Capitol legend says it was a spring day in 1967 when then-Governor George Romney, reviewing a sheaf of papers on his desk, turned to an aide and asked, "What is this 'Accident Fund,' and why does its manager make more than I do?" It may seem humorous that the three-term governor and architect of the Michigan constitution should ask such an apparently simple question about state government, yet the root of the present legal dilemma is that the question has never been answered to the satisfaction of all parties involved.
The Accident Fund's foundation was laid in 1911, when the Michigan legislature established a "Commission of Inquiry" to investigate "compensation for accidental injuries or death [due to] employments." In the absence of a workers' compensation system as we know it today, such injuries were settled on a case-by-case basis in the state's civil courts under the rules of its tort system. The Commission's report recommended that a uniform workers' compensation system be established, and that employers be allowed to provide compensation to injured employees by four means: self insurance, by which benefits would be paid from the employer's assets; insurance purchased from private mutual companies; insurance purchased from private stock insurers; and insurance purchased through an "accident fund" to be established by the State Insurance Commissioner.
The Commission of Inquiry clearly viewed this "accident fund" as something distinct from a private mutual insurance company. The Commission supported an accident fund managed by the state on the grounds that "It has been asserted... that these [workers' compensation] funds can be collected and disbursed more efficiently through the instrumentalities of the State than in any other manner." The Commission described this "accident fund" as one in which "The Commissioner of Insurance is given practically the same powers ...as the board of directors of employers' mutual associations" (i.e., mutual insurance companies).
As recommended by the Commission, the 1912 workers' compensation statute passed by the legislature provided that "whenever five or more employers... shall in writing request the Commissioner of Insurance to do so, he shall assume charge of levying and collection from them such premiums ...[as] necessary to pay the sums which shall become due their employees... and also the expense of conducting the administration of such funds." To hold these premiums until needed to pay claims, the Commissioner was further ordered to "cause to be created in the State treasury a fund to be known as the accident fund." The Commissioner was given authority to classify employers by risk, to "determine the amount of the premiums or assessments which such employers shall pay to said accident fund," to maintain records, and to "employ such ...help as may be necessary... for the proper administration of said funds." These and similar passages in the law seem to support the claim that the Accident Fund is a state agency.
Yet the question of the Accident Fund's status is not quite so simple. The Commission of Inquiry, in the same paragraph in which it likened the powers of the Commissioner of Insurance to those of a board of directors, noted that under this system, "it is expressly provided that the State shall not assume responsibility for the payment of any amount beyond the funds so collected [from employers]."
The Commission explained that "it will thus appear that the State is not engaging in the insurance business in the sense that it is assuming any liability... [T]he plan thus proposed differs in many respects from the various schemes of State insurance..." This philosophy—that the state commit no money and assume no liability—was included in the law authorizing creation of an accident fund.
It is also worth noting that the bill that passed the legislature in 1912 did not itself establish the Accident Fund, but only authorized its establishment if requested by employers.
The question of whether the Accident Fund was intended to be a state agency may be simply a matter of semantics. The Accident Fund was clearly established as a public operation—one through which state officials, using "the instrumentalities of the State," would manage a plan for the private good of employers. In this sense, it could be called a state agency. But it seems equally clear that the Accident Fund was not intended to "belong" to the state. The following facts suggest that the Fund was intended to benefit private employers who purchased insurance through the Fund, and that Fund assets were to be used only for the benefit of these employers: the Fund was in no way made mandatory; it would exist at all only upon employers' request; it was created on the theory that it would be the least expensive way for employers to obtain workers' compensation insurance; and the state would assume no liability.
This view of the Accident Fund as a program operated for the benefit of private employers is supported by reference to the political climate of the time. In 1912, there was no history in the United States of workers' compensation insurance being supplied in the market, simply because there was no history of workers' compensation laws. To the extent workers' compensation systems existed, they were generally financed by governments, whether in Europe or in a handful of U.S. states such as Ohio. Michigan's Commission of Inquiry, with little information available to determine the most cost-effective means of providing insurance, hedged its bets, saying "The Commission has thought it advisable to permit... the use of any one of these four methods [self insured, insured through mutual insurer, insured through stock insurer, and the Accident Fund], with a view of enabling the State to determine as the result of actual experience which of these methods is in fact best adapted to the needs of employers and employees..." The Commission accepted that changes could, and probably would, be made over time. "If it develops that any particular one of these methods is unsuited to the needs of the State, then the law can be readily amended in that respect..."