Federal Kemper Ins. Co., Inc. v. Health Ins. Admin., Inc., Docket No. 74545

• Decision Date: 28 March 1986
• Docket Number: Docket No. 74545
• Citation: 424 Mich. 537,383 N.W.2d 590
• Parties: FEDERAL KEMPER INSURANCE COMPANY, INC., a foreign corporation, Plaintiff- Appellee, v. HEALTH INSURANCE ADMINISTRATION, INC., a foreign corporation, Defendant- Appellant.
• Court: Michigan Supreme Court

Page 590

383 N.W.2d 590

424 Mich. 537

FEDERAL KEMPER INSURANCE COMPANY, INC., a foreign corporation, Plaintiff- Appellee, v. HEALTH INSURANCE ADMINISTRATION, INC., a foreign corporation, Defendant- Appellant.

Docket No. 74545.

Supreme Court of Michigan.

Argued Jan. 14, 1986.

Decided March 28, 1986.

Cholette, Perkins & Buchanan by Robert J. Riley, Robert E. Attmore, Grand Rapids, for plaintiff-appellee.

Fischer, Franklin, Ford, Simon & Hogg by James E. Brenner, Arthur J. LeVasseur, Detroit, for defendant-appellant Health Ins. Admin., Inc.

Lawrence J. Day, Burton, amicus curiae brief Supporting the Legislative Intent of the "No-Fault Act".

Barris, Sott, Denn & Driker by Stephen E. Glazek, Morley Witus, Detroit, for Mich. Mut. Ins. Co., Amerisure Ins. Co., Frankenmuth Mut. Ins. Co. and Citizens Ins. Co. of America.

RILEY, Justice.

This case concerns a dispute between plaintiff no-fault insurance carrier and defendant health insurance carrier over which is liable for payment of a claimant's medical expenses resulting from injuries suffered in an automobile accident. Both policies contain coordinated benefits clauses, and each insurer claims that its coverage is secondary to the other. We are persuaded that to give effect to defendant's clause would defeat the Legislature's intent, expressed in § 3109a of the no-fault act, ¹ to allow insureds the option of coordinating their medical benefits. Thus, we hold that defendant health insurer is primarily liable.

I. Facts and Procedural History

At the time of the accident, the claimant was insured for personal injury protection (PIP) benefits under a no-fault automobile insurance policy issued by plaintiff. Because claimant elected to coordinate these no-fault PIP benefits with his health insurance, plaintiff offered the coverage at a reduced premium rate. Plaintiff's coordination of benefits clause provides:

"This insurance does not apply to the extent that any amounts are paid or payable for allowable expenses to or on behalf of such named insured or relative under the provisions of any other insurance, service, benefit or reimbursement plan providing similar direct benefits, without regard to fault, for bodily injury sustained as a result of the operation, maintenance or use, including the loading or unloading, of a motor vehicle." Michigan Personal Injury Protection Endorsement (Medical Expense Amendment) Form Number AUTO 523A.

The claimant also had coverage for medical and hospital expenses under a group health insurance policy written for his employer by defendant. That policy provides:

"Under 'No Fault' legislation the benefits of this plan shall be determined after the benefits provided by 'No Fault' legislation in those states where such legislation is in force and allowable by law."

Following the accident, plaintiff paid the claimant's medical and hospitalization expenses and commenced this action, claiming that defendant is the primary insurer. Plaintiff sought reimbursement from defendant for payments made to the claimant and a judgment declaring defendant liable for future medical and hospital expenses which might arise. Alternatively, plaintiff sought contribution from defendant in the event the trial court determined that the parties were both liable.

Each company moved for summary judgment. In a written opinion, the trial judge found that there was no conflict between the two "escape clauses":

"Although it would be far easier simply to choose plaintiff's position as a means of implementing the policies of reducing No-Fault premiums and of promoting oversight of hospital and medical costs recognized in LeBlanc v State Farm, 410 Mich 173 (1981), and Nyquist v Aetna Ins Co, 84 Mich App 584 (1978), aff'd 404 Mich 817 (1979), the Court should perhaps make a careful juxtaposition of the two policy provisions to see if there is, in reality, a conflict. I can find none. In defendant's elaborate attempt (attached as Exhibit 2 to plaintiff's brief) to deal with conflicting coordination of benefits provisions, it clearly makes itself secondary to 'benefits provided by "no fault" legislation.' Note that it does not refer to benefits provided by No-Fault policies purchased by the insured but rather to the benefits provided by No-Fault legislation. On the other hand, plaintiff's policy excludes amounts 'paid or payable' by other insurance. Because defendant's policy pays no benefits in this situation, plaintiff's coordination of benefits language does not become effective by its own terms." (Emphasis in original.)

Accordingly, defendant's motion for summary judgment was granted and plaintiff's was denied.

Plaintiff appealed to the Court of Appeals, and that Court reversed the decision of the trial court. Federal Kemper Ins. Co., Inc. v. Health Ins. Administration, Inc., 135 Mich.App. 76, 351 N.W.2d 900 (1984). First, the Court characterized the policies as having conflicting "other insurance" provisions. Then, relying on Farm Bureau Mutual Ins. Co. v. Horace Mann Ins. Co., 131 Mich.App. 98, 345 N.W.2d 655 (1983), lv. den. 419 Mich. 880 (1984), which followed the minority rule that where conflicting "other insurance" provisions exist, both are rejected, the Court prorated liability between plaintiff and defendant on the basis of the proportion of the combined policy limits represented by the limits of each insurer's policy.

We granted defendant's application for leave to appeal. 422 Mich. 936 (1985).

II. Discussion

Before this Court, defendant first takes issue with the Court of Appeals conclusion that the two policies involved contain conflicting "other insurance" provisions. Specifically, defendant claims that the Court of Appeals incorrectly characterized the following clause of its policy as an "other insurance" provision:

"Under 'No Fault' legislation the benefits of this plan shall be determined after the benefits provided by 'No Fault' legislation in those states where such legislation is in force and allowable by law."

Before addressing defendant's argument as to why the above clause is not an "other insurance" provision, some brief background may be instructive.

Many insurance policies contain language intended to restrict or escape liability for a particular risk in the event that there is other insurance. ² Such "other insurance" provisions are of three basic types: "pro rata," "escape," and "excess." ³ A "pro rata" clause purports to limit the insurer's liability to a proportionate percentage of all insurance covering the insured event, while an "escape" or "no liability" clause provides that there shall be no liability if the risk is covered by other insurance, and an "excess" clause limits liability to the amount of loss in excess of the coverage provided by other insurance.

Disputes may arise, as in the instant case, when two or more insurance policies covering the same risk contain such provisions. Moreover, various combinations of the clauses may occur (e.g., pro rata v excess, pro rata v escape, excess v escape), and courts have developed different rules for resolving the conflicts. ⁴ Two trends have evolved. The majority rule attempts to reconcile the competing provisions by discerning the parties' intent through an analysis of the clauses. See, e.g., Jones v. Medox, 430 A.2d 488 (D.C.App.1981). Critics of this approach argue that it is circular and that the decision as to which clause is primary depends on which policy is read first. Thus some courts deem the provisions "mutually repugnant" and reject both clauses. Lamb-Weston, Inc. v. Oregon Automobile Ins. Co., 219 Or. 110, 129, 341 P.2d 110 (1959). Courts adopting this minority view, such as the Court of Appeals in the instant case, hold that liability must be prorated. Id. ⁵

Against this background, we return to defendant's argument, which attempts to distinguish its clause from a typical "other insurance" provision. Defendant argues that a typical "other insurance" provision, such as that in plaintiff's policy, requires reference to the other policy involved to determine whether the first policy provides benefits. Conversely, it is not necessary, defendant claims, to examine plaintiff's policy to ascertain whether defendant's policy provides benefits because its clause is a " 'no-fault' law exclusion" (Defendant's Br, p. 6) (emphasis in original). Defendant explains: Its policy "does not provide any benefits in a state which has a [n]o-[f]ault [a]utomobile [i]nsurance law until benefits provided for under [that] law are exhausted.... [Since] the Michigan no-fault law provides that a 'no-fault' insurer is liable to pay for all reasonable medical and hospital expenses which result from 'accidental bodily injury arising out of the ownership, operation, maintenance or use of a motor vehicle," M.C.L. §§ 500.3105, 500.3107; M.S.A. §§ 24.13105, 24.13107, its policy does not provide coverage.

We are not persuaded by this attempted distinction. PIP benefits are not payable pursuant to Michigan's no-fault law. The law requires a motor vehicle owner to obtain insurance affording PIP benefits. M.C.L. § 500.3101; M.S.A. § 24.13101. PIP benefits are not paid directly by reason of the operation of the statute; rather, the statutory scheme contemplates that PIP benefits will be paid under the required insurance. Reynolds v. Life Ins. Co. of Virginia, 399 So.2d 519, 520 (Fla.App., 1981), lv. den. 411 So.2d 383 (Fla., 1981).

Thus, we agree with the Court of Appeals characterization of the two policies as containing conflicting "other provisions." More precisely, each policy contains an "excess" provision. However, as noted above, the Court of Appeals resolved the conflict by disregarding both clauses and prorating liability. With this resolution, we cannot agree.

Certainly, the minority rule of Lamb-Weston upon which the Court of Appeals relied has the advantage of ease of application, and it has been almost always followed in cases involving competing "excess" clauses,...