Rory v. Continental Ins. Co.

• Decision Date: 15 September 2004
• Docket Number: Docket No. 242847.
• Citation: 262 Mich. App. 679,687 N.W.2d 304
• Parties: Shirley RORY and Ethel Woods, Plaintiffs-Appellees, v. CONTINENTAL INSURANCE COMPANY, also known as CNA Insurance Company, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

687 N.W.2d 304

262 Mich. App. 679

Shirley RORY and Ethel Woods, Plaintiffs-Appellees, v. CONTINENTAL INSURANCE COMPANY, also known as CNA Insurance Company, Defendant-Appellant.

Docket No. 242847.

Court of Appeals of Michigan.

Submitted February 12, 2004, at Detroit.

Decided July 6, 2004, at 9:05 a.m.

Released for Publication September 15, 2004.

David D. Turfe, St. Clair Shores, for the plaintiffs.

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

Before: BORRELLO, P.J., and WHITE and SMOLENSKI, JJ.

PER CURIAM.

Defendant Continental Insurance Company (Continental) appeals by leave granted the circuit court's order denying it summary disposition. The question is whether the contractual provision in defendant's uninsured motorist endorsement providing that a "[c]laim or suit must be brought within 1 year from the date of the accident" is reasonable. We hold that it is not, and we affirm.

I

On May 15, 1998, plaintiffs were injured in an automobile accident. Defendant was their insurer. On or about September 21, 1999, plaintiffs brought a first party no-fault suit against defendant and a third party no-fault suit against the other driver, Charlene Denise Haynes. Plaintiffs then learned that Haynes was uninsured. Plaintiffs notified defendant of their uninsured motorist claim on March 14, 2000. Defendant denied coverage and, on August 18, 2000, plaintiffs brought this second lawsuit against defendant for uninsured motorist benefits.

With respect to uninsured motorist benefits, plaintiffs' insurance policy provided: "Claim or suit must be brought within 1 year from the date of accident." Defendant moved for summary disposition, relying on this provision. The circuit court denied the motion, citing Timko v. Oakwood Custom Coating, Inc., 244 Mich.App. 234, 625 N.W.2d 101 (2001). The circuit court reasoned that the insurance policy's one-year filing limitation had to be unreasonable, because it was shorter than the three-year statute of limitations that applied to an action against the tortfeasor, and concluded:

Here, the Plaintiffs gave their insurance carrier notice of an uninsured motorist claim one year and ten months after the accident. This is over one year less than the Plaintiffs would have by statute to file a third party negligence lawsuit against the negligent driver, wherein Plaintiff[s] would ascertain whether the tortfeasor was in fact insured or uninsured. Consequently, the shortened period of limitations in this case acts as a practical abrogation of the right of action, and also bars the action before the loss or damage can be ascertained. As such, the shorter period of limitation in this matter is unreasonable.

Defendant sought leave to appeal from this ruling, which was denied. On April 23, 2002, this Court released an unpublished opinion in Williams v. Continental Ins Co, unpublished opinion per curiam of the Court of Appeals (Docket No. 229183), 2002 WL 737802, holding that the one-year limitation on filing an underinsured motorist claim and bringing a lawsuit was not so unreasonable as to be unenforceable. Defendant then brought a second motion for summary disposition, noting that the same clause was at issue. Stating that it was not bound by Williams and disagreed with it, the circuit court again denied the motion. It concluded that this clause in effect reduced the six-year statute of limitations applicable to an insurance contract action to one year and pointed out that the clause was likely not brought to the parties' attention when they entered into the contract. Further, it concluded that it was unreasonable in light of the three years given by statute to bring a serious impairment claim, because it often takes three years to investigate or determine whether there is a serious impairment justifying a claim. Defendant then sought leave to appeal, which this Court granted by order dated October 11, 2002.

II

We note at the outset that the issue is solely one of reasonableness. Questions of ambiguity and public policy are not at issue. The Supreme Court, in Morley v. Auto. Club of Michigan, 458 Mich. 459, 581 N.W.2d 237 (1998), and this Court, in Hellebuyck v. Farm Bureau General Ins., 262 Mich.App. 250, 685 N.W.2d 684 (2004),¹ application for leave to appeal pending, have held that similar provisions are unambiguous.² Further, an earlier statute requiring that uninsured motorist coverage be provided unless rejected in writing, M.C.L. § 500.3010, was repealed when the no-fault insurance scheme was enacted. Thus, the public policy of this state as expressed in its statutes is not implicated here.³

Generally, the terms of an insurance contract will be enforced as written when no ambiguity is present. Morley, supra at 465, 581 N.W.2d 237. However, where a contract provision shortens the otherwise applicable statute of limitations, the shortened period must be reasonable. In Timko, supra, the Court explained:

[P]arties may contract for a period of limitation shorter than the applicable statute of limitation provided that the abbreviated period remains reasonable. The period of limitation "is reasonable if (1) the claimant has sufficient opportunity to investigate and file an action, (2) the time is not so short as to work a practical abrogation of the right of action, and (3) the action is not barred before the loss or damage can be ascertained." Herweyer [v. Clark Hwy. Services, Inc., 455 Mich. 14, 20, 564 N.W.2d 857 (1997)], citing Camelot Excavating Co., Inc. v. St. Paul Fire & Marine Ins. Co., 410 Mich. 118, 127, 301 N.W.2d 275 (1981). [Timko, 244 Mich.App at 239-240, 625 N.W.2d 101.]

The Timko Court concluded that a six-month contractual limitation was reasonable on the basis of these three prongs where six months was deemed sufficient to investigate and file an age discrimination claim.

In Herweyer, 455 Mich. at 16, 564 N.W.2d 857, the plaintiff signed an employment contract that gave him six months after the termination of his employment to commence an action related to his employment. The contract also contained a "saving" clause that provided that if a provision of the contract is found to be legally unenforceable as written, the agreement shall be limited to allow its enforcement as far as legally possible. The circuit court expressed reservations about enforcing the six-month period of limitations, but concluded that, even if that term were unreasonable, the thirty-one-month period taken by the plaintiff was unreasonable. That Court did not directly address whether that limitation was reasonable, holding that, even if it were unreasonable, the plaintiff did not file within the minimum reasonable time in excess of six months that was arguably provided for by a saving clause. Herweyer v. Clark Hwy. Services, Inc., 212 Mich.App. 105, 108, 537 N.W.2d 225 (1995). In the Supreme Court, the issue was whether the lower courts had properly held that the contract's saving provision could be read to require that any claims be brought within the minimum reasonable period. 455 Mich. at 18-19, 564 N.W.2d 857. The Supreme Court reversed, holding that the saving clause was vague and ambiguous, that uncertain periods of limitations such as might be found based on the saving clause were undesirable, and that the statutory limitations period was an objective indicator of what was reasonable. It held that "[c]ourts should defer to the statutory period unless the period in the parties' contract is specific and reasonable." 455 Mich. at 24, 564 N.W.2d 857. In the course of reaching this conclusion, the Court stated:

Employment contracts differ from bond contracts [like the one at issue in Camelot Excavating Co., 410 Mich. 118, 301 N.W.2d 275]. An employer and employee often do not deal at arm's length when negotiating contract terms. An employee in the position of plaintiff has only two options: (1) sign the employment contract as drafted by the employer or (2) lose the job. Therefore, unlike in Camelot where two businesses negotiated the contract's terms essentially on equal footing, here plaintiff had little or no negotiating leverage. Where one party has less bargaining power than another, the contract agreed upon might be, but is not necessarily, one of adhesion, and at the least deserves close judicial scrutiny. [455 Mich. at 21, 564 N.W.2d 857.]

III

The statute of limitations for bringing a claim based on a breach of contract, such as the insurance contract here, is six years. M.C.L. § 600.5807(8). The statute of limitations for bringing a claim against a negligent driver for bodily injury is three years. M.C.L. § 600.5805(10).

The uninsured motorist endorsement at issue provides that a claim or suit must be brought within one year of the accident. We conclude that the one-year contractual limitations period is not reasonable under Timko and Herweyer. Uninsured motorist coverage pays compensatory damages that a covered person is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of a bodily injury sustained by the covered person caused by an accident arising out of the ownership, maintenance, or use of an uninsured motor vehicle. The owner or operator of the uninsured vehicle is only subject to tort liability for noneconomic loss if the injured (covered) person has suffered death, serious impairment of a body function, or permanent serious disfigurement. M.C.L. § 500.3135(1). M.C.L. § 500.3135(7) defines "serious...