Cohen v. Auto Club Ins. Ass'n

Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C hief Justice Justices
Maura D. Cor rigan Michael F. Cavanagh

Opinion
Elizabeth A. Weaver
Marilyn Kelly
Clifford W. Taylor
Robert P. Young, Jr.
Stephen J. Markman

____________________________________________________________________________________________________________________________

FILED JANUARY 17, 2001

THISHA COHEN,

Plaintiff/Counter
Defendant/Appellee,

v No. 116473

AUTO CLUB INSURANCE

ASSOCIATION,

Defendant/Counter-

Plaintiff/Appellant.

________________________________

PER CURIAM

The defendant insurance company sold the plaintiff a

policy that included a clause voiding the policy in the event

the plaintiff misrepresented a material fact. The insurer

later denied coverage on the basis of that clause, but the

circuit court and Court of Appeals ruled that the clause was

unlawful. We reverse in part the judgments of the circuit

court and the Court of Appeals and remand this case to the

circuit court.

In December 1993, plaintiff Thisha Cohen was involved in

a motor vehicle accident in the city of Detroit.1 She

describes her injuries as “severe and debilitating,” and says

that they have resulted in “a serious impairment of a body

function.” She alleges economic and noneconomic damages.

At the time of the accident, Ms. Cohen was insured by

defendant Auto Club Insurance Association (ACIA). The driver

of the other vehicle was an uninsured motorist.

Ms. Cohen’s policy included uninsured motorist coverage,

as well as a provision allowing such claims to be submitted to

arbitration.2 However, ACIA refused to provide coverage and

refused to participate in arbitration. The basis of ACIA’s

refusal was its conclusion that Ms. Cohen had submitted false

documentation regarding her wage loss.3

In denying coverage, ACIA relied on a policy clause that

voids the entire policy if the insured misrepresents a

material fact relating to a claim. The clause states:

This entire Policy is void if an insured

person has intentionally concealed or

misrepresented any material fact or circumstance

relating to:

1
Various dates appear in the file. It appears, though,

that the accident occurred on December 16, 1993.

2
The materials at hand do not include the full policy or

the page on which its arbitration clause appears. However,

there is no dispute that Ms. Cohen’s uninsured motorist clause

would be arbitrable, absent the present controversy.

3
The details are not important, but the dispute centers

on when she left her job, and on whether she left because of

a physical inability to perform its duties (entitling her to

wage-loss benefits) or was fired for insubordination.

a. this insurance;

b. the Application for it;

c. or any claim made under it.

Faced with ACIA’s refusals, Ms. Cohen filed suit in

circuit court. She asked for an order compelling ACIA to

submit her uninsured motorist claim to arbitration.4

In a motion for summary disposition, Ms. Cohen denied any

misconduct. For purposes of the motion, she further argued

that the alleged misrepresentation should have no bearing on

her claim. She said that “no portion of the Uninsured

Motorist Claim seeks wage loss benefits” and that she “seeks

an uninsured motorist arbitration to ascertain to what pain

and suffering damage she is entitled.” Thus, “every

allegation of fraud is totally irrelevant to the uninsured

motorist arbitration.” Further, she argued that a no-fault

policy can be rescinded only for misrepresentation in the

course of applying for the policy.

Responding to the motion, ACIA asked that summary

disposition be entered in its favor. It observed that

uninsured motorist coverage is contractual, and is not

required by statute. Thus, there is no basis in law for

failing to enforce the policy clause.

The circuit court ruled that “the insurance policy can

only be void if there’s a material misrepresentation in the

4
ACIA filed a counterclaim in which it alleged breach of

contract and fraud. It sought an order requiring Ms. Cohen to

return insurance benefits that ACIA already had paid to her.

application for no-fault insurance.” The court granted

summary disposition in favor of Ms. Cohen, and ordered that

her uninsured motorist claim be submitted to arbitration.5

The Court of Appeals granted leave to appeal,6 and later

issued a judgment in which it affirmed the circuit court order

that sent Ms. Cohen’s uninsured motorist claim to

arbitration.7 238 Mich App 602; 606 NW2d 664 (1999).8

ACIA has applied to this Court for leave to appeal.

This case involves issues concerning the proper

interpretation and application of a contract of insurance, and

we review such questions de novo. Morley v Automobile Club of

Michigan, 458 Mich 459, 465; 581 NW2d 237 (1998). It also

presents issues of statutory construction, which likewise are

reviewed de novo. Brown v Michigan Health Care Corp, 463 Mich

368, 374; 617 NW2d 301 (2000).

5
The court also directed that ACIA’s counterclaim be

heard at the same arbitration.

6
Unpublished order entered February 17, 1998 (Docket No.

207022).

The Court of Appeals also reversed in part, finding

error in the circuit court’s decision to order arbitration of

ACIA’s counterclaim for fraud. The Court of Appeals remanded

the case to circuit court for further proceedings with regard

to the counterclaim.

Reh den, unpublished order entered February 16, 2000

(Docket No. 207022).

III

The Court of Appeals affirmed on the authority of MCL

257.520(f)(1); MSA 9.2220(f)(1), which provides in part that

“[e]very motor vehicle liability policy shall be subject to

the following provisions”:

The liability of the insurance carrier with

respect to the insurance required by this chapter

shall become absolute whenever injury or damage

covered by said motor vehicle liability policy

occurs; said policy may not be cancelled or

annulled as to such liability by any agreement

between the insurance carrier and the insured after

the occurrence of the injury or damage; no

statement made by the insured or on his behalf and

no violation of said policy shall defeat or void

said policy, and except as hereinafter provided, no

fraud, misrepresentation, assumption of liability

or other act of the insured in obtaining or

retaining such policy, or in adjusting a claim

under such policy, and no failure of the insured to

give any notice, forward any paper or otherwise

cooperate with the insurance carrier, shall

constitute a defense as against such judgment

creditor.

The Court of Appeals concluded that the disputed clause

of the policy violated the statutory mandate that “no

statement made by the insured or on his behalf and no

violation of said policy shall defeat or void said policy.”

MCL 257.520(f)(1); MSA 9.2220(f)(1). Acknowledging that an

insurer can declare a policy void ab initio if the insured

obtains the policy through intentional misrepresentation of a

material fact in the application process, the Court of Appeals

contrasted the present case, in which the policy was obtained

without initial untruth. 238 Mich App 607.

As indicated, MCL 257.520(f)(1); MSA 9.2220(f)(1) states

requirements for a “motor vehicle liability policy.” However,

the analysis of the Court of Appeals omits MCL 257.520(g); MSA

9.2220(g), which limits that crucial term:

Any policy which grants the coverage required

for a motor vehicle liability policy may also grant

any lawful coverage in excess of or in addition to

the coverage specified for a motor vehicle

liability policy and such excess or additional

coverage shall not be subject to the provisions of

this chapter. With respect to a policy which

grants such excess or additional coverage the term

“motor vehicle liability policy” shall apply only

to that part of the coverage which is required by

this section.” [Emphasis supplied.]

That concluding phrase (“the coverage which is required by

this section”) means a policy of liability insurance as

specified in the earlier subsections of MCL 257.520; MSA

9.2220.

The effect of MCL 257.520(g); MSA 9.2220(g), therefore,

is to render MCL 257.520(f)(1); MSA 9.2220(f)(1), upon which

the Court of Appeals relied, inapplicable to the present case.

Ms. Cohen seeks arbitration of her uninsured motorist claim,

which all agree is optional coverage not required by statute.9

Because the term “motor vehicle liability policy” does not

apply to that portion of her ACIA policy, MCL 257.520(f)(1);

MSA 9.2220(f)(1), has no bearing on this matter.

9
Morley, 458 Mich 461.

The Court of Appeals also noted that wage-loss benefits

are an element of "personal protection insurance" (PIP or

first-party) benefits, and must be included in any no-fault

policy. MCL 500.3105, 500.3107; MSA 24.3105, 24.13107.

Rohlman v Hawkeye-Security Ins Co, 442 Mich 520, 524-525; 502

NW2d 310 (1993). The Court cited Husted v Auto-Owners Ins Co,

459 Mich 500, 512; 591 NW2d 642 (1999), where we explained

that “a policy exclusion that conflicts with the mandatory

coverage requirements of the no-fault act is void as contrary

to public policy.” 238 Mich App 607-608.

Continuing, the Court of Appeals rejected ACIA's argument

that, because uninsured-motorist coverage is optional, the

disputed clause can be effective in that context. In this

regard, the Court observed that the disputed clause voided all

coverages, including those that are not optional. 238 Mich

App 608.

The Legislature requires a Michigan motorist to maintain

a no-fault policy that includes certain elements mandated by

law. Those required coverages are the bedrock of the no-fault

system and, as we have held on many occasions, are not subject

to removal by policy language that conflicts with the statute.

Once again, however, we observe that the present case concerns

uninsured-motorist coverage that is not required by statute.

In this regard, it is instructive to consider the full

paragraph of Husted, from which the previously quoted sentence

is drawn:

[T]he language of the no-fault act indicates

that it does not require residual liability

insurance to cover an insured’s operation of any

vehicle. In other words, such coverage is not

mandatory under the no-fault act. This Court has

indicated that a policy exclusion that conflicts

with the mandatory coverage requirements of the no
fault act is void as contrary to public policy.

Citizens Ins Co of America v Federated Mut Ins Co,

448 Mich 225, 232; 531 NW2d 138 (1995). However,

because the no-fault act does not mandate residual

liability coverage for an insured’s operation of

any vehicle, it would not void an otherwise valid

and unambiguous exclusion, like the business-use

exclusion at issue here. [459 Mich 511-512

(emphasis in original).]

In the present case, we believe that the proper

application of these principles is evident. Ms. Cohen seeks

uninsured-motorist benefits. ACIA denied those benefits under

a clause that, if applicable to this case, voids the entire

policy. Mindful of the great protection that the Legislature

and this Court have provided for the no-fault benefits

required by statute, we need not decide today the full extent

to which the disputed clause, if applicable, could void the

policy. We need only decide whether it can void uninsured

motorist coverage. It can. A contractual provision that

plainly governs the facts alleged to exist in this case is

enforceable to the extent that it is not contrary to law.

Citizens Ins Co of America v Federated Mut Ins Co, 448 Mich

225, 234; 531 NW2d 138 (1995).10

10
Citizens concerned the allocation of responsibility

between a car rental company and its customer. With regard to

that issue, Citizens is now controlled by State Farm Mut

For these reasons, we reverse in part the judgments of

the circuit court and the Court of Appeals,11 and we remand

this case to the circuit court for further proceedings that

are consistent with this opinion. MCR 7.302(F)(1).

CORRIGAN , C.J., and CAVANAGH , WEAVER , KELLY , TAYLOR , and

MARKMAN, JJ., concurred.

YOUNG , J., took no part in the decision of this case.

Automobile Ins Co v Enterprise Leasing Co, 452 Mich 25; 549

NW2d 345 (1996).

11
We “reverse in part” because the second question in

this case--
--whether ACIA’s counterclaim should be sent to

arbitration--
--is not before us.