Title: KAY WILKIE V AUTO-OWNERS INSUR CO

State: michigan

Issuer: Michigan Supreme Court

Document:

____________________________________________________________________________________________ 
____________________________________________________________________________________________________________________________ 
____________________________________ 
Michigan Supreme Court
Lansing, Michigan 48909 
Chief Justice 
Justices 
Maura D. Corrigan  
Michael F. Cavanagh
Elizabeth A. Weaver 
Marilyn Kelly
Clifford W. Taylor
Opinion 
Robert P. Young, Jr.
Stephen J. Markman 
FILED JULY 16, 2003  
KAY WILKIE, Personal Representative 
of the ESTATE OF PAUL K. WILKIE, 
Deceased, and Janna Lee Frank,  
Plaintiff-Appellees,  
v  
No. 119295  
AUTO-OWNERS INSURANCE COMPANY,  
Defendant-Appellants.  
BEFORE THE ENTIRE BENCH  
TAYLOR, J.  
This case involves a dispute between Auto-Owners  
Insurance Company and its insureds, Janna L. Frank and the  
decedent, Paul K. Wilkie, regarding underinsured-motorist  
coverage.1  Defendant Auto-Owners argues that plaintiffs Frank  
and Wilkie’s2 recoveries from Auto-Owners are limited under  
the terms of the policy to $50,000 each.  Frank and Wilkie  
argue that they are each owed $75,000.  The trial court and  
Court of Appeals agreed with Frank and Wilkie. We reverse.  
1The policy holder was Wilkie’s mother, Kay Wilkie.  
2The personal representative of Paul Wilkie’s estate, Kay 
Wilkie, is the plaintiff in this case.  
 
 
I. Facts  
On April 17, 1996, Janna Frank was driving east on Maple  
Rapids Road in Clinton County, with Paul Wilkie as a  
passenger.  At the same time, Stephen Ward was driving west on  
Maple Rapids Road.  Witnesses described his driving as erratic  
shortly before his vehicle crossed the center line and  
collided with Frank’s car, injuring her and causing the deaths  
of Ward and Wilkie.  
Ward’s vehicle was insured under a Citizens Insurance  
Company no-fault automobile-insurance policy having limits of  
$50,000.  Wilkie’s estate and Frank shared this sum, with each  
receiving $25,000.  Wilkie’s vehicle was insured under an  
Auto-Owners 
no-fault 
automobile-insurance 
policy 
that  
provided, in addition to the mandatory coverages required  
under Michigan’s no-fault automobile-insurance statute, MCL  
500.3101 et seq., an optional coverage described as  
underinsured-motorist coverage.  Speaking generally, this  
coverage was intended to supplement insurance proceeds  
received by the insured from the tortfeasor had the tortfeasor  
not been underinsured.  This added coverage had limits of  
$100,000 for each person to a total of $300,000 for each  
occurrence, and also provided that Auto-Owners’ liability was  
limited to the amount by which these limits exceeded the  
underinsured motorist’s own insurance coverage.  The policy  
clearly stated that the Auto-Owners’ limits of liability were  
not to be increased because of the number of persons injured,  
2  
  
 
claims made, or automobiles involved in the accident.3  
Auto-Owners did not contest that the accident was Ward’s  
fault and agreed that both Wilkie’s and Frank’s damages were  
at least $100,000.  Disputed, however, was the total amount  
due from Auto-Owners to Wilkie and Frank.  Auto-Owners  
3The relevant portions of the contract provide as 
follows:  
2. 
COVERAGE  
a.  We will pay compensatory damages any 
person is legally entitled to recover:  
(1)
 from the owner or operator of an  
underinsured automobile;  
(2)
 for bodily injury sustained while  
occupying or getting into or out of an automobile 
that is covered by Section II—LIABILITY COVERAGE of 
the policy.  
* * *  
4. 
LIMIT OF LIABILITY  
a.  Our Limit of Liability for Underinsured 
Motorists Coverage shall not exceed the lowest of:  
(1) 
the amount by which the Underinsured 
Motorist Coverage limits stated in the Declarations 
exceed the total limits of all bodily injury 
liability bonds and policies available to the owner 
or operator of the underinsured automobile; or  
(2) the amount by which compensatory damages 
for bodily injury exceed the total limits of those 
bodily injury liability bonds and policies.  
b.  The Limit of Liability is not increased 
because of the number of:  
(1) automobiles shown or premiums charged in 
the Declarations;  
(2) claims made or suits brought;  
(3) persons injured; or  
(4) automobiles involved in the occurrence.  
3 
 
asserted that it only owed Wilkie and Frank $50,000 each.  As  
it understood the contract terms, the $100,000 policy limit  
would be reduced by the $50,000 coverage of the Ward policy.  
Wilkie and Frank, for their part, claimed that Auto-Owners  
owed each of them $75,000.  They reasoned that, having equally  
split the Ward policy limits of $50,000, only the $25,000 they  
received should have been subtracted from the $100,000 policy  
limit to determine the amount each was due.  
Unable to reach a resolution of this dispute, Wilkie and  
Frank sought declaratory relief against Auto-Owners in the  
Clinton Circuit Court.  The plaintiffs moved for summary  
disposition 
predicated 
on 
their 
understanding 
of 
the  
contract’s 
requirements.  The trial court granted their motion  
and ruled that only the amount actually received by each of  
them, $25,000, and not the entire amount of Ward’s policy  
limits, $50,000, should be set off against the amount  
available to them, $100,000, under the underinsured-motorist  
provision.  Thus, according to the trial court, Wilkie and  
Frank were each entitled to $75,000 from Auto-Owners.  
Auto-Owners appealed, and the Court of Appeals4 held that  
the language of the Auto-Owners policy was ambiguous in  
directing how to apply the underinsured policy limit as a  
setoff against the amounts Auto-Owners owed. That is, Auto- 
Owners’ or the insured’s readings were equally plausible, or  
as the Court described it, the contract, in this particular,  
could be interpreted in “at least two ways . . . .”  Id. at  
4245 Mich App 521; 629 NW2d 86 (2001).  
4 
 
527. Pursuant to the doctrine of interpreting an ambiguous  
contract against the drafter,5 it construed the language that  
it found unclear against the drafter and in favor of the  
insureds. Id. Thus, each claimant was awarded $75,000.  The  
Court bolstered this by stating that the conclusion was the  
same as one that a utilization of the doctrine of “reasonable  
expectations” would produce.  The Court determined the  
reasonable expectation of an insured with a similar policy was  
to expect to always be able to predict with certainty how much  
coverage will be available from an underinsured motorist.  
Accordingly, to allow the insurer to utilize variables such as  
the 
number 
of 
claimants, automobiles involved, claims made, or  
suits brought to alter the amount due the insured would run  
the contract afoul of those expectations. To preclude this  
occurring, the Court concluded that the Court’s duty was to  
conform the contract to what it had determined was reasonable  
to expect in a contract of this sort.  In this case, that  
meant that on the basis of variables such as those mentioned  
above, which were, in fact, included in the Auto-Owners  
policy, Auto-Owners could not alter the insured’s recovery.  
The sum of this argument was to return the Court’s  
consideration to the clauses they had already determined were  
ambiguous, and, thus, to the earlier conclusion that Auto- 
Owners was required to pay Wilkie and Frank $75,000 each.  
5Klapp v United Ins Group Agency, Inc, 468 Mich 461; ___  
NW2d ___ (2003); Raska v Farm Bureau Ins Co, 412 Mich 355, 
362; 314 NW2d 440 (1982).  
5  
 
We granted Auto-Owners leave to appeal.6  
II. Standard of Review  
The proper interpretation of a contract is a question of  
law, which this Court reviews de novo.  Archambo v Lawyers  
Title Ins Corp, 466 Mich 402, 408; 646 NW2d 170 (2002). The  
same standard applies to the question of whether an ambiguity  
exists in an insurance contract.  Farm Bureau Mut Ins Co v  
Nikkel, 460 Mich 558, 563; 596 NW2d 915 (1999).  Accordingly,  
we examine the language in the contract, giving it its  
ordinary and plain meaning if such would be apparent to a  
reader of the instrument.  Bianchi v Automobile Club of  
Michigan, 437 Mich 65, 71 n 1; 467 NW2d 17 (1991).  
III. Analysis  
A  
Under the language of the underinsurance policy at issue  
here, the insurer agreed to pay $100,0007 for each person to  
a total of $300,000 for each occurrence for bodily or  
compensatory damages to individuals covered by the policy if  
each person would have been entitled to recover all those sums  
from the other driver, but was precluded from doing so because  
the other driver was underinsured (¶ 1[a] and [b]).8
 The  
6467 Mich 867 (2002).  
7The 
actual 
policy 
language 
states 
“$100,00 
person/$300,000 occurrence” (emphasis added).  That this is a  
typographical error is clear because the parties agree that 
the policy actually refers to limits of $100,000 per person.  
8Under ¶ 1(a) and (b) of Wilkie’s policy with Auto- 
Owners, an underinsured automobile  
[i]s an automobile to which a bodily injury 
liability bond or policy applies at the time of the  
6 
 
  
insurer’s liability was then limited by a provision (¶ 4[a][1]  
and [2]) that states that the amount by which the $100,000 for  
each person to a total of $300,000 for each occurrence exceeds  
the total limits available to the owner or operator of the  
underinsured vehicle will determine the amount to be paid.9  
Further clarity is given to this clause by the next provisions  
(¶ 4[a][2] and [3]), which say that the amounts available are  
not increased because of the claims made or persons injured.10  
occurrence:  
a.  In at least the minimum amounts required 
by [state law]; and  
b. In which the limits of liability are less 
than the amount of damages the injured person is 
legally entitled to recover for bodily injury.  
Paragraph 2(a)(1) of the contract states that Auto-Owners 
“will pay compensatory damages any person is legally entitled 
to recover . . . from the owner or operator of an underinsured 
automobile.”  See n 3 where this provision is set out in  
contex  
9The limiting language of the policy, ¶ 4(a), states:  
(1) 
the amount by which the Underinsured 
Motorist Coverage limits stated in the Declarations 
exceed the total limits of all bodily injury 
liability bonds and policies available to the owner 
or operator of the underinsured automobile; or  
(2) the amount by which compensatory damages 
for bodily injury exceed the total limits of those 
bodily injury liability bonds and policies.  
See n 3 where this provision is set out in context.  
10Paragraph 4(b) of the policy states:  
b.  The Limit of Liability is not increased 
because of the number of:  
* * *  
(2) claims made or suits brought;  
(continued...) 
7 
The Court of Appeals, as urged by the plaintiffs,  
approached this language by holding that ¶ 4(a)(1) of the  
contract was ambiguous because it could be “reasonably  
understood in differing ways.”  245 Mich App 524. That is, ¶  
4(a)(1) of the contract could be interpreted to direct that  
the $100,000 from the Auto-Owners policy be reduced by either  
$50,000 or $25,000, depending on how one chose to read it.  
That being the case, the Court construed the contract against  
its drafter, Auto-Owners.  The Court’s ambiguity analysis of  
the language of ¶ 4(a)(1) is, at best, questionable because  
the language appears clearer than the Court found it to be.  
Paragraph 4(a)(1) states that the limit of liability for  
underinsured-motorist 
coverage 
shall 
not 
exceed 
“the 
amount 
by  
which the Underinsured Motorist Coverage limits stated in the  
Declarations exceeds the total limits of all bodily injury  
liability bonds and policies available to the owner or  
operator of the underinsured automobile . . . .”  (Emphasis  
added.)  In this case, the underinsured-motorist coverage  
limit stated in Auto-Owner’s declaration is $100,000.  The  
total limit of all bodily-injury liability policies available  
to the owner of the underinsured automobile, i.e., Ward, is  
$50,000.  Therefore, the amount by which the underinsured­
motorist-coverage limits stated in the declarations exceeds  
the total limits of all bodily-injury policies available to  
the owner of the underinsured automobile is clearly $50,000,  
(...continued) 
(3) persons injured . . . .  
See n 3 where this provision is set out in context.  
8 
 
not $75,000.  Contrary to the contention of Court of Appeals,  
this provision cannot be “reasonably understood” to be  
referring to the amount actually received by the claimant  
because the provision specifically refers to the total  
available to the owner. Yet, whatever the merits of the Court  
of Appeals analysis, the panel’s conclusion is fatally  
undermined when ¶ 4(a)(1) is read, as it must be,11 with ¶¶  
4(b)(2) and (3).  These later paragraphs settle any perceived  
ambiguity in ¶ 4(a)(1) by stating that the amounts to be paid  
will not be increased because of claims made, suits brought,  
or persons injured.  Interpreting this provision to mean that  
each plaintiff is entitled to $75,000 would increase the limit  
of liability “because of” the number of claims brought or  
persons injured, which is clearly contrary to the plain  
language of ¶¶ 4(b)(2) and (3).12  
Quite simply, if ¶ 4(a)(1) appears ambiguous by itself,  
when read with ¶¶ 4(b)(2) and (3) the ambiguity is eliminated.  
That being the case, the insurance contract at issue is  
unambiguous and should be enforced as its terms dictate.  
Thus, no consideration of the doctrine of construing the  
contract against the drafter is appropriate.  
11We read contracts as a whole, giving harmonious effect, 
if possible, to each word and phrase.  Singer v Goff, 334 Mich 
163, 168; 54 NW2d 290 (1952).  
12If there were only one claimant, Auto-Owners’ limit of 
liability would clearly be $50,000.  Plaintiffs argue, 
however, that because there are two claimants, Auto-Owners’ 
limit of liability is $75,000.  This cannot be true because  
the policy specifically states that Auto-Owners’ limit of 
liability shall not increase “because of” the number of 
claimants.  
9  
 
B  
The Court of Appeals, in declining to give the contract  
the construction ¶¶ 4(b)(2) and (3) compel, also relied on the  
argument that to allow such a construction would defy the  
insured’s reasonable expectations, which, as the Court  
characterized them, would be that no change in the amount due  
would be occasioned by the vicissitudes of such things as  
claims made or persons injured.  
This 
approach, 
where 
judges 
divine 
the 
parties’  
reasonable expectations and then rewrite the contract  
accordingly, is contrary to the bedrock principle of American  
contract law that parties are free to contract as they see  
fit, and the courts are to enforce the agreement as written  
absent some highly unusual circumstance, such as a contract in  
violation of law or public policy.  This Court has recently  
discussed, and reinforced, its fidelity to this understanding  
of contract law in Terrien v Zwit, 467 Mich 56, 71; 648 NW2d  
602 (2002).  The notion, that free men and women may reach  
agreements 
regarding 
their 
affairs 
without 
government  
interference 
and 
that courts will enforce those agreements, is  
ancient and irrefutable.  It draws strength from common-law  
roots and can be seen in our fundamental charter, the United  
States Constitution, where government is forbidden from  
impairing the contracts of citizens, art I, § 10, cl 1.13  Our  
own state constitutions over the years of statehood have  
13"No state shall . . . pass any . . . Law impairing the 
Obligation of Contracts . . . .”  
10  
similarly 
echoed 
this limitation on government power.14  It is,  
in short, an unmistakable and ineradicable part of the legal  
fabric of our society. Few have expressed the force of this  
venerable axiom better than the late Professor Arthur Corbin,  
of Yale Law School, who wrote on this topic in his definitive  
study of contract law, Corbin on Contracts, as follows:  
One does not have “liberty of contract” unless 
organized society both forbears and enforces, 
forbears to penalize him for making his bargain and 
enforces it for him after it is made. [15 Corbin, 
Contracts (Interim ed), ch 79, § 1376, p 17.]  
In contrast to this legal pedigree extending over the  
centuries, the rule of reasonable expectations is of recent  
origin.  Moreover, it is antagonistic to this understanding of  
the rule of law, and is, accordingly, in our view, invalid as  
an approach to contract interpretation.  
The rule of reasonable expectations had innocent origins  
in 1970.  Professor Robert E. Keeton of Harvard Law School  
wrote an article entitled Insurance law rights at variance  
with policy provisions, 83 Harv L R 961, 967 (1970), in which  
he examined and attempted to rationalize a number of cases in  
which the results appeared to defy the principle that  
contracts will be construed according to their unambiguous  
terms.
 To explain this phenomenon, as best he could, he  
concluded that certain courts would evidently not enforce  
clear contract language in the face of one of the parties’  
“reasonable expectations” of coverage.  As Professor Keeton  
described it:  
14See, for example, Const 1963, art 1, § 10.  
11 
 
 
 
 
The objectively reasonable expectations of the 
applicants and intended beneficiaries regarding the 
terms of insurance contracts will be honored even  
though painstaking study of the policy provision 
would have negated those expectations. [Id.]  
Whether Professor Keeton intended this analysis to spawn  
a frontal assault on the ability of our citizens to manage, by  
contract, their own affairs, it had that effect because  
numerous courts, to one degree or another, adopted some form  
of the rule.15  
15Writing in 1990, Professor Roger C. Henderson of the 
University of Arizona School of Law discussed the development 
of the doctrine in the years after 1970. See Henderson, The  
doctrine 
of 
reasonable expectations in insurance law after two 
decades, 51 Ohio St L J 823, 827-838 (1990), outlining the 
development of the doctrine. 
According to Professor  
Henderson, the following ten jurisdictions have clearly 
adopted the rule: Lambert v Liberty Mut Ins Co, 331 So 2d 260, 
263 (Ala, 1976); Stewart-Smith Haidinger, Inc v Avi-Truck, 
Inc, 682 P2d 1108, 1112 (Alas, 1984); Gordinier v Aetna Cas &  
Surety Co, 154 Ariz 266, 272; 742 P2d 277 (1987); Smith v  
Westland Life Ins Co, 15 Cal 3d 111, 121-122; 123 Cal Rptr 
649; 539 P2d 433 (1975); Farm Bureau Mut Ins Co v Sandbulte, 
302 NW2d 104 (Iowa, 1981); Transamerica Ins Co v Royle, 202 
Mont 173; 656 P2d 820 (1983); Nile Valley Coop Grain & Milling 
Co v Farmers Elevator Mut Ins Co, 187 Neb 720; 193 NW2d 752 
(1972) 
(construing 
standard fire policy); Catania v State Farm  
Life Ins Co, 95 Nev 532; 598 P2d 631 (1979); Grimes v Concord  
Gen Mut Ins Co, 120 NH 718; 422 A2d 1312 (1980); Werner  
Industries, Inc v First State Ins Co, 112 NJ 30; 548 A2d 188 
(1988).  
Professor Henderson notes that seventeen jurisdictions 
have adopted some form of the rule at various times: Davis v  
MLG Corp, 712 P2d 985, 986 (Colo, 1986); Simses v North 
American Co for Life & Health Ins, 175 Conn 77; 394 A2d 710 
(1978); Hallowell v State Farm Mut Automobile Ins Co, 443 A2d 
925 (Del, 1982); Richards v Hanover Ins Co, 250 Ga 613; 299 
SE2d 561 (1983); Fortune v Wong, 68 Hawaii 1; 702 P2d 299 
(1985); Eli Lilly & Co v Home Ins Co, 482 NE2d 467 (Ind, 
1985); Gowing v Great Plains Mut Ins Co, 207 Kan 78; 483 P2d 
1072 (1971) (applying reasonable expectations of insured as a 
rule for resolving ambiguities); Simon v Continental Ins Co, 
724 SW2d 210 (Ky, 1986); Cataldie v Louisiana Health Service  
& Indemnity Co, 456 So 2d 1373 (La, 1984); Baybutt Constr Corp  
v Commercial Union Ins Co, 455 A2d 914 (Me, 1983), but see  
Peerless Ins Co v Brennon, 564 A2d 383 (Me, 1989) (reversing 
(continued...) 
12  
 
 
 
 
Michigan has had a puzzling history with the doctrine.  
The first mention of the rule of reasonable expectations in  
Michigan was in Zurich Ins Co v Rombough, 384 Mich 228, 232­
233; 180 NW2d 775 (1970), in which this Court held,  
unexceptionally, that ambiguous policy provisions in an  
insurance contract had to be construed against the insurance  
company and in favor of the insured.  In the course of this  
(...continued)
Baybutt); Powers 
v 
Detroit Automobile Inter-Ins Exch, 427 Mich 
602; 398 NW2d 411 (1986); Atwater Creamery Co v Western Nat’l 
Mut Ins Co, 366 NW2d 271 (Minn, 1985) (Wahl, J., lead 
opinion); Brown v Blue Cross & Blue Shield of Mississippi, 427 
So 2d 139 (Miss, 1983); Davison v Business Men's Assurance Co  
of America, 85 NM 796; 518 P2d 776 (1974); Great American Ins  
Co v CG Tate Constr Co, 177 W Va 734; 303 NC 387; 279 SE2d 769 
(1981) rev'd on other grounds, 315 NC 714; 340 SE2d 743 
(1986); American Universal Ins Co v Russell, 490 A2d 60, 62 
(RI, 1985); Nat’l Mut Ins Co v McMahon & Sons, 177 W Va 734; 
356 SE2d 488 (1987); Garriguenc v Love, 67 Wis 2d 130; 226  
NW2d 414 (1975).  Pennsylvania has taken an inconsistent 
approach.
 Compare Standard Venetian Blind Co v American  
Empire Ins Co, 503 Pa 300, 307; 469 A2d 563 (1983), which 
rejects the rule, with Tonkovic v State Farm Mut Automobile  
Ins Co, 513 Pa 445; 521 A2d 920 (1987), which accepts the  
rule.  
For the purpose of fully understanding the rule, 
Professor Henderson also pointed out that ten jurisdictions 
have not adopted the rule: Casey v Highland Ins Co, 100 Idaho 
505, 509; 600 P2d 1387 (1979); Bain v Benefit Trust Life Ins  
Co, 123 Ill App 3d 1025, 1032; 463 NE2d 1082 (1984); Bond Bros  
v Robinson, 393 Mass 546, 551; 471 NE2d 1332 (1984); Walle Mut  
Ins Co v Sweeney, 419 NW2d 176, 181 n 4 (ND, 1988); Sterling 
Merchandise Co v Hartford Ins Co, 30 Ohio App 3d 131, 135; 506 
NE2d 1192 (1986); Anderson v Continental Assurance Co, 1983 Ok  
Civ App 25; 666 P2d 245, 248 (1983); Allstate Ins Co v Mangum, 
299 SC 226, 231; 383 SE2d 464 (1989); Keenan v Industrial  
Indemnity Ins Co, 108 Wash 2d 314, 322; 738 P2d 270 (1987); St  
Paul Fire & Marine v Albany Co School Dist 1, 763 P2d 1255, 
1263 (Wy, 1988).  
The remaining jurisdictions, in Professor Henderson’s 
opinion, have not addressed the issue, or, have managed to 
avoid ruling on it.  See also Max True Plastering Co v United 
States Fidelity & Guarantee Co, 1996 Ok 28; 912 P2d 861, 863 
n 5 (1996), for a discussion of the doctrine’s acceptance.  
13  
 
 
holding, the Court cited a California Supreme Court case, Gray  
v Zurich Ins Co, 65 Cal 2d 263, 269-270; 54 Cal Rptr 104; 419  
P2d 168 (1966), in which Justice Mathew Tobriner fleetingly  
referenced 
the 
rule 
of 
reasonable 
expectations.16  
Whatever 
the  
effect on California law Gray created, we must assume that our  
Court’s use of the quotation was only to fully outline Justice  
Tobriner’s 
position, because Rombough was decided on the basis  
of construing against the drafter and the remarks about the  
16  
Justice Tobriner, writing for the California 
Supreme Court in [Gray, supra], construing similar 
provisions, said:  
“In interpreting an insurance policy we apply 
the general principle that doubts as to meaning 
must be resolved against the insurer and that any 
exception 
to 
the 
performance 
of 
the 
basic  
underlying obligation must be so stated as clearly 
to apprise the insured of its effect.  
“These 
principles 
of 
interpretation 
of  
insurance contracts have found new and vivid  
restatement in the doctrine of the adhesion  
contract.
 As this court has held, a contract  
entered into between two parties of unequal 
bargaining strength, expressed in the language of a 
standardized contract, written by the more powerful 
bargainer to meet its own needs, and offered to the 
weaker party on a ‘take it or leave it basis’ 
carries some consequences that extend beyond 
orthodox implications.  Obligations arising from 
such a contract inure not alone from the consensual  
transaction but from the relationship of the  
parties.  
“Although courts have long followed the basic 
precept that they would look to the words of the 
contract to find the meaning which the parties 
expected from them, they have also applied the 
doctrine of the adhesion contract to insurance  
policies, holding that in view of the disparate 
bargaining status of the parties we must ascertain 
that meaning of the contract which the insured  
would reasonably expect.” [Rombough, supra at 232­
233.]  
14 
 
 
  
 
rule of reasonable expectations were obiter dicta.  
Nonetheless, Rombough is the case that opened the door to  
the rule of reasonable expectations in Michigan.  The next  
case to address the issue is Bradley v Mid-Century Ins Co, 409  
Mich 1, 60-61; 294 NW2d 141 (1980).  Discussing a setoff  
provision in an insurance contract, the Court, in an equivocal  
passage of the opinion, held that “[t]he set-off clause,  
whether regarded as ambiguous or inconsistent with the rule of  
reasonable expectations of the insured, cannot be enforced as  
written.” 
Id. 
Regarding Michigan authority, the Bradley  
Court cited Rombough. Id. at 61 n 69.17  
By 1982, however, when this Court next addressed the rule  
in Raska v Farm Bureau Ins Co, 412 Mich 355, 362-363; 314 NW2d  
440 (1982), a majority of the Court took pains to reject the  
rule of reasonable expectations. Justice Kavanagh, writing  
for the majority, pithily targeted the difficulty with the  
rule of reasonable expectations as follows:  
[T]he expectation that a contract will be 
enforceable other than according to its terms 
surely may not be said to be reasonable.  If a  
person signs a contract without reading all of it 
or 
without 
understanding 
it, 
under 
some  
circumstances that person can avoid its obligations 
on the theory that there was no contract at all for 
there was no meeting of the minds.  
But to allow such a person to bind another to 
an obligation not covered by the contract as 
written because the first person thought the other 
was bound to such an obligation is neither  
reasonable nor just. [Id.]  
Interestingly, the majority did not mention the Bradley  
17The Court also cited several of Professor Keeton’s  
works, pointing out that the rule had been accepted in several 
jurisdictions. Bradley, supra at 61 n 69.  
15  
  
 
 
 
decision of only two years before.  We surmise this was not an  
oversight, a finding reinforced by the fact that there had  
been no change in the composition of the Court in those two  
years.  Rather, we conclude that the majority did not refer to  
Bradley because it reasoned that Bradley was premised on an  
ambiguity analysis or, perhaps, the requirement to conform  
automobile-insurance contracts to the requirements of the no­
fault automobile-insurance act.  Thus, it was probable that  
the majority considered any discussion of the rule of  
reasonable expectations in Bradley dicta, not requiring  
analysis. 
Buttressing this view is the fact that, Justice  
Williams, writing in dissent, invoked the rule of reasonable  
expectations, but never cited Bradley as support for his  
position.  Raska, supra at 380.  
This was not the end of the rule of reasonable  
expectations, however, because it was again mentioned in a  
plurality opinion in Powers v Detroit Automobile Inter-Ins  
Exch, 427 Mich 602, 631-635; 398 NW2d 411 (1986).  In writing  
the 
plurality 
opinion18, 
Chief 
Justice 
Williams 
cited 
Raska 
for  
the proposition that a reasonable expectation of a reader of  
the contract was enforceable.  Id. at 631. This is a curious  
source of authority, as the Raska majority made no mention of  
that proposition. Moreover, breaking new ground, the Powers  
plurality 
also 
stated that the rule of reasonable expectations  
does not require an ambiguity as a prerequisite to the  
18Justice Archer concurred with Chief Justice Williams, 
and Justices Cavanagh and Brickley concurred in the result 
only.  
16  
 
  
 
 
 
application of the doctrine.  Powers, supra at 631 n 7.19  For  
additional authority, the plurality relied on Rombough and  
Bradley for the limited proposition that insured parties do  
not have a reasonable expectation of coverage in the face of  
antistacking clauses in insurance contracts. 
The Powers  
plurality 
apparently 
misconceived 
the 
preceding 
Michigan 
cases  
regarding the acceptance in this state of the rule of  
reasonable expectations.  In any case, whatever the Powers  
opinion’s difficulties, it remains a plurality opinion and  
thus is not binding on subsequent courts. People v Carines,  
460 Mich 750, 767 n 15; 597 NW2d 130 (1999).20  
In 1991, in Vanguard Ins Co v Clarke, 438 Mich 463, 471­
472; 475 NW2d 48 (1991), this Court again discussed the rule,  
agreeing with the Powers plurality and holding the rule to be  
an adjunct to the rules of construction of insurance  
contracts.21  This was an unusual use of precedent because  
Powers was not binding and Raska was. 
Adding to the  
confusion, the Court characterized the “sole issue” in the  
case as whether to adopt the theory of dual or concurrent  
causality in insurance.  Vanguard, supra at 465-466. 
This  
19The 
plurality 
further 
referred 
to 
the 
rule 
of 
reasonable 
expectations as “[a]n adjunct to the rules of construction of 
insurance contracts . . . .” Powers, supra at 631.  
20See also Robinson v Detroit, 462 Mich 439, 470 n 1; 613 
NW2d 307 (2000)(Corrigan, C.J., concurring), and People v 
Anderson, 389 Mich 155, 170; 205 NW2d 461 (1973).  
21The Court, however, declined to adopt the Powers  
plurality’s view that the rule does not require an ambiguity 
in the contract as a prerequisite to its application. 
Instead, the Vanguard majority concluded that, without an 
ambiguity, there could be no application of the rule of 
reasonable expectations. Id. at 472-473.  
17  
  
 
 
issue was resolved without any need to delve into the doctrine  
of 
reasonable 
expectations, 
and, 
thus, 
discussion of  
reasonable expectations was merely dicta.  
In the wake of Vanguard, this Court applied, but did not  
address 
the 
provenance 
of, 
the 
rule 
of 
reasonable  
expectations, apparently assuming it to be the law. 
See  
Gelman Sciences, Inc v Fidelity Cas Co, 456 Mich 305, 318; 572  
NW2d 617 (1998)(citing Vanguard and Powers); Fire Ins Exch v  
Diehl, 450 Mich 678, 687; 545 NW2d 602 (1996)(citing Powers);  
and Michigan Millers Mut Ins Co v Bronson Plating Co, 445 Mich  
558, 594 n 17; 519 NW2d 864 (1994)(citing Powers and  
Vanguard).  
Significantly, none of these cases mentions Raska.  
We next discussed the rule of reasonable expectations in  
Nikkel. This Court approvingly cited Raska and, repudiating  
the Powers approach, stated:  
[W]e decline defendants’ invitation to discern 
ambiguity solely because an insured might interpret 
a term differently than the express definition 
provided in a contract.  “This court has many times 
held that one who signs a contract will not be 
heard to say, when enforcement is sought, that he 
did not read it, or that he supposed it was 
different in its terms.” . . . To the extent that  
the plurality in Powers gleaned ambiguity by 
relying on an understanding of a term that differed 
from the clear definition provided in the policy, 
Powers 
is 
contrary 
to 
the 
most 
fundamental  
principle of contract interpretation—the court may 
not read ambiguity into a policy where none exists. 
[Nikkel, supra at 567-568.]  
We concluded by holding that, while the rule of  
reasonable expectations was, at most, an adjunct to the rules  
of construction, there was no occasion to invoke it because,  
under Vanguard, it could only be utilized where there was an  
ambiguity in the contract, which was not present in Nikkel.  
18  
 
Id. at 568-569.  
Viewing the puzzling thirty-three-year history of the  
rule 
of 
reasonable 
expectations in Michigan, we are confronted  
with a confused jumble of ignored precedent,22 silently  
acquiesced to plurality opinions,23 and dicta,24 all of which,  
with little scrutiny, have been piled on each other to  
establish authority. At no point has an effort been made to  
establish priorities among the competing holdings. To bring  
order to this area of the law, it falls on us today to clearly  
articulate the status of the rule of reasonable expectations  
in this jurisdiction.  
The rule of reasonable expectations clearly has no  
application to unambiguous contracts.  That is, one’s alleged  
“reasonable expectations” cannot supersede the clear language  
of a contract.  Therefore, if this rule has any meaning, it  
can only be that, if there is more than one way to reasonably  
interpret a contract, i.e., the contract is ambiguous, and one  
of these interpretations is in accord with the reasonable  
expectations of the insured, this interpretation should  
prevail.  However, this is saying no more than that, if a  
contract is ambiguous and the parties’ intent cannot be  
discerned from extrinsic evidence, the contract should be  
interpreted against the insurer.  In other words, when its  
application is limited to ambiguous contracts, the rule of  
22Raska.  
23Powers.  
24Rombough, arguably Bradley, and Vanguard.  
19 
 
 
reasonable expectations is just a surrogate for the rule of  
construing against the drafter. As the Court of Appeals has  
recently explained:  
Well-settled 
principles 
of 
contract  
interpretation require one to first look to a 
contract’s plain language.  If the plain language 
is clear, there can be only one reasonable  
interpretation of its meaning and, therefore, only 
one meaning the parties could reasonable expect to 
apply. If the language is ambiguous, longstanding 
principles of contract law require that the  
ambiguous provision be construed against the  
drafter.   Applied in an insurance context, the 
drafter is always the insurer.  Thus, it appears 
that the “rule of reasonable expectations” is 
nothing more than a unique title given to  
traditional 
contract 
principles 
applied 
to  
insurance contracts . . . . [Singer v American 
States Ins, 245 Mich App 370, 381 n 8; 631 NW2d 34 
(2002).]  
Several commentators have expressed this same view.  See  
Comment, A critique of the reasonable expectations doctrine,  
56 U Chi L R 1461, 1468 (1989) (The rule of reasonable  
expectations “is identical to the practice of construing  
ambiguities against the insurer except that it purports to  
provide an additional justification for doing so, i.e., to  
satisfy the insured’s reasonable expectations.”); Popik &  
Quackenbos, Reasonable expectations after thirty years: A  
failed doctrine, 5 Conn Ins L J 425, 429 (1998)(“Courts  
applying an ‘ambiguity’-based version of the doctrine have  
apparently abandoned the doctrine as a rule of substantive law  
altogether, treating it instead as a rule of construction  
analogous to—indeed, virtually indistinguishable from—the  
contra proferentem doctrine.”); Henderson, The doctrine of  
reasonable 
expectations in insurance law after two decades, 51  
Ohio St L J 823, 827 (1990)(“[D]ecisions using [the rule of  
20  
 
reasonable 
expectations] 
solely 
to 
construe 
[ambiguous] 
policy  
language do not support a new principle at all, but fall  
within the time-honored canon of construing ambiguities  
against the drafter of the contract-contra proferentem.”).  
In sum, the rule of reasonable expectations clearly has  
no application when interpreting an unambiguous contract  
because a policyholder cannot be said to have reasonably  
expected something different from the clear language of the  
contract.  Further, it is already well established that  
ambiguous language should be construed against the drafter,  
i.e., 
the 
insurer. 
 
Therefore, stating that ambiguous language  
should be interpreted in favor of the policyholder’s  
reasonable expectations adds nothing to the way in which  
Michigan courts construe contracts, and thus the rule of  
reasonable expectations should be abolished.  
The rights and duties of parties to a contract are  
derived from the terms of the agreement.  Evans v Norris, 6  
Mich 369, 372 (1859).  As this Court has previously stated,  
“The general rule [of contracts] is that competent persons  
shall have the utmost liberty of contracting and that their  
agreements voluntarily and fairly made shall be held valid and  
enforced in the courts.” Terrien, supra at 71, quoting Twin  
City Pipe Line Co v Harding Glass Co, 283 US 353, 356; 51 S Ct  
476; 75 L Ed 1112 (1931).25  Under this legal principle, the  
parties are generally free to agree to whatever they like,  
25“Freedom of contract is the general rule and restraint 
the exception.”  Morehead v New York ex rel Tipaldo, 298 US 
587, 610-611; 80 L Ed 1347; 56 S Ct 918 (1936).  
21  
and, in most circumstances, it is beyond the authority of the  
courts26 to interfere with the parties’ agreement.  St Clair  
Intermediate School Dist v Intermediate Ed Ass’n, 458 Mich  
540, 570-572; 581 NW2d 707 (1998).  Respect for the freedom to  
contract entails that we enforce only those obligations  
actually assented to by the parties.  Evans, supra at 372. We  
believe that the rule of reasonable expectations markedly  
fails in this respect.  The words of Justice Kavanagh bear  
repeating:  
[T]he expectation that a contract will be 
enforceable other than according to its terms 
surely may not be said to be reasonable.  If a  
person signs a contract without reading all of it 
or 
without 
understanding 
it, 
under 
some  
circumstances that person can avoid its obligations 
on the theory that there was no contract at all for 
there was no meeting of the minds.  
But to allow such a person to bind another to 
an obligation not covered by the contract as 
written because the first person thought the other 
was bound to such an obligation is neither  
reasonable nor just. [Raska, supra at 362-363.]  
Accordingly, we hold that the rule of reasonable expectations  
has no application in Michigan, and those cases that  
recognized this doctrine are to that extent overruled.  
IV. Conclusion  
We reverse the judgment of the Court of Appeals and find  
the insurance contract between Auto-Owners and Wilkie  
unambiguously limited Auto-Owners’ liability to $50,000 each  
for Wilkie and Frank.  
26Duties imposed by courts are to be avoided in order to 
respect the freedom of parties to fashion agreements of their 
own design.  See Comment, A critique of the doctrine of 
reasonable expectations, supra at 1487.  
22  
Clifford W. Taylor 
Maura D. Corrigan 
Robert P. Young, Jr. 
Stephen J. Markman  
23  
 
 
____________________________________ 
S T A T E 
O F 
M I C H I G A N  
SUPREME COURT  
KAY WILKIE, PERSONAL REPRESENTATIVE 
OF THE ESTATE OF PAUL K. WILKIE, 
DECEASED, AND JANNA LEE FRANK,  
Plaintiff-Appellees,  
v 
No. 119295  
AUTO-OWNERS INSURANCE COMPANY,  
Defendant-Appellant.  
WEAVER, J. (concurring in part dissenting in part).  
I concur with the majority that the rule of reasonable  
expectations “has no application when interpreting an  
unambiguous 
contract” and that “it is already well established  
that ambiguous language should be construed against the  
drafter, i.e., the insurer.” Ante at 25.  
However, 
I 
dissent 
from 
the 
majority’s 
determination 
that  
the underinsured-motorist provisions of the automobile­
insurance contract at issue are unambiguous.  I would conclude  
that the policy is ambiguous and, therefore, construe it  
against the drafter.  
The policy provides on its declarations page that Auto  
Owners’ underinsured-motorist liability limit is $100,000 per  
person and $300,000 per occurrence.  However, the policy  
endorsement provides in pertinent part that “[t]he Limit of  
Liability is not increased because of the number of . . .  
persons injured . . . .”  While the declarations page appears  
 
to base its underinsured premium on either a per person or a  
per 
occurrence 
maximum, the endorsement’s language can be read  
as limiting liability to strictly a per occurrence maximum  
because it states the liability limit will not be increased by  
the number of persons injured.  
On the facts of this case, under the per person  
interpretation, defendant is liable to each injured person  
covered by the underinsured-motorist provisions for $75,000,  
the per person limit ($100,000) minus the amount each person  
received from the underinsured motorist ($25,000).  Under a  
per occurrence interpretation, defendant is liable to each  
injured 
person 
covered 
by 
the 
underinsured-motorist 
provisions  
for $50,000, the per person limit ($100,000) minus the total  
amount available from the underinsured-motorist for the  
occurrence ($50,000).  
I would construe this ambiguity against the drafter and  
hold that each plaintiff is entitled to $75,000.  
Elizabeth A. Weaver  
2  
S T A T E O F M I C H I G A N  
SUPREME COURT  
KAY WILKIE, personal
representative of the estate
of PAUL K. WILKIE, deceased,
and JANNA LEE FRANK, 
Plaintiffs-Appellees, 
v 
No. 119295 
AUTO-OWNERS INSURANCE COMPANY, 
Defendant-Appellant. 
________________________________ 
CAVANAGH, J. (dissenting). 
The majority holds today that an insured party’s 
objectively reasonable expectations are no longer relevant in  
determining the meaning of an insurance contract. Because I  
would not discard the doctrine of reasonable expectations, I  
must respectfully dissent.  
I  
The 
doctrine 
of 
reasonable expectations allows a court to  
contemplate the scope of insurance coverage anticipated by an  
insured party seeking benefits.  Unlike the doctrine of contra  
preferentem, i.e., construing a document against the drafter,  
the reasonable-expectations doctrine is generally confined to  
the field of insurance law and, when correctly applied, is not  
 
limited to those circumstances in which a document is clearly  
ambiguous on its face.1  Rather, the doctrine may assist a  
court in making the ambiguity determination, i.e., whether an  
insurance contract contains language that could reasonably be  
interpreted in two or more ways.2  
Although courts normally limit the ambiguity inquiry to  
the four corners of a contract’s text in other contexts, few  
have failed to recognize the unique character of insurance  
1 As I noted in my dissent in Farm Bureau Mut In Co of  
Michigan v Nikkel, 460 Mich 558, 571; 596 NW2d 915 (1999), an 
insurance company may not benefit from employing otherwise 
straightforward and unambiguous terms in a manner an insured 
could find confusing.  See also Spaulding v Morse, 322 Mass  
149, 152-153; 76 NE2d 137 (1947):  
Every 
instrument 
in 
writing 
is 
to 
be  
interpreted, 
with 
a 
view 
to 
the 
material  
circumstances of the parties at the time of the 
execution, in the light of the pertinent facts 
within their knowledge and in such manner as to 
give effect to the main end designed to be  
accomplished. . . . [The] instrument is to be so 
construed as to give effect to the intent of the . 
. . [parties] as manifested by the words used 
illumined by all the attendant factors, unless 
inconsistent with some positive rule of law or 
repugnant to other terms of the instrument.  An  
omission to express an intention cannot be supplied 
by conjecture.  But if the instrument as a whole  
produces a conviction that a particular result was 
fixedly desired although not expressed by formal 
words, that defect may be supplied by implication 
and the underlying intention . . . may be  
effectuated, provided it is sufficiently declared 
by the entire instrument. [Citations omitted.]  
2 See Holmes, The Theory of Legal Interpretation, 12 Harv  
L R 417, 418 (1899):  
[W]e let in evidence of intention not to help 
out what theory recognizes as an uncertainty of 
speech, and to read what the writer meant into what 
he has tried but failed to say, but recognizing 
that he has spoken with theoretic certainty, we 
inquire what he meant in order to find out what he 
has said.  
2  
agreements:  
There is no meeting of the minds except 
regarding the broad outlines of the transaction, 
the insurer's desire to sell a policy and the 
insured's desire to buy a policy of insurance for a 
designated price and period of insurance to cover 
loss 
arising 
from 
particular 
perils 
(death, 
illness, 
fire, 
theft, 
auto 
accident,  
"comprehensive").
 
The 
details 
(definitions, 
exceptions, exclusions, conditions) are generally 
not discussed and rarely negotiated. [Lotoszinski  
v State Farm Mut Automobile Ins Co, 417 Mich 1, 14 
n 1; 331 NW2d 467 (1982) (Levin J., dissenting).]  
See also Keeton, Insurance law rights at variance with policy  
provisions, 83 Harv L R 961 (1970), and cases cited therein.  
Hence, in the context of such adhesion contracts, it is  
appropriate to consider not just the contractual text, but  
also the objectively reasonable expectations of the insured  
party and the circumstances surrounding the transaction.  
In Steven v Fidelity & Cas Co of N Y, 58 Cal 2d 862; 27  
Cal Rptr 172; 377 P2d 284 (1962), for example, appellant’s  
husband purchased a life-insurance policy from a vending  
machine before leaving on a business flight.  The insured was  
required to sign and mail the entire document before boarding  
the flight.  The text of the contract, which could be fully  
reviewed only after purchase, contained an exception,  
prohibiting coverage for charter flights, while permitting  
coverage for reasonable methods of substitute transportation  
by land. On the return trip, appellant’s husband was forced  
to make emergency arrangements on a charter flight.  The  
insured died while traveling on the charter plane, and the  
insurer denied benefits.  
On 
appeal, 
California’s high court refused to enforce the  
3  
exclusion.  The court held that a reasonable insured party  
would purchase such insurance expecting coverage for the  
entire trip, including any reasonable emergency substitute  
form of transportation. 
Because the contract did not  
expressly prohibit the type of substitute transportation  
utilized by the insured, though it did prohibit coverage for  
travel “on other than scheduled air carriers,” id. at 866, a  
lay person could not reasonably be expected to foresee the  
force of the exclusion. Moreover, the court emphasized that  
the inanimate vending machine emitted a complex document that  
most people would be unable to decipher before boarding a  
plane.
 Likewise, the sticker on the face of the machine  
prohibiting coverage for nonscheduled air carriers could not  
aid the purchaser in weighing the benefits of the contract  
because the definition was buried in its text. Id., supra at  
877. In support of this result, Justice Tobriner noted that  
“California courts have long been disinclined to effectuate  
clauses of limitation of liability which are unclear,  
unexpected, inconspicuous or unconscionable.”  Id. at 879,  
relying on Raulet v Northwestern Nat’l Ins Co, 157 Cal 213,  
230; 107 P 292 (1910) (holding that insured parties would not  
be stringently bound to contract provisions because “[i]t is  
a matter almost of common knowledge that a very small  
percentage of policy-holders are actually cognizant of the  
provisions of their policies . . . . [I]n their numerous  
conditions and stipulations [insurance contracts] furnish[]  
what sometimes may be veritable traps for the unwary.”).  
Recognizing these same principles, dissenting Justice  
4  
 
__________________________________________________
Williams noted in Raska v Farm Bureau Ins Co, 412 Mich 355,  
370; 314 NW2d 440 (1982):  
This Court is made up of human beings who are 
aware that very few insureds will try to read the 
detailed, 
cross-referenced, 
standardized,  
mass-produced insurance form, nor necessarily 
understand it if they do.  Courts generally have 
gradually moved away from the traditional rule of 
caveat emptor, realizing that the modern insurance 
contract is not made between parties of equal 
bargaining strength with each side taking a part in 
choosing 
the language 
of 
the 
agreement 
and  
understanding what the contract means.  
Thus the approach we must take in examining 
insurance contracts such as the one in issue was  
accurately described by the New Jersey Supreme 
Court as follows:  
"An insurance policy, though in form a  
contract, is a product prepared and packaged by the 
insurer.
 The buyer scarcely understands the  
detailed content of what he is buying.  When a  
court construes a policy, it cannot be indifferent 
to that reality."  [Raska, quoting DiOrio v New  
Jersey Manufacturers Ins Co, 63 NJ 597, 602; 311 
A2d 378 (1973).]  
For these reasons, I must express my agreement with  
Justice Levin’s approach in Lotoszinski, supra at 15-16:  
It is the historic responsibility of the 
courts to protect, in the exercise of the judicial 
power, 
against 
imposition 
in 
commercial  
transactions.  Fairness is the proper inquiry where 
a court is assessing policy language marketed and 
purchased without negotiation or explanation of the 
scope of the coverage. 3 . . .  
The governing rule of law cannot rightfully be 
predicated on the assumption that [the plaintiff] 
would read the policy, that if she did read it she 
would or could understand its esoteric verbiage, 
anticipate the situation which developed and deduce 
that she was not covered.  Many competent lawyers 
would, unless they set aside time for careful 
reading and reflection, have failed that exam.  
3 See Bradley v Mid-Century Ins Co, 409 Mich 1, 61;  
294 
NW2d 
141 
(1980); 
DiOrio 
v 
New 
Jersey 
Manufacturers Ins Co, [supra]; C & J Fertilizer,  
5  
 
___________________________________________________ 
Inc v Allied Mutual Ins Co, 227 NW2d 169, 175 
(Iowa, 1975); Hionis v Northern Mutual Ins Co, 230 
Pa Super 511, 516-517; 327 A2d 363, 365 (1974); 
Henningsen v Bloomfield Motors, Inc, 32 NJ 358, 
399-400; 161 A2d 69, 92 (1960); Ady v West American  
Ins Co, 69 Ohio St 2d 593, 597; 433 NE2d 547, 549 
(1982).  
See also Keeton, Insurance Law, § 63, pp 
350-351; 2 Restatement Contracts, 2d, § 208; 1 
Corbin, 
Contracts, 
§ 
128, 
p 
554; 
Grismore, 
Contracts (Murray), § 294, p 508.  
Though few would deny that the majority has artfully  
attempted to diminish the significance of this Court’s  
jurisprudence with regard to the reasonable-expectations  
doctrine, it cannot be denied that, before today, Michigan  
joined the majority of states that integrated the doctrine  
into their jurisprudence.3  In doing so, such jurisdictions  
did nothing more than recognize our timeworn rules of contract  
interpretation, 
i.e., 
contract 
formation 
requires 
a 
meeting 
of  
the minds.  
Though I acknowledge that the majority’s position is  
consistent with the notion that “free men and women may reach  
agreements 
regarding 
their 
affairs 
without 
government  
interference and that courts will enforce those agreements,”  
ante at 12 citing Terrien v Zwit, 467 Mich 56, 71; 648 NW2d  
602 (2002), I object to its attempt to distance itself from  
the policy choices inherent in its decision today.  Simply  
put, the majority and I differ with regard to the policies  
3 
 See Nikkel, supra at 567.  See also Stempel, Unmet  
expectations: 
Undue 
restriction 
of 
the 
reasonable 
expectations 
approach and the misleading mythology of judicial role, 5 Conn  
Ins L J 181, 191 (1998) (noting that “38 states ‘have 
recognized some variation of the reasonable expectations 
doctrine.’").  
6  
I 
that should guide the interpretation of insurance law.   
would prefer not to disregard the manner in which the  
insurance industry operates.  Though an adhesion contract may  
be a necessary ingredient in the trade, I cannot condone a  
doctrine of interpretation that all but ignores the  
potentially precarious effect on the bound party.  
II  
In light of these standards, I cannot agree that the  
contract terms are free of ambiguity.4
 Defendant insurer  
4 As the majority notes, the relevant portions of the 
insurance contract provide that Auto Owners underinsured 
motorist policy limit is $100,000 for each person and $300,000 
for each occurrence.  The policy endorsement provides as 
follows:  
4. LIMIT OF LIABILITY  
a.  Our Limit of Liability for Underinsured 
Motorist Coverage shall not exceed the lowest of:  
1.  the amount by which the Underinsured 
Motorist Coverage limits stated in the Declarations 
exceed the total limits of all bodily injury 
liability bonds and policies available to the owner 
or operator of the underinsured automobile; or  
2.  the amount by which compensatory damages 
for bodily injury exceed the total limits of those 
bodily injury liability bonds and policies.  
b.  The Limit of Liability is not increased 
because of the number of:  
1.  automobiles shown or premiums charged in 
the Declarations;  
2. claims made or suits brought;  
3. persons injured; or  
4. automobiles involved in the occurrence.  
c. 
The amount we pay will be reduced by any 
amount paid or payable for the same bodily injury. 
(continued...)  
7  
 
based 
its 
premium 
for underinsured-motorist coverage on a “per  
person” and “per occurrence” maximum.  This portion of the  
contract, found on the declarations page, was among the few  
terms actually negotiated by the parties.  
Even assuming the purchasing party read and understood  
the policy upon receipt (which often arrives weeks after the  
original purchase), review of the exclusions in section four  
suggests the insurer simply attempted to clarify that its  
liability was limited to making the insured whole, paying out  
no more than necessary to meet the limits on which the  
purchase price was based, i.e., $100,000 per person and  
$300,000 per occurrence.  
If the insurer intended to limit coverage in the manner  
it now claims, it had a duty to expressly state not only that  
“coverage will not be increased,” but also that coverage may  
be 
decreased 
from 
the 
coverage 
limits 
specifically 
negotiated.  
Instead of acknowledging this rational deduction, defendant  
insurer has asked this Court to pretend that both plaintiffs  
received the negligent party’s maximum benefit ($50,000 per  
person or per accident), when in fact defendant insurer had  
previously authorized a settlement agreement wherein the  
injured plaintiffs split the negligent party’s benefits,  
receiving only $25,000 each.  
More specifically, the insurer’s inclusion of ¶ 4(1)(a)­
(b) merely assure that an insured will be reimbursed up to the  
policy limits on the declarations page, while clarifying no  
4(...continued) 
. . .  
8  
 
 
windfall payments will be made, i.e., an insured will not  
receive duplicate reimbursement or payments exceeding the  
underinsured 
policy 
limits 
on 
the 
declarations 
page.  
Paragraph (4)(a)(1), for example, provides that an insurer  
will pay no more than the difference between policy limits.  
This clause clarifies that an insurer is simply obligated to  
make up the difference between benefits received from the  
underinsured party and the insurer. Though free of ambiguity  
when only one person is injured, the text’s vagueness becomes  
evident when multiple insured parties are injured if the  
negligent party’s policy has no separate per person and per  
occurrence coverage.  
Further, the use of the term “available” is ambiguous, as  
noted by Justice Kelly in her dissent.  While it is true in  
this 
case 
that 
the 
underinsured negligent motorist has $50,000  
available for the total occurrence with no per person limit,  
it is impossible to conclude from the text of the contract at  
issue that the underinsured has $50,000 available to pay each  
plaintiff, 
though 
that 
is 
exactly 
the 
interpretation 
defendant  
asks this Court to adopt.  By inserting text that ensures that  
payments for the same injuries are not duplicated, while  
simultaneously asking the Court—on the basis of the vague  
text—to assume that one limit could be paid out more than  
once, defendant has convinced this Court to further shift the  
balance of power in favor of insurance companies for the  
purpose of reducing an insurer’s liability.  
Properly interpreted, the computation required in ¶  
4(a)(1) should be the difference between the insurer’s per  
9  
 
 
 
 
person limit ($100,000) and the underinsured’s per occurrence  
limit as actually received (in this case, $25,000 per  
plaintiff).  Similarly, if it were necessary to determine the  
per occurrence liability, the amount purchased by the  
underinsured motorist ($50,000) should be deducted from the  
amount of per occurrence coverage purchased from the insurer  
($300,000).  
Paragraph 4(a)(2) also supports a ruling in favor of  
plaintiffs.  That paragraph clarifies that an insurer will pay  
benefits only for damages actually incurred, i.e., if an  
insured is hurt by a driver with a $40,000 per person policy  
limit and the insured incurs $60,000 in individual damages,  
the insurance company need pay only $20,000, assuming an  
insured has purchased a $100,000 per person underinsured­
motorist policy.  This clause makes clear the insurer will pay  
benefits to make an insured whole, but no more.  
Paragraphs (4)(b)(1)-(4) also clarify that an insurer’s  
liability will not be increased because of (1) the number of  
vehicles for which premiums are charged in the declaration,  
(2) the number of claims brought, (3) the number of people  
injured, or (4) the number of automobiles involved in an  
occurrence. On the basis of subsection (3) alone, one could  
logically infer that benefits should not decrease as a result  
of the number of people injured, i.e., if an insurer indicates  
a benefit will not be increased just because more than one  
person is injured, it is also reasonable to assume an insurer  
will not decrease benefits for the same reason.  
This conclusion is buttressed by the fact that defendant  
10  
 
sold the underinsurance coverage for a limit of $100,000 per  
person and $300,000 per occurrence.  This implies that at  
least three insured parties could be compensated up to the  
full per person limit if injured by an underinsured motorist.  
Instead, the majority has adopted an interpretation that  
prohibits full recovery where multiple parties are injured.  
Finally, ¶ 4(c) clarifies that the benefits paid will be  
reduced by any amount actually “paid or payable for the same  
bodily injury.”  Again, this subsection ensures that an  
insured may not receive a duplicate payment for a single  
injury. The text of this clause suggests the reduction will  
be limited to that actually paid or logically payable for one  
particular injury.  I am persuaded that the insurer’s  
interpretation of its contract renders ¶ 4(c) generally  
superfluous and logically invalid.  How can an insurer reduce  
benefits by any amount “payable” to two people for their  
injuries, 
where 
the 
“payable” amount—the res—cannot be paid to  
more than one person?  The problems with the text in ¶ 4(c)  
echo the concerns raised with regard to ¶ 4(a)(1).  
In sum, even if the insured purchaser actually reviewed  
the terms of the contract and all its exclusions, it would  
have 
remained 
impossible 
to 
anticipate 
the 
insurer’s  
interpretation on the basis of the text of the contract  
purchased.
 Only when read in light of the underinsured  
negligent party’s contract could one predict the majority’s  
interpretation.
 Moreover, this interpretation ignores the  
significance of the sole negotiated term at issue in light of  
¶ 4, which merely aims to clarify that the insured will be  
11  
made whole, but no more.  Therefore, in light of the manner in  
which the contract terms could be understood by a reasonable  
lay person, I would hold in favor of plaintiffs.  
III  
The roots of the doctrine of reasonable expectations run  
far deeper than the majority implies and could be properly  
characterized as nothing more than an overt attempt to clarify  
the scope of the parties’ contract. Applied in this case, I  
suspect even the most experienced analyst would have failed to  
predict the outcome affirmed by the majority.  Because the  
inquiry merely aids in the resolution of ambiguous insurance­
contract terms, I must respectfully dissent and would affirm  
the decision of the Court of Appeals.  
Michael F. Cavanagh 
Marilyn Kelly  
12  
___________________________________ 
v 
S T A T E O F M I C H I G A N  
SUPREME COURT  
KAY WILKIE, personal representative 
of the ESTATE OF PAUL K. WILKIE, 
deceased, and JANNA LEE FRANK,  
Plaintiffs-Appellee,  
No. 119295  
AUTO-OWNERS INSURANCE COMPANY,  
Defendant-Appellant.  
KELLY, J. (dissenting).  
I join Justice Cavanagh's dissenting opinion regarding  
the rule of reasonable expectations.  I write separately to  
express my disagreement with the majority's holding that no  
ambiguity exists in the contract terms under consideration.  
Because I believe that the Court of Appeals properly found the  
terms of the policy ambiguous and properly construed them  
against defendant, their drafter, I would affirm.  
I  
A contractual provision is ambiguous if reasonably  
susceptible to two different interpretations.  Farm Bureau  
Mutual Ins Co of Michigan v Nikkel, 460 Mich 558, 566; 596  
NW2d 915 (1999).  
The 
disagreement 
in 
this 
case 
surrounds 
the  
 
 
interpretation of the "limit of liability clause" in the  
underinsured motorist endorsement. That provision states:  
4. 
LIMIT OF LIABILITY  
a. 
Our Limit of Liability for Underinsured 
Motorist Coverage shall not exceed the lowest of:  
(1) the amount by which the Underinsured 
Motorist Coverage limits stated in the Declarations 
exceed the total limits of all bodily injury 
liability bonds and policies available to the owner 
or operator of the underinsured automobile; or  
(2) the amount by which compensatory damages 
for bodily injury exceed the total limits of those 
bodily injury liability bonds and policies.  
b. 
The Limit of Liability is not increased 
because of the number of:  
(1) automobiles shown or premiums charged in 
the Declarations;  
(2) claims made or suits brought;  
(3) persons injured; or  
(4) automobiles involved in the occurrence.  
Under 
this 
provision, 
plaintiffs 
may 
recover 
underinsured  
motorist benefits only up to the "Limit of Liability."  The  
"Limit of Liability" constitutes the difference between the  
$100,000 per person maximum and the liability amount  
"available to [Ward,] the owner or operator of the  
underinsured automobile." 
Here, Ward's policy covered  
$50,000 worth of liability per occurrence.  Thus, Ward had  
available $50,000 for payment to those claiming against him.  
Ambiguity results from the use of "available" in this  
contract.1  Webster's dictionary defines the term as  
1I note that the Court of Appeals in Auto-Owners Ins Co  
v Leefers, 203 Mich App 5; 512 NW2d 324 (1993), interpreting 
(continued...)  
2  
 
 
1. suitable or ready for use; at hand . . . . 2. 
readily obtainable; accessible . . . . 3. free or 
ready to be seen, spoken to, employed, etc. . . . . 
4. having sufficient power or efficacy; valid 
. . . . [Random House Webster's College Dictionary 
(1995).]  
In a multiple claimant situation, these dictionary  
definitions support two interpretations of the word. First,  
"available" can mean the amount actually available to each  
claimant against Ward, considering that the claimants will  
split the benefits. 
Second, it can mean the amount  
potentially available to each claimant against Ward, as if  
only one claimant existed. Under the former interpretation,  
the insurance company should reduce the $100,000 per person  
limit by only $25,000, leaving a payment to each plaintiff of  
$75,000.  Under the latter interpretation, the insurance  
company should reduce the $100,000 per person limit by  
$50,000, leaving a payment to each plaintiff of $50,000.  
Given the reasonableness of both interpretations, the  
Court should affirm the decision of the Court of Appeals in  
1(...continued) 
a different provision of an insurance contract written by the 
present defendant, found "available" to be ambiguous.  The  
Court cited Hoffman v United Services Automobile Ass'n, 671 F 
Supp 922, 924-925 (D Conn, 1987), which commented upon the 
term as follows:  
The word "available" could mean anything from 
"in hand" or "actually received" to "within reach" 
or "conceivably obtainable." . . .  What is  
available, or accessible or obtainable, can range 
widely depending on what conduct or events are  
necessary to bring the tangible object into  
possession . . . .  As the extent of those events  
or conduct is not defined, the word is ambiguous.  
The Leefers Court defined the term to mean those funds  
actually or reasonably available to the insured.  203 Mich App 
11-12.  
3  
 
holding this contract provision ambiguous.  
II  
The majority attempts to sidestep this ambiguity by  
relying on ¶ 4(b)(2) and ¶ 4(b)(3) to interpret the word  
"available" in ¶ 4(a).  According to the majority, "[t]hese  
later paragraphs settle any perceived ambiguity in ¶ 4(a)(1)  
by stating that the amounts to be paid will not be increased  
because of claims made, suits brought, or persons injured."  
Ante at 10-11. 
The majority errs in relying on this  
provision.  
Paragraph 4(b) does not state that the "amounts to be  
paid" will not be increased; rather, it states that the "Limit  
of Liability" will not be increased.  Though the difference is  
subtle, the structure of the contract provisions makes the  
difference 
critical 
to 
the 
contract's 
interpretation.  
Paragraph 4(a) defines the limit of liability.  Paragraph 4(b)  
prevents an increase in that limit, but says nothing at all  
about what the limit is in the first place.  It is in  
determining the limit of liability that we encounter the  
ambiguous term "available" and its several possible meanings.2  
Thus, the provisions on which the majority relies fail to  
"settle any perceived ambiguity," ante at 10. 
Because my  
examination of ¶¶ 4(b)(2) and (3) represents a reasonable  
interpretation of the contract provisions, it supports the  
conclusion that those provisions are ambiguous.  
2Indeed, plaintiffs do not claim that the limit should be 
increased.
 Rather, they argue that defendant erred in 
calculating the limit initially by setting it too low.  
4  
III  
In sum, the Court of Appeals properly held the contract  
terms to be ambiguous.  It was appropriate for the Court to  
construe them against defendant.  Clevenger v Allstate Ins Co,  
443 Mich 646, 654; 505 NW2d 553 (1993).  Therefore, I would  
affirm the decision of the Court of Appeals.  
Marilyn Kelly  
5