Author(s): Daniel Saylor


In a newly issued decision by the Michigan Court of Appeals, an insurance policy provision that reduces otherwise available liability coverage of $300,000 per person, $500,000 per accident, down to the statutory minimum of $20,000 per person, $40,000 per accident for family member versus family member claims, was upheld as valid and enforceable. The case is Ruzak v USAA Insurance (unpublished opinion No. 274993, June 24, 2008).

Plaintiff Cynthia Ruzak was seriously injured in a single-vehicle accident when the pick-up truck in which she was a passenger side-swiped a utility pole then struck a tree. The truck was being operated by her husband, Jay Ruzak, who carried insurance issued by Defendant, United Services Automobile Association (“USAA”). Mrs. Ruzak sued her husband, seeking recovery of the entire $300,000.00 in liability coverage under his USAA policy. His negligence was beyond dispute.

On behalf of its insured, USAA offered what it viewed as the full amount its applicable policy limits — $20,000.00 — prompting Mrs. Ruzak to seek declaratory relief as to the true amount of coverage available. According to the policy’s declarations, the insured generally was provided with liability protection in the amount of $300,000

per person with a maximum of $500,000 per accident. Contained within the policy, however, was the following exclusion provision, commonly referred to as an intra-family limitation clause:

“C. There is no coverage for BI [bodily injury] for which a covered person becomes legally responsible to pay a member of that covered person’s family residing in that covered person’s household. This exclusion applies only to the extent that the limits of liability for this coverage exceeds $20,000 for each person or $40,000 for each accident.”

The effect of this clause was to reduce from $300,000 to $20,000 the liability insurance available for negligence claims brought against the insured by another family member in the same household. The case came down to whether the provision actually said what it appeared to say and, if so, whether a court should enforce it.

The trial court rejected the plaintiff’s principal contention that the clause was “ambiguous”, reluctantly concluding that the intent of the provision is clear. Yet the court nevertheless refused to enforce the clause, regarding the insurer’s attempt to reduce available coverage in all cases between family members as “repugnant”, “reprehensible” and “unconscionable”. The court thus held Mrs. Ruzak to recover a full $300,000 in damages from her husband’s insurer, based on the contingent agreement reached between the parties that turned on the outcome of the legal ruling. The insurer had preserved its right to appeal, however, and it did so to challenge the trial court’s rejection of the limitation clause.

The Court of Appeals agreed with the trial court insofar as the claim of “ambiguity” was concerned. Noting that a policy provision is ambiguous only “if it irreconcilably conflicts with another provision or ‘when it is equally susceptible to more than a single meaning’”, (emphasis supplied by the quoted Supreme Court opinion), the Court of Appeals agreed with USAA that this clause is clear.

On the question of the clause’s legal validity, however, the Court of Appeals reversed the trial court’s ruling and held the limitation provision to be in accord with Michigan law. In regarding the clause as “repugnant”, violative of public policy and fundamentally unfair to policy holders, the trial court “improperly substituted its own policy choice in resolving this matter in favor of plaintiff. A court may not merely substitute its personal public policy choices.” Ruzak opinion, p. 3.

The Court of Appeals proceeded to note that the challenged clause actually conformed to Michigan law, since it provides the insured with the requisite $20,000/$40,000 liability coverage, even if it provided greater coverage in most other circumstances. Nor is the clause “unconscionable”, according to the appellate court, since the person claiming that the clause is unfair was not left without choices — “Jay was free to accept the policy terms or reject them and to obtain automobile insurance through another provider”. Ruzak opinion, p. 4.

As her final argument raised on appeal, Plaintiff claimed that USAA never provided the Ruzaks with special notice at the time it added the subject intra-family limitation clause to their policy. Under the so-called “renewal rule” (see, Koski v Allstate Ins Co, 213 Mich App 166, 170 (1995)), where an insurer issues a renewal policy without calling the insured’s attention to a reduction in coverage, the insurer is bound to the greater coverage in the earlier policy. Since this assertion was not made in the trial court, however, the Court of Appeals lacked a sufficient record to resolve the issue and thus remanded the case to the trial court for determination of whether

or not the clause had been added after Mr. Ruzak bought the policy and, if so, whether actual notice of the change in coverage had been provided.

The opinion in Ruzak v USAA Insurance, although unpublished (and thus does not qualify as “binding precedent” in subsequent cases), is now the second such opinion upholding a step-down provision for auto liability coverage in intra-family negligence claims, joining GEICO Indemnity Ins Co v Williamson (unpublished opinion No. 267618, August 17, 2006).

The Ruzak case was defended on behalf of USAA at trial and in the Court of Appeals by Garan Lucow Miller attorneys, John Sharp and Daniel Saylor.


I have been asked repeatedly to comment on individuals who transport properly insured motor vehicles into this state. I had previously published my analysis on that issue, which I again append as Attachment 1 to this Law Fax.2 Inresponsetomycomments,severalinsurershavevoluntarilyextendedagraceperiodfornewMichigan residents to secure mandatory Michigan no fault coverage. Other insurers, however, have taken a more restrictive approach which, quite frankly, is supported by the case law.

Recently, one of my clients requested advice on an individual who had moved to Michigan and clearly intended to establish residency in this state. She was subsequently involved in an accident and sought Michigan no fault benefits, arguing that the insurer lacked authority to deny the claim. My letter is appended as Attachment 2, same indicating that the claimant was actually excluded under Section 3113(b), because she was in violation of the mandatory registration and insurance provisions of the Motor Vehicle Code and the Michigan No Fault Act.

Subsequently, on May 8, 2008, the Michigan Court of Appeals issued an opinion in the matter of Jones v SBC Teleholdings Inc, COA #278213 (May 8, 2008) which supports the proposition that an individual who lives in Michigan, but is insured under a policy issued in a foreign state, does not have the right to assert any of the grace periods set forth in either the no fault or motor vehicle codes.

In the Jones case, Plaintiff sought tort recovery for her non-economic loss arising from a motor vehicle accident in Michigan. At the time of the accident, Ms. Jones was the titled owner of a motor vehicle which was insured under Georgia law and had been transported to Michigan just several days before the accident. Ms. Jones was operating that vehicle when she was struck and injured by the Defendant. The Defendants argued that Ms.

Jones was excluded from pursuing non-economic loss pursuant to MCL 500.3135(2)(c). That provision disallows non-economic loss to the owner/operator of a motor vehicle which fails to comply with the mandatory insurance provisions of Section 3101(1).

In response, Ms. Jones argued that the vehicle had only been in Michigan for a few days and, pursuant to MCL 500.3102(1), was subject to a 30 day grace period before it was required to be insured. The Court of Appeals rejected that argument, stating as follows:

“It is undisputed that the vehicle plaintiff was driving was titled in her name. Plaintiff presented evidence that although the vehicle was titled in her name, the vehicle remained in Georgia, her father obtained insurance on the vehicle in Georgia, and her step-mother brought the vehicle to plaintiff in Pontiac just days before the accident. Plaintiff also testified that she had been living and working in Michigan since September 2003. She had a Michigan driver’s license and her children were enrolled in school here. While plaintiff disputes that these facts are sufficient to establish residency, she sets forth no facts on which she bases her claim of non- residency, and, indeed, her testimony supports that she was a resident of Michigan and was only in Georgia temporarily.

Plaintiff also asserts that the circuit court erred in its reading of §3102(1), and that, correctly interpreted, that provision grants a thirty-day grace period to resident registrants of vehicles. While such a grace period may, indeed, make sense under the facts of this case, we do not read the statute as so providing. ‘Nonresident’ clearly modifies both ‘owner’ and ‘registrant.’ Thus, because §3102(1) is limited to nonresident owners and registrants of vehicles, and plaintiff was a resident, the statute is inapplicable. For the same reason, MCL 257.243 is inapplicable because it too applies to nonresidents.

Because plaintiff was a resident of Michigan and was driving her car on the highways of this state, she was required to register and insure the vehicle. Therefore, the trial court did not err in granting defendants’ motion.”

While Jones is an unpublished decision, it reaffirms a line of cases which, quite clearly, support the following conclusions:

1. The owner of a motor vehicle, if a resident of the state of Michigan, has no grace period with respect to registering and insuring the vehicle under the provisions of the Michigan Motor Vehicle Code and the Michigan No Fault Act.

2. A Michigan resident who owns a motor vehicle insured in a foreign state is not entitled to Michigan no fault benefits if injured while occupying or struck by that vehicle pursuant to MCL 500.3113(b).

3. Neither Section 3163(1) or the Financial Responsibility Clause in the contract of insurance can be applied to a situation where the owner of the scheduled auto has become a Michigan resident.

4. A Michigan resident who is the owner and operator of a motor vehicle insured in a foreign state is excluded from tort recovery for non-economic loss per MCL 500.3135(2)(c).

It seems obvious that the typical insurance consumer would not appreciate the need to register and insure a motor vehicle immediately upon assuming residency in the state of Michigan. Nonetheless, that is clearly and unequivocally the present status of Michigan law. Insurers may wish to consider a contractual grace period for its insureds and their family members, who would otherwise fall victim to this harsh application of the Michigan statutes and case law. If insurers choose to grant a grace period, however, same should be a matter of public record and applied uniformly to allow a reasonable period of time to conform the policy of insurance to Michigan law.