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A Better Partnership
May 21, 2009

COA Opinion: Averill v. Dauterman

On May 19, 2009, the Michigan Court of Appeals released its published opinion in Averill v. Dauterman, No. 283129, confirming that fraternal benefit societies are not derivatively liable for their officers' or directors' breach of fiduciary duties. Only the attorney general, upon request of the commissioner of the Office of Financial and Insurance Services (the "Commissioner"), may file suit against a fraternal benefit society for failing to comply with its duties. MCL '' 500.8191, 500.8193. The Court of Appeals opinion may be found here.

Several members of the Gleaner Life Insurance Society ("Gleaner"), a fraternal benefit society, filed a derivative action against Gleaner's board members for breach of fiduciary duty. The trial court dismissed the action for failure to state a claim, holding that MCL '' 500.8191 and 500.8193 barred fraternal benefit society members from filing derivative actions.

MCL ' 500.8191 states the Commissioner may request the attorney general "to commence an action to enjoin the [fraternal benefit] society from transacting business or to commence an action in quo warranto," and then goes on to limit actions under this section to those brought by the attorney general. Similarly, MCL ' 500.8193 provides: "An application or petition for injunction against any domestic, foreign, or alien [fraternal benefit] society, or lodge of such a society, shall not be recognized in any court of this state unless commenced by the attorney general upon request of the commissioner."

The Court of Appeals affirmed, holding that the plain language of these statutes prevents the plaintiff-members from filing a derivative action. This decision leaves all enforcement of fraternal benefit societies' obligations to the attorney general. Members will not be able to use derivative suits to protect their rights.

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