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Thursday, June 18, 2009 CAR DEALERSHIP'S INSURER IS PRIORITY INSURER IN THIRD-PARTY SUIT BROUGHT AGAINST TEST-DRIVING CUSTOMER By: Laura J. Garlinghouse, Esq. |
General Litigation Group Leaders
Scott L. Mandel Attorneys
Zachary W. Behler |
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On June 16, 2009, the Michigan Court of Appeals held in a published opinion that a car dealership's insurer was the priority insurer in a third-party action brought against a customer who was test driving the dealership's vehicle. Auto-Owners Ins Co v Martin et al, No. 281482 (June 16, 2009). While test driving the vehicle, a customer of a car dealership was involved in a motor vehicle accident with a third party. The third party brought a negligence action against the customer, and a priority dispute arose between the dealership's insurer, Auto-Owners, and the customer's insurer, State Farm. The dealership's policy provided $1 million in liability coverage, but it attempted to exclude garage customers who had their own insurance (in other words, the policy attempted to modify the priority rules of the no-fault act). The trial court held that Auto-Owners was the primary insurer only for $20,000 of liability coverage. The Court of Appeals reversed. The court first noted that owners (rather than drivers) are primarily liable for a vehicle's insurance. The court then held that because every no-fault policy must provide at least $20,000 in liability coverage for a single injury, Auto-Owners could not exclude garage customers from coverage. The court therefore struck the provision that excluded garage customers and held that Auto-Owners was required to provide liability coverage to the customer up to the $1 million policy limit - not the $20,000 minimum coverage required by the no-fault act. The court reasoned that Auto-Owners should have known that the exclusion was invalid based on prior case law, and thus Auto-Owners was primarily liable up to its policy limit. The court also held that Auto-Owners was required to defend the customer. This case shows the potential consequences of attempting to contractually modify the priority rules of the no-fault act. It is not yet known whether Auto-Owners will seek leave to appeal to the Michigan Supreme Court. Laura J. Garlinghouse, Esq., practices in the Grand Rapids office of Foster, Swift, Collins & Smith. LGarlinghouse@FosterSwift.com; 616-726-2238. |
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