Michigan Court of Appeals; Docket #356914, 356915; Published
Judges Cavanagh, Garrett, and Yates; Authored
Official Michigan Reporter Citation: Forthcoming; Link to Opinion
General / Miscellaneous [§3114]
One-Year Notice Rule Limitation [§3145(1)]
Mend the Hold
Michigan Property and Casualty Guaranty Association (MPCGA – MCL 500.7901, Et Seq.)
In this unanimous, published decision authored by Judge Yates, the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiffs Justin Childers and the Michigan Property & Casualty Guaranty Association’s (“MPCGA”) action against Defendant Progressive Marathon Insurance Company (“Progressive”). The Court of Appeals held, first, that the one-year-notice rule does not apply to actions commenced by either no-fault claimants or the MPCGA against lower priority insurers after a higher priority insurer becomes insolvent. Instead, such claims are subject either to a one-year limitations period which begins to run from the date of insolvency, or the default six-year limitations period set forth in MCL 600.5813 (the Court did not officially decide which was proper, noting only that the plaintiffs’ suit was timely under both). The Court of Appeals held, second, that Shaina Groulx, the driver and owner of the vehicle Childers was traveling in at the time of the subject motor vehicle accident, was an “insured” under a Progressive policy issued to her brother, with whom she lived at the time. As a result, Progressive was the highest priority insurer under the version of MCL 500.3114(4) in effect on the date of the accident, August 6, 2011 (before entitlement for “domiciled relatives” was created).
Justin Childers was catastrophically injured in a car crash while traveling as a passenger in an uninsured vehicle driven by Shaina Groulx. Childers first received no-fault PIP benefits related to his injuries under a policy issued by American Fellowship Mutual Insurance (“American Fellowship”) to Susan Childers, but in June of 2013, American Fellowship became insolvent. The MPCGA thus assumed responsibility for American Fellowship’s obligations under Michigan’s Property and Casualty Guaranty Association Act, MCL 500.7901 et seq., and began looking for other insurers with priority responsibility for Justin’s claim. It eventually identified Progressive, which insured a different vehicle owned by Shaina’s brother, Matthew. Shaina had temporarily moved in with Matthew a few months prior to the accident and had her mailing address changed to Matthew’s. This prompted Childers and the MPCGA to file a claim for no-fault PIP benefits with Progressive pursuant to the former MCL 500.3114(4)(b), based on the policy’s definition of the term ‘insured,’ which they argued included Shaina. The pre-amendment version of MCL 500.3114(4), for reference, provided:
“Except as provided in subsections (1) to (3), a person suffering accidental bodily injury arising from a motor vehicle accident while an occupant of a motor vehicle shall claim personal protection insurance benefits from insurers in the following order of priority:
(a) The insurer of the owner or registrant of the vehicle occupied.
(b) The insurer of the operator of the vehicle occupied.”
The Progressive policy, meanwhile, defined an “insured” as ‘you or any relative who sustains accidental bodily injury in an accident involving a motor vehicle,’ and ‘relative’ as ‘a person residing in the same household as you, and related to you by blood, marriage, or adoption, and includes a ward, stepchild, or foster child. Your unmarried dependent children temporarily away from home will qualify as a relative if they intend to continue to reside in your household.’ Thus, Childers and the MPCGA argued that Shaina was an ‘insured’ and that Progressive, therefore, was “[t]he insurer of the operator of the vehicle operated” for purposes of the former MCL 500.3114(4)(b).
Progressive argued, in response, that it was not responsible for Justin’s claim because of an exclusion in its policy which stated that
“ ‘[c]overage . . . will not apply to any insured person for bodily injury or property damage arising out of the ownership, maintenance, or use of any vehicle owned by a relative or furnished or available for the regular use of a relative, other than a covered auto for which this coverage has been purchased.’ ”
Specifically, Progressive argued that Shaina was excluded from coverage because she owned the vehicle she was driving at the time of the accident, and because said vehicle was not a ‘covered auto’ under the policy. Childers and the MPCGA subsequently filed suit against Progressive, in response to which Progressive argued both that Shaina was excluded under the aforementioned policy provision, and, alternatively, that the plaintiffs’ action was barred by MCL 500.3145(1). The trial court disagreed with Progressive’s statute of limitations defense, but agreed with its argument that Shaina was excluded from coverage under the aforementioned policy provision. As a result, it granted summary disposition in Progressive’s favor.
The Court of Appeals reversed the trial court’s summary disposition order, but first dispensed with the plaintiffs’ argument on appeal that Progressive was barred from advancing its statute of limitations defense by the “mend the hold” doctrine. Specifically, the plaintiffs argued that because Progressive did not base its initial denial of plaintiffs claim on its statute-of-limitations defense, it could not rely on that defense now, in litigation. The Court of Appeals disagreed, for multiple reasons:
“Here, plaintiff and MPCGA cannot contend that Progressive misled them. Additionally, Progressive’s statute-of-limitations defense is not predicated upon the terms of the policy. Instead, Progressive’s argument relies upon statutes, and our Supreme Court has instructed courts not to employ equitable doctrines when they intersect and conflict with the edicts of our Legislature. See Trentadue v Buckler Lawn Sprinkler, 479 Mich 378, 406-407; 738 NW2d 664 (2007). In any event, considering the history of the ‘mend-the-hold’ doctrine, it seems unwarranted to extend the doctrine beyond defenses that involve the terms of a policy. Moreover, plaintiff and MPCGA were ultimately responsible for the timing of this action, even if that timing was eminently reasonable.
Finally, we note that, under MCR 2.111(F)(3)(a), a statute of limitation is an affirmative defense that must be raised in a party’s responsive pleading. The October 2013 denial letter was not issued during litigation. In its responsive pleadings, Progressive properly raised its statute-of-limitations defense. Consequently, the trial court did not err by refusing to apply the ‘mend-the-hold’ doctrine, and thereby allowing Progressive to assert a statute-of-limitations defense.”
The Court then turned to two issues of first impression: (1) whether the one-year-notice rule applies to a claim brought against a lower priority insurer by the MPCGA, even though the MPCGA did not assume responsibility for the claim until more than one year after accident upon the higher priority insurer’s insolvency; and (2) whether the one-year-notice rule applies to a claim brought against a lower priority insurer by a person injured in a car crash who had been receiving benefits from the proper insurer, which then declared insolvency more than one year after the accident. The Court of Appeals found the no-fault act to be silent as to both scenarios, but held that in neither event should the claim be barred because it was not brought within one year of the original accident. Rather, it would be appropriate to apply either the default six-year limitations period set forth in MCL 600.5813, or a one-year limitations period which only begins to run on the date the higher priority insurer declares insolvency. Therefore, since the plaintiffs filed their action within one year of American Fellowship’s insolvency, their complaint was timely.
“To be sure, the one-year limitations period in MCL 500.3145(1) applies when one insurer seeks subrogation from another higher-priority insurer. See Titan Ins Co v North Pointe Ins Co, 270 Mich App 339, 343-344; 715 NW2d 324 (2006). But MPCGA does not simply stand in the shoes of an insured. Mathis, ___ Mich App at ___; slip op at 3. Because the Legislature has seen fit to largely exempt MPCGA from the Insurance Code, MCL 500.7911(3), MPCGA is not subject to the one-year limitations period that applies to a party pursuing benefits under the no-fault act, including other insurers asserting rights to subrogation. And because no such limitations period has been adopted for covered claims brought by MPCGA, it is appropriate to apply the default six-year limitations period in MCL 600.5813 to such claims.
Furthermore, even if MPCGA’s claim against Progressive is governed by the one-year limitations period in MCL 500.3145(1), that claim could not have accrued until the highest-priority insurer was declared insolvent. Until American Fellowship became insolvent, MPCGA did not have any claim against the next-priority insurer. Under MCL 600.5827, unless otherwise expressly provided, the limitations period begins to run from the date the claim accrues. In a case where the applicable statute does not address accrual, MCL 600.5827 makes clear that ‘the claim accrues at the time the wrong upon which the claim is based was done regardless of the time when damage results.’ In other words, the claim accrues on the date the plaintiffs first incurred the harms they assert, not the date the defendant breached its duty. Frank v Linkner, 500 Mich 133, 150; 894 NW2d 574 (2017). Considering MPCGA’s purpose as an insurer of last resort for injured parties and that MPCGA’s potential liability for PIP benefits does not arise until a higher-priority insurer is found to be insolvent, MPCGA should be afforded, at a bare minimum, one year from the date of insolvency to pursue its right to a covered claim. Any other approach would defeat the purpose of the guaranty act if MPCGA could only pursue covered claims that occur within the limitations period for the underlying automobile accident.
In this case, MPCGA filed its complaint against Progressive less than a year after American Fellowship was declared insolvent. Accordingly, the complaint was timely filed, regardless of whether the claim is subject to the one-year limitations period in MCL 500.3145(1) or the six-year limitations period in MCL 600.5813. And turning to plaintiff’s complaint, even viewing plaintiff’s claim as independent from MPCGA’s claim, we agree that it, too, was timely filed. Plaintiff had timely filed a claim and received PIP benefits from American Fellowship, the original responsible insurer. Only after American Fellowship was declared insolvent did MPCGA become involved. But under MCL 500.7931(3), plaintiff was obligated to seek lower-priority insurers who might be required to provide PIP benefits for Justin Childers. Although the priority of insurers is governed by MCL 500.3114(4), plaintiff’s obligation to pursue other priority insurers arises under MCL 500.7931(3) of the guaranty act. Because the Legislature has not adopted any limitations period for claims pursued under the guaranty act, the six-year limitations period applies. Alternatively, to the extent that the one-year limitations period under MCL 500.3145(1) applies, plaintiff’s claim against Progressive did not accrue until American Fellowship was declared insolvent, and plaintiff filed this action less than one year after that event. Therefore, Progressive cannot rely on a statute-of-limitations defense to deny PIP benefits to Justin.”
Next, the Court of Appeals turned to the issue of whether Progressive was Shaina’s insurer for purposes of the former version of MCL 500.3114(4). The Court held that it was, because Shaina indisputably qualified as an ‘insured’ under the policy based on its definitions of the words ‘insured’ and ‘relative.’ Furthermore, the Court determined that the aforementioned exclusionary provision was immaterial, because while it may have precluded Shaina from coverage under the specific circumstances of this accident, Shaina was still an ‘insured’ under the policy, which is all that matters for purposes of Justin’s entitlement under the former version of MCL 500.3114(4)(b).
“As in Sours, the case before us presents a policy exclusion that excludes coverage under a specific circumstance. Specifically, the exclusion purports to preclude Shaina from recovering PIP benefits under the policy because she was not driving a covered auto at the time of the accident. But as in Sours, the exclusion does not change who is an insured person under the policy, so it does not alter the application of MCL 500.3114(4). Indeed, the exclusion only applies to an ‘insured person,’ so Progressive’s reliance upon it is an admission that Shaina was an insured person.”