Both Motorists and Insurance Companies Must Be Mindful of Policy Language

A named-driver exclusion resulted in an insurance company’s inability to recoup the damages it paid.

In Frankenmuth Ins Co v Pollthe rather straightforward Michigan Court of Appeals opinion originating from a case out of Kent County Circuit Court, plaintiff insuranceinsurance-payment company attempted to negate the application of named-driver exclusion within an auto no-fault insurance policy, the operation of which essentially left it on the hook for damages it paid, assuming it would be reimbursed by defendant Citizens Insurance Company.

Frankenmuth insured a house that was damaged when defendant allowed an excluded driver to operate the vehicle, driving it into the dwelling. The insurance policy covering the vehicle contained a clause, a named-driver exclusion, that voided coverage if an excluded driver operated the vehicle. The policy stated that “when a named excluded person operates a vehicle, all liability coverage is void – no one is insured.” It went further to provide that “one of the ‘legal consequences’ of allowing a named excluded driver to operate the vehicle would be that ‘the vehicle is considered uninsured under the no-fault statute[.]” Frankenmuth, at *2.

As mentioned above, Frankenmuth paid the owner of the damaged home $108,260.42 to cover the damage, then attempted to subrogate Citizens Insurance (the company that insured the vehicle) for the amount it paid. However, as the court properly noted, the named driver clause properly relieved Citizens from liability – it did not have to cover the damages.

Frankenmuth attempted to argue that the clause was void as a contrary to public policy. In order for that to be true, however, the clause would have had to conflict with Michigan statute, which it did not. MCL 500.3009(2) provides as follows:

(2) If authorized by the insured, automobile liability or motor vehicle liability coverage may be excluded when a vehicle is operated by a named person. Such exclusion shall not be valid unless the following notice is on the face of the policy or the declaration page or certificate of the policy and on the certificate of insurance:

Warning—when a named excluded person operates a vehicle all liability coverage is void—no one is insured. Owners of the vehicle and others legally responsible for the acts of the named excluded person remain fully personally liable.

Because this language was included in the policy and did not conflict with Michigan statute, the named-driver exclusionary clause was not void as contrary to public policy.

As applied, defendant allowed an excluded driver to operate her motor vehicle. As soon as this happen, the vehicle was no longer insured. As a result, Citizens had no obligation to reimburse Frankenmuth for the amount it paid to cover the damage caused by the vehicle operator, as it was not the insurance company responsible for the loss.

As Grand Rapids car accident lawyers who deal with no-fault insurance policies on a regular basis, we understand the importance of policy language. Last week, we brought your attention to a case in which the failure to report a crash resulted in the proper denial of benefits by an insurance carrier. But, as much as insurance companies like to turn quickly to policy language to deny benefits, it’s not often that we see those same companies with the shoe on the other foot, so to speak. Frankenmuth Ins Co v Poll illustrates one such instance.

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