Wilkie v. Auto-Owners Insurance

Michigan Supreme Court
Lansing, Michigan 48909
____________________________________________________________________________________________
C h i e f J u s ti c e J u s t ic e s
Maura D. Corrigan

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

FILED JULY 16, 2003

KAY WILKIE, Personal Representative

of the ESTATE OF PAUL K. WILKIE,

Deceased, and Janna Lee Frank,

Plaintiff-Appellees,

v No. 119295

AUTO-OWNERS INSURANCE COMPANY,

Defendant-Appellants.

____________________________________

BEFORE THE ENTIRE BENCH

TAYLOR, J.

This case involves a dispute between Auto-Owners

Insurance Company and its insureds, Janna L. Frank and the

decedent, Paul K. Wilkie, regarding underinsured-motorist

coverage.1 Defendant Auto-Owners argues that plaintiffs Frank

and Wilkie’s2 recoveries from Auto-Owners are limited under

the terms of the policy to $50,000 each. Frank and Wilkie

argue that they are each owed $75,000. The trial court and

Court of Appeals agreed with Frank and Wilkie. We reverse.

1
The policy holder was Wilkie’s mother, Kay Wilkie.

2
The personal representative of Paul Wilkie’s estate, Kay

Wilkie, is the plaintiff in this case.

 I. Facts

On April 17, 1996, Janna Frank was driving east on Maple

Rapids Road in Clinton County, with Paul Wilkie as a

passenger. At the same time, Stephen Ward was driving west on

Maple Rapids Road. Witnesses described his driving as erratic

shortly before his vehicle crossed the center line and

collided with Frank’s car, injuring her and causing the deaths

of Ward and Wilkie.

Ward’s vehicle was insured under a Citizens Insurance

Company no-fault automobile-insurance policy having limits of

$50,000. Wilkie’s estate and Frank shared this sum, with each

receiving $25,000. Wilkie’s vehicle was insured under an

Auto-Owners no-fault automobile-insurance policy that

provided, in addition to the mandatory coverages required

under Michigan’s no-fault automobile-insurance statute, MCL

500.3101 et seq., an optional coverage described as

underinsured-motorist coverage. Speaking generally, this

coverage was intended to supplement insurance proceeds

received by the insured from the tortfeasor had the tortfeasor

not been underinsured. This added coverage had limits of

$100,000 for each person to a total of $300,000 for each

occurrence, and also provided that Auto-Owners’ liability was

limited to the amount by which these limits exceeded the

underinsured motorist’s own insurance coverage. The policy

clearly stated that the Auto-Owners’ limits of liability were

not to be increased because of the number of persons injured,

2

claims made, or automobiles involved in the accident.3

Auto-Owners did not contest that the accident was Ward’s

fault and agreed that both Wilkie’s and Frank’s damages were

at least $100,000. Disputed, however, was the total amount

due from Auto-Owners to Wilkie and Frank. Auto-Owners

3
The relevant portions of the contract provide as

follows:

2. COVERAGE

a. We will pay compensatory damages any

person is legally entitled to recover:

(1) from the owner or operator of an

underinsured automobile;

(2) for bodily injury sustained while

occupying or getting into or out of an automobile

that is covered by Section II—LIABILITY COVERAGE of

the policy.

* * *

4. LIMIT OF LIABILITY

a. Our Limit of Liability for Underinsured

Motorists Coverage shall not exceed the lowest of:

(1) the amount by which the Underinsured

Motorist Coverage limits stated in the Declarations

exceed the total limits of all bodily injury

liability bonds and policies available to the owner

or operator of the underinsured automobile; or

(2) the amount by which compensatory damages

for bodily injury exceed the total limits of those

bodily injury liability bonds and policies.

b. The Limit of Liability is not increased

because of the number of:

(1) automobiles shown or premiums charged in

the Declarations;

(2) claims made or suits brought;

(3) persons injured; or

(4) automobiles involved in the occurrence.

3
asserted that it only owed Wilkie and Frank $50,000 each. As

it understood the contract terms, the $100,000 policy limit

would be reduced by the $50,000 coverage of the Ward policy.

Wilkie and Frank, for their part, claimed that Auto-Owners

owed each of them $75,000. They reasoned that, having equally

split the Ward policy limits of $50,000, only the $25,000 they

received should have been subtracted from the $100,000 policy

limit to determine the amount each was due.

Unable to reach a resolution of this dispute, Wilkie and

Frank sought declaratory relief against Auto-Owners in the

Clinton Circuit Court. The plaintiffs moved for summary

disposition predicated on their understanding of the

contract’s requirements. The trial court granted their motion

and ruled that only the amount actually received by each of

them, $25,000, and not the entire amount of Ward’s policy

limits, $50,000, should be set off against the amount

available to them, $100,000, under the underinsured-motorist

provision. Thus, according to the trial court, Wilkie and

Frank were each entitled to $75,000 from Auto-Owners.

Auto-Owners appealed, and the Court of Appeals4 held that

the language of the Auto-Owners policy was ambiguous in

directing how to apply the underinsured policy limit as a

setoff against the amounts Auto-Owners owed. That is, Auto-

Owners’ or the insured’s readings were equally plausible, or

as the Court described it, the contract, in this particular,

could be interpreted in “at least two ways . . . .” Id. at

4
245 Mich App 521; 629 NW2d 86 (2001).

4
527. Pursuant to the doctrine of interpreting an ambiguous

contract against the drafter,5 it construed the language that

it found unclear against the drafter and in favor of the

insureds. Id. Thus, each claimant was awarded $75,000. The

Court bolstered this by stating that the conclusion was the

same as one that a utilization of the doctrine of “reasonable

expectations” would produce. The Court determined the

reasonable expectation of an insured with a similar policy was

to expect to always be able to predict with certainty how much

coverage will be available from an underinsured motorist.

Accordingly, to allow the insurer to utilize variables such as

the number of claimants, automobiles involved, claims made, or

suits brought to alter the amount due the insured would run

the contract afoul of those expectations. To preclude this

occurring, the Court concluded that the Court’s duty was to

conform the contract to what it had determined was reasonable

to expect in a contract of this sort. In this case, that

meant that on the basis of variables such as those mentioned

above, which were, in fact, included in the Auto-Owners

policy, Auto-Owners could not alter the insured’s recovery.

The sum of this argument was to return the Court’s

consideration to the clauses they had already determined were

ambiguous, and, thus, to the earlier conclusion that Auto-

Owners was required to pay Wilkie and Frank $75,000 each.

5
Klapp v United Ins Group Agency, Inc, 468 Mich 461; ___

NW2d ___ (2003); Raska v Farm Bureau Ins Co, 412 Mich 355,

362; 314 NW2d 440 (1982).

5

 We granted Auto-Owners leave to appeal.6

II. Standard of Review

The proper interpretation of a contract is a question of

law, which this Court reviews de novo. Archambo v Lawyers

Title Ins Corp, 466 Mich 402, 408; 646 NW2d 170 (2002). The

same standard applies to the question of whether an ambiguity

exists in an insurance contract. Farm Bureau Mut Ins Co v

Nikkel, 460 Mich 558, 563; 596 NW2d 915 (1999). Accordingly,

we examine the language in the contract, giving it its

ordinary and plain meaning if such would be apparent to a

reader of the instrument. Bianchi v Automobile Club of

Michigan, 437 Mich 65, 71 n 1; 467 NW2d 17 (1991).

III. Analysis

A

Under the language of the underinsurance policy at issue

here, the insurer agreed to pay $100,0007 for each person to

a total of $300,000 for each occurrence for bodily or

compensatory damages to individuals covered by the policy if

each person would have been entitled to recover all those sums

from the other driver, but was precluded from doing so because

the other driver was underinsured (¶ 1[a] and [b]).8 The

6
467 Mich 867 (2002).

7
The actual policy language states “$100,00

person/$300,000 occurrence” (emphasis added). That this is a

typographical error is clear because the parties agree that

the policy actually refers to limits of $100,000 per person.

8
Under ¶ 1(a) and (b) of Wilkie’s policy with Auto-

Owners, an underinsured automobile

[i]s an automobile to which a bodily injury

liability bond or policy applies at the time of the

6
insurer’s liability was then limited by a provision (¶ 4[a][1]

and [2]) that states that the amount by which the $100,000 for

each person to a total of $300,000 for each occurrence exceeds

the total limits available to the owner or operator of the

underinsured vehicle will determine the amount to be paid.9

Further clarity is given to this clause by the next provisions

(¶ 4[a][2] and [3]), which say that the amounts available are

not increased because of the claims made or persons injured.10

occurrence:

a. In at least the minimum amounts required

by [state law]; and

b. In which the limits of liability are less

than the amount of damages the injured person is

legally entitled to recover for bodily injury.

Paragraph 2(a)(1) of the contract states that Auto-Owners

“will pay compensatory damages any person is legally entitled

to recover . . . from the owner or operator of an underinsured

automobile.” See n 3 where this provision is set out in

contex

9
The limiting language of the policy, ¶ 4(a), states:

(1) the amount by which the Underinsured

Motorist Coverage limits stated in the Declarations

exceed the total limits of all bodily injury

liability bonds and policies available to the owner

or operator of the underinsured automobile; or

(2) the amount by which compensatory damages

for bodily injury exceed the total limits of those

bodily injury liability bonds and policies.

See n 3 where this provision is set out in context.

10
Paragraph 4(b) of the policy states:

b. The Limit of Liability is not increased

because of the number of:

* * *

(2) claims made or suits brought;

(continued...)
7
 The Court of Appeals, as urged by the plaintiffs,

approached this language by holding that ¶ 4(a)(1) of the

contract was ambiguous because it could be “reasonably

understood in differing ways.” 245 Mich App 524. That is, ¶

4(a)(1) of the contract could be interpreted to direct that

the $100,000 from the Auto-Owners policy be reduced by either

$50,000 or $25,000, depending on how one chose to read it.

That being the case, the Court construed the contract against

its drafter, Auto-Owners. The Court’s ambiguity analysis of

the language of ¶ 4(a)(1) is, at best, questionable because

the language appears clearer than the Court found it to be.

Paragraph 4(a)(1) states that the limit of liability for

underinsured-motorist coverage shall not exceed “the amount by

which the Underinsured Motorist Coverage limits stated in the

Declarations exceeds the total limits of all bodily injury

liability bonds and policies available to the owner or

operator of the underinsured automobile . . . .” (Emphasis

added.) In this case, the underinsured-motorist coverage

limit stated in Auto-Owner’s declaration is $100,000. The

total limit of all bodily-injury liability policies available

to the owner of the underinsured automobile, i.e., Ward, is

$50,000. Therefore, the amount by which the underinsured­

motorist-coverage limits stated in the declarations exceeds

the total limits of all bodily-injury policies available to

the owner of the underinsured automobile is clearly $50,000,

(...continued)
(3) persons injured . . . .

See n 3 where this provision is set out in context.

8
not $75,000. Contrary to the contention of Court of Appeals,

this provision cannot be “reasonably understood” to be

referring to the amount actually received by the claimant

because the provision specifically refers to the total

available to the owner. Yet, whatever the merits of the Court

of Appeals analysis, the panel’s conclusion is fatally

undermined when ¶ 4(a)(1) is read, as it must be,11 with ¶¶

4(b)(2) and (3). These later paragraphs settle any perceived

ambiguity in ¶ 4(a)(1) by stating that the amounts to be paid

will not be increased because of claims made, suits brought,

or persons injured. Interpreting this provision to mean that

each plaintiff is entitled to $75,000 would increase the limit

of liability “because of” the number of claims brought or

persons injured, which is clearly contrary to the plain

language of ¶¶ 4(b)(2) and (3).12

Quite simply, if ¶ 4(a)(1) appears ambiguous by itself,

when read with ¶¶ 4(b)(2) and (3) the ambiguity is eliminated.

That being the case, the insurance contract at issue is

unambiguous and should be enforced as its terms dictate.

Thus, no consideration of the doctrine of construing the

contract against the drafter is appropriate.

11
We read contracts as a whole, giving harmonious effect,

if possible, to each word and phrase. Singer v Goff, 334 Mich

163, 168; 54 NW2d 290 (1952).

12
If there were only one claimant, Auto-Owners’ limit of

liability would clearly be $50,000. Plaintiffs argue,

however, that because there are two claimants, Auto-Owners’

limit of liability is $75,000. This cannot be true because

the policy specifically states that Auto-Owners’ limit of

liability shall not increase “because of” the number of

claimants.

9

 B

The Court of Appeals, in declining to give the contract

the construction ¶¶ 4(b)(2) and (3) compel, also relied on the

argument that to allow such a construction would defy the

insured’s reasonable expectations, which, as the Court

characterized them, would be that no change in the amount due

would be occasioned by the vicissitudes of such things as

claims made or persons injured.

This approach, where judges divine the parties’

reasonable expectations and then rewrite the contract

accordingly, is contrary to the bedrock principle of American

contract law that parties are free to contract as they see

fit, and the courts are to enforce the agreement as written

absent some highly unusual circumstance, such as a contract in

violation of law or public policy. This Court has recently

discussed, and reinforced, its fidelity to this understanding

of contract law in Terrien v Zwit, 467 Mich 56, 71; 648 NW2d

602 (2002). The notion, that free men and women may reach

agreements regarding their affairs without government

interference and that courts will enforce those agreements, is

ancient and irrefutable. It draws strength from common-law

roots and can be seen in our fundamental charter, the United

States Constitution, where government is forbidden from

impairing the contracts of citizens, art I, § 10, cl 1.13 Our

own state constitutions over the years of statehood have

13
"No state shall . . . pass any . . . Law impairing the

Obligation of Contracts . . . .”

10

similarly echoed this limitation on government power.14 It is,

in short, an unmistakable and ineradicable part of the legal

fabric of our society. Few have expressed the force of this

venerable axiom better than the late Professor Arthur Corbin,

of Yale Law School, who wrote on this topic in his definitive

study of contract law, Corbin on Contracts, as follows:

One does not have “liberty of contract” unless

organized society both forbears and enforces,

forbears to penalize him for making his bargain and

enforces it for him after it is made. [15 Corbin,

Contracts (Interim ed), ch 79, § 1376, p 17.]

In contrast to this legal pedigree extending over the

centuries, the rule of reasonable expectations is of recent

origin. Moreover, it is antagonistic to this understanding of

the rule of law, and is, accordingly, in our view, invalid as

an approach to contract interpretation.

The rule of reasonable expectations had innocent origins

in 1970. Professor Robert E. Keeton of Harvard Law School

wrote an article entitled Insurance law rights at variance

with policy provisions, 83 Harv L R 961, 967 (1970), in which

he examined and attempted to rationalize a number of cases in

which the results appeared to defy the principle that

contracts will be construed according to their unambiguous

terms. To explain this phenomenon, as best he could, he

concluded that certain courts would evidently not enforce

clear contract language in the face of one of the parties’

“reasonable expectations” of coverage. As Professor Keeton

described it:

14
See, for example, Const 1963, art 1, § 10.

11
 The objectively reasonable expectations of the

applicants and intended beneficiaries regarding the

terms of insurance contracts will be honored even

though painstaking study of the policy provision

would have negated those expectations. [Id.]

Whether Professor Keeton intended this analysis to spawn

a frontal assault on the ability of our citizens to manage, by

contract, their own affairs, it had that effect because

numerous courts, to one degree or another, adopted some form

of the rule.15

15
Writing in 1990, Professor Roger C. Henderson of the

University of Arizona School of Law discussed the development

of the doctrine in the years after 1970. See Henderson, The

doctrine of reasonable expectations in insurance law after two

decades, 51 Ohio St L J 823, 827-838 (1990), outlining the

development of the doctrine. According to Professor

Henderson, the following ten jurisdictions have clearly

adopted the rule: Lambert v Liberty Mut Ins Co, 331 So 2d 260,

263 (Ala, 1976); Stewart-Smith Haidinger, Inc v Avi-Truck,

Inc, 682 P2d 1108, 1112 (Alas, 1984); Gordinier v Aetna Cas &

Surety Co, 154 Ariz 266, 272; 742 P2d 277 (1987); Smith v

Westland Life Ins Co, 15 Cal 3d 111, 121-122; 123 Cal Rptr

649; 539 P2d 433 (1975); Farm Bureau Mut Ins Co v Sandbulte,

302 NW2d 104 (Iowa, 1981); Transamerica Ins Co v Royle, 202

Mont 173; 656 P2d 820 (1983); Nile Valley Coop Grain & Milling

Co v Farmers Elevator Mut Ins Co, 187 Neb 720; 193 NW2d 752

(1972) (construing standard fire policy); Catania v State Farm

Life Ins Co, 95 Nev 532; 598 P2d 631 (1979); Grimes v Concord

Gen Mut Ins Co, 120 NH 718; 422 A2d 1312 (1980); Werner

Industries, Inc v First State Ins Co, 112 NJ 30; 548 A2d 188

(1988).

Professor Henderson notes that seventeen jurisdictions

have adopted some form of the rule at various times: Davis v

MLG Corp, 712 P2d 985, 986 (Colo, 1986); Simses v North

American Co for Life & Health Ins, 175 Conn 77; 394 A2d 710

(1978); Hallowell v State Farm Mut Automobile Ins Co, 443 A2d

925 (Del, 1982); Richards v Hanover Ins Co, 250 Ga 613; 299

SE2d 561 (1983); Fortune v Wong, 68 Hawaii 1; 702 P2d 299

(1985); Eli Lilly & Co v Home Ins Co, 482 NE2d 467 (Ind,

1985); Gowing v Great Plains Mut Ins Co, 207 Kan 78; 483 P2d

1072 (1971) (applying reasonable expectations of insured as a

rule for resolving ambiguities); Simon v Continental Ins Co,

724 SW2d 210 (Ky, 1986); Cataldie v Louisiana Health Service

& Indemnity Co, 456 So 2d 1373 (La, 1984); Baybutt Constr Corp

v Commercial Union Ins Co, 455 A2d 914 (Me, 1983), but see

Peerless Ins Co v Brennon, 564 A2d 383 (Me, 1989) (reversing

(continued...)
12

 Michigan has had a puzzling history with the doctrine.

The first mention of the rule of reasonable expectations in

Michigan was in Zurich Ins Co v Rombough, 384 Mich 228, 232­

233; 180 NW2d 775 (1970), in which this Court held,

unexceptionally, that ambiguous policy provisions in an

insurance contract had to be construed against the insurance

company and in favor of the insured. In the course of this

(...continued)
Baybutt); Powers v Detroit Automobile Inter-Ins Exch, 427 Mich

602; 398 NW2d 411 (1986); Atwater Creamery Co v Western Nat’l

Mut Ins Co, 366 NW2d 271 (Minn, 1985) (Wahl, J., lead

opinion); Brown v Blue Cross & Blue Shield of Mississippi, 427

So 2d 139 (Miss, 1983); Davison v Business Men's Assurance Co

of America, 85 NM 796; 518 P2d 776 (1974); Great American Ins

Co v CG Tate Constr Co, 177 W Va 734; 303 NC 387; 279 SE2d 769

(1981) rev'd on other grounds, 315 NC 714; 340 SE2d 743

(1986); American Universal Ins Co v Russell, 490 A2d 60, 62

(RI, 1985); Nat’l Mut Ins Co v McMahon & Sons, 177 W Va 734;

356 SE2d 488 (1987); Garriguenc v Love, 67 Wis 2d 130; 226

NW2d 414 (1975). Pennsylvania has taken an inconsistent

approach. Compare Standard Venetian Blind Co v American

Empire Ins Co, 503 Pa 300, 307; 469 A2d 563 (1983), which

rejects the rule, with Tonkovic v State Farm Mut Automobile

Ins Co, 513 Pa 445; 521 A2d 920 (1987), which accepts the

rule.

For the purpose of fully understanding the rule,

Professor Henderson also pointed out that ten jurisdictions

have not adopted the rule: Casey v Highland Ins Co, 100 Idaho

505, 509; 600 P2d 1387 (1979); Bain v Benefit Trust Life Ins

Co, 123 Ill App 3d 1025, 1032; 463 NE2d 1082 (1984); Bond Bros

v Robinson, 393 Mass 546, 551; 471 NE2d 1332 (1984); Walle Mut

Ins Co v Sweeney, 419 NW2d 176, 181 n 4 (ND, 1988); Sterling

Merchandise Co v Hartford Ins Co, 30 Ohio App 3d 131, 135; 506

NE2d 1192 (1986); Anderson v Continental Assurance Co, 1983 Ok

Civ App 25; 666 P2d 245, 248 (1983); Allstate Ins Co v Mangum,

299 SC 226, 231; 383 SE2d 464 (1989); Keenan v Industrial

Indemnity Ins Co, 108 Wash 2d 314, 322; 738 P2d 270 (1987); St

Paul Fire & Marine v Albany Co School Dist 1, 763 P2d 1255,

1263 (Wy, 1988).

The remaining jurisdictions, in Professor Henderson’s

opinion, have not addressed the issue, or, have managed to

avoid ruling on it. See also Max True Plastering Co v United

States Fidelity & Guarantee Co, 1996 Ok 28; 912 P2d 861, 863

n 5 (1996), for a discussion of the doctrine’s acceptance.

13

holding, the Court cited a California Supreme Court case, Gray

v Zurich Ins Co, 65 Cal 2d 263, 269-270; 54 Cal Rptr 104; 419

P2d 168 (1966), in which Justice Mathew Tobriner fleetingly

referenced the rule of reasonable expectations.16 Whatever the

effect on California law Gray created, we must assume that our

Court’s use of the quotation was only to fully outline Justice

Tobriner’s position, because Rombough was decided on the basis

of construing against the drafter and the remarks about the

16

Justice Tobriner, writing for the California

Supreme Court in [Gray, supra], construing similar

provisions, said:

“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.” [Rombough, supra at 232­
233.]

14
rule of reasonable expectations were obiter dicta.

Nonetheless, Rombough is the case that opened the door to

the rule of reasonable expectations in Michigan. The next

case to address the issue is Bradley v Mid-Century Ins Co, 409

Mich 1, 60-61; 294 NW2d 141 (1980). Discussing a setoff

provision in an insurance contract, the Court, in an equivocal

passage of the opinion, held that “[t]he set-off clause,

whether regarded as ambiguous or inconsistent with the rule of

reasonable expectations of the insured, cannot be enforced as

written.” Id. Regarding Michigan authority, the Bradley

Court cited Rombough. Id. at 61 n 69.17

By 1982, however, when this Court next addressed the rule

in Raska v Farm Bureau Ins Co, 412 Mich 355, 362-363; 314 NW2d

440 (1982), a majority of the Court took pains to reject the

rule of reasonable expectations. Justice Kavanagh, writing

for the majority, pithily targeted the difficulty with the

rule of reasonable expectations as follows:

[T]he expectation that a contract will be

enforceable other than according to its terms

surely may not be said to be reasonable. If a

person signs a contract without reading all of it

or without understanding it, under some

circumstances that person can avoid its obligations

on the theory that there was no contract at all for

there was no meeting of the minds.

But to allow such a person to bind another to

an obligation not covered by the contract as

written because the first person thought the other

was bound to such an obligation is neither

reasonable nor just. [Id.]

Interestingly, the majority did not mention the Bradley

17
The Court also cited several of Professor Keeton’s

works, pointing out that the rule had been accepted in several

jurisdictions. Bradley, supra at 61 n 69.

15

decision of only two years before. We surmise this was not an

oversight, a finding reinforced by the fact that there had

been no change in the composition of the Court in those two

years. Rather, we conclude that the majority did not refer to

Bradley because it reasoned that Bradley was premised on an

ambiguity analysis or, perhaps, the requirement to conform

automobile-insurance contracts to the requirements of the no­

fault automobile-insurance act. Thus, it was probable that

the majority considered any discussion of the rule of

reasonable expectations in Bradley dicta, not requiring

analysis. Buttressing this view is the fact that, Justice

Williams, writing in dissent, invoked the rule of reasonable

expectations, but never cited Bradley as support for his

position. Raska, supra at 380.

This was not the end of the rule of reasonable

expectations, however, because it was again mentioned in a

plurality opinion in Powers v Detroit Automobile Inter-Ins

Exch, 427 Mich 602, 631-635; 398 NW2d 411 (1986). In writing

the plurality opinion18, Chief Justice Williams cited Raska for

the proposition that a reasonable expectation of a reader of

the contract was enforceable. Id. at 631. This is a curious

source of authority, as the Raska majority made no mention of

that proposition. Moreover, breaking new ground, the Powers

plurality also stated that the rule of reasonable expectations

does not require an ambiguity as a prerequisite to the

18
Justice Archer concurred with Chief Justice Williams,

and Justices Cavanagh and Brickley concurred in the result

only.

16

application of the doctrine. Powers, supra at 631 n 7.19 For

additional authority, the plurality relied on Rombough and

Bradley for the limited proposition that insured parties do

not have a reasonable expectation of coverage in the face of

antistacking clauses in insurance contracts. The Powers

plurality apparently misconceived the preceding Michigan cases

regarding the acceptance in this state of the rule of

reasonable expectations. In any case, whatever the Powers

opinion’s difficulties, it remains a plurality opinion and

thus is not binding on subsequent courts. People v Carines,

460 Mich 750, 767 n 15; 597 NW2d 130 (1999).20

In 1991, in Vanguard Ins Co v Clarke, 438 Mich 463, 471­
472; 475 NW2d 48 (1991), this Court again discussed the rule,

agreeing with the Powers plurality and holding the rule to be

an adjunct to the rules of construction of insurance

contracts.21 This was an unusual use of precedent because

Powers was not binding and Raska was. Adding to the

confusion, the Court characterized the “sole issue” in the

case as whether to adopt the theory of dual or concurrent

causality in insurance. Vanguard, supra at 465-466. This

19
The plurality further referred to the rule of reasonable

expectations as “[a]n adjunct to the rules of construction of

insurance contracts . . . .” Powers, supra at 631.

20
See also Robinson v Detroit, 462 Mich 439, 470 n 1; 613

NW2d 307 (2000)(Corrigan, C.J., concurring), and People v

Anderson, 389 Mich 155, 170; 205 NW2d 461 (1973).

21
The Court, however, declined to adopt the Powers

plurality’s view that the rule does not require an ambiguity

in the contract as a prerequisite to its application.

Instead, the Vanguard majority concluded that, without an

ambiguity, there could be no application of the rule of

reasonable expectations. Id. at 472-473.

17

issue was resolved without any need to delve into the doctrine

of reasonable expectations, and, thus, discussion of

reasonable expectations was merely dicta.

In the wake of Vanguard, this Court applied, but did not

address the provenance of, the rule of reasonable

expectations, apparently assuming it to be the law. See

Gelman Sciences, Inc v Fidelity Cas Co, 456 Mich 305, 318; 572

NW2d 617 (1998)(citing Vanguard and Powers); Fire Ins Exch v

Diehl, 450 Mich 678, 687; 545 NW2d 602 (1996)(citing Powers);

and Michigan Millers Mut Ins Co v Bronson Plating Co, 445 Mich

558, 594 n 17; 519 NW2d 864 (1994)(citing Powers and

Vanguard). Significantly, none of these cases mentions Raska.

We next discussed the rule of reasonable expectations in

Nikkel. This Court approvingly cited Raska and, repudiating

the Powers approach, stated:

[W]e decline defendants’ invitation to discern

ambiguity solely because an insured might interpret

a term differently than the express definition

provided in a contract. “This court has many times

held that one who signs a contract will not be

heard to say, when enforcement is sought, that he

did not read it, or that he supposed it was

different in its terms.” . . . To the extent that

the plurality in Powers gleaned ambiguity by

relying on an understanding of a term that differed

from the clear definition provided in the policy,

Powers is contrary to the most fundamental

principle of contract interpretation—the court may

not read ambiguity into a policy where none exists.

[Nikkel, supra at 567-568.]

We concluded by holding that, while the rule of

reasonable expectations was, at most, an adjunct to the rules

of construction, there was no occasion to invoke it because,

under Vanguard, it could only be utilized where there was an

ambiguity in the contract, which was not present in Nikkel.

18

Id. at 568-569.

Viewing the puzzling thirty-three-year history of the

rule of reasonable expectations in Michigan, we are confronted

with a confused jumble of ignored precedent,22 silently

acquiesced to plurality opinions,23 and dicta,24 all of which,

with little scrutiny, have been piled on each other to

establish authority. At no point has an effort been made to

establish priorities among the competing holdings. To bring

order to this area of the law, it falls on us today to clearly

articulate the status of the rule of reasonable expectations

in this jurisdiction.

The rule of reasonable expectations clearly has no

application to unambiguous contracts. That is, one’s alleged

“reasonable expectations” cannot supersede the clear language

of a contract. Therefore, if this rule has any meaning, it

can only be that, if there is more than one way to reasonably

interpret a contract, i.e., the contract is ambiguous, and one

of these interpretations is in accord with the reasonable

expectations of the insured, this interpretation should

prevail. However, this is saying no more than that, if a

contract is ambiguous and the parties’ intent cannot be

discerned from extrinsic evidence, the contract should be

interpreted against the insurer. In other words, when its

application is limited to ambiguous contracts, the rule of

22
Raska.

23
Powers.

24
Rombough, arguably Bradley, and Vanguard.

19
reasonable expectations is just a surrogate for the rule of

construing against the drafter. As the Court of Appeals has

recently explained:

Well-settled principles of contract

interpretation require one to first look to a

contract’s plain language. If the plain language

is clear, there can be only one reasonable

interpretation of its meaning and, therefore, only

one meaning the parties could reasonable expect to

apply. If the language is ambiguous, longstanding

principles of contract law require that the

ambiguous provision be construed against the

drafter. Applied in an insurance context, the

drafter is always the insurer. Thus, it appears

that the “rule of reasonable expectations” is

nothing more than a unique title given to

traditional contract principles applied to

insurance contracts . . . . [Singer v American

States Ins, 245 Mich App 370, 381 n 8; 631 NW2d 34

(2002).]

Several commentators have expressed this same view. See

Comment, A critique of the reasonable expectations doctrine,

56 U Chi L R 1461, 1468 (1989) (The rule of reasonable

expectations “is identical to the practice of construing

ambiguities against the insurer except that it purports to

provide an additional justification for doing so, i.e., to

satisfy the insured’s reasonable expectations.”); Popik &

Quackenbos, Reasonable expectations after thirty years: A

failed doctrine, 5 Conn Ins L J 425, 429 (1998)(“Courts

applying an ‘ambiguity’-based version of the doctrine have

apparently abandoned the doctrine as a rule of substantive law

altogether, treating it instead as a rule of construction

analogous to—indeed, virtually indistinguishable from—the

contra proferentem doctrine.”); Henderson, The doctrine of

reasonable expectations in insurance law after two decades, 51

Ohio St L J 823, 827 (1990)(“[D]ecisions using [the rule of

20

reasonable expectations] solely to construe [ambiguous] policy

language do not support a new principle at all, but fall

within the time-honored canon of construing ambiguities

against the drafter of the contract-contra proferentem.”).

In sum, the rule of reasonable expectations clearly has

no application when interpreting an unambiguous contract

because a policyholder cannot be said to have reasonably

expected something different from the clear language of the

contract. Further, it is already well established that

ambiguous language should be construed against the drafter,

i.e., the insurer. Therefore, stating that ambiguous language

should be interpreted in favor of the policyholder’s

reasonable expectations adds nothing to the way in which

Michigan courts construe contracts, and thus the rule of

reasonable expectations should be abolished.

The rights and duties of parties to a contract are

derived from the terms of the agreement. Evans v Norris, 6

Mich 369, 372 (1859). As this Court has previously stated,

“The general rule [of contracts] is that competent persons

shall have the utmost liberty of contracting and that their

agreements voluntarily and fairly made shall be held valid and

enforced in the courts.” Terrien, supra at 71, quoting Twin

City Pipe Line Co v Harding Glass Co, 283 US 353, 356; 51 S Ct

476; 75 L Ed 1112 (1931).25 Under this legal principle, the

parties are generally free to agree to whatever they like,

25
“Freedom of contract is the general rule and restraint

the exception.” Morehead v New York ex rel Tipaldo, 298 US

587, 610-611; 80 L Ed 1347; 56 S Ct 918 (1936).

21

and, in most circumstances, it is beyond the authority of the

courts26 to interfere with the parties’ agreement. St Clair

Intermediate School Dist v Intermediate Ed Ass’n, 458 Mich

540, 570-572; 581 NW2d 707 (1998). Respect for the freedom to

contract entails that we enforce only those obligations

actually assented to by the parties. Evans, supra at 372. We

believe that the rule of reasonable expectations markedly

fails in this respect. The words of Justice Kavanagh bear

repeating:

[T]he expectation that a contract will be

enforceable other than according to its terms

surely may not be said to be reasonable. If a

person signs a contract without reading all of it

or without understanding it, under some

circumstances that person can avoid its obligations

on the theory that there was no contract at all for

there was no meeting of the minds.

But to allow such a person to bind another to

an obligation not covered by the contract as

written because the first person thought the other

was bound to such an obligation is neither

reasonable nor just. [Raska, supra at 362-363.]

Accordingly, we hold that the rule of reasonable expectations

has no application in Michigan, and those cases that

recognized this doctrine are to that extent overruled.

IV. Conclusion

We reverse the judgment of the Court of Appeals and find

the insurance contract between Auto-Owners and Wilkie

unambiguously limited Auto-Owners’ liability to $50,000 each

for Wilkie and Frank.

26
Duties imposed by courts are to be avoided in order to

respect the freedom of parties to fashion agreements of their

own design. See Comment, A critique of the doctrine of

reasonable expectations, supra at 1487.

22

 Clifford W. Taylor

Maura D. Corrigan

Robert P. Young, Jr.

Stephen J. Markman

23

 S T A T E O F M I C H I G A N

SUPREME COURT

KAY WILKIE, PERSONAL REPRESENTATIVE

OF THE ESTATE OF PAUL K. WILKIE,

DECEASED, AND JANNA LEE FRANK,

Plaintiff-Appellees,

v No. 119295

AUTO-OWNERS INSURANCE COMPANY,

Defendant-Appellant.

____________________________________
WEAVER, J. (concurring in part dissenting in part).

I concur with the majority that the rule of reasonable

expectations “has no application when interpreting an

unambiguous contract” and that “it is already well established

that ambiguous language should be construed against the

drafter, i.e., the insurer.” Ante at 25.

However, I dissent from the majority’s determination that

the underinsured-motorist provisions of the automobile­
insurance contract at issue are unambiguous. I would conclude

that the policy is ambiguous and, therefore, construe it

against the drafter.

The policy provides on its declarations page that Auto

Owners’ underinsured-motorist liability limit is $100,000 per

person and $300,000 per occurrence. However, the policy

endorsement provides in pertinent part that “[t]he Limit of

Liability is not increased because of the number of . . .

persons injured . . . .” While the declarations page appears

to base its underinsured premium on either a per person or a

per occurrence maximum, the endorsement’s language can be read

as limiting liability to strictly a per occurrence maximum

because it states the liability limit will not be increased by

the number of persons injured.

On the facts of this case, under the per person

interpretation, defendant is liable to each injured person

covered by the underinsured-motorist provisions for $75,000,

the per person limit ($100,000) minus the amount each person

received from the underinsured motorist ($25,000). Under a

per occurrence interpretation, defendant is liable to each

injured person covered by the underinsured-motorist provisions

for $50,000, the per person limit ($100,000) minus the total

amount available from the underinsured-motorist for the

occurrence ($50,000).

I would construe this ambiguity against the drafter and

hold that each plaintiff is entitled to $75,000.

Elizabeth A. Weaver

2

 S T A T E O F M I C H I G A N

SUPREME COURT

KAY WILKIE, personal
representative of the estate
of PAUL K. WILKIE, deceased,
and JANNA LEE FRANK,

Plaintiffs-Appellees,

v No. 119295

AUTO-OWNERS INSURANCE COMPANY,
Defendant-Appellant.
________________________________
CAVANAGH, J. (dissenting).
The majority holds today that an insured party’s

objectively reasonable expectations are no longer relevant in

determining the meaning of an insurance contract. Because I

would not discard the doctrine of reasonable expectations, I

must respectfully dissent.

I

The doctrine of reasonable expectations allows a court to

contemplate the scope of insurance coverage anticipated by an

insured party seeking benefits. Unlike the doctrine of contra

preferentem, i.e., construing a document against the drafter,

the reasonable-expectations doctrine is generally confined to

the field of insurance law and, when correctly applied, is not

limited to those circumstances in which a document is clearly

ambiguous on its face.1 Rather, the doctrine may assist a

court in making the ambiguity determination, i.e., whether an

insurance contract contains language that could reasonably be

interpreted in two or more ways.2

Although courts normally limit the ambiguity inquiry to

the four corners of a contract’s text in other contexts, few

have failed to recognize the unique character of insurance

1
As I noted in my dissent in Farm Bureau Mut In Co of

Michigan v Nikkel, 460 Mich 558, 571; 596 NW2d 915 (1999), an

insurance company may not benefit from employing otherwise

straightforward and unambiguous terms in a manner an insured

could find confusing. See also Spaulding v Morse, 322 Mass

149, 152-153; 76 NE2d 137 (1947):

Every instrument in writing is to be

interpreted, with a view to the material

circumstances of the parties at the time of the

execution, in the light of the pertinent facts

within their knowledge and in such manner as to

give effect to the main end designed to be

accomplished. . . . [The] instrument is to be so

construed as to give effect to the intent of the .

. . [parties] as manifested by the words used

illumined by all the attendant factors, unless

inconsistent with some positive rule of law or

repugnant to other terms of the instrument. An

omission to express an intention cannot be supplied

by conjecture. But if the instrument as a whole

produces a conviction that a particular result was

fixedly desired although not expressed by formal

words, that defect may be supplied by implication

and the underlying intention . . . may be

effectuated, provided it is sufficiently declared

by the entire instrument. [Citations omitted.]

2
See Holmes, The Theory of Legal Interpretation, 12 Harv

L R 417, 418 (1899):

[W]e let in evidence of intention not to help

out what theory recognizes as an uncertainty of

speech, and to read what the writer meant into what

he has tried but failed to say, but recognizing

that he has spoken with theoretic certainty, we

inquire what he meant in order to find out what he

has said.

2

agreements:

There is no meeting of the minds except

regarding the broad outlines of the transaction,

the insurer's desire to sell a policy and the

insured's desire to buy a policy of insurance for a

designated price and period of insurance to cover

loss arising from particular perils (death,

illness, fire, theft, auto accident,

"comprehensive"). The details (definitions,

exceptions, exclusions, conditions) are generally

not discussed and rarely negotiated. [Lotoszinski

v State Farm Mut Automobile Ins Co, 417 Mich 1, 14

n 1; 331 NW2d 467 (1982) (Levin J., dissenting).]

See also Keeton, Insurance law rights at variance with policy

provisions, 83 Harv L R 961 (1970), and cases cited therein.

Hence, in the context of such adhesion contracts, it is

appropriate to consider not just the contractual text, but

also the objectively reasonable expectations of the insured

party and the circumstances surrounding the transaction.

In Steven v Fidelity & Cas Co of N Y, 58 Cal 2d 862; 27

Cal Rptr 172; 377 P2d 284 (1962), for example, appellant’s

husband purchased a life-insurance policy from a vending

machine before leaving on a business flight. The insured was

required to sign and mail the entire document before boarding

the flight. The text of the contract, which could be fully

reviewed only after purchase, contained an exception,

prohibiting coverage for charter flights, while permitting

coverage for reasonable methods of substitute transportation

by land. On the return trip, appellant’s husband was forced

to make emergency arrangements on a charter flight. The

insured died while traveling on the charter plane, and the

insurer denied benefits.

On appeal, California’s high court refused to enforce the

3

exclusion. The court held that a reasonable insured party

would purchase such insurance expecting coverage for the

entire trip, including any reasonable emergency substitute

form of transportation. Because the contract did not

expressly prohibit the type of substitute transportation

utilized by the insured, though it did prohibit coverage for

travel “on other than scheduled air carriers,” id. at 866, a

lay person could not reasonably be expected to foresee the

force of the exclusion. Moreover, the court emphasized that

the inanimate vending machine emitted a complex document that

most people would be unable to decipher before boarding a

plane. Likewise, the sticker on the face of the machine

prohibiting coverage for nonscheduled air carriers could not

aid the purchaser in weighing the benefits of the contract

because the definition was buried in its text. Id., supra at

877. In support of this result, Justice Tobriner noted that

“California courts have long been disinclined to effectuate

clauses of limitation of liability which are unclear,

unexpected, inconspicuous or unconscionable.” Id. at 879,

relying on Raulet v Northwestern Nat’l Ins Co, 157 Cal 213,

230; 107 P 292 (1910) (holding that insured parties would not

be stringently bound to contract provisions because “[i]t is

a matter almost of common knowledge that a very small

percentage of policy-holders are actually cognizant of the

provisions of their policies . . . . [I]n their numerous

conditions and stipulations [insurance contracts] furnish[]

what sometimes may be veritable traps for the unwary.”).

Recognizing these same principles, dissenting Justice

4

Williams noted in Raska v Farm Bureau Ins Co, 412 Mich 355,

370; 314 NW2d 440 (1982):

This Court is made up of human beings who are

aware that very few insureds will try to read the

detailed, cross-referenced, standardized,

mass-produced insurance form, nor necessarily

understand it if they do. Courts generally have

gradually moved away from the traditional rule of

caveat emptor, realizing that the modern insurance

contract is not made between parties of equal

bargaining strength with each side taking a part in

choosing the language of the agreement and

understanding what the contract means.

Thus the approach we must take in examining

insurance contracts such as the one in issue was

accurately described by the New Jersey Supreme

Court as follows:

"An insurance policy, though in form a

contract, is a product prepared and packaged by the

insurer. The buyer scarcely understands the

detailed content of what he is buying. When a

court construes a policy, it cannot be indifferent

to that reality." [Raska, quoting DiOrio v New

Jersey Manufacturers Ins Co, 63 NJ 597, 602; 311

A2d 378 (1973).]

For these reasons, I must express my agreement with

Justice Levin’s approach in Lotoszinski, supra at 15-16:

It is the historic responsibility of the

courts to protect, in the exercise of the judicial

power, against imposition in commercial

transactions. Fairness is the proper inquiry where

a court is assessing policy language marketed and

purchased without negotiation or explanation of the

scope of the coverage. 3 . . .

The governing rule of law cannot rightfully be

predicated on the assumption that [the plaintiff]

would read the policy, that if she did read it she

would or could understand its esoteric verbiage,

anticipate the situation which developed and deduce

that she was not covered. Many competent lawyers

would, unless they set aside time for careful

reading and reflection, have failed that exam.

__________________________________________________
3
See Bradley v Mid-Century Ins Co, 409 Mich 1, 61;

294 NW2d 141 (1980); DiOrio v New Jersey

Manufacturers Ins Co, [supra]; C & J Fertilizer,

5

 Inc v Allied Mutual Ins Co, 227 NW2d 169, 175

(Iowa, 1975); Hionis v Northern Mutual Ins Co, 230

Pa Super 511, 516-517; 327 A2d 363, 365 (1974);

Henningsen v Bloomfield Motors, Inc, 32 NJ 358,

399-400; 161 A2d 69, 92 (1960); Ady v West American

Ins Co, 69 Ohio St 2d 593, 597; 433 NE2d 547, 549

(1982).

See also Keeton, Insurance Law, § 63, pp

350-351; 2 Restatement Contracts, 2d, § 208; 1

Corbin, Contracts, § 128, p 554; Grismore,

Contracts (Murray), § 294, p 508.

___________________________________________________

Though few would deny that the majority has artfully

attempted to diminish the significance of this Court’s

jurisprudence with regard to the reasonable-expectations

doctrine, it cannot be denied that, before today, Michigan

joined the majority of states that integrated the doctrine

into their jurisprudence.3 In doing so, such jurisdictions

did nothing more than recognize our timeworn rules of contract

interpretation, i.e., contract formation requires a meeting of

the minds.

Though I acknowledge that the majority’s position is

consistent with the notion that “free men and women may reach

agreements regarding their affairs without government

interference and that courts will enforce those agreements,”

ante at 12 citing Terrien v Zwit, 467 Mich 56, 71; 648 NW2d

602 (2002), I object to its attempt to distance itself from

the policy choices inherent in its decision today. Simply

put, the majority and I differ with regard to the policies

3

See Nikkel, supra at 567. See also Stempel, Unmet

expectations: Undue restriction of the reasonable expectations

approach and the misleading mythology of judicial role, 5 Conn

Ins L J 181, 191 (1998) (noting that “38 states ‘have

recognized some variation of the reasonable expectations

doctrine.’").

6

that should guide the interpretation of insurance law.

I

would prefer not to disregard the manner in which the

insurance industry operates. Though an adhesion contract may

be a necessary ingredient in the trade, I cannot condone a

doctrine of interpretation that all but ignores the

potentially precarious effect on the bound party.

II

In light of these standards, I cannot agree that the

contract terms are free of ambiguity.4 Defendant insurer

4
As the majority notes, the relevant portions of the

insurance contract provide that Auto Owners underinsured

motorist policy limit is $100,000 for each person and $300,000

for each occurrence. The policy endorsement provides as

follows:

4. LIMIT OF LIABILITY

a. Our Limit of Liability for Underinsured

Motorist Coverage shall not exceed the lowest of:

1. the amount by which the Underinsured

Motorist Coverage limits stated in the Declarations

exceed the total limits of all bodily injury

liability bonds and policies available to the owner

or operator of the underinsured automobile; or

2. the amount by which compensatory damages

for bodily injury exceed the total limits of those

bodily injury liability bonds and policies.

b. The Limit of Liability is not increased

because of the number of:

1. automobiles shown or premiums charged in

the Declarations;

2. claims made or suits brought;

3. persons injured; or

4. automobiles involved in the occurrence.

c. The amount we pay will be reduced by any

amount paid or payable for the same bodily injury.

(continued...)

7

based its premium for underinsured-motorist coverage on a “per

person” and “per occurrence” maximum. This portion of the

contract, found on the declarations page, was among the few

terms actually negotiated by the parties.

Even assuming the purchasing party read and understood

the policy upon receipt (which often arrives weeks after the

original purchase), review of the exclusions in section four

suggests the insurer simply attempted to clarify that its

liability was limited to making the insured whole, paying out

no more than necessary to meet the limits on which the

purchase price was based, i.e., $100,000 per person and

$300,000 per occurrence.

If the insurer intended to limit coverage in the manner

it now claims, it had a duty to expressly state not only that

“coverage will not be increased,” but also that coverage may

be decreased from the coverage limits specifically negotiated.

Instead of acknowledging this rational deduction, defendant

insurer has asked this Court to pretend that both plaintiffs

received the negligent party’s maximum benefit ($50,000 per

person or per accident), when in fact defendant insurer had

previously authorized a settlement agreement wherein the

injured plaintiffs split the negligent party’s benefits,

receiving only $25,000 each.

More specifically, the insurer’s inclusion of ¶ 4(1)(a)­

(b) merely assure that an insured will be reimbursed up to the

policy limits on the declarations page, while clarifying no

4
(...continued)

. . .

8

windfall payments will be made, i.e., an insured will not

receive duplicate reimbursement or payments exceeding the

underinsured policy limits on the declarations page.

Paragraph (4)(a)(1), for example, provides that an insurer

will pay no more than the difference between policy limits.

This clause clarifies that an insurer is simply obligated to

make up the difference between benefits received from the

underinsured party and the insurer. Though free of ambiguity

when only one person is injured, the text’s vagueness becomes

evident when multiple insured parties are injured if the

negligent party’s policy has no separate per person and per

occurrence coverage.

Further, the use of the term “available” is ambiguous, as

noted by Justice Kelly in her dissent. While it is true in

this case that the underinsured negligent motorist has $50,000

available for the total occurrence with no per person limit,

it is impossible to conclude from the text of the contract at

issue that the underinsured has $50,000 available to pay each

plaintiff, though that is exactly the interpretation defendant

asks this Court to adopt. By inserting text that ensures that

payments for the same injuries are not duplicated, while

simultaneously asking the Court—on the basis of the vague

text—to assume that one limit could be paid out more than

once, defendant has convinced this Court to further shift the

balance of power in favor of insurance companies for the

purpose of reducing an insurer’s liability.

Properly interpreted, the computation required in ¶

4(a)(1) should be the difference between the insurer’s per

9

person limit ($100,000) and the underinsured’s per occurrence

limit as actually received (in this case, $25,000 per

plaintiff). Similarly, if it were necessary to determine the

per occurrence liability, the amount purchased by the

underinsured motorist ($50,000) should be deducted from the

amount of per occurrence coverage purchased from the insurer

($300,000).

Paragraph 4(a)(2) also supports a ruling in favor of

plaintiffs. That paragraph clarifies that an insurer will pay

benefits only for damages actually incurred, i.e., if an

insured is hurt by a driver with a $40,000 per person policy

limit and the insured incurs $60,000 in individual damages,

the insurance company need pay only $20,000, assuming an

insured has purchased a $100,000 per person underinsured­
motorist policy. This clause makes clear the insurer will pay

benefits to make an insured whole, but no more.

Paragraphs (4)(b)(1)-(4) also clarify that an insurer’s

liability will not be increased because of (1) the number of

vehicles for which premiums are charged in the declaration,

(2) the number of claims brought, (3) the number of people

injured, or (4) the number of automobiles involved in an

occurrence. On the basis of subsection (3) alone, one could

logically infer that benefits should not decrease as a result

of the number of people injured, i.e., if an insurer indicates

a benefit will not be increased just because more than one

person is injured, it is also reasonable to assume an insurer

will not decrease benefits for the same reason.

This conclusion is buttressed by the fact that defendant

10

sold the underinsurance coverage for a limit of $100,000 per

person and $300,000 per occurrence. This implies that at

least three insured parties could be compensated up to the

full per person limit if injured by an underinsured motorist.

Instead, the majority has adopted an interpretation that

prohibits full recovery where multiple parties are injured.

Finally, ¶ 4(c) clarifies that the benefits paid will be

reduced by any amount actually “paid or payable for the same

bodily injury.” Again, this subsection ensures that an

insured may not receive a duplicate payment for a single

injury. The text of this clause suggests the reduction will

be limited to that actually paid or logically payable for one

particular injury. I am persuaded that the insurer’s

interpretation of its contract renders ¶ 4(c) generally

superfluous and logically invalid. How can an insurer reduce

benefits by any amount “payable” to two people for their

injuries, where the “payable” amount—the res—cannot be paid to

more than one person? The problems with the text in ¶ 4(c)

echo the concerns raised with regard to ¶ 4(a)(1).

In sum, even if the insured purchaser actually reviewed

the terms of the contract and all its exclusions, it would

have remained impossible to anticipate the insurer’s

interpretation on the basis of the text of the contract

purchased. Only when read in light of the underinsured

negligent party’s contract could one predict the majority’s

interpretation. Moreover, this interpretation ignores the

significance of the sole negotiated term at issue in light of

¶ 4, which merely aims to clarify that the insured will be

11

made whole, but no more. Therefore, in light of the manner in

which the contract terms could be understood by a reasonable

lay person, I would hold in favor of plaintiffs.

III

The roots of the doctrine of reasonable expectations run

far deeper than the majority implies and could be properly

characterized as nothing more than an overt attempt to clarify

the scope of the parties’ contract. Applied in this case, I

suspect even the most experienced analyst would have failed to

predict the outcome affirmed by the majority. Because the

inquiry merely aids in the resolution of ambiguous insurance­
contract terms, I must respectfully dissent and would affirm

the decision of the Court of Appeals.

Michael F. Cavanagh

Marilyn Kelly

12

 S T A T E O F M I C H I G A N

SUPREME COURT

KAY WILKIE, personal representative

of the ESTATE OF PAUL K. WILKIE,

deceased, and JANNA LEE FRANK,

Plaintiffs-Appellee,

v No. 119295

AUTO-OWNERS INSURANCE COMPANY,

Defendant-Appellant.

___________________________________

KELLY, J. (dissenting).

I join Justice Cavanagh's dissenting opinion regarding

the rule of reasonable expectations. I write separately to

express my disagreement with the majority's holding that no

ambiguity exists in the contract terms under consideration.

Because I believe that the Court of Appeals properly found the

terms of the policy ambiguous and properly construed them

against defendant, their drafter, I would affirm.

I

A contractual provision is ambiguous if reasonably

susceptible to two different interpretations. Farm Bureau

Mutual Ins Co of Michigan v Nikkel, 460 Mich 558, 566; 596

NW2d 915 (1999).

The disagreement in this case surrounds the

interpretation of the "limit of liability clause" in the

underinsured motorist endorsement. That provision states:

4. LIMIT OF LIABILITY

a. Our Limit of Liability for Underinsured

Motorist Coverage shall not exceed the lowest of:

(1) the amount by which the Underinsured

Motorist Coverage limits stated in the Declarations

exceed the total limits of all bodily injury

liability bonds and policies available to the owner

or operator of the underinsured automobile; or

(2) the amount by which compensatory damages

for bodily injury exceed the total limits of those

bodily injury liability bonds and policies.

b. The Limit of Liability is not increased

because of the number of:

(1) automobiles shown or premiums charged in

the Declarations;

(2) claims made or suits brought;

(3) persons injured; or

(4) automobiles involved in the occurrence.

Under this provision, plaintiffs may recover underinsured

motorist benefits only up to the "Limit of Liability." The

"Limit of Liability" constitutes the difference between the

$100,000 per person maximum and the liability amount

"available to [Ward,] the owner or operator of the

underinsured automobile." Here, Ward's policy covered

$50,000 worth of liability per occurrence. Thus, Ward had

available $50,000 for payment to those claiming against him.

Ambiguity results from the use of "available" in this

contract.1 Webster's dictionary defines the term as

1
I note that the Court of Appeals in Auto-Owners Ins Co

v Leefers, 203 Mich App 5; 512 NW2d 324 (1993), interpreting

(continued...)

2

 1. suitable or ready for use; at hand . . . . 2.

readily obtainable; accessible . . . . 3. free or

ready to be seen, spoken to, employed, etc. . . . .

4. having sufficient power or efficacy; valid

. . . . [Random House Webster's College Dictionary

(1995).]

In a multiple claimant situation, these dictionary

definitions support two interpretations of the word. First,

"available" can mean the amount actually available to each

claimant against Ward, considering that the claimants will

split the benefits. Second, it can mean the amount

potentially available to each claimant against Ward, as if

only one claimant existed. Under the former interpretation,

the insurance company should reduce the $100,000 per person

limit by only $25,000, leaving a payment to each plaintiff of

$75,000. Under the latter interpretation, the insurance

company should reduce the $100,000 per person limit by

$50,000, leaving a payment to each plaintiff of $50,000.

Given the reasonableness of both interpretations, the

Court should affirm the decision of the Court of Appeals in

1
(...continued)

a different provision of an insurance contract written by the

present defendant, found "available" to be ambiguous. The

Court cited Hoffman v United Services Automobile Ass'n, 671 F

Supp 922, 924-925 (D Conn, 1987), which commented upon the

term as follows:

The word "available" could mean anything from

"in hand" or "actually received" to "within reach"

or "conceivably obtainable." . . . What is

available, or accessible or obtainable, can range

widely depending on what conduct or events are

necessary to bring the tangible object into

possession . . . . As the extent of those events

or conduct is not defined, the word is ambiguous.

The Leefers Court defined the term to mean those funds

actually or reasonably available to the insured. 203 Mich App

11-12.

3

holding this contract provision ambiguous.

II

The majority attempts to sidestep this ambiguity by

relying on ¶ 4(b)(2) and ¶ 4(b)(3) to interpret the word

"available" in ¶ 4(a). According to the majority, "[t]hese

later paragraphs settle any perceived ambiguity in ¶ 4(a)(1)

by stating that the amounts to be paid will not be increased

because of claims made, suits brought, or persons injured."

Ante at 10-11. The majority errs in relying on this

provision.

Paragraph 4(b) does not state that the "amounts to be

paid" will not be increased; rather, it states that the "Limit

of Liability" will not be increased. Though the difference is

subtle, the structure of the contract provisions makes the

difference critical to the contract's interpretation.

Paragraph 4(a) defines the limit of liability. Paragraph 4(b)

prevents an increase in that limit, but says nothing at all

about what the limit is in the first place. It is in

determining the limit of liability that we encounter the

ambiguous term "available" and its several possible meanings.2

Thus, the provisions on which the majority relies fail to

"settle any perceived ambiguity," ante at 10. Because my

examination of ¶¶ 4(b)(2) and (3) represents a reasonable

interpretation of the contract provisions, it supports the

conclusion that those provisions are ambiguous.

2
Indeed, plaintiffs do not claim that the limit should be

increased. Rather, they argue that defendant erred in

calculating the limit initially by setting it too low.

4

 III

In sum, the Court of Appeals properly held the contract

terms to be ambiguous. It was appropriate for the Court to

construe them against defendant. Clevenger v Allstate Ins Co,

443 Mich 646, 654; 505 NW2d 553 (1993). Therefore, I would

affirm the decision of the Court of Appeals.

Marilyn Kelly

5