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Supreme Court's Republican majority rules in favor of insurers; over-rules 40 years of case law protecting innocent third-party victims

Titan Insurance Company sued its insured, McKinley Hyten, and two people she seriously injured in a car accident, Howard and Martha Holmes, seeking a declaratory judgment that it did not owe the Holmeses the $100,000.00  per person of liability coverage Hyten had purchased.  Until the case got to the Michigan Supreme Court, Titan was on the losing end of the arguments, with lower courts citing Michigan statutes and case precedent dating back to 1978.  In essence, the lower courts held that Michigan law won't allow an insurer to avoid an obligation to third parties if the insurer does not detect and promptly act upon its insured's fraud or misrepresentation.  The four Republicans on the Supreme Court, all heavily supported by the insurance industry and the Chamber of Commerce (whose membership is also heavily-insurance industry weighted), found arguments to dismiss the applicable statutes and previous cases.

Hyten's license was suspended within three years because of her poor driving record.  Her mother anticipated that Hyten would regain her license at a District Court hearing in August of 2007 and purchased a Titan auto policy with an application post-dated to that date:  the application denied that Hyten's license had ever been suspended but also granted Titan the authority to confirm her licensing status.  In fact, the judge did not approve Hyten's license recovery for another month, meaning that for the first month of the policy, Hyten's license was suspended.

Several months later, Hyten caused a wreck that badly injured the Holmeses.  Titan investigated, for the first time used due diligence to determine Hyten's driving record, and discovered that her license had been suspended.  It then filed the lawsuit seeking a ruling that its liability to Hyten and the Holmes should be limited because if it had known Hyten's driving record, it never would have assumed the risk of writing a policy on her.

As noted, the lower courts rejected Titan's argument.  They pointed to two Michigan statutes that limit an insurer's right to "cancel" a policy--even in cases of fraud--after approximately two months' time.  The lower courts also cited a 6-1 decision of the Michigan Supreme Court from 1978.  This case had held that the insurer could not revoke a policy if an innocent party had been injured in the meantime, and several similar decisions had been issued by the Court of Appeals, from 1976 on, limiting the insurer's right to revoke a policy that would benefit innocent third-parties where the insurer sought revocation based upon a "readily ascertainable" misrepresentation.  Obviously, all of these prior decisions reached the conclusion they did in reliance on the fact that insurers have ready access to a data base that allows them the capacity to independently assess risk, decide whether a driver should be insured, and then determine how much the driver should pay for risk coverage.

The Republican members of today's far more politicized (and insurance-subsidized) Court rejected this history and granted Titan the relief from indemnity it sought.  It primarily relied upon the fact that Titan would still owe the mandatory $20,000.00 of liability coverage required under no fault, so the insurance policy would not be "canceled"-- simply re-written.  The insurance-oriented majority decided that the statutory provisions that limit an insurer's ability to "cancel" auto or liability policies did not limit their ability to take any other remedies. 

Faced with a difficult mental juggling act, given that they were overturning forty years of settled law (and a 6-1 precedent of their own Court), the Republicans concluded that the Financial Responsibility Act didn't apply to Titan, despite its clear language:  "The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute whenever injury or damage covered by said motor vehicle liability policy occurs...[and] no fraud, misrepresentation, assumption of liabilty or other act of the insured in obtaining or retaining such policy...shall constitute a defense against [the insurer-judgment creditor]." 

The majority also held that Michigan's prior requirement that insurers conduct a reasonable investigation promptly or be limited in iwho considered this issue had surveyed the law of other states and expressly approved the latter policy--and then followed it for forty years--the current majority did not consider the decision sound "public policy."  It held that innocent victims had other means of protecting themselves from at-fault motorists (read "uninsured and underinsured motorist coverage"), and therefore private insurers should not be held to any duty of investigation.  Needless to say, this recourse to "other" self-insurance is fine for families who can afford it and have the insurance-savvy to know they need it:  it doesn't work as well for unsophisticated or poor families who are innocent victims of lying insureds and lazy insurers.  (After all, why require insurers to make a simple check for their insured's driving status, when they can grab premiums and cancel the coverage later, if necessary?)

Startlingly, even though the entire case was premised on Titan's claim that it would never have agreed to insure Hyten's risk if it had known of her driving record, the Court's majority actually concluded that "Risk assessment and the uncovering of fraud are distinct insurance processes and are not logically interrelated" in a manner that would limit an insurer's right to seek remedies other than "cancellation" [which is prohibited by law after an appropriate time period].  Therefore, the five Republicans ruled, "...there is simply no basis in the law to support a proposition that public policy requires a private business in these circumstances to maintain a source of funds for the benefit of a third party..."  Actually, there is a firm basis in the law:  the law requires that all motorists buy insurance in order to drive.  It also requires all insurers who write in Michigan to participate in a fund that provides benefits to innocent, uninsured injury victims (the "catastrophic claims fund").  This kind of hyperbole is an ear-mark of judicial activists, is mis-leading, intellectually dishonest and unworthy of those who are tagged to administer "justice." 

Thompson O’Neil, P.C.
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Traverse City, Michigan 49684
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