Michigan Supreme Court; Docket Nos. 97159 and 98713; Published
Opinion by Justice Brinkley; Unanimous
Official Michigan Reporter Citation: 448 Mich 225; Link to Opinion
In this unanimous decision authored by Justice Brickley in two consolidated cases, the court found invalid a clause contained in an automobile policy that would make the third-party residual liability coverage applicable to a permissive user only if the driver of the vehicle was otherwise uninsured or underinsured. In reaching its decision to affirm the Court of Appeals, the court examined the relationship between the mandatory coverages required by the no-fault act and the financial responsibility provisions of the motor vehicle code.
Both of the cases arose from automobile accidents involving vehicles insured by Federated Insurance Company that were being driven by non-owner permissive users. Third-party liability suits were commenced against the drivers of the vehicle following the accidents and claims for coverage were made with Federated under the policies covering the vehicles. Federated denied payment under a policy provision that excluded third-party residual liability coverage unless the driver was not covered by any other insurance, or had such coverage, but in an amount less than the minimum required by law in Michigan.
In addressing the issue, the court focused on the provisions of the no-fault act that require the owner or registrant of a motor vehicle to provide residual liability coverage for losses arising out of the use of the insured vehicle. Furthermore, the financial responsibility law, §3009(1) of the Michigan Insurance Code [MCLA 500.3009(1); MSA 24.13009(1)] provides for the minimum amount of residual liability coverage for losses arising out of the use of a motor vehicle. The Federated insurance policy, however, operated to exclude coverage for a class of people who use the insured vehicle; specifically, coverage is denied under the provision to all permissive users who are covered under another policy that provides the user with coverage meeting the minimum amounts required by law. Since the policy excluded coverage for the use of the vehicle by this class of drivers, the Michigan Supreme Court ruled that the clause was contrary to the requirements of the no-fault act by improperly excluding coverage for a particular use of the vehicle.
Federated argued that its provision was consistent with the Financial Responsibility Act that allows drivers to provide the minimum amount of coverage through a combination of two or more insurance policies, so long as when taken together, the minimum insurance requirements are met. The court, however, noted that the no-fault act requires owners or registrants to maintain a policy that provides the minimum amount of coverage regardless of other applicable coverages that a user of the vehicle may have available to them. The court held that the no-fault act is the most recent expression of the state's public policy concerning motor vehicle liability insurance, and therefore is controlling. Furthermore, the court noted that its opinion is not inconsistent with the Court of Appeals decision in State Farm v Snappy, 196 Mich App 143 (1992) (Item No. 1573), which involved a car rental contract that allowed the lessee to choose whether the residual liability coverage would be provided by the lessor in exchange for the payment of an extra charge, or by the lessee, through his or her own insurance policy. With the Snappy situation, it is the user of the vehicle that decides which coverage applies, rather than the insurer, as is the case with the Federated policy at issue. Further, unlike the situation in Snappy, the Federated policies improperly exclude coverage for a specified use of the insured vehicle.
Although the court found the Federated provision excluding coverage to be invalid, it held that Federated was obligated to provide coverage only for the minimum amounts required by law, presumably even though the policy otherwise carried higher residual liability coverage limits applicable if no other coverages were available. The court also found the Federated coverage to be primary with respect to other applicable coverages, based upon the dominant principle of the no-fault act, that the vehicle owners and their insurers are responsible for bearing the cost of injuries caused by the permissive use of the vehicle.
The court also considered a "car business exclusion" contained in the policy covering one of the drivers of the vehicles insured by Federated. This provision excluded coverage for liability arising when the insured person is using a temporary substitute car owned by a car business. The court upheld this provision, noting that a no-fault insurer is not required by the no-fault act to provide "portable" coverage that applies when the insured person drives another insured vehicle.