Michigan Supreme Court; Docket Nos. 104676 and 104734; Published
Opinion by Justice Brickley; Unanimous (with Judge Taylor not Participating)
Official Michigan Reporter Citation: 456 Mich 279; Link to Opinion 
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Private Contract (Meaning and Intent)
CASE SUMMARY:
In this unanimous Opinion authored by Justice Brickley, the Michigan Supreme Court addressed the issue of priority of coverage among various forms of third-party liability insurance policies. The court held that coverage was applicable under different types of liability insurance coverage in the following order of priority: (a) primary insurance coverage, (b) coincidental or excess "other insurance," and (c) "true" excess insurance. In so holding, the court ruled that the language of the specific insurance policies at issue is to be analyzed to determine the type of the insurance coverage that is available under each policy, as applied to the particular circumstances of the case, in order to determine the order of payment.
The underlying suit arose from a truck/bicycle accident in which plaintiff’s decedent was killed. A primary defendant was Chris Bauermeister who was driving the truck involved in the accident, which was owned by defendant Kenneth Cook. At the time of the accident, Bauermeister was acting in the course of his employment with Flint Canvas Company. The case against Bauermeister, Cook and Flint Canvas was brought before a jury which rendered a verdict in favor of plaintiff in the amount of $1,044,903.25.
The appeal involved four insurance carriers that had issued policies covering the various defendants: Continental Insurance Company, which issued a policy to Kenneth Cook, the owner of the truck, with $500,000 limits; USAA Casualty Company, that had issued a policy to Bauermeister's father, which covered Bauermeister while driving the truck, with $ 100,000 limits; USAA also issued a $ 1,000,000 personal umbrella policy to Bauermeister's father that provided coverage to Bauermeister; Frankenmuth Mutual Insurance Company that had issued an automobile policy to Flint Canvas with $250,000 limits, and; Auto Owners Insurance Company that had issued a $1,000,000 executive umbrella policy to Kenneth Cook. Continental paid plaintiff its $500,000 policy limits before trial. Frankenmuth settled with Plaintiff for $55,000 of the $250,000 policy, and in exchange, plaintiff executed a covenant not to enforce judgment as to the remaining $195,000 of Frankenmuth coverage. USAA voluntarily paid its $100,000 primary policy limit, but paid nothing under the umbrella policy. Likewise, Auto Owners did not pay on the umbrella policy it had issued to the truck owner.
The case was before the Supreme Court to determine the order of coverage between the various insurance policies applicable to the accident. Frankenmuth claimed that the language of its policy made it excess to other insurance and on the same level of coverage the umbrella policies issued by USAA and Auto Owners. The umbrella carriers contended that the Frankenmuth policy had to be exhausted before their umbrella coverage became available.
The court's analysis as to the order of payment under the policies was based upon a distinction between a "true" excess policy and a coincidental or excess "other insurance " policy. A "true" excess policy is the traditional umbrella coverage, where the retained coverage limits are in excess over specific coverage and all other underlying insurance. "True" excess insurance does not provide for primary coverage for liability of the insured. In contrast, coincidental or excess "other insurance" coverage, does not require a certain amount of underlying coverage, and, instead, provides for primary coverage that becomes excess under only certain circumstances in the event that there is other primary coverage.
Here, the Auto Owners and USAA umbrella policies were found by the court to be "true" excess policies because they were written to be excess of specifically enumerated underlying policies. The Frankenmuth policy, on the other hand., provided primary coverage under certain circumstances, and became excess only in the event other primary insurance became applicable. The court held that the coincidental or excess "other insurance " policy, while being secondary to other primary coverage, must be exhausted before the "true" excess (or traditional umbrella) policies became liable to provide coverage. The court found that "true" excess coverage "occurs where a single insured has two policies covering the same loss, but only one policy is written with the expectation that 'the primary will conduct all of the investigation, negotiation and defense of the claim until its limits are exhausted'. ..." The Frankenmuth policy at issue provided primary coverage under certain circumstances and, therefore, was coincidental or excess "other insurance." Furthermore, the premium for its coverage was considerably higher than that charged by Auto Owners and USAA for the umbrella policies, reflecting the fact that Frankenmuth provided primary coverage under certain circumstances. Therefore, the Auto Owners and USAA umbrella policies were in excess of the Frankenmuth policy, and the limits of the Frankenmuth policy had to be exhausted before coverage was available under those umbrella policies.
In reaching its conclusions, the court also examined the insurer's reasonable expectations with respect to whether its obligations would be in excess of other applicable coverages. The court, in examining these expectations of the insurers in determining the priority among the policies, noted that "both the Auto Owners and USAA umbrella policies contain language indicating pro ration with similar insurance or other insurance written to be excess of another primary policy, while the Frankenmuth policy does not." Thus, Auto Owners and USAA expected to provide excess coverage under all circumstances, while Frankenmuth contemplated a higher level of coverage that would be primary in certain situations.
Based upon the above analysis, the Michigan Supreme Court affirmed the trial court and found the three tiers of coverage were appropriate in this case. After the exhaustion of primary coverage, the Michigan Supreme Court concluded "that the distinction between 'true' excess insurance coverage and excess 'other insurance' based upon the difference in policy types within the insurance industry, the premiums charged for and risks assumed by the policies, the language of the policies, and the reasonable expectations of all the contracting parties, require an excess 'other insurance 'policy to be exhausted before a 'true' excess insurance policy is required to contribute to a loss. "
