Clevenger v. Allstate Insurance

Citations: 505 N.W.2d 553; 443 Mich. 646Docket: 93890, (Calendar No. 9)

Court: Michigan Supreme Court; September 8, 1993; Michigan; State Supreme Court

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In the case of Clevenger v. Allstate Insurance Company, the Michigan Supreme Court addressed whether Allstate's insurance obligations continued after the insured, JoAnn Williams, assigned the car title to Douglas Preece, who drove the vehicle using Williams' registration and insurance. The events unfolded on August 1, 1987, when Preece purchased a 1977 Pontiac from Williams and was allowed to operate it with her insurance until he could register it the following Monday. On August 2, Preece was involved in a head-on collision with Clifford Clevenger, resulting in injuries to Clevenger. Preece had no insurance, while Williams' policy with Allstate was still active; she did not cancel it until August 6, 1987, after learning of the accident. Clevenger received no-fault benefits and later sought a declaration that Allstate was required to defend and indemnify Preece and Williams in the tort claim. The trial court ruled in favor of Clevenger, determining Allstate had a duty to defend and indemnify, which led to Allstate's appeal to the Court of Appeals. The Michigan Supreme Court ultimately reversed the Court of Appeals' decision, affirming that the insurance policy remained effective at the time of the accident.

A divided panel reversed the lower court's grant of Clevenger's motion for summary disposition in an unpublished opinion from February 11, 1992 (Docket No. 120223). The majority found that a bona fide sale of the vehicle occurred, with Williams no longer owning it after endorsing the title, receiving full payment, and delivering it to Preece. Consequently, Williams was relieved of liability for any subsequent negligent operation, and Allstate had no duty to indemnify her. The Court determined that Williams, as the former owner, could not grant Preece permission to drive the vehicle, disqualifying him as a "permissive driver" under the policy, thus negating Allstate's duty to defend or indemnify him.

Judge Griffin dissented, arguing that Williams remained the vehicle's registrant, necessitating insurance under the no-fault act. The dissent emphasized that the vehicle was still classified as an "owned automobile," warranting coverage at the time of the accident. The no-fault act was enacted to protect individuals injured from automobile use, requiring both personal injury protection (PIP) and residual liability insurance. Violating these requirements incurs criminal penalties. The plaintiff contended that Allstate had an obligation to defend and indemnify Williams and Preece because Williams, as the registrant, was statutorily required to maintain insurance, and the policy was still active at the accident time. Allstate argued that Williams was no longer the vehicle's owner after August 1, 1987, and thus not liable for damages from Preece's negligence. Allstate claimed the policy terminated with Williams' loss of ownership, denying any duty to defend or indemnify Preece as a permissive driver.

The Insurance Code mandates that vehicle insurers provide minimum liability coverage for bodily injury, death, and property damage, extending this coverage to all permissive drivers unless explicitly excluded in the policy documents. Williams' policy included an agreement from Allstate to indemnify and defend for damages related to the ownership, maintenance, or use of the vehicle.

The insurance policy explicitly covers the "named insured" and any permissible drivers using the owned automobile with the named insured's permission. The "named insured" is defined as the individual specified in the declarations and their spouse if residing in the same household. In this case, James L. Williams is the named insured, and JoAnn Williams is also covered as his spouse. The policy defines "owned automobile" as the vehicle described in the declarations, specifically the 1977 Pontiac.

The insurer, Allstate, is obligated to indemnify and defend both JoAnn Williams and Douglas Preece, a permissive driver, for damages arising from Preece's use of the 1977 Pontiac, which Williams allowed him to drive. However, Allstate contends that after Williams assigned the title of the vehicle to Preece, it ceased to be an "owned vehicle" under the policy’s terms, citing that the policy applies to losses occurring during the policy period only for vehicles owned as stated in the declarations.

The court notes the principle that ambiguous provisions in insurance contracts are construed against the insurer and in favor of the insured. It emphasizes that an ambiguity exists when a reasonable interpretation can lead to different understandings of coverage. The policy does not condition coverage on the named insured holding legal title to the vehicle as long as the policy remains in force and its terms are followed. Furthermore, the general conditions section cited by Allstate pertains to the policy limits but also outlines the conditions under which the policy can be canceled, which Allstate fails to acknowledge.

The named insured has the right to cancel their insurance policy with Allstate by providing written notice or surrendering the policy, with cancellation effective either upon notice or surrender. The policy does not terminate liability coverage upon the transfer of the vehicle's title. Any ambiguity regarding the limits and termination of coverage will be interpreted against Allstate, confirming that the transfer of title does not relieve the insurer of liability. Williams canceled coverage for her Pontiac on August 6, 1987, after selling it, and Allstate acknowledged this cancellation effective August 7, 1987. However, since the accident occurred on August 2, 1987, the policy remained in effect, obligating Allstate to defend and indemnify Williams in the related tort action.

Allstate further contends that Williams is immune from damages due to her status as a seller, and that she lacked an "insurable interest" post-sale. However, Williams' status as the vehicle's registrant imposed a statutory obligation to maintain insurance, even if she was no longer the title holder. The court recognized that vehicle owners are liable for negligent operation if they permit others to drive, but not after a bona fide sale. It also pointed out that the law defines "owner" as the holder of legal title. Nevertheless, the statute requires the owner or registrant to maintain continuous insurance coverage, and failing to do so incurs criminal penalties for operating or permitting operation of an uninsured vehicle.

A misdemeanor conviction under the specified section incurs a fine ranging from $200 to $500, imprisonment for up to one year, or both. The terms "owner" and "registrant" are legally distinct categories, as clarified in prior court rulings. The motor vehicle code mandates that a registration certificate must be kept in the vehicle at all times and prohibits driving or allowing a vehicle to be driven if it is unregistered. Applications for registration renewal must include a valid insurance certificate. When a registered vehicle is sold, the registration plates must either be removed or transferred to an immediate family member, or retained for future use, with a timely application required for transfer to avoid the vehicle being treated as unregistered. The registration plate cannot be transferred to a new owner outside the immediate family unless specific conditions are met. The vehicle code also criminalizes operating a vehicle without a valid registration plate or lending a registration plate to someone not entitled to use it. If the owner dies, the registration plate remains valid until the end of the registration year or until ownership is transferred. These provisions suggest that an unexpired registration plate indicates valid registration and insurance, which can only be negated by the seller removing the plate and associated documents after a sale. In this instance, Mrs. Williams did not follow this procedure.

Williams voluntarily remained the insuring registrant of the Pontiac, as demonstrated by her testimony and by allowing Preece to operate the vehicle with her license plate and insurance documents present. Her lack of title did not exempt her from legislative mandates under the no-fault insurance act, which required registrants to maintain residual liability insurance under penalties for non-compliance. Mrs. Williams' insurable interest was based on potential personal financial loss due to the no-fault statute, overriding the necessity of ownership title. The dissenting opinion emphasizes that the no-fault act imposes broader insurance responsibilities than common law, asserting that Mrs. Williams complied with the insurance statute simply by remaining the registrant. The court concluded that Allstate has a duty to defend and indemnify Williams and Preece in the underlying tort action due to the express terms of their insurance contract, as Williams was compliant with the no-fault statute at the time Preece operated the vehicle. The decision of the Court of Appeals was reversed, and the case was remanded for further proceedings. However, dissenting opinions noted that while the policy between Williams and Allstate was active, it did not necessarily extend coverage to Preece, focusing on whether Preece qualifies as an "insured" under the terms of the policy.

If Mr. Preece is not classified as "an insured" under the policy, then it does not cover his use of the automobile, even if it is still considered an "owned automobile" due to being listed in the declarations. The policy defines insured individuals as the named insured, residents of the named insured's household, or any permissive users within their scope of permission. When ownership is transferred from Williams to Preece, Williams no longer has the authority to grant permission for the vehicle's use, thus excluding Preece from being a permissive user under the policy. The term "owned automobile" refers specifically to the vehicle described in the declarations and does not imply a broader definition of ownership. Upon the sale, Williams relinquished title and possession, which means he could not provide permission for use. Furthermore, the distinction between a permissive user and a transferee is highlighted by the liability risks; if the vehicle is sold, the previous owner is not liable for the new owner’s negligent driving. Therefore, Preece is not an insured as he does not meet any of the specified definitions in the policy. Additionally, the statutory requirement for an owner or registrant to maintain residual liability insurance does not automatically extend coverage to a new owner. Previous case law regarding PIP benefits does not apply to residual liability insurance, as PIP coverage operates under different statutory provisions. Thus, the contract language and legal principles indicate that Allstate is not obligated to indemnify or defend Preece in any lawsuits arising from his use of the vehicle.

PIP benefits are classified by the Court as independent of the insured's ownership of an automobile, akin to personal accident policies. The Court of Appeals ruled in Cason v Auto-Owners Ins Co that, unless a higher priority insurer exists, the insurer of the vehicle's registrant responsible for the injury is liable for PIP benefits. Unlike liability and damage insurance, PIP benefits do not depend on vehicle ownership. The insurance policy between Williams and Allstate does not mandate residual liability benefits for Preece, leading to the conclusion that Allstate is not obligated to provide these benefits under the no-fault act. The Court affirmed the Court of Appeals' decision that Allstate is not required to defend or indemnify Preece in a related tort case. Notably, Allstate conceded its duty to defend Williams in the underlying action, a point not contested in this Court. The discussion also references Michigan statutes regarding liability and indemnification, emphasizing that the transfer of ownership does not affect the insurer's obligations in this context. Lastly, it clarifies that prior cases cited by the Court of Appeals are distinguishable from the current situation.

MCL 257.216(1) was amended by 1988 PA 214 to allow a motor vehicle to be driven for three days after its purchase without obtaining registration, provided the driver has the assigned title and a dated bill of sale. The subsequent amendment by 1992 PA 102 removed "motor" before "vehicle" and changed the requirement to "showing the date of sale." This provision grants a temporary exemption from registration requirements but does not exempt the vehicle owner from the obligation to carry no-fault insurance. The no-fault act primarily addresses Personal Injury Protection (PIP) benefits, detailing various aspects including coverage, allowable expenses, survivor's loss, coordination with other benefits, and eligibility for PIP claims.