SUMMARY

The past ten years have seen an overwhelming sea-change in consumers’ insurance rights in Michigan. The “tort reform” majority on Michigan’s Supreme Court has significantly contracted the rights of insureds, through decisions denying any duty to write “reasonable” policy language, denying any duty by insurance agents to advise their clients, enforcing short statutes of limitation (as short as one year) and allowing insurers to avoid liability for any injury-causing act that can be characterized as “criminal in nature”.

Together, these provisions and decisions require consumers with potential insurance claims to recruit sophisticated professional support early on, in order to protect and properly document their rights.

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INSURANCE DISPUTES

Despite recording record profits, this decade has seen a steady decline in the duty of Michigan insurers to compensate injury or loss victims. Most insurance issues are a function of state law, and in the 80s and 90s, Governor Engler made it a point to hand-select Republican Supreme Court nominees who favored insurers over victims. His appointments have included people like the Chief Counsel of AAA, for example. With this form of majority in Michigan’s highest court, by our estimate, more than 95 percent of insurance-related disputes decided by the Supreme Court have resulted in rulings against consumers and victims. Every form of insurance policy must be considered distinctly, as several stem from statutory schemes, however, certain similarities in Supreme Court interpretation are found in all.

Comprehension and Interpretation

In the 1970s, the Supreme Court of California held unanimously that a given insurance policy was virtually indecipherable for most insureds and introduced a concept whereby insurance policies were interpreted in accordance with a “reasonable insured” standard. In other words, if consumers would reasonably expect coverage under particular circumstances, the policy would be interpreted to provide it, even if an obscurely worded exception in fine print would eliminate coverage. This concept had broad appeal and spread to most states over the next few years.

In recent years, however, the conservative majority of the Michigan Supreme Court made a concerted attempt to repudiate this “reasonable insured” standard. It has held, in a series of cases, that all insureds are presumed to have read their entire policy, even if it is only comprehensible to an industry professional. Furthermore, they have rejected a line of decisions that would interpret ambiguities in the insurance contract against its drafter, given the manner in which insurance policy language is simply “imposed” on purchasers. Ultimately, the Supreme Court claimed that it did not have the power to assess the “reasonableness” of an insurance policy, and therefore all policies would be interpreted according to their explicit terms–even if that meant that purported coverage would be illusory.

Insurance agents

The Supreme Court went one step further, a few years later, holding that an independent insurance agent owes no duty to consumers and owes its only duty–to sell as much insurance as possible--to the insurance company. The Court therefore held that except in very limited circumstances, the promises and assumptions of the insured’s agent are not actionable if the agency fails to arrange the type or amount of insurance intended. In the event of a failure of coverage, it is IMPERATIVE that the insured explore these matters with an informed insurance attorney before engaging in any correspondence or investigation. If a special duty was undertaken by the agent, it must be carefully documented before the insurance representatives can undermine it.

Particular insurance schemes

No Fault Auto Insurance

We have addressed particular no fault insurance benefits and rights elsewhere on the website and they will not be addressed here. It is of some value, however, to highlight some of the particularities of the No Fault scheme as differentiated from other Michigan insurance issues. For example, no fault liability insurance is required to be coextensive with residual no fault auto liability. Therefore, auto insurers must provide liability coverage for intentional acts (they do not have to provide personal injury protection for intentional acts, however) whereas in most liability situations, coverage is excluded where there has been an intentional injury-causing act.

Recently, the tort “reform” majority of the Supreme Court held that none of the statute of limitations savings provisions of the Revised Judicature Act apply to no fault personal injury protection benefits. From 1974 through 2005, it had been assumed by all practicing attorneys and sitting judges and Justices that the tolling provisions relating to infants and persons who are mentally incompetent applied to all injury actions. As a result of this recent decision not to give legally-disabled people extra time, many forms of protection owed to injured children are no longer required to be provided if the child’s parents fail to take immediate action to preserve the child’s claim.

The no fault scheme also includes a “one year back” rule that is unique to automobile injuries. In 2005, the Supreme Court majority also reversed a nineteen year-old decision that allowed consumers to wait for their insurer to make a decision on paying benefits before filing suit. Pursuant to the Lewis case, consumers could wait for one or several insurers to investigate their obligation and issue a denial before the consumer was obligated to file suit. The “reform” majority reversed this holding–retroactively [meaning with immediate effect]–and held that any benefit not sued upon within one year of incurring the expense is waived by the consumer. This decision presents a particular hardship to insureds who have paid for health coverage and no fault coverage and who are not informed of disputes between the health care provider, the health insurer and the auto insurer. These disputes can easily result in twelve months’ delay in payment of a medical expense, and once that occurs an insured who has purchased two forms of health coverage may find that he or she cannot collect from either–and now owes the medical billing personally.

One last unique feature of the no fault scheme is its combination of statutorily-required benefits and optional benefits. Statutory benefits cannot be waived or distorted in the policy or by non-cooperation of the insured to the detriment of the injury victim. On the other hand, non-mandatory coverages such as Uninsured and Underinsured Motorist Coverage can be provided and defined in any matter the insurer wishes. As a result, for example, under a recent decision, a one-year limitation on the collection of Uninsured Motorist benefits was upheld, even though the purchaser of the insurance was not aware within the one-year time period that the wrong-doer was uninsured. The wrong-doer was initially represented by an insurer who declined coverage after the one-year anniversary: when the injured party immediately sought uninsured coverage based on this late declination, the court upheld the insurer’s reliance on its one-year time limit to deny benefits.

Because auto insurance is mandatory for drivers on Michigan roads, it also contains other unique provisions that can influence coverage. For example, insurers who cancel without providing the necessary statutory ten-day notice to the consumer are estopped to deny coverage. On the other hand, a motorist who fails to purchase his own PIP and liability coverage may also be denied the right to sue the drunk who causes him catastrophic injury, pain and suffering: in essence failing to “participate in the insurance scheme” results in a punitive denial of significant civil rights. While this provision is claimed to encourage motorists to maintain their coverage, in fact, most Michigan drivers don’t even know that it exists. It is simply a windfall to the insurance company and nothing more..

Homeowner Coverage

A frequent source of insurance disputes over the past ten years has been the progressive expansion of the “criminal acts” exclusion from liability coverage. Most insurance policies exclude liability compensation to victims arising out of a criminal act of the insured. In almost every state except Michigan, these policy exclusions are expressly limited to intentional criminal acts. A majority of the Michigan Supreme Court has held on several occasions over the past four decades–and as recently as 2004–that liability insurance is intended for the benefit of victims as well as of the insureds’ and is expressly intended to protect innocent people from “stupid” acts. Despite these holdings, “reforming” courts have expanded this exclusion from coverage to preclude coverage even for negligent criminal acts. Negligent criminal acts, by statute, include “endangering a child”, “negligently discharging a firearm”, “discarding a refrigerator without disabling the door”, “creating a disturbance” or even sheltering an infant in an “adult” bed, to name just a few. Utilizing these provisions, Michigan insurers have recently avoided paying compensation (and thereby failed to protect their insureds from judgment) for injuries or deaths caused by one child negligently putting out the eye of another child with a BB gun; hunting and gun accidents between both friends and strangers; the accidental suffocation death of a child in day care and all sorts of other negligently caused–but unintentional–”criminal acts” where it was assumed there would be insurance coverage.

Business Pursuits

Insurers have also been far more aggressive–since they perceive that they have a sympathetic court–in claiming an exception for business pursuits. Whether a kid is delivering pizza with his dad’s car, or a volunteer fireman is “earning” $10.00 for making an ambulance run, the involved insurer is likely to claim a business pursuits exception. In a rare victory for insureds, the appellate court recently rejected the claim that baling hay for sale was a “business pursuit” rather than a “normal farming activity”. Any income-generating activity–no matter how nominal the resulting income--puts the homeowner at risk of this exception, and of course, unless the insured can prove a special relationship, it doesn’t matter that the selling agent assured the homeowner that he would have coverage.

Fire and Property Insurance

Fire and property insurance are required to conform to certain state rules and regulations. These same rules also allow for short time periods to provide notice or to document losses. In the event of a property loss or fire, fore example, the insured may have to provide a Proof of Loss, under oath, within a matter of months. If this document must include all insured property and provide values, often in the absence of any surviving records or evidence, the insured is faced with a very difficult and time-consuming obligation. Yet, the failure to comply with the short notice period, or a significant mistake in its content, may result in the forfeiture of the entire coverage. WE STRONGLY RECOMMEND THAT ALL PERSONS CREATE SOME FORM OF “RECORD” OF PERSONAL PROPERTY IN THE HOME. IF TIME IS AN ISSUE (OR LAZINESS) EVEN A CURSORY VIDEO INVENTORY OF EACH ROOM OF THE HOME CAN BE PRESERVED OUTSIDE THE HOME AND SERVE AS AN UNUSUALLY HELPFUL REFERENCE SOURCE IN THE EVENT OF FIRE OR DESTRUCTION.

Fees, sanctions and “bad faith”

In most insurance settings, the insured cannot collect the fees and costs he or she incurs to procure coverage. One potential exception is No Fault coverage, under which, if benefits are unreasonably denied, the court may award fees and costs and twelve percent interest. On the other hand, if the disputed benefit has not been incurred because the insured couldn’t afford to purchase it, no fees will be awarded; and if the insurer can document any arguable excuse for defending the claim, it may be able to avoid fees. Careful documentation of the loss, or of the insurer’s actions is absolutely imperative in order to enable the insured to prove that the insurer’s failure to pay is “unreasonable”.

When litigation results in any context, including insurance issues, injury claims and no fault situations, certain court rules create the potential for fees or costs by operation of “offers of judgment” or a procedure entitled “case evaluation”. In these situations, if one party declines a proposed and documented settlement and then fails to improve their position at trial, the Court may be empowered to award fees and costs from the time of the settlement offer forward.

In other states, and prior to tort “reform” in Michigan, insurers are or were obligated to pay claims in good faith and could be punished in civil actions for refusing to act reasonably to protect the insured. In Michigan, however, the Supreme Court held that these obligations run only to insureds who are wealthy enough to have assets from which an ultimate judgment could be collected presently, thereby denying most insureds and most victims of any recourse against unreasonable or extortionate behavior by insurers.