March 10, 2015
In a recent decision, the Michigan Court of Appeals reiterated that short-term automobile rental agreements, which attempt to shift responsibility for personal injury protection [“PIP”] insurance benefits back to the renter’s personal carrier, violate the no-fault act and are void.
In Fuller v GEICO, opinion of the Court of Appeals designated for publication, issued March 5, 2015 (Docket No. 319665), the Court of Appeals addressed the issue of responsibility for PIP benefits for automobile rental agreements of less than thirty days. In Fuller, Saundra House, a nonparty, rented a vehicle for one week from Lakeside Car Rental while her own vehicle was undergoing repairs. House allowed a friend, plaintiff Gregory Fuller, to drive the rented car with Fuller’s wife, Patrice Fuller, as his passenger. The Fullers were involved in an accident while driving the rented car and both were injured.
The Lakeside rental agreement provided that House’s GEICO policy would be first in priority for any personal or property damage claims that arose from use of the vehicle. The Fullers did not own a vehicle and were not covered under a resident relative’s policy so they sought PIP benefits from House’s carrier, GEICO. GEICO rejected the claim and the Fullers filed suit seeking a judicial declaration of coverage and a ruling that GEICO had violated the no-fault statue.
In holding that Lakeside was liable for PIP benefits, the panel first noted Lakeside remained the rental vehicle’s statutory owner and was prohibited from shifting that burden onto a short-term renter. The panel was guided by the Michigan Supreme Court’s decision in State Farm v Enterprise Leasing Co., 452 Mich 25; 549 NW2d 345 (1996). In State Farm, the Supreme Court held that vehicle owners, including the car rental companies, are required to provide primary residual liability coverage for their vehicles and all permissive users of their vehicles. Neither vehicle owners nor drivers are permitted to shift responsibility for coverage under the no-fault act.
Under MCL 500.3101, House was not the vehicle’s statutory owner because she did not rent the vehicle for greater than 30 days; she did not hold legal title to the vehicle, and she did not have the immediate right of possession of the vehicle under an installment sale contract. The panel noted that a person can only become the owner or registrant of a rental vehicle if the term is for more than 30 days.
Citing State Farm, the panel also noted that Michigan law prohibits rental car agencies from shifting the burden of paying PIP benefits onto its renters’ insurance policies. Absent a statutory exception, rental car companies remain the owners of their vehicles and cannot attempt to defeat the provisions of the no-fault act that require owners to be primarily responsible for insurance coverage on their vehicles. Therefore, the Fuller Court determined the Fullers had sued the wrong insurance company. Under the no-fault act, the Fullers were required to provide written notice to Lakeside’s carrier of their claim for PIP benefits.
Interestingly, despite evidence that a GEICO adjuster acknowledged that GEICO received documents supporting the Fullers’ “eligibility for coverage under the GEICO policy” and that GEICO even scheduled the Fullers for independent medical exams to assist in GEICO’s investigation (for which they did not appear), the panel rejected the Fullers’ equitable estoppel argument that GEICO had lulled them into sitting on their rights by implying that GEICO would provide PIP benefits. The panel reasoned that the Fullers must have realized when they filed their suit against GEICO on October 24, 2012 – just weeks before the expiration of the one year-back notice period on November 11, 2012 – that GEICO did not intend to pay PIP benefits and that they would have to look elsewhere for other sources of coverage.
All told, Fuller is significant in that it extends long-standing Michigan public policy which prohibits attempts by car rental agencies to shift statutorily-mandated liability benefits to the PIP and property protection arenas, at least in agreements for less than 30 days. The decision is also significant in that it reiterates previous higher court holdings that the one year-back rule will be enforced strictly and that attempts to circumvent the one year-back through the application of equitable doctrines will continue to be used only in exceptional circumstances.
From the Editor:
CORRECTION: In the March 6, 2015 LawFax, the article referenced MCL 500.3145(1) when in fact, it should have referenced MCL 500.3114(1).
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