Michigan Court of Appeals; Docket #295685; Published
Judges Cavanagh, Talbot, and Stephens; Unanimous
Official Michigan Reporter Citation: Forthcoming; Link to Opinion 
On February 1, 2012, the Michigan Supreme Court Granted Leave to Appeal; Link to Order
On December 20, 2012, the MSC REVERSED the COA and REMANDED the case for entry of summary disposition in favor of the defendant; Link to Order:
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Underinsured Motorist Coverage: Setoffs Applicable to Underinsured Motorist Cases
CASE SUMMARY:
In this unanimous published opinion by Judge Talbot, Judge Cavanaugh concurring in the result only, the Court of Appeals upheld the trial court’s determination that the underinsured motorist coverage in a motorcycle insurance policy purchased by decedent from Foremost was an illusory contract and that the decedent’s estate was entitled to recover up to a maximum $20,000 of underinsurance for damages incurred exceeding the $20,000 already paid by the insurer of the negligent owner of the motor vehicle involved in the accident.
Foremost sold a motorcycle insurance policy to decedent Darryl Ile that included “bundled” uninsured and underinsured motorist coverage in an amount equal to the minimum liability coverage limits required under Michigan law of $20,000/$40,000. The policy of insurance contained a definition of underinsured motor vehicle which stated:
“[A] land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury is less than the limit of liability for this coverage.”
“However, …underinsured motor vehicle does not include any vehicle or equipment…[t]o which a bodily liability bond or policy applies at the time of the accident but its limits for bodily injury liability is less than the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which ‘your covered auto’ is principally garaged.”
Darryl Iles was killed when he struck a parked vehicle while driving the motorcycle insured under the Foremost policy. His estate recovered the policy limit of $20,000 from Titan Insurance which insured the parked vehicle. The estate sought to recover an additional $20,000 from Foremost under the underinsured motorist coverage of the policy. Foremost denied the claim and declined any additional payment based upon the language of the policy.
In upholding the trial court determination that the insurance contract provided underinsurance coverage which was “illusory,” the court stated that an illusory contract is defined as “[a]n agreement in which one party gives as consideration a promise that is so insubstantial as to impose no obligation. The insubstantial promise renders the agreement unenforceable.” Under this policy, based on the definition of an underinsured motor vehicle, because the policy’s underinsured coverage limit is equal to the statutory minimum the policy will never provide excess coverage. Other courts have found that a policy with underinsured motorist coverage under which no benefits will ever be paid is illusory.
The court further stated that the doctrine of illusory coverage is applicable where part of the insurance premium is specifically allocated to coverage that turns out to be functionally non-existent. The court rejected Foremost’s argument that under the uninsured motorist portion of the contractual provision which bundled uninsured and underinsured under the same premium coverage could not be considered to be illusory because it was possible to potentially recover benefits under the uninsured motorist portion of the contract. The court stated this argument is disingenuous. The court stated that this is not a matter of overlapping coverage as the decedent could not under this policy ever receive or collect underinsured motorist benefits. Because the declaration page of the policy suggests that the premium encompassed underinsured motorist coverage in addition to or along with uninsured motorist coverage, the court held that the decedent could reasonably believe that his insurance premium payment included some charge for underinsurance.
Finally, the court affirmed the trial court's determination that Foremost was obligated to pay $20,000 dependent upon proof by the plaintiff that damages exceeded the payments already submitted by Titan and restricted to a possible maximum in accordance with the $20,000 limits of the underinsured policy. The court found this resolution consistent with the policy language precluding “duplicate payments for the same elements of loss under this coverage.”