Michigan Supreme Court; Docket No. 73156; Published
Opinion by Williams (Riley and Levin Concurring in Part and Dissenting in Part)
Official Michigan Reporter Citation: 427 Mich 602; Link to Opinion 
STATUTORY INDEXING:
Scope of Mandated Coverages [§3131(1)]
Limits of Liability Insurance [§3131(2)]
Liability Policy Exclusions for Owned and Non-Owned Vehicles [§3131]
Liability Exclusions Prohibiting Stacking of Coverages [§3131]
TOPICAL INDEXING:
Private Contract (Meaning and Intent)
Reformation of Insurance Contracts
Uninsured Motorist Benefits: Uninsured Motorist Coverage in General
Uninsured Motorist Benefits: Exclusions from Uninsured Motorist Benefits
CASE SUMMARY:
In this important decision, the Supreme Court revisited the issues relating to the validity of the so-called "owned vehicle" exclusion in no-fault insurance policies. This issue was last discussed by the Supreme Court in the case of State Farm v Ruuska (Item No. 487). In Ruuska, a majority of the Supreme Court held that so-called "owned vehicle" exclusions were not contrary to the no-fault statute. However, left unresolved by the Ruuska court was the question whether insurers may exclude liability coverage for vehicles owned by resident family members by means of a separate and unreferenced limiting definition of the plain English terms, "owned" and "non-owned automobiles." In the five consolidated cases (Powers v DAIIE, Deyarmond v Community Service, Auto Club v Nicholson, Sheibout v Citizens, and Dennison v Wisniewski), the majority decision held that, although a no-fault insurer may exclude residual liability coverage for otherwise insured resident family members when they drive so-called "non-owned" vehicles, such exclusions must be clearly and unambiguously stated. In these cases, the insurers' method of exclusion, by definition of terms at variance with their common meaning, renders the exclusions invalid as ambiguous, technical constructions.
At issue in these cases was the refusal of the insurance companies to provide residual liability coverage or to pay uninsured motorist coverage based upon policy definitions of the terms "owned automobile" and "non-owned automobile," which the insurers claimed excluded coverage under the circumstances of these cases.
The insurance policies in the consolidated cases provided coverage for the "named insured" and relatives residing in the same household. The insurers intend to provide coverage for the family members' occasional use of automobiles owned by persons outside the family and outside the home, but to exclude coverage for the family members' use of automobiles "owned by or furnished for the regular use of resident members of the family, other than the car specifically insured by the policy.
As noted by the Supreme Court, the insurers' purpose in excluding coverage of otherwise covered family members in this situation is to avoid a situation in which a person obtains a high level of liability coverage for one automobile in the family, and seeks to use that greater protection to cover liability incurred while the insured is driving a family car with a lower level of coverage or no coverage (i.e., so-called "free ride" coverage). Another purpose for the exclusion of coverage when an insured is driving a vehicle owned by another household member is to prevent "stacking," or recovery from more than one policy in cases in which a person is insured under several family policies.
Claimants in these cases alleged that the attempted exclusion was repugnant to the no-fault statute and on this basis must be invalidated. Alternatively, they argued that the exclusion must be rejected because it is ambiguous and unclear, and because it defeats the policyholder's reasonable expectations.
1. Major Substantive Holdings
A. Validity of owned automobile exclusions per se: Claimants allege that
the owned automobile exclusions at issue were repugnant to the clear directive of the No-Fault Act requiring that a policy purchased pursuant to that Act provide residual liability coverage for the use of a motor vehicle, without regard for whether the named insured was using a vehicle owned by a relative with whom he/she resides. Since four Justices of the Ruuska court held through the opinions of Chief Justice Coleman and Justice Levin that exclusion of household vehicles from liability coverage was not contrary to the no-fault statute, that issue was conclusively resolved by that decision. The Supreme Court in Powers declined to reconsider that holding.B. Ambiguously drafted exclusions: The issue left unresolved by the Ruuska court was whether insurers may exclude liability coverage forvehicles owned by resident family members by means of a separate and unreferenced limiting definition of the terms "owned" and "non-owned" automobiles so that "non-owned" automobile means less than all non- owned automobiles. The policy language in the insurance policies at issue was substantially similar in each case. In the general heading for liability, under the section for "persons insured," the policy names as - insureds for both owned and non-owned automobiles, the named insured and any resident of the same household. Under a separate definitional section which is not cross-referenced or otherwise identified in the liability section, the definition of "non-owned automobile" is set forth as an automobile "not owned by or furnished for the regular use of either the named insured or any relative."
After recitation of six rules of insurance policy construction, the Court held that the combined effect of these rules clearly invalidates the owner automobile exclusions in these cases. By attempting to exclude coverage through the device of an unreferenced definition which runs counter to the commonly understood meaning of "non-owned automobile," the insurers failed to craft clear, unambiguous exclusion language. The Supreme Court in its decision, suggested that, at a minimum, there ought to be insertion of cross-referencing language alerting the policyholder to read the definition of owned and non-owned automobile.
C. Six rules of construction: In construing the so-called owned automobile exclusion, the Supreme Court set forth six rules of guidance extracted from case law. Those rules are as follows:
1. Exceptions m an insurance policy to the general liability coverage are to be "strictly construed" against the insurer.2. An insurer may not escape liability by taking advantage of an ambiguity. If there are two constructions that can be placed upon the policy, the construction most favorable to the policyholder will be adopted.
3. An insurer must draft the policy to make clear the extent of non-liability under the exclusion clause.
4. Technical constructions of policies of insurance are not favored.
5. The courts have no patience with attempts by a paid insurer to escape liability by taking advantage of an ambiguity or hidden meaning.
6. The policyholder must be protected against confusing statements in policies.
The Supreme Court found that each of these rules had been violated by the exclusionary language at issue.D. Rule of reasonable expectations: In addition to the six rules of construction described by the Court, there was also discussion of the "rule of reasonable expectations." The Court held that, in these cases, the policyholder, upon reading the contract language is led to a reasonable expectation of coverage. Inasmuch as the excluded cars, i.e., cars owned by family members residing in the same household as the policyholder, are the ones most likely to be occasionally driven by the other insured family members, the owned vehicle exclusion is the most significant exclusion in the liability coverage of the policies.
E. The question of stacking: In Deyarmond and Nicholson, the claimants were attempting to enlarge their residual liability coverage by "stacking" -- obtaining coverage for more than one potentially applicable policy for the same accident. The Supreme Court rejected the insurers' argument that these exclusions should be enforceable as a valid anti-stacking device. Since the owned vehicle exclusion used in these policies was fatally ambiguous and invalid, there was no reason or justification to hold them valid so as to prevent stacking.
F. Exclusion of uninsured motorist coverage: In the Powers case, the insurer denied payment of uninsured motorist benefits, in reliance upon the owned automobile exclusion. Since the wording of the exclusion poses for the reader essentially the same problem as the statement of coverage poses in the residual liability cases, the denial of uninsured motorist coverage based upon the owned vehicle exclusion was nvalidated for all of the same reasons set forth by the Supreme Court in its decision on the residual liability cases.
G. Statutory minimum versus contractual liability coverage: Assuming the owned automobile exclusions are invalid, the Court was required to then address the question of the extent of coverage available. In Dennison and Nicholson, the insurers took the position that once the exclusionary clause is invalidated, the reinstated coverage would be the minimum required by law rather than the amount stated in the policy. The Court held that, since the rationale of the invalidation of the exclusion is "improper drafting," the liability coverage available is that which was contracted and paid for, rather than the statutory minimum.
Justices Riley and Boyle would hold that the non-owned automobile exclusions were enforceable. They did, however, concur with the result reached in the Dennison case. Justice Levin concurred in the result reached by the majority, and would hold that the so-called household exception is not invalid per se, but may be invalid as sought to be applied in particular cases.
