Opinion ID: 1658184
Heading Depth: 1
Heading Rank: 10

Heading: issue iii: if the owned-automobile exclusion is void, is the statutory minimum or the contractual liability coverage in effect?

Text: The issue raised in Dennison and also in Nicholson is whether the statutory minimum liability coverage or the higher contractual liability coverage obtains, where liability occurs because an attempted exclusion from liability, the owned-automobile exclusion, is held invalid as not clear and properly drafted.
On September 11, 1980, plaintiff, Robert Dennison, was injured when the motorcycle on which he was a passenger was struck by an automobile driven by Myron Wisniewski and owned by Myron's father, Mitchell Wisniewski. Dennison filed suit against the Wisniewskis, seeking damages for his injuries. Mitchell carried a policy with the Auto Club insuring the car involved in the accident, which provided for residual liability coverage of $20,000 per person and $40,000 per incident. Myron had a policy on another vehicle which he owned, which provided for residual liability coverage of $50,000 per person and $100,000 per incident. Both policies had owned-automobile exclusions. The insurer and insured parties, relying on the result in State Farm v Ruuska, 412 Mich 321; 314 NW2d 184 (1982), agreed that the policies were both applicable and could therefore be stacked. The injured plaintiff filed a garnishment action to determine the amount of coverage. Plaintiff argued that the policy limit of $50,000 was payable from Myron Wisniewski's policy. Garnishee defendant Auto Club claimed that, because the coverage that was being afforded ... was by operation of law (i.e., Ruuska 's invalidation of the exclusionary clause) and contrary to the express terms of the contract, no more coverage was afforded than the minimum liability coverage required by law. The trial court granted summary judgment for Auto Club. In an unpublished opinion, the Court of Appeals reversed. We granted leave to appeal, 424 Mich 879 (1986).
In these cases, the insurers argue that the applicable limit of the liability policies at issue should be the minimum coverage of $20,000 per person and $40,000 per incident required by law, MCL 500.3131; MSA 24.13131, MCL 500.3009; MSA 24.13009, rather than the $50,000/$100,000 limits of coverage contained in the policies. The argument is based on our opinion in State Farm Mutual Automobile Ins Co v Shelly, 394 Mich 448; 231 NW2d 641 (1975), in which we held that, where an exclusionary clause in an automobile liability insurance policy was held to be void under the Motor Vehicle Accident Claims Act (MVACA), the reinstated coverage would be the minimum required by law rather than the amount stated in the policy. The claimant argues that the removal of one invalid clause (the owned-vehicle exclusion) from the policy should not cause the reformation of another, unrelated, clause. Claimant also argues that the application of Shelly to this situation would defeat the policyholder's reasonable expectations, and that the Shelly doctrine should be abandoned. In Shelly, an automobile liability policy expressly excluded coverage of the insured vehicle when the family's son was driving. The son drove the car, resulting in death and serious injury to several persons. That exclusion was held to be void as against the policy of the MVACA. Therefore, Shelly may be cited for the proposition that where a clearly expressed exclusion is found to be invalid under a controlling statute, the reinstated coverage shall be the minimum required by law. Such is not the case here. In Dennison, and in Nicholson as well, the owned-automobile exclusion is invalidated, not because the no-fault act requires its invalidation, but because the insurer did not draft the exclusion in a clear and understandable fashion. As set forth in ISSUE I (PART V) of this opinion, the no-fault act permits this type of exclusion. This result is also authorized in Ruuska by the combination of Justice COLEMAN'S three-vote opinion and Justice LEVIN'S one-vote opinion. The owned-automobile exclusion in Dennison and Nicholson is invalidated by its improper drafting as set forth in ISSUE II (PART VI) of this opinion. The rationale of the Shelly opinion is that, where a clearly worded exclusion in an insurance contract is void as contrary to the statutory policy, the statute controls both as to the exclusion and the amount of liability coverage. Since the rationale of the invalidation of the exclusion in the instant cases is improper drafting, the insurance contract is reformed only to the extent of the impropriety which affects the exclusion, but not the liability coverage. The result, therefore, is that in Dennison and Nicholson, the liability coverage is that contracted and paid for, rather than the statutory minimum.