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Auto-Owners Insurance Company v Large, et al; (COA-UNP, 2/2/2010, RB #3112)


Michigan Court of Appeals; Docket #288530; Unpublished
Judges Bandstra, Sawyer, and Owens; unanimous; per curiam
Official Michigan Reporter Citation: Not applicable, Link to Opinion

Compulsory insurance requirements for owners or registrants of motor vehicles required to be registered [3101(1)]
Rental car company liability insurance obligations [3131(3)]

Casualty Insurance Policies – Minimum Coverages and Required Provisions (500.3009)
Motor Vehicle Code (Civil Liability of Owner) (257.401)
Motor Vehicle Code (Financial Responsibility Act (257.501))

In this unanimous unpublished per curiam opinion, the Court of Appeals held that even though a dealership’s garage liability policy contained a customer financial liability exclusion provision, the dealership’s insurer was liable up to its policy limits in a third-party action involving an accident where its customer, who was driving one of its vehicles, was at fault.

In the underlying action, a car dealership customer was driving a “loaner” vehicle while her car was being serviced.  The dealership had garage liability insurance through Auto-Owners and the customer had no-fault insurance through Citizens.  While driving the loaner, the customer was involved in a motor vehicle accident.  After the driver of the other vehicle filed a third-party action against the customer and the dealership, the dealership’s insurer, Auto-Owners, filed this declaratory judgment action to determine the priority of liability insurance coverage as between it and Citizens.  The trial court determined that Auto-Owners was required to provide the first $500,000 in coverage and that Citizens was liable on an excess basis.  Auto-Owners appealed, arguing that it was only liable for the statutory maximum, $20,000 per person and $40,000 per accident, under a customer financial exclusion provision contained in its policy.

In affirming, the Court of Appeals relied on Auto-Owners Ins Co v Martin, 284 Mich App 400; 773 NW2d 29 (2009), where the issue was whether the dealership’s garage liability provider, or the customer’s no-fault insurer, was primarily responsible for the customer’s personal liability protection benefits.  In Martin, Auto-Owners argued that under its customer financial exclusion provision, it would only be primarily liable if the customer was uninsured or underinsured.  Auto-Owners based its argument on Citizens Ins Co of America v Federated Mutual Ins Co, 448 Mich 225; 531 NW2d 138 (1995), where the Michigan Supreme Court determined that residual liability coverage exclusions were “invalid to the extent that it would preclude coverage required by the no-fault act.”  Based on this language, Auto-Owners argued that it was only liable to pay the statutory minimum.  This court disagreed and determined that Auto-Owners was primarily responsible for the customer’s personal protection insurance benefits, reasoning that Auto-Owners’ interpretation of Citizens was improper and that, under the No-Fault Act, policies “must provide residual liability coverage for the use of the insured vehicle. . . .”   In this regard, the court stated:

In Martin, this Court was asked to resolve the priority of coverage between an auto-dealership’s garage liability policy, also issued by Auto-Owners and identical in all pertinent respects to the policy at issue here, and the personal insurance policy of the driver of a vehicle owned by the dealership, who was involved in an accident while he was test driving that vehicle.  As here, the action was filed by Auto-Owners seeking a declaration regarding the priority of coverage as between itself and the driver’s insurer.  In that case, like this one, Auto-Owners acknowledged that under our Supreme Court’s decision in Citizens Ins Co of America v Federated Mut Ins Co, 448 Mich 225; 531 NW2d 138 (1995),

the provision in its policy excluding residual liability coverage for ‘garage customers’ – except when the customer is uninsured or underinsured ‘up to the applicable limit of the financial responsibility law of the state’ – is invalid to the extent that it would preclude coverage required by the no fault act.  Thus, the question at hand is the amount of residual liability coverage Auto-Owners is required to provide for [the driver’s] user of [the dealership’s] vehicle. [Martin, 284 Mich App at 436.]

As it does here, Auto-Owners argued in Martin that its primary liability coverage was limited to the ‘20/40' coverage requirement imposed by the no-fault act, under Citizens.  And, in Martin, as here, the driver’s insurance company argued that, under case law issued after Citizens, Auto-Owners was primarily liable up to its policy limit before the driver’s policy providing excess coverage applied.  Martin, 284 Mich App at 436-437.  Faced with the same pertinent arguments raised here, this Court held that the garage customer exclusion as defined by the policy was invalid, with the result that Auto-Owners was responsible for providing primary coverage to the permissive driver of the dealership’s automobiles up to the policy limits.  Martin, 284 Mich App at 429.

Here, as in Martin, Auto-Owners knew or should have known that the garage customer exclusion in the policy at issue was void.  ‘The no-fault act clearly directs that a policy sold pursuant to the act must provide residual liability coverage for use of the vehicle insured, and, [nine] years before Auto-Owners issued its policy, our Supreme Court expressly declared the type of exclusion at issue invalid.  Citizens, supra.  Consequently . . . , the policy must be construed in favor of the insured to provide coverage up to the policy limits to both the owner of the vehicle and its permissive users.’”

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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