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Auto-Owners Ins. Co. v. All Star Lawn Specialists Plus, Inc.

Supreme Court of Michigan

November 25, 2014

AUTO-OWNERS INSURANCE COMPANY, Plaintiff-Appellee,
v.
ALL STAR LAWN SPECIALISTS PLUS, INC., and JEFFERY A. HARRISON, Defendants, and JOSEPH M. DERRY, Defendant-Appellant

For AUTO-OWNERS INSURANCE COMPANY, Plaintiff-Appelant: MICHELE RIKER-SEMON, BLOOMFIELD HILLS, MI.

For JOSEPH M DERRY, Defendant-Appelle: MARK GRANZOTTO, BERKLEY, MI; DANIEL P BECK, MT CLEMENS, MI.

Chief Justice: Robert P. Young, Jr. Justices: Michael F. Cavanagh, Stephen J. Markman, Mary Beth Kelly, Brian K. Zahra, Bridget M. McCormack, David F. Viviano. CAVANAGH, J. I would have granted leave to appeal.

OPINION

[497 Mich. 15] BEFORE THE ENTIRE BENCH

Per Curiam.

In this case, we are called upon to interpret the definition of " employee" as found in MCL 418.161(1)(n), prior to being amended in 2011, which is a provision in the Worker's Disability Compensation Act (WDCA), MCL 418.101 et seq. By a special panel convened to hear this case under MCR 7.215(J), the Court of Appeals rejected that Court's previous interpretation of this definition in Amerisure Ins Cos v Time Auto Transp, Inc.[1] Because we believe the term " employee" as defined in the WDCA was properly interpreted in Amerisure, we reverse the Court of Appeals.

Page 521

[497 Mich. 16] While working on a fall clean-up job for defendant All Star Specialists Plus, Inc., defendant Joseph Derry was loading leaves into a truck using a leaf vacuum machine when the machine tipped over, injuring him. At the time, All Star had three insurance policies issued by Auto-Owners Insurance Company: (1) a commercial general liability policy, (2) a commercial automobile insurance (no-fault) policy, and (3) a commercial workers' compensation policy. The general liability policy excludes from coverage " [a]ny obligation of the insured under a workers['] compensation . . . law," and the no-fault policy excludes coverage for " any expenses that would be payable under any workers['] compensation law . . . ."

Derry brought a negligence suit against All Star and one of its owners, Jeffery Harrison, for his injuries and sued Auto-Owners for no-fault benefits. Plaintiff Auto-Owners later filed the present declaratory judgment action, seeking a determination that Derry was an employee of All Star and, thus, that the only insurance coverage available was under the workers' compensation policy. Plaintiff Auto-Owners moved for summary disposition pursuant to MCR 2.116(C)(10). Derry contended that because he was an independent contractor, the general liability policy and no-fault policy applied to his negligence and no-fault claims, respectively. The trial court concluded that because it was uncontroverted that Derry held himself out to the public to perform the same services as the work he performed for All Star, Derry was an independent contractor at the time of his injury and not an employee, and that Derry was therefore entitled to coverage under Auto-Owners' general liability and no-fault policies. The court denied Auto-Owners' motion for summary disposition and granted summary disposition in favor of Derry.

[497 Mich. 17] Auto-Owners appealed in the Court of Appeals, and the panel affirmed in part and reversed in part in a published opinion.[2] The panel affirmed the trial court's conclusion that Derry was an independent contractor for purposes of the WDCA. However, the panel only reached this conclusion because it was bound under MCR 7.215(J)(1) to follow the Court of Appeals' prior decision in Amerisure, which held that each criterion of MCL 418.161(1)(n) must be satisfied for an individual to be an employee, and otherwise would have held that Derry was an employee. The panel called for a special panel to resolve the conflict.

A special panel was convened,[3] and in a published 4-3 decision, the majority reversed the trial court's order granting summary disposition in favor of Derry and, thus, its determination that Derry was an independent contractor.[4] The special panel majority overruled Amerisure and held " that all three of the statutory criteria in MCL 418.161(1)(n) must be met before an individual is divested of 'employee' status." [5] The majority concluded that because Derry only met two of the three criteria, Derry remained an employee at the time of his injury.[6] The majority concluded that only the workers' compensation policy provided coverage and that the

Page 522

trial court had erred by entering summary disposition in favor of Derry.[7]

[497 Mich. 18] Derry sought leave to appeal in this Court, specifically seeking reversal of the special panel majority's ruling that he was an employee under MCL 418.161(1)(n).

The workers' compensation policy at issue provides insurance for certain bodily injuries when benefits are required by the WDCA.[8] The issue before this Court is the proper interpretation of the definition of " employee" in § 161 of the WDCA, specifically subsection (1)(n), prior to being amended in 2011.[9] That subsection provided:

(1) As used in this act, " employee" means :
* * *
(n) Every person performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury, if the person in relation to this service does not maintain a separate business, does not hold [497 Mich. 19] himself or herself out to and render service to the public, and is not an employer subject to this act. [Emphasis added.]

The Court of Appeals correctly interpreted this provision in its decision in Amerisure, stating, " By so employing the word 'not,' the Legislature intended that once one of these three provisions occurs, the individual is not an employee. Thus, each provision must be satisfied for an individual to be an employee." [10] Therefore, the three criteria that must be met for a person " performing service in the course of the trade, business, profession, or occupation of an employer at the time of the injury" to be considered an employee are that a person, " in relation to this service" : (1) does not maintain a separate business, (2) does not hold himself or herself out to and render service to the public, and (3) is not an employer subject to this act. As a result, if a person, in relation to the service in question, maintains a separate business or holds himself or herself out to and renders service to the public or is an employer subject to this act (i.e., if the person fails to satisfy any one of the three criteria), then that person is excluded from employee status.

By requiring that all three statutory criteria be met for an employee to be divested of employee status, the special panel majority's interpretation ignored the word " not" contained in each criterion. This interpretation contravenes the principle of statutory interpretation that " [c]ourts must give effect to every word,

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phrase, and clause in a statute and avoid an interpretation that renders nugatory or surplusage any part of a statute." [11] We instead agree with dissenting Judge Borrello, who correctly concluded that Amerisure was properly decided. [497 Mich. 20] Contrary to the majority's assertions, the Amerisure interpretation does not ignore the word " and" in MCL 418.161(1)(n); it takes into consideration both the word " and" connecting the three criteria and the word " not" within each criterion. Each criterion of MCL 418.161(1)(n) must be satisfied for an individual to be considered an employee; conversely, failure to satisfy any one of the three criteria will exclude an individual from employee status.

When overruling Amerisure, the special panel majority expressly adopted the reasoning of the prior panel,[12] which relied in part on a paraphrase of MCL 418.161(1)(n) in Chief Justice Taylor's lead opinion in Reed v Yackell.[13] However, to the extent that the special panel relied on this paraphrase by adopting the reasoning of the original panel, their reliance was misplaced. Chief Justice Taylor attempted to paraphrase the cumbersome language of MCL 418.161(1)(n) as follows:

[MCL 418.161(1)(n)] provides that every person performing a service in the course of an employer's trade, business, profession, or occupation is an employee of that employer. However, the statute continues by excluding from this group any such person who: (1) maintains his or her own business in relation to the service he or she provides the employer, (2) holds himself or herself out to the public to render the same service that he or she performed for the employer, and (3) is himself or herself an employer subject to the WDCA. [ Reed, 473 Mich. at 535 (opinion by Taylor, C.J.).]

Chief Justice Taylor thus sought to replace the confusing negative definition of an employee created by MCL 418.161(1)(n) with a positive definition of people who are excluded from the statutory class of employees by [497 Mich. 21] operation of the statute. This statement may not, however, be interpreted as an indication that this Court believed all three criteria of MCL 418.161(1)(n) must be met for a person to be excluded from employee status.

As an initial consideration, Reed was a plurality opinion and does not constitute binding precedent of this Court.[14] Therefore, even if Chief Justice Taylor's paraphrase indicated that he had favored the special panel majority's interpretation of MCL 418.161(1)(n), the statement could not be taken as guidance from this Court because the lead opinion only represented the views of three justices.

Chief Justice Taylor's paraphrase in Reed was also dictum and, again, is not binding precedent.[15] The differences between

Page 524

the statutory language and the paraphrase had no impact on the decision in Reed because the question before this Court was the meaning of the statutory phrase " this service." [16] Reed never addressed whether a person is excluded from employee status if he or she fails to meet only one criterion in MCL 418.161(1)(n).

Lastly, to the extent that the plurality in Reed did contemplate this question, it demonstrated no intention of changing Amerisure 's settled interpretation. To the contrary, it was undisputed throughout Reed that the plaintiff was not an employer under the WDCA.[17] Under [497 Mich. 22] the interpretation of MCL 418.161(1)(n) adopted by the original panel and special panel majority in this matter, this in itself would have been sufficient to conclude that the plaintiff retained his status as an " employee." This Court in Reed, however, found it necessary to explore whether the other two statutory criteria were also satisfied before making this determination, as Amerisure requires. Reed was thus considered and decided in a manner fully consistent with Amerisure 's interpretation of MCL 418.161(1)(n), and it is readily apparent that the plurality did not intend to disrupt that interpretation.

Because the special panel majority of the Court of Appeals incorrectly interpreted MCL 418.161(1)(n), we reverse that decision and remand this matter to the Macomb Circuit Court for further proceedings consistent with this opinion and the Court of Appeals' July 9, 2013 opinion.

I would have granted leave to appeal.


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