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Liberty Mutual Insurance Company v Citizens Insurance Company; (USD-____ 12/11/1997; RB #1990)


U.S. District Court for the Eastern District of Michigan; Docket No. 97-CV-71610-DT;
Honorable Patrick J. Duggan;  
Official Federal Reporter Citation:______________; Link to Opinion alt  

Not Applicable

Motor Vehicle Code (Civil Liability of Owner) (MCL 257.401)  
Leased / Rented Vehicles   
Private Contract (Meaning and Intent)   

In this diversity action involving the issue of which of two insurance companies was obligated to provide primary coverage, the court found that the insurer of the owner of a rental car had primary liability over the insurer for the driver/lessee. The court further held that a limitation as to the coverage limits contained in the contract between the rental company and the lessee was invalid to change the amount of coverage limits available.

An individual named Sami Dabaja entered into a rental agreement with Pravolar and Associates to obtain a rental car while his vehicle was being repaired following an accident. Dabaja allowed his 19-year old niece to operate the vehicle, and while doing so, she struck a pedestrian. Plaintiff Liberty Mutual provided coverage to the lessor, with third-party residual liability limits in the amount of $1,000,000. Liberty settled the suit with the pedestrian by paying the sum of $290,000. Defendant Citizens Insurance. Company issued a policy to Dabaja from which plaintiff Liberty sought reimbursement.

Plaintiff Liberty argued that coverage was excluded because the rental agreement provided that only licensed drivers over the age of 25 years were permitted to operate the vehicle, and here, the driver of the accident vehicle was 17 years of age. However, Judge Duggan, citing the Michigan Court of Appeals decisions in the case of Delaney v Burnett, 63 Mich App 639 (1975) and Dieszck v Avis Rent-A-Car System, Inc., 224 Mich App 295 (1997), found that this contractual language in the rental agreement was ineffective to exclude insurance coverage. Under these decisions, a car being driven upon a public highway is presumed to have been used with the consent of the owner, a presumption which applies even when the owner has leased or rented out the car. The limitation on the use with respect to drivers under age 25 found in the rental agreement was insufficient as a matter of law to overcome the presumption that the vehicle was being driven with the rental car company's consent, thereby subjecting it to liability for which coverage was provided under Liberty's policy.

The rental agreement further provided that in the event of an accident, the limits of insurance coverage available under the rental company's policy was in the amount of $100,000 per person, $300,000 per occurrence, even though the policy issued to the rental car company by Liberty had third-party residual coverage limits in the amount of $1,000,000. The court, relying upon the Michigan Supreme Court's opinion in State Farm v Enterprise Leasing, 452 Mich 25 (1996) (Item No. 1852), found the rental agreement provision reducing the limits of liability coverage invalid because giving effect to the terms in the rental contract would allow the rental car company to unilaterally dictate the insurance obligations of its insurer without the insurer's consent.

Lansing car accident lawyer Stephen Sinas is the lead editor of the appellate case summaries published on this site regarding the Michigan auto insurance law. To learn more about how Stephen Sinas and how the Sinas Dramis Law Firm can help you if you have been injured in a Michigan auto accident, visit

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