Universal Underwriters Ins. Co. v. Kneeland

• Decision Date: 30 August 1999
• Docket Number: Docket No. 201034.
• Citation: 235 Mich. App. 646,599 N.W.2d 519
• Parties: UNIVERSAL UNDERWRITERS INSURANCE COMPANY, as subrogee of Betten Toyota, and Betten Toyota, Plaintiffs-Appellants, v. Nancy KNEELAND, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

599 N.W.2d 519

235 Mich. App. 646

UNIVERSAL UNDERWRITERS INSURANCE COMPANY, as subrogee of Betten Toyota, and Betten Toyota, Plaintiffs-Appellants, v. Nancy KNEELAND, Defendant-Appellee.

Docket No. 201034.

Court of Appeals of Michigan.

Submitted September 2, 1998, at Grand Rapids.

Decided May 28, 1999, at 9:10 a.m.

Released for Publication August 30, 1999.

Garan, Lucow, Miller, Seward & Becker, P.C. (by David N. Campos and Daniel S. Saylor), Detroit, for the plaintiffs.

Bensinger, Cotant, Menkes & Aardema, P.C. (by Dale L. Arndt), Grand Rapids, for the defendant.

Before: MARK J. CAVANAGH, P.J., and MURPHY and WHITE, JJ.

WHITE, J.

Plaintiffs, Universal Underwriters Insurance Company and Betten Toyota, appeal by leave granted the circuit court's order affirming the district court's grant of summary disposition to defendant, Nancy Kneeland. We reverse and remand.

I

The facts are undisputed. On November 15, 1993, defendant took her car to Betten Toyota to be repaired. On November 16, 1993, Betten Toyota loaned defendant a "courtesy car," a 1991 Previa, while her car was being repaired. On that date, defendant and a Betten Toyota employee signed a form entitled "Courtesy Car Agreement" that stated five terms:

1. Rental fee ONLY $28.00 per day.

2. Renter agrees to replace gasoline used.

3. Renter agrees to pay cash for rental charge.

4. Renter agrees to assume all responsibility for damages while vehicle is in his possession.

5. Renter agrees not to sublet or loan the car to anyone.

On November 20, 1993, while defendant was driving the Previa and was stopped at an intersection, two other vehicles collided and caused damage to the Previa. There is no claim that defendant was negligent. Universal paid $3,738.49 for the damage to the van, pursuant to an insurance policy it had issued to Betten Toyota, and became subrogated to Betten Toyota's rights. Betten Toyota paid the $1,000 deductible under the policy. Universal requested reimbursement from defendant, which she denied, and then filed suit against defendant alleging breach of contract. Betten Toyota later joined the case,¹ seeking to recover its $1,000 deductible.

Universal filed a motion for summary disposition, relying on the express terms of the courtesy-car agreement. It reasoned that although the no-fault act abolished tort liability for the damage at issue, M.C.L. § 500.3135; MSA 24.13135, defendant's contractual liability remained. Universal directed the district court's attention to a Kent County case, Universal Underwriters Ins. Co. v. Stout, No. 92-78508 AV, in which, on almost identical facts, the circuit court ruled in favor of the plaintiff insurer.

In response, defendant asserted, inter alia, that plaintiffs were precluded from seeking recovery from defendant under Universal Underwriters Ins. Co. v. Vallejo, 436 Mich. 873, 461 N.W.2d 364 (1990), rev'g 179 Mich.App. 637, 446 N.W.2d 510 (1989), in which the Supreme Court held that an automobile dealership's subrogee could not maintain an action under an implied or express contractual bailment theory to seek recovery from a potential customer who was involved in an accident while test driving a dealership vehicle. Defendant also argues that Betten Toyota committed fraud by failing to inform defendant that she would not be covered under Betten Toyota's insurance, and that the agreement was ambiguous. Defendant requested that summary disposition be denied to plaintiffs and granted to her.

During the time the district court had the matter under advisement, this Court reversed the circuit court's decision in the Stout case. Universal Underwriters Ins. Co. v. Stout, unpublished opinion per curiam, issued February 2, 1996 (Docket No. 171069). The district court followed this Court's decision in Stout and granted summary disposition to defendant, dismissing Universal's claim.

After the parties stipulated that Betten Toyota's claim would be governed by the outcome of the final ruling on Universal's claim, plaintiffs filed an appeal in the circuit court. The circuit court upheld the district court's decision,² and this Court granted plaintiffs' application for leave to appeal.

II

Plaintiffs argue that because defendant was loaned an automobile on the basis of her express agreement to assume all responsibility for any damage to the vehicle, plaintiffs have a valid contractual right of recovery, independent of any rights based on tort or bailment, that is unaffected by the liability-limiting provisions of the no-fault act. Plaintiffs maintain that Vallejo³ is not applicable because it involved a bailment, which gives rise only to a fault-based claim for recovery, and did not involve an express contract, and because statutorily mandated liability coverage is different from the optional collision coverage involved here. We agree.⁴

A

The no-fault act abrogated tort liability arising from the ownership, maintenance, or use of a motor vehicle, except with respect to certain circumstances that are inapplicable here,⁵ but did not abolish contractual liability. Kinnunen v. Bohlinger, 128 Mich.App. 635, 638, 341 N.W.2d 167 (1983); Nat'l Ben Franklin Ins. Co. v. Bakhaus Contractors, Inc., 124 Mich.App. 510, 513, 335 N.W.2d 70 (1983).

In Kinnunen, supra, the plaintiffs agreed to allow the defendants to use a horse trailer to transport a pony. The trailer was damaged in an automobile accident while in the defendants' possession. The plaintiffs brought a suit alleging breach of contract, including breach of an agreement to return the trailer in the same condition as when taken, and breach of a specific contract to repair the damaged trailer. The defendants brought a motion for summary disposition, asserting that the plaintiffs' claim was barred by the no-fault act. The circuit court granted the motion, but this Court reversed, stating in pertinent part:

This case presents a unique question: Does the Michigan no-fault automobile insurance act bar an action for recovery of property damages arising out of a motor vehicle accident, where the parties entered into a legally enforceable contract both before and after the accident making defendants responsible for returning a trailer in an undamaged state?

There is no question that, absent the no-fault act, plaintiffs and defendants had the right to enter into an enforceable contract whereby plaintiffs would promise to provide the benefits of their trailer to defendants in consideration for defendants' promise to assume all liability for any damages that might occur to said trailer while in defendants' possession. Since we are reviewing an order for summary judgment ... we assume that factual developments would establish the existence of a contract or contracts.

However, M.C.L. § 500.3135(2); MSA 24.13135(2) provides that tort liability arising from the ownership, maintenance, or use within the state of a motor vehicle is abolished except as to certain circumstances which are inapplicable herein. It is this provision upon which defendants and the trial court relied in concluding that plaintiffs' action was barred....

... [H]aving reviewed plaintiffs' complaint, we find [unlike the trial court] that plaintiffs premised their theory of recovery upon defendants' failure to comply with the terms of a contractual agreement and not upon defendants' negligent ownership, maintenance, or use of a motor vehicle, although it was through defendants' use of a motor vehicle that damages were incurred. Therefore, we find that plaintiffs' claim is not barred.

In so ruling, we adhere to the principle that statutes which abolish the common law should be narrowly construed. MCL 500.3135; MSA 24.13135 clearly and unequivocally states that "tort liability" is partially abrogated. The term "tort liability" is clear and unambiguous and does not include liability that may arise out of a legally enforceable contract. Had the Legislature intended to abrogate contractual liability as well, the words any "liability arising out of the ownership, maintenance, or use of a motor vehicle" could easily have been substituted. We conclude that under a straightforward reading of the statutory language of § 3135 of the no-fault act, contractual liability is not abolished by said section even where said liability arises out of the ownership, maintenance, or use of a motor vehicle. [Id. at 637-639, 341 N.W.2d 167 (citation omitted).]

Similarly, in Ben Franklin, supra, the plaintiff insurer's subrogor, an equipment company, owned a loader that it loaned to the defendant. The defendant loaded the loader onto its tractor, and, while the loader was being transported on a public roadway, it struck an overpass and was extensively damaged. The plaintiff insurer paid for the damage and then brought an action against the defendant, alleging negligence, breach of express and implied warranties, and breach of the bailment agreement. The defendant argued in a motion for summary judgment that plaintiff's claims were barred by the no-fault act. The circuit court granted the motion. However, this Court reversed, noting:

Plaintiff argues first that since M.C.L. § 500.3123(1); MSA 24.13123(1) excludes damages to the contents of vehicles operated upon a public highway from property protection insurance benefits under the no-fault act, plaintiff is entitled to pursue its common-law tort remedies. We agree that the loader was a content of defendant's tractor at the time of the accident. The damage to the loader, however, arose out of defendant's use of its tractor as a motor vehicle. Tort liability for property damage arising from the use of a motor vehicle in this state has been abolished, unless the damage is intentionally caused. MCL 500.3135; MSA 24.13135; Citizens Ins. Co. of America v. Tuttle, 411 Mich. 536, 544, 309 N.W.2d 174 (1981). Thus, defendant is not liable in tort for damage to the loader which may have been caused by defendant's negligent operation of its tractor.

Plaintiff argues next that even if

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