Opinion ID: 1658184
Heading Depth: 1
Heading Rank: 8

Heading: issue ii: is the owned-vehicle exclusion (a) ambiguous, (b) made clear, (c) a technical construction, and (d) contrary to the reasonable expectations of the insured?

Text: Left unresolved by the Ruuska Court is the question we consider today: whether the insurers in these cases may exclude liability coverage for vehicles owned by resident family members by means of a separate and unreferenced limiting definition of the plain English terms, owned and nonowned automobiles [4] so that nonowned automobile means less than all nonowned automobiles.
In these cases, the drivers of the automobiles involved in the accidents were insured under the terms of the policies at issue. In Deyarmond and Nicholson, the drivers were insured because they were relatives of the named insured living in the same household. In Schiebout, the driver was the named insured. The policy language of the four policies at issue in these three cases is substantially similar. The language of the Deyarmond policy is illustrative. Under the general heading of Part I  Liability, the first section is headed: Coverage A  Bodily Injury Liability.... [The insurer agrees] [t]o pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of: A. bodily injury, sickness or disease, including death resulting therefrom, hereinafter called bodily injury, sustained by any person; ... arising out of the ownership, maintenance or use of the owned automobile or any non-owned automobile....    Persons Insured: The following are insureds under Part I: (a) with respect to the owned automobile, (1) the named insured and any resident of the same household,    (b) with respect to a non-owned automobile, (1) the named insured, (2) any relative....    Definitions: Under Part I:    relative means a person related to the named insured by blood, marriage or adoption who is a resident of the same household....    owned automobile means (a) a private passenger, farm or utility automobile described in this policy for which a specific premium charge indicates that coverage is afforded.    non-owned automobile means an automobile or trailer not owned by or furnished for the regular use of either the named insured or any relative....    Exclusions: This policy does not apply under Part I: (a) to any automobile while used as a public or livery conveyance.... (b) to bodily injury or property damage caused intentionally by or at the direction of the insured; (c) to bodily injury or property damage with respect to which an insured under this policy is also an insured under a nuclear energy liability policy .... (d) to bodily injury or property damage arising out of the operation of a farm tractor or farm machinery; (e) to bodily injury to any employee of the insured.... (f) to bodily injury to any fellow employee of the insured injured in the course of his employment .... (g) to an owned automobile while used by any person while such person is employed or otherwise engaged in the automobile business....[ [5] ]
We begin our consideration of the validity of the owned-vehicle exclusion by reviewing the pertinent case law of construction of insurance contracts. In Pietrantonio v Travelers Ins Co, 282 Mich 111; 275 NW 786 (1937), the plaintiff was injured in an automobile in which he was riding as a passenger. The plaintiff, at the time of the accident, was considering purchasing the car, and its owner, who was not in the automobile business, was demonstrating the car to him. The owner's insurance policy with the defendant contained an exclusion for accidents occurring `while the automobile is used in the business of demonstrating or testing.' Id. at 117. This Court held that, although the car was being demonstrated, it could not be said to have been used by its private owner in the business of demonstrating. The Court stated: It is a principle of law too well established in this jurisdiction and others to need discussion or citation of authorities, that a policy of insurance couched in language chosen by the insurer must be given the construction of which it is susceptible most favorable to the insured; that technical constructions of policies of insurance are not favored; and that exceptions in an insurance policy to the general liability provided for are to be strictly construed against the insurer. Pawlicki v Hollenbeck, 250 Mich 38 [229 NW 626 (1930)]. [ Id. at 116.] In Hooper v State Mutual Life Assurance Co, 318 Mich 384, 388; 28 NW2d 331 (1947), this Court considered language in a double-indemnity clause of a life insurance policy that excluded payment under certain circumstances. The policy language stated: This provision shall not cover homicide or death resulting directly or indirectly from self-destruction or any attempt thereat while sane or insane; or the commission of assault or felony by the insured; combat, war or any act of war; participation in an insurrection, riot, or strike; travel, or flight in any aircraft or balloon, or from being in, on, or about any kind of aircraft or balloon; participation in submarine operations, or descent or riding in a submarine; from any physical or mental disease, illness, or infirmity; from sickness resulting from the eating of any form of food or drinking of any form of liquid; hemophilia; or bacterial infection other than that occurring in connection with, or in consequence of, accidental bodily injuries; or from any kind of poisoning, whether voluntary or otherwise, or asphyxiation; or from carbon monoxide or gas, or fumes, of any kind, voluntary or involuntary, accidental or otherwise, taken, administered, absorbed, or inhaled. The insured was a victim of homicide. The plaintiff widow argued that the phrase resulting directly or indirectly from modified both homicide and death, and since the insured's murder did not fit within one of the exceptions, the double-indemnity provision applied. The insurer claimed that the twelve exceptions pertained only to the word death, and that all homicides were excluded from double-indemnity coverage. This Court noted that the insurance company would have the policy language read as though there were a comma or semicolon after the word homicide, and held that, construing the provision in the light most favorable to the insured, the phrase resulting directly or indirectly from modified either the word homicide or the word death or both. This Court quoted Boesky Bros Corp v USF & G Co, 267 Mich 628, 629-630; 255 NW 307 (1934): There is no question but that, in a case of ambiguity, the language must be strongly construed against the insurer. The courts have no patience with attempts by a paid insurer to escape liability by taking advantage of an ambiguity, a hidden meaning, or a forced construction of the language in a policy, when all question might have been avoided by a more generous or plainer use of words. In Francis v Scheper, 326 Mich 441, 445; 40 NW2d 214 (1949), the plaintiff was injured in an automobile accident while being transported home from work by his employer. Under the plaintiff's employment agreement, he received an hourly wage and transportation to and from work. The garnishee defendant casualty company denied coverage because of a clause in the policy excluding coverage for an employee injured while engaged in the employment of the insured. The Court found for the plaintiff, stating: The phrase, engaged in the employment, can fairly be construed as meaning, active in the work plaintiff was employed and paid to do. It was incumbent on defendant casualty company, who drafted the policy, in order to escape liability under the circumstances of this case, so to draft the policy as to make clear the extent of nonliability under the exclusion clause. [ Id. at 446-448.] In DeLand v Fidelity Health & Accident Mutual Ins Co, 325 Mich 9; 37 NW2d 693 (1949), we considered a life insurance policy which contained a prominent notice indicating it was noncancellable. The policy also contained, in a section entitled Additional Provisions, a sentence stating that the acceptance of renewal premiums was optional. Faced with the defendant insurer's claim that it was entitled to refuse to renew the policy, this Court stated: In our judgment the much obscured sentence: The acceptance of any renewal premium shall be optional with the company is inconsistent with the much more prominently printed words of the policy heretofore noted and renders the policy not only ambiguous but deceptive. [ Id. at 17.] The DeLand Court also quoted Schultz v Benefit Ass'n of Ry Employees of Chicago, 175 SC 182, 187; 178 SE 867 (1934): [T]he policyholder must be protected against confusing statements in policies, and, wherever there are two constructions that can be placed upon the policy, the construction most favorable to the policyholder will be adopted. [ DeLand, supra at 18.]
In construing the so-called owned-automobile exclusion, we are therefore guided by the following rules found in our case law: 1) [E]xceptions in an insurance policy to the general liability provided for are to be strictly construed against the insurer. Pietrantonio, supra at 116. 2) An insurer may not escape liability by taking advantage of an ambiguity.... Hooper, supra at 393. `[W]herever there are two constructions that can be placed upon the policy, the construction most favorable to the policyholder will be adopted.' DeLand, supra at 18. 3) An insurer must so ... draft the policy as to make clear the extent of nonliability under the exclusion clause. Francis, supra at 448. 4) An insurer may not escape liability by taking advantage of... a forced construction of the language in a policy.... Hooper, supra . [T]echnical constructions of policies of insurance are not favored.... Pietrantonio, supra . 5) The courts have no patience with attempts by a paid insurer to escape liability by taking advantage of an ambiguity, a hidden meaning, or a forced construction of the language in a policy, when all question might have been avoided by a more generous or plainer use of words. Hooper, supra . 6) [N]ot only ambiguous but deceptive. [T]he policyholder must be protected against confusing statements in policies .... DeLand, supra at 17-18.
Let us now apply these six rules of case law to the policies and facts in the instant cases.
At the outset and overall, as held in Pietrantonio, exceptions in an insurance policy to general liability provided for are to be strictly construed against the insurer. The issue in these cases involves the owned-automobile exclusion. As a consequence, the owned-automobile exclusion must be strictly construed against the insurer.
Hooper held an insurer may not escape liability by taking advantage of an ambiguity. This rule raises the question most vigorously argued by the parties in the instant cases, i.e., was there an ambiguity so that the policy must be construed in favor of the claimant? Instant claimants contend that in the plain English of the policy, the accident, they as persons, and the automobiles they drove were covered. Insurers contend the automobiles driven were not covered. Having in mind the policy as set out ante, pp 617-618 except as hereinafter stated, let us review whether or not there was an ambiguity. We first look to see whether the injury is of the type covered. The excerpt Coverage A  Bodily Injury Liability, ante, pp 617-618 covers the injuries in question without doubt. We next look to see who is insured. Since this is the principal issue here, we reproduce the pertinent text quoted ante, p 617: Persons Insured: The following are insureds under Part I:
(1) the named insured and any resident of the same household,

Reading Persons Insured leads to the clear conclusion the claimants here are provided liability coverage. The claimants are either the named policyholder or resident relatives of the policyholder, so with respect to both categories  owned automobile and nonowned automobile  they are covered. Since the terms owned automobile and nonowned automobile are terms in common use with unambiguous meanings, claimants argue that there is no reason to look any further. Moreover, claimants contend that if a supercautious policy reader wanted to make certain there was no pertinent exclusion from coverage, the reader could look at the section on exclusions. Examination of that section would reveal no exclusion that is pertinent to the facts in question. So examination of accident coverage, persons insured and exclusions, claimants contend, indicates that there should be entitlement to liability coverage. The insurers contend that there is indeed an exclusion from coverage. They say that there is a third category of automobiles in addition to owned automobiles and nonowned automobiles. The insurers explain this paradox by saying that when their policies use the common term nonowned automobile, it has a special meaning for purposes of the policies that requires a policyholder to look beyond the clear and common understanding of the term to the policies' definitions section. There nonowned automobile is defined as follows: [N]on-owned automobile means an automobile or trailer not owned by or furnished for the regular use of either the named insured or any relative.... One must also consult the definition of relative to see that it means a relative who is a resident of the same household as the named insured. The pieces, as contended by the insurer, are all there and can be put together, if you are an expert specially experienced in these matters. The question to be decided remains. Are there two constructions, so that the insured's construction must prevail? It would fairly appear that there is here a real ambiguity, and consequently the claimants' construction should prevail. In any event, it is instructive to refer to the policy in the Hooper case, which contained this exclusion: This provision shall not cover homicide or death resulting directly or indirectly from ..., followed by twelve specified modifiers as set out ante, p 621. The ambiguity in that case concerned whether the modifiers applied to both homicide and death or just to the latter. The modifiers included some conditions which would appear to have reference only to death and not to homicide, for example: resulting directly or indirectly from ... travel, or flight in any aircraft or balloon; participation in submarine operations; and hemophilia. It certainly was arguable by the insurer, as in the instant cases, that the nature of the modifiers made only the insurer's construction reasonable, i.e., the modifiers applied only to death but not to homicide. However, this Court held oppositely and denied the exclusion. The instant cases certainly present greater ambiguity than in Hooper. Therefore, it is reasonable for this Court to invalidate the owned-automobile exclusion in these cases.
Francis, supra at 447-448, held that [i]t was incumbent on defendant casualty company ... so to draft the policy as to make clear the extent of nonliability under the exclusion clause. The implication of this rule is not only that ambiguities are to be construed against the insurer, but that the insurer has a positive and affirmative duty to make clear any exclusion. The question in Francis was whether an automobile injury to an employee being driven home according to agreement was compensable under an exclusion while engaged in the employment of the insured. The insurer, of course, argued that the employee was engaged in the employment of the insured, whereas the plaintiff employee argued he was not engaged in employment. This Court held for the employee and indicated that if the insurer didn't mean active in the work plaintiff was employed and paid to do it was up to the insurer to draft the provision to make clear what it wanted to say. Applying this rule to the instant cases, we discover that there was no reference at all to the so-called owned-automobile exclusion in the exclusions section. Consequently, the insurers are in violation of this rule and the exclusion is invalid unless it can be said that the definition of non-owned automobile was not a definition clause but an exclusion clause. If the definition were considered as an exclusion clause, it certainly wouldn't seem to have been made clear as Francis would require.
Rule 4 is that an insurer may not escape liability [through] ... forced construction of the language in a policy ( Hooper ) or [t]echnical constructions ( Pietrantonio ). The construction of the owned-automobile exclusion is certainly a technical one, requiring the application of an obscurely drafted definition to an apparently unambiguous meaning of a commonly used English word. In Hooper, the forced construction was merely whether the adjacent modifying terms applied to only death or both homicide or death in the phrase shall not cover homicide or death resulting directly or indirectly from self-destruction etc. In Pietrantonio, the technical phrase was `while the automobile is used in the business of demonstrating or testing.' Clearly the owned-automobile exclusion is much more forced and technical than either of these and the insurers should not escape liability.
Rule 5 states [t]he courts have no patience with attempts by a paid insurer to escape liability by taking advantage of an ambiguity, a hidden meaning, or a forced construction of the language in a policy, when all question might have been avoided by a more generous or plainer use of words. (Emphasis added.) Hooper, supra at 393. Not to say there are not plainer and better ways of drafting the so-called owned-automobile exclusion, but the few suggested italicized words inserted below in the text of the instant insurers' policies would go a long way toward putting the policy buyers and those dependent on the policy on notice: Persons Insured: The following are insureds under Part I: (a) with respect to the owned automobile [ as defined in the Definitions Section ] (1) the named insured and any resident of the same household,    (b) with respect to a non-owned automobile [ as defined in the Definitions Section ]

The failure of the drafters to be at least this open in their drafting demonstrates a clear disregard of Rule 5. In addition, clarity would seem to require that the owned-automobile exclusion should appear in the exclusions section in some form. In any particular policy these suggestions could prove insufficient and it would be necessary to judge their substance and form to see whether they make clear the exclusion. At this point it is informative, as noted by Justice LEVIN in his concurring opinion in Ruuska, to compare the lack of notice regarding the owned-vehicle exclusion with the notice required by the no-fault statute when a named person is excluded from liability coverage. The exclusion must be expressly authorized by the insured, and the following notice must appear, both on the face of the policy, the declaration page, or the certificate of the policy and on the required certificate of insurance carried by Michigan drivers: Warning  when a named excluded person operates a vehicle all liability coverage is void  no one is insured. Owners of the vehicle and others legally responsible for the acts of the named excluded person remain fully personally liable. MCL 500.3009; MSA 24.13009.[ [6] ]
Rule 6 originates from the DeLand case, which held that the insurance policy may not prominently make a promise of coverage and then less prominently attempt to contradict that promise in whole or in part in the body of the policy. DeLand found that doing so was not only ambiguous but deceptive. In DeLand there was a prominent notice indicating a life insurance policy was noncancellable, but, in a later section entitled Additional Provisions, there was included a sentence stating that the acceptance of renewal premiums was optional. This Court held the later clause invalid because it rendered the policy deceptive. In the instant policies there is a promise of coverage in case of injury caused by an insured while driving an owned or nonowned automobile. In plain English this seems to cover everything. Later on in the definitions section in a complex sentence there is a limitation on the meaning of nonowned which limits the coverage afforded. In short, the DeLand Rule 6 seems to apply to the owned-automobile exclusion and render it invalid because it is deceptive and confusing. SUBCONCLUSION The owned-automobile exclusion appears to implicate all of the above six rules of construction gleaned from Michigan case law. The combined effect of these rules clearly invalidates the instant owned-automobile exclusions, and several of the individual rules as well would invalidate the instant owned-automobile exclusions.
An adjunct to the rules of construction of insurance contracts is the rule of reasonable expectations. [7] The rule was stated in Zurich Ins Co v Rombough, 384 Mich 228, 232-233; 180 NW2d 775 (1970), in which we quoted Justice Tobriner in the California case of Gray v Zurich Ins Co, 65 Cal 2d 263, 269-270; 54 Cal Rptr 104; 419 P2d 168 (1966), as follows: 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. It is our opinion today that, in these cases, the policyholder, upon reading the contract language [8] is led to a reasonable expectation of coverage. The word nonowned is commonly understood to mean any car not owned by the subject. The result of the difference between the common definition and the policy definition is that, while in common usage, every existing car is either owned or nonowned, in the policy language there is a significant group of cars that is neither owned nor nonowned. Rather than there being an affirmative statement of exclusion, there is an omission, contrary to the common interpretation of the broad statement of coverage of the owned automobile or any nonowned automobile [9] To discover the omission, a person must refer to a separate section. Inasmuch as the excluded cars, i.e., cars owned by family members residing in the same household as the policyholder, are the ones most likely to be occasionally driven by the other insured family members, the owned-vehicle exclusion is the most significant exclusion in the liability coverage of the policies. If a policyholder refers to the section entitled Exclusions, a long list of exceptions to coverage will be discovered, but not a single word regarding the exclusion most likely to be invoked. We believe that insured persons reading the liability provisions of these policies would reasonably expect liability coverage when driving the automobile insured by the policy and when driving other cars not owned by the insured. If the insurer intends to exclude such coverage when the insured person drives certain cars, it is simple enough to say so. As stated by Judge Learned Hand in Gaunt v John Hancock Mutual Life Ins Co, 160 F2d 599, 602 (CA 2, 1947), cert den 331 US 849 (1947): [I]nsurers who seek to impose upon words of common speech an esoteric significance intelligible only to their craft, must bear the burden of any resulting confusion. For all of the foregoing reasons, we would hold that an insurer may not, by artful definition of terms at variance with their commonly understood meanings, and by failure to speak plainly and clearly, effect an exclusion of coverage in an automobile liability policy.
In Deyarmond and Nicholson, the claimants are attempting to enlarge their residual liability coverage by stacking  obtaining coverage from more than one potentially applicable policy for the same accident. The insurers are attempting to employ the owned-vehicle exclusion as an antistacking clause, to prevent the aggregation of coverage. Decisions regarding the validity of antistacking clauses in this state have varied as automobile insurance law has changed. In Horr v DAIIE, 379 Mich 562; 153 NW2d 655 (1967), this Court enforced an other insurance clause preventing stacking of two policies of uninsured motorist coverage. In Blakeslee v Farm Bureau Mutual Ins Co, 388 Mich 464; 201 NW2d 786 (1972), and Boettner v State Farm Mutual Ins Co, 388 Mich 482; 201 NW2d 795 (1972), this Court invalidated other-insurance clauses and owned-vehicle exclusions as antistacking devices for uninsured motorist coverage. These latter decisions were based on MCL 500.3010; MSA 24.13010, which required that uninsured motorist coverage be offered to all insureds covered for liability. That statute was effective January 1, 1966, and was not at issue in Horr. In 1973, the no-fault statute was enacted and § 3010 was repealed. Subsequently, in Bradley v Mid-Century Ins Co, 409 Mich 1, 48; 294 NW2d 141 (1980), this Court stated that other-insurance clauses in uninsured motorist coverage are enforceable and benefits under such policies may not be stacked. In reaching that conclusion, the Bradley Court stated that prevention of stacking of such coverage does not defeat an insured's reasonable expectations. Id. at 57-59. Assuming that antistacking clauses are similarly valid with regard to residual liability coverage, we note that the insurers in the cases we consider today do not claim that their policies contain other-insurance clauses, but instead rely on the owned-vehicle exclusion to prevent stacking in cases in which an insured is driving an automobile owned by a resident relative. [10] Having held that the owned-vehicle exclusion employed in those policies is fatally ambiguous and invalid under the Michigan case law for construing insurance exclusions, we perceive no rationale which would lead us to conclude that the exclusion should nonetheless be held to be enforceable to the extent that it prevents stacking. Whether or not, before reading the policy, a policy-holder had a reasonable expectation of the ability to stack coverage, upon reading the policies at issue in these cases, coverage would be expected. [11]
FACTS: POWERS v DETROIT AUTOMOBILE INTER-INSURANCE EXCHANGE On February 16, 1980, the plaintiff, Wanda Powers, was seriously injured while she was a passenger in an automobile owned by her sister, Donna Powers. Donna had been driving the car until it became disabled. She had then parked it on the shoulder of the road and had gone for help, leaving Wanda seated in the car. A van struck the parked automobile from the rear, throwing Wanda out of the car. Neither the van's owner nor its driver was insured. Donna Powers had not insured her automobile, and Wanda Powers had no insurance of her own. The Powers sisters lived with their mother, Louise, who owned an automobile and had purchased a no-fault policy with the defendant, Detroit Automobile Inter-Insurance Exchange. The policy had optional uninsured motorist coverage for which Louise Powers had paid an extra premium. By the terms of the policy, Wanda was insured as a relative living in the same household as her mother. The defendant paid personal protection insurance benefits, but denied payment of uninsured motorist benefits, due to the policy's owned-automobile exclusion. Wanda Powers filed suit in Wayne Circuit Court and was granted summary judgment against defendant DAIIE. The Court of Appeals affirmed. This Court granted leave to appeal, 422 Mich 974 (1985).