Clevenger v. Allstate Ins. Co.

Decision Date08 September 1993
Docket NumberNo. 9,M,Docket No. 93890,9
Citation443 Mich. 646,505 N.W.2d 553
Parties, 62 USLW 2191 Clifford Wayne CLEVENGER, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, a foreign insurer, Joann R. Williams, and Douglas Chester Preece, Defendants-Appellees. Calendaray Term.
CourtMichigan Supreme Court
OPINION

BOYLE, Justice.

In this declaratory action, the issue before us is whether the insurance company's obligations to its insured and the driver of an automobile in a tort action arising out of a head-on collision terminated when the insured assigned the certificate of title to the driver and allowed the purchaser to operate the vehicle with the insured's registration plate, registration, and insurance. We find that under these facts, the insurance policy remained in effect at the time of the accident. Accordingly, we reverse the decision of the Court of Appeals.

I

On Saturday, August 1, 1987, Douglas Preece and his wife traveled to Dearborn to visit with his aunt and uncle. While they were there, at Preece's request, his aunt, JoAnn Williams, offered to sell her 1977 Pontiac to Preece, who accepted the offer and paid his aunt $100 for the automobile. Williams signed her name to the certificate of title and gave it to Preece. 1 Because it was late in the day and a Saturday, Preece planned to register the car, get a new registration plate and his own insurance, the following Monday. In her deposition, Williams testified that she did not discuss the registration plate, registration certificate or insurance with Preece, nor did she recall any such discussion in her presence. She simply signed the certificate of title and her husband, whom she assumed would take care of the final details, went outside with Preece. Conversely, Preece testified that because it was the weekend, Mrs. Williams told him that he could drive with her registration plate, registration, and insurance until he could acquire his own on Monday morning when the Secretary of State's office was opened. When Preece left Williams' home, the registration plate was affixed to the Pontiac and the certificates of registration and insurance remained in the glove compartment.

On Preece's drive home from Dearborn to Hanover, in Jackson County, the radiator of the car malfunctioned requiring that he stop six to eight times to allow the engine to cool down and to add antifreeze. One of the stops was at a friend's home, where Preece consumed a beer. Shortly thereafter, Preece stopped at a party store where he purchased a six-pack of sixteen ounce beer. After drinking two beers, Preece was stopped by a Jackson County police officer because the car had only one operable headlight. After securing Preece's promise not to drink any more beer and to drive directly home, a short distance away, the police officer allowed Preece to continue on his way. A few miles later, a head-on collision between Preece and the plaintiff, Clifford Clevenger, occurred when Preece allegedly crossed over the center line. The accident happened at approximately 2:00 a.m. on Sunday, August 2, 1987.

As a result, Clevenger suffered injuries and received first-party personal injury protection benefits under the no-fault insurance policy covering his vehicle. He later filed a third-party tort claim under M.C.L. § 500.3135(1); M.S.A. § 24.13135(1) 2 against Preece and Williams for residual liability. Preece had no insurance. Williams insured the car with the Allstate Insurance Company under a no-fault insurance policy. Williams did not cancel the policy until August 6, 1987, four days after the collision, and testified that she did not become aware of the accident until two weeks after it occurred.

The plaintiff filed the instant action seeking a declaratory judgment that Allstate had a duty to defend and indemnify Williams and Preece under Williams' no-fault policy. Clevenger and Allstate filed cross-motions for summary disposition. The trial court ruled in favor of Clevenger and denied Allstate's motion, finding that it had a duty to defend and indemnify Williams and Preece in the underlying tort action.

Defendant Allstate appealed as of right in the Court of Appeals. In an unpublished per curium opinion decided February 11, 1992 (Docket No. 120223), a divided panel reversed the lower court's grant of Clevenger's motion for summary disposition. The majority ruled that a bona fide sale had occurred and that the vehicle was no longer owned by Williams after she endorsed the certificate of title, received the full purchase price, and delivered the automobile to Preece. It reasoned that because Williams was no longer the owner of the vehicle, she was statutorily relieved of liability arising from any subsequent negligent operation of the vehicle, and, thus, Allstate had no duty to indemnify Williams. 3 The Court also concluded that under the policy itself, Williams, as the former owner, could not give Preece the requisite permission to drive the automobile. Because Mr. Preece was not a "permissive driver" or an "other insured" as defined in Williams' policy, Allstate had no duty to defend or indemnify him.

Judge Griffin dissented. He noted that JoAnn Williams remained the registrant of the motor vehicle and, as such, was required by the no-fault act to insure the vehicle. The dissent noted that, more importantly, the vehicle remained an "owned automobile" according to the express terms of the policy and thus coverage was provided at the time the accident occurred.

We granted leave to appeal. 441 Mich. 910 (1993).

II

The legislative purpose for enacting the no-fault automobile liability act 4 was to afford protection to persons suffering injury arising out of the ownership, maintenance, or use of an automobile, Coburn v. Fox, 425 Mich. 300, 309, 389 N.W.2d 424 (1986), and not for the protection of the automobile itself, Lee v. DAIIE, 412 Mich. 505, 509, 315 N.W.2d 413 (1982).

Under Michigan's no-fault act, both personal injury protection (PIP) and residual liability insurance is now required. Insurance coverage to protect oneself from the costs of injury through PIP benefits and to protect injured third parties through residual liability insurance is compulsory. Persons violating the no-fault requirements are subject to a criminal penalty. M.C.L. § 500.3102(2); M.S.A. § 24.13102(2).

The decision by the Legislature to make residual liability coverage compulsory under the no-fault act is critical. Before 1973, motorists purchased insurance to protect themselves. Under the no-fault act, the Legislature requires PIP and liability insurance to protect the members of the public at large from the ravages of automobile accidents. 5 [Coburn, supra. Emphasis added.]

Plaintiff argues that Allstate has an obligation to defend and indemnify Williams and Preece in the underlying tort action under its policy because Williams, as the registrant of the car, was required by statute to maintain insurance on the vehicle. In addition, because Williams did not cancel the policy before the accident, according to the express language of the insurance agreement, the policy remained in effect at the time of the collision.

Allstate contends that after August 1, 1987, Williams was no longer the owner of the vehicle. It argues that it need not indemnify her for damages arising out of the accident because the motor vehicle code grants her immunity from liability resulting from Preece's negligent operation of the automobile. Allstate also argues that the policy terminated at the time Williams ceased to be the titled owner of the vehicle. It, therefore, has no contractual duty to defend or indemnify Preece as a "permissive driver" of the vehicle against Clevenger's claim. We address the parties' arguments in inverse order.

A

The Insurance Code requires that a motor vehicle insurer provide its insured with minimum liability coverage for bodily injury, death, and property damage. This coverage must extend to all permissive drivers unless the person is expressly excluded on the face of the policy or the declaration page or certification of insurance. See M.C.L. § 500.3009; M.S.A. § 24.13009.

Under Williams' policy, Allstate agreed to indemnify and defend the insured for "all damages which the insured shall be legally obligated to pay ... arising out of the ownership, maintenance or use ... of the owned automobile...." The persons expressly covered under the policy included the "named insured," and "[a]ny other person with respect to the owned automobile, provided the use thereof is with the permission of the named insured and within the scope of such permission...." The agreement further defined " 'named insured' " as "the individual named in the declarations, and his spouse if a resident of the same household...." The Williams' policy was issued to James L. Williams and because JoAnn Williams, his spouse, resided within the household, she was also considered a "named insured."

The insurance policy also defined the term " 'owned automobile' " as "the vehicle described in the declarations...." In this case, the vehicle listed on the declaration sheet was the 1977 Pontiac.

Following the express language of the policy and its definitions of terms as used in the contract, the insurer agreed to indemnify and defend the insured, either named or permissive drivers if within the scope of such permission, for all damages that the insured was legally obligated to pay arising out of the ownership, maintenance, or use of the owned automobile, which was listed on the declaration sheet. Therefore, Allstate agreed to defend and indemnify JoAnn Williams (a named insured) and Douglas Preece (a permissive...

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