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Wilkie v Auto-Owners Insurance Company; (MSC, 7/16/2003; RB# 2387)


Michigan Supreme Court; Docket No. 119295; Published
Opinion by Justice Taylor; 4-3 (with Justices Cavanagh and Kelly dissenting; and Justice Weaver concurring in part and dissenting in part)
Official Michigan Reporter Citation: 469 Mich 41, Link to Opinion courthouse graphicLink to COA Summary alt

Not applicable

Underinsured Motorist Coverage: Setoffs Applicable to Underinsured Motorist Cases

In this 4-3 decision written by Justice Taylor, the Supreme Court reversed the Court of Appeals [Item No. 2210], and held that a person who is entitled to receive underinsured motorist benefits under a split limit underinsured motorist policy may have the per person limits of coverage reduced by the full amount of the tortfeasor’s liability coverage, even though the injured person had to share those limits with other injured persons. In this case, plaintiffs Wilkie and Frank were insured by Auto-Owners, with underinsured motorist coverage having limits of $100,000 per person and $300,000 per occurrence. Wilkie and Frank sustained severe damages as a result of the negligence of an underinsured tortfeasor (Ward), who had liability coverage in the amount of $50,000 per occurrence. Wilkie and Frank split Ward’s liability coverage with each receiving $25,000. Wilkie and Frank then pursued a claim against Auto-Owners for underinsured motorist coverage with each demanding $75,000 from Auto-Owners (the $100,000 underinsured motorist limits reduced by the $25,000 each received from Ward). Auto-Owners claimed that Wilkie and Frank were each only entitled to receive $50,000 from Auto-Owners because Ward had $50,000 of liability coverage available to him and it is the face amount of the tortfeasor’s coverage that may properly be set-off against the applicable underinsured motorist limits. The Court of Appeals agreed with Wilkie and Frank and held that Auto-Owners could only set-off that portion of the tortfeasor’s coverage that Wilkie and Frank actually received in settlement of their claims.

The Supreme Court reversed the Court of Appeals and agreed with Auto-Owners’ interpretation of the policy. The court found that the Auto-Owners policy was not ambiguous and clearly permitted a set-off for the total amount of all the liability coverages available to the tortfeasor. In reviewing the policy language, Justice Taylor interpreted it in the following way:

"¶4(a)(1) states that the limit of liability for underinsured-motorist coverage shall not exceed ‘the amount by which the Uninsured Motorist Coverage limits stated in the Declarations exceeds the total limits of all bodily injury liability bonds and policies available to the owner or operator of the underinsured automobile.’ In this case, the underinsured-motorist coverage limit stated in Auto-Owner’s declaration is $100,000. The total limit of all bodily-injury liability policies available to the owner of the underinsured automobile, i.e., Ward, is $50,000. Therefore, the amount by which the underinsured-motorist-coverage limits stated in the declarations exceeds the total limits of all bodily-injury policies available to the owner of the underinsured automobile is clearly $50,000, not $75,000. Contrary to the contention of the Court of Appeals, this provision cannot be ‘reasonably understood’ to be referring to the amount actually received by the claimant because the provision specifically refers to the total available to the owner. Yet, whatever the merits of the Court of Appeals analysis, the panel’s conclusion is fatally undermined when ¶ 4(1)(1) is read, as it must be, with ¶¶ 4(b)(2) and (3). These later paragraphs settle any perceived ambiguity in ¶ 4(a)(1) by stating that the amounts to be paid will not be increased because of claims made, suits brought, or persons injured. Interpreting this provision to mean that each plaintiff is entitled to $75,000 would increase the limit of liability ‘because of’ the number of claims brought or persons injured, which is clearly contrary to the plain language of ¶¶ 4(b)(2) and (3).

Quite simply, if ¶ 4(1)(a) appears ambiguous by itself, when read with ¶¶ 4(b)(2) and (3) the ambiguity is eliminated. That being the case, the insurance contract at issue is unambiguous and should be enforced as its terms dictate.”
(emphasis in original)

The Supreme Court then went on to analyze the impact of the “rule of reasonable expectations” with respect to the issues involved in this case. Justice Taylor wrote extensively regarding the origin and evolution of this doctrine and concluded that it is “in our view, invalid as an approach to contract interpretation.” The court went on to say:

“The rule of reasonable expectations clearly has no application to unambiguous contracts. That is, one’s alleged ‘reasonable expectations’ cannot supercede the clear language of a contract. Therefore, is this rule has any meaning, it cannot only be that, if there is more than one way to reasonably interpret a contract, i.e., the contract is ambiguous, and one of these interpretations is in accord with the reasonable expectations of the insured, this interpretation should prevail. However, this is saying no more than that, if a contract is ambiguous and the parties’ intent cannot be discerned from extrinsic evidence, the contract should be interpreted against the insurer. In other words, when its application is limited to ambiguous contracts, the rule of reasonable expectations is just a surrogate for the rule of construing against the drafter.”


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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