Stupid Facts Make For Interesting Law – No Fault Auto Insurance is a Contract of Personal Indemnity

Stupid Facts Make For Interesting Law – No Fault Auto Insurance is a Contract of Personal Indemnity

Barry Zalma   By Barry Zalma, Attorney and Consultant

Insurance policies do not insure property. Insurance policies do not insure cars. Insurance policies, much to the surprise of the uninitiated, insure people against certain risks of loss specified in a policy. Therefore, if a person has an automobile insurance policy that insures under the Michigan no-fault statutes, the policy insures the person not the car identified in the policy.

Two insurance companies in Michigan were faced with a truly unusual and essentially stupid set of facts that caused them to argue which, if any, insurer owed no-fault benefits to an injured driver. In Citizens Insurance Company of America v. Genevieve Schumacher and Michelle Estelle Ramirez, No. 299549 (Mich. App. 10/18/2011) Secura Insurance appealed the trial court's grant of summary disposition to Citizens Insurance Company of America.

( subscribers can access the Lexis enhanced version of the Citizens Ins. Co. of Am. v. Schumacher, 2011 Mich. App. LEXIS 1804 (Mich. Ct. App. Oct. 18, 2011) decision with core terms, case law links, and Shepard's. Non subscribers can access the free unenhanced version of the Citizens Ins. Co. of Am. v. Schumacher, 2011 Mich. App. LEXIS 1804 (Mich. Ct. App. Oct. 18, 2011) decision available from lexisONE Free Case law.)


The facts started out in a usual fashion when, on October 26, 2005, Timothy Johnson sustained injuries in a motor vehicle accident. Johnson was driving a 1993 Cadillac Seville with the permission of Genevieve Schumacher. Schumacher was at work at the time, and Johnson was driving the Cadillac to an auto shop so that a mechanic could look at the car's transmission.

There should have been no problem in getting no-fault benefits to Mr. Johnson except for a dispute over who was the owner of the Cadillac when the accident occurred. The car was registered to Schumacher with the Secretary of State's Office and hers is the only name on the title. However, Schumacher testified that, in September 2005, she sold the Cadillac to her daughter's boyfriend, Jeremy Qualls, and she cancelled the insurance coverage on the vehicle that she had through Secura Insurance. Schumacher also owned a Buick LeSabre that was insured by Secura and that was in full force and effect at the time of Johnson's accident.

\When Schumacher purportedly sold the Cadillac to Qualls she signed the title assignment section on the back of the vehicle title and she printed her address, a selling price of $1, and the date of September 14, 2005. Schumacher gave the title to Qualls, though she did not write his name or address on the title as the purchaser of the vehicle, she did not disclose the odometer reading, and she did not remove her license plate from the car.

It is undisputed that Qualls never paid Schumacher any money for the Cadillac, he never signed the title as the purchaser, he never transferred the title to himself at a Secretary of State's Office, and he never insured the vehicle.

Schumacher testified that, when she sold the Cadillac to Qualls, her daughter Michelle Ramirez was in jail. When Ramirez was released, she and Qualls ended their romantic relationship. At around that time, Ramirez learned that Qualls never transferred the vehicle title to himself. On the basis of that information, Schumacher instructed Ramirez to "get the car" back. The record reflects that Qualls did not challenge Schumacher's right to take back the car. Indeed, he denies that he ever agreed to buy the Cadillac from Schumacher and he testified that Schumacher merely let him use the car while he was dating Ramirez. In any case, Qualls told Ramirez he would leave the vehicle in his driveway with the keys inside. Ramirez picked up the car and the keys and title were inside. At the time, the car's transmission was slipping and the heating system was blowing cold air. Schumacher testified that she intended to pay for repairs to the Cadillac and drive the car herself. A couple of days after Ramirez retrieved the Cadillac from Qualls, Johnson was driving it to the mechanic and was involved in the auto accident. Schumacher testified that she intended to insure the Cadillac, but she had not done so by the time the accident occurred.

Motor Vehicle Accident

Johnson sought no-fault benefits from Secura, but, because Schumacher cancelled coverage on the Cadillac in September, Secura denied his claim. Johnson had no other insurance coverage, so he filed a claim with the Assigned Claims Facility, which assigned the claim to Citizens. Thereafter, Citizens paid no-fault benefits to Johnson.

Citizens then filed this action against Secura, Schumacher, and Ramirez. With regard to Secura, Citizens argued that Secura is the higher priority insurer and that it must reimburse Citizens for the no-fault benefits paid to Johnson. The trial court ultimately agreed and granted summary disposition to Citizens.


The no-fault act states that "[t]he owner or registrant of a motor vehicle required to be registered in this state shall maintain security for payment of benefits under personal protection insurance, property protection insurance, and residual liability insurance." The act further provides that "an insurer is liable to pay benefits for accidental bodily injury arising out of the ownership, operation, maintenance or use of a motor vehicle as a motor vehicle, subject to the provisions of this chapter."

Under the no-fault act, the Assigned Claims Facility represents the insurer of last priority. The person injured may make a claim to the assigned claims facility if no personal protection insurance is applicable to the injury, no personal protection insurance applicable to the injury can be identified, the personal protection insurance applicable to the injury cannot be ascertained because of a dispute between 2 or more automobile insurers concerning their obligation to provide coverage or the equitable distribution of the loss.

If, as here, the injured person has no insurance coverage, he may then seek benefits from the insurer of his spouse or, if his spouse is not insured, to the insurer of a relative who lives at the same residence.  It is undisputed that Johnson did not have auto insurance and that he had no other coverage available under the statute. The statute provides, in part:

[A] person suffering accidental bodily injury arising from a motor vehicle accident while an occupant of a motor vehicle shall claim personal protection insurance benefits from insurers in the following order of priority:

(a) The insurer of the owner or registrant of the vehicle occupied.

(b) The insurer of the operator of the vehicle occupied.

On the basis of the plain language of the statute if Schumacher was the owner or registrant of the 1993 Cadillac, Johnson was entitled to recover no-fault benefits first from Schumacher's insurer regardless of the fact that the car involved is not identified on the policy. It was undisputed that Schumacher cancelled the Secura policy on the Cadillac before Johnson's car accident. However because Schumacher owned the Cadillac and because she maintained a Secura policy on her Buick LeSabre, Secura is the "insurer" of Schumacher as the owner or registrant of the Cadillac.

Pursuant to the plain language of the statute, all that is required for an insurer to be first in priority to pay no-fault benefits is to insure "the owner or registrant of the motor vehicle involved in the accident." The statute does not require that the vehicle be insured since the Legislature understood that insurance is a contract of personal indemnity.

Because Qualls was never listed as the purchaser of the vehicle in the initial transaction, and because he did not sign the title as the purchaser, the title continued to show Schumacher as the registered owner of the vehicle, which reflected the intent of the parties when Schumacher regained possession.

While the unusual facts in this case and certain technical failures by Schumacher and Qualls make it difficult to assign liability for no-fault benefits, all of the testifying witnesses agree that it was everyone's intent and understanding that Schumacher regained ownership of the vehicle just before the accident occurred and that her ownership continued through the time the accident occurred. Schumacher was the "owner" of the motor vehicle, had actual possession of the vehicle, the title was in her name, the car remained officially registered with the Secretary of State in her name and, as compared to Qualls, she had the exclusive use and custody of the vehicle.

Regardless of the failure of Schumacher and Qualls to fulfill the requirements of a change of title there is no question that the vehicle at the time of the accident was owned by Schumacher. Because Secura covered Schumacher Secura was the priority insurer for purposes of Johnson's injuries and the trial court correctly granted summary disposition to Citizens.


Auto insurers who insured people in Michigan under the no-fault law should make clear that the policy insures the "insured" against the risks of loss imposed by the no fault law for all vehicles owned by the insured, without limitation. Prudent underwriting requires that the insurer obtain information about all of the vehicles owned, all vehicles where the "insured" is registered with the state as owner of the vehicle, or operates a vehicle not owned or registered to the "insured" and base premium effectively. This will required a more detailed application than the standard ACORD application form.

Reprinted with Permission from Zalma on Insurance, (c) 2011, Barry Zalma.

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. 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 senior consultant. He recently published the e-books, "Heads I Win, Tails You Lose - 2011," "Zalma on Rescission in California," "Zalma on Diminution in Value Damages," "Arson for Profit" and "Zalma on California Claims Regulations," "Murder and Insurance Fraud Don't Mix" and others that are available at Zalma Books.

Mr. Zalma can be contacted at Barry Zalma, and you can access his free "Zalma on Insurance Fraud" newsletter at Zalma's Insurance Fraud Letter.

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