Ryder Truck Rental, Inc. v. AUTO-OWNERS INS. CO. INC., Docket No. 202294.

Decision Date27 July 1999
Docket NumberDocket No. 202294.
Citation597 N.W.2d 560,235 Mich. App. 411
PartiesRYDER TRUCK RENTAL, INC., and Old Republic Insurance Company, Plaintiffs-Appellees, v. AUTO-OWNERS INSURANCE COMPANY, INC., Defendant-Appellant.
CourtCourt of Appeal of Michigan — District of US

Foster, Swift, Collins & Smith, P.C. (by Webb A. Smith), Lansing, for the plaintiffs.

Reeves & Jones, P.C. (by Donald L. Jones), Lansing, for the defendant.

Before: JANSEN, P.J., and HOLBROOK, JR., and MacKENZIE, JJ.

PER CURIAM.

In this action involving the no-fault automobile insurance act, M.C.L. § 500.3101 et seq.; M.S.A. § 24.13101 et seq., defendant appeals as of right from a judgment requiring it to cover a five-sixths pro-rata share of liability incurred when a tractor rented from plaintiff Ryder by Leon's Homemade Foods collided with another vehicle, whose two occupants were injured. Defendant, which insured the Leon's-owned trailer that the tractor was hauling at the time of the accident, argued that Ryder's automobile liability insurer, plaintiff Old Republic, was required to cover damages up to the limit of its policy with Ryder and that the rental contract between Ryder and Leon's could not provide a lower limit. The trial court disagreed, ruling that Ryder and Leon's, in their contract, could lower Old Republic's liability limit with respect to the rented tractor. We affirm.

For purposes of this appeal, the parties agree that defendant and Old Republic must each pay a prorated share, computed according to their respective policy limits, of the $210,000 in damages that was ascertained in separate litigation, during which the following were held liable: (1) the driver of the tractor, who was an employee of Leon's; (2) Leon's, under the theory of respondeat superior; and (3) Ryder, under the owner's liability statute, M.C.L. § 257.401; M.S.A. § 9.2101. The parties also agree that defendant's policy limit was $1,000,000. Their disagreement is whether Old Republic's policy limit was $7,000,000 or $200,000. Defendant argues that because the policy between Old Republic and Ryder, the owner of the tractor, contained a $7,000,000 limit, this limit was applicable to all accidents involving the tractor, even those caused by renters who had signed a contract containing a lower limit. Plaintiffs argue that because the contract between Ryder and Leon's provided liability coverage limited to $100,000 for each injured person and $300,000 for each accident, the effective policy limit for the accident in question was $200,000. Under defendant's theory, defendant would be responsible for one-eighth (1,000,000 ÷ [1,000,000 + 7,000,000]) of the $210,000, while under plaintiffs' theory, adopted by the trial court, defendant would be responsible for five-sixths (1,000,000 ÷ [1,000,000 + 200,000]) of the $210,000.

We first note that in June 1995, the Legislature amended the owner's liability statute to provide for a $20,000 for each person and $40,000 for each accident limit on a lessor's liability for negligent acts of a lessee during a rental period of thirty days or less. See M.C.L. § 257.401(3); M.S.A. § 9.2101(3). However, because the amendment took effect after the accident and the filing date in the instant case, it is inapplicable here.

There are no published Michigan cases addressing whether a contract between an automobile owner and a renter can lower the policy limit of the owner's no-fault insurance provider with respect to an accident for which the owner is held liable under the owner's liability statute. There are cases, however, addressing whether a rental contract can completely eliminate the liability coverage of the owner's insurer. In State Farm Mut. Automobile Ins. Co. v. Enterprise Leasing Co., 452 Mich. 25, 40-41, 549 N.W.2d 345 (1996), the Supreme Court held that such contracts violated the no-fault act's requirement that an automobile owner provide insurance coverage for liability arising from the use of the automobile. See M.C.L. § 500.3101(1); M.S.A. § 24.13101(1), M.C.L. § 500.3131; M.S.A. § 24.13131, and M.C.L. § 500.3135; M.S.A. § 24.13135. Defendant argues that the State Farm decision, in addition to prohibiting the elimination of an owner's insurance coverage by way of a rental contract, also prohibits lowering the policy limit in the rental contract. We fail to see, however, how a contract that merely lowers the policy limit would violate the no-fault act. As long as the owner provides the primary insurance coverage with a policy limit equal to or above the minimum amounts required by M.C.L. § 500.3009(1); M.S.A. § 24.13009(1) and M.C.L. § 500.3131(2); M.S.A. § 24.13131(2), there is no violation of law and, correspondingly, no reason to invalidate a...

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