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RISK MANAGEMENT: A STUDY IN COLLABORATION AMONG MICHIGAN'S PUBLICLY SUPPORTED INSTITUTIONS OF HIGHER EDUCATION BY Richard Patrick John Duffett A DISSERTATION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of College and University Administration 1988 ABSTRACT RISK MANAGEMENT: A STUDY IN COLLABORATION AMONG MICHIGAN'S PUBLICLY SUPPORTED INSTITUTIONS OF HIGHER EDUCATION by Richard Patrick John Duffett The purpose of this study was to chronicle the efforts of Michigan's Public Colleges and Universities to resolve a common risk financing problem, focusing on how institutions work together. - From this study it can be determined that: autonomous publicly supported institutions in Michigan can join together to resolve a common problem. there is an identifiable process which may be used to resolve future common problems. there are identifiable strengths in the process which may be transferable in future joint problem solving efforts. erosion of institutional autonomy is acceptable under conditions which provide measurable benefits to each institution. institutions of various sizes can work together if there is equitable participation in the process. All publicly supported four-year baccalaureate granting institutions of Michigan participated in the two-year process. This investigator was a full participant in the problem solving effort which provided an opportunity to accurately evaluate the occurrences resulting in a successful resolution to the problem. Aside from being an actual participant, interviews, review of documents, meeting agendas and minutes of group meetings preserved the chronological order of events in this historical organizational case study. The successful resolution to the common risk financing problem resulted in the creation and operation of the Michigan Higher Education Group Self-Insurance and Risk Management Facility, a non-profit corporation formed in the State of Michigan. The corporation now provides certain types of liability insurance coverages for ten of the thirteen four-year publicly supported institutions of Michigan. The signing of a group participation agreement developed by institutional administrators is significant. This group participation agreement is the first document of its kind in which autonomous four-year publicly supported institutions in Michigan have banded together and freely agreed to jointly share the success or failure of the group. Copyright by Richard Patrick John Duffett 1988 To Constance Lee, Krista Lee and Sean Patrick for being so understanding ii ACKNOWLEDGEMENTS I would like to thank Dr. Eldon Nonnamaker, Dr. Howard Hickey and Dr. Marvin Grandstaff for their assistance and guidance. Dr. Louis Hekhius, chairman of my committee, spent many hours providing encouragement and guiding me in the right direction. I will always be indebted to him for his help. Dr. Edward Griffin gave**his time freely and helped so much. He is a true friend and was a believer in my ability to complete this project. Special thanks to Mary Nicks, for her willingness to edit, and to Diane Lentz, Lori Hare and Teri Wheeler for the hours spent typing. The dedicated institutional administrators whose efforts are reflected in this study must also be acknowl­ edged. This bold and innovative problem solving effort is historical and unprecedented for publicly supported institutions of higher education in Michigan. I would like to thank Roy Tiede, who provided flexibility in the workplace. processor was much appreciated. iii Also, the use of a word Constance Lee, Krista Lee and Sean Patrick gave up much in allowing me the opportunity to pursue and complete this degree. Their sacrifice was great and I thank them so much! 1988 Rick Duffett TABLE OF CONTENTS D E D I C A T I O N ................................................ ii ACKNOWLEDGEMENTS............................................ iii LIST OF FIGURES............................................. vii LIST OF APPENDICES.........................................viii CHAPTER I. INTRODUCTION................................... 1 Literature Review Statement of Purpose Need for Study Significance of the Study Background Scope of the Study Limitations of the Study Presentation of the Study Definition of Terms Footnotes II. METHODOLOGY..................................... 23 Qualitative Inquiry Qualitative Methods Investigator's Role in Data Collection Research Questions Summary Footnotes III. CHRONICLING OF EXPLORATION AND RECOMMENDATION FOR RESOLUTION OF COMMON RISK FINANCING PROBLEM........................................ Summary Footnotes v 41 IV. CHRONICLING OF IMPLEMENTATION AND INTITIAL OPERATION OF AN ALTERNATIVE TO TRADITIONAL RISK. FINANCING MBTHODS........................ 106 Summary Footnotes V. SUMMARY OF THE FINDINGS - IMPLICATIONS AND DISCUSSION - IMPLICATIONS FOR FURTHER STUDY...................................181 Discussion Footnotes BIBLIOGRAPHY.................................................207 APPENDICES................................................... 212 vi LIST OF FIGURES 1. Expenditures of Public Institutions................. 63 la. Enrollment of Public Institutions................... 63 2. Development Stages................................... 68 3. Proposed Three-Tiered Pooling Arrangement............ 91 4. Subcommittee and Intended Charges....................110 5. Subcommittee Composition............................. Ill vii LIST OF APPENDICES Institutional Survey Participation Agreement Articles of Incorporation Bylaws List of Interviewees and Topics of Discussion viii CHAPTER I THE PROBLEM Introduction Virtually every sector of the American economic system has been experiencing a national crisis involving the avail­ ability of a competitive commercial insurance market. Investment results and profits in the insurance industry have diminished substantially during the past several years. This, coupled with deteriorating underwriting results and skyrocketing loss ratios on an industry-wide basis, not only has driven up the cost of insurance but reduced availability. Jay Pridmore states in the April 1986 edition of Cashflow: "Crisis" isn't a word to be used indiscrim­ inately. A crisis implies danger and potential disaster. A crisis involves pain. Insurance buyers are facing a crisis. The reasons behind the current insurance crisis are no mystery: Cashflow underwriting - the practice in the last decade of relying on investments rather than premiums to make money - depleting insur­ ance companies.so dramatically that some have gone bankrupt. Even those sectors of the economy which have experienced minimal losses are likewise experiencing large increases in premiums as a direct result of the overall insurance indus­ try's experience. The impact of this national insurance 1 2 crisis on public colleges and universities has been significant. Commercially purchased insurance has been the tradi­ tional method used to finance risk by institutions of higher education. The lack of affordable or availability of commer­ cial insurance coverage and the ability to secure desired coverage irrespective of cost threatens the way in which colleges and universities are required to operate. Without adequate insurance protection, an institution's assets are vulnerable. A single or several catastrophic losses could prove so severe as to jeopardize an institution's financial integrity. Denton (1985) states that colleges and universities throughout the country are facing difficult choices as insurance companies cancel coverage or demand premium p increases as high as 800 percent. Again, in the November 1985 edition of the National Association ofCollege and University Business Officers publication: Many insurance companies have decided not to insure certain classes of risk, including gov­ erning boards and medical malpractice. In other areas, insurance companies are trying to recoup underwriting losses with higher premiums. Many institutions have had coverage cancelled, parti­ cularly in the areas of trustee liability and umbrella coverage. "There's panic in the streets," said board member A. Dean Buchanan of California Lutheran College. "We have to do more th^nrearrange the deck chairs on the Titanic." 3 In the State of Michigan, public colleges and universities have also encountered significant increases in insurance pre­ miums, reduced limits of coverage and the unavailability of certain types of insurance coverages. As a consequence, administrators of public state colleges and universities in Michigan have determined that it was in the best interests of individual institutions to voluntarily join together to attempt to resolve a common problem of managing institutional risks. LITERATURE REVIEW In this study, the pursuit of an alternative for fi­ nancing risk undertaken by the four-year publicly supported institutions in Michigan is chronicled. The literature review in Chapter I will focus on verification of the diffi­ culties facing purchasers of commercial insurance and support the concept of pursuing an alternative to the traditional form of financing risk by commercial insurance. Farrell (1986) quotes California Insurance Commissioner, Bruce A. Bunner, who states that the whole insurance system isn't working and a vastly different system will almost inevi­ tably emerge from the crisis.^ According to Fletcher (1986), public entities across the United States, hit hard by the tight insurance market, are flocking to an expanding range of selfC insurance alternatives. Denton (1985) quotes John Walker, Director of Risk Management and Insurance at the University of 4 Alabama at Birmingham, who states that it is his belief that good imagination and good cooperation among institutions that are similar will be required in order to weather the storm and control our destiny when trying to resolve the insurance crisis. g Pridmore (1986) states that insurance capacity is strapped, premiums are skyrocketing, and some coverages seem entirely unavailable. He further states that while there are no universal answers to the current hard insurance market, there are solutions to be considered; i.e., solutions like pooling, loss control, and going bare. Taravella (1987) indicates that for many companies, commercial insurance especially liability coverage - is unavailable or unaffordable, forcing risk managers to seek risk financing alternatives like higher self-insured retentions or participation in industry captives or pools.® Chanzis (1987) further states that there might be a decided change in the marketplace because of cap­ tive and self-funding arrangements, and recognition by sophisticated and unsophisticated purchasers of commercial insurance that the traditional market is not the sole alter­ native. We can self-insure, self-fund, pool our resources, and do as well as the traditional casualty insurance industry. 9 Hatcher (1985) suggests that the insurance problem is far from unique. In the past year, hardly an industry or profes­ sional group has escaped the whiplash of an insurance market contraction that is by far the worst in modern times. He feels that insurance-denied industries and professions can protect 5 themselves by banding together with large pools of funding that both respond to losses within the group and go toward purchasing excess coverage for individual m e m b e r s . ^ To further emphasize the difficulties encountered in attempting to secure adequate insurance protection for public entities, Bell (1985) writes that renewal insurance bills have been coming in for public schools in a range up to 300 percent over their former levels. High risk program offer­ ings are being considered for elimination and some districts are uncertain they will be able to obtain coverage.^Schimpl (1985) reports that Bath Schools sent out 17 bid requests in May after they were notified their insurance would be canceled June 30. Not one company bxd. 12 As institutions of higher education continue to experi­ ence a decline in financial resources, there needs to be reevaluation of traditional methods of doing business. West (1985) states that higher education cries out for bold innova­ tion: "We are at a juncture where we must think seriously about supplementing our traditional sources of income with additional sources. Even more important than supplementing traditional sources is the evaluation and assurance that cur­ rent resources are being used in the most effective manner possible." ^^The cooperative effort by public institutions in Michigan to solve a risk-financing problem is an example of a bold, innovative step and also is an effort to insure the best use of limited institutional resources. 6 STATEMENT OF PURPOSE The difficulty that colleges and universities are experi­ encing with securing adequate insurance coverages is not new. In the mid-1970s, the property/casualty insurance industry's large underwriting losses required industry adjustments that were similar in nature to current conditions. Because of the severity of the present crisis, Michigan's four-year public colleges and universities determined that an exploration of an alternative to commercial insurance was necessary in order to reduce the adverse impact of the commercial insurance market on the publicly supported colleges and universities in Michigan. The purpose of this study is to trace the process used, directly focusing on how autonomous institutions worked to­ gether to solve a risk management problem. Initially, thirteen public colleges and universities were involved in the effort. Central Michigan University, Eastern Michigan University, Ferris State College, Grand ‘valley State College, Michigan State University, Michigan Technological University, Northern Michigan University, Oakland University, Western Michigan University and Wayne State University would eventu­ ally join together to form the Michigan Higher Education Self-Insurance and Risk-Management Facility. On November 4, 1987, Ferris State College, Grand Valley State College, Lake Superior State College and Saginaw Valley State College became universities as provided by law inacted by the State of Michigan. 7 During the search for an alternative to commercial insurance, this investigator felt that the resolution of two underlying assumptions were key to any successful effort to jointly solve a common risk management problem impacting the publicly supported colleges and universities of Michigan. The first assumption concerned institutional autonomy. Michigan's publicly supported baccalaureate institutions have been established as separate constitutional entities, with boards of control of universities and colleges having general supervisory power, including plenary power to con­ trol and direct expenditures of funds generally to the exclusion of the state legislature. This constitutionally granted autonomy is jealously guarded by each publicly supported institution and any ero­ sion of autonomy resulting from the collaborative effort would be unacceptable. It was also assumed that any effort by large institu­ tions to exert greater influence, or to dominate because of size the direction or outcome of the effort, would likewise prove to be unacceptable to the smaller institutions. institutions are defined as institutions with numbers full-time equated students in excess of 25,000. Large of Smaller institutions are defined as institutions with less than 25,000 full-time equated students. 8 Throughout the chronicling of this problem-solving effort, all meetings and documents were analyzed to deter­ mine the validity of these assumptions. NEED FOR STUDY Insurance is a mechanism used to respond to unantici­ pated losses which might occur because of the risk involved in carrying out the stated mission and goals of an institu­ tion. Insurance is a contractual agreement between two parties, in which for a specific amount of money, one part is willing to pay to the other, an amount equal to loss suffered. Educational institutions have traditionally fi­ nanced risk by purchasing insurance from commercial insurance carriers who, for a specified premium, assume the entities' risk. Colleges and universities, not unlike other governmental agencies, have been adversely impacted by the commercial insurance market. Dramatic increases in premiums, reduced limits of coverage, unavailability of various types of insur­ ance coverage, and exclusions on available coverages have necessitated the research and pursuit of an alternative method of managing risk in order to protect the financial and decision making integrity of the colleges and universities. To give some perspective to the kind of financial impact that managing risk by commercially purchased insurance has had on one institution, required a comparison of insurance pre­ miums in the past three years. In fiscal year 1983-84> Ferris State College paid $174,474 in premiums. The institution experienced a slight increase in 1984-85 rates, paying $187,468 for the same coverages purchased the previous year. The full impact of the insurance crisis was felt in 1985-86 when the cost for insurance increased to $676,797, constitu14 ting a 383% rise in premiums within a three-year period. While the cost of insurance escalated, several other factors made the crisis more threatening to the well-being of the institution. The limits of coverage, increased reten­ tion levels and numerous exclusions listed on the various policies have left the college with gaps in coverages that were previously included in commercially purchased insurance. There is every indication that this crisis will not abate, either in cost or quality of coverage. The problems facing Ferris State College were being encountered at all of the four-year public colleges and universities in Michigan. Publicly supported institutions joined together to solve a common risk management problem, and an understanding of this unique milestone of cooperation which took place has an important place in the history of Higher Education in Michigan. Chronicling of the process used to resolve this problem will result in: 1. Identification of strengths and weaknesses of a process which may limit difficulties 10 and strengthen future efforts when joint problem-solving is required by public insti­ tutions in Michigan. 2. Providing a guidepost and procedure which may be useful to higher education adminis­ trators when considering an alternative to the traditional form of financing institutional risk by purchasing commercial insurance. This study also adds to the body of knowledge by further clarifying whether successful voluntary cooperative problem­ solving efforts by diverse institutions are possible. SIGNIFICANCE OF THE STUDY Information obtained from this study is important because it can: 1. Provide an understanding of a process which was used to resolve a common risk management problem impacting the four-year public colleges and universities in Michigan. 2. Identify strengths and weaknesses of the process which can strengthen future efforts when joint problem-solving is required. 3. Provide an understanding of how institutions in Michigan voluntarily cooperate. BACKGROUND Over a period of two years, this researcher, who is employed at a four-year public institution in Michigan, was involved in the research of an alternative to commercial insurance, and has been responsible with the function of 11 managing risk at an institution participating in this study. This administrative position has allowed access to the major events involving the coordinated effort to resolve the management of risk. Direct observation and participation in the search for an alternative have provided the researcher opportunity to document and evaluate the alternative derived from the two-year process. The study will include: observation, interviews, examination of documentation and actual partici­ pation in the development of the alternative. SCOPE OF THE STUDY The study will include a time period beginning with an August 1985 meeting of the Michigan colleges and universities risk management administrators in which an organizational position statement was prepared indicating the group's desire to pursue an alternative to the traditional method of managing risk at the individual institutions, and concluding with successful implementation of the alternative. The researcher was not privileged to attend all meetings involving the development of an alternative, but interviews and documentation will prove to be sufficient for a clear understanding of the process and outcomes of the efforts of participants in the project. 12 LIMITATIONS OF THE STUDY 1. The period of time involved in this study includes only the interval beginning with the recognition by adminis­ trators within public institutions in Michigan of the need to seek alternatives to risk financing through the suc­ cessful implementation of the alternative. 2. This researcher was not privileged to participate in all meetings involving the decisions relating to the course of action which were decided upon; however, records and data collection of procedures will be used to obtain the coverage of content. 3. Because of the sensitivity of the information pre­ sented, it is necessary to limit the use of names of those administrators who participated in this undertaking. PRESENTATION OF THE STUDY In Chapter I the purpose and the need for the study is explained and a subject review of the literature is presented. Chapter II describes the methodology used in the presentation of the study. Chapter III chronicles the recognition and the initial consideration by institutional administrators of the risk financing problem. Also, the feasibility study phase 13 undertaken by college and university officials will be chron­ icled, emphasizing the assumptions of the investigator. Chapter IV chronicles the implementation and initial opera­ tional phase of the cooperative effort, again emphasizing the underlying assumptions of the investigator. Chapter V summarizes the process, considers observations and makes recommendations for further study. DEFINITION OF TERMS The following terms are defined as they are used in this study: Assured - The person who has purchased a policy of insurance and is protected by it. Same as "insured" or "policyholder.” 15 Broker-aqent - Large and successful agents, at times, operate both as brokers representing the policyholder, and as agents representing the company. Or, they may have an office in one city which operates strictly on a brokerage basis and an office in another city in which they are agents. They are called "broker-agents." Bodily injury - Injury to a human being, as opposed to injury to property. 17 Captive company - A captive insurance company is an entity created and controlled by a parent company whose main purpose is to provide insurance for that parent. 18 14 Claim - The amount which a policyholder believes he or she has coming from an insurance company as the result of some happening insured against. After its amount has been determined, it becomes a "loss." "claim" and "loss" are synonymous. In practice, the terms 19 Commissioner of Insurance - The official of a state charged with the duty of enforcing the insurance laws. Also sometimes called the "insurance superintendent" or "director „20 of insurance. Comprehensive general liability policy - A policy pro­ viding broad coverage for claims made against the insured for bodily injury or damage to property of others for which he or she may become liable and which arise out of the insured's entire business operation. 21 Deductible - Deductible clause - some policies are written to pay only after the policyholder has personally suffered an agreed amount of loss. The amount which the policyholder must lose first is "deducted" from the total of the damage to determine the amount the company must pay, and thus, becomes the "deductible." 22 Errors and Omissions liability insurance - Protects directors and officers of a corporation against damages from claims resulting from negligent or wrongful acts in the course of their duties. Also covers the corporation for expenses incurred in defending lawsuits arising from alleged wrongful acts of directors and officers. These policies always require the insured to retain part of the risk 15 uninsured. 23 Earned premium - When a premium is paid in advance for a certain time, the company is said to "earn" the premium as the time advances. For example, a policy written for three years and paid in advance would be one-third "earned" at the end of the first year of its life. 24 Exclusion - Something not covered and so set forth in the wording of the policy. 25 Expiration - A policy "expires” when the time for which it was written has run out. 26 Exposure - The danger of loss arising from what happens to another risk close by. Also the sum total of values which, if damaged or destroyed, would cause loss under a policy; i.e., payroll exposure or an exposure of a number of automobiles. 27 Hold-harmless agreement - A company may wish to pay a loss when it is not entirely sure that it may not be called upon to pay a second time to some other party. The payee may be asked to execute an agreement whereby the company will be reimbursed or held harmless by the payee if such should happen. The principal in a large construction pro­ ject will frequently demand hold-harmless agreements from all subcontractors in respect to claims made against him arising out of the subcontractors' negligence. The principal often stipulates the purchase of a liability 16 policy by the subcontractor or support the hold-harmless agreement. 28 Incurred losses - Losses are "incurred" when they happen. The total of all such losses (whether or not paid) makes up this figure as it appears in operating statements. Since this figure is one used frequently for various periods as well as in annual statements, and it would take much work to keep track of the losses both by date of occurrence and payment, the figure is determined by subtracting from the period's paid losses those which were on the books unpaid at the beginning of the period, and adding those which are on the books unpaid at the end of the current period. 29 Indemnify - To make a loss good to the one who has suffered i t . ^ Insurance - The making of a legal and enforceable con­ tract between one party (called the insurer or underwriter) with another (called the insured); whereby, in consideration of a sum of money (called the premium), the insurer agrees to pay an agreed amount of money to the insured if and when the latter may suffer some loss or may be injured by some event, the happening of which is described in the contract of insurance (which is usually a "policy"). Also, the contract may be one which indemnifies the insured for claims made against him or her by third parties. 31 Insured - The person who has purchased a policy of insurance and is protected by it. Same as "assured." 32 17 Liability insurance - A form of insurance that protects from liability imposed by law for bodily or other personal injury or damage to property. Legal liability normally results from negligent acts or omissions. 33 Loss - In insurance, it means the amount the insurer is required to pay because of a happening against which it is insured, a happening that causes the company to pay. Also refers to the overall financial result of some operation, as opposed to "profit.” ^ Loss reduction - This is a form of risk management which assumes that a loss will occur, but attempt is made to reduce the severity of the loss. An example of this would be the installation of sprinkler heads in a building, which may not prevent a fire from starting, but will contain it and reduce the destruction. 35 Negligence - One who does not use the care to be ex­ pected from reasonably prudent procedure may be considered to be negligent. He or she may be negligent as the result of doing something or failing to do something. For a person to be responsible, or liable, for the consequence of his or her acts, it is first necessary to prove negligence. Occurrence - A happening or event. 36 A basis for coverage in liability policies much broader than the acci­ dent basis, which required the injury or damage to be due to a specific accident. 37 Premium - The amount of money an insurance company charges to provide the coverage that the policy describes. 38 18 Property insurance - The insurance of real and personal property against physical loss or damage. A form of indem­ nity insurance not to be confused with property damage liability insurance. 39 Reserve - A sum set aside to meet some future obligation. Risk - The chance of loss. 40 Specifically, the possible loss or destruction of property or the possible incurring of a liability. Sometimes refers to the subject of an insurance contract when talking of a "good risk" or a "poor risk."41 Risk elimination - This is a form of risk management which suggests that an entity not engage in certain activity. Risk financing - There are several methods of financing risk. They are: 1) non-insurance, which is simply the acceptance of risk and the payment of losses as they arise; 2) self-insurance, a formal method of assuming risk. An entity decides to establish a methodology, controlled by the entity, for losses which will fall within a predetermined limit. This can take the form of self-funding, or pooling of risk with entities which have risks that are similar in nature; and 3) transferring risk, a method used to transfer fortuitous loss to an insurance carrier, who for a predeter­ mined premium, accepts the risk of the entity. Transferring risk can also be accomplished by entering into hold-harmless 43 agreements. Risk management - Risk management is a plan to prevent operations or earnings from becoming intolerably impaired by 42 19 an event that destroys company-owned assets or contributing resources. Risk management represents a continuous effort to be aware of operational uncertainties and to minimize their loss potential. 44 Self-insurance - A term used when it has been decided to assume one's own risk through internal financing mecha­ nisms rather than to purchase insurance.4"* Liquor liability - This liability insurance coverage pays damage for incidents arising out of the sale, fur­ nishing or serving of alcoholic beverages.4® Occurrence coverage form - This is a form of insurance coverage which provides coverage for claims brought against the insured, the only requirement being that the alleged incident occur while the policy was in force. 47 Claims-made coverage form - This is a form of insurance coverage which provides coverage for claims which were made only during the policy period.48 Police professional liability - This liability insurance coverage pays damages as a result of legal liability imposed by any federal or state civil rights law, whether civil or criminal. This applies to activities of campus security personnel while acting within the scope of their respective duties. 49 20 NOTES Chapter I 1 . Jay Pridmore, "Insurance Solutions," Cashflow. Aoril 1986, p. 31. 2 . Laurie R. Denton, "The Situation is Terrible," NACUBO Business Officer. Volume 18, Number 12, p. 28. 3. "NACUBO Seeks Funding for Insurance Study," NACUBO Business Officer. Volume 19, No. 5, p. 9. 4. Christopher Farrell, "The Insurance Crisis: Now Every­ one is in a Risky Business," Business W e e k . March 1986, p. 88. 5. Meg Fletcher, "Public Entities Seek Insurance Alterna­ tives," Business Insurance. September 16, 1986, p. 1. 6 . Denton, p. 28. 7. Pridmore, p. 31. 8 . Steve Taravella, "Alternative Risk Financing Growing in Popularity," Business Insurance. January 26, 1987, p. 3. 9. Norman Chanzis, "Forecasting the Market Cycle," Risk and Benefits Management. February 1987, p. 17. 10 . Robert Hatcher, "Industries Denied Coverage Can Band Together to Create It," Financier. September 1985, p. 25. 1 1 . Dawson Bell, "Throughout Michigan, Local Governments Are Feeing the Pinch," Detroit Free Press, November 1985, p. 14A. 12 . Shiela Schimpl, "Bath Schools Scrambling for New Insur­ ance," Lansing State Journal. June 13, 1985, p. 2. 13. Dan West, "College Financing in the 1980s: Mining, Medicine and Motels," Higher Education Daily. Vol. 13, No. 59, March 26, 1985, p. 1. 14. Richard Duffett, "The Michigan Approach." A paper presented at the Central Association of College and University Business Officers Annual Meeting, Indianapolis, Indiana, 1987. 15. C. Madison and J. H. Walker, Risk Management and Insurance: A Handbook of Fundamentals. Washington D .C ., NACUBO, 1983, p. 65. 21 16. Ibid. p. 66. 17. Ibid. 18. Edward W. Siver, The Executive Guide to Commercial Property and Casualty Insurance. Chicago: Crain Books, 1981, p. 165. 19. Madison and Walker, 20. Ibid, p. 67. 21. Ibid. 22. Ibid. , p. 68. 23. Ibid. 24. Ibid. 25. Ibid. 26. Ibid. 27. Ibid. 28. Ibid. , p. 70. 29. Ibid. 30. Ibid. 31. Ibid. 32. Ibid. , p. 71. 33. Ibid. 34. Ibid. 35. Ibid. 36. Ibid. , p. 73. 37. Ibid. 38. Ibid. , P • 74• 39. Ibid. 40. Ibid. 41. Ibid. , p. 75. 22 42 . Ibid. 43. Ibid. 44. Ibid. 45. Ibid. 46. Ibid. 47. Siver, . 165. 48. Ibid.. . 175. 49. Ibid. CHAPTER II METHODOLOGY This investigator employed the use of a case study during the chronicling of the effort to resolve a common risk management problem affecting the Michigan publicly supported baccalaureate granting institutions. A case study can best be described as research which is focused on one unit of analysis. The researcher designates a single unit of analy­ sis regardless of the number of events, participants, or phases of a process recorded in note form. The unit of analysis may be an institution, a program, a process, or an organizational position. The investigation of the two-year effort, researching events, documents and participating in the process of resolving a common problem was the focus of this researcher's case study. Bogdan and Biklen (1982) describe a case study as being a detailed examination of one setting, or one single subject, or one single depository of documents, or one particular event. The authors describe various types of case studies that can be undertaken. Bogdan and Biklen categorize case studies in the following way: - historical organizational case studies focus on an organization's development over a period of time, relying on data sources such as interviews, observations and written records. 23 24 - observational case studies in which the major data-gathering technique is participant observation and the focus of these types of studies are on particular organizations or some aspect of the those organizations. - life history is a form of case study where the researcher conducts extensive interviews with one person for the purpose of collecting a first-person narrative. - community studies is a form of case study where the researcher focuses on a neighborhood or community. - situational analysis is another form of case study; in this type, a particular event is studied from the points of view of all the participants. - microethnolography is a form of case study in which studies are done either on very small units of an organization or on a very specific organiza­ tional activity.1 The author's definition of historical organizational case studies as studies concentrating on a particular organi­ zation over time, tracing the organization's development, is a description which aligns itself with this investigator's study. The author further indicated that qualitative data is 25 derived from interviews with those associated with organi­ zations, observations and existing written records are normally used in historical organizational case studies. 2 Their definition was well suited to the purpose and major condition presented throughout the body of the study. Incorporated in this study is the use of qualitative inquiry techniques. A search of the literature provides various researchers' definitions of qualitative inquiry and methods used to gather data that help clarify the process of investigation. Qualitative Inquiry Mary Lee Smith (1987) defines qualitative inquiry as being based on the notion of context sensitivity. She states qualitative research is set apart most clearly from other forms of research because of the belief that the particular physical, historical, material and social environment in which people find themselves has a great bearing on what they think and how they act. Acts must be interpreted by drawing on those larger contexts of physical, historical, material and social environments. Qualitative researchers reject the notion of universal context-free generalizations because research takes place in contexts of human and institutional purposes, prior learning and teaching, and in the presence of others. It is further facilitated or inhibited by mate­ rial and physical resources and it involves personal and 26 interpersonal histories. 3 McMillan and Schumacher (1984) fur­ ther define qualitative inquiry as a form of collecting data in which an observer (observer-participant or participant- observer) records as much as possible over a period of time. They describe qualitative data analysis as facts presented in narrative rather than numerical form.^ Sears (1986) describes the goal of qualitative inquiry as the development of an understanding of the meaning which particular events have for the observer and then placing these meanings within a larger theoretical framework provided by the researcher Erickson (1986) in his Handbook of Research on Teaching suggests that qualitative research should contain: empirical assertions; narrative vignettes? quotations from observa­ tional field notes and interviews, maps, tables or figures; interpretive commentary; theoretical discussion; and a description of the research process itself. Erickson further describes empirical assertions as statements of findings derived inductively from a review of field notes and a sys­ tematic search for confirming and disconfirming evidence on the assertions. In theory, qualitative inquiry is empirical. In essence, the researcher collects sense data about the phe­ nomena under study and examines the study in an organized way. This would include the testing of the data through hypothesis C and categorical definitions. John K. Smith (1983) discusses the differences between quantitative and qualitative inquiry. He states that from 27 the quantitative perspective, the investigator is separate from the subject matter, facts can be held apart from values, and inquiry should lead to the discovery of regularities that provide the possibility of prediction. perspective, From the interpretive the investigator participates in shaping reality and does not stand independent of what is being investigated. In addition, facts and values are intertwined, and the goal of inquiry is to understand the meaning people give to their 7 lives. Alan Peshkin (1986) writes that the prespecified intent of quantitative inquiry contrasts with the relatively unspec­ ified intent of qualitative inquiry which fastens on the ordinary, inexhaustible, awful and enormous complexity of the circumstances of the social phenomena we investigate. Since qualitative inquiry is potentially responsive to the totality not the abstraction of an object, it is responsive to that which quantitative research is likely to preclude. Quanti­ tative inquiry finds the ultimate strength in the structure of the controlled experiment. Its findings are not expressed in the multitude of forms that the qualitative research report is allowed to take. p Qualitative Methods Methodology clarifies what the investigation does in order to claim the result from the research project under­ taken. Qualitative methods are the means used to attain the 28 researcher's goal. Sears (1986) states that the generally accepted methods used £or qualitative data collection are: 1. field notes 2. permanent audio and video recordings 3. participant observations 4. surveys 5. formal and informal interviews 6. unobtrusive methods g This investigator used several of the qualitative meth­ ods described by Sears. Not listed by Sears but used by this investigator was the review of documents created during the process to resolve a risk financing problem. These documents were analyzed to clarify how critical issues were resolved by the participants. Miles and Huberman (1984) describe qualitative data as appearing in words rather than numbers. They may have been collected in a variety of ways (observation, interviews, extracts from documents and tape recordings) and are usually organized into an extended text. They state that the derived data is as attractive as a source of well-grounded, rich description and explanation of processes occurring in local contexts. Qualitative data can preserve chronological flow, assess local causality, and perceive fruitful explanations."^ 29 The methodology used in the research of questions posed in the coordinated effort to resolve a risk financing problem impacting the four-year public colleges and universities included use of both primary and secondary sources. Gall Borg and (1971) defined primary sources as those documents in which the individual observing the event being described was present. Secondary sources were defined as those in which the person describing the event was not present but had obtained a description from someone else who may have directly observed the ev e n t . ^ B o t h primary and secondary sources appear in Chapter III and IV of this document. Good, Barr and Scates (1941) distinguish six character­ istics of observation for research. 1. They are: The observation must be specific. There are definite things for which one looks. These things, furthermore, have been carefully defined, so that there is practically nothing left to the judgment of the observer. 2. Scientific observation of behavior is systematic. It is not a chance "dropping in" on a situation at any time when one happens by. the observation periods, The length of the interval between them and the number are carefully planned. 3. The observation is quantitative. The number of instances or the total duration of a particular 30 conduct is recorded. 4. The record of the observation is made immedi­ ately. The results are not entrusted to memory, but notes are made as promptly as possible. 5. The observation should be expert. The researcher needs to be aware of techniques and use them in the observation process. 6. Observation makes claim to be scientific because the results can be checked and substantiated. The procedure can be checked by comparing the results of different observers. 12 Filstead (1970) describes qualitative methodology as research strategies, such as participant observation, indepth interviewing, total participation in the activity being investigated, field work, etc., which allow the researcher to obtain first-hand knowledge about the empirical social world in question. Qualitative methodology allows the researcher to "get closer to the data," thereby developing the analyt­ ical, conceptual, and categorical components of exploration from the data itself - rather than from the preconceived, rigidly structured, and highly qualified techniques that pigeonhole the empirical social world into operational definitions that the researcher has constructed. 13 Pearsall (1970) discusses participant observation as a 31 method used for obtaining valid qualitative data in a manner which is scientifically and philosophically sound, but without *1 harm to the human subjects. A In this study, institutional representatives, legislators and consultants were involved in the process and this investigator attempted to chronicle the effort without creating any harm to any of the participants. Schatzman and Strauss (1973) identified six options involving kinds of involvement in participant observation available to a researcher: 1. The field researcher remains physically outside the situation, as behind a one-way mirror. 2. The field researcher is present in the situation, but observes passively, perhaps from a corner of the room. 3. The researcher engages in clarifying interac­ tion; i.e., seeking clarification and the meaning of events. 4. The researcher controls interaction so as to gather particular information. 5. The researcher is a full participant in activities, although his identity as a researcher is known. 6. The researcher is a full participant in activities, although his identity is not known as a r e s e a r c h e r ^ 32 Considering Schatzman and Strauss' levels of involvement in participant observation, this investigator's technique would be characterized as a full participant and an identified researcher. Schatzman and Strauss (1973) speak to the advan­ tages of the observer being a full participant in the ongoing activities. They state that full participation may allow accessibility to certain situations and information - some not always equally accessible, or not so quickly, to an "outside" researcher. By virtue of participating activity, the "inside" researcher is right there where things happen, and where members talk, argue, confide in him because he is a co-worker, a friend, or actual or potential ally. Also, the researcher shares with other participants in the collec­ tive failures and triumphs of group endeavors.'*'6 Miles (1979) describes qualitative data as attractive for many reasons: "it is rich, full, earthy, holistic, 'real,' its face validity seems unimpeachable, it preserves chrono­ logical flow where that is important, and suffers minimally from retrospective distortion, and in principle, offers a far more precise way to assess causality in organizational affairs." In this study, this investigator has made assumptions and established a focus, tracing the process on how auton­ omous institutions work together. Miles (1979) supports this method of investigation by stating that he believes research projects that pretend to come to the study with no assumptions usually encounter much difficulty. He also 33 states that a rough working frame needs to be in place near the beginning of fieldwork and that the risk is not that of "imposing a self-binding framework, but that an incoherent, bulky, irrelevant, meaningless set of observations may be produced. Bogdan and Biklen (1982), in their discussion of qualitative research design, suggest that qualitative researchers proceed based on theoretical assumptions (that meaning and process are crucial in understanding human behav­ ior, that descriptive data is what is important to collect, and that analysis is best done inductively) and on data collection traditions (like participant observation, unstruc­ tured interviewing, and document analysis) During this investigation, this researcher gathered data by using qualitative data collection methods as described previously. Assuming the role of a full participant along with interviews and analysis of documents were techniques that proved effective in this study. The following information is presented in order to clarify the relationship and data gathering techniques used by this investigator when inter­ facing with particiating groups and organizations. Investigator's Role in Data Collection This researcher obtained qualitative data by: - assuming the role of a full participant while holding membership in the Michigan College and 34 University Risk Managers Organization (MCURMO). Data gathered was from primary sources as previously defined by Borg and Gall. - reviewing all documents created by the Liability Task Force. This investigator did not have access to the task force meetings and therefore data collected was from secondary sources as defined by Borg and Gall. - reviewing the minutes of the State College and University Presidents Council meetings per­ taining to the problem solving effort. - reviewing documents presented to the Presidents Council Business Officers Subcommittee. Infor­ mal interviews with individual business officers were completed to clarify the group's position relating to the presented documents. - assuming the role of full participant while participating as a member of the Implementation Task Force. This investigator attended all meetings held by the Implementation Task Force and data gathered was from primary sources. - assuming the role of full participant while participating as a member of the Implementation Task Force Steering Committee, attending all 35 meetings held by this group. Data used £roa these meetings can be defined as being from primary sources. - assuming the role of full participant while chairing the Subcommittee concerned with Loss Prevention and Claims Handling. This investi­ gator attended all meetings held by this group. - surveying the participating institutions, requesting Enrollment, Financial and Mission Statement information. Also requested was the actual Board of Control and Regent's actions taken relating to entering into a joint agree­ ment with other public institutions. Aside from observation, review of documentation, actual participation in the development process, interviews, attend­ ance at meetings, seminars, and presentations by various professional groups provided the opportunity to gather data. Memorandums and meeting agenda and minutes provided the researcher a chronological order of events and clarified a sequence of the various occurrences. Presentations by law firms and insurance brokers also provided insight into the developmental process. interviews with participants included: Personal vice presidents, risk managers, college university legal counsel, whom all represent the four-year public institutions involved in the development 36 process. Interviews with the Executive Director of the State College and University Presidents Council were very instrumental in clarifying issues and events. Documents were examined and analyzed. Organizational charts, minutes of meetings and analysis of data developed by insurance consultants proved to be very beneficial in chron­ icling the effort to resolve a common risk financing problem. In this study, the researcher was a full participant in the development of the documentation; was involved in deci­ sion making; chaired a subcommittee; and was a member of the steering committee whose responsibility it was to direct, coordinate and monitor activities of those participating in the project. Because of the diversity of size, role and mission of institutions participating in the voluntary effort, a survey of the public colleges and universities was undertaken to clarify each role and mission. In addition, enrollment and financial data were gathered to clarify the diversity of the participating institutions. RESEARCH QUESTIONS Research questions selected for this study correspond directly to the major purposes as stated in Chapter I. The 37 questions addressed in this study were: 1. What process was used by the participants in the search for an alternative form of financing institutional risk? 2. Can autonomous publicly supported institutions in Michigan join together to resolve a common problem impacting individual institutions? 3. Are there identifiable strengths in the develop­ ment process which are transferable should future joint efforts to resolve common problems be attempted? Also, this investigator considered two assumptions during the chronicling of the two-year process to solve a common problem. 1. These assumptions were that: Any erosion of institutional autonomy resulting from the collaborative effort would be unacceptable to participating institutions. 2. Any effort by larger institutions to influence or to dominate because of size, the direction or outcome of the effort would be unacceptable to the smaller participating institutions. 38 SUMMARY In this investigation, observation, interviews, examination of documentation and actual participation and involvement in the process of resolving a common risk problem, provided this researcher an effective method of analyzing data. Sears (1986) states that the most important element in conducting qualitative inquiry is the researcher. The abil­ ity and skills to organize oneself as well as vast amounts of data, the power to observe the complexities of everyday interaction, and the talent to analyze, integrate and then present the data in an honest and compelling form are essent i a l . ^ 39 NOTES Chapter II 1. R.C. Bogdan and S.K. Biklen, Qualitative Research for Education? An Introduction to Theory and Methods. Boston: Allyn and Bacon Inc., 1982, p. 58-62. 2. Ibid. 3. Mary L. Smith, "Publishing Qualitative Research," American Educational Research Journal, 24 (Summer 1987), p. 174. 4. J.H. McMillan and S. Schumacher, Research for Education: A Conceptual Introduction. Boston: Little Brown and Company, 1984. p. 30. 5. James T. Sears, "Conducting Qualitative Research in Higher Education," A paper presented at the First International Conference on the First Year Experience (1st Newcastle upon Tyne, England), England, July 8, 1986. p. 4. 6. F. Erickson, "Qualitative Methods in Research on Teaching," Handbook of Research on Teaching, (3rd ed.,), New York: Macmillan, 1986, p. 119-161. 7. John K. Smith, "Qualitative Versus Interpretive: The Problem of Conducting Social Inquiry," Philosophy of Education, 19, (September 1983), p. 50. 8. Alan Peshkin, "Understanding Complexity: A Gift of Qualitative inquiry." A paper presented at the Annual Meeting of the American Educational Research Association, Washington, D. C . , 1987. 9. Sears, p. 5. 10. M. B. Miles and M.A. Huberman, Qualitative Data Analysis. Beverly Hills: Sage Publications, 1984, p. 21. 11. W.R. Borg and M.D. Gall, Educational Research: An Introduction. New York: David McKay Company, 1971, p. 224-259. 12. C.U. Good, A.S. Barr and D. E. Scates, The Methodology of Educational Research. New York: Appleton-CenturyCrafts, 1941, p. 404-406. 40 13. William J. Filstead, Qualitative Methodology: Firsthand Involvement with the Social World. New York, Rand McNally, 1970, p. 6. 14. Marion Pearsall, "Participant Observation: As Role and Method in Behavioral Research," In J. Filstead (ed.), Qualitative Methodology: Firsthand Involvement with the Social World, New York: Rand McNally, 1970, p. 6. 15. L. Schatzman and A. Strauss, Field Research: Strategies for a Natural Sociology. Englewood Cliffs, N.J., Prentice-Hall, Inc. 1973, p. 61-62. 16. Schatzman and Strauss, p. 62. 17. Mathew B. Miles, "Qualitative Data asan Attractive Nui­ sance: The Problem of Analysis," Qualitative Metho­ dology. Beverly Hills: Sage Publications, 1979, p. 117. 18. Ibid., p. 119. 19. Bogdan and Biklen, p. 62. 20. Sears, p. 5. CHAPTER III CHRONICLING OF EXPLORATION AND RECOMMENDATION FOR RESOLUTION OF COMMON RISK FINANCING PROBLEM In Michigan, the publicly funded higher education system is decentralized. The constitution of the State of Michigan recognizes public supported institutions of higher education as separate constitutional entities. The Constitution of the State of Michigan of 1963 granted the colleges and univer­ sities in Article 8, Section 5 the following powers: Section 5: The regents of the University of Michigan and their successors in office shall constitute a body corporate known as the Regents of the University of Michigan; the trustees of Michigan State University and their successors in office shall constitute a body corporate known as the Board of Trustees of Michigan State University; the governors of Wayne State Univer­ sity and their successors in office shall constitute a body corporate known as the Board of Governors of Wayne State University. Each board shall have general supervision of its institution and the control and direction of all expenditures from the institution's funds. Each board shall, as often as necessary, elect a president of the institution under its super­ vision. He shall be the principal executive officer of the institution, be ex-officio a member of the board without the right to vote and preside at meetings of the board. The board of each institu­ tion shall consist of eight members who shall hold office for terms of eight years and who shall be elected as provided by law. The governor shall fill board vacancies by appointment. Each appointee shall hold office until a successor has been nominated and elected as provided by law. Section 6: Other institutions of higher education established by law having authority to grant baccalaureate degrees shall each be governed by a board of control which shall be a body corporate. The board shall have general supervision of the institution and the control and direction of all expenditures from the institution's funds. It 41 42 shall, as often as necessary, elect a president of the institution under its supervision. He shall be the principal executive officer of the institution and be ex-officio a member of the board without the right to vote. The board may elect one of its members or may designate the president, to preside at board meetings. Each board of control shall consist of eight members who shall hold office for terms of eight years, not more than two of which shall expire in the same year, and who shall be appointed by the governor by and with the advice and consent of the senate^. Vacancies shall be filled in like manner. Boards of control of individual institutions have been conferred with supervisory power, including plenary power to control and direct the expenditures of institutional funds, generally to the exclusion of the legislature. Institutions judiciously guard their autonomy and are nor­ mally uncompromising when any effort is made to infringe upon their constitutional granted authority. Nonetheless, exchanges of ideas on issues of common interest, benefit the publicly supported state colleges and universities. The Presidents Council of State Colleges and Univer­ sities, a non-incorporated association, was established for the purpose of providing a forum for expressing ideas on issues of common concern to publicly supported institutions of higher educatibn. All presidents of Michigan's public four-year institutions and chancellors of branch campuses make up the membership of the Presidents Council. The Directory of Members and Subcommittees of the Presidents Council (1987) emphasizes that institutional coordination and cooperation is best achieved within a framework of voluntary coordination and cooperation. 2 43 The Presidents Council is chaired by one of the 15 presidents or chancellors and functions with a permanent staff consisting of an Executive Director, Director of Public Affairs and two office support staff. The funding for the operations of the Presidents Council is shared equally by the institutional members of the council. Addressing of topical institutional issues by the council is accomplished through subcommittees, each of which is comprised of one or more representatives from each of the 15 institutions holding similar responsibilities. Repre­ sentatives are selected by the respective campus president or chancellor. The primary purpose of each group is to address the interests of the council. The ten subcommittees of the Presidents Council comprise: - The Academic Affairs Officers - The Ad-hoc Committee on Economic Development - The Analytical Studies Committee - The Business Affairs Officers - The Coordinating Council for Continuing Higher Education - The Legal Affairs Officers - The Legislative Liaison Officers - The Michigan Inter-University Committee on Information Systems - The Public Information Officers 4 - The Space Committee 44 - The Student Affairs Officers A high degree of cooperation among the diverse public institutions of Michigan exists. The diversity is best expressed in the mission statements, established by each of the institutions. Annual 1985-86 expenditure levels and enrollment size also provide insight to diversity. The following information is representative of the thirteen public institutions which participated in the project. Mission Statement of Central Michigan University Central Michigan University as a public university is dedicated to providing a broad range of educa­ tional programs and services. Among its principal responsibilities are the acquisition and transmis­ sion of knowledge and the preparation of leaders for all segments of society. Its programs are designed to encourage the development of an intellectual orientation on the part of its students, to provide opportunities for personal and intellec­ tual development, to prepare students for meaningful careers and professions, to encourage students to be concerned about the welfare of humanity and, as thoughtful citizens, to engage in public service. As integral elements of its role as a public university, Central Michigan University seeks to contribute to the general advancement of knowledge through its research efforts and to provide services 45 for the public good. MISSION STATEMENT OF EASTERN MICHIGAN UNIVERSITY The University Mission is to be a nationally recognized institution at the undergraduate level with emphasis in the Arts and Humanities, Business, Education, Health and Human Services, Science and Mathematics, and Technology, and a nationally recognized institution in selected fields of study at the graduate level. The University Mission is to seek to foster a learning environment in and beyond the classroom which is responsive to the individual capacities and interests of its students on a safe and attractive campus, which acquaints them with the rich variety of intellectual, social, recreational and cultural traditions which are in its custody and which prepares them to pursue life/work goals as alumni and members of the broader society. In rendering services to the public, the University Mission is to respond compassionately to perceived sofcial needs and to provide visionary leadership in identifying and addressing problems and issues within the three traditional areas of instruction, research and public service, as well as the fourth area of contract learning, which the larger society may not as yet be aware. Certainly, 46 the involvement of alumni and friends is essential to raising additional resources necessary to enhance quality programs and services. In every sphere of institutional functioning, the University Mission is to maintain a position of flexibility, which encourages innovative approaches to all programs and activities, both existing and contemplated, while maintaining emphasis upon improving staff and faculty performance within a broad quality of Work Life program. The University Mission must also embody a strong commitment to Affirmative Action and to the special concerns of minority groups and women in the offering of programs and in the recruitment of faculty, staff and students. Efforts to recruit students should make every attempt to attract students of quality, students with unique talents and students who seek an opportunity to gain a higher education. Finally, the University Mission is to encourage an open, humane and cooperative community environment in which institutional goals and principles can be identified collectively and pursued, where open lines of communication between faculty, staff, students, and the administration to the Board of Regents are actively and consistently utilized in 4 the decision making process. 47 MISSION STATEMENT OF FERRIS STATE COLLEGE Ferris State College, as a public college, is dedicated to providing a broad range of careeroriented and professional programs and public services to the people of the State of Michigan and beyond. Central to each educational program are two concepts: quality education within the student's chosen discipline and a commitment to a core of liberal studies designed to prepare that student for the responsibilities of life and to function within an ever-changing global society. The College recognizes and welcomes its responsi­ bilities as a career-oriented educational institution, and actively pursues sharing its tech­ nical and clinical expertise with people and organizations through programs of public service. MISSION STATEMENT OF GRAND VALLEY STATE COLLEGE The mission of Grand Valley State consists of three components: service. instruction, research, and public Established in 1960, the college serves people in the State of Michigan with graduate and undergraduate programs in diverse areas of study. Students are provided with the resources of a small university and the personal, supportive atmosphere of a small college from the main campus in Allendale 48 as well as centers in Grand Rapids and along the lakeshore. Grand Valley State's curriculum provides a broad spectrum of academic areas for study. Students have the opportunity to major in a liberal arts discipline or prepare for a career in a profes­ sional area. All students are required to complete the general education program which embodies the institution's goals of developing critical thinking, self expression and learning skills, and acquainting students with the tradition of humane values and the heritage, problems, and prospects of their own and other cultures.** MISSION STATEMENT OF LAKE SUPERIOR STATE COLLEGE The mission of Lake Superior State College, which has remained consistent since its founding, is to offer a variety of high quality programs designed to meet the needs of students for a broad general education and to provide a means for a livelihood in occupations needed in our society. The College serves the residents of Michigan who seek a small college environment where the emphasis is on quality teaching. The College serves a wide and varied geographic area, there being no other baccalaureate institution within 217 miles to the south or 165 miles to the west of LSSC's campus. The College is located in an area of Michigan's highest unemployment; also a region o£ low educational attainment. The presence of Lake Superior State College has enabled many families to send a son or daughter to college for the first time. Graduates from the local area are enabled by their education to find employment in more favorable labor markets. While filling a critical need for its primary service area, the College also serves students from through­ out the State of Michigan. As much as eighteen percent of its enrollment comes from southeastern Michigan, and an additional twenty-five to thirty percent of its students come from across the entire lower peninsula. These are students who seek what the College has to offer: strong academic offerings, a small school environment, and an emphasis on the teaching of undergraduates. The College will continue to serve those students whose needs match 7 xts particular strengths. MISSION STATEMENT OF MICHIGAN STATE UNIVERSITY Michigan State University holds a unique position in the state's educational system. As a respected research and teaching university, it is committed to intellectual leadership, and to excellence in both developing new knowledge and conveying that knowledge to its students and to the public. And as a pioneer land-grant institution, Michigan State University strives to discover practical uses for theoretical knowledge, and to speed the diffusion of information to residents of the state, the nation, and the world. In fostering both research and its application, this university will continue to be a catalyst for positive intellectual, social, and technological change. Founded in 1855 as an auton­ omous public institution of higher learning by and for the citizens of Michigan, this institution was in 1863 designated the beneficiary of the Morrill Act endowment. It became one of the earliest land-grant institutions in the United States. Since 1863, Michigan State has evolved into an internationally esteemed university, offering a comprehensive spec­ trum of programs and attracting gifted professors, staff members, and students. The university seeks excellence in all programs and activities, and this challenge for high achievement creates a dynamic atmosphere. At Michigan State University, instruc­ tion, research, and public service are integrated to make the institution an innovative, responsive public resource. As the only land-grant institution in the state, Michigan State University is committed to providing equal educational opportunity to all qualified applicants; to extending knowledge to all people in the state; to melding professional and 51 technical instruction with quality liberal education; to expanding knowledge as an end in itself as well as on behalf of society; to emphasizing the appli­ cations of information; and to contributing to the understanding and the solution of significant societal problems. Michigan State University's adherence to academic freedom and open scholarly g inquiry supports these essential academic functions. MISSION STATEMENT FOR MICHIGAN TECHNOLOGICAL UNIVERSITY Although only slightly changed from the original legislation following a Constitutional Convention, the enabling State legislation became effective January 1, 1964. In any evaluation of Michigan Technological University, it is important to recognize its unique status: its mission is entrenched in the State of Michigan Constitution of 1964. Hence, although subject to evolving interpretation and implementation, the basic mission of the University is not subject to change. The relevant part of the enabling legislation reads: "The People of the State of Michigan enact: 390.351 Michigan Technological University; name, purpose. Sec. 1. The institution established in the Upper Peninsula known as the Michigan college of mining and technology, referred to in the constitution of 1963 as the Michigan college of science and technology, it continued after January 1, 1964, under the name of Michi­ gan Technological University, and shall be maintained for the purpose and under the regu­ lations contained in this act. The institution shall provide the inhabitants of this state with the means of acquiring a thorough know­ ledge of the mineral industry in its various phases, and of the application of science to industry, as exemplified by the various engineering courses offered at technological institutions, and shall seek to promote the welfare of the industries of the state, insofar as the funds provided shall permit and the board of control shall deem advisable." In keeping with this legislative mandate, the Univer­ sity mission was interpreted in the 1978 Long-Range Planning (Committee C) Report (approved by the Board of Control May 12, 1978) as: "To enhance and develop programs in education, scholarship, research, and public service that will, because of their contributions to the satisfaction of important societal needs, bring distinction to the University and its graduates in technologically-related areas. A balance between theory and practice will be emphasized, 53 along with an appreciation for the development of technology to serve society." g MISSION STATEMENT OF NORTHERN MICHIGAN UNIVERSITY Northern Michigan University is primarily an under­ graduate instructional institution emphasizing liberal arts, teacher education, pre-professional programs, and professional programs in business, health and other areas. The university also offers associate degrees, master's degrees, education specialist degrees, and skills certificates in selected areas of program strength and in response to state and regional need. Committed to helping students with potential to achieve academic success, the University has an experienced and well-qualified faculty and a comprehensive student support system, including a strong financial aid program. The University also serves the region by providing leadership and sharing expertise in education, business, government and health; contributing to the cultural' richness of the region; and providing athletic and recreational opportunities. In addi­ tion, it regards the scholarly and creative endeavors of the faculty as vital to its mission.'*'® 54 MISSION STATEMENT OF OAKLAND UNIVERSITY As a state-supported institution of higher education, Oakland University has a three-fold mission. It offers instructional programs of high quality that lead to degrees at the baccalaureate, master's and doctoral levels as well as programs in continuing education; it advances knowledge and promotes the arts through research, scholarship, and creative activity; and it renders significant public service. In all its activities, the university strives to exemplify educational leadership MISSION STATEMENT OF SAGINAW VALLEY STATE COLLEGE The primary mission of Saginaw Valley State College is to promote the intellectual and personal growth of students. A highly-qualified faculty, most of whom hold terminal degrees, teach in both the day and evening programs. Classes are designed to be relatively small; support services and cocurricular offerings are planned to meet the needs of both residential hnd commuting students. Periodic program review is used to monitor the quality and the impact of formal and informal learning oppor­ tunities. As an important part of its mission, the College fosters research and creative activities. The goals of the research program are to extend 55 knowledge, inspire superior teaching, and contribute to the intellectual life and social well-being of the region. Community service is another element of the College mission. SVSC sponsors continuing education courses, conferences, workshops and technology transfer efforts. Cultural events, many campus activities and the College library are open to the public; the library serves as the administrative center of a regional consortium formed to permit resourcesharing. SVSC faculty and staff are encouraged to cooperate with area businesses and civic organiza­ tions in ways that contribute to the economic and cultural vitality of the region. Two commitments are common to the instructional, research and community service components of the College mission. First, SVSC actively cooperates with area community colleges to assure broad access to education and efficient use of resources. Second, SVSC is dedicated to helping students and area citi­ zens acquire the knowledge and skills they need to function effectively in the increasingly interdependent nations of the world. 12 MISSION STATEMENT OF THE UNIVERSITY OF MICHIGAN The role and mission of the University of Michigan 56 is simply stated as being education. No doubt there have been various interpretations and expansions of this as circumstances dictate, but no official statement other than that has been offered at this writing. MISSION STATEMENT OF WAYNE STATE UNIVERSITY Wayne State University is a national research uni­ versity with an urban teaching and service mission. It is a constitutionally autonomous public university within Michigan's system of public colleges and universities. As a national research university, Wayne State is committed to high standards in research and scholarship. In the arts, it fosters creativity and strives for excellence in performance and exhibition. Its first priority is to develop new knowledge and encourage its application. Because it is a national research university, Wayne State develops and maintains strong graduate and professional programs in many fields. To maintain its standards, Wayne State seeks to strengthen those programs that have achieved national recogni­ tion while, at the same time, fostering those programs which show promise for the future. Wayne State strives to maintain its performance ranking as 57 measured by its funded research, the quality of its graduate programs as evaluated by national studies of graduate education, and the effectiveness of all academic programs as assessed by external evaluation. As an urban teaching university, and because its graduates typically remain to live and work in the area throughout their lives, Wayne State seeks especially to serve residents of the greater Detroit metropolitan area, although it enrolls students from across the state and nation as well as foreign lands. It makes available high quality educational programs in more than six hundred fields of study or concen­ tration leading to more than three hundred different degrees at the bachelor's, master's, and doctoral levels. As a nationally ranked university, Wayne State holds high expectations for the educational achievements of its students and consequently maintains selective admissions standards; but as an urban university it recognizes an obligation to develop special avenues that encourage access for promising students from disadvantaged educational backgrounds. The University aspires to implement its curricula in ways that serve the needs of a nontraditional student population that is racially and ethnically diverse, commuting, working, and raising families. Its student body is composed of students of traditional college age together with many older students, and includes many who are from the first generation in their family or neigh­ borhood to attend a university. In its teaching, the University strives to be sensitive to the special experiences, conditions, and opportunities presented by this diversity in its student body. To meet its obligations to its nontraditional students, the University attempts to schedule classes throughout the metropolitan area and during the evening as well as during the day. Wayne State University recognized its obligation to serve. Like other major universities it strives to serve the disciplines and professions repre­ sented among its academic programs as well as public and private sector organizations and asso­ ciations at local, state, and national levels. As an urban university, it makes a special commit­ ment to the Detroit metropolitan area in three ways first, it uses its metropolitan locale as a setting for basic and applied research and fosters the development 6f new knowledge of urban physical and social environments; second, it employs its locale as a teaching laboratory and incorporates metro­ politan area materials into its curriculum; and third, it brings knowledge to bear to assist and strengthen the metropolitan area. In particular, 59 Hayne State University contributes to the economic revitalization of southeastern Michigan through research programs that develop new technology and teaching programs that educate the citizens who will live and work in the region in the coming years. Wayne State University respects and protects the personal and academic freedom of its students, faculty and academic staff. The programs and activities of the University are open to all qualified persons without regard to race, religion, marital status, sex, sexual orientation, age, national or ethnic origin, political belief, or physical handicap, except as may be required by law. The University seeks to demonstrate, through all its programs and activities, its appreciation of human diversity and to maintain an atmosphere of tolerance and mutual respect that will nourish human liberty and democratic citizenship. A relatively youthful state university— part of Michigan's state supported system of higher education only since 1956— Wayne State University has developed rapidly as a national research university with urban teaching and service missions. Nevertheless, it recognizes that much must be achieved before the goals it holds for itself are fully attained. It is pursuing those goals with pride in its progress and confidence in its future. 60 MISSION STATEMENT FOR WESTERN MICHIGAN UNIVERSITY Western Michigan University has evolved over threequarters of a century into a major, multi-purpose institution. It offers a wide array of undergraduate and graduate programs for students from every county in Michigan, every state in the nation, and many foreign countries. diverse audience. Western reaches an increasingly While retaining its original commitment to good teaching, Western has continually diversified its academic programs, demonstrating a crucial ability to meet both new and traditional academic, human, and societal needs. Its course offerings— formal and informal, credit and non­ credit, on and off-campus are utilized by full-time and part-time students, including recent high school graduates, transfers from community colleges, transfer from other four-year schools, graduate students and senior citizens. The expertise of faculty, staff, and students is applied through consultation, public service activities and research to societal problems and needs. Professional resources and facilities are assets employed for public use. The rich and varied schedule of educational, performing arts, cultural, and athletic events is shared with the citizens of the region. 61 The University offers special programming for young children, practicing professionals, full-time workers, the handicapped, the educationally-disadvantaged, the gifted student, and residents of other communities attending regional centers. Western maintains a tradition of service to individuals, businesses, industries, the professions, and local, state, federal and foreign governments. Western is, and intends to remain, a multi-purpose public university. Western Michigan University has distinctive strengths in its graduate and professional programs which are based on strong foundations in liberal and general educa­ tion. Western has attracted and retained an out­ standing faculty. Several of its departments have achieved national and international recognition. All of these individual elements are mutually supportive and serve as a sound basis for respond­ ing positively to the challenges and opportunities of the future. Western draws considerable strength through close ties to Kalamazoo and other communities in South­ western Michigan. ties. These are exceptional communi­ They are economically prosperous and culturally rich beyond their size, and benefit from a high level of civic awareness and participation. This environment provides valuable opportunities for Western students, faculty, and staff 62 in which to live, work and grow. As a major regional University, and the only doctoral institution in the area. Western enhances this environment. Western has a history o£ academic leadership. From its pioneering contribution to the establishment of standards for teacher certification and programs for continuing education, it evolved, through the addition of business and technical programs, into a multi-purpose institution. This evolution has produced prominence in the arts and sciences, strength in graduate programs, and significant research and public service components that comple­ ment its outstanding reputation in education. This new identity was achieved so successfully that Western has been cited as a national model for institutions undergoing similar change. The evolu­ tion of new programs, services and directions along with continuing adjustment of all programs, provides clear evidence of Western's willingness and ability to grow, to change, to serve, and to lead. 14 63 Annual 1985-86 Expenditures of Public Institutions - Figure 1 Expenditures and Transfers 1985-86 Institutions Central Michigan University Eastern Michigan University Ferris State College Grand Valley State College Lake Superior State College Michigan State University Michigan Technological University Northern Michigan University Oakland University Saginaw Valley State College University of Michigan Wayne State University Western Michigan University Note: Source of information — of listed institutions $113,274,985 103,669,143 76,936,306 42,712,133 18,912,640 533,082,575 68,053,023 59,416,914 70,387,000 20,712,277 979,568,008 227,635,063 138,911,000 audited Financial Statements Fall 1985 Enrollment of Public Institutions - Figure 1:A Institutions Fall Enrollment 1985 Central Michigan University Eastern Michigan University Ferris State College Grand Valley State College Lake Superior State College Michigan State University Michigan Technological University Northern Michigan University Oakland University Saginaw Valley State College University of Michigan Wayne State University Western Michigan University Note: 17,070 21,315 10,909 7,667 2,692 42,746 6,537 7,702 12,586 4,970 34,353 28,424 20,963 Source of information — Michigan Department of Management and Budget H.E.I.D.I. Database, House Fiscal Agency Institutional Profile, Dated February 1987 The uniqueness and diversity of the publicly supported colleges and universities of Michigan is evidenced in their stated missions, annual expenditures and enrollment size. 64 From Wayne State University, an urban institution with an enrollment of 28,424 and annual expenditures in excess of $227,000,000, to the small college environment found at Lake Superior State College in the upper peninsula of Michigan with an enrollment of 2,692 and annual expenditures of $19,000,000, the State of Michigan system of higher educa­ tion provides the citizenry of the state, nation and world the broad choice of academic programming. While the insti­ tutions within the publicly supported higher education system are diverse, they all have a common interest in providing research, scholarships, and public service, independent of one another and within the authority granted by the Constitution of the State. In the case of a common risk financing problem, there was recognition by institutional administrators that finding a resolution to this problem could be accomplished by volun­ tarily working together. This effort would require cooperative efforts not only among institutions, but also extensive coordinated efforts by the Presidents Council and its subcommittees. The coordination of Business Officers, Legal Affairs Officers and Legislative Liaison Officers Subcommittees by the Executive Director of the Presidents Council would prove to be a crucial ingredient in the successful resolution of the problem. This would be demon­ strated throughout this study. The following groups and organizations made contributions 65 to research and development of resolution to a common risk financing problem affecting publicly supported institutions of higher education and are referenced throughout this study. Boards of Governors, Regents and Control of public institutions of higher education in Michigan have the respon­ sibility of governing their respective institutions. The boards have general supervision over their respective insti­ tutions, control and direct expenditures of institutional funds. The Presidents Council of State Colleges and Univer­ sities is an organization in which membership is comprised of 15 presidents and chancellors of the publicly supported institutions of higher education of Michigan. The purpose of this organization is to provide a forum for exchanging ideas on issues and problems of common concern. The Business Officer Subcommittee is an organization whose membership is comprised of chief institutional finan­ cial officers. This organization is a subcommittee of the Presidents Council and has a primary purpose of addressing common financial issues of the Presidents Council. i The Legislative Liaison Officers Subcommittee of the Presidents Council is an organization whose membership is comprised of institutional representatives responsible for keeping institutions and the Presidents Council apprised of legislative action which may affect public higher education. 66 The Legal Affairs Officers Subcommittee is an organization whose membership is comprised of institutional legal officers. The responsibility of this subcommittee is to keep both individual institutions and the Presidents Council current on legal issues which might impact the publicly supported institutions of higher education. The Michigan College and University Risk Managers Officers Organization (MCURMO) is comprised of adminis­ trators who are responsible for institutional insurance and risk management programs. They normally report to the chief institutional financial officer, but have no direct affili­ ation with the Presidents Council. Legal consultants were representatives of a legal firm hired by the Presidents Council to give opinions pertaining to the legality of the various issues addressed by the Liability and Implementation Task Forces. Actuarial consultants were representative of an insurance brokerage firm hired, by the Presidents Council to provide the group with cost information and how to fund future payments of expected insurance losses by the institui tions. The actuarial consultants would also represent the institutions in the procurement of excess commercial insurance. The two-year process undertaken to resolve the risk financing problem impacting the public colleges and 67 universities in Michigan began in August 1985. Four defined stages (see Figure 2) were involved in the study and included: consideration of the problem, formation of a Liability Task Force, the implementation and operational stages. The group's effort resulted in the formation and operation of a non-profit corporation. This corporation would provide certain liability insurance coverages for those institutions agreeing to participate in the joint venture. On August 2, 1985, the summer meeting of the Michigan College and University Risk Management Organization (MCURMO) was held at Lake Superior State College. On the eleven item agenda was a topic for discussion entitled, "Discussion on alternatives to the present methods of purchasing insurance and transferring risks; i.e., options that may be reviewed to maintain liability retention and premium costs at accept­ able levels."^5 Many of the members had completed July 1, 1985 insurance renewals on behalf of their institutions. Those in atten­ dance expressed frustration and concern because of the lack of a competitive insurance market. Administrators, in many instances, had befen told by insurance companies that should prices and coverages being offered not be acceptable, then other entities were eagerly waiting to purchase their product. There was a general feeling that since no other choices were presently available, the institutions were being held hostage by the insurance industry. The discussion item lead to a 68 Figure 2 DEVELOPMENT STAGES OF MICHIGAN HIGHER EDUCATION GROUP SELF-INSURANCE AND RISK MANAGEMENT FACILITY, INC. Stages Consideration of the Problem — August 2. 1985 At the quarterly meeting of the Michigan College and University Risk Management Organization, the group requested that the representative from the University of Michigan present to the Michigan Business Officer's Organization, the group's desire to explore alternatives to commercial insurance. Commercial insurance had been the traditional method of financing institutional risks in Michigan. The presentation was made to the Business Affairs Officers on August 17, 1985. PHASE I Formation of Task Force — September 10. 1985 As a result of favorable acceptance of the presentation, a Liability Task Force, comprised of ten college and university administrators was formed. The initial charge of the task force was to: 1) review self-insurance as a loss mechanism at individual institutions, 2) review funding alter­ natives including the establishment of captive insurance entities and other cooperative ventures and 3) monitor legislative actions related to the Michigan situation. Implementation — January 20. 1987 The task force formed on September 10, 1985 was expanded and specific committees were formed. The group established a goal of having an alternative to commercial insurance available to the institu­ tions by July 1, 1987. PHASE II Operational — June 25. 1987 The Michigan Higher Education Group SelfInsurance and Risk Management Facility, Inc. was established as a non-profit corporation on May 23, 1987. On June 25, 1987, ten Michigan public supported institutions signed a participation agreement. 69 decision by the group to have a MCURMO representative present to the Michigan Business Officer's Organization, the group's desire to have public colleges and universities explore alternative methods of financing institutional risk. While there was a unanimous decision to make a presenta­ tion, skepticism was expressed by several members of the organization concerning the likelihood of anything construc­ tive being accomplished from the presentation. Previous difficulties involving the purchasing of commercial insurance, resulted in studies directed toward seeking alternatives to commercial insurance by the public institutions of Michigan. There had been participation in these efforts by MCURMO members and because of the lack of any constructive results from these extensive studies, members found it difficult to be totally committed to revisiting this problem. To understand the group's expressed skepticism requires a description of a past effort by institutions to jointly develop a self-insurance pool. There was a desire on the part of the state legislature in fiscal year 1975 to have public colleges and universities explore and possibly pool institutional risks. As a result, Public Act 263 of the Public Acts of 1975 contained in Section 22 a statement of legislative intent "that the public colleges and universities shall cooperatively develop a self-insurance pool plan...". It was intended by public act 263 that the suggested plan encompass financing for direct loss to real and personal 70 property for which the universities are responsible and insuring against medical malpractice claims. In January 1976, the Presidents Council of State Colleges and Universities submitted to the legislature the following response to Section 22, of Public Act 263. "The Council has spent many hours in studying the question of insurance costs and investigating whether alter­ native arrangements would be cheaper and feasible. The Council concludes that: 1) the very act of studying the question and of coordinating insurance activities among the schools has dramatically reduced property insurance costs for Council institutions; 2) no further savings can be identified from a self-administered insurance pool; 3) any alternative insuring arrangement would have to deliver professional services presently received by the institutions from commercial carriers; 4) continued interchange of insurance data and information is a valuable management tool for Council institutions; 5) unfunded self-insurance, or unfunded insurance pools, are in fact no insurance at all, and are not an acceptable management alternative to present practices; and 6) only the State of Michigan has the resources to establish a fully-funded professional mutual insurance company for the benefit of the Council institutions. The Council recommends, in compliance with the appropriation act for 1975-76, that the state conduct its own investigation into establishment of a fully-funded professional insurance company. 71 It was apparent in 1976 that public colleges and univer­ sities in Michigan were not interested in working together on any e£fort to pool institutional risks. Remembering the results o£ 1976, many MCURMO members had serious reservations concerning pooling arrangements. Despite these concerns, the Risk Manager from the University of Michigan was chosen to represent the members of MCURMO at the State College and University Business Officers summer meeting which was to be held on Beaver Island on August 16, 1985. The concerns of MCURMO were presented to the Presidents Council's Business Officers Subcommittee on August 16, 1985. The favorable acceptance of the presentation, resulted in a decision to hold a joint meeting of Business Affairs Officers and Risk Management Officers to further consider some sort of action that might deflect the impact of the commercial insur­ ance on the public colleges and universities. Prior to the September tenth meeting, suggestions were developed by the Risk Manager from the University of Michigan on behalf of the MCURMO organization and distributed to the Business Officers and MCURMO members by the Executive Direc­ tor of the Presidents Council. The suggestions were that the Michigan College and University Risk Management Officers Association be: - requested to review self-insurance as a loss funding mechanism in individual institutions, 72 including loss projections, reserving policies, premium charge systems, claims handling, internal/ external administration and long-range planning. - requested to review funding alternatives above the foreseeable loss area and below practical commercial insurance layering. - requested to investigate the commercial insurance pool concept for excess insurance coverages. 17 The Executive Director of the Presidents Council had been in attendance at the summer meeting of the Business Affairs Officers and assumed the responsibility of coordi­ nating the group meeting. At the meeting held on September tenth in Lansing at the State Bar Building, a group decision was made to form a subcommittee comprised of four risk man­ agers, four business officers, one legal officer and the Executive Director of the Presidents Council for the purpose of examining the liability insurance problem. the subcommittee was based on the willingness Selection to to serve. There was consensus that the composition of the committee should be representative of business officers, risk managers i and legal officers allowing for review of the problem from different administrative perspectives. The subcommittee would assume the title of "The Lia­ bility Task Force." Institutional and administrative representatives serving on the task force included: 73 Institutions Administrative Representatives Eastern Michigan Univ. (MCURMO Chair) Director, Risk Management Michigan State Univ. Risk Manager Oakland Univ. Asst. Vice President of Risk Management Univ. of Michigan Risk Manager Eastern Michigan Univ. V.P. Business and Finance Michigan State Univ. Controller Northern Michigan Univ. V.P. for Finance and Administration Wayne State Univ. Asst. Vice President and Controller Wayne State Univ. General Counsel Presidents Council Executive Director The initial charge given to the subcommittee at the September 10, 1985 meeting by those in attendance was to: - review self insurance as a loss funding mechanism in individual institutions, including loss projects establishment of reserves, premium charge systems, claims handling, internal/ external administration and long-range planning. i - review funding alternatives, including the estab­ lishment of captive insurance entities and other cooperative ventures. - monitor legislative actions related to the Michigan insurance situation. 74 The original suggestions of the MCURMO representatives were the foundation from which the charge to the Liability Insurance Subcommittee was developed. The original sugges­ tions provided that only the University Risk Management Organization investigate and report findings. The decision to have a committee comprised of business officers, risk managers and legal officers would prove to be extremely advantageous as communication among the participating groups would prove to be difficult. The MCURMO representatives assigned to the task force were requested to put together documentation concerning liability insurance problems. This meeting took place on September 12, 1985, and resulted in a position paper reflect­ ing their thoughts and concerns relating to the liability insurance crisis affecting the public colleges and univer­ sities in Michigan. The report discussed the cyclical nature of the insurance industry and stated opinions on the causes ot the insurance crisis. This report was dissemi­ nated to task force members, business officers, and risk managers. The immediacy of the action taken by the MCURMO representatives of the task force emphasized the seriousness i and willingness of the MCURMO task force members to pursue a solution to the current liability crisis. On September 24, 1985, the Executive Director of the Presidents Council reported to the Presidents Council on activities underway with the Council Committees. He 75 informed the council that a subcommittee consisting of representatives from the Business Affairs Subcommittee, Risk Managers and Legal Affairs Committees had been estab­ lished to develop recommendations for Council consideration on the liability insurance crisis. The first meeting of the full Liability Crisis Task Force took place on September 26, 1985, and was held at the State Bar Building in Lansing Michigan. The task force agenda was generated and meeting called by the newly elected chairperson, the Vice President for Business and Finance from Eastern Michigan University. The ten-item agenda was highlighted by the recognition of the need to develop a synthesized summary of the cost of increases in both property and liability coverage being experienced by all institutions. Because the cost summary information would be requested from institutional risk managers, the Risk Manager from Eastern Michigan University, who was serving as the chair of MCURMO, was given the responsibility of gathering the required data and reporting findings to the task force. The Executive Director of the Presidents Council sug­ gested the consolidated information would be valuable in describing the problems being encountered to others on the individual campuses. There was also consideration that this information might be useful should the Presidents Council approach the legislature for financial relief because of current difficulties being experienced in the commercial 76 insurance market. During this meeting a discussion was initiated by the Risk Manager from the University of Michigan concerning a possible approach which could be used to provide relief from the current insurance crisis. The concept of the formation of a three-tiered program was discussed. The three-level approach was described as follows: - the first level of the program would require each institution to pay for any losses experienced up to an expected loss level. - the second level of the program would be at the point where institutions would pool risk. - the third level of the program would be a group purchase of commercial insurance to respond to any catastrophic loss which might occur. Eventually, this three-tiered approach would become an important concept used in concluding an alternative solution to commercially purchased insurance. Also discussed was the need of some method of evaluating institutional exposures in a uniform way. In order for the institutions to identify a cooperative alternative to commer­ cial insurance, it would be necessary to provide a common way of evaluating risks at each institution. The recognition of the need to evaluate institutional risks was important, but 77 this consideration was premature. Eventually the concept of standardization of institutional risk reporting would be necessary and was addressed later in the study. The 1985 fall meeting of the Michigan College and University Risk Managers Organization (MCURMO) was held at Northern Michigan University on October 21, 1985. The Risk Manager for Michigan State University surveyed the group on behalf of the Liability Task Force attempting to identify each institution's current opinion of the concept of joining together to pool risk and self insure. The following opinions were expressed at the October 21, 1987 meeting by the MCURMO members representing each institution: Institutions Opinion of Pooling Central Michigan Univ. The representative was open minded to change but Central Michigan University was not interested in helping cover other institutions' losses. eastern Michigan Univ. The representative was open minded but had a concern with a quasi-government agency going into private business. Ferris State College The representative did not believe that pooling would work. Efforts in the past proved unsuccessful and there was no reason to anticipate any change. Grand Valley State College The representative indicated that their administration would evaluate the recommen­ dation of the task force and then make a decision. 78 Lake Superior State College The representative did not believe that the institu­ tions would agree to pool. Michigan State Univ. The representative was skep­ tical o£ the possibility of pooling and was concerned that all the institutions make long­ term commitment to any agree­ ment. The representative did not like the idea of pooling. Michigan Technological Univ. The representative did not like the idea of pooling. Northern Michigan Univ. The representative was con­ cerned on how costs would be shared should there be pooling. Oakland Univ. The representative from Oak­ land, who was a member of the Liability Task Force, indi­ cated that the Financial Officers were excited about the concept of pooling and he was also. Saginaw Valley State College The representative did not like the idea of pooling. Univ. of Michigan A representative did not attend the meeting. Wayne State Univ. The representative was skep­ tical of pooling. Western Michigan Univ. The representative was not in favor of any pooling arrangements. Despite the formation of the Liability Task Force on September 10, 1985, it was evident that the early skepticism of the MCURMO organization still remained. The Liability Task Force met again on October 31, 1985, and reviewed a six-item agenda. The meeting focused on comparison reports of premiums paid by the thirteen state 79 supported colleges and universities for property and lia­ bility insurance coverage. The information gathered at the request of the task force by the MCURMO chair provided the Liability Task Force with a two-year premium comparison, significant changes in coverages and anticipated future changes in policy conditions. The premiums paid by the thirteen state supported colleges and universities for property and liability coverages in fiscal year 1984-85 amounted to $7,214,034. The cost for the same type of coverages in fiscal year 1985-86 totaled $14,832,811. Significant changes in coverage in 1985-86 renewals of commercial coverage resulted in changes in the following provisions from the previous years coverages: 1. Limits of liability were reduced. 2. Exclusion of coverage for all pollution? asbes­ tos; trampolines; Police Professional; injuries sustained during athletic participation were among those added to the policies. 3. Deductibles were increased. 4. Claims handling charges were added. Future changes in policy conditions from the colleges and universities renewing liability policies during the last 80 quarter of 1985, all of 1986 and possibly 1987 would more than likely result in: 1. Increased costs 2. Decreased limits of liability 3. Higher deductibles applied 4. Further restrictions (reductions) 5. Unavailability of coverage for Directors & in coverage Officers, Liquor and Police Professional 6. Claims made in lieu of occurrence basis policies 7. 18 Defense costs included in the policy limits The consolidated information received from individual institutions verified the scope of the problem and presented the evidence, further justifying the need for the task force to continue its efforts. On December 4, 1985, the Presidents Council, under the direction of the Executive Director of the Council, provided t a day-long seminar on the campus of Michigan State Univer­ sity. The purpose of the seminar was to provide information explaining alternatives which might be available to the institutions. Representatives invited to attend included risk managers, business affairs officers, legal affairs officers and legislature liaison officers. This 81 informational seminar provided additional information on captive insurance companies and cooperative self-insurance ventures. The President of Vermont Insurance Management Inc. in­ formed the group of the process that needed to be followed in order to form a captive insurance company in the State of Vermont. The second presentation by a representative of the Michigan Municipal League discussed how municipalities in Michigan found it advantageous to pool risks. Municipal­ ities in Michigan are allowed to pool risks as a result of P.A. 1982 No. 138. This statutory act authorizes contracts between municipal corporations to form self-insurance pools, and to prescribe conditions for the performance of those contracts. As a result of the day-long seminar, the attendees more fully understood the complexity of joining together to pool risk. Institutional representatives expressed an interest in knowing what the requirement of a timeframe might be to have an alternative available and operational. Both presenters indicated it could take 16 to 18 months to have a self-insurance program up and running. It became evident from the information presented that the institutions were a long way from concluding any joint pooling arrangement. It also was clear that there would be no relief available from commercial insurance in time for July 1, 1986 renewal of 82 institutional insurance programs. After four months of addressing the various issues, a formal report entitled "The Property and Liability Insurance Crisis" was distributed to the Business Officers Subcommittee of the Presidents Council on January 16, 1986. The informa­ tion developed in the report concluded that the insurance problems would continue for the foreseeable future and requested the Business Affairs Officers to solicit the Presidents Council requesting authorization for the task force to proceed and select actuarial consultants to assist in the accomplishment of actuarial studies for all institu­ tions. The consultants, along with the task force, would then be required to conduct further analysis of the potential for establishing either a captive insurance company or a cooperative self-insurance pool in conformity with P.A. 1982, No. 138. The task force's preliminary estimate of costs for con­ sulting services was $80,000. The study was expected to take approximately nine months to complete. A determination regarding the viability of the two alternatives and appro­ priate recommendations would be made to the Presidents Council after completion of the study. The task force would receive a signal of seriousness of intent from the insti­ tutions' Presidents if such a significant amount of money was committed to the project. 83 The task force also made recommendations concerning supporting legislative reform and changes in insurance industry regulations. While monitoring legislative actions relating to the Michigan insurance situation was part of the initial charge of the task force, most of the emphasis in the problem solving effort would be directed toward determining available alternatives. The recommendation to the business officers by the Lia­ bility Task Force to request $80,000 to continue their work was approved by the Presidents Council on January 28, 1987. These funds were to address liability issues only. An addi­ tional $30,000 was allocated to the project upon the recommendation of the business officers. These additional funds were to be used in analyzing the potential cost savings of pooled property coverage should it be included in any pooling arrangement. It should be noted the inclusion of property coverage was a concept that originated with the MCURMO organization and recommended by business officers to the Liability Task Force. The business officers felt that since the study was being undertaken, it would be appro­ priate to examine both property and casualty exposures. On February 13, 1986, a meeting of the task force was held on the campus of the University of Michigan. The major concern of the task force at this meeting was development of specifications for a "request for proposal." 84 The task force developed a request for proposal which had a stated purpose of seeking a comprehensive loss poten­ tial identification and assessment study that would respond to specific casualty exposures. Those responding would be required to formalize plans that would systemically fund losses and finance risks for each of the thirteen colleges and universities. These proposals were sent to eleven professional firms on February 2, 1986. The Liability Task Force received and evaluated ten written responses from interested firms. The resulting evaluation by the task force would narrow the number of firms for further consideration to four. Representatives from these firms were required to make a formal presentation to the task force on the campus of Eastern Michigan University on April 3, 1986. Criteria for final selection of a firm were: 1. experience and knowledge of higher education 2. clear understanding of the problem 3. balance between analysis, recommendations and innovative ideas 4. motivation of the presenters as perceived by the task force members As a result of the written proposals and interviews 85 conducted by the task force, an actuarial firm was chosen to provide services as requested in the proposal. With the choice of consultants complete, the task force, MCURMO members and actuarial consultants met on the campus of Michigan State University on April 28, 1986. At this meeting, the major topic of discussion involved a Risk Profile questionnaire which had been developed by the con­ sultants and distributed at the meeting. The concept of developing a common method of evaluating individual institutional liability exposures had been con­ sidered by the task force prior to the selection of actuarial consultants. purpose. The risk profile was developed to serve this The information taken from the profile would be used in the actuarial studies for both the individual and aggregate institutional reports. The seventeen page Risk Profile requested the following information from each institution: 1. enrollment data 2. financial data 3. facilities information 4. athletic programs and affiliations 5. campus security force 6. professional liability exposures 7. institutional liquor regulations 8. owned watercraft and aircraft 86 9. owned automobiles 10. institutional broadcasting and publishing facilities 11. institutional health care facilities 12. five-year loss history At this first meeting, the institutional risk managers and actuarial consultants had disagreement concerning infor­ mation requested by the consultants. The consultants desired information concerning the premiums each institution paid for current year insurance coverages (1985-86). The actuarial consultants stated that the need for premium information was based upon exposure evaluation by insurance companies and therefore was required for actuarial work. The Risk Managers were of the opinion that increased premiums were not justified by institutional loss experiences and therefore the premium information was not necessary for the institutional actuarial studies. The risk managers were also concerned that actuarial consultants were representing a large xiiSuifaiiCc brokcIaC|c fiDTif wuOSc iuajOi pUipOSS naS tw 5£Cuic commercial insurance for clients. With this in mind, the institutional risk managers were concerned about unfair advantage in future marketing of commercial insurance for individual institutions or pool, should one be formed. The desires of the risk managers prevailed, and premium information was not made available to the consultants. The risk profile questionnaire was also modified reflecting the recommendations of the risk managers and distributed to each 87 institution on May 9, 1986. The profiles were required to be submitted to the actuarial consultants by June 6, 1986. On May 16, 1986, a meeting of the MCURMO group took place on the campus of Grand Valley State College. Repre­ sentatives of the actuarial firm were available to discuss difficulties institutional risk managers might be experi­ encing in gathering data for the institutional risk profiles. At this meeting, the group was informed of the University of Michigan's intent to form a captive insurance company. The company was to provide certain liability coverages for the institution and be incorporated in the State of Vermont. University administrators were preparing to request and receive approval to form the captive company from their Board of Regents on June 19, 1986. The University of Michigan representative assured the group that the University would continue to participate in the joint effort currently underway. April 18, 1986 correspondence addressed to the Chair­ person of the Liability Task Force affirmed the Legal Affairs Subcommittee of the Presidents Council's opinion of the need for outside legal assistance as the liability study moved forward. It was the Legal Subcommittee's opinion that the actuarial consultants should retain legal counsel in order to provide a legally sound report to the Presidents Council. There was also recognition that there might be a need to 88 renegotiate the fees being paid to the actuarial consultants. The task force made a decision to develop a request for proposal for legal services and distributed the request for assistance to four Michigan law firms on August 1, 1986. The response to the task force's request was to address: 1. experience of the firm in the establishment of voluntary cooperative self insurance pool and/or captive insurance companies 2. which attorney(s) in the firm would be assigned The proposal also stated that selection of a firm would be heavily weighted in favor of companies having demon­ strated prior experience in similar activities and having demonstrated familiarity with existing and potential future federal and Michigan state legislation affecting public colleges and universities. Selection of legal counsel was made by the Chairperson of the Liability Task Force, the Executive Director of the Presidents Council, the Assistant General Counsel for the University of Michigan and Associate General Counsel for Wayne State University. The remaining members of the Lia­ bility Task Force were informed of the selection of legal counsel in a September 16, 1986 memorandum from the Chair­ person of the Liability Task Force. 89 To date, the entire task force had been directly involved in all the major decisions affecting the study. The selection of legal counsel was a departure from this involvement and several task force members expressed their displeasure. Their concern was not the choice of selected legal consultants, but the fact that all task force repre­ sentatives were not consulted and allowed input. The Chairperson of the task force informed the task force that the selection process had been altered in order to expedite the selection process. During the period between the May 16 meeting of MCURMO group and the next formal meeting of the task force on Octo­ ber 21, 1986, difficulties arose because of delayed receipt of risk profile studies. These studies were to be made avail­ able to actuarial consultants by June 6, 1986. On June 19, 1986, the actuarial consultants were in receipt of 12 of 13 risk profiles. The University of Michigan would eventually submit only limited information to the actuarial consultants. The original target date for completion and submittal of actuarial studies to the task force was July 25, 1986. Because of the delayed reporting, the receipt of actuarial reports did not take place until September 10, 1986. The announcement of the decision of the University of Michigan's intent to form a captive insurance company and the limited responses to the request for information for the actuarial studies would be the first indicator that the 90 unified problem solving approach was running into difficul­ ties. On October 21, 1986, a meeting involving the task force, actuarial consultants, legal consultants, business affairs and risk managers was held in Lansing at the request of the Executive Director of the Presidents Council. At this meeting, actuarial studies were discussed in detail. Risk managers were informed on how the actuarial consultants had developed summaries on cost data for completed individual and group studies. Also previewed were the actuarial consul­ tant's analysis of several possible alternatives that could be used in pooling arrangements. The legal consultants indicated that they would provide the task force with "conceptual" conclusions concerning the advantages and disad­ vantages of potential risk sharing arrangements presented by the actuarial consultants in the latter part of November 1986. The MCURMO group met on the campus of Eastern Michigan University on October 30, 1986. Several important recommen­ dations made at this meeting were forwarded to the entire task force by the chairperson of MCURMO. It was the group's recommendation that the actuarial consultants refine the actuarial studies so that they would reflect a three layer funding approach as shown in Figure 3: 1. a self funding of expected losses 91 PROPOSED THREE-TIERED POOLING ARRANGEMENT General Liability Errors & Omissions Liability 1 Institutional Expected Loss Level 1 2 Risk-Sharing (Pool) Level 2 3 1. Excess Insurance 3 Expected Loss Levels Each institution would be required to fund its own expected losses. 2. Risk-Sharing Facility Level If the total losses experienced at the individual insti­ tutions should exceed the aggregate expected loss level for Errors and Omissions or General Liability, the Risk-Sharing level would be responsible for losses up to the excess commercial insurance. 3. Excess Insurance If the experienced losses should exceed the risk-sharing (pool), then purchased commercial insurance would provide the third layer. Figure 3 92 2. consortium funding to a level suitable and economical 3. purchase excess commercial insurance as a group The group recommended that any pooling arrangement should provide insurance coverages for the following lia­ bility exposures: - General Liability - Errors and Omissions - Liquor Liability - Police Professional Liability It was also recommended that the pooling arrangement not include property coverage. There appeared to be no signifi­ cant cost savings from pooling property risk and members felt the coverages offered in the commercial markets were meeting the needs of the institutions. Finally the risk managers requested that the Liability Task Force copy institutional risk managers on correspondence (reports, etc.) to business officers, legal officers, presi­ dents, and/or other institutional officers in order to keep the group abreast of activities. These recommendations would be unanimously accepted by the Liability Task Force. On November 26, 1986, legal consultants presented the Insurance Task Force members with a 43-page document 93 developed for the stated purpose of: "examining the property and casualty insurance nseds of state colleges and universities, to analyze alternatives to traditional commercial insurance and to assess the applicable law with respect to various alternatives. The three alternatives that were considered by the task force were reviewed by legal consultants resulting in the following analysis: 1. Michigan Higher Education Risk-Sharing Facility The name was coined by the legal consultants and would operate pursuant to a joint agreement among participating institutions. It was the opinion of the legal consultants that the "fa­ cility would not be, in a technical sense, an insurance company, but rather, an arm of the constitutionally-based and autonomous institu­ tions of higher education." A . U ^ i. uaaw 4.U a wuc 4 T m xuduiotive It was their view vwuc .1. ^ . . 1 J auwuiu be held to apply to such a facility. w uuu However, a ruling from an appropriate state official, such as the Attorney General, would be desirable to confirm the conclusion of the inapplica­ bility of the Insurance Code. 2. Higher Education Pool Under 1982 P.A. 138 The 1982 P.A. 138 authorizes municipal cor­ porations to pool their casualty property, 94 automobile, surety and fidelity coverages. The Insurance Commissioner is excluded from regulating pools under Public Act 138. The legal consultants indicated that it would be necessary to amend Act 138 to have it apply to state colleges and universities. 3. Captive Company Under the laws of various jurisdictions, both within and outside the United States, special provision is made for the creation and operation of captive insurance companies. The focus of formation of an insurance company was in the State of Vermont where formation of such companies is allowed under the law. 20 The legal report also examined four questions relating to the desire of the public colleges and universities to establish a risk sharing vehicle which would pool exposure and provide potential for cost savings. Questions Examined by Legal Consultants: 1. Can state institutions of higher education share the risk of loss and resulting expenditures for property, casualty and liability exposures? 2. Would a higher education risk sharing facility be subject to existing laws regulating the business of insurance? 95 3. Could the legislature impose regulations on a higher education risk sharing facility? 4. Do any other constitutional provisions prevent the establishment of a pooling arrangement under Article 8 by the institutions^^ Summary answers of the 41-page document submitted to the task force by legal consultants indicated that: - state colleges and universities may undertake to pool their risk of loss, using either a higher education risk sharing facility, a higher edu­ cation pool under 1982 P.A. (assuming the necessary statutory amendment), or by forming a captive insurance company. - it appeared that a higher education risk sharing facility would be the most advantageous vehicle providing that the Michigan Insurance Code would be inapplicable to the Facility. An opinion of the Attorney General to this effort would be desirable. - any effort by the legislature, through the Michigan Insurance Code or otherwise, to impose regula­ tion upon risk-sharing among institutions should be held to transgress the constitutional autonomy of the institutions and their power to manage 96 their own affairs and to control their own expenditures. - other constitutional provisions do not present irremediable problems to the creation of a Higher Education Risk-Sharing Facility, a 1982 P.A. 138 pool, nor a captive insurance 22 company. The legal consultants' report was focused on questions concerning how each one of the choices would be affected by outside state agencies or legislative action. While not ex­ plicitly stated, it was implied by the questions asked that no vehicle would be agreed to if institutional autonomy was jeopardized. On December 4, 1986, a final report and recommendations were presented at a meeting of institutional business offi­ cers and legal officers by the Executive Director of the Presidents Council. The consolidated document was a completion of the work of the task force, legal consultants and actuarial consultants. The highlights of the report were as follows: - the task force recommended the establishment of the first phase of a risk sharing venture covering specific risks which had been most difficult for the institutions to secure cov­ erage. Those coverages were: Trustees and 97 Officers Liability, Comprehensive General Lia­ bility, Dramshop Liability (Liquor Liability), and Police Professional Liability. - coverages be provided in a multi-tiered approach with institutions funding anticipated losses, intermediate level losses being covered by a pooled facility, and the possibility of purchas­ ing commercial insurance (if available) for the third level. - the group pursue three alternatives on risk sharing facility (coined by legal consultants), a P.A. 138 pool and a traditional captive simultaneously. Three alternatives, listed in order of preference by the group, required simultaneous exploration, should there be need for a fall-back position if the preferred vehicle proved to be problematic. - the governance of the chosen pool be accom­ plished by an Executive Board composed of each of the participating institutions with each institution appointing two representa­ tives. Voting rights of the Board be allocated by formula recognizing the significant vari­ ance in financial participation. The Board would elect officers, develop bylaws, proce­ dures and coverage documents. The Board 98 would employ appropriate staff and con­ sultants. - all funds would be under the exclusive control of the Board and could be expended only for paying claims, defending claims, administrative costs and consulting costs. Listed were the initial calculations anticipated for the institutional financial investment in the Facility. The consolidated financial data were derived from infor­ mation on the institutional risk profiles. Premiums and Admin. Costs C.M.U. E.M.U. F.S.C. G.V.S.C. L.S.S.C. M.S.U. M.T.U. N.M.U. G.U. S.V.S.C. U. Of M. W.S.U. W.M.U. $ 256,650 260,350 194,300 153,700 100,400 591,650 194,350 165,750 232,3o0 118,650 644,750 318,500 294,700 TOTALS $3,526,100 1st Year Total Capital $ 113,750 115,350 94,200 68,500 43,600 235,850 82,550 73,050 96, 3i>0 51,250 257,650 137,800 127,000 $1,498,900 $ I Ul 1 Institutions 370,400 375,700 288,500 222,200 144,000 827,500 276,900 238,800 330,700 169,900 902,400 456,300 421,700 ,025,000? It should be recognized that the recommendation con­ cerning governance suggested that institutional voting rights should be allocated by a formula based on the variance of financial participation. This would put control of the joint 99 effort in the hands of the larger institutions. The pre­ vious schedule of anticipated financial contributions verified the possibility of control by the larger institu­ tions under the governing scenario recommended by the task force report: - all institutions must make a five-year commitment to whatever vehicle is chosen. - the timetable established for date of initial operation of the facility should be July 1, 1987, with individual institutions making a decision no later than April 1, 1987, on their intent to participate in the joint program. 24 The recommendation from actuarial consultants' report indicated that twelve institutions needed to participate. They did qualify their position by stating that the group's size might be less than 12, but the proper balance of large and small members had to be maintained. While the documents presented to the business officers were lengthy, the important aspects in the documents have been previously described. Upon review of the documents, the business officers accepted the efforts of the task force and unanimously recommended a presentation be made to the Presidents Council and requested that an implementation phase begin immediately. 100 The Liability Task Force Report was formally presented to the Presidents Council members on December 16, 1986. The following information was taken from the December 16, 1986 minutes of the General Meeting of the Presidents Council: "The chair of the Liability Task Force reported that essentially the recommended insurance program would provide more comprehensive liability insur­ ance and significant coverage improvements for the institutions as well as cost savings. He stated the report and recommendations were approved by the Business Affairs Officers at their meeting on December 4. The proposal was being transmitted to the Council for action. One President observed the necessity for dis­ cussions with individual institutional boards before giving a binding commitment of participation. He thought it would be unfair for several insti­ tutions to pull out of the program at a later date and possibly leave some institutions suspended. In response to questions raised, the chair of the Liability Task Force noted that the cost figures contained in the report are computed on the assumption that all institutions will be participating in the program. The final figures will depend on the number of institutions par­ ticipating, and would be recalculated when that number is determined. The Executive Director of the Presidents Council said that intent in bringing the proposal before the Council was to receive Council support to move on to the next phase of the study; that was, to determine which of the recommended vehicles for a cooperative program offers the best advantages. Further it was requested that each Council member designate two representatives to serve on an interim governance committee (Implementation Task Force). Upon final resolution of all legal and financial issues, each institution would have the oppor­ tunity to decide whether it wished to participate in the program. Another Council member requested that future issues for Council consideration be drafted with specific recommendations and placed before them before discussion. The same Council member then moved that individual institutions convey their decision regarding participating in writing to 101 the Council office no later than April 1, 1987, and that each institution designate two individ­ uals to represent their institution during the next and final phase of the study. The motion was then seconded and approved by the Council. With the presentation and acceptance of the Insurance Task Force Report and Proposal to the Presidents Council, the first phase of the study was completed. On December 19, 1986, the Northern Michigan Univer­ sity's Board of Control was informed of the status of the Liability Task Force's progress and of the presentation which had been made to the Presidents Council on December 16, 1986. The board indicated their support of the project by giving authorization to the administration to join in a pooling arrangement should it prove to be in the best interests of the institution. Northern Michigan University became the first institution with board authority to join in a pooling arrangement with other Michigan supported institutions of Higher Education. SUMMARY The initial phase of the Exploration and Recommendation i for Resolution of a common risk financing problem began in August 1985 and lasted for a period of fifteen months. This phase of the process dealt with the gathering of data which would be used for purposes o f : 102 1. verifying the need to proceed with a cooperative joint problem solving effort. 2. identification of the institutional exposures which should be incorporated into any pooling arrangements. 3. identification of possible pooling arrangements which might prove acceptable to each college and university. During this period of the study, much of the data used for verification of the problem was gathered by individual institutional administrators responsible for risk management programs. The task force then consolidated this information into documents which provided identification of the problem from the viewpoint of the entire publicly supported Higher Education System. The data needed for identification of institutional exposures were also gathered by institutional risk managers. This information was used in the development of institu­ tional and aggregate acturial studies. The importance of this initial data gathering stage cannot be overstated. The accuracy and completeness of the risk manager's work was the foundation on which the entire funding levels for the pool were established. Another important element in this phase of the study 103 was the recognition of the need for additional outside actuarial and legal expertise. The willingness of the Presidents Council to allocate substantial funding for these services was a clear indication that this project was important and council members were desirous of a cooperative solution. The identification of possible pooling arrangements and legal implications of these concepts were researched by the consultants. Their findings and recommendations were pro­ vided to the Presidents Council members with a comprehensive presentation of alternatives which could prove attractive to each institution. While difficult work had been completed during the first fifteen months of the initial phase of the study, difficult decisions and unanticipated problems would con­ front administrators in the second phase of group effort. 104 NOTES Chapter III 1. Michigan General School Laws and Administrative Rules. Prepared by the Legislative Service Bureau for the State Board of Education, 1977. 2. Presidents Council State Colleges and Universities: Directory of Members and Subcommittees 1986-87. 3. "Mission Statement of Central Michigan University," Central Michigan University's Master Plan 1980-1992, 1980. 4. Catalogue of Eastern Michigan University 1986-87. "Statement of Mission," p.4. 5. Bulletin of Ferris State College 1986-1988. "Statement of Mission," Volume 58, No. 1, 1986, p. 16. 6. Bulletin of Grand Valley State Colleges, 1987-88, "Statement of Mission," p. 2. 7. Lake Superior State College, Sault Ste. Marie, Michigan Role Statement 1985. "Mission and Goals, 1985, p. 2. 8. Michigan State University Academic Programs 1987-1988. "Mission Statement," Vol. 81, No. 4, p. vii-viii. 9. Mission Statement. Michigan Technological University, 1978. XV • PUAA6 VAU WX A1V1 U U C l i i AiXVAAXMCHA VUAVCl OALj r r X^W X^W § "The University Mission," 1986, Vol. 84 and 85, No. 4, p. 8-9. 11. Mission Statement of Oakland University, adopted by Oakland University Board of Trustees, 21 July 1982. 12. Bulletin of Saginaw Valley State College, "Mission Statement," 1987, p. 3. 13. Bulletin of Wayne State University, 1987-89, "Mission Statement," 1987, p. 6. 14. Western Michigan University Policy Handbook, 1984-85, "Mission of Western Michigan University," 1984, p. 289-290. 1987-88, 105 15. Agenda item from August 2, 1985 meeting of Michigan College and University Risk Management Organization. 16. Richard Miller, Memorandum to the Presidents Council of State Colleges and Universities Business Officers Subcommittee, 13 January 1976. 17. Glenn R. Stevens, Memorandum to the Presidents Council of State Colleges and Universities Business Officers Subcommittee, 21 August 1985. 18. Mary Brooks, Memorandum to Robert J. Romkema, person of the Insurance Liability Task Force, October 1985. 19. Chair­ 8 Miller, Canfield, Paddock and Stone," Report to Presidents Council State Colleges and Universities Insurance Task Force," 26 November 1986, p. 1. 20. Ibid., p. 3-6. 21. Ibid., p. 8. 22. Ibid., p. 41. 23. "Insurance Task Force, Report and Proposal to Business Officers of the State College and Universities," 4 December 1986, p. 17. 24. Ibid., p. 17-18. 25. "Minutes of the Presidents Council of State Colleges and Universities," 16 December 1986. i CHAPTER IV CHRONICLING OF IMPLEMENTATION AND INITIAL OPERATION OF AN ALTERNATIVE TO TRADITIONAL RISK FINANCING METHODS The second phase of the joint effort undertaken to work toward a cooperative solution to the insurance problems being encountered by the publicly supported institutions of higher education began in January 1987. The difficult issues and necessary compromises would test the resolve of the participants to see the project to a successful conclusion. The MCURMO organization met on January 15, 1987 at Central Michigan University following the approval of the Presidents Council to proceed with the joint pooling con­ cept. The major portion of the meeting was dedicated to discussion concerning the future direction of the joint risk sharing project. By this time, institutional representa­ tives ia attendance were aware of a desire of the Council to proceed and implement an alternative to commercial insurance by July 1, 1987. Now that a specific operational target date had been established, the MCURMO members began to discuss specific issues which they felt needed to be addressed. The group recognized the need to: have the actuarial consultants develop new 106 107 cost data for various limits of insurance coverages being considered for the joint program. clearly understand the alternatives which were being considered for the proposed pooling arrangement. develop a participation agreement which would outline understanding how risks would be shared, how losses would be settled, and what type of organizational structure would be necessary to manage the pool. have all participating institutions report their losses to the pool in uniform reporting procedure. It was the group's recommendation that the pool hire a claims handling service. It was the feeling of the group that institu­ tions should have the choice of using the claims handling service hired by the pool, or use another alternative should it be called for. have the Implementation Task Force give serious consideration to hiring permanent employee(s) to handle the day-to-day operational issues required for any developed program.1 The members spent a significant amount of time 108 discussing the funding requirements of the pool. The major concern of the group was the gap that would exist between total financial contributions of the institutions and the limits of insurance coverages for which the pool would be responsible. The example used in the group discussion on the issue was as follows: Should participating institutions contribute three million dollars to the pool and the pool insures the institutions for limits of ten million dollars, there would be a gap of unfunded monies of seven million dollars. Should a loss occur that would require the pool to pay losses in excess of the actual premium contributions, an additional assessment would have to be made to each institution. It was brought out that the likelihood of an assessment was highly remote. 2 The issue of assessment would eventually be addressed in the final agreement signed by participating institutions. It was evident to this researcher that the group was making every attempt to accommodate the needs of each poten­ tial member. An illustration of this accommodation involved the recommendations relating to claims handling methodology. Because of the expressed need of one institution to maintain its current method of handling claims, the group suggested 109 a method be developed to allow for both the individual institution's claims handling requirements and a uniform claims handling procedure for the rest of the participating institutions. These specific issues were not formally presented to the Implementation Task Force. However, since each MCURMO member would serve on the Implementation Task Force, the group's concerns and views would be presented within a subcommittee structure. The initial meeting of the Implementation Task Force was held on January 20, 1987 in Lansing, Michigan. Two designated representatives from each institution met to review and consider the group's action plan. Prior to this meeting, the Liability Task Force developed organizational flow charts. Figure 4 depicts five subcommittees and lists intended charges to each committee. A Steering Committee comprised of chairs of the individual subcommittees, the chair of the Implementation Task Force and the Executive Director of the Presidents Council was to oversee, direct, coordinate and monitor the activities of the Implementation Task Force. Figure 5 depicts the composition and assign­ ment of institutional members to the five subcommittees and Steering Committee. The MCURMO chairperson assigned to the original task force was interviewed by this investigator to determine , HnflPLEMENTATION TASK FORCE i P STEERING COMMITTEE 1 Direct, O: Duration The existence of both the Liability and Implementation Task Forces went well beyond what is considered acceptable in the private sector. The Liability Task Force remained active for fifteen months. The extended period was a result 187 of the need for data gathering required for both institu­ tional and aggregate actuarial studies. There must be recognition that this was a joint volun­ tary effort among very diverse entities which required a slow tactful approach. Both the liability and implementation task force could request, but not necessarily demand, action from participants. The Implementation Task Force remained in existence for six months and might well have completed its work sooner if progress had not slowed by unanticipated outside influences. While the duration of the task force was lengthy, the final outcome of establishing an alternative to commercial insur­ ance was successful. Assignment In the first phase of the project, the Liability Task Force members were assigned on the basis of willingness to serve. During the implementation phase of the project, each institution assigned two administrators to the expanded task force. The assignment to the Implementation Task Force was not voluntary, but those administrators assigned would be I directly affected by the outcome of any pooling arrangement. Therefore, each member was committed to producing the best possible outcome. Task Force Development The Liability Task Force was formed fairly quickly after 188 a recognition of the need to study the institution's risk financing problems. Also, the task force was assigned a specific task as previously described in the study. The expanded implementation task was given a stated goal by the Presidents Council. There was to be an alternative to commer­ cial insurance available to the institutions by July 1, 1987. Follow-up It is evident throughout the chronicling process that in both Phase I and Phase II, the task force members did not procrastinate in working to complete the assignments. Any difficulties or slowdowns were a result of outside influences over which the Liability or Implementation Task Force had no control. The problems concerning legislation as described in Chapter IV are examples of outside influence. The major problem encountered by the task force involved timeliness of communications. This problem became particularly acute during the implementation phase of the project. Subcommittees were drafting documents, distributing them to the total task force and receiving recommendations back. The shear volume of docu­ ments being distributed among the institutional administrators, resulted in some confusion concerning which drafts were most current. Business task forces are comprised of individuals representing the same entity which normally requires less need for documentation. In the case of the Liability and Implemen­ tation Task Force, the composition of membership was representative of thirteen separate entities. As a result, 189 extensive documentation was required to clearly identify the stated agreements of the group. Staff Assignment There was no permanent staff assigned to Phase I or II of the project. The Executive Director of the Presidents Council orchestrated and coordinated many of the activities of the group, but this was not a full-time assignment. Documentation The documentation created by the Liability and Implemen­ tation Task Forces was enormous. It can be said the business of the task force was to create documents that would serve the interests of the participating institutions. While authors Peters and Waterman (1984) state that task forces are not in the business of producing paper but areformed to produce results, in this instance the major responsibilities of the Task Force were to produce agreements which would be acceptable to all participants. These could only be accom­ plished through extensive documentation. Interaction One of the major difficulties was the geographic disl tances of institutions participating in the project. Continuous review and updating of the status of the project had to be done largely by correspondence. The dedication the participating administrators helped reduce the of impact of the communication problem by generating and distributing 190 updated documentation in a timely manner. Decision Authority The composition of the Liability and Implementation Task Forces was discussed previously. These administrators repre­ senting each institution did not have final authority to commit their institutions to any joint effort. However, it was necessary for these administrators to be satisfied with the final outcome of the group's efforts in order to recom­ mend participation to institutional boards. Each institution had representatives assigned to the project who could artic­ ulate directly to the boards. Since institutional boards normally accept the recommendation of administration in such matters, it can be stated that appropriate levels of adminis­ tration were assigned to the joint risk sharing venture. The Liability and Implementation Task Forces did not mirror Peters and Waterman's description of effective task force guidelines. Nonetheless, in this investigator's opinion, whatever characteristics were not present, the dedication of the participating institutional administrators provided the necessary elements in concluding a successful resolution to the problem. The investigator also reviewed group decision making with Ellen Earle Chaffee's model of rational decision making as described in her book, Rational Decisionmaking in Higher Education (1983). This was done to clarify the element of 191 decision making which occurred during the process. Chaffee (1983) states that the process of making a decision involves choice, process and change: - choice is when there is choice among alternative courses of action - process involves interaction among people and requires time to unfold. It begins with the need for a deci­ sion and continues through the decision itself to its effect on the organization - change is the result of organizational decisions Choice has these underlying features: 1. the values of the organization and the actors within it 2. the alternative courses of action considered 3. the premise directing the consideration of alter­ natives The consequences of choice: 1. an implementation procedure for carrying out choice 2. results consisting of changes both external and internal 3. feedback that acts as both output and input Chaffee's 2 (1983) description of a rational decision making model best describes the decision making process used by participants during the search for alternatives to the traditional form of financial institutional risks. 192 The author lists the following condition requirements for any organization to use the rational model successfully: - the participants must share a common goal or set of goals - the participants must have reasonably congruent ideas and attitudes about how to achieve them - the participants must be engaged in processes for which they understand cause-effect relationships - to the extent that the problem is complex, they need technical competence to unravel those relationships - the participants must enact the process sequentially 3 with respect to each problem As evidenced in this investigator's study, the previ­ ously listed conditions and requirements were present. It is this investigator's opinion that Chaffee's rational decision making model was used to the greatest extent throughout the two-year problem solving effort. Chaffee further clarifies features and consequences of choice involved with the rational decision making model. The underlying features of choice and consequence are described as follows: Values Decision makers process known values, ordered according 193 to relative preferences, prior to making decisions. A prioritization of values is necessary in order to act as an organizing element and focus for committed action. With goals identified those participating in the decision making process can agree about why they are involved, although recommended courses of action may vary. Alternatives The rational model implies that alternative courses of action constitute means to an end resulting from identified values. The premise underlying choice is then to maximize the likelihood of achieving those ends. To make comparisons implied by this kind of choice, participants must consider the array of alternatives simultaneously. They must have some control area or forum in which to place and examine the alternative and they must understand the processes by which cause-and-effeet relationships turn inputs into outputs. That is, the participants must have some grounds for believing that engaging in a chosen activity will produce the expected results. Choice In the case1of rational decision making, choice is a deliberate action. When, how, and by whom the decision is made should be identifiable. At the time of decision, par­ ticipants are theoretically capable of predicting the results on probable results of choice, and those outcomes are foreseen and intended. 194 Implementation. Results and Feedback In the rational decision making model, implementation is straight forward; the list of preferences and the logic behind the decision should lessen dissent and surprise. The users of feedback information must have the analytical skills to understand it, the open mindedness to be receptive to it, and the orderly procedures to channel it back into the decision process It can be concluded that group decision making used in the resolution of this problem and the use of Chaffee's rational decision making is evidenced in both Chapter III and IV of the study. The condition requirements for using the rational decision making model were present throughout the group problem solving effort. 1. Institutional administrators identified a common goal of reducing insurance costs and improving the quality of coverage. 2. Institutional administrators recognized that a joint effort and sharing of risk might achieve their common goal. 3. Institutional administrators thoroughly reviewed the potential solutions to the problem, carefully weighing cause and effect of each potential solution. 195 4. Institutional administrators recognized the need to secure additional expertise. Both actuarial and legal consultants were hired to help evaluate and resolve complex issues. 5. Institutional administrators approached the problem solving effort sequentially. Phase I of the joint group effort involved exploration and recommendations for resolution of the problem. The second phase of the process included implementation and operation of an alternative to the traditional method of financing institutional risk. Also, the developed participation agreement is reflective of rational decision making by the Implementation Task Force. Research Question 2 Can autonomous publicly supported institutions in Michigan join together to resolve a common problem impacting individual institutions? The answer to this question can be stated in the affirm­ ative. The institutional representatives demonstrated the ability to focus on searching out an alternative to commer­ cial insurance. While all institutions did not join the cooperative venture, each institution's contributions to the process enhanced the effectiveness of the group’s results. For example, the University of Michigan's decision not to participate in the pool did not result in withdrawal of 196 commitment to the effort. The Vice President of Business committed the university's administrators to continually assist in the project until completion. The continued input was very helpful in the establishment of the claims handling procedures developed for the pool. It should be noted that all institutions benefited from the project, although three institutions chose not to join the newly formed corporation. Both Lake Superior State College and Saginaw Valley State College were able to approach commercial insurance carriers indicating to them that should insurance pricing or quality of coverage being offered prove unacceptable, then the Michigan Higher Educa­ tion Group Self-Insurance and Risk Management Facility would offer an available alternative. The University of Michigan would also have the opportunity to pool risks, should it prove to be advantageous in the future. Research Question 3 Are there identifiable strengths in the development process which are transferable should future joint efforts to resolve common problems be attempted? The primary identifiable strength of the process was that the problem being addressed was clearly distinguishable and of mutual concern to all participants. Institutions were paying exorbitant costs for commercial insurance and in some cases were unable to attain insurance coverages at any cost. 197 Being able to clearly identity the problem gave the group a common point from which to begin. In order to succeed in joint problem solving, there needs to be clear recognition of the severity of the problem affecting the group. The problem must be significant and uniform in its impact on the participants. Secondly, those individuals who are assigned to problem resolution must be committed to the group effort. In the case of the risk financing problem, administrators repre­ senting individual institutions were required to take on extensive additional work to their regularly assigned duties. The public four-year colleges and universities in Michigan have geographic locations which stretch from the very northern tip of the upper peninsula to the southern most point in the state. The requirements placed on administrators to meet regularly to conclude a resolution to the common risk manage­ ment problem were extreme. With rare exception, all institutions were represented at the numerous meetings. The decision to form a task force, and later to expand this group to an Implementation Task Force, proved an effec­ tive method of dealing with the various issues which needed to be addressed. The concept of reducing the large Implemen­ tation Task Force in smaller subcommittees and assigning specific responsibilities to each subcommittee also proved to be very effective. The initial concept of exploring an alternative was 198 generated by the MCURMO organization. The reception of this group's idea is a strong indicator that good communication exists between the administrative reporting levels at the public colleges and universities. The composition of the Liability and Implementation Task Force was such that the proper combination of administrators was involved. The risk managers understood the insurance component of the problem and institutional business officers had the finance expertise to evaluate financial implications of the chosen alternative. Identifying the rational decision making model as de­ fined by author Chaffee (1983) is an important element in the problem solving effort. Should future joint ventures be undertaken, recognition and understanding of the rational decision making model and components might well reduce diffi­ culties in decision making. The importance of the Presidents Council and the Execu­ tive Director in any joint problem solving effort cannot be overstated. At various points of the problem solving effort, the Executive Director was a moderating influence, providing proper perspective to difficult issues. The Executive Director's efforts are evident throughout this study. Without this effective leadership, there would not have been a suc­ cessful conclusion to the two-year effort. This investigator assumed that the resolution of two underlying assumptions needed to be resolved if there was to 199 be a successful resolution of a common risk management prob­ lem impacting the publicly supported colleges and universities of Michigan. This investigator assumed that any erosion of institu­ tional autonomy resulting from the collaborative effort would be unacceptable to participating institutions. This investigator also assumed that joint agreements which might erode institutional decision making would not result in a joint agreement. However, it became obvious that in a group program, participation by each member would result in less individual control. In order to accept the loss of individual institutional control, the group effort would pro­ vide each institution with the authority to withdraw from the group risk sharing facility with a penalty of loss of original capital. Therefore, should a situation arise that is totally inconsistent with the desires of the member, the option to withdraw is available. Also, the flexibility offered in the participation agree­ ment (see Appendix B) affords each institution control over claims handling and litigation management, types of coverages and limits of coverages that had not been available in commer­ cial insurance. The tradeoffs of loss of some individual control for advantages previously mentioned were acceptable to ten of the thirteen publicly supported institutions. When this investigator made the assumption concerning 200 institutional autonomy, there was no anticipation of the dif­ ficulties which would be experienced with the legislative process as described in Chapter IV. For example, the Senate version of H.B. 4407 would have placed the Risk Sharing Facility under the direct supervision and control of the State Insurance Commissioner. The resulting encroachment by a State agency on the Constitutionally granted autonomy of the public four-year baccalaureate granting institutions was unacceptable to institutional administrators. The efforts of the group to eliminate possible infringement of constitutional granted autonomy, as provided in the 1963 Constitution of the State of Michigan, Article 8, Section 5 & 6, are documented in Chapter IV. At this writing, no legislation has been passed affect­ ing the operation of the non-profit corporation. Should these occur, it is not clear to this investigator whether institu­ tions would withdraw from the corporation because of outside interference. This investigator's second assumption was any effort by larger institutions to influence or to dominate because of size, the direction or outcome of the effort would be unac­ ceptable to the participating institutions. During the entire problem solving effort, this investi­ gator did not observe any effort by the larger institutions to dominate this process. In the first phase of the project, 201 there was recommendation that voting rights of the board of governors of any pool would be allocated by a formula which would recognize the significant variance in financial partici­ pation. However, during the second phase of the study this recommendation was not considered seriously. The final recommendations concerning voting resulted in one vote per institution with each institution having equal participation in the operation of the pool. This investigator represented the interests of one of the smaller institutions during the two-year process. Throughout the entire period, this investigator felt that provision was made for equitable participation by all the institutions' representatives in the process. Implications for Further Study This historic undertaking by the publicly supported institutions of higher education of Michigan could have im­ plications for other possible joint ventures should the Michigan Higher Education Group Self-Insurance and RiskManagement Facility prove to be as successful as anticipated. School systems, community colleges and private institu­ tions both within the state of Michigan and across the United States could also benefit by banding together and using the general concept described in this study. Further research should be undertaken, reviewing the 202 first five years of the corporation's operation. An important aspect of any further study should include consideration of how board members of the corporation are able to manage the difficulty of serving both the best interests of the corpo­ ration and also the interests of their respective institutions. The method used to resolve this potential conflict will be the key to effective future operation of the corporation. Discussion As a result of the successful resolution of the common risk financing problem, this investigator felt that several elements in the process should be discussed and considered important in any future joint problem solving efforts. It is important to clearly recognize that joint ventures involving Michigan's publicly supported institutions of higher education must be voluntary and instituted by the universities themselves. It is the opinion of this investi­ gator that failure of the 1976 pooling effort as discussed in Chapter II, was a direct result of the perception of institutional administrators that state government was attempting to legislate, thus erode institutional autonomy. The successful 1987 pooling effort can be attributed to the belief that the pooling concept originated from institutional administrators and resulted in actions which were self-imposed by each of the participants. The importance of the Michigan College and University 203 Risk Managers Organization in the process should be fully recognized. A high degree of trust had existed among the members of this organization prior to entering into the joint voluntary problem solving effort. The willingness of this group to share important information and to help each other with common institutional risk management problems is evi­ denced throughout MCURMO's history. When considering problem solving efforts among diverse, autonomous institutions, it is advisable to include a group with the previously described characteristics of trust in joint problem solving efforts. The willingness of the MCURMO representatives to view the problem solving effort from both the institutional and group perspective was key to a successful resolution. Many times group efforts fail because those assigned to resolve a problem do not fully understand the complexity of the issue or are not seriously committed to resolving the problem. At various points, three participating institutions involved in the process chose to drop out. Groups attempting to problem solve must be willing to face the possibility that the total group does not necessarily have to take part in the final resolution in order to enjoy success. In fact, circum­ stances of withdrawal may enhance the group's resolve to succeed. For example, when the University of Michigan withdrew because of the desire to concentrate on the operation of their own captive insurance company, it may have provided additional motivation to the rest of the group participants. 204 The thinking of the group may have been if one institution could find a solution to their insurance problems, it there­ fore makes sense that the rest of the group could do the same. The administrative make-up of both the Liability Task Force and Implementation Task Force was previously discussed. Risk managers, business officers and legal officers joined together attempting to become problem solvers. Adminis­ trators represented various institutional reporting levels of authority. However, in this problem solving effort, all participants were co-workers and positions of authority did not inhibit the willingness or ability of each partici­ pant to provide input to decision making and problem solving. The process undertaken by the colleges and universities lends credence to author John Naisbitt's book, Megatrends. The author discusses the trend away from institutional help to self-help. Naisbitt states that for decades, institutions such as the government, the medical establishment, the corpo­ ration and the school system were America's buffers against life's harsh realities. Naisbitt sees a trend in which individuals have become disillusioned with the previously mentioned institutions and Americans are relearning the ability to take action on their own. America is reclaiming 5 its traditional sense of self-reliance. Naisbitt further states that somewhere between the shift from institutional help to self-help comes the question "Can 205 I really do it on my own?" For some people, there is a crisis of confidence, a fear that one is not yet up to the challenge of self-help, perhaps a desire to cling to the comfort of depending on others. Others are very assertive about taking £ care of things themselves. The theme of self-help discussed by author Naisbitt can be evidenced in the creation of a self-insurance corporation by the publicly supported colleges and universities in Michigan. The failure of the large insurance corporations to adequately provide a required product, forced institutional administrators to work together, relying on one another to resolve a problem. This investigator believes that there is a new feeling of each institution having a greater degree to control the destiny of their respective institutions. A major concern of this researcher was that this study accurately portray the efforts of tii? many dedicated adminis­ trators who worked on this project. This investigator believes that the chronicling accu­ rately reflects what transpired over the two-year period resulting in the formation and operation of a non-profit corporation formally titled, The Michigan Higher Education Group Self-Insurance and Risk Management Facility. 206 NOTES CHAPTER V 1. Thomas J. Peters and Robert H. Waterman, Jr., In Search of Excellence, New York, N.Y: Warner Book Inc., 1984, p. 129-131. 2. Ellen Earle Chaffee, Rational Decisionmaking in Higher Education. Boulder, Colorado: National Center for Higher Education Management Systems, 1983, p. 8-10. 3. Ibid., p. 15. 4. Ibid. 5. John Naisbitt, Megatrends. Books Inc., 1984, p. 143. 6. Ibid., p. 173. New York, N. Y . : Warner BIBLIOGRAPHY 207 BOOKS Bogden, R.C. and Biklen, S.K. Qualitative Research for Education: An Introduction to Theory and Methods. Boston: Allyn and Bacon Inc., 1982. Borg, W.R. and Gall, M.D. Educational Research: duction. New York: David McKay Co., 1971. An Introc- Chaffee, Earle, Ellen. Rational Decisionmaking in Higher Education. Boulder, Colorado: National Center for Higher Education Management Systems, 1983. Erickson, F. "Qualitative Methods in Research on Teaching,” Handbook of Research on Teaching. (3rd Ed.), New York: Macmillan, 1986. Filstead, William J. Qualitative Methodology: Firsthand Involvement with the Social World. New York: Rand McNally, 1970. Madison, C. and Walker, J.H. Risk Management and Insurance: A Handbook of Fundamentals. Washington D.C.: NACUBO, 1983. McMillan, J.H. and Schumacher, S. Research for Education: A Conceptual Introduction. Boston: Little Brown and Company, 1984. Miles, Mathew B. "Qualitative Data as an Attractive Nuisance: The Problem of Analysis," Qualitative Methodology. Beverly Hills: Sage Publications, 1979. Miles, Mathew B. and Huberman, M.A. Qualitative Data Analysis. Beverly Hills: Sage Publications, 1984. Naisbitt, John. Inc., 1984. Megatrends. New York, N.Y.: Warner Books Pearsall, Marion. "Participant Observation: As Role and Method in Behavioral Research," In J. Filstead (ed), Qualitative Methodology: Firsthand Involvement with the Social World. New York: Rand McNally, 1970. Peters, Thomas J. and Waterman, Robert H. In Search of Excellence. New York, N.Y.: Warner Book Inc., 1984. Schatzman, L. and Strauss, A. Field Research: Strategies for a Natural Sociology. Englewood Cliffs, N.J.: PrenticeHall, Inc., 1973. Siver, Edward W. The Executive Guide to Commercial Property and Casualty Insurance. Chicago: Crain Books, 1981. 208 JOURNALS AND PERIODICALS Bell, Dawson. "Throughout Michigan, Local Governments Are Feeling the Punch," Detroit Free Press. November 1985. Chanzis, Norman. "Forcasting the Market Cycle," Risk and Benefits Management. February 1987. Denton, Laurie R. "The Situation is Terrible," NACUBO Business Officer. Vol. 18, No. 12. Farrell, Christopher. "The Insurance Crisis: is in a Risky Business," Business Week Now Everyone Fletcher, Meg. "Public Entities Seek Insurance Alterna­ tives," Business Insurance. September 16, 1986. Hatcher, Robert. "Industries Denied Coverage Can Band Together to Create It," Financier. September 1985. McLeod, Douglas. "Godsend or Gamble," Business Insurance. February 16, 1987. "NACUBO Seeks Funding for Insurance Study." NACUBO Business Officer. Vol. 19, No. 5. Pridmore, Jay. "Insurance Solutions," Cashflow. April 1986. Schimpl, Shiela. "Bath Schools Scrambling for New Insur­ ance," Lansing State Journal. June 13, 1985. Smith, John K. "Qualitative Versus Interpretive: The Problem of Conducting Social Inquiry," Philosophy of Education, 19, (September 1983). Smith, Mary L. "Publishing Qualitative Research," American Educational Research Journal. 24, (Summer 1987). Taravella, Steve. "Alternative Risk Financing Growing in Popularity," Business Insurance. January 26, 1987. West, Dan. "College Financing in the 1980s: Mining, Medicine and Motels," Higher Education Daily. Vol. 13 No. 59, March 26, 1985. 209 GENERAL INFORMATION Agenda item from August 2, 1985 meeting of the Michigan College and University Risk Management Organization. Brooks, Mary. Memorandum to Robert J. Romkema, Chairperson of the Insurance Liability Task Force, October 8, 1985. Brinkerhoff, J.H. Letter to Robert J. Romkema, Chairperson of the Liability Task Force, April 20, 1987. Brown, Mary. Memorandum to the Michigan House of Repre­ sentatives, February 24, 1987. Bulletin of Ferris State College, 1986-1988, "Statement of Mission,” Volume 58, No. 1, 1986. Bulletin of Grand Valiev State Colleges. 1987-1988. "Statement of Mission," 1987. Bulletin of Northern Michigan University, 1986-1988, "The University Mission,” 1986, Vol. 84 and 85, No. 4. Bulletin of Saginaw Valley State College. 1987-1988. "Mission Statement," 1987. Bulletin of Wayne State University. 1987-1989. "Mission Statement," 1987. "Draft Legislation (H.B. 4407) of the House Committee of Colleges and Universities," Soc. 11, April 8, 1987. "Draft Legislation (H.B. 4407) of the Presidents Council of State Colleges and Universities," March 18, 1987. "Draft Legislation (H.B. 4407) of the Senate commerce and Technology Committee," Sec. 11, June 3, 1987. Duffett, Richard. "The Michigan Approach," a paper presented at the Central Association of College and University Business Officers Annual Meeting, Indianapolis, IN, 1987. I "Insurance Task Force, Report and Proposal to Business Officers of the State Colleges and Universities," December 4, 1986. Lake Superior State College, Sault Ste. Marie, Michigan Role Statement 1985, "Mission and Goals," 1985. Michigan General School Laws and Administrative Rules. Prepared by the legislative Service Bureau for the State Board of Education, 1977. 210 Michigan State University Academic Programs 1987-1988. "Mission Statement," Vol. 81, No. 4. Miller, Canfield, Paddock and Stone. "Report to the Presidents Council of State Colleges and Universites Insurance Task Force," November 26, 1986. Miller, Richard. Memorandum to the Presidents Council of State Colleges and Universities Business Officers Subcommittee, January 13, 1976. "Minutes of the Board of Control Meeting, Ferris State College," April 11, 1987. "Minutes of the Board of Control Meeting, Grand Valley State Colleges," May 8, 1987. "Minutes of the Board of Control Meeting, Michigan Techno­ logical University," May 22, 1987. "Minutes of the Board of Directors of the Michigan Higher Education Group Self-Insurance and Risk-Management Facility," June 25, 1987. "Minutes of the Board of Governors Meeting, Wayne State University," May 1, 1987. "Minutes of the Board of Regents Meeting, Eastern Michigan University," April 8, 1987. "Minutes of the Board of Trustees Meeting, Central Michigan University," June 5, 1987. "Minutes of the Board of Trustees Meeting, Michigan State University," February 6, 1987. "Minutes of the Board of Trustees Meeting, Oakland University," June 10, 1987. "Minutes of the Board of Trustees Meeting, Western Michigan University," June 9, 1987. "Minutes of the Michigan College and University Risk Management Organization," May 13, 1987. "Minutes of the Michigan College and University Risk Management Organization," May 13, 1987. "Minutes of the Presidents Council of State Colleges and Universities," December 16, 1986. "Minutes of the Presidents Council of State Colleges and Universities," April 28, 1987. 211 "Mission Statement of Central Michigan University," Central Michigan University's Master Plan 1980-1992, 1980. "Mission Statment of Eastern Michigan University," 1986. "Mission Statement of Oakland University," 1982. "Mission Statement of Western Michigan University," 1984. P.A. 1951 35, as amended by 1982 P.A. 138 (M.C.L. 124.1 et seq., M.S.A. 5 4081 et seq.) Peshkin, Alan. "University Complexity: A Gift of Quali­ tative Inquiry." A paper presented at the Annaul Meeting of the American Educational Research Association, Washington D.C. 1987. Presidents Council of State Colleges and Universities: Directory of Members and Subcommittees 1986-1987. Sears, James T. "Conducting Qualitative Research in Higher Education." A paper presented at the First International Conference on the First Year Experience (1st Newcastle upon Tyne, England). England, July 8, 1986. Steinborn, Stanley D. Letter to Glenn Stevens, Executive Director of the State Colleges and Universities Presidents Council, May 20, 1987. Stevens, Glenn R. Memorandum to the Presidents Council of State Colleges and Universities Business Officers Sub­ committee, August 21, 1985. i APPENDICES APPENDIX A INSTITUTIONAL SURVEY 212 September 15, 1987 Mr. Lyle E. Shaw V.P. Finance and Administration Northern Michigan University 502 Cohodas Admin. Building Marquette, MI 49855 Dear Mr. Shaw: Currently, I am working on a dissertation which involves the chronicling of the efforts of the Michigan colleges and universities to resolve a common risk financing problem. In order for me to effectively describe and chronicle the process, there is a need for me to obtain the following information about Northern Michigan University: 1) The role and mission statement of NMU. 2) The 1985-86 audited Financial Statement of NMU. 3) The board resolution which approved NMU for participation in the joint risk sharing venture. The time taken away from your busy schedule to honor this request would be greatly appreciated. Enclosed is a self-addressed stamped envelope for your convenience in forwarding the requested information to me. Yours sincerely, Richard P. Duffett Director of Administrative Services RPD/dl Enclosure APPENDIX B Michigan Higher Education Group Self-Insurance and Risk-Management Facility Participation Agreement i 213 Michigan Higher Education Group Self-Insurance and Risk-Management Facility Participation Agreement This agreement is entered into by the Board of Trustees of Central Michigan University, the Board of Regents of Eastern Michigan University, the Board of Control of Ferris State College, the Board of Control of Grand Valley State College, the Board of Trustees of Michigan State University, the Board of Control of Michigan Technological University, the Board of Control of Northern Michigan University, the Board of Trustees of Oakland University, the Board of Governors of Wayne State University and the Board of Trustees of Western Michigan University, hereinafter referred to as "Governing Boards." RECITALS A. The undersigned Governing Boards exist pursuant to the Constitution of 1963, article 8, sections 5 and 6. B. Each of the undersigned Governing Boards has certain risks of loss which commonly are covered by the purchase of insurance and/or by the undertaking of selfinsurance . C. The undersigned Governing Boards from time to time have found appropriate insurance coverage to be unavailable or excessive in cost and have determined in certain instances that self-insurance is undesirable. D. In the exercise of their authority pursuant to the Constitution of 1963, article 8, sections 5 and 6, the undersigned Governing Boards intend jointly and coopera­ tively to establish a Group Self-Insurance and RiskManagement Facility, to provide coverage for certain risks, to purchase adequate excess insurance and/or reinsurance where available, and to undertake risk management and loss control programs. NOW, THEREFORE, tfie undersigned Governing Boards agree as follows: ARTICLE I DEFINITIONS Section 1.1. As used in this Agreement, unless the context clearly requires otherwise, the following words shall have the definitions ascribed to them: (a) "Board of Directors" or "Board" shall mean the Board authorized by Article VIII of this Agreement to govern the Facility. 214 (b) "Director" shall mean an individual designated by a Member to serve on the Board of Directors of the Facility created by this Agreement. (c) "Facility" shall mean the Michigan Higher Education Group Self-Insurance and Risk-Management Facility created by and pursuant to this Agreement. (d) "Governing Board" shall mean a governing board of a state institution of higher education existing pursuant to the Constitution of 1963, article 8, sections 5 or 6. (e) "Indemnification and Risk-Management Contract" shall mean a contract between the Facility and its Members by which the Facility agrees to provide coverages listed in Article IV of this Agreement to Members in exchange for the payments provided for in Article V of this Agreement. (f) "Member" shall mean a Governing Board which has joined the Facility and has not withdrawn from the Facility nor been terminated from the Facility. ARTICLE II ESTABLISHMENT OF FACILITY Section 2.1. Establishment. There is hereby estab­ lished the Michigan Higher Education Group Self-Insurance and Risk-Management Facility upon the terms and conditions stated herein. The Facility shall be formed as a non-profit corporation and shall have and may exercise all power conferred upon a non-profit corporation by the laws of the State of Michigan which are not inconsistent with this Agreement and shall have the powers conferred upon it by this Agreement. The Facility is established and shall be operated solely for the benefit of its Members and to enable the Members to manage their property and affairs and control their expenditures by obtaining coverage for various risks from the Facility. Section 2.2. Purpose of Facility. The Facility shall be authorized to provide indemnity to Members against loss commonly covered by insurance as set out in the Indemnification and Risk-Management Contracts between the Facility and its Members, to adjust claims against Members, to provide for legal defense in connection with such losses or potential losses consistent with Article XI of the Agreement, to provide risk management and loss control services and programs, and to do all other things necessary and proper in order to efficiently provide indemnity and the related services specified in this section. Section 2.3. Limitations of the Facility. The Facility may provide indemnity and the related services set forth in Section 2.2 only for its Members existing pursuant to the constitution of 1963, article 8, sections 5 or 6. The Facility may act on behalf of and may bind Members only in the circumstances and to the extent authorized by or 215 pursuant to this Agreement. Section 2.4. Facility Not an Insurer. The Facility is not an insurer and may not engage in the business of insurance as defined by the Michigan Insurance Code of 1956, MCL 500.100 et seg. The powers and duties created hereunder and the acts of the Facility and its Members with respect to their participation in this Facility shall not constitute doing an insurance business. ARTICLE III MEMBERSHIP Section 3.1. Eligibility. Membership in the Facility shall be limited to Governing Boards as that term is defined herein and shall consist of the original signatories to this Agreement and any other such Governing Board subsequently admitted to the Membership of the Facility which signs this Agreement. The Facility may establish such terms and conditions for membership subsequent to the effective date of this Agreement as it deems, in its sole discretion, to be reasonable and appropriate. Subsequent membership shall be authorised by the Board of Directors only upon a favorable vote of the majority of the Board of Directors. Section 3.2. Termination. After a Member has been given an opportunity to meet and confer with the Board of Directors, the Board of Directors may terminate the Member from the Facility by a vote of the majority of the Board of Directors for any of the following acts or omissions: (a) the repeated or continuing refusal to make payments when due; (b) the gross or repeated failure or refusal to cooperate reasonably in the defense of claims for which the Facility may be liable to the Members; (c) the gross or repeated failure or refusal to cooperate reasonably in the investigation of claims for which the Facility may be liable to the Member; and (d) the gross or repeated failure or refusal to cooperate reasonably with or participate in risk management, loss control, or loss avoidance programs of the Facility. Section 3.3. Termination Rights and Obligations. A Member shall be given not less than 90 days' notice of termination, and upon termination shall have no right to receive any funds of the Facility at the time of termination or thereafter, including but not limited to any initial or subsequent payments made to the Facility, any rebate or return of payments later declared by the Facility and any other return of funds by the Facility to its Members by whatever method. For coverages provided on an occurrence basis prior to the effective date of termination, the terminated Member shall be covered only for occurrences 216 prior to the effective date of termination and during which an Indemnification and Risk-Management contract was in effect between the Facility and the terminated Member covering the occurrence. For coverages provided on a claims made basis prior to the effective date of termination, the terminated Member shall be covered only for claims made prior to the effective date of termination and during which an Indemnification and Risk-Management Contract was in effect between the Facility and the terminated Member covering the claim. A terminated Member shall, however, remain subject to assessments for additional payments attributable to the years or portions of years the terminated Member was a Member of the Facility, provided that any such assessment shall be levied upon the terminated Member on the same basis as it is levied upon Members. ARTICLE IV COVERAGES Section 4.1. Authorized coverages. The Facility provide indemnification to Members by contract on such and conditions as it shall deem appropriate for losses Members arising from or related to: (a) General Liability, including but not limited (i) Dramshop Liability; (ii) Police Professional Liability; (b) Errors and Omissions Liability; (c) property. may terms of to Section 4.2. Mandatory Coverages. A Member shall contract for general liability and errors and omissions liability coverages from the Facility for coverage periods up to and including June 30, 1992. Section 4.3. Other Coverages. The Facility may provide other coverages similar to or related to those listed. This agreement shall not be construed to require a Member to contract with the Facility for coverages other than the coverages mandated by Section 4.2. Any additional coverages offered by the Facility subsequent to its first year of operation shall be offered on a voluntary basis and shall be priced, accounted for, and in all other ways kept separate by the Facility from the assets and liabilities attributable to the coverages provided initially. Section 4.4. Limits. The Facility may establish the limits of its responsibility to indemnify and defend Members and may establish deductibles and retentions for Members with respect to the coverages provided. The amount of each kind of coverage provided by the Facility in excess of any retention or deductible of a Member shall be the same for each Member. 217 Section 4.5. Reserves. The Facility shall periodically establish and maintain adequate reserves for the indemnifications it has undertaken to provide. ARTICLE V PAYMENTS Section 5.1. Initial Payment. On or before July 1, 1987, each Member shall make an initial payment to the Facility in an amount established by the Board of Directors. Members admitted to the Facility subsequent to July 1, 1987, shall made an initial payment in an amount established by the Board of Directors and shall be subject to such terms and conditions as are prescribed by the Board of Directors. Section 5.2. Periodic Payments. Each Member shall make payments annually, or for such other periods as are required by the Board of Directors, in amounts established by the Board of Directors as a condition of receiving the coverage and related services to be provided by the Facility for the period for which the payment is required. Periodic payment amounts may be established by the Facility for a Member based only upon factors which are reasonably related to the exposure of the Facility for the coverages to be provided for the Member. Section 5.3. Additional Payments. If the Board of Directors determine that: (a) The assets of the Facility are likely insufficient to meet the likely obligations and expenses of the Facility; or (b) The assets of the Facility attributable to a particular year or years are likely insufficient to meet the likely obligations and expenses of the Facility attributable to the same year or years; or (c) The initial payments of Members have been used, in whole or in part, to meet obligations of the Facility; then the Board of Directors may levy an assessment or assessments for additional payments upon its Members and, in the case of an assessment pursuant to subparagraph (a) or (b) of this section, upon terminated or withdrawn Members who were Members during the period that gave rise to the assessment. An assessment against a terminated or withdrawn Member shall be levied on the same basis as it is levied against Members and, if the terminated or withdrawn Member was a Member for only a part of the period which gives rise to the assessment, then appropriate account shall be taken of the partial period of membership of the terminated or withdrawn Member. Assessment for additional payments shall be due and payable on the date set by the Board of Directors. For an assessment for additional payment pursuant to 218 subparagraph (a) or (b) of this section, in no case shall the total additional payments assessed for each year for which an assessment is levied be greater than the difference between the total periodic payments made for each respective year (less administrative expenses attributable to the same year) and the dollar limits of coverage provided to each Member by the Facility in each respective year. As used in this section, the term "dollar limits of coverage" shall not be construed to include any limits of coverage provided by the Facility to the extent the Facility had in force excess insurance, stop-loss insurance, reinsurance, or similar insurance to the limit the exposure of the Facility. For an assessment pursuant to subparagraph (c) of this section, in no case shall the total additional payments assessed be greater than the portion of initial payments established by the Facility pursuant to Section 5.1 which have been used to meet obligations of the Facility. Additional payments to defray an estimated insufficiency pursuant to subparagraph (a) or (b) of this section shall be assessed against each Member (and, where authorized, each terminated and withdrawn Member) according to the following formula: the periodic payments made by the Member, terminated Member, or withdrawn Member for the coverage period or periods giving rise to the assessment shall be calculated, that sum shall be divided by the total periodic payments for the same coverage period or periods made by all Members during that coverage period or periods; and then the quotient derived shall be multiplied by the total estimated insufficiency. Additional payments assessed pursuant to subparagraph (c) of this section shall be assessed against each Member according to the following formula: each Member's initial payment shall be divided by the total of all initial payments made by the Members to be assessed, and then the quotient derived shall be multiplied by the total amount to be assessed. The Board of Directors may adopt a formula for allocating an assessment for additional payments among its Members (including, where authorized, terminated or withdrawn Members), which formula may be different than that provided by this section. Any such new formula shall be adopted by written resolution of a majority of the Board of Directors and shall be fairly and equitably only upon one or more of the following factors: (a) periodic payments of Members; (b) initial payments of Members; and/or (c) loss experience of Members. Section 5.4. Payment Schedule. The first payments required pursuant to Section 5.1, and 5.2, shall be those set forth on Schedule A attached to and made part of this Agreement. Section 5.5. Excess Assets. If the Board of Directors determines that the assets of the Facility are likely more than sufficient to meet the likely obligations and expenses 219 of the Facility, or if the Board of Directors determines that the assets of the Facility attributable to a particular year or years are likely more than sufficient to meet the likely obligations and expenses of the Facility attributable to the same year or years, the Board of Directors shall either return the surplus to its Members, credit the surplus toward future Member payments or provide for increased or expanded coverages for its Members. The Board of Directors shall return surplus, credit surplus against future payments or provide for increased or expanded coverages for its Members on a fair and equitable basis. Surplus shall be returned or credited according to the following formula: Each Member's periodic payment for the year or years that gave rise to the surplus shall be divided by the total periodic payments for the same year or years by all Members and then the quotient derived shall be multiplied by the total surplus for the same year or years. The Board of Directors may adopt a different formula for allocating surplus among its Members, which formula shall be adopted by written resolution of a majority of the Board of Directors and shall be based fairly and equitably only upon one or more of the following factors: (a) periodic payments of Members; (b) initial payments of Members; and/or (c) loss experience of Members. Section 5.6. Actuarial Advice. Initial Payments pursuant to Section 5.1, Periodic Payments pursuant to Section 5.2, Additional Payments pursuant to Section 5.3, and actions pursuant to Section 5.5 shall be established by the Board of Directors only after consideration of advice and recommendations of an actuary or consulting actuary certified by the Casualty Actuarial Society as qualified to provide such advice for the coverages provided by the Facility. Section 5.7. Ownership and Investment. The Facility shall be the owner of the payments made to the Facility and of the assets of the Facility. The Facility may hold, disburse, invest and reinvest its funds and sell, transfer, encumber or otherwise manage its assets as it deems necessary and appropriate. The Facility shall establish and maintain at all times a prudent investment policy which is reasonably expected to conserve the assets of the Facility, provide a reasonable investment on return, and enable the Facility to meet its obligations to Members. Funds and assets of the Facility shall be used only for the benefit of its Members and consistent with this Agreement. 220 ARTICLE VI WITHDRAWAL OF MEMBERS Section 6.1. Voluntary Withdrawal. A Member may not withdraw from the Facility effective prior to July 1, 1992. A member shall provide written notice of withdrawal to the Board of Directors and to each Member of the Facility not less than two years prior to the date upon which withdrawal is to be effective. Once a notice of withdrawal is given, it shall be irrevocable, except that it may be revoked by the withdrawing Member with the consent of a majority of the Board of Directors. Section 6.2. Effect of Withdrawal. (a) For coverage provided on an occurrence basis prior to the effective date of withdrawal, the withdrawing Member shall be covered only for occurrences prior to the effective date of withdrawal and during which an Indemnification and Risk-Management Contract was in effect between the Facility and the withdrawing Member covering the occurrence. For coverage provided on a claims made basis prior to effective date of withdrawal, the withdrawing Member shall be covered only for claims made prior to the effective date of withdrawal and during which an Indemnification and Risk-Management Contract was in effect between the Facility and the withdrawing Member covering the claim. A withdrawing Member shall, however, remain subject to assessments for additional payments attributable to the years or portions of years the withdrawing Member was a Member of the Facility, provided that any such assessment shall be levied upon the withdrawing Member on the same basis as it is levied upon Members. (b) A Member who withdraws as of a date prior to the completion of its fifth consecutive year of Membership shall be entitled to no return of its payments to the Facility, including payments pursuant to Sections 5.1, 5.2, and 5.3, and shall be entitled to no return of funds or the benefit of other actions pursuant to Section 5.5. (c) A Member who withdraws effective on or after its fifth year of membership with appropriate written notice shall be entitled to a return of funds from the Facility. Subject to any terms or conditions prescribed pursuant to Section 5.1, the amount to be returned shall be equal to the amount of the withdrawing Member’s initial payment to the Facility divided by the total initial payments made by all Members multiplied by a sum equal to the excess of assets over liabilities as shown on the annual audit conducted for the Facility for the fiscal year ending immediately before the effective date of the withdrawal. The amount to be returned shall in no event exceed the withdrawing Member's initial payment. The funds shall be paid not later than one year from the date of withdrawal. A Member who withdraws on or after the completion of its fifth year of membership shall not be entitled to receive any return of payments 221 pursuant to Section 5.5, except £or any return of payments established and declared by the Facility prior to the date of withdrawal but which have not yet been paid by the Facility. Section 6.3. Set-off. The Facility shall have the right of set-off against a withdrawing Member. The withdrawing Member shall have the right of set-off against the Facility. Section 6.4. Reductions in Coverages. Notwithstanding any other provision of this Agreement, a Member may withdraw from the Facility effective at the end of any fiscal year of the Facility, upon written notice of 30 days to the Facility, if the Facility: (a) significantly reduces the limits of coverage offered through the Facility as compared to the limits of coverage provided by the Facility for its first year of operation; or (b) significantly reduces the kinds of coverage offered through the Facility as compared to the kinds of coverage provided by the Facility for its first year of operation. A Member that withdraws pursuant to this section shall be entitled to the return of any initial payments made by the Member to the Facility pursuant to Section 5.1 and to participate in and received any return of surplus or payments subsequently made by the Facility which are attributable to the period during which the withdrawn Member was a Member. ARTICLE VII DISSOLUTION Section 7.1. Action for Dissolution. The operations of the Facility shall be terminated, except as provided in this article, and the Board of Directors shall proceed to dissolve the Facility, upon the receipt of a petition for dissolution from: (a) not less than a majority of the Members; or (b) from Members whose payments to the Facility in the preceding coverage period accounted for not less than 50 percent of the total payments received by the Facility from Members during that period. A petition for dissolution shall state the effective date of dissolution, which date shall not be sooner than 90 days from the date of the petition. Section 7.2. Cessation of Coverage. The Facility shall not enter into new contracts for coverage which have effect for periods commencing on and after the effective date of dissolution. Section 7.3. Continued Operations. On and after the effective date of dissolution, the Facility shall continue its operations as is reasonably necessary to discharge its 222 obligations to Members and other; shall retain sufficient assets to pay liabilities arising after the date of dissolution with respect to coverages provided before dissolution; shall endeavor to extinguish the obligations of the Facility through the economical purchase of insurance to cover past exposures, the sale of assets in exchange for liabilities, or otherwise; shall continue to manage and invest its assets; and, in general, shall endeavor to wind up the affairs of the Facility as soon as it can be accomplished economically. Section 7.4. Excess or Deficient Funds. After the Facility has discharged, extinguished, or made adequate provision for its obligations to its Members and others, any excess assets shall be reduced to cash and returned to the Members on a fair and equitable basis. Excess assets shall be returned to each Member in an amount equal to the Member's total initial payment divided by the total initial payments made by all who are Members of the Facility who were Members on the date immediately preceding the effective date of dissolution multiplied by the excess assets as determined pursuant to this Article. If the Facility is determined to have insufficient funds to meet its obligations, then it shall assess Members (and, where authorized, terminated and withdrawn Members) to the extent allowed pursuant to Section 5.3. ARTICLE VIII Board of Directors Section 8.1. Powers and Selection. The powers granted to the Facility by this Agreement or otherwise shall be vested in and exercised by a Board of Directors. The board of Directors shall consist of one representative from each Member designated pursuant to and in accordance with the policies of the respective Member. A Director shall serve until a successor is designated by the Member. Section 8.2. Terms of Directors. A Director shall serve at the pleasure of the Member the Director represents. Section 8.3. Bylaws. The Board of Directors shall adopt bylaws to govern the conduct of the Board of Directors and the operation of the Facility. The Bylaws may include provisions for the indemnification by the Facility of directors, officers, Members, and others to the extent allowed by law, and may provide for the purchase of insurance in addition to or instead of indemnification. The Bylaws may provide for the election by the Board of such officers of the Facility as are deemed necessary and appropriate. Section 8.4. Committees. The Board of Directors shall establish such committees of Directors as it deems necessary 223 and appropriate to perforin its duties. The Board of Directors may delegate authority to such committees. ARTICLE IX GENERAL POWERS OF THE BOARD OF DIRECTORS Section 9.1. Generally. In addition to the powers granted to the Board of Directors elsewhere in this Agreement or by law, the Board of Directors shall have the powers set forth in this article. Section 9.2. Powers. The Board of Directors shall have the power to: (a) Make and enter into contracts; (b) Incur debts, liabilities and obligations not otherwise prohibited by law; (c) Acquire, hold, dispose of, encumber or lease real or personal property or securities; (d) Invest funds of the Facility; (e) Sue or be sued in its own name, and take all measures necessary or desirable in the prosecution or defense of claims; (f) Establish risk management, loss avoidance and loss control procedures and advise and educate Members in loss control and risk reduction; (g) Purchase insurance related to the operation of the Facility for its Members and others; (h) Employ and oversee employees and agents and contract for services; (i) Employ claims adjustment services, legal counsel, accountants, actuarial and provide for such other services as the Board of Directors shall deem necessary; (j) Contract for excess insurance and reinsurance as the Board of Directors finds necessary and proper; (k) Determine and establish general policies, procedures, rules and regulations for operation of the Facility; (1) Delegate such authority and responsibility to others, whether or not employed by the Facility, as the Board of Directors deems necessary or advisable and which is not otherwise prohibited by law. Section 9.3. Exercise of Powers. The powers granted to the Board pursuant to this Article shall be exercised on behalf of the Facility and its Members and in furtherance of the purposes of this Agreement. ARTICLE X FISCAL OPERATIONS Section 10.1. Banking. The Board may operate such bank accounts or other depository arrangements as it shall deem necessary and authorize a person as signatory on 224 accounts. Section 10.2. Annual Audit. An annual audit shall be made of the Facility by certified public accounts designated by the Casualty Actuarial Society. The audited statement shall be presented on the basis of generally accepted accounting principles and shall be accompanied by an actuarial certification as the adequacy or inadequacy of the reserves of the Facility. The annual audit shall be transmitted to each Member. ARTICLE XI CLAIMS ADJUSTMENT POLICIES Section 11.1. In General. In addition to other policies and procedures, the Facility shall establish policies and procedures for reporting, adjusting, settlement and litigation of claims against Members. The policies and procedures shall be consistent with and conform to the provisions of the Article. Section 11.2. Settlement of Claims. A Member against whom a claim has been made shall have the right to approve any settlement of that claim. If a Member refuses to approve the settlement of a claim against that Member, then the Member shall be liable for the excess of the amount ultimately awarded to the claimant including loss adjustment expenses of the Facility on and after the date the Member rejected the proposed settlement over the proposed settlement amount. No amount in excess of the proposed settlement shall be included in calculating whether any retention or deductible applicable to the Member has been exhausted. Section 11.3. Defense of Claims. For any claim against a Member, whether or not the Facility may be liable to the Member for all or a portion of the claim, the Member shall be entitled to defend the claim with legal counsel employed in-house or as general counsel by the Member. Prior to electing to defend through in-house counsel, the Member shall consult with the Facility. None of the costs of defense through in-house counsel shall be included in calculating the liability of the Facility to the Member, if any, nor in calculating whether any retention or deductible applicable to the Member has been exhausted. For any claim against a Member, whether or not the Facility may be liable to the Member for all or a portion of the claim, the Member shall be entitled to select counsel of its choice from a list of counsel approved by the Facility. Upon the commencement of operation of the Facility, the Board shall establish a committee to develop a list of counsel acceptable for the defense of claims against Members for which the Facility may be liable. At least one half of 225 the member of the committee shall be in-house legal counsel or general counsel for Members of the Facility. The list developed by the Committee shall be submitted to and approved or disapproved, in whole or in part, by the Board within 120 days after the commencement of operation of the Facility. The board's approval shall not be withheld unreasonably. The Board may, from time to time, amend the list of approved counsel by addition or deletion, or select special counsel, after consultation with the committee. ARTICLE XII EFFECT OF AGREEMENT Section 12.1. The obligations and responsibilities of the Members set forth in this Agreement include the obligation to take no action inconsistent with this Agreement as originally executed or validly amended. This Agreement represents the entire agreement of the parties, may be executed in counterpart and/or duplicate originals, and shall be a valid and binding obligation of the Member. Except to the extent of the financial payments to the Facility agreed to herein, or such additional obligations as may come about through amendment hereto, no Member agrees to contracts herein to be held responsible for any claims in tort, contract, or otherwise made against any other Member or against the Facility. The contracting parties intend to create a Michigan Higher Education Group Self-Insurance and Risk-Management Facility for joint risk management only within the scope of this Agreement and nothing herein contained shall be deemed to create any relationship of surety, indemnification or responsibility between Members for debts or claims against any other Member or such Member's employees, to create any third-party beneficiary relationship, nor to create any debt or obligation of the State of Michigan. ARTICLE XIII AMENDMENTS Section 13.1. Amendments to this Agreement may be made only in writing signed by all Members of the Facility. ARTICLE XIV EFFECTIVE DATE Section 14.1. This Agreement shall be effective as to a Member when the Governing Board of that Member has authorized membership in and made its initial payment to the Facility. 226 ARTICLE XV MISCELLANEOUS Section 15.1. Governing Law. This Agreement is made and entered in the State of Michigan and shall be governed by the laws of the State of Michigan. Section 15.2. Entire Agreement. This written Agreement consisting of fifteen Articles shall comprise the entire agreement and understandings of the signatories. Section 15.3. Notices. All notices required or permitted by this Agreement shall be sent to the President of each Member. 227 IN WITNESS WHEREOF, the undersigned have set their hands to this Participation Agreement this twenty-fifth day of June, 1987. THE BOARD OF TRUSTEES OF CENTRAL MICHIGAN UNIVERSITY THE BOARD OF REGENTS OF EASTERN MICHIGAN UNIVERSITY By:____________________ . ______ By:__________________________ Its:__________________________ Its:_________________________ THE BOARD OF CONTROL OF FERRIS STATE COLLEGE THE BOARD OF CONTROL OF GRAND VALLEY STATE COLLEGE By:___________________________ Bv: Its:__________________________ Its:_________________________ THE BOARD OF TRUSTEES OF MICHIGAN STATE UNIVERSITY THE BOARD OF CONTROL OF MICHIGAN TECHNOLOGICAL UNIV. By:___________________________ By:__________________________ Its:__________________________ Its:_________________________ THE BOARD OF CONTROL OF NORTHERN MICHIGAN UNIVERSITY THE BOARD OF TRUSTEES OAKLAND UNIVERSITY By:___________________________ By:__________________________ Its:__________________________ Its:_________________________ THE BOARD OF GOVERNORS OF WAYNE STATE UNIVERSITY THE BOARD OF TRUSTEES OF WESTERN MICHIGAN UNIVERSITY By:___________________________ By:__________________________ I Its: Its: APPENDIX C ARTICLES OF INCORPORATION I 228 ARTICLES OF INCORPORATION OF MICHIGAN HIGHER EDUCATION GROUP SELF-INSURANCE AND RISK-MANAGEMENT FACILITY (A Michigan Nonprofit Corporation) These Articles of Incorporation are signed by the incorporator for the purpose of forming a nonprofit corporation pursuant to the provisions of Act 162, Public Acts of 1982 (the "Act"), as follows: ARTICLE I The name of the corporation is Michigan Higher Education Group Self-Insurance and Risk-Management Facility. ARTICLE II 1. The purposes for which the Corporation is organized are as follows: a. Provide for the pooling of certain risks solely for the benefit of its Members, all of which Members shall be universities or colleges existing pursuant to the Michigan Constitution of 1963 whose income is exempt from federal income taxation pursuant to Section 115 of the Internal Revenue Code of 1986, as amended, or corresponding provisions of future internal revenue law (the "Code"); provide coverage for certain risks for its Members; undertake risk management and loss control services and programs for its Members; provide indemnity to Members against loss commonly covered by insurance; adjust claims against Members; and provide for legal defense in connection with certain losses or potential losses. i b. Conduct any and all such activities, exercise any and all such powers and receive and administer assets as allowable under the Act, consistent with these Articles, and as necessary and proper in order to efficiently achieve the foregoing. 2. No part of the net earnings of the Corporation shall inure to the benefit of any officer or director of the Corporation, or to any private individual, provided however, that, for purposes of this Article II, Section 2, no Member whose income is exempt from federal income taxation pursuant to either Code Section 115 or Code Section 501(C)(3) shall be considered a private individual. 229 ARTICLE III 1. basis. The Corporation is organized upon a membership 2. The Corporation has only one class of membership, which, subject to the provisions of a certain Participation Agreement executed by each of the Members of the Corporation (the "Participation Agreement"), has full voting rights and powers and all other rights and powers, and no qualifications, limitations or restrictions. ARTICLE IV The Corporation shall conduct its affairs as provided by the Participation Agreement according to its terms as they may provide from time to time. ARTICLE V 1. The assets which the Corporation possesses are: Real Property - None Personal Property - None 2. The Corporation is to be financed by gifts, grants, contributions and fees and revenues from the provision of charitable or educational services, or services which would lessen the burdens of government. ARTICLE VI 1. The address and the mailing address of the initial registered office is: One Michigan Avenue Suite 900 Lapsing, MI 48933 2. The name of the initial resident agent at the registered office is: Legal Consultant 230 ARTICLE VII The name and address of the incorporator is as follows: Name Business Address Legal Consultant One Michigan Avenue Suite 900 Lansing, MI 48933 ARTICLE VIII The term of the Corporation's existence is perpetual. ARTICLE IX Any action required or permitted by the Act to be taken at an annual or special meeting of Members may be taken without a meeting, without prior notice, without a vote, if a consent in writing, setting forth the action so taken, is signed by Members having not less than a minimum number of votes that would be necessary to authorize or take the action at a meeting at which all Members entitled to vote thereon were present and voted. Prompt notice of the taking of the corporation action without a meeting by less than unanimous written consent shall be given to Members who have not consented in writing. ARTICLE X In the event of the dissolution of the Corporation, all of the Corporation's assets, real and personal, shall be distributed in accordance with the Participation Agreement; provided that if, at the time of the Corporation's dissolution, any Member which would, pursuant to the Participation Agreement, receive assets on dissolution has ceased to be exempt from federal income tax under either Code Section 501(c)(3) or Code Section 115, or it is impossible or impractical to distribute assets to any such Member, then the Corporation's assets shall be distributed in accordance with the Participation Agreement to Members whose income is exempt from federal income tax pursuant to either Code Section 501(c)(3) or Code Section 115. Any such assets not so disposed of, for whatever reason, shall be disposed of by the order of the Circuit Court for the County of Ingham to the State of Michigan to be used exclusively for public purposes. 231 ARTICLE XI In the event that the Corporation is exempt pursuant to code Section 501(c)(3), then: a. The Corporation shall operate and act exclu­ sively for charitable and educational purposes and to lessen the financial burdens of government. b. Notwithstanding any other provision of these articles, the Corporation shall not carry on any activity not permitted to be carried on (i) by an organization which is described in Section 501(c)(3) of the Code and is exempt from federal income tax under Section 501(a) of the Code, or (ii) by an organization contributions to which are deductible under Section 170(c)(2). c. No substantial part of the activities of the Corporation shall be to carry on propaganda or otherwise attempt to influence legislation. d. The Corporation shall not participate or intervene in (including the publishing or distribution of statement) any political campaign on behalf of any candidate for public office. e. No substantial part of the activities of the Corporation shall consist of providing insurance as prohibited by Code Section 50 1 (m). f. No part of the net earnings of the Corporation shall be distributed to, or inure to the benefit of, any director or officer of the Corporation or any private individual as prohibited by Code Section 501(c)(3). ARTICLE XII In the event the Corporation is determined to be a "private foundation," as that term is defined in Code Section 509(a), then for the purpose of complying with the requirements of Code Section 508(e), for all taxable years commencing on or after the date on which these articles were filed, the Corporation shall: a. Distribute its income and such part of its capital as may be required by laws for each taxable year at such time and in such manner as not to become subject to the tax on undistributed income imposed by Code Section 4942; b. Not engage in any action of self-dealing as defined in Code Section 4941; 232 c. Not retain any excess business holdings as defined in Code Section 4943; d. Not make any investments in such manner as to subject it to tax under Code Section 4944; and e. Not make any taxable expenditures as defined in Code Section 4945. IN WITNESS WHEREOF, the undersigned, the incorporator of the above-named Corporation, has hereunder signed the Articles of Incorporation on the 23rd day of May. Legal Consultants i APPENDIX D BYLAWS 233 BYLAWS OF MICHIGAN HIGHER EDUCATION GROUP SELF-INSURANCE AND RISK MANAGEMENT FACILITY (A Michigan Nonprofit Corporation) ARTICLE I OFFICES Section 1.1. Principal Office. The principal office and registered office of Michigan Higher Education Group Self-Insurance and Risk Management Facility (the "Corpora­ tion") shall be located at _________________________________ __________________________ , or such other place as the Board of Directors shall from time to time determine. Section 1.2. Other Offices. The Corporation may have offices at such other places as the Board of Directors may from time to time determine. ARTICLE II PURPOSE Section 2.1. General. The purposes of the Corporation are as set forth in Article II of the Articles of Incorporation of the Corporation and in a certain Participation Agreement executed by each of the Members of this Corporation ("the Agreement"), according to its original terms or according to its terms as it may subsequently be amended. The Corporation shall act at all times in accordance with the Agreement. A copy of the Agreement is attached to the original copy of these Bylaws as Exhibit A. ARTICLE III MEMBERS Section 3.1. Eligibility. Termination, Termination Rights and Obligations. The terms and conditions concerning eligibility, withdrawal, termination, withdrawal and termina­ tion rights and obligations of Members shall be governed by the Agreement. Section 3.2. Action bv Members. (a) Each Member shall act through its respective Director which Director shall be appointed and serve as provided in the Agreement. 234 (b) An annual meeting of the Members for election of Directors and for such other business as may come before the meeting shall be held on ______________ of each year beginning in 1987, unless such action is taken by written consent as provided in the Corporation's Articles of Incorporation. Written notice of such meeting shall be given, either personally or by mail, to each Member not less than ten (10) nor more than sixty (60) days before the date of the meeting. (c) A majority of Members shall constitute a quorum at the meeting. (d) Except as provided in the Agreement or the Michigan Nonprofit Corporation Act (the "Act"), each Member is entitled to one vote in each matter submitted to a vote. ARTICLE IV BOARD OF DIRECTORS Section 4.1. Powers and Selection. The powers granted to the Corporation by the Agreement or otherwise shall be vested in and exercised by a Board of Directors. Section 4.2. Terms and Conditions Governed by Agreement. The terms and conditions concerning the selection, powers, terms, replacement and committees of the Board shall be governed by the Agreement. Section 4.3. Meetings. (a) The Board of Directors may set the time and place for regular meetings of the Board. The Board of Directors shall meet at least once per year. (b) The date of the annual meeting of the Board of Directors of the Corporation shall be set by the Board of Directors. (c) Special meetings of the Board of Directors may be called by the Secretary of the Corporation upon the request of the President or one (1) of the Directors. (d) Meetings of the Board of Directors may be held at any place or places. Section 4.4. Notice of Meetings. Written notice shall be given to the Directors at least ten (10) but not more than (60) days prior to an annual meeting of the Board of 235 Directors. No notice is required for a regular meeting of the Board of Directors. Special meetings of the Board of Directors shall be held pursuant to notice of the time, place and purpose thereof either delivered personally or sent by telephone, telegraph or mail to each Director not less than twenty-four (24) hours prior to the meeting and if by telephone or telegraph, confirmed in writing before or after the meeting. Notwithstanding the foregoing, no notice need be given to any person who submits a signed waiver of notice before or after a meeting, or who attends a meeting without protesting any lack of notice. Section 4.5. Resignation. A Director may resign by giving written notice to the Secretary of the Corporation and his or her respective Member which notice shall be immediately forwarded to the Board of Directors. Unless otherwise specified in the resignation, the resignation shall take effect upon receipt by both the Secretary and the Director's respective member, and the acceptance of the resignation shall not be necessary to make it effective. Section 4.6. Quorum. The presence of a majority of the total number of Directors then in office shall constitute a quorum for the transaction of business. Section 4.7. Voting. The vote of a majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors unless a greater vote is required by law, by the Articles of Incorporation, the Agreement or by these Bylaws. Each Director present shall have one vote. Section 4.8. Compensation of Directors. The Directors, as such, shall not be compensated for the performance of services for the Corporation, but may, by resolution of the Board of Directors, be reimbursed for expenses incurred on behalf of the Corporation. ARTICLE V OFFICERS Section 5.1. Officers. The officers of the Corporation shall be a President, a Vice President, a Secretary and a Treasurer. The Officers shall be elected by the Board of Directors at its first meeting and at each annual meeting of the Board of Directors thereafter. Officers shall be elected from among the members of the Board of Directors. The Board of Directors of the Corporation may from time to time elect or appoint other officers including additional Vice-Presidents, Assistant Treasurers and Assistant Secretaries, as the Board may deem advisable, and such officers shall have such authority, and shall perform 236 such duties as from time to time may be prescribed by the Board of Directors. Any two or more offices may be held by the same person. In addition to the powers and duties of the officers of the Corporation as set forth in these Bylaws, the Officers shall have such authority and shall perform such duties as from time to time may be determined by the Board of Directors. Section 5.2. President. The President shall be the chief operating officer of the Corporation. He or she shall preside at all meetings of the Board of Directors. The President shall perform such other duties and functions as shall be assigned to him or her from time to time by the Board of Directors. He or she shall be, ex officio, a member of all standing committees. The President shall, unless otherwise provided by resolution of the Board of Directors, possess the power and authority to sign all certificates, contracts, instruments, papers and documents of every conceivable kind and character whatsoever in the name of and on behalf of the Corporation. Section 5.3. Vice-President. One Vice-President shall perform the duties and exercise the powers of the President during the absence or unavailability of the President, and shall have such additional powers and perform such additional duties as shall from time to time be assigned by these Bylaws or by the Board of Directors. Section 5.4. Secretary. The Secretary shall keep the minutes of all meetings of the Board of Directors in books provided for that purpose and sign, with the President of the Board of Directors, in the name of the Corporation, all contracts when authorized to do so. The Secretary shall have charge of such books and papers as the Board of Directors shall direct, all of which shall at all reasonable times be open to the examination of any Director, and in general perform all the duties incident to the office of Secretary, subject to the control of the Board of Directors. Section 5.5. Treasurer. The Treasurer shall have custody of all the funds and securities of the Corporation, endorse checks, notes and other obligations for collection on behalf of the Corporation and shall deposit the same to the credit of the Corporation in such bank or banks or depository or depositories as the Board of Directors may designate; sign all receipts and vouchers for payments made to the Corporation; enter or cause to be entered regularly in the books of the Corporation kept for that purpose, full and accurate accounts of all moneys received and paid on account of the Corporation, and whenever required by the Board of Directors shall render statements of such accounts; shall, at all reasonable times, exhibit the books and accounts to any Director of the Corporation, and shall perform all acts incident to the position of Treasurer, 237 subject to the control of the Board of Directors. Section 5.6. Assistant Secretary and Assistant Treasurer. The Board of Directors may from time to time by resolution delegate to any Assistant Treasurer or Treasurers any of the powers or duties herein assigned to the Treasurer; and may similarly delegate to any Assistant Secretary or Secretaries any of the powers or duties herein assigned to the Secretary. Section 5.7. Giving of Bond by Officers. All officers of the Corporation, if required to do so by the Board of Directors, shall furnish bonds to the Corporation for the faithful performance of their duties, in such penalties and with such conditions and security as the Board shall require. The Corporation shall assume the cost of providing any bond requirement hereunder. Section 5.8. Compensation of Officers. No officer of the Corporation shall be compensated for the performance of services for the Corporation, but may, by resolution of the Board of Directors, be reimbursed for expenses incurred on behalf of the Corporation. ARTICLE VI COMMITTEES Section 6.1. General. The Board of Directors may designate standing committees with such duties and powers as it may provide pursuant to the Agreement in order to carry out the programs and purposes of the Corporation; and the Board shall further designate the individuals to serve as chairpersons of said standing committees. ARTICLE VII DISSOLUTION Section 7.1. In General. In the event of the dissolution of the Corporation, all of the Corporation's assets, real and personal, shall be distributed in accordance with the Agreement; provided that if, at the time of the Corporation’s dissolution, any Member which would, pursuant to the Agreement, receive assets on dissolution has ceased to be exempt from Federal income tax under either Section 501(3)(c) of the Internal Revenue Code of 1986, as amended, or subsequent corresponding provisions of Federal income tax law (the "Code") or Section 115 of the Code, or it is impossible or impractical to distribute assets to any such Member, then the Corporation's assets shall be distributed in accordance with the Agreement to Members 238 whose income is exempt from Federal income tax pursuant to either Code Section 501(c)(3) or Code Section 115. Any such assets not disposed of, for whatever reason, shall be disposed of by the order of the Circuit Court for the County of Ingham to the State of Michigan to be used exclusively for public purposes. ARTICLE VIII INDEMNIFICATION OF DIRECTORS. OFFICERS AND EMPLOYEES Section 8.1. Actions in the Best Interest of the Corporation. The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a trustee, director, officer, employee or agent of another corporation, business corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a please of nolo contendere or its equivalent, shall not of itself create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that the conduct was unlawful. Section 8.2. Actions by or in Right of the Corporation. The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a trustee, director, officer, employee, or agent of another corporation, business corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the 239 defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of a duty to the Corporation unless and only to the extent that the Court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, he or she is fairly and reasonably entitled to indemnification for such expenses which the Court shall deem proper. Section 8.3. Expenses. To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of the Article of in defense of any claim, issue or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection therewith. Section 8.4. Determination of Indemnification. Any indemnification under Sections 1 and 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee of agent is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Sections 8.1 and 8.2. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum (as defined in Section 4.6 of these Bylaws) consisting of directors who were not parties to such action, suite or proceeding, or (ii) if such quorum is not obtainable, or even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion. Notwithstanding the failure or refusal of the directors of the Corporation or counsel to make provision therefor, such indemnification shall be made if a court of competent jurisdiction made a determination that the director, officer, employee or agent has a right to indemnification hereunder in any specific case upon the application of such director, officer, employee or agent. Section 8.5. Repayment of Expenses. Expenses incurred in defending a civil or criminal action, suit or proceeding described in Section 1 or 2 of this Article may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the Director, Officer, employee or agent to repay such amount unless it shall ultimately be determined that he or she is entitled to be 240 indemnified by the Corporation. Section 8.6. Insurance. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation or is or was serving at the request of the corporation as a trustee, director, officer, employee, or agent of another corporation, business corporation, partnership, joint venture, trust, or other enterprise, against any liability assessed against him or her or the Corporation and incurred by him or her or the Corporation in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article. ARTICLE IX ANNUAL AUDITS AND FISCAL YEAR Section 9.1. In General. Annual audits and the determination of the Corporation's fiscal year shall be conducted as provided in the Agreement. ARTICLE X TRANSFER AND WITHDRAWAL OF MEMBERSHIP Section 10.1. Withdrawal and Termination. The terms and conditions of withdrawal of Members and termination of Members shall be governed by the Agreement. ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.1. Voting Securities. Unless otherwise directed by the Board of Directors, the Chairman of the Board or President, or in the case of their absence or inability to act, the Vice Presidents, in order of their seniority, shall have full power and authority on behalf of the Corporation to attend and to act and to vote, or to execute in the name or on behalf of the Corporation a consent in writing in lieu of a meeting of Members or a proxy authorizing an agent or attorney-in-fact for the Corporation to attend and vote at any meetings of security holders of corporations in which the Corporation may hold securities, and at such meetings he or his duly authorized agent or attorney-in-fact shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation 241 might have possessed and exercised i£ present. The Board of Directors by resolution from time to time may confer like power upon any other person or persons. Section 11.2. Contracts. Conveyances, et c . All conveyances, contracts and instruments of transfer and assignment shall be approved and executed as provided by a resolution of the Board of Directors. Section 11.3. Execution of Instruments. All Corporation instruments and documents including, but not limited to, checks, drafts, bills of exchange, acceptances, notes or other obligations or orders for the payment of money shall be executed or provided by a resolution of the Board of Directors. Section 11.4. Borrowing. Loans and renewals of any loans shall be contracted on behalf of the Corporation as provided by a resolution of the Board of Directors of the Corporation. Section 11.5. Adjourned Meetings. A majority of the Directors present, whether or not a quorum, may adjourn any meeting to another time and place. Notice of such adjourned meeting shall be given even though the time and place thereof are announced at the meeting at which the adjournment is taken. Section 11.6. Method of Giving Notices. Any notice required by statute or by these Bylaws to be given to the directors, or to any officers of the Corporation unless otherwise provided herein or in any statute, shall be given by mailing to such director or officer at his or her last address as the same appears on the records of the Corporation, and such notice shall be deemed to have been given at the time of such mailing. Section 11.7. Action by Written Consent. Action required or permitted to be taken pursuant to authorized vote at any meeting of the Board of Directors or a committee thereof, may be taken without a meeting if, before or after the action, all members of the Board of Directors or the committee consent thereto in writing. Written consent shall be filed with the minutes of the proceedings of the Board or committee. Such consent shall have the same effect as the vote of the Board or committee for all purposes. Section 11.8. Participation in Meeting bv Telephone. By oral or written permission of a majority of the Board of Directors, a member of the Board of Directors or of a committee designated by the Board may participate in a meeting by means of conference telephone or similar 242 communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this Section 11.8 constitutes presence in person at the meeting. Section 11.9. Corporate Seal. If the Corporation has a corporate seal, it shall have inscribed thereon the name of the Corporation and the words "Corporate Seal" and "Michigan." The seal may be used by causing it or a facsimile to be affixed, impressed or reproduced in any other matter. ARTICLE XII AMENDMENTS AND ADDITIONS Section 12.1. Amendments. These Bylaws may be altered or amended at any duly called meeting of the Directors, at which a quorum is present by a majority vote, provided that written notice naming the substance of the proposed amendment has been sent to each director of the Corporation at least ten (10) days in advance of the date of meeting, unless such notice is waived by all the directors. Notwithstanding any other provision of these bylaws to the contrary, this Article and Article XIII may only be amended by an unanimous vote of the Members. Section 12.2. Rules and Regulations. The Board of Directors may adopt additional rules and regulations, general or specific, for the conduct of their meetings, and additional rules and regulations, general or specific, for the conduct of the affairs of the regulation shall be inconsistent with or in contravention of any provision of the Articles of Incorporation, the Agreement or these Bylaws. APPENDIX E LIST OF INTERVIEWEES AND TOPICS OF DISCUSSION 243 LIST OF INTERVIEWEES AND TOPICS OF DISCUSSION 1. Brooks, Mary: October 15, 1987. A. Clarification of method for selection of legal consultants. B. Rationale of assignment of individuals to the Implementation Task Force. 2. Shaw, Lyle: December 3, 1987. A. Clarification on board approval to participate in pool (Northern Michigan University). 3. Stevens, Glenn: December 22, 1987. A. Clarification of legislative process involving (H.B. 4407) 4. Ward, Jerre: September 22, 1987. A. Clarification of method for determining choice of actuarial consultants.