Insurance is a contract of personal indemnity. It does not insure cars or property of any kind but insures people against the risk of loss of their property. People who know nothing about insurance do not understand this essential insurance concept and think that the insurance policy insures the vehicle or house and that misconception can be expensive. That became clear when in Hoskins v. Miller, Not Reported in N.W.2d, 2015 Mich. App. LEXIS 1390 (Mich.App., 7/16/2015), [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance], the Michigan Court of Appeal was asked to resolve a dispute over coverage for an automobile accident.

FACTUAL BACKGROUND

Plaintiff, the adult daughter of Richard and Kathleen Hoskins, was in an accident in a 2003 Ford Focus. While she was residing with her parents, they jointly purchased the 2003 Ford Focus. To help pay for the vehicle, Richard and Kathleen obtained a partial loan. At that time, Richard was the titled owner of the Focus. Richard and Kathleen obtained insurance for the Focus through defendant insurer, and they were each listed as a named insured. Plaintiff was not named as an insured, but was identified as the principal operator.

Before the accident plaintiff moved out of her parents’ home. She also reimbursed her father for the loan, and Richard transferred title of the car to plaintiff on April 18, 2011. The automobile insurance policy was renewed, and Richard and Kathleen remained the named insureds. Plaintiff did not obtain an insurance policy of her own to cover the risks of loss attendant upon use of the vehicle.

In January 2012, plaintiff was driving the Focus when she was involved in an automobile accident. The other driver failed to yield at a stop sign and turned directly in front of plaintiff’s vehicle, causing a collision. Thus, plaintiff initiated this instant action alleging that defendant insurer unreasonably failed to pay personal injury protection (PIP) benefits.

Defendant sought summary disposition contending that neither Richard nor Kathleen had an insurable interest in the vehicle at the time the policy was renewed. It also posited that plaintiff was not a named insured on the policy, and, thus, it was not a priority insurer.The trial court ultimately concluded there were several genuine issues of material fact. Accordingly, it denied defendant’s motion for summary disposition.

INSURANCE COVERAGE

The issues raised on appeal are legal disputes. Whether one has an “insurable interest” is a question of law, as is the interpretation and construction of insurance contracts. The parties first dispute whether plaintiff’s parents, Richard and Kathleen, had an “insurable interest” in the vehicle at the time of the accident. An insurable interest need not be in the nature of ownership, but rather can be any kind of benefit from the thing so insured or any kind of loss that would be suffered by its damage or destruction.

ANALYSIS

Insurance policies are contracts and, in the absence of an applicable statute, are subject to the same contract construction principles that apply to any other species of contract.  It is the obligation of a court to enforces contracts according to their terms. People have the liberty of contracting terms they desire. A contract’s terms are given their plain and ordinary meanings. However, no-fault insurance policies must be construed in a manner that complies with the no-fault act.

“Under the no-fault automobile insurance act, MCL 500.3101 et seq., [subscribers can access an enhanced version of this statute: lexis.com | Lexis Advance], insurance companies are required to provide first-party insurance benefits, referred to as personal protection insurance (PIP) benefits, for certain expenses and losses. MCL 500.3107, [subscribers can access an enhanced version of this statute: lexis.com | Lexis Advance]; MCL 500.3108, [subscribers can access an enhanced version of this statute: lexis.com | Lexis Advance]; Johnson v. Recca, 492 Mich. 169, 173; 821 NW2d 520 (2012, [subscribers can access an enhanced version of this statute: lexis.com | Lexis Advance].

Pursuant to the statute: “Except as provided in subsections (2), (3), and (5), … a personal protection insurance policy described. (1) applies to accidental bodily injury to the person named in the policy, the person’s spouse, and a relative of either domiciled in the same household, if the injury arises from a motor vehicle accident.”

The person named in the policy under the statute is synonymous with the “named insured,” and persons designated merely as drivers under a policy … are neither named insureds nor persons named in the policy. Plaintiff is not listed on the policy as a named insured. She is named only as a principal operator. Nor is plaintiff a “relative … domiciled in the same household.” It is undisputed that plaintiff was no longer residing with her parents at the time of the accident. Therefore, plaintiff is not entitled to PIP benefits from defendant insurer pursuant to the statute.

At the time of the accident, plaintiff was the owner, registrant, and operator of the vehicle. Yet, she did not have an insurance policy under which she was a named insured. The language in the policy indicates that individuals covered are the “named insured shown in the Declarations” and “relatives” of a named insured. A “relative” is defined in the policy as “a person who resides with you and who is related to you by blood, marriage, or adoption.”

Because plaintiff did not reside with Richard and Kathleen, she is not a “relative” as defined in the policy. Accordingly, plaintiff cannot recover PIP benefits from defendant insurer through the no-fault statute or by virtue of the policy. The trial court erred in denying defendant’s motion for summary disposition.

Nevertheless, plaintiff contends that the appropriate remedy is to reform the policy to substitute plaintiff as a named insured. A court in equity generally has the power to reform a contract to conform it to the agreement made. To obtain reformation, a plaintiff must prove a mutual mistake of fact, or mistake on one side and fraud on the other, by clear and convincing evidence. A unilateral mistake is not sufficient to warrant reformation.
No evidence was introduced that defendant made representations to plaintiff intentionally or with culpable negligence that induced her to believe she was covered by the policy.

Though defendant continued to accept premiums from Richard and Kathleen after plaintiff moved out, the policy terms provide that a relative was covered by the policy only if the relative resided in the same household. There is no evidence that defendant knew plaintiff moved out, nor of any intent to mislead Kathleen or Richard. Accordingly, defendant is not estopped from denying plaintiff coverage.

Similarly, with respect to waiver, defendant insurer never made an intentional relinquishment of a known right with respect to covering plaintiff under the policy. There is no evidence that defendant knew plaintiff moved out, nor that no other relative resided with Kathleen or Richard. Plaintiff’s arguments are meritless.

ZALMA OPINION

The injured daughter, the sole owner of the vehicle, made the serious error in failing to purchase insurance when she became the sole owner of the vehicle. That her parents, the prior owner of the vehicle, had purchased insurance when they had no insurable interest in the vehicle could not provide coverage for a person who was not named as an insured nor was she a resident relative. Lack of insurance knowledge left the plaintiff with no coverage at all.

   By Barry Zalma, Attorney and Consultant

Reprinted with Permission from Zalma on Insurance, (c) 2015, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney who limits his practice to consultation regarding insurance coverage, insurance claims handling, insurance bad faith and fraud and acting as a mediator or arbitrator on insurance disputes. Mr. Zalma serves as a consultant and expert almost equally for insurers and policyholders. He founded Zalma Insurance Consultants in 2001 and serves as its only consultant. He recently published the e-books, "Zalma on Rescission in California - 2013"; "Random Thoughts on Insurance" containing posts from this blog; "Zalma on Insurance;" "Murder and Insurance Don't Mix;" “Heads I Win, Tails You Lose — 2011,” “Zalma on Diminution in Value Damages,” “Arson for Profit” and “Zalma on California Claims Regulations,” and others that are available at Zalma Books.

Mr. Zalma can be contacted at or zalma@zalma.com, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma’s Insurance Fraud Letter.

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