Michigan Coverage Decisions, Issue 30

George Zulakis, personal representative of the estate of the Charles M. Decker, deceased v Auto Owners Insurance Company

Unpublished. Decided November 20, 2001 State of Michigan Court of Appeals Docket No. 221948.

Plaintiff’s decedent was killed in an automobile accident along with three other passengers. The driver had an automobile policy in the amount of $20,000 per claim and $40,000 per occurrence. The Plaintiff sued the negligent driver and amended his complaint to add his grandparents’ auto insurance carrier claiming under insured motorist benefits. Plaintiff settled with the driver for 1/5 of the driver’s auto policy limit.

Defendant auto insurer filed a motion for summary disposition claiming that the decedent did not reside with his grandparents at the time of death and he owned two cars, therefore, he was excluded from benefits under the grandparents’ policy. The Trial Court granted partial summary disposition in favor of the Plaintiff finding the term “automobile” ambiguous as to operability. The Court determined that Plaintiff’s decedent’s inoperable automobiles were not “automobiles” precluding coverage. A jury determined that the decedent “resided with” his grandparents and entered judgment for the Plaintiff, but assessed an $8000 set-off for the settlement amount with the negligent driver.

Defendant appealed the ruling on the residency issue, claiming an adult could not have two residences. The Court of Appeals extensively analyzed the term “resides with” and determined that the term could be interpreted in more than one manner, therefore was ambiguous and upheld the Trial Court. Defendant also appealed that “operability” of an automobile did not apply in determining automobile ownership. The Court of Appeals determined that the Trial Court erred in granting summary disposition on this issue because a question of fact existed as to whether “operability” of an auto determined whether the vehicle qualified as an automobile under the policy.

Defendant appealed that the proper setoff amount was $20,000 based on the driver’s policy limits “available”. The setoff provision in the under insured motorist coverage provided for setoff against all “available” coverage. The Court of Appeals upheld the $8000 setoff because the term “available” was ambiguous and therefore construed in favor of the insured.

[su_box title=”Kallas & Henk Note”] This case represents a complete confusion of analysis by the Court of Appeals. First, the Court finds that both the terms “resident of the insured household” and “automobile” were ambiguous. With respect to the first term, the Court affirmed a jury finding that there was no residency in this case. Under Michigan law, if in fact that term is ambiguous, it should be construed against the insurer and there should have been no jury question. With respect to the term “automobile”, the Court of Appeals also found ambiguity and held that this was a jury question. Finally, in analyzing the set off provision in the policy, the Court held that the amount of insurance “available” to the under insured motorist was ambiguous. In this circumstance, however, the Court held that this required a finding against the insurer as opposed to a jury question.  [/su_box]


William Kung, by his next friend, Alan M. Bennett v Eric Kung, Susan Wen Kung and Hui Yen Wang and Amy Olivia Williams and Auto Club Group Insurance Company

Unpublished. Decided November 27, 2001 State of Michigan Court of Appeals Docket No. 225412.

The minor Plaintiff was struck by a car while under his nanny’s supervision. Plaintiff filed a Court action against his parents, nanny and the vehicle driver. A consent judgment was entered for $1 million which was the homeowner’s insurance policy coverage limit. The homeowner’s insurer denied the claim on the basis that the homeowner’s policy excluded coverage for bodily injury to any resident relative. Subsequently, the Plaintiff filed a garnishment claim against the homeowner’s insurer. The Plaintiff argued that the homeowner’s insurer neglected to notify the policyholder about the existence of the exclusion (the exclusion was added to the policy before the loss). The Trial Court concluded that the notice regarding the new exclusion was inadequate because it was not likely to be understood by a layperson.

On appeal, the homeowners insurer argued that the notice was adequate and a reasonable effort had been made to inform the policyholder about the inclusion of the new exclusion. The Court of Appeals held that the notice was sufficiently designed to inform the policyholder to read the policy and make timely inquiries regarding any coverage questions. On that basis, the Court of Appeals overturned the Trial Court.

[su_box title=”Kallas & Henk Note”] This case addresses the circumstance of a change in coverage upon renewal of a long-standing policy. In this case, the Court of Appeals held that the insurer’s notice was adequate to put the insured on notice of the exclusion. [/su_box]


Michael and Sally DeWald v Fremont Mutual Insurance Company

Unpublished. decided November 30, 2001 State of Michigan Court of Appeals Docket No. 224862.

Plaintiffs sold their home by land contract. The buyers obtained insurance covering the property for three-year period. The buyers defaulted on the land contract, discontinued insurance premium payments and coverage lapsed. Three years later, a fire destroyed the home and the insurance company refused to pay Plaintiffs. The Trial Court granted summary disposition to the insurance company on the basis that the Plaintiffs were not entitled to the insurance proceeds because the insurance policy had expired by its own terms before the date of the fire.

On appeal, The Plaintiffs argued that they were entitled to the insurance proceeds because they never received notice of the policy cancellation. The Court of Appeals disagreed stating that the contract contained a specific expiration date. The Court noted that a notice of cancellation provision only applies if the insurance company cancels the policy before the

[su_box title=”Kallas & Henk Note”] This case stands for the basic proposition of contract law that specific terms of a contract cannot survive past the expiration date of the contract. In this case, the Court held that the Plaintiffs could not expect a form of contractual performance past the expiration date of the insurance policy. [/su_box]

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