Michigan Court of Appeals; Docket No. 288053; Unpublished
Judges Murphy, Jansen, and Wilder; 2-1 (with Murphy dissenting); On Remand
Official Michigan Reporter Citation: Not applicable; Link to Opinion:
Link to Dissent
On May 9, 2012, the Michigan Supreme Court DENIED Application for Leave to Appeal; Link to Order
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Interpretation of Insurance Contracts
CASE SUMMARY:
In this 2-1 unpublished opinion, the Court held that the renewal rule does not apply in state-to-state transactions "absent any affirmative acts or assertions on behalf of the insurance company" because "each state heavily regulates the insurance industry within its own borders."
The insured in this case was Defendant Jay Ruzak, and he was married to Plaintiff, Cynthia Ruzak. Jay Ruzak first obtained an insurance policy from USAA in 1966, and he continued to be insured by USAA over the next 40 years. Over those years, he changed his residence multiple times and had "lived in Indiana, Minnesota, Wisconsin, California, and Illinois." In 1987, while living in the State of Illinois, Jay Ruzak married Plaintiff – who then became eligible for coverage under Jay Ruzak's USAA policy. Following their marriage, the couple continued to live in Illinois until approximately 1990 but then relocated to Wisconsin, Minnesota, and later Indiana. Eventually in 1997, they moved back to Michigan.
As it ultimately relates to residency, the Court noted that it is undisputed that just prior to moving back to Michigan, the couple had lived in Indiana, but the record is unclear as to where Jay Ruzak resided when he first obtained coverage in 1966. However, "it appears that Jay may have been living in either Illinois or California at that time."
In October of 2004, Jay lost control while driving a truck and collided with a tree while Plaintiff was riding as a passenger. The Michigan USAA policy that was in effect at the time of the crash provided general liability coverage of up to $300,000 per person with a maximum of $500,000 per accident. However, that policy also contained an exclusion regarding family members residing in the same household. For such family members, liability coverage was reduced to $20,000 for each person, or $40,000 for each accident. Following the accident, Plaintiff filed a claim under the USAA policy, and Defendant USAA informed her that because of the exclusion, her claim was limited to $20,000. Therefore, Plaintiff Cynthia Ruzak filed an action against both her husband, Jay Ruzak, and USAA, "arguing that the family-member limitation could not be applied and alleging claims of breach of contract, fraud, and negligent and innocent misrepresentation."
Cross motions for summary disposition were eventually filed, and the trial court found for Plaintiff Cynthia Ruzak, concluding that exclusion was "repugnant, unconscionable, and reprehensible." The trial court's ruling was then appealed for the first time. In Ruzak I, the Court of Appeals reversed as to the unconscionability, but "the panel chose to entertain Plaintiff's unpreserved argument related to the 'renewal rule' and concluded that the record was insufficiently developed with respect to application of renewal rule." The Court then remanded for a determination as to whether the renewal rule applied based on the policy history.
On remand, the trial court again denied Defendant USAA's motion for summary disposition and granted Plaintiff's cross motion. This time, the trial court reasoned that the Plaintiff presented evidence establishing that USAA failed to notify the Ruzaks of pertinent changes in coverage that occurred while the Ruzaks had been living in Wisconsin, which failure then induced the Ruzaks to believe that they still had the $300,000/$500,000 coverage for residual liability. The trial court's decision on remand was again appealed.
Accordingly, in Ruzak II, the Court went on to find that the trial court erred on remand because it considered all of the policies that had been issued since 1966 when making its determination as to the renewal rule. The Ruzak II Court opined that only the Michigan policies should be examined. However, the Ruzak II Court nonetheless found that it was bound to follow the law of the case doctrine and consider the full policy history and affirmed the trial court, concluding that:
(1) The Ruzaks enjoyed full coverage with no reduction or exclusion for family members while living in Wisconsin, (2) USAA never notified the Ruzaks that coverage was reduced when they moved from Wisconsin, and (3) Accordingly, the renewal rule nullified the addition of the family-member exclusion in the Michigan policy.
On further appeal to the Michigan Supreme Court, it was held that "Ruzak I did not create law of the case requiring application of the renewal rule in the instant case." Therefore, the Supreme Court remanded instructing this Court to "consider the two arguments that the Ruzak II panel thought it was precluded from considering: (a) whether the renewal rule does not apply when a new insurance policy is issued pursuant to an insured's move to a new state and (b) whether the renewal rule does not apply where the last change in the insurance policy did not produce a decrease in coverage, but an increase."
On further remand from the Supreme Court, this Court of Appeals panel held that the renewal rule does not apply to "state to state" transactions and therefore, the trial court erred in applying the rule to the Ruzaks USAA Policy.
In reaching this result, this Court reviewed the renewal rule and explained that "the renewal rule was a distillation of principles of equity and estoppel, " further explaining that:
Generally, "[a]n insured is obligated to read the insurance policy and to raise questions concerning coverage within a reasonable time after issuance of the policy." Koski v Allstate Ins Co, 213 Mich App 166, 170; 539 NW2d 561 (1995), rev'd on other grounds 456 Mich 439 (1998). However, the "renewal rule" is an exception to this. When a policy is a renewal, the insured is not obligated to read the entire policy to ensure that the terms have not changed. Id. Instead, "[w]here a renewal policy is issued without calling the insured's attention to a reduction in coverage, the insurer is bound to the greater coverage in the earlier policy." Id. The rationale behind the rule is that "[w]hen a renewal policy is issued, it is presumed, unless a contrary intention appears, that the parties intended to adopt in the renewal policy, the terms, conditions and coverage of the expiring policies." Consequently, "it is inequitable to require an insured to search the fine print of each renewal policy" for any adverse modifications that the insurer may have inserted without the insured's knowledge. Id.(citations omitted)
The Court went on to explain "the rule still applies irrespective of the presence of an actual policy 'renewal.'" Simply believing that a particular term will not change in a new policy is insufficient. "[T]he insured must have a reasonable belief that the entire policy is remaining unchanged." Here, "the dispositive question is whether it is reasonable for an insured to assume that all the terms of an insurance policy purchased in a successor state will remain identical to the terms of the policy purchased in the preceding state simply because the insured purchased policies with identical coverage limits in each of the states."
After then applying these principles to Cynthia Ruzak's case, the Court found that she failed to assert a reasonable basis to believe that all the terms of her Michigan policy would have remained unchanged from any of the previous out of state policies. Further, the Court concluded that it was indeed not reasonable under the circumstances for Plaintiff to assume that all of the terms in the Michigan policy – which succeeded other out-of-state policies – were identical.
In concluding that Plaintiff did not have a reasonable basis for believing the policies had not changed from state to state, Court noted that insurance is highly regulated from state to state. Moreover, "it is common knowledge that Michigan 'no-fault' automobile insurance policies are generally more expensive than automobile insurance policies from states such as Indiana that do not have 'no-fault' laws."
The Court cautioned however, that while it may be unreasonable to otherwise believe that a policy will remained unchanged when moving from state to state, "some affirmative act by an insurance company could make the renewal rule apply to interstate policy transfers." However, Plaintiff Cynthia Ruzak had not presented any evidence that she had actually been induced.
Accordingly, Court held that the renewal rule does not apply here, and the trial court erred when it granted summary disposition in favor of Plaintiff.
Conversely, Dissenting Judge Murphy "would hold that the renewal rule applies here regardless of the interstate changes of residency and regardless of the fact that the most recent change in the insurance policy produced an increase in coverage, where there was still a coverage decrease upon broader consideration of the original policy. Given that the Supreme Court's remand order left untouched all aspects of our earlier ruling except with respect to the two identified arguments, it remains established that USAA failed as a matter of law to provide plaintiff with the requisite notice under the renewal rule."
