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American States Insurance Company v State Farm Mutual Automobile Insurance Company and Longcore; (COA-UNP, 12/15/1993; RB #1687)


Michigan Court of Appeals; Docket No. 143916; Unpublished   
Judges Marilyn Kelly, MacKenzie, and Neff; 2-1 Opinion (with Judge Kelly Dissenting); Per Curiam   
Official Michigan Reporter Citation:  Not Applicable; 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)]

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

In this 2-1 unpublished per curiam Opinion, the Court of Appeals reversed the trial court and held valid an exclusionary clause in State Farm's insurance policy which would exclude liability coverage for injuries caused by a mechanic while test driving a car he had just repaired.  

In this case, the owner of the vehicle took her car to a dealer for repair work. After repairing the car, the car dealer's mechanic took the vehicle for a test drive and was involved in an automobile accident injuring another person. The customer's automobile was insured by State Farm, the dealer had insurance with American States. State Farm had a provision in its policy which excluded coverage for persons engaged in a car business with the following language:

"There is no coverage under coverages A and Y:

1.        While any vehicle insured under this section is:

b.        being repaired, serviced or used by any person employed or engaged in any way in a car business."

Plaintiff American States claimed that State Farm's exclusionary clause was contrary to the financial responsibility act [MCLA 500.3101(1) and MCLA 257.520(b)(2)] and was against public policy. The trial court agreed, and on appeal, the Court of Appeals reversed.  

The Court of Appeals majority in this case felt that it was bound by Administrative Order 1990-6 to follow the recent case of State Farm v Snappy Car Rental, 196 Mich App 143 (1992) (Item No. 1573) in which the Court of Appeals acknowledged that neither the no-fault act nor the financial responsibility act specifically required an owner to provide primary residual liability insurance for permitted users.  

In her dissent, Judge Kelly would hold that rather than being controlled by State Farm v Snappy, supra, this case was controlled by the more recent decision of Citizens Insurance Company v Federated Mutual, 199 Mich App 345 (1993) (Item No. 1609). Judge Kelly noted that the majority in Citizens Insurance Company, supra, believed that the decision in Snappy did not control that case. Judge Kelly would hold that Snappy, supra, should be viewed as creating a narrow exception to the general principle that an owner's policy of liability insurance covers permitted users of the vehicle. In Snappy, supra, it was the consumer renting an automobile who chose to rely upon her own insurance rather than paying an additional fee for rental car insurance. Under those circumstances, the Court of Appeals found the financial responsibility act was not violated. However, in Citizens, supra, it was the defendant insurer, by the terms of its policy, which sought to prioritize liability coverage. Judge Kelly reasons that in this case, as in Citizens, the insurer attempted to escape liability for accidents involving a class of permitted users. Judge Kelly would find this to be impermissible under the financial responsibility act and would uphold the trial court decision concluding that defendant's "car business" exclusionary clause contravened the financial responsibility act and is against public policy.

Lansing car accident lawyer 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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