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State Farm Mutual Automobile Ins Co v Enterprise Leasing Company; Enterprise Leasing Company of Detroit v Sako and State Farm Mutual Automobile Ins Co; and Auto Club Ins Assoc v Snappy Car Rental, Inc.; (MSC-PUB, 6/25/1996; RB #1852)


Michigan Supreme Court; Docket Nos. 100032, 100033, 101473, and 102396; Published 
Opinion by Justice Brickley; 6-1 (with Justice Mallett Dissenting) 
Official Michigan Reporter Citation:  452 Mich 25; Link to Opinion alt   

Compulsory Insurance Requirements for Owners or Registrants of Motor Vehicles Required to Be Registered [§3101(1)] 
Scope of Mandated Coverages [§3131(1)]

Leased / Rented Vehicles   

In this 6-1 Opinion by Chief Justice Brickley, the Supreme Court held that car rental companies must provide primary insurance coverage for liability arising out of the use of their rented vehicles. The provisions of the Michigan No-Fault Act are violated by a car rental company agreement purporting to shift the responsibility for providing primary residual liability coverage on the vehicle from the owner to the driver and the driver's insurance company. Therefore, any such shifting provision is void. Vehicle owners, including car rental companies, are required to provide primary coverage for their vehicles and all permissive users of those vehicles. The court refused to give any further recognition to the distinction between a "loaner vehicle" and a "rental vehicle." Moreover, the court refused to recognized any distinction between those rental car contracts that unilaterally dictate that the renter's liability coverage is primary, from those contracts that permit the renter to voluntarily elect to allocate responsibility for liability coverage to the renter's insurance company. Neither of these scenarios are proper. 

The court noted that §3101 of the no-fault statute requires the owner or registrant to provide residual liability coverage under the statute. Furthermore, §3131 of the statute requires that this residual liability insurance provide coverage for loss arising from the use of a motor vehicle. Therefore, it is the owner's insurer who has the primary responsibility for paying the cost of residual liability insurance. Because of this, the court held that its prior ruling in State Farm Mutual Automobile Insurance Company v Snappy Car Rental (Snappy #1) (Item No. 1573) must be overruled. In this regard, the court held:

"The gravamen of our holding is that the no-fault act requires car owners to be primarily responsible for insurance coverage on their vehicles. However, the car rental companies have been largely successful in avoiding that responsibility, as demonstrated by the Court of Appeals decisions in these cases. Under Snappy I, the Court of Appeals found that it was required to permit car owners to shift the primary responsibility for providing coverage for the use of their vehicles to the driver and the driver's insurer. Because this violates the intent of the no-fault act, we overturned Snappy I to the extent that it holds that car owners may avoid primary responsibility for vehicle insurance coverage by agreeing to allocate that responsibility to the driver or the driver's insurer. Even if the driver could make a voluntary election to allocate the responsibility for coverage to the driver's insurer, the resulting agreement to allocate would still be void. Enforcing such an agreement would permit the driver to unilaterally dictate the insurance obligations of the parties. Those obligations are a matter of contract, and cannot be unilaterally reassigned . . . . Under the terms of the insurance contracts, the driver cannot bind the insurance company that issued the driver's policy of coverage for a personal automobile to provide coverage for another car . . . . Even if the driver qualified as self-insured, we would not allow the rental car companies to avoid the Legislature's intent that a vehicle owner be primarily responsible for providing coverage. Just as the car rental company cannot shift liability to a driver's insurer, it cannot shift to a driver personally. Either shift of responsibility away from the owner would violate the act because it requires owners to provide primary coverage. We accordingly hold that the car rental companies and their insurers are required to provide primary residual liability coverage for the permissive use of the rental cars up to their policy limits or the minimum required by statute."

The court then addressed the issue of whether the renter's personal policy contained an enforceable provision that the personal policy would not provide excess coverage for any vehicle owned by any person or organization "in a car business." The policy defined car business to include the "lease" of cars. The court held that there is a difference between a "rented" car and a "leased" car. Lease refers to a long-term rental, where a rented car refers to a short-term transaction. Because the insurance policy in this case did not specifically exclude "rented" cars, the insured person was covered under this personal policy when he/she rented a vehicle in a situation such as here where the rented car temporarily substituted for the insured person's personal car which was in the shop for repair. Therefore, the renter's private policy was required to provide excess liability coverage above the rental car company's coverage. The court men remanded the cases to allocate the liability between the primary insurers and the excess insurers. 

Justice Matlett dissented from the reversal of Snappy Car Rental #1. He would continue the distinction recognized in Citizens Insurance Company v Federated Mutual, between rental car versus customer allocation of responsibility to the customer's insurer.  

Michigan auto accident attorney 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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