Ile v. Foremost Ins. Co.

• Citation: 809 N.W.2d 617,293 Mich.App. 309
• Decision Date: 14 July 2011
• Docket Number: Docket No. 295685.
• Parties: ILE v. FOREMOST INSURANCE COMPANY.
• Court: Court of Appeal of Michigan — District of US

293 Mich.App. 309

809 N.W.2d 617

ILE

v.FOREMOST INSURANCE COMPANY.

Docket No. 295685.

Court of Appeals of Michigan.

Submitted May 10, 2011, at Detroit.Decided July 14, 2011, at 9:00 a.m.

Law Offices of Paul Zebrowski & Associates (by Paul A. Zebrowski and Thomas A. Biscup, Shelby Township) for plaintiffs.

Warner Norcross & Judd LLP, Grand Rapids (by Andrea J. Bernard, Michael G. Brady, and Jason L. Byrne) for defendant.

Willingham & Coté, P.C., East Lansing (by John H. Yeager and Kimberlee A. Hillock) for the Insurance Institute of Michigan.

Before: MARK J. CAVANAGH, P.J., and TALBOT and STEPHENS, JJ.

TALBOT, J.

Foremost Insurance Company challenges the trial court's grant of summary disposition in favor of Debra Ile (Ile), individually and as the personal representative of the estate of Darryl Ile (decedent), based on the trial court's determination that the underinsured-motorist (UIM) coverage in the motorcycle insurance policy purchased by the decedent from Foremost was an illusory contract and that Ile was entitled to recover up to a maximum $20,000 of underinsurance benefits for damages incurred exceeding the $20,000 already paid by another insurer. We affirm.

Foremost issued to the decedent a motorcycle insurance policy that included “bundled” uninsured-motorist (UM) and UIM coverage for the period of January 30, 2006, to January 30, 2007. The insurance policy provided UM and UIM coverage in an amount equal to the minimum liability coverage limits permitted under Michigan law of $20,000/$40,000.¹ Although Foremost offered higher limit options, the decedent selected this amount of coverage and paid a single, unallocated premium amount of $26 for UM/UIM coverage. Under the language of the policy, Foremost agreed to pay “compensatory damages which an ‘insured’ is legally entitled to recover from the owner or operator of an ‘uninsured motor vehicle’ because of ‘bodily injury’ ” and “compensatory damages which an ‘insured’ is legally entitled to recover from the owner or operator of an ‘underinsured motor vehicle’ because of ‘bodily injury.’ ”

The Foremost insurance policy in part defines an “uninsured motor vehicle” as

a land motor vehicle or trailer of any type:

1. [t]o which no bodily injury liability bond or policy applies at the time of the accident.

2. [or] [t]o which a bodily injury liability bond or policy applies at the time of the accident. In this case its limit for bodily injury liability must be less than the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which ‘your covered motorcycle’ is principally garaged.

The policy language defines “underinsured motor vehicle” in relevant part as

a land motor vehicle or trailer of any type to which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury liability is less than the limit of liability for this coverage.

However, “underinsured motor vehicle” does not include any vehicle or equipment:

1. [t]o which a bodily injury liability bond or policy applies at the time of the accident but its limit for bodily injury liability is less than the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which “your covered auto” is principally garaged.

Foremost sought to further limit the extent of its liability for payment by reiterating throughout the policy that it “will not make a duplicate payment under this coverage for any element of loss for which payment has been made by or on behalf of persons or organizations who may be legally responsible.”

The factual circumstances leading up to this litigation are straightforward and undisputed. On June 18, 2006, the decedent was killed when he struck a parked vehicle while driving the motorcycle insured under the policy described above. Decedent's estate recovered the policy limit of $20,000 from Titan Insurance Company, the insurer of the parked vehicle. ² Ile sought to recover an additional $20,000 from Foremost under the decedent's policy. Foremost denied the claim and declined any additional payment on the basis of Ile's already having received the maximum amount payable under the decedent's policy from the insurer of the parked vehicle. Ile initiated this litigation alleging breach of contract and misrepresentation. The trial court denied Foremost's motion for summary disposition, but granted summary disposition in favor of Ile.³

At the outset of its analysis, the trial court noted that because “it is undisputed that the language of the Policy is clear and unambiguous, the Court will focus solely on whether the underinsurance coverage is illusory.” Citing caselaw from other jurisdictions, the trial court indicated with approval that those “courts have found underinsured motorist coverage to be illusory in scenarios where the injured person has the statutory minimum amount of underinsured motorist coverage and the tortfeasor, from the same state, has the statutory minimum amount of motor vehicle liability insurance coverage, and those two amounts are equal.” ⁴

The trial court found “that the underinsured motorists [sic] coverage under the Policy is illusory inasmuch as it provides no coverage whatsoever.” Relying on the insurance policy's definition of “underinsured motor vehicle,” the trial court reasoned as follows:

[I]f an insured selects limits of liability for coverage under the Policy which are the same as the minimum permissible liability limits under Michigan law, i.e., $20,000/$40,000, no other vehicle registered in Michigan could ever qualify as an underinsured motor vehicle as defined in the Policy. Moreover, the Policy would never provide underinsured motorists coverage when vehicles from other states having lesser mandatory minimum coverages are involved insofar as the Policy expressly excludes from the definition of underinsured motor vehicle any vehicle covered by insurance liability limits that are less than the minimum limit for bodily injury liability specified by Michigan. Thus, under no circumstances would Foremost have to pay underinsured motorists coverage under the Policy.

The trial court further determined that, contrary to Foremost's contention,

it is apparent that the insurance premium payment incorporated at least some charge for underinsurance as the declarations page indicates that the premium for underinsurance under the Policy was included, and in setting the base rate for the $20,000/$40,000 uninsured/underinsured coverage in the Policy, [Foremost] took into account the aggregate of all losses over the entire uninsured/underinsured coverage.... Therefore, decedent paid a premium for underinsured motorists coverage purporting to provide him with underinsured motorists coverage of $20,000/$40,000, which ... could never be paid.

This Court granted Foremost leave to appeal.⁵

We review de novo a trial court's decision to grant or deny summary disposition.⁶ Similarly, the interpretation of an insurance contract constitutes a question of law that we also review de novo.⁷ “UNINSURED MOTORIST benefit clauses are construed without reference to the no-fault act because such insurance is not required under the act.” ⁸

The premise of Foremost's challenge to the trial court's holding is two-fold. First, Foremost contends that the UM/UIM policy coverage provided to decedent was not illusory because a policyholder is assured of receiving the benefits for which he or she paid. Foremost contends that numerous scenarios exist under which a policy holder having the $20,000/$40,000 liability coverage would receive benefits, precluding the trial court's determination that the contract was illusory. Second, Foremost argues that because the UM/UIM coverage was bundled it did not include a separate premium for UIM coverage. Because decedent was not charged an insurance premium that was attributable to UIM coverage, Foremost maintains that the trial court erred by concluding that decedent paid for coverage that will never result in the payment of benefits.

An “illusory contract” is defined as “[a]n agreement in which one party gives as consideration a promise that is so insubstantial as to impose no obligation. The insubstantial promise renders the agreement unenforceable.” ⁹ A similar, more specific concept exists in the realm of insurance. The “doctrine of illusory coverage” encompasses “[a] rule requiring an insurance policy to be interpreted so that it is not merely a delusion to the insured. Courts avoid interpreting insurance policies in such a way that an insured's coverage is never triggered and the insurer bears no risk.” ¹⁰ We first address the trial court's determination that the UIM coverage in the Foremost policy was an illusory contract, which could not be enforced because it violated public policy.

“An insurance policy is enforced in accordance with its terms.” ¹¹ Because underinsured motorist benefits are not statutorily mandated in Michigan, we apply the general rules of contract interpretation in order to determine under what circumstances coverage must be provided.¹² To that end,

[a]n insurance policy is much the same as any other contract. It is an agreement between the parties in which a court will determine what the agreement was and effectuate the intent of the parties. Accordingly, the court must look at the contract as a whole and give meaning to all terms. Further, “[a]ny clause in an insurance policy is valid as long as it is clear, unambiguous and not in contravention of public policy.” This Court cannot create ambiguity where none exists.

Exclusionary clauses in insurance policies are strictly construed in favor of the insured. However, coverage under a policy is lost if any exclusion within the policy applies to an insured's particular claims. Clear and specific exclusions must be given effect. It is impossible to hold an insurance company liable for a risk it did not assume.¹³

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