Michigan Supreme Court; Docket No. 126747; Published
Opinion by Justice Young 4-3 (Justices Weaver, Cavanagh and Kelly dissenting)
Official Michigan Reporter Citation: 473 Mich. 457, Link to Opinion 
STATUTORY INDEXING:
Not applicable
TOPICAL INDEXING:
Legislative Purpose and Intent
Uninsured Motorist Benefits: Notice and Statute of Limitations for Uninsured Motorist Coverage
CASE SUMMARY:
In this 4-3 Opinion, the Michigan Supreme Court held that a one year contractual limitation period contained in the insurance policy limiting the time within which a claim for uninsured motorist benefits could be brought was enforceable as written and not “unfair,” “unreasonable,” or an “unenforceable adhesion clause.”
Plaintiff sought benefits under an optional contract provision providing uninsured motorist benefits. Plaintiffs were injured on May 15, 1998 in an automobile accident. The police report did not indicate whether either party was insured. More than one year later, plaintiffs filed a first-party no-fault benefits action against defendant Continental Insurance and a third-party lawsuit for non-economic damages against the other driver. Only after the lawsuit was commenced against the other driver did plaintiffs discover he was uninsured. Plaintiffs then submitted a claim for uninsured motorist benefits on March 14, 2000. Continental denied the claim because it had not been filed within one year after the accident, as was required by the language of the insurance contract.
The trial court held the contract language was “totally and patently unfair” because it was not highlighted in the contract, was not bargained for by the purchaser, and constituted a significant reduction in the time claimants would otherwise have to file suit against the other driver. The Court of Appeals agreed with the trial court that a one year contractual period of limitations for bringing a claim for uninsured motorist benefits was unreasonable.
In reversing the lower court, the majority Opinion authored by Justice Young and joined by Justices Taylor, Corrigan, and Markman, rejected the “reasonableness doctrine” as applied in Michigan, and further held the provision was not contrary to law or public policy. The majority held it is a fundamental tenet of our jurisprudence that unambiguous contracts are not open to judicial construction and must be enforced as written. The majority rejected the contention that previous authority, Thomas v Reliance, 396 Mich 588 (1976) and Camelot Excavating v St. Paul Fire & Marine Insurance Company, 410 Mich 118 (1981) supported a rule of “reasonableness” when interpreting contractual limitations provisions:
“. . . we hold that an unambiguous contractual provision providing for a shortened period of limitations is to be enforced as written unless the provision would violate law or public policy. A mere judicial assessment of ‘reasonableness’ is an invalid basis upon which to refuse to enforce contractual provisions.”
The court held that to the extent Thomas, supra, and Camelot, supra, and their progeny abrogate unambiguous contractual terms on the basis of reasonable determinations, they are overruled.
The majority further held the contractual provisions in this case did not violate law or public policy. The court found there was no Michigan statute explicitly prohibiting contractual provisions which reduced the limitations period in uninsured motorist policies. The court rejected the argument made by amicus Commissioner of Insurance that MCL 500.2254 precluded contractual periods of limitations which are less than six years. The court interpreted that statute to preclude contractual provisions that “forbid or preclude the commencement or maintenance of a lawsuit,” but not provisions that impose “conditions that may be placed on the commencement and maintenance of a lawsuit.”
The majority further pointed out that the Legislature has provided a mechanism to ensure the reasonableness of insurance policies issued in the state of Michigan under MCL 500.2236(1), which “requires” all basic insurance policy forms be filed with the Commissioner’s office and be approved by the Commissioner before a policy may be issued by an insurance company. By this statute, the majority held the Legislature has assigned the responsibility of evaluating the “reasonableness” of an insurance contract to the person within the Executive Branch charged with reviewing and approving insurance policies: the Commissioner of Insurance.
Finally, the majority rejected the long-standing legal doctrine that “adhesion contracts” are subject to a greater level of judicial scrutiny than other contracts and they need not be enforced if the court views them as unfair. After tracing the development of the history of the doctrine of adhesion contracts, the majority rejected the precedent of Herweyer v Clark Highway Services, Inc., 455 Mich 14 (1997) as part of a “confused jumble of ignored precedent, silently acquiesced to plurality opinions, and dicta, all of which, with little scrutiny, have been piled on each other to establish authority.”
The majority held that the choice presented to the court today is whether to follow Herweyer, supra, or hold an adhesion contract is simply a type of contract and is to be enforced according to its plain terms just as any other contract. The court chooses the latter course because it is most consonant with traditional contract principles our state has historically honored. The majority further held:
“A party may avoid enforcement of an ‘adhesive’ contract only by establishing one of the traditional contract defenses, such as fraud, duress, unconscionability, or waiver.”
In her separate dissent, Justice Kelly notes the majority takes a “drastic step in the wrong direction with respect to contract law in general. The majority’s decision constitutes a serious regression in Michigan law, and gives new meaning to the term ‘judicial activism.’”
Justice Kelly argues it is a legitimate exercise for courts to review the reasonableness of contractual clauses which limit the period during which legal actions can be brought. Courts have conducted reviews of this type for well over a century. She further pointed out that it is unnecessary to reach the issue of adhesion contracts in this case. Yet, here the majority does so, apparently using this dispute as a vehicle to “reshape the law on adhesion contracts more closely to its own desires.”
Citing over 140 years of precedent, Justice Kelly pointed out that, “Because the overriding intent of a contract of insurance is to provide protection, the contract should not be read so as to eliminate that protection unreasonably.” Justice Kelly further points that, “Nearly every court from other jurisdictions which have considered an uninsured motorist insurance contract that limits the applicable statutory period of limitations has found the limitation unreasonable. . . . Therefore, the majority today has not only rejected the long-established rule regarding review for reasonableness, but it has also broken company with the majority of courts addressing the issue . . . it is pushing Michigan law out on a tenuous ledge, distancing it from the law of our sister states.”
In analyzing the contractual provision under the “reasonableness doctrine,” Justice Kelly points out plaintiffs did not have sufficient time to investigate and file an action. A party may not know his injury is permanent under the serious impairment of body function threshold provisions of MCL 500.3135(1) until considerable time elapses. Likewise, a party may not learn he has a serious impairment until after one year has elapsed.
Additionally, the one year limitation works as a “practical abrogation of the right created by the insurance agreement.” The best way a plaintiff can find out if a party is uninsured is to sue that party. However, by the time such action is commenced and discovery has determined there is no insurance coverage, the time required to reach this point can easily exceed one year. Likewise, citing the third prong of the Herweyer “reasonableness” doctrine, Justice Kelly pointed out the action here is barred before the loss or damage can be ascertained.
Justice Kelly also argues the one year limitations period violates the provisions of MCL 500.2254, the plain language of which states a policy provision “may not prohibit a beneficiary from commencing and maintaining a suit.” This is exactly what the one year limitations contractual provision does.
Justice Kelly also stated the majority “either ignores or intentionally obfuscates the fact that adhesion contracts are not fairly made or bargained for by individuals managing their own affairs.”
Writing separately, Justice Cavanagh would hold the shortened limitations period in this insurance policy is unreasonable and, thus, unenforceable. The majority’s opinion “ignores how the insurance industry functions and discounts the affects today’s decision will have on this state’s citizens.”
Finally, Justice Weaver in her separate dissent, states the majority is eliminating over five decades of precedent that created specialized rules of interpretation and enforcement for insurance contracts. In her view, they should not be so lightly swept aside with no discussion and without regard for five decades of precedent.
