Rory v. Continental Ins. Co.

• Decision Date: 28 July 2005
• Docket Number: Docket No. 126747. COA No. 5.
• Citation: 473 Mich. 457,703 N.W.2d 23,169 NW 880
• Parties: Shirley RORY and Ethel Woods, Plaintiffs-Appellees, v. CONTINENTAL INSURANCE COMPANY, a/k/a CNA Insurance Company, Defendant-Appellant.
• Court: Michigan Supreme Court

703 N.W.2d 23

473 Mich. 457

169 NW 880

Shirley RORY and Ethel Woods, Plaintiffs-Appellees, v. CONTINENTAL INSURANCE COMPANY, a/k/a CNA Insurance Company, Defendant-Appellant.

Docket No. 126747. COA No. 5.

Supreme Court of Michigan.

Argued March 8, 2005.

Decided July 28, 2005.

Hakim & Turfe (by David D. Turfe and Maroun J. Hakim), St. Clair Shores, MI, for the plaintiffs.

Garan Lucow Miller, P.C. (by Robert D. Goldstein and Jami E. Leach), Grand Blanc, MI, for the defendant.

Willingham & Cote, P.C. (by John A. Yeager, Matthew K. Payok, and Curtis R. Hadley), East Lansing, MI, for amici curiae Farm Bureau General Insurance Company of Michigan.

Law Offices of Robert June, P.C. (by Robert B. June), Ypsilanti, MI, for amici curiae the Michigan Trial Lawyers Association.

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and David W. Silver, Assistant Attorney General, Lansing, MI, for amici curiae Linda A. Walters, Commissioner of the Office of Financial and Insurance Services, Department of Labor & Economic Growth.

YOUNG, J.

In this case, the trial court refused to enforce the one-year contractual limitations period contained in the insurance policy issued to plaintiffs. The trial court did so because it concluded that the one-year limitations provision was "unfair," unreasonable, and an unenforceable adhesion clause. The Court of Appeals affirmed, and defendant Continental Insurance Company (Continental) appeals.

This case raises two fundamental questions of contract law: (1) are insurance contracts subject to a standard of enforcement different from that applicable to other contracts, and (2) under what conditions may a court disregard and refuse to enforce unambiguous contract terms?

We hold, first, that insurance policies are subject to the same contract construction principles that apply to any other species of contract. Second, unless a contract provision violates law or one of the traditional defenses to the enforceability of a contract applies, a court must construe and apply unambiguous contract provisions as written. We reiterate that the judiciary is without authority to modify unambiguous contracts or rebalance the contractual equities struck by the contracting parties because fundamental principles of contract law preclude such subjective post hoc judicial determinations of "reasonableness" as a basis upon which courts may refuse to enforce unambiguous contractual provisions.

Finally, in addition to these traditional contract principles, in this case involving an insurance contract, the Legislature has enacted a statute that permits insurance contract provisions to be evaluated and rejected on the basis of "reasonableness." The Legislature has explicitly assigned this task to the Commissioner of the Office of Financial and Insurance Services (Commissioner) rather than the judiciary. The Commissioner has allowed the Continental insurance policy form to be issued and used in Michigan. No party here has challenged the Commissioner's action to allow the Continental policy to be issued or used in this state.

Accordingly, we reverse the Court of Appeals decision and remand the case to the circuit court for entry of an order of summary disposition in favor of defendant.

I. FACTS AND PROCEDURAL HISTORY

Plaintiffs maintained an automobile insurance policy with defendant, which included optional coverage for uninsured motorist benefits. On May 15, 1998, plaintiffs were injured in an automobile accident. The police report filed at the time of the collision did not indicate whether either party was insured. More than a year later, in September 1999, plaintiffs filed a first-party no-fault suit against defendant and a third-party suit for noneconomic damages against Charlene Haynes, the driver of the other vehicle. Only after the suit was commenced was it discovered that Haynes was uninsured. On March 14, 2000, plaintiffs submitted a claim for uninsured motorist benefits to Continental. Defendant denied the claim because it was not filed within one year after the accident, as required by the insurance policy.

In August 2000, plaintiffs filed the present action, contesting Continental's denial of uninsured motorist benefits. Defendant filed a motion for summary disposition, relying on a limitations provision in the insurance contract that required that a claim or suit for uninsured motorist coverage "must be brought within 1 year from the date of the accident."

The trial court denied defendant's motion, holding that the one-year limitations period contained in the contract was unreasonable. After the Court of Appeals issued an opinion in an unrelated case,¹ defendant renewed its motion for summary disposition.

The trial court again denied defendant's motion for summary disposition, holding that the one-year limitation was an unenforceable adhesion clause. Because the limitation was not highlighted in the contract, was not bargained for by the purchaser, and constituted a "significant reduction" in the time plaintiffs would otherwise have to file suit against defendant, the trial court held that it would be "totally and patently unfair" to enforce the limitation contained in the policy.

On appeal, the Court of Appeals affirmed the trial court's decision to deny defendant's motion for summary disposition.² The Court of Appeals agreed with the trial court that a one-year period of limitations was unreasonable. The panel instead imposed a three-year period of limitations, holding:

An insured may not have sufficient time to ascertain whether an impairment will affect his ability to lead a normal life within one year of an accident. Indeed, three of the factors to be considered in determining whether a serious impairment exists are the duration of the disability, the extent of residual impairment, and the prognosis for eventual recovery. Further, unless the police report indicates otherwise, the insured will not know that the other driver is uninsured until suit is filed, and the other driver fails to tender the defense to an insurance company. The insured, thus, must file suit well before the one-year period in order to assure that the information is known in time to make a claim or file suit against the insurance company within one year of the accident. Applying the standard set forth in Camelot,. . . we conclude that the limitation here is not reasonable because, in most instances, the insured (1) does not have "sufficient opportunity to investigate and file an action," where the insured may not have sufficient information about his own physical condition to warrant filing a claim, and will likely not know if the other driver is insured until legal process is commenced, (2) under these circumstances, the time will often be "so short as to work a practical abrogation of the right of action," and (3) the action may be barred before the loss can be ascertained.

* * *

Here, the Legislature has provided a three-year limitations period for personal injury claims. The insured must sue the other driver within three years of the injury, whether or not the insured has sufficient information to know if a serious impairment has been sustained, and whether or not the other driver is insured. Application of the three-year period would not deprive the insured of a sufficient opportunity to investigate and file a claim and does not work a practical abrogation of the right. [Id. at 686-687, 687 N.W.2d 304 (internal citations omitted).]³

Subsequently, we granted defendant's application for leave to appeal.⁴

II. STANDARD OF REVIEW

This Court reviews de novo the trial court's decision to grant or deny summary disposition.⁵ In reviewing the motion, the pleadings, affidavits, depositions, admissions, and any other admissible evidence are viewed in the light most favorable to the nonmoving party.⁶ Moreover, questions involving the proper interpretation of a contract or the legal effect of a contractual clause are also reviewed de novo.⁷ In ascertaining the meaning of a contract, we give the words used in the contract their plain and ordinary meaning that would be apparent to a reader of the instrument.⁸

III. Analysis

A. THE "REASONABLENESS DOCTRINE" IN MICHIGAN

Under the language of the insurance policy at issue, an insured is required to file a claim or lawsuit for uninsured motorist benefits "within 1 year from the date of the accident." Plaintiff asks this Court to refuse to enforce that provision of the insurance contract because the limitations period is not "reasonable." This action, being a claim arising under the insurance policy, is a first-party claim against the insurer. Therefore, contrary to the Court of Appeals conclusion that a three-year period of limitations applies to this lawsuit, plaintiff's suit against Continental-in the absence of the limitations provision contained in the policy-would be governed by the general six-year period of limitations applicable to contract actions.⁹

Uninsured motorist insurance permits an injured motorist to obtain coverage from his own insurance company to the extent that a third-party claim would be permitted against the uninsured at-fault driver.¹⁰ Uninsured motorist coverage is optional-it is not compulsory coverage mandated by the no-fault act.¹¹ Accordingly, the rights and limitations of such coverage are purely contractual and are construed without reference to the no-fault act.¹²

In support of their claim that a contractual limitations provision may be disregarded on the basis of an assessment of "reasonableness," plaintiffs rely on Tom Thomas Org., Inc. v. Reliance Ins. Co.¹³ In Tom Thomas, the plaintiff filed suit fifteen months after the loss to recover for property damage under an insurance policy. The policy contained a one-year limitation on filing suit.

Even a cursory reading of Tom Thomas reveals that the holding of the case was premised on "judicial tolling" rather than reasonableness. In fact, the majority in Tom Thomas...