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Dealer's insurer must provide primary coverage to customers

The No Fault Act requires vehicle owners' insurers to provide "primary" insurance coverage to all consensual users of the vehicle.  Over the years, self-insurers and insurers writing commercial insurance have attempted to side-step this obligation by writing exclusions and limitations into policies.  In a fairly significant ruling last decade, Enterprise Leasing was required to provide primary coverage for rented vehicles and was not allowed to limit its coverage to the statutory minimum of $20,000.00 per injury.  This month, the court rejected Auto Owners Insurance Company's effort to deflect primary coverage on so-called "garage customers" of dealerships.

Auto-Owners wrote one million dollars of liability coverage on Grand Greenville, Inc., a used car dealership.  Later in the policy, however, it purported to limit this coverage to those "users" who were uninsured:  all other drivers' insurance coverage became primary under the policy language.  The Court noted that in Citizens v. Federated, the Supreme Court had previously refused to allow insurers to re-write the statutory priority provisions to make a driver's coverage primary, rather than the owner's.  It reached a similar conclusion with respect to rental agencies in the State Farm v. Enterprise Leasing Co., case in 1996.  The Court had concluded that the insurer could not limit its exposure to the statutory minimum coverage under these circumstances.

Because these attempts to shift primary coverage to a driver or a driver's insurer [rather than the owner's, as required by law] violated the public policy of the state, the exclusionary or limiting language in the owner's policy was rendered void and unenforcible.  The Court had further held that where an insurer knowingly wrote a void policy provision of this nature, and nonetheless sold a higher limit of coverage that attempted to take advantage of the void provision to reduce coverage limits to the statutory minimum, the insurer would be required to fulfill the actual insurance obligation of the policy it sold.

The Court of Appeals found no basis to distinguish the present case from the Parmalee decision several years ago, where the Court held that "Farmers' blatant violation of the long-held public policy in this case is offensive and should not be rewarded,"  and concluded that Auto Owners' could not enforce its void policy language that purported to render the driver's coverage primary.  Further, since the purported shift of primary coverage was against public policy and should have been known to be illegal by Auto Owners, Auto Owners could not avail itself of the contract language and the line of decisions that would allow it to limit its primary coverage to the statutory minimum.

The case is Auto Owners Insurance Co. v. Victor Martin and State Farm.

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