Morales v. Auto-Owners Ins. Co.

• Decision Date: 10 September 1998
• Docket Number: AUTO-OWNERS,No. 13,No. 107351,107351,13
• Citation: Morales v. Auto-Owners Ins. Co., 582 N.W.2d 776, 458 Mich. 288 (Mich. 1998)
• Parties: Alice Jo MORALES, as Guardian of Antonio Morales, also known as Anthony Morales, a legally incapacitated person, Plaintiff-Appellant and Cross-Appellee, v.INSURANCE COMPANY, Defendant-Appellee and Cross-Appellant. Calendar
• Court: Michigan Supreme Court

Page 776

582 N.W.2d 776

458 Mich. 288

Alice Jo MORALES, as Guardian of Antonio Morales, also known as Anthony Morales, a legally incapacitated person, Plaintiff-Appellant and Cross-Appellee, v. AUTO-OWNERS INSURANCE COMPANY, Defendant-Appellee and Cross-Appellant.

No. 107351.

Calendar No. 13.

Supreme Court of Michigan.

Argued April 8, 1998.

Decided July 28, 1998.

Rehearing Denied Sept. 10, 1998.

Law Offices of Wayne J. Miller, P.C. (by Gloria Perez), Bingham Farms, for the plaintiff-appellant.

Bensinger, Cotant, Menkes & Aardema, P.C. (by James F. Pagels), Gaylord, for the defendant-cross-appellant.

Opinion

MICHAEL F. CAVANAGH, Justice.

At issue in this case is whether defendant properly denied coverage to the plaintiff under the terms of his no-fault insurance policy. Plaintiff was left substantially disabled when he was involved in an automobile accident on December 3, 1991. Although plaintiff had purchased no-fault coverage from defendant, it refused to cover any of the medical expenses associated with the accident, claiming that the plaintiff's policy expired six days before the accident occurred. Both the trial court and the Court of Appeals agreed with the defendant that the no-fault policy had automatically expired at the end of its six-month term because of plaintiff's failure to pay his premium on time. We disagree with the lower courts' rulings, and, for the reasons stated herein, we reverse.

I

Plaintiff purchased a no-fault automobile insurance policy from Auto-Owners Insurance Company on November 27, 1985. The policy was purchased through the Shepers Insurance Agency, and was for a six-month term. Under the terms of the contract, the policy was to automatically renew every six months subject to the following proviso:

If the Company elects not to renew this policy, it shall mail to the named insured at his address last known to the Company or to its authorized agent, by first class mail, written notice of such non-renewal not less than twenty days prior to the expiration date; provided that, notwithstanding the failure of the Company to comply with the foregoing provisions of this paragraph, this policy shall terminate on such expiration date, if

(1) the named insured fails to pay the premium as required by the Company for renewal or continuance of this policy, or

(2) the named insured has failed to discharge when due any of his obligations in connection with the payment of premium for this policy, or any installment thereof, whether payable directly to the Company or his agent or indirectly under any premium finance plan.

The mailing of notice as aforesaid shall be sufficient proof of notice. Delivery of such written notice by the Company shall be equivalent to mailing.

Plaintiff's coverage was automatically renewed for nearly six years, despite the fact that he frequently paid his bill late. Anytime plaintiff fell behind in his payments by more than one month, defendant would send him a notice of intent to cancel the policy on a certain date if plaintiff did not cure the delinquency. Plaintiff always paid the balance of his payment before the date on the cancellation notice; thus, plaintiff's coverage was never canceled because of a failure to pay his bill. After each time a notice of cancellation was sent to the plaintiff and he payed the outstanding bill, defendant sent him a "notice of reinstatement," indicating that his coverage had not lapsed and was still in full force.

The specific events leading to the present action are as follows:

(1) On July 24, 1991, plaintiff was involved in a minor no-fault accident, damaging his car door. ¹ Defendant compensated him for the damage under the terms of the policy.

(2) Because of the July accident, defendant reviewed plaintiff's driving record and determined that his policy should not be renewed at the end of the current six-month term, expiring on November 27, 1991. ² On September 9, 1991, defendant generated a nonrenewal notice to be sent to the plaintiff. The notice was given to a private mailing service for posting to the plaintiff. A parallel notice was printed and mailed to the Shepers Insurance Agency on September 11, 1991.

(3) On September 30, 1991, defendant sent a notice of cancellation to plaintiff on the basis of a failure to pay the installment due on September 15, 1991. Plaintiff paid the amount owed for the installment on October 10, 1991 (before the expiration date on the notice of cancellation), and defendant sent him a notice of reinstatement.

(4) On October 31, 1991, defendant sent another notice of cancellation for nonpayment of an installment due earlier in October. Plaintiff again paid the amount due before the effective date of cancellation and was sent another renewal notice. The renewal notice was the last piece of correspondence plaintiff received from defendant. In defendant's view, the policy expired at the end of the term on November 27, 1991.

(5) Plaintiff was involved in an accident on December 3, 1991, six days after the policy expired. He suffered serious brain injuries that have left him substantially disabled. He now lives in a long-term supervised care program. Normally an injured person's no-fault policy would pay most of the expenses for care until the total became large enough to shift responsibility to the industry-funded catastrophic claims agency. However, defendant refused to pay any expenses, arguing that it ceased insuring plaintiff on November 27, 1991.

Plaintiff filed suit through his wife. She explained at her deposition that she and the plaintiff were unaware that their coverage had expired. She said that they never received the nonrenewal notice dated September 9, 1991, and that the series of reinstatement notices caused them to believe that they still had coverage and that defendant would bill them for the next payment due.

After discovery, defendant moved for summary disposition on the basis of MCR 2.116(C)(10). The trial judge granted the defendant's motion, making three specific rulings: (1) he found that defendant had complied with the notice requirement for nonrenewal in the insurance contract by its letter dated September 9, 1991; (2) even so, he found that Slaughter v. Smith, 167 Mich.App. 400, 421 N.W.2d 702 (1988), required the defendant to send a second letter expressing its intention to not renew plaintiff's policy because of the reinstatement letters sent to plaintiff after the notice of nonrenewal; and (3) he found that defendant was still entitled to summary disposition because the policy specifically provided that defendant could opt not to renew plaintiff's policy if the policyholder had been late in making payments during the most recent six-month policy term, regardless of whether defendant sent notice of nonrenewal.

On appeal, the Court of Appeals affirmed in a split decision. Unpublished opinion per curiam, issued September 3, 1996 (Docket No. 178479). The majority agreed with the trial court's rationale for granting summary disposition, but did not reach the first two rulings. The dissenting judge disagreed, concluding that the policy required a nonrenewal notice be sent even if the insured had been late in making payments. She believed summary disposition was inappropriate because there was still a question of fact whether defendant ever sent out the notice of nonrenewal.

We granted leave to appeal and to cross appeal. 456 Mich. 902, 572 N.W.2d 13 (1997).

II

When reviewing a motion for summary disposition based on MCR 2.116(C)(10), our task is to determine whether any genuine issue of material fact exists in order to prevent entering a judgment for the moving party as a matter of law. Radtke v. Everett, 442 Mich. 368, 374, 501 N.W.2d 155 (1993). As such, we review the lower court's decision de novo. Groncki v. Detroit Edison Co., 453 Mich. 644, 649, 557 N.W.2d 289 (1996). We must "consider the pleadings, affidavits, depositions, admissions, and any other evidence in favor of the party opposing the motion, and grant the benefit of any reasonable doubt to the opposing party." Radtke, 442 Mich. at 374, 501 N.W.2d 155.

In concluding that the plaintiff's no-fault policy terminated at the end of its six-month term, the Court of Appeals focused on the following language of the policy concerning automatic nonrenewal:

[N]otwithstanding the failure of the Company to comply with the foregoing provisions of this paragraph, this policy shall terminate on such expiration date, if

(1) the named insured fails to pay the premium as required by the Company for renewal or continuance of this policy, or

(2) the named insured has failed to discharge when due any of his obligations in connection with the payment of premium for this policy, or any installment thereof, whether payable directly to the Company or his agent or indirectly under any premium finance plan. [Emphasis added.]

The Court reasoned that plaintiff had failed to discharge his obligation to pay his premium when due by making his payments only after cancellation notices were sent. In other words, plaintiff's late payments gave defendant the option to "refuse to renew plaintiff's insurance contract without providing written notice." Slip op. at 2.

However, we find the reasoning of the Court of Appeals unpersuasive under the facts of this case. Defendant repeatedly accepted plaintiff's late payments and continually renewed the plaintiff's policy. As a result, we agree with plaintiff that the principle of equitable estoppel bars defendant from enforcing the automatic nonrenewal provision of the insurance contract.

The principle of estoppel is an equitable defense that prevents one party to a contract from enforcing a specific provision contained in the contract. With regard to payment provisions of an insurance policy, it is generally recognized that "[b]ecause provisions for forfeiture, lapse, or suspension for nonpayment of premiums, assessments, or dues are for the benefit of the insurer, the...