Declaratory judgment action by Auto Owners results in appellate win on issue of reformation of policy
When William Morse and his wife were badly hurt in a car accident in Hawaii involving a rental van, Auto Owners denied their right to PIP benefits and sued them and their health care providers, seeking a ruling that they weren't covered for PIP benefits. Auto Owners argued that the policy written with their son and his corporation should not apply to the Morses, and that the Morses had no standing to argue coverage. The Morses were identified as 'added drivers" on the policy which insured seven different vehicles.
The Morses sought to "reform" the policy to comport with the coverages that were intended, and the trial judge granted them partial summary disposition. The Court of Appeals reversed. It held that while the Morses had "standing" to dispute the issue, the judge was mistaken in allowing the contract of insurance to be reformed: reformation requires proof of "fraud, mutual mistake or inequitable conduct." Since the corporate owner of the insureds' vehicles was required to carry coverage, the policy, as written, could be enforced because the corporate owner had "an insurable interest." Therefore, it didn't matter that it didn't provide PIP benefits to the Morses when occupying a different vehicle. The court also held that it didn't improperly shift the burden of paying PIP benefits to the Assigned Claims Plan, because in this instance the injuries occurred outside the State of Michigan where the ACF would not provide coverage.
The latter ruling seems inconsistent with public policy, however, as it does seem like the policy inappropriately shifted the PIP risk: it just so happened that in this instance, geography played a role in letting all the insurers off the hook.