Michigan Coverage Decisions, Issue 154

Owens v Auto-Owners Insurance Co.

Unpublished, Decided August 11, 2011, Michigan Court of Appeals No. 297590.

Plaintiff sought uninsured motorist benefits under his mother’s insurance policy with Auto-Owners. Plaintiff was struck while a pedestrian. The Auto-Owners policy provided coverage for resident relatives who do not own an automobile. Plaintiff took the position that he did not own an automobile because he had an auto that was nonfunctional and not operable because of the previous accident. Both the trial court and the Court of Appeals rejected this argument finding that there was nothing in the insurance policy that required that the automobile owned by the person be operable.

[su_box title=”Kallas & Henk Note”] In Michigan, the right to recover under a nonmandatory coverage is strictly controlled by policy language. Here, because the policy did not require that the subject automobile be operable, the Court correctly refused to impose such a requirement. [/su_box]


Dawson v Farm Bureau

Published, Decided August 16, 2011, Court of Appeals No. 296790.

Plaintiff was injured as a passenger in an underinsured vehicle. The driver of the vehicle had $20,000 in liability policy limits. Plaintiff made a claim for underinsured benefits from Defendant in the amount of $80,000 ($100,000 underinsured policy limits less the $20,000 available from the at fault driver). Defendant refused to pay and refused to consent to any settlement in the lawsuit brought by plaintiff against the at fault driver. Plaintiff then proceeded to trial against the at fault driver. The at fault driver did little or nothing to contest liability and stipulated to damages in the amount of $100,000. Plaintiff then filed suit against Defendant and sought summary disposition claiming that it was entitled to $80,000 as a result of the outcome of the underlying lawsuit.

The trial court agreed with Plaintiff and granted summary disposition and entered judgment in the amount of $80,000 against Farm Bureau. In its appeal, Farm Bureau argued that it was not bound by the outcome of the underlying action. The Court of Appeals agreed, finding that because underinsured motorist coverage is nonmandatory. The policy language itself controlled whether recovery could be made. Because the policy contained language providing specifically that Farm Bureau was not bound by any settlement or judgment to which it was not a party, the Court of Appeals held that the trial court was wrong to grant summary disposition and reversed and remanded to the trial court for trial on the question of whether the at fault driver was liable and the extent of damages.

[su_box title=”Kallas & Henk Note”] It is clear from this decision that the plaintiff argued and the trial court accepted the argument that plaintiff should be able to recover because it was unreasonable for Farm Bureau to require a trial in the underlying action and then refuse to be bound by the outcome of that trial. The Court of Appeals rejected this contention finding that the Michigan Supreme Court has rejected such considerations in favor of applying the actual language of the insurance contract. Additionally, the Court of Appeals noted that the logic of the policy language was evident in this case where the underlying at fault driver did not vigorously contest liability and stipulated to damages. [/su_box]


Great Lakes Mutual v Kirschner

Unpublished, Decided August 4, 2011, Court of Appeals Docket No. 295677.

The Kirschners previously owned a cabin and procured property coverage from plaintiff insurer. Unknown to the insurer, they then transferred title to a limited liability company. Subsequently, the cabin was badly damaged by fire. Plaintiff filed a declaratory action ruling that it had no duty to provide benefits to either the individuals or the limited liability company for the reasons that the individuals had no insurable interest at the time of the fire because they had transferred the property to the limited liability company and the LLC could not recover because it was not a named insured. The trial court granted summary disposition in favor of defendants and against the insurer.

The Court of Appeals reversed and directed the trial court to enter a judgment rescinding the policy based on the misrepresentation that the individuals own the property. The Court of Appeals held that the policy language was controlling and no interpretation of that language provided a recovery to either the individuals or the LLC.

[su_box title=”Kallas & Henk Note”] This is another case where it is apparent that the trial court had problems with the equities of the situation. It is obvious that the risks undertaken by the insurer were no different by virtue of the transfer of ownership to the LLC, (which obviously was an entity formed by the individuals). It is probable that the trial court essentially said there was no harm and no foul from the transfer to the LLC. The Court of Appeals decision, while correct, seems to confuse two different concepts. On one hand, their analysis suggests that neither individual nor the LLC can recover because the contract language does not provide for either of them to recover under these circumstances. On the other hand, the court remands the case to the trial court for a rescission finding that the representation that the individuals own the cabin was a material misrepresentation. In our view, the correct analysis would be that the individuals could not recover because they had no insurable interest in the property at the time of the loss and the LLC could not recover because it was not a named insured and there was no provision in the policy for anyone other than the named insured to recover benefits.  [/su_box]

Comments are closed.