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Court rejects insurers' claim that courts cannot enforce an illusory promise in an insurance contract

Foremost Insurance Company refused to pay Uninsured Motorist benefits to Debra Ile after her husband Darryl was killed and she was severely injured in a car-motorcycle collision.  The Iles had bought "Uninsured/Underinsured Motorist Coverage" [UM/UIM] from Foremost in the amount of $20,000.00 per injury and $40,000.00 per occurrence, and paid a premium for this coverage.  The at-fault was insured for $20,000.00 per injury, the statutory minimum in Michigan, and on that basis, Foremost argued that it owed nothing to the Iles under the UM/UIM provision.

The Iles family sued, arguing that Foremost had charged them for "illusory" UIM coverage and made an illusory promise of UIM coverage, since any policy written in Michigan or any other state would render the Iles ineligible for UIM coverage--given the low limits of the UIM policy.  If a Michigan resident bought no fault car insurance coverage, the policy was required to include $20,000.00 of liability coverage--and under the policy language, this minimum level of liability coverage would "wipe out" any recovery of UIM benefits. 

Similarly, under the plain language of the Foremost UIM policy, a liability policy purchased by an at-fault motorist in another state allowing a lower liability limit would also render the insureds ineligible for UIM coverage.  Therefore, the sale of UIM coverage in the amount of $20,000.00 to the Iles was illusory because there was no possible scenario under which the insureds would be allowed to collect the promised benefit.

The trial court agreed with Mrs. Iles' attorneys' argument, ruled the UIM coverage promise "illusory," and enforced the "reasonable expectation" of the insured by adding the $20,000.00 of UIM coverage to the available $20,000.00 of liability coverage purchased by the at-fault.  It rejected Foremost's argument that the Court should not treat the coverage as both uninsured and underinsured, and should treat it as a combined policy that did not actually promise UIM benefits.  All four judges who have reviewed the language rejected this interpretation.

The Insurance Institute of Michigan filed an amicus brief in which it  argued that Michigan Courts lacks jurisdiction to enforce the "illusory" promise made by an insurance company (citing an Engler Majority Supreme Court holding from several years ago).  The Court of Appeals judges noted that Foremost had not briefed this issue on appeal--thereby rendering the industry lobbyists' argument unsustainable in this case.  The judges also pointed out that while the Engler Justices did reject the widely-accepted holding that an insurance policy must fulfill the "reasonable expectation of the insured," the Court in this case did not refer to the "reasonable expectation" argument until after it determined that the unambiguous policy language contained an illusory promise of coverage.

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