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Citizens Insurance Company of America v Federated Mutual Insurance Company; (COA-PUB, 4/19/1993; RB #1609)


Michigan Court of Appeals; Docket No. 133540; Published  
Judges Griffin, Neff, and Corrigan; 2-1 (with Judge Neff, Dissenting)   
Official Michigan Reporter Citation:  199 Mich App 345; Link to Opinion alt    

Compulsory Insurance Requirements for Owners or Registrants of Motor Vehicles Required to Be Registered [§3101(1)]  
Rental Car Company Liability Insurance Obligations [§3131]

Leased / Rented Vehicles  
Motor Vehicle Code (Financial Responsibility Act) (MCL 257.501, et seq.)   
Private Contract (Meaning and Intent)    

In this 2-1 published Opinion, the Court of Appeals addressed the issue of which liability insurance policy was primary in an accident involving a "loaner" vehicle owned by a car dealership and temporarily loaned to a dealership customer. The car dealership was«insured by Federated. The customer was insured by Citizens. The customer was involved in a car accident causing death and injury to occupants of the other vehicle. The dealership liability policy contained an "escape clause" that purported to provide no liability coverage for the customer because he already had liability insurance coverage on his private policy in excess of the statutory minimum limits. The customer's personal liability policy contained an "excess clause" purporting to make the policy on the dealership vehicle the primary source of coverage with the customer's policy paying only the excess of the claim remaining once the primary insurance coverage had been exhausted.  

In the majority opinion written by Judge Griffin, the Court of Appeals distinguished the earlier decision in State Farm v Snappy Car Rental, Inc. (Item No. 1573) which upheld a similar escape clause in a situation where the rental car customer had voluntarily elected to make the customer's personal automobile policy primary. The majority felt that this was an important distinction because, here, the insurance company, not the customer, made the election that resulted in the prioritization coverage. Thus, the Snappy Car Rental case did not control. In so holding, the majority stated, "In the present case, defendant Federated has through its own policy provisions attempted to exclude from coverage a class of permissive users who have their own coverage in excess of the legal financial responsibility limits. . . . Federated's attempt to dictate the coverage issue in this fashion is void because it contravenes MCLA 257.520(b)(2) which mandates coverage for permissive users. We agree with the dissent that Federated is liable only up to the $20,000/$40,000 limits. Accordingly, we affirm the decision of the circuit court."  

Judge Neff dissented, but only on the basis that she believed the panel was compelled to follow the earlier decision in State Farm v Snappy Car Rental and that the basis upon which the majority was attempting to distinguish that earlier precedent was not valid. Judge Neff felt that the Snappy Car Rental decision stood for the proposition that an owner can, in effect, contract away the statutory requirement to provide coverage for permissive users. However, Judge Neff believed that were it not for the earlier decision, she would read §3101(1) of the No-Fault Act and the Financial Responsibility Act in a manner that would require an owner's policy of liability insurance to provide primary residual liability insurance for any permissive user.

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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