Opinion ID: 2973017
Heading Depth: 3
Heading Rank: 1

Heading: Michigan Public Policy

Text: With few exceptions, courts have held that “[a]n insurer is free to define or limit the scope of coverage as long as the policy language fairly leads to only one reasonable interpretation and is not in contravention of public policy.” Farm Bureau Mut. Ins. Co. v. Nikkel, 596 N.W.2d 915, 920 (Mich. 1999) (quoting Heniser v. Frankenmuth Mut. Ins. Co., 534 N.W.2d 502, 505 (Mich. 1995)). Regarding the determination of whether an insurance contract contravenes public policy, the Michigan Supreme Court has stated: Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests. As the term ‘public policy’ is vague, there must be found definite indications in the law of the sovereign to justify the invalidation of a contract as contrary to that policy. Terrien v. Zwit, 648 N.W.2d 602, 609 (Mich. 2002). First, Melson contends that although coinsurance provisions were permitted in property policies in Michigan pursuant to M.C.L. § 500.2840, the authority of insurers to include such provisions was revoked by Public Act 1990, No. 305, § 2, effective December 14, 1990.4 In support of her contention that the deletion of § 500.2840 from Michigan’s Insurance Code constitutes a prohibition on coinsurance provisions, Melson cites to several cases for the proposition that “[w]here a statute is repealed and another statute is enacted that covers the same subject area . . . a change in wording reflects a legislative intent to change the statute’s meaning.” Williams v. Auto Club Group Ins. Co., 569 N.W.2d 403, 405 (Mich. Ct. App. 1997). Prime responds that Melson’s characterization of the revocation of a permitting statute wrongly suggests that coinsurance clauses are invalid without prior statutory authorization. Second, Prime argues a version of the “dog that didn’t bark” maxim of statutory interpretation, which counsels that legislative silence on what would be a fundamental change in the law provides evidence that the legislature did not intend such a change. Here, Prime points to the legislative history of Public Act 1990, No. 305, contending that the legislature’s silence on the prohibition of coinsurance provisions – coupled with the overall purpose of the Act – provides ample evidence for rejecting the conclusion that the state sought to prohibit coinsurance provisions when it revoked § 500.2840. Although the Michigan Supreme Court has not yet addressed whether, after the repeal of § 500.2840, coinsurance provisions remain consistent with Michigan public policy, it is clear that Michigan courts have historically accepted coinsurance provisions. “We dismiss plaintiff’s claim that there is something vicious about co-insurance. Its legality is no longer a debatable question. It has been authorized by law for over 40 years.” Masonic Temple Ass’n of Grand Rapids v. 4 M.C.L. § 500.2840(1) reads: Any person may obtain from any insurer authorized to do business within the state of Michigan, a coinsurance clause to be attached to or included in any policy issued by such insurer insuring the interest of the insured in any real or tangible or intangible personal property against direct, indirect or consequential loss of damage, and the insurer shall have the right to issue such coinsurance clause, providing the form of the same has first been approved by the commissioner. No. 03-1914 Melson v. Prime Insurance Syndicate Page 5 Michigan, 36 N.W.2d 317, 320 (Mich. 1949) (citing Fine Arts Corp. v. Kuchins Furniture Mfg. Co., 257 N.W. 822 (Mich. 1934)). Furthermore, although the Michigan Supreme Court has not addressed this precise issue, a Michigan Court of Appeals has explicitly held that coinsurance provisions continue to be consistent with Michigan public policy despite the repeal of § 500.2840. A decision by the Michigan Court of Appeals is controlling until the Michigan Supreme Court or another panel of the Michigan Court of Appeals rules otherwise. Wieczorek v. Volkswagenwerk, A.G., 731 F.2d 309, 310 (6th Cir. 1984) (citing In re Hague, 315 N.W.2d 524, 532 (Mich. 1982)). Citing Masonic Temple, the Michigan Court of Appeals held that coinsurance provisions generally do not violate Michigan public policy. Royal Property Group v. Prime Ins. Syndicate, Inc., --N.W.2d--, 2005 WL 2030918 (Mich. Ct. App. 2005). That court considered an insurance policy nearly identical to the policy at bar; the policy required that the insured maintain insurance sufficient to cover 80% of the replacement cost value in order to receive benefits based upon actual loss. Like Melson, the insured in Royal Property was required to act as a coinsurer when it failed to obtain insurance for at least 80% of the replacement cost. The Michigan court not only held that coinsurance provisions do not violate Michigan public policy as a general rule, it permitted a coinsurance clause that is in all relevant respects identical to the provision at issue. In so holding, that court observed that “nothing has been presented to clearly establish that the instant coinsurance clause transgresses our state and federal constitutions, our statutes, the common law, our administrative rules and regulations, or our public rules of professional conduct.” Royal Property, at . So too here, Melson has presented nothing that clearly establishes that the Coinsurance Provision violates Michigan public policy. Absent a clear indication that coinsurance violates Michigan public policy, this Court cannot rewrite the insurance contract. Terrien, 648 N.W.2d at 609. Melson contends that this Court should not follow Royal Property, because the court in that case did not discuss the repeal of § 500.2840. Although Melson contends that the state court did not discuss § 500.2840 because it was unaware of the repeal of the statute, it is at least as plausible that the court considered but rejected the argument Melson forwards here. Even if that court did not consider it, this Court is not convinced that the repeal of § 500.2840 provides an indication that coinsurance violates Michigan public policy so definite that the Michigan Supreme Court would find it sufficient to justify the invalidation of a contract under Terrien. Prime argues persuasively that § 500.2840 did not authorize insurers to include coinsurance provisions, but merely provided structure for a right long recognized by Michigan common law. As discussed supra, Michigan courts have recognized the legality of coinsurance provisions as well established. Masonic Temple, 36 N.W.2d at 320. In Cheesebrough v. Home Insurance Co., 28 N.W. 110 (Mich. 1886), decided long before any statutory provision regarding coinsurance provisions, the Michigan Supreme Court upheld an insurer’s coinsurance provision that required the insured to maintain insurance at 80% of the value of the insured property. There, the Michigan Supreme Court held that: [The plaintiff is] bound either to procure from others, or to carry themselves, insurance to the extent, with defendant’s policy, of four-fifths of the value of the insured property. The undertaking is positive and unequivocal that they shall keep the property insured to that extent, and5 that they shall themselves be treated as insurers for all that others do not insure. 5 The policy in Cheesebrough provided: It is a part of the consideration of this policy, and the basis upon which the rate of premium is fixed, that the assured shall maintain insurance on the property, hereby insured by this policy, to the extent No. 03-1914 Melson v. Prime Insurance Syndicate Page 6 Id. at 111. Although the Michigan legislature certainly could regulate the legality of coinsurance clauses via statute, Masonic Temple and Cheesebrough suggest that § 500.2840 did not authorize their introduction. Given that § 500.2840 appears to have structured, rather than created, the longestablished practice of including coinsurance provisions in property policies, its deletion neither prohibits such provisions, nor indicates that coinsurance provisions are in conflict with Michigan public policy.