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State Farm Mutual Automobile Insurance Company v Snappy Car Rental, Inc.; (COA-PUB, 9/21/1992; RB #1573)


Michigan Court of Appeals; Docket No. 131729; Published 
Judges Murphy, Shepherd, and Eveland; Unanimous 
Official Michigan Reporter Citation:  196 Mich App 143; Link to Opinion alt  

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

Leased / Rented Vehicles 
Motor Vehicle Code (Financial Responsibility Act) (MCL 257.501, et seq.)   

In this unanimous published Opinion by Judge Murphy, the Court of Appeals upheld a provision in a rental car contract that gave the rental customer the option of paying an additional amount for insurance coverage through the rental car company or, in the alternative, to agree that the rental car was not covered by the rental car company and that the coverage was to be provided by the renter or the renter's existing insurance. In this case, the renter chose to provide coverage through her own automobile insurance company, plaintiff State Farm. The renter was subsequently involved in a personal injury accident resulting in a liability lawsuit against the renter. State Farm argued that the rental car company's insurance waiver language was an unauthorized exclusion under the Michigan No-Fault Act and, therefore, the rental car company was primarily liable and State Farm was only secondarily liable. The Court of Appeals rejected State Farm's argument and. upheld the provisions of the rental agreement, and in so doing, primarily relied upon the earlier decision in State Farm v Auto Owners (Item No. 1201). Therefore, State Farm would have primary liability. In so holding, Judge Murphy stated:

"We resolve this case in accordance with State Farm v Auto Owners, supra, rejecting the argument that an automobile insurance policy may not contain an exclusion not specifically authorized by the legislature. Although defendant is not permitted to contract away its statutory obligation to provide residual liability insurance as the owner of a vehicle, nor its statutory obligation to provide insurance coverage for permissive users, neither the No-Fault Act nor the Financial Responsibility Act specifically require that an owner provide primary residual liability insurance for permissive users. In this case, we read the clause in defendant's policy not as an attempt to limit the residual liability insurance nor first-party benefits, since defendant is obligated to provide coverage consistent with the No-Fault Act and the Financial Responsibility Act Rather, we read the clause only as an attempt to establish the priority of coverage as contracted for by [the renter]. We therefore hold that the provision of defendant's rental agreement in question is not void as violative of the No-Fault Act" (emphasis added)

The court also rejected the argument that coverage was barred by an exclusion in State Farm's policy withholding coverage, where the insured is driving a vehicle owned by a "car business." In this case, the court found the policy definition of "car business" to be ambiguous, as it seemed to "describe activities of a car dealership, where a car could be purchased or leased long term. By contrast, renting a car from a rental agency implies a short term agreement not necessarily fitting within the car business definition. We therefore construe this exclusionary clause against the plaintiff in favor of coverage."  

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