
funds shall be physically located in this state and may be  maintained  in  a 
financial institution, in an escrow account, under a trust  agreement,  or by 
the applicant or self-insurer  individually.  This  subrule  shall  not apply 
 to  an   applicant   or   self-insurer   that   has   a   net    worth    of 
$20,000,000.00 or more.
  (6) Unless the written approval of the secretary of  state   is   obtained, 
loss reserve funds shall not  be  used  for  any  purpose   other   than   as 
described in the no-fault law, the financial responsibility law  contained in 
chapter V of the act, or these rules.
  (7) For a governmental unit that has  the  authority  to   tax,   a   fully 
funded loss reserve consists of an amount of money that is  included  in  the 
budget or reserve accounts of the governmental unit for  the   fiscal   year, 
which includes its  certification  year,  as  determined   by   a   qualified 
actuary, as determined by utilization of a  reserve   methodology   for   the 
self-insurer that is approved by a qualified actuary, or as determined  by  a 
casualty  insurance  company,  and   that   is   sufficient   to   compensate 
claimants for all benefits that are due for claims which are to  be  paid  or 
which are anticipated to be paid during the  certification   year   and   all 
benefits  that  are  due  for  claims  which  are   incurred    before    the 
certification year, but are to be paid  or  are  anticipated   to   be   paid 
during the certification year, including all  benefits  that   may   be   due 
during the certification year for claims which can be  anticipated   or   are 
incurred but not reported, exclusive of that portion of any  claim  that   is 
covered by excess insurance.

  History:  1993 AACS.


R  257.537   Excess insurance; conditions for compliance.
  Rule 7. A contract or policy of excess insurance shall not be recognized by 
the secretary of state in considering  the  ability  of   an   applicant   to 
fulfill its financial obligations under the no-fault law  or  the   financial 
responsibility law contained in chapter V of the act, unless the  contract or 
policy is in compliance with all of the following requirements:
  (a) Is issued by a casualty insurance company.
  (b) Is not cancelable or nonrenewable, unless the party  that  desires   to 
cancel or not renew the policy gives  written  notice,   by   registered   or 
certified mail, to the other party to the policy and to  the   secretary   of 
state not less than 30 days before termination of the policy.
  (c) Does not contain policy coverage exceptions or   exclusions,   or   any 
other policy provisions, that are not in compliance with  the  no-fault  law, 
the act, and these rules.
  (d) Does not contain a commutation clause, unless   the   clause   provides 
that a commutation shall not relieve an underwriter  of   further   liability 
either in respect to claims and  expenses  unknown  at  the   time   of   the 
commutation or in respect to any claim which is apparently  closed   at   the 
time of initial commutation and which  is  subsequently   reopened   by,   or 
through, a competent authority. The clause shall, in  addition,  provide  for 
both of the following:
  (i) If the underwriter proposes  to  settle  its   liability   for   future 
claims with respect to accidents that occur during the term of the  policy by 
the payment of a lump sum to the self-insurer, to be fixed  as   provided  in 
the commutation clause of the policy, then  not  less  than  30  days'  prior 
notice of the commutation shall be given to the secretary of  state  by   the 
underwriter or its agent by certified mail.
  (ii) If any commutation is effected, then the  secretary   of   state   may 
direct that the sum be placed in trust for the benefit   of   all   claimants 
who are entitled to future payments of compensation.
  (e) Contains a clause which provides  that  if   a   self-insurer   becomes 
insolvent and is unable to pay claims,  the  excess   insurer   shall   make, 
directly to claimants or their authorized representatives,  such  payments as 
would have been made by the excess carrier to the self-insurer after  it  has 
been determined that the retention  level  has  been  reached  on  the excess 
insurance contract.

  History:  1993 AACS.


R  257.538   Denial or cancellation of  certificate;  certificates  issued
  before effective date of rules.
  Rule 8. (1) The secretary of state may disapprove an  application   for   a 
certificate  of  self-insurance  if  the  applicant  fails   to   possess   a 
qualification for the issuance of a certificate of  self-insurance   as   set 
forth in R 257.532.
  (2) The secretary of state may cancel a certificate  of  self-insurance  if 
any 1 of the following provisions applies to a self-insurer:
  (a) Fails to pay a judgment that is rendered   against   the   self-insurer 
upon  a  cause  of  action  arising  out  of   the   ownership,    operation, 
maintenance, or use of any motor vehicle, as defined in  the   act   or   the 
no-fault law, within 30 days after the judgment becomes final.
  (b) Fails to pay an assessment bill  that  is  issued   pursuant   to   the 
provisions of section 3171 of the no-fault law  and  R  11.115,   within   30 
days after billing.
  (c) Fails to pay personal  protection  insurance  benefits   to   which   a 
claimant is entitled under the no-fault  law  within  30   days   after   the 
receipt of reasonable proof of the loss and the amount of loss.
  (d) Files a petition in bankruptcy or is declared bankrupt  by  a   federal 
court.
  (e) Is placed in receivership, declared insolvent, or ordered  dissolved or 
liquidated by a state court.
  (f) Commits an act that would jeopardize the  self-insurer's   ability   to 
pay claims that are filed with, or judgments that   are   obtained   against, 
the self-insurer.
  (g) Fails to continuously possess any qualification for  a  certificate  of 
self-insurance as described in R 257.532 or fails to comply  with  any  other 
provision of these rules.
  (h)  The  department  has  reasonable  grounds  to   believe    that    any 
information which is submitted by an applicant or self-insurer  and  which is 
contained in any application, renewal, document, statement,  or  report  that 
is required pursuant to these rules is false.
  (3) A certificate of self-insurance that is issued  before  the   effective 
date of these rules shall not be canceled pursuant to   the   provisions   of 
subrule (2)(c), (f),  (g),  or  (h)  of  this  rule  before   its   date   of 
expiration.

  History:  1993 AACS.


R  257.539   Administrative hearing.
  Rule 9. (1) An administrative hearing that is conducted  with   regard   to 
the denial of an application  for  a  certificate   of   self-insurance,   or 
before the cancellation of a certificate of self-insurance  pursuant  to  the 
provisions of section 531 of the act, shall be conducted  pursuant  to  these 
rules, the procedures set forth in chapter 4 of Act No. 306  of  the   Public 
Acts of 1969, as amended, being S24.271 et seq. of  the   Michigan   Compiled 
Laws, and R 11.1 to R 11.9.
  (2) Before the commencement of any proceeding with regard to the  denial of 
 a  renewal  application  or   the   cancellation   of   a   certificate   of 
self-insurance, the secretary  of  state  shall  afford   an   applicant   or 
self-insurer an opportunity to demonstrate compliance pursuant to  section 92 
of Act No. 306 of the  Public  Acts   of   1969,   being   S24.292   of   the 
Michigan Compiled Laws.
  (3) A complaint that alleges facts which constitute  reasonable  grounds to 
deny an application for, or cancel, a certificate of  self-insurance  may  be 
drafted and filed with the secretary of  state  by   an   employee   of   the 
secretary of state or by any other person. Upon receipt   of   a   complaint, 
the secretary of state may prepare a notice of hearing or  issue  a   warning 
letter for any apparent violation of the act and these  rules.  The   warning 
letter shall not be construed as  a  finding  that   the   self-insurer   has 
committed a violation.  In  any  subsequent   administrative   hearing,   the 
letter may be made a part of the record  to  show   that   the   self-insurer 
received notice that the conduct in question is prohibited.
  (4) If the matter is to proceed to hearing, notice of  hearing   shall   be 
served at the residence address or principal  place  of   business   of   the 
applicant or self-insurer. Notice may be given by  first-class  or  certified 
mail or by personal service.
  (5) An applicant or a self-insurer who desires to file a written  answer to 
allegations contained in a complaint  shall  file   the   answer   upon   the 
presiding officer who is designated in the notice of hearing,  and   a   copy 
shall be furnished to the person who filed the complaint  and  any  assistant 
attorney general of record.
  (6) A person who is designated and authorized by the  secretary  of   state 
shall serve as the presiding officer at  the  hearing.   The   applicant   or 
self-insurer may appear in person or by  attorney.  If   the   applicant   or 
self-insurer is a  corporation,  the  applicant  or   self-insurer   may   be 
represented by an officer of the corporation.
  (7) The presiding officer  may  postpone  or  continue   the   hearing   on 
written motion of the department or the applicant or  self-insurer  for  good 
cause shown.
  (8) Upon completion of the hearing, the presiding officer shall  prepare  a 
hearing report and shall transmit it, together with the  entire   record,  to 
the secretary  of  state   for   review   and   consideration,   unless   the 
secretary of state served as presiding officer.
  (9) The secretary of state shall review the entire record  and  issue   the 
final decision and order in the matter.

  History:  1993 AACS.


R  257.540   Proof of insurance.
  Rule 10. A person whose certificate of self-insurance has been  canceled or 
whose renewal application has  been  denied  shall   immediately   obtain   a 
policy of insurance that affords security for the payment  of   benefits   as 
required by the no-fault law for each motor vehicle that is  required  to  be 
registered by the person in Michigan and shall provide proof of  insurance to 
the secretary of state.

  History:  1993 AACS.