By Joseph Fink and Ryan Shannon
David Dykhouse, who passed away on September 15, 2017 in Petoskey, Michigan, just shy of his 81st birthday, was a farm boy from the Midwest who came to be intensely interested in the regulation of the insurance industry. He twice served as the Michigan Insurance Commissioner, first during the tumultuous years from 1966 to 1969 and then again in years of marked change from 1991 to 1995. With his passing, Michigan loses a great intellect and a committed public servant. He is of exemplary note today, especially in this era of almost daily questions as to the competency of various public servants and alleged criminal acts by other public servants.
Dykhouse graduated from the University of Michigan Law School in 1962. Four years later, at the mere age of 29—and then a deputy in the Department of Commerce—Dykhouse found himself elevated by Governor George Romney to helm the insurance oversight of the seventh largest state in the U.S.A. In July of 1967, he came face to face with the cataclysm of the Detroit riots, during which at least 43 people died. Thousands of storefronts were burned or looted, and hundreds of homes and other buildings suffered severe damage. In his concern for how the city would be rebuilt afterwards, Dykhouse successfully urged President Johnson and Governor Milliken not to declare an insurrection and to take great care in how and under what terms federal troops were deployed, in that, if done incorrectly, it could well have voided property insurance coverages on thousands of structures in the city.
While Commissioner, and in his role as a member of the National Association of Insurance Commissioners, Dykhouse was a draftsmen of the Model Holding Company Act—a law since enacted in every state—which imposes regulation and oversight on not only insurers but also their relationships with affiliate companies. He further authored statutes on financial condition and guaranty associations to assure solvency and protections for consumers in the event of insolvency of insurers. In 1969, he was one of the principal authors of the Michigan Administrative Procedures Act, and served as well on the Administrative Law Commission.
In the early 1970s, he left his position as Commissioner to become a legal advisor to the newly elected Governor William Milliken. When Governor Romney became the Secretary of Housing and Urban Development under President Nixon, Dykhouse joined him as special insurance counsel and in other capacities.
Dykhouse enjoyed substantial success and notoriety in the private sphere. While acting as attorney to industry-leading clients in Michigan and New York in the 1970s and 1980s, Dykhouse literally wrote the book on the “Regulation of Financial Condition of Insurance Companies.” He represented The Dow Chemical Company and Union Carbide on high profile and controversial insurance coverage matters and, as part of the Shearman & Sterling law firm, was at the center of international insurance disputes as well.
In 1991, the State of Michigan came calling again. Dykhouse’s longtime friend from the days of the Romney administration—Judge William Whitbeck—convinced him to leave his fruitful practice and return to his previous post. He agreed to do so without even knowing what he would be paid as Commissioner. Further, at this juncture, he was faced with several new and trying issues that had gone without address by the prior public servants involved in the regulation of Michigan’s insurance markets.
In a first transitory event of his second tour of duty as Michigan’s Commissioner, Dykhouse facilitated, in a complex series of events, the sale of the State Accident Fund to Blue Cross Blue Shield of Michigan. The sale remains among the largest insurance privatizations in history. He also in this same period oversaw numerous legislative changes to the Michigan Insurance Code appropriately broadening the authority of the Commissioner, including new provisions requiring fingerprinting and background checks of officers and directors of insurers plus statutes enhancing financial reporting requirements.
In a second tranche of regulatory commitment, Commissioner Dykhouse had to deal with a number of Michigan domiciled insurers and their holding companies that had either a single owner or were closely held. These insurers posed a threat to the orderly market of insurance in Michigan, and upon review by regulatory auditors, he imposed oversight in the form of supervision, seizure, rehabilitation, or liquidation under applicable statutes and initiated the first use of criminal complaints under punitive provisions of the Insurance Code. Commissioner Dykhouse’s purpose again being the protection of consumers and creditors against losses arising out of mismanaged and poorly run companies. This included the initiation of liquidation proceedings concerning American Commercial Liability Insurance Company and Confederation Life Insurance Company, as well as the continued oversight and liquidation of Great Lakes American Life Insurance Company, Mid-America Life Assurance Company, Commercial Underwriters Insurance Company, Sovereign Life Insurance Company, Woodland Mutual Insurance Company, and HMO West.
In his statutory role as Liquidator, Dykhouse coordinated services from a multitude of sophisticated vendors employing large workforces seeking to claw back funds improperly diverted by the insurer’s owners so as to assure claims were paid as expected and when due. In addition to facing the complexities that come with slowing the descent and dismantling of domiciliary insurers (with national markets in several instances), Dykhouse had to do so while seeking cooperation and satisfaction of many different factions—e.g., guaranty associations, judges, the Attorney General, creditors, policyholders, parent companies, and taxing authorities.
He left the public service of the State of Michigan a second time in 1995 and thereafter dedicated most of his attentions to his new role as the Principal Special Deputy Liquidator for the estate of Confederation Life. Confederation Life was a Canadian company licensed in all fifty states and thus also subject to regulation in Michigan. Despite a long and successful history, the company suddenly collapsed, with liquidation formally filed in 1996. Michigan serves as the “port of entry” for most Canadian life insurers, and so Michigan became the locus of action for the majority of the U.S. claims. The financial collapse of Confederation Life was and remains the largest insurance insolvency in North American history. Dykhouse served as its deputy liquidator for over a decade, marshalling and protecting more than $5 billion in assets and honoring long-term commitments to over 150,000 policyholders in the United States.
Few and likely none have had a fuller insurance life in Michigan (or really anywhere) than David Dykhouse. Thus, Dykhouse was one of the inaugural inductees to the Michigan Insurance Hall of Fame in 1994. He was a true professional as a regulator, attorney, and public servant. He was also a friend to many and an honest broker to all.
A Kaiser Health News article recently called insurance commissioners the “most powerful people you’ve never heard of.” It correctly surmises that few people comprehend the great scope of powers many states confer on their chief insurance regulators. Nor do people—by and large—appreciate the impact on their daily lives of the decisions made by the person charged with the government’s oversight of risk transfer. There have been many stewards of this crucial industry who have performed their work quietly, professionally, and successfully. We in Michigan were fortunate to have had David Dykhouse at the regulatory helm twice when the state and the industry were in marked need of a strong, sophisticated, and successful public servant.
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Joseph Fink is a senior member with Dickinson Wright PLLC and worked for decades on matters with Mr. Dykhouse. Ryan Shannon has recently become a member at Dickinson Wright PLLC and practices in the area of insurance regulation. As a young lawyer, he had the privilege of working with Mr. Dykhouse as well.
