Michigan Supreme Court; Docket No. 111341;
5-2 Opinion by Justice Corrigan; Per Curiam
Official Michigan Reporter Citation: ___ Mich ___; Link to Opinion
Private Contract (Meaning and Intent)
In this 5-2 Opinion by Justice Corrigan, the Michigan Supreme Court reversed the unpublished decision of the Court of Appeals (Item No. 1985), and found that a "non-owned automobile clause" of a no-fault automobile insurance policy was unambiguous and enforceable, thus precluding residual liability coverage for losses sustained by the insured arising out of the ownership, maintenance or use of the "owned automobile" or any "non-owned automobile." The policy defined the phrase "non-owned automobile" as "an automobile or trailer not owned by or furnished for the regular use of either the named insured or any relative, other than a temporary substitute automobile."
This case arose from a double fatality accident in which Steven Jacob Nikkei rear-ended another vehicle while operating a pick-up truck owned by his father's business, Blue Water Contracting, Inc. Farm Bureau insured the business vehicle, and tendered its full $500,000 limit on the policy insuring the business vehicle. However, Farm Bureau also insured two (2) other automobiles owned by Steven Jacob Nikkei's parents under a family automobile insurance policy.
The family policy was the subject of this action, in which Farm Bureau denied coverage for the losses arising from this accident under its family policy, specifically based upon the policy language extending coverage for losses arising out of the ownership, maintenance or use of the "owned automobile" or any "non-owned automobile." Farm Bureau contended that the definition of "non-owned automobile" as contained in the definitions section of the policy would exclude coverage because it defines a non-owned automobile as "an automobile or trailer not owned by or furnished for the regular use of either the named insured or any relative, other than a temporary substitute automobile."
Farm Bureau claimed that there was no coverage under the family automobile policy because the truck was neither owned nor non-owned under the terms of the policy, since it was “furnished for the regular use of either the named insured or any relative." The trial court found that the policy language was ambiguous, relying upon the prior Supreme Court decision in Powers v DAIIE, ATI Mich 602 (1986). In Powers, supra, the Supreme Court considered whether substantially identical policy provisions defining the phrase "non-owned automobile" were valid. The plurality opinion would have held that the insurer's method of exclusion—by the definition of terms at variance with their common meaning, which most policyholders would consider clearer without definition—renders it invalid as ambiguous.
The majority opinion repudiated the plurality opinion in Powers, supra, and held that the non-owned automobile clause of the policy involved in this case was unambiguous. The court stated that the overwhelming weight of authority supports the view that “regular use" and other similar language limiting the extent of coverage provided through a non-owned vehicle clause is not ambiguous. The court further found that the location of the clause in the definitions section of the policy did not render it ambiguous. Nor did the majority accept the Powers plurality's prior opinion that the rule of reasonable expectations should defeat the policy language.
The court held the non-owned automobile clause unambiguous, and thus, the policy does not cover vehicles furnished for regular use of either the named insured or any relative, unless the vehicle qualifies as a "temporary substitute vehicle." The Supreme Court remanded the matter to the trial court to consider whether the exclusion applied in this case.
In his dissent, Justice Cavanagh, joined by Justice Kelly, would hold the insurer's method of exclusion by definition invalid. Justice Cavanagh stated:
"Most policyholders would consider the term 'non-owned' clear without definition. Plaintiff's practice, of defining this unambiguous term in an obscure manner, renders the clause unclear and ambiguous."
Justice Cavanagh further noted that in the 13 years since Powers, the insurer has failed to incorporate any clarification into its policies.
"While the insurer has refused to place its insureds on notice regarding its coverage exclusions, this court placed insurers on notice that this form of exclusion would not be enforced. Today, the majority validates the insurer's defiance."
Justice Cavanagh stated that the insured should not be forced to piece together portions of the contract to determine whether coverage exists.