Auto Club Insurance v. DeLaGarza 433 Mich. 208

Cavanagh, J.

We granted leave to consider whether, under the terms of the automobile insurance policy issued by plaintiff, the defendant insured is entitled to recover uninsured motorist benefits for the death of her spouse. To the extent that the defendant is entitled to recover for bodily injury to her spouse from the driver of the uninsured motor vehicle under the wrongful death act,1 we agree with the Court of Appeals that she is entitled to benefits under the terms of the uninsured motorist portion of the insurance contract.

i

The dispute between these parties arises from an automobile accident which occurred on September 2, 1984. The defendant’s spouse, Manuel S. DeLaGarza, was struck and killed by an uninsured motor vehicle while he was changing a tire on another uninsured vehicle alongside the highway. The defendant and her husband did not reside in *211the same household at the time of the accident, and they had lived apart for several years prior to that time.

The defendant sought benefits under the uninsured motorist portion of her insurance policy with plaintiff Auto Club Insurance Association. Auto Club denied the claim on the ground that it was not obligated to provide coverage because Mr. DeLaGarza was neither an insured person nor an occupant of an insured vehicle at the time of the accident.

After defendant filed a claim for arbitration, Auto Club filed the present declaratory judgment action, claiming that the applicable policy of insurance does not provide for uninsured motorist coverage for a nonresident spouse. Auto Club moved for summary disposition, pursuant to MCR 2.116(C)(10). Following a hearing on June 3, 1986, the trial court ruled that the insurance policy provides coverage even though the decedent was not a resident of defendant’s household. The court denied Auto Club’s motion for summary disposition and granted summary disposition in favor of defendant.

Plaintiff appealed in the Court of Appeals. The Court disagreed with the trial court and found that the policy language clearly excludes a nonresident spouse from coverage. The decision of the trial court was affirmed, however, on the ground that the defendant is an insured person and that the uninsured motorist coverage provided for in plaintiff’s policy does not require that the insured person seeking benefits be the one who sustained the bodily injury.

We granted plaintiff’s application for leave to appeal2 to consider whether or not the Court of *212Appeals correctly interpreted the uninsured motorist provision of the insurance contract.

ii

Defendant Mary DeLaGarza purchased an automobile insurance policy from Auto Club and paid an additional premium for uninsured motorist coverage. The uninsured motorist portion of the insurance contract provides:

We will pay damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an uninsured motor vehicle. Bodily injury must be caused by accident and arise out of the ownership, operation, maintenance or use of the uninsured motor vehicle.

The Court of Appeals agreed with the defendant that she is entitled to benefits under this provision because she is an insured person who is entitled to recover for bodily injury to her spouse from the driver of the uninsured motor vehicle under the wrongful death act. The Court explained:

Although when drafting this provision, plaintiff may have intended that the insured person seeking benefits under the policy be the one who sustained the bodily injury, plaintiff failed to include such limiting language. Thus, although plaintiff argues that the contract read as an entire instrument suggests that an insured may recover for only his or her own injuries, the language of the provision does not lend itself to such an interpretation.

Auto Club contends that the Court of Appeals gave a strained and forced construction to the terms of the policy, extending them beyond their plain meaning and ignoring the obvious intent of the policy language. According to Auto Club’s *213analysis, the policy, when read as a whole, only provides uninsured motorist coverage for injuries sustained by an insured person. Auto Club argues that the decedent cannot be considered an insured person because the general definition section of the policy requires a "spouse” to reside in the same household as the named insured.

Although we do not disagree with Auto Club’s claim that the decedent cannot be considered an insured person under the policy, our decision rests on the conclusion that defendant, the named insured, is entitled to coverage under the uninsured motorist provision as drafted by Auto Club. The appropriate construction of the terms of an automobile insurance policy was addressed in Raska v Farm Bureau Ins Co, 412 Mich 355, 362; 314 NW2d 440 (1982):

A contract is said to be ambiguous when its words may reasonably be understood in different ways.

If a fair reading of the entire contract of insurance leads one to understand that there is coverage under particular circumstances and another fair reading of it leads one to understand there is no coverage under the same circumstances the contract is ambiguous and should be construed against its drafter and in favor of coverage.

Yet if a contract, however inartfully worded or clumsily arranged, fairly admits of but one interpretation it may not be said to be ambiguous or, indeed, fatally unclear.

There can be no doubt that Mary DeLaGarza is an "insured person” under the terms of the policy. The death of DeLaGarza’s husband is within the policy’s definition of "bodily injury,” which includes the "death of any person.” Thus, the policy does not explicitly limit recovery for bodily injury to those injuries sustained by insured persons. Because defendant would have a cause of action *214for the wrongful death of her husband,3 she claims that she is entitled to coverage under the language of the policy as an insured person legally entitled to recover damages from the owner or operator of an uninsured motor vehicle.

We broadly define an ambiguity in an insurance policy to include contract provisions capable of conflicting interpretations,4 and we agree with the Court of Appeals that the contract of insurance at issue here is, at best, ambiguous. When an insurance contract is determined to be ambiguous and the rules of construction outlined by this Court in Raska are applied, the terms of the contract are construed against its drafter and in favor of coverage.5

Auto Club claims that it did not intend to contract for uninsured motorist coverage for the death of a nonresident spouse. Insurers may limit the risks they choose to assume and fix premiums accordingly. Lehr v Professional Underwriters, 296 Mich 693, 696; 296 NW 843 (1941). It is the insurer’s responsibility, however, to clearly express the insurance policy’s limitations on coverage.6

When, as in the present case, an insurer has failed to clearly express a limitation on coverage so as to fairly apprise the insured of the extent of the coverage purchased, it is appropriate to construe the provision under consideration against its *215drafter.7 This Court discussed this principle in Pietrantonio v Travelers Ins Co, 282 Mich 111, 116; 275 NW 786 (1937), stating:

It is a principle of law too well established in this jurisdiction and others to need discussion or citation of authorities, that a policy of insurance couched in language chosen by the insurer must be given the construction of which it is susceptible most favorable to the insured; that technical constructions of policies of insurance are not favored; and that exceptions in an insurance policy to the general liability provided for are to be strictly construed against the insurer. [Citation omitted.]

Although Auto Club claims that its policy clearly excludes coverage under the circumstances of this case, we cannot agree. It is appropriate for the insurer to bear the burden of any confusion which arises due to its failure to clearly state the limitations of the coverage purchased. If Auto Club intended to except wrongful death damages or to limit coverage to bodily injury sustained only by an insured person, it could have included limiting language in its policy of insurance.

We are not persuaded that our decision in Brad*216ley v Mid-Century Ins Co, 409 Mich 1; 294 NW2d 141 (1980), requires a contrary result. In Ruesing v Aetna Casualty & Surety Co, a case consolidated with Bradley, we considered a claim for uninsured motorist coverage similar to the claim presented here. Ruesing claimed that he was entitled to recover uninsured motorist benefits for the death of his son. His son had taken his automobile and had allowed a friend to drive. Due to the friend’s negligence, Ruesing’s vehicle was involved in an accident, and Ruesing’s son was killed. Because the liability portion of the automobile insurance policy did not provide coverage when Ruesing’s automobile was being driven without his permission, Ruesing sought benefits under the uninsured motorist portion of his policy. Ruesing argued that because he would be entitled to maintain a wrongful death action for the friend’s negligence, he was eligible for coverage. This Court denied coverage, reasoning:

Were we to accept this argument, we would attribute to the Legislature an intent to mandate coverage in all cases where a liability insured has a relative whose death was caused by a negligent uninsured motorist and whose property, had he died intestate, would devolve in any part upon the insured, although the relative did not reside in the household of the insured and may have been a distant relative living in a different state.

We think that the Legislature meant that uninsured motorist coverage must be provided to protect those "insured thereunder” when they themselves suffer "bodily injury, sickness or disease, including death, resulting therefrom” and not to protect them when loss is incurred as a result of personal injury sustained by others. [409 Mich 41-42.]

Our task in Bradley and its companion cases *217was to consider the effect of contractual limitations on uninsured motorist coverage. Prior to October 1, 1973, insurers were required by § 3010 of the Insurance Code8 to include uninsured motorist coverage in all liability policies unless the insured rejected the coverage. We determined that the principal purpose of § 3010 was to reduce claims against the motor vehicle accident claims fund, thereby protecting the fiscal integrity of the fund. The uninsured motorist amendment was repealed after the passage of the no-fault act because persons injured by uninsured motorists could then turn to the assigned claims facility as a source of recovery for damages except pain and suffering and excess economic loss. 409 Mich 52-53.

Unlike the present case, Ruesing required an interpretation of statutory language and considerations of legislative intent.9 The insurance policy language at issue in this case is not at odds with a statutory provision, and the Bradley decision actually provided the means for the insurer to have prevented coverage in situations similar to the present case. Different considerations, such as the relative bargaining power of the parties and the reasonable expectations of the insured, arise when a court is asked to interpret the provisions of a contract. Royal Globe Ins v Frankenmuth Mutual Ins Co, 419 Mich 565, 573; 357 NW2d 652 (1984).

We recognize that the insurance industry has an interest in ensuring that its obligations are predictable. We also recognize that insurers have a legitimate interest in avoiding the risk of incur*218ring liability for damages compensable under the wrongful death act. Due to the fact that consumers have little or no real bargaining power when purchasing insurance contracts, however, insurers are required to clearly state limitations on coverage, and insurers must bear the responsibility for the lack of clarity and precision in their insurance contracts.

Because a fair reading of Auto Club’s uninsured motorist provision leads to two reasonable conclusions, we hold that it is ambiguous. In accordance with generally accepted principles of contract interpretation, we construe that ambiguity against the drafter of the provision and in favor of coverage. The decision of the Court of Appeals is affirmed.

Brickley, Boyle, and Archer, JJ., concurred with Cavanagh, J.

Levin, J.

(dissenting). The primary function of uninsured motorist coverage1 is to provide protection to an injured insured person, not to provide protection to family members who may suffer loss (e.g., of consortium) as a result of another person’s injury.

Where an injured insured person dies, his personal representative may seek to recover for wrongful death under the uninsured motorist coverage. The question whether a spouse of the deceased person may also seek an uninsured motorist recovery will not, as a practical matter, arise because, however many insureds or policies providing uninsured motorist coverage there may be,2 *219recovery for loss caused by an uninsured motorist is generally limited to an aggregate of $20,000 for injury to one person.

The question here presented, whether the spouse of an injured person may recover under the uninsured motorist coverage, may arise where the injured person’s loss is less than $20,000 or, as here, the injured person is not an insured covered under the provision of a policy providing for loss caused by uninsured motorists. Because automobile insurance does not generally protect against loss other than direct loss suffered by an insured person, I would be inclined to hold, in accord with Bradley v Mid-Century Ins Co, 409 Mich 1, 41; 294 NW2d 141 (1980), that a spouse may not recover from her insurer for loss of consortium3 were it not for the language of the limits of liability provision in the instant case which appears to recognize that a claim for "derivative damages” may be asserted under the uninsured motorist coverage. This provision states that the limit of liability is $20,000 for bodily injury sustained by one "insured person,” *220and "[t]his limit also includes all claims for derivative damages allowed under the law.”4

The limits of liability provision thus appears to permit recovery, under the uninsured motorist coverage, by a spouse for loss of consortium, but only where the injured person is, as stated in the limits of liability provision, an "insured person” under the policy. DeLaGarza’s spouse was not, we all agree, an insured person under the policy.5

I am unable to join in the Court’s disposition on the basis that there may be another reading of the uninsured motorist provision, and there is thus an ambiguity. Recovery by an insured from his insurer for loss pf consortium arising as a result of physical injury to another person is beyond the ambit of automobile insurance and any reasonable expectation of a reasonable person who has purchased uninsured motorist coverage.

I would reverse the decision of the Court of Appeals.

Riley, C.J.

(dissenting). I agree with the general principle set forth by the majority that ambiguities within an insurance contract are to be construed in favor of coverage. As the majority notes, construction of the terms of an automobile insur*221anee policy was addressed by this Court in Raska v Farm Bureau Ins Co, 412 Mich 355, 362; 314 NW2d 440 (1982):1

A contract is said to be ambiguous when its words may reasonably be understood in different ways.

If a fair reading of the entire contract of insurance leads one to understand that there is coverage under particular circumstances and another fair reading of it leads one to understand there is no coverage under the same circumstances the contract is ambiguous and should be construed against its drafter and in favor of coverage.

Yet if a contract, however inartfully worded or clumsily arranged, fairly admits of but one interpretation it may not be said to be ambiguous or, indeed, fatally unclear. [Emphasis added.]

While the majority purports to follow the rule which requires a "fair reading of the entire contract,” in fact it has chosen to hold as ambiguous a fifteen-page insurance contract on the basis of a strained analysis of one sentence.

However, I believe that a fair reading of this automobile insurance contract indicates that the estranged husband of the defendant was not covered under the policy. Moreover, throughout the course of this matter, the defendant has never argued that her estranged husband was intended to be covered, or that she believed he was covered, under her policy. Therefore, I would hold that the uninsured motorist provision of the policy is not ambiguous and that the defendant is not entitled to benefits for the death of Mr. DeLaGarza.

i

The present dispute involves the section of the *222contract titled, "Part IV — Uninsured Motorists Insurance Coverage.” Specifically, under the subtitle "Uninsured Motorists Coverage,” it provides:

We will pay damages for bodily injury which an insured person is legally entitled to recover from the owner or operator of an uninsured motor vehicle. Bodily injury must be caused by accident and arise out of the ownership, operation, maintenance or use of the uninsured motor vehicle.[2]

The majority feels that the first sentence of this paragraph, "does not explicitly limit recovery for bodily injury to those injuries sustained by insured persons.” Ante, p 213. Thus, the majority argues that it could be reasonably understood to mean that the automobile insurance policy provides benefits for the wrongful death of the defendant’s estranged husband merely because he was struck by a hit-and-run motorist. I disagree.

A fair reading of the entire contract begins with the definitions of the emphasized words as provided in the policy. Looking to the definitions in the uninsured motorist section, "Insured Person(s) means: you, if an individual, and any relative, any other person occupying your car.” The general definition section at the beginning of the policy defines "you” to include your spouse. However, the policy definition of "spouse” is clearly limited to "your husband or wife if a resident of your household.” In this case, the defendant’s estranged husband was not a member of the insured’s household and had not been so for the seven years preceding his death. Therefore, as acknowledged by the majority, he was not an insured person under the policy._

*223The definition of "uninsured motor vehicle” includes "a hit-and-run motor vehicle of which the operator and owner are unknown and which makes physical contact with you or a relative, or a motor vehicle which an insured person is occupying . . . Using the same definitional analysis, Mr. DeLaGarza was neither a resident spouse nor an insured person with whom the hit- and-run driver made contact. Further, the car Mr. DeLaGarza was occupying at the time of his accident was not occupied by an insured person. Because Mr. DeLaGarza’s accident did not involve an insured person, an insured person’s automobile, or a car occupied by an insured person, I am not persuaded that the uninsured motorists provision is so ambiguous that it should be read to provide Mrs. DeLaGarza benefits as a result of her estranged husband’s death.

ii

12A Couch, Insurance (2d ed), §45:634, p 127, provides, "[a]n insured or an insured vehicle must be involved in the accident in order to collect under the [uninsured motorist] endorsement.” This Court followed the rule when it decided Ruesing v Aetna Casualty & Surety Co, a companion to Bradley v Mid-Century Ins Co, 409 Mich 1; 294 NW2d 141 (1980). In Ruesing, the insured argued that he should recover benefits under the uninsured motorist provision of his policy because he was legally entitled to recover for the death of his son under the wrongful death act. In rejecting this argument, this Court unanimously held:

Were we to accept this argument, we would attribute to the Legislature an intent to mandate coverage in all cases where a liability insured has *224a relative whose death was caused by a negligent uninsured motorist and whose property, had he died intestate, would devolve in any part upon the insured, although the relative did not reside in the household of the insured and may have been a distant relation living in a different state.

We think that the Legislature meant that uninsured motorist coverage must be provided to protect those "insured thereunder” when they themselves suffer "bodily injury, sickness or disease, including death, resulting therefrom” and not to protect them when loss is incurred as a result of personal injury sustained by others. [409 Mich 41-42.]

The majority attempts to distinguish Ruesing as "an interpretation of statutory language and considerations of legislative intent.” Ante, p 217. However, I remain unpersuaded. While it is true that the present action involves an insurance contract as opposed to a statute, the issue and the insured’s argument in Ruesing were identical to those currently before this Court. Also, the policy language in question in this case was taken verbatim from the statute interpreted in Ruesing, supra.3

It is not unreasonable to assume that insurance companies adopted standard uninsured motorist endorsements from the repealed statute with the expectation that courts would interpret such lan*225guage consistently. For nearly a decade, this Court has provided insurers a legitimate reason to expect that damages compensable under the wrongful death act would not be compensable under an uninsured motorist provision. Just as this Court refused to attribute to the Legislature an intent to "mandate coverage in all cases where a liability insured has a relative whose death was caused by a negligent uninsured motorist,” I would not now attribute such an intent to the plaintiff. To do so would expose all insurers to untold risks from which they reasonably expected to be protected.

in

The majority holds that the plaintiff "has failed to clearly express a limitation on coverage so as to fairly apprise the insured of the extent of the coverage purchased . . . .” Ante, p 214. The implication here is that the insured reasonably expected the extent of her coverage to include benefit payments for the death of her estranged husband. However, the insured has never argued that she expected her uninsured motorist coverage would extend to Mr. DeLaGarza.4

Moreover, the insured has never advanced any evidence of her expectations. During both Mrs. DeLaGarza’s deposition and the summary disposition hearing it was never contended that the insured reasonably expected to invoke her unin*226sured motorist provision as a vehicle to recover wrongful death benefits. In fact, Mrs. DeLaGarza’s initial argument was that the policy did not specifically exclude nonresident spouses from coverage. This argument was correctly rejected by the Court of Appeals. Nevertheless, the Court of Appeals found the uninsured motorist coverage subsection to be ambiguous.

I believe that the analysis offered by Professor Robert E. Keeton in his advancement of the doctrine of reasonable expectations is instructive:

The conclusion is inescapable that courts have sometimes invented ambiguity where none existed, then resolving the invented ambiguity contrary to the plainly expressed terms of the contract document. To extend the principle of resolving ambiguities against the draftsman in this fictional way not only causes confusion and uncertainty about the effective scope of judicial regulation of contract terms but also creates an impression of unprincipled judicial prejudice against insurers. If results in such cases are supportable at all, generally it is because the principle of honoring policyholders’ reasonable expectations applies. [Keeton, Insurance law rights at variance with policy provisions, 83 Harv LR 961, 972 (1970).]

Because the insured has not argued her reasonable expectations were any different than that of the insurer, the "ambiguity” being decided by the majority today appears to be judicially created. Thus, the majority raises the specter of Professor Keeton’s "unprincipled judicial prejudice” against insurers without the saving reason that it supports the reasonable expectations of this policyholder.5

*227CONCLUSION

The Raska Court said that a contract is ambiguous when its words may be "reasonably understood” in different ways. However, in limiting the scope of what is reasonable, this Court continued, "[s]till, the expectation that a contract will be enforceable other than according to its terms surely may not be said to be reasonable.” 412 Mich 362 (emphasis added). In pointing out that the insured does not always prevail if there is an ambiguity, the Court of Appeals has held that "[i]t is still the duty of the courts to determine the true intent of the parties insofar as this is possible. A patently unreasonable interpretation of a contractual ambiguity will not be employed merely to allow the insured to recover his losses.” Smith v Lumbermen’s Mutual Ins Co, 101 Mich App 78, 83; 300 NW2d 457 (1980).

A fair reading of the uninsured motorists section of the policy before us indicates that coverage only applies to the insured person, a resident spouse or relative, or any other person occupying the named insured’s car. Because Mr. DeLaGarza’s death did not involve any of these situations, and because it was not argued that the insured reasonably expected coverage for the death of her estranged husband, I do not find the insurance contract fatally ambiguous. Therefore, I would reverse the decision of the Court of Appeals.

Griffin, J., concurred with Riley, C.J._