Michigan Supreme Court; Docket No. 114900; Published
Opinion by Justice Corrigan; 4-3 (Justices Cavanagh, Kelly and Weaver dissenting)
Official Michigan Reporter Citation: 464 Mich. 491, Link to Opinion 
STATUTORY INDEXING:
General / Miscellaneous [3135]
TOPICAL INDEXING:
Private Contract (Meaning and Intent)
CASE SUMMARY:
In this 4-3 Opinion by Justice Corrigan, the Michigan Supreme Court affirmed the judgment of the Court of Appeals and held that a contractual provision in a “courtesy car” rental agreement in which the renter agreed to “assume all responsibility for damages while the vehicle is in his possession,” neither contravenes the No-Fault Act nor contravenes public policy. Therefore, the provision was enforceable and obligated the renter to pay for collision damages to the vehicle.
While her vehicle was being repaired by a Toyota dealer, defendant Kneeland was offered a “courtesy car” by the dealer, pursuant to a written contract that provided that the renter “agrees to assume all responsibility for damages while the vehicle is in his possession.” While driving the rented vehicle, Kneeland was involved in an accident resulting in collision damages amounting to $3,738.49. The dealer paid the $1,000 deductible, and the dealer’s insurance company, Universal Underwriters, paid the remainder. Both the dealer and Universal sought reimbursement from Kneeland pursuant to the courtesy car agreement language. The trial court ruled that the No-Fault Act does not allow contractual allocation of liability for collision damages. The Court of Appeals, 235 Mich App 646 (1999), reversed the trial court and held that while the No-Fault Act abrogated tort liability arising from the ownership, maintenance or use of a motor vehicle, it did not abolish contractual liability.
In affirming the Court of Appeals decision, the Supreme Court stated that although the contract is ambiguous in its reference to “damages,” which does not explicitly state the nature or the types of damages that the renter has agreed to pay, the Supreme Court follows the rule of contract interpretation that where a contract can be interpreted in two (2) different ways, one of which would create a valid contract, and the other a void contract, the court assumes that the parties understood the law and intended to enter into a valid contract. Since collision coverage is not mandatory and is purely a matter of contract, the no-fault scheme does not mandate it, and therefore, does not prohibit the party’s voluntary allocation of responsibility for “collision damages.” Further, although section 3135 of the No-Fault Act abolishes tort liability, except for limited exceptions, the statutory language does not reflect an intent to abolish “contractual liability for collision damages,” an optional form of insurance not required by the No-Fault Act. Therefore, the majority held that the renter was obligated to pay for the collision damages pursuant to he renter’s agreement.
In his dissent, Justice Cavanagh, joined by Justices Kelly and Weaver, would hold that liability can be contractually shifted, but that in the instant case, the courtesy car agreement cannot be enforced to impose liability on the renter. Justice Cavanagh agreed with the majority that the courtesy car agreement in this case is ambiguous and may be interpreted in a fashion that would avoid illegality. However, Justice Cavanagh strongly disagreed with the majority’s decision to construct a decision favorable to Plaintiff, rather than construing a contract against the drafter. In his case, Kneeland contended that she read the agreement as meaning only that she would be responsible for her own negligence, and that she assumed the car was insured by the dealership. Here, the dealer never informed Kneeland that she needed to obtain her own insurance, nor did it inform her that she would be liable for damages caused by the negligence of others. Further, the agreement did not mention collision damages. It would not have been unreasonable for Kneeland to have assumed that she would be covered by a standard automobile policy between the dealer and its insurer. When choosing between valid constructions of an ambiguous contract, Justice Cavanagh would choose the construction that goes against the drafter of the ambiguous language. The construction offered by Kneeland would not invalidate the courtesy car agreement; rather, it would limit the scope of the agreement.
