Michigan Court of Appeals; Docket #281482; Published
Judges Kelly, Cavanagh, and Beckering; Unanimous; per curiam
Official Michigan Reporter Citation: 284 Mich. App. 427, Link to Opinion 
STATUTORY INDEXING:
Not applicable
TOPICAL INDEXING:
Motor Vehicle Code (Civil Liability of Owner)
CASE SUMMARY:
In this unanimous published per curiam opinion, the Court of Appeals determined that where a dealership’s vehicle was involved in an accident while being driven by a customer, under the owner’s liability statute, the dealership is solely responsible for the accident and its insurer cannot shift liability for the accident to the customer and the customer’s insurer.
This action arose out of a motor vehicle accident involving Paula Mapes and Victor Martin while Martin was test driving a used car owned by Grand Greenville. Grand Greenville carried a $1 million garage liability policy issued by plaintiff Auto-Owners. State Farm insured Martin under a policy that provided up to $100,000 per person and $300,000 per accident.
Auto-Owners filed a declaratory judgment action seeking a determination as to the priority of coverage under Auto-Owners and State Farm’s insurance policies. Auto-Owners argued that its own policy was invalid, because it failed to provide residual liability coverage for all of the intended users of the vehicles insured under the policy, i.e., all “the garage customers” of the dealership. By arguing that the policy was invalid, Auto-Owners relied on the case of Citizens Insurance Company of America v Federated Mutual Insurance Company, 448 Mich 225; 531 NW2d 138 (1995), in arguing that its primary liability coverage for the plaintiff’s injuries was limited to the “$20,000/$40,000" liability coverage requirement under Michigan law and, thereby, leaving State Farm responsible to provide its $100,000 of coverage for the plaintiff’s injuries before the plaintiff can recover from the remaining $980,000 of Auto-Owners’ policy. On the other hand, State Farm and the plaintiff argued that under case law issued after Citizens, Auto-Owners was liable for the full $1 million of coverage, before State Farm’s coverage applied.
On appeal, State Farm and Martin argued that Auto-Owners was primarily liable up to its $1 million policy limit before State Farm’s coverage applied. The Court of Appeals agreed, noting that in State Farm Mutual Automobile Insurance Company v Enterprise Leasing Company, 452 Mich 25; 549 NW2d 345 (1996) (hereinafter Enterprise), the Michigan Supreme Court extended its holding in Citizens and held that “‘any such shifting provision is void. Vehicle owners . . . are required to provide primary coverage for their vehicles and all permissive users of their vehicles.’” Thereafter, in Farmers Insurance Exchange v Kurzmann, 257 Mich App 412; 668 NW2d 199 (2003), the Court of Appeals held that “where the insurer knows or should know that an exclusionary clause in its policy is invalid, the insurer is primarily liable up to the limits of policy.” In this case, the court determined that Auto-Owners knew or should have known that its exclusionary language was void. Therefore, the policy must be construed in favor of the insured and provide coverage limits to both the owner and the permissive user. Moreover, under general contract principles, if invalid provisions are included in a contract, they are deleted or voided, and the unoffending provisions are left intact. Deletion of the invalid exclusionary language leaves intact language that covers an insured and any person who uses the insured’s vehicle with permission. Therefore, the court concluded, under the owner’s liability statute, MCL 257.401, that Grand Greenville was solely liable for the damage caused by the use of its vehicle; therefore, Auto-Owners was primarily liable up to its $1 million policy limit. In this regard, the court stated:
“By seeking to limit its coverage to the statutory minimum of $20,000, and then any remaining amount of damages for which Grand Greenville is held liable only after Martins’ insurance coverage is exhausted, Auto-Owners is attempting to unilaterally shift a portion of the residual liability away from the owner of the vehicle to the driver and/or the driver’s insurance company, neither of which are parties to the contract. Our Supreme Court has expressly condemned such shifting as violative of the no-fault act. As stated in Citizens, supra, although ‘the Legislature has remained silent concerning who among competing insurers must provide primary residual liability limits, we refuse to construe that silence as expressly authorizing an owner’s insurer . . . to unilaterally dictate the priority of coverage among insurers in a manner that shifts insurance costs to the nonowner of the vehicle.’ . . . The Supreme Court extended its analysis of this issue in Enterprise, supra, and held that, ‘any such shifting provision is void. Vehicle owners . . . are required to provide primary coverage for their vehicles and all permissive users of their vehicles.’. . . Pursuant to the owner’s liability statute, MCL 257.401, Grand Greenville remains 100% liable for damages caused by the subject accident. In attempting to distinguish between Grand Greenville as the owner insured and Martin as a permissive user, which Auto-Owners is also statutorily required to include as an insured, Auto-Owners is attempting to unilaterally dictate priority of coverage. This it cannot do. Given our finding that Auto-Owners is primarily liable up to its policy limits of $1 million, we need not address Auto-Owners’ argument regarding subrogated indemnification and State Farm’s coverage.”
