Opinion ID: 2169158
Heading Depth: 2
Heading Rank: 2

Heading: Residual Liability Coverage

Text: The instant case sounds in contract, not tort. I agree with defendant that Michigan law governs construction of its contract to determine the amount of residual liability coverage afforded because defendant contracted with its insured in this state and the underlying accident involved Michigan residents. See Chrysler Corp. v. Skyline Industrial Services, Inc., 448 Mich. 113, 528 N.W.2d 698 (1995); see generally Sutherland v. Kennington Truck Service, Ltd., 454 Mich. 274, 562 N.W.2d 466 (1997). I conclude, however, that defendant explicitly waived the $20,000 limit stated in the policy and agreed to provide up to $200,000 in Canadian funds in residual liability coverage in this case.
I agree with the Court of Appeals that the PAU applies to this case. Concededly, the policy that the insured purchased limits defendant's liability for bodily injury to each injured person to $20,000. Nonetheless, under the PAU, defendant intentionally relinquished its right to assert defenses that it could not assert if it had entered into the policy in, and in accordance with the law of, Ontario. Accordingly, defendant expressly waived the policy limits by entering into the PAU with the Canadian government. See Book Furniture Co. v. Chance, 352 Mich. 521, 526, 90 N.W.2d 651 (1958) ([w]aiver is the intentional relinquishment of a known right); see also Dahrooge v. Rochester-German Ins. Co., 177 Mich. 442, 451-452, 143 N.W. 608 (1913). Under the PAU, defendant agreed that it would [n]ot ... set up any defence to any claim, action, or proceeding, under a motor-vehicle liability insurance contract entered into by it, which might not be set up if the contract had been entered into in, and in accordance with the law relating to motor-vehicle liability insurance contracts of the Province or Territory of Canada in which such action or proceedings may be instituted.... I cannot join the majority's construction of this provision. Where no ambiguity exists, the terms of the contract control. Hank v. Lamb, 310 Mich. 81, 88, 16 N.W.2d 671 (1944). We interpret the language used in the contract in accordance with its usual and ordinary meaning. Ginsberg v. Reliable Linen Service Co., 292 Mich. 70, 75, 290 N.W. 331 (1940). In this case, the plain language of the PAU precludes defendant from raising any defense to any claim, action, or proceeding under its automobile insurance contract that it could not assert if it had entered into the contract in accordance with the law of the province in which the action may be instituted. The verb may expresses possibility or permission. Random House Webster's College Dictionary, p. 838. Therefore, the clear language of the PAU dictates that it applies not only to actions actually brought in an Ontario court, but to actions that could have been brought in that court. I disagree with the majority's determination that, instead of its common meaning, use of `may' in this context implies that the PAU applies in whatever province or territory the suit is brought.... Ante, op. at 520. Although this Court construes a contact as a whole, [1] it will not make a new contract for the parties. Ginsberg, supra at 75, 290 N.W. 331. A contract cannot be made by construction because it later appears that a different agreement should have been consummated in the first instance. Id. The majority's interpretation of the term may essentially inserts the Canadian province limitation contained in the satisfaction of judgment clause into the waiver of defenses clause. Unlike the majority, I would not remake the PAU through the addition of that limitation. See Klever v. Klever, 333 Mich. 179, 187, 52 N.W.2d 653 (1952). By its terms, the PAU applies to an action or proceeding against it or its insured, or its insured and another or others, arising out of a motor-vehicle accident in any of the respective Provinces or Territories.... This action clearly arises out of an Ontario accident, and thus, falls within the scope of the PAU. Construing the term may in accordance with its plain meaning furthers the underlying purpose of the PAU to provide a uniform basis for the enforcement of motor vehicle insurance claims in Canada. Potts v. Gluckstein, supra at 558. The majority's construction results in the opposite because different coverage levels apply, depending on the forum of the lawsuit. The majority's approval of the result in ACIA v. Lozanis, 215 Mich.App. 415, 546 N.W.2d 648 (1996), illustrates the problematic nature of its construction. In Lozanis, the insured brought an action in Ontario despite an arbitration clause in his insurance policy. Under the majority's view, the filing of the Ontario action is dispositive for purposes of determining coverage, even though a Michigan court subsequently enjoined the insured from pursing his claim in the Ontario court. The majority's holding will simply encourage Michigan residents to file suit against their Michigan insurers and other Michigan residents in a foreign jurisdiction. Henceforth, few Michigan insureds will bring actions arising out of an Ontario accident in a Michigan court. In my view, the Court of Appeals adopted the correct construction of the PAU in Lozanis, supra at 421, 546 N.W.2d 648. Lozanis considered whether the PAU precluded defendant insurer from asserting uninsured motorist policy limits of lower than $200,000 in Canadian funds in an action by its insured arising from an Ontario accident. The Court rejected defendant's argument that the forum of the action determines whether the PAU applies, reasoning that defendant submitted to Ontario law by agreeing to the PAU and that its execution of that document negated its contention that it did not intend to provide insurance coverage for its insureds who traveled in Canada. In Motorists Mut. Ins. Co. v. Howard, 110 Ohio App.3d 709, 713-714, 675 N.E.2d 51 (1996), the Court of Appeals of Ohio reached the same conclusion when construing identical language in a PAU between another insurer and the Canadian government. That court explained: Clearly, this provision precludes [the insurer] from asserting any defence to any claim that it would not be allowed to assert if the insurance policy were entered into in accordance with the law relating to motor-vehicle liability insurance contracts of Ontario, Canada.... Further, it is not necessary for [the insured and his passenger] to file an action in Canada to enforce the power of attorney agreement. This agreement does not state as a condition precedent to enforcement that an individual must institute an action in Canada, and, indeed, the plain language states that an action may be instituted in Canada. We believe that the proper construction of [the insurer's] power of attorney agreement with Canada is that when one of [the insurer's] insureds is involved in a collision in Canada, [the insurer] is bound by the applicable laws of Canada relating to compensation of person injured in that collision. I agree with Lozanis and Howard. By entering into the PAU, defendant effectively submitted to Ontario law in this case.
I would decline, however, defendant's invitation to construe the PAU as simply incorporating the restrictions placed on insurers licensed to carry on automobile insurance in Ontario under Ontario law. Ont. Rev. Stat. 1980, ch. 218, § 25(1), provides in part: A licence to carry on automobile insurance in Ontario is subject to the following conditions: 1. In any action in Ontario against the licensed insurer or its insured arising out of an automobile accident in Ontario, the insurer shall appear and shall not set up any defence to a claim under a contract made outside Ontario, including any defence as to the limit or limits of liability under the contract, that might not be set up if the contract were evidenced by a motor vehicle liability policy issued in Ontario and such contract made outside Ontario shall be deemed to include the benefits set forth in Schedule C. Ont. Rev. Stat. 1980, ch. 218, § 25(1) effectively creates an exception to the general rule that the Ontario Insurance Act does not apply to policies covering automobiles that need not be registered in Ontario. [2] Ont. Rev. Stat. 1980, ch. 218, § 202(2). The insurer must provide the coverage required by Ont. Rev. Stat. 1980, ch. 218, § 219(1), which provides: Every contract evidenced by a motor vehicle liability policy insures, in respect of any one accident, to the limit of at least $200,000, exclusive of interest and costs, against liability resulting from bodily injury to or the death of one or more persons and loss of or damage to property. In Schrader v. United States Fidelity & Guaranty Co., 59 OR2d 178 (1987), modified 59 OR2d 797 (1987), the Ontario Divisional Court concluded that § 25 precludes insurers who carry automobile insurance in Ontario from asserting the defense that their United States policies do not include coverages or limits mandated by the Ontario Insurance Act. The court, however, subsequently learned that the insurer involved in Schrader, supra, was not licensed to do business in Ontario, but rather had filed a power of attorney and undertaking with the provincial superintendent of insurance. The court accepted the insurer's concession that the same result would have been reached by reason of the filing of the power of attorney and undertaking in Ontario by a foreign insurer. Id. at 797. I recognize that Ont. Rev. Stat. 1980, ch. 218, § 25(1) only applies to an action in Ontario. Unlike the statute, however, the PAU does not limit its application to actions brought in Ontario and other provinces. Instead, its plain language precludes defendant from raising any defense to any claim, action, or proceeding under its automobile insurance contract that it could not assert if it had entered into the contract in accordance with the law of the province in which the action may be instituted. In this case, defendant expressly waived its policy limits and agreed to application of the Ontario coverage limits under the PAU. The PAU applies because this action could have been instituted in Ontario [3] and defendant's assertion of its policy limits constitutes a defense. See Potts, supra at 560 (the term defence includes any defense that the policy does not include coverages or limits mandated by the Ontario insurance act). I would therefore conclude that defendant must provide coverage of $200,000 in Canadian funds.