Change May Be on the Horizon for Michigan’s Insurable-Interest Requirement in Auto Cases

Change May Be on the Horizon for Michigan’s Insurable-Interest Requirement in Auto Cases

06/07/2020

In MemberSelect Ins Co v Flesher, ___ Mich App ___; ___ NW2d ___ (2020) (Docket No. 348571), the Michigan Court of Appeals considered the insurable-interest requirement for auto policies. It held that Kelly Fetzer had a sufficient interest in her adult son’s well-being to support her insurance policy, which covered a vehicle owned by and registered to her son. The opinion’s significance may go beyond this holding. MemberSelect expands on older case law that traced the origins of the insurable-interest requirement, ultimately questioning whether the insurable-interest requirement should apply to auto policies at all.

Background on MemberSelect

MemberSelect arose from a hit-and-run accident. Kenneth Flesher was riding his motorcycle when Nicholas Fetzer’s GMC Yukon allegedly struck him. MemberSelect Insurance Company insured the Yukon under a policy identifying Kelly Fetzer—Nicholas’s mother—as the principal named insured.

Kenneth sued Nicholas for negligence. MemberSelect assigned counsel to represent Nicholas, but it also initiated a separate action for declaratory relief. Specifically, MemberSelect sought a declaration that Kelly had no insurable interest in Nicholas’s Yukon, such that the policy covering it was void. The trial court consolidated the two cases for discovery.

During their depositions, the Fetzers testified that Nicholas asked Kelly to insure the Yukon under her policy because the premiums were cheaper. Kelly testified that she never drove the vehicle, and Nicholas didn’t live with her at the time of the accident. Kelly paid the monthly premiums to MemberSelect, and Nicholas reimbursed her for the amounts related to the Yukon.

In Kenneth’s negligence action, the trial court granted summary disposition in Nicholas’s and MemberSelect’s favor, holding that there was insufficient evidence that Nicholas’s Yukon was involved in the accident. Instead of declaring the coverage issue moot, however, the court issued a declaratory judgment finding that Kelly had an insurable interest in her son’s car.

The Court of Appeals’ Rationale

The Court of Appeals affirmed the trial court’s ruling. It began by exploring the origins of the public-policy rule that an insurance policy is void without an insurable interest. The Court explained that the insurable-interest requirement arose from a desire to avoid insurance payouts to those who lacked an underlying loss. If an insured can receive payment without actually suffering a loss, there may be an incentive to commit a wrongful act to cause the payout.

Citing its opinion in Allstate v State Farm Mut Auto Ins Co, 230 Mich App 434, 439; 584 NW2d 355 (1998), the Court of Appeals questioned whether this rationale applies to automobile-liability insurance at all. The Court explained that these public-policy concerns are not implicated when the policyholder is unable to collect cash under the policy. But the Court also recognized that it had to follow the Michigan Supreme Court’s opinion in  Clevenger v Allstate Ins Co, 443 Mich 646; 505 NW2d 552 (1993), which applied the insurable-interest requirement to auto policies. Lacking the authority to do away with the insurable-interest requirement altogether, the Court then considered whether Kelly had a sufficient interest to support the policy insuring Nicholas’s Yukon.

The Court first noted that, under Allstate and Clevenger, owners and registrants have insurable interests in their automobiles. This is because the no-fault act requires owners and registrants to maintain no-fault insurance and prescribes criminal penalties for their failure to do so. So, an insurable interest in this context depends not on ownership, but upon personal pecuniary damages under the no-fault act.

But the Court of Appeals also recognized that owners and registrants aren’t the only parties who may have an insurable interest sufficient to support a liability insurance policy under Allstate and Clevenger. Rather, the existence of an insurable interest depends on the insured’s interest in the property or life insured under the contract. Relatedly, Michigan’s no-fault insurance requirements are not simply for the policyholder’s or insured’s benefit. They also protect the public at large from the devastation of automobile accidents.

Ultimately, citing its opinion in Morrison v Secura Ins, 286 Mich App 569, 572; 781 NW2d 151 (2009), the Court of Appeals emphasized that family members share their lives and property in a unique way, and that public policy attributes a special status to the family unit. Within this context, Kelly had a sufficient insurable interest in her son‘s well-being, so the insurance policy wasn’t void on public policy grounds.

The Court of Appeals found further support for this conclusion in the Michigan Supreme Court’s recent opinion in Dye v Esurance Prop & Cas Ins Co, 504 Mich 167, 193; 934 NW2d 674 (2019). There, the Court held that the statutory obligation to maintain insurance is satisfied so long as someone purchases insurance for a vehicle. Under Dye, the availability of no-fault benefits doesn’t depend on who obtained the no-fault insurance policy. But the Court of Appeals noted that Dye “demonstrates that tensions may exist between the goals of the no-fault act and the application of the [policy-based] ‘insurable interest’ rule so as to void an insurance policy from its inception.” MemberSelect, slip op at 8.

What’s Next for Insurable Interests?

As a published opinion, Memberselect is binding precedent. It’s the law for now. But the landscape could change. At the end of its opinion, the Court of Appeals invited the Michigan Supreme Court to review the issue. It noted that it “would … be delighted if our Supreme Court would take the opportunity in this or some other case to clarify the insurable interest requirement, its applicability in the context of automobile liability insurance, and the continued viability of Clevenger in that regard.” MemberSelect, slip op at 6.

Time will tell whether the Supreme Court will accept the Court of Appeals’ invitation to clarify these legal principles. In the meantime, MemberSelect cautions insurers to consider familial relationships when examining insurable interests. And there may be a reassessment of what an “insurable interest” means in Michigan’s future.


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