SHIRLEY RORY V CONTINENTAL INSURANCE COMPANY
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Michigan Supreme Court
Lansing, Michigan
Chief Justice:
Opinion
Justices:
Clifford W. Taylor
Michael F. Cavanagh
Elizabeth A. Weaver
Marilyn Kelly
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman
JULY 28, 2005
SHIRLEY RORY and ETHEL WOODS,
Plaintiffs-Appellees,
v
No. 126747
CONTINENTAL INSURANCE COMPANY,
a/k/a CNA INSURANCE COMPANY
Defendant-Appellant.
_______________________________
BEFORE THE ENTIRE BENCH
YOUNG, J.
In this case, the trial court refused to enforce the
one-year contractual limitations period contained in the
insurance policy issued to plaintiffs. The trial court did
so
because
it
concluded
that
the
one-year
limitations
provision was “unfair,” unreasonable, and an unenforceable
adhesion
defendant
clause.
The
Continental
Court
of
Insurance
Appeals
Company
affirmed,
and
(Continental)
appeals.
This case raises two fundamental questions of contract
law: (1) are insurance contracts subject to a standard of
enforcement
contracts,
different
and
(2)
from
under
that
what
applicable
conditions
to
other
a
court
may
disregard and refuse to enforce unambiguous contract terms?
We hold, first, that insurance policies are subject to
the same contract construction principles that apply to any
other
species
of
contract.
Second,
unless
a
contract
provision violates law or one of the traditional defenses
to the enforceability of a contract applies, a court must
construe
and
written.
We
apply
unambiguous
reiterate
that
contract
the
provisions
judiciary
is
as
without
authority to modify unambiguous contracts or rebalance the
contractual
because
such
equities
fundamental
subjective
struck
by
principles
post
hoc
the
of
contracting
contract
judicial
law
parties
preclude
determinations
of
“reasonableness” as a basis upon which courts may refuse to
enforce unambiguous contractual provisions.
Finally,
in
addition
to
these
traditional
contract
principles, in this case involving an insurance contract,
the
Legislature
has
enacted
a
statute
that
permits
insurance contract provisions to be evaluated and rejected
on
the
basis
of
“reasonableness.”
The
Legislature
has
explicitly assigned this task to the Commissioner of the
Office of Financial and Insurance Services (Commissioner)
rather than the judiciary. The Commissioner has allowed the
2
Continental insurance policy form to be issued and used in
Michigan. No party here has challenged the Commissioner’s
action to allow the Continental policy to be issued or used
in this state.
Accordingly, we reverse the Court of Appeals decision
and remand the case to the circuit court for entry of an
order of summary disposition in favor of defendant.
I.
Facts and Procedural History
Plaintiffs maintained an automobile insurance policy
with
defendant,
which
included
uninsured motorist benefits.
optional
coverage
for
On May 15, 1998, plaintiffs
were injured in an automobile accident. The police report
filed at the time of the collision did not indicate whether
either party was insured.
September
suit
1999,
against
More than a year later, in
plaintiffs
defendant
filed
and
a
a
first-party
third-party
no-fault
suit
for
noneconomic damages against Charlene Haynes, the driver of
the other vehicle. Only after the suit was commenced was it
discovered that Haynes was uninsured. On March 14, 2000,
plaintiffs
benefits
because
submitted
to
it
a
claim
Continental.
was
not
filed
for
uninsured
Defendant
within
one
denied
year
accident, as required by the insurance policy.
3
motorist
the
after
claim
the
In August 2000, plaintiffs filed the present action,
contesting
Continental’s
benefits.
Defendant
disposition,
relying
on
denial
of
filed
a
a
uninsured
motion
limitations
motorist
for
provision
summary
in
the
insurance contract that required that a claim or suit for
uninsured motorist coverage “must be brought within 1 year
from the date of the accident.”
The
that
the
contract
trial
court
one-year
was
denied
defendant’s
limitations
period
unreasonable.
After
the
motion,
holding
contained
in
Court
Appeals
of
the
issued an opinion in an unrelated case,1 defendant renewed
its motion for summary disposition.
The trial court again denied defendant’s motion for
summary disposition, holding that the one-year limitation
was
an
unenforceable
adhesion
clause.
Because
the
limitation was not highlighted in the contract, was not
bargained
for
“significant
by
the
reduction”
purchaser,
in
the
and
time
constituted
plaintiffs
a
would
otherwise have to file suit against defendant, the trial
1
Williams v Continental Ins Co, unpublished opinion per
curiam of the Court of Appeals, issued April 23, 2002
(Docket No. 229183). In Williams, the panel considered
identical policy language and concluded that the one-year
limitation was “not so unreasonable as to be unenforceable”
because the policy required that a claim be filed within a
year, rather than a lawsuit.
4
court held that it would be “totally and patently unfair”
to enforce the limitation contained in the policy.
On appeal, the Court of Appeals affirmed the trial
court’s
decision
disposition.2
court
that
to
deny
defendant’s
motion
for
summary
The Court of Appeals agreed with the trial
a
one-year
period
of
limitations
was
unreasonable. The panel instead imposed a three-year period
of limitations, holding:
An insured may not have sufficient time to
ascertain whether an impairment will affect his
ability to lead a normal life within one year of
an accident. Indeed, three of the factors to be
considered in determining whether a serious
impairment exists are the duration of the
disability, the extent of residual impairment,
and the prognosis for eventual recovery. Further,
unless the police report indicates otherwise, the
insured will not know that the other driver is
uninsured until suit is filed, and the other
driver fails to tender the defense to an
insurance company. The insured, thus, must file
suit well before the one-year period in order to
assure that the information is known in time to
make a claim or file suit against the insurance
company within one year of the accident. Applying
the standard set forth in Camelot, . . . we
conclude
that
the
limitation
here
is
not
reasonable
because,
in
most
instances,
the
insured (1) does not have “sufficient opportunity
to investigate and file an action,” where the
insured may not have sufficient information about
his own physical condition to warrant filing a
claim, and will likely not know if the other
driver
is
insured
until
legal
process
is
commenced, (2) under these circumstances, the
time will often be “so short as to work a
2
262 Mich App 679; 687 NW2d 304 (2004).
5
practical abrogation of the right of action,” and
(3) the action may be barred before the loss can
be ascertained.
* * *
Here, the Legislature has provided a threeyear limitations period for personal injury
claims. The insured must sue the other driver
within three years of the injury, whether or not
the insured has sufficient information to know if
a serious impairment has been sustained, and
whether or not the other driver is insured.
Application of the three-year period would not
deprive the insured of a sufficient opportunity
to investigate and file a claim and does not work
a practical abrogation of the right. [Id. at 686687 (internal citations omitted).][3]
Subsequently, we granted defendant’s application for
leave to appeal.4
II. Standard of Review
This Court reviews de novo the trial court’s decision
to grant or deny summary disposition.5
In reviewing the
motion, the pleadings, affidavits, depositions, admissions,
and any other admissible evidence are viewed in the light
3
Relying on Herweyer v Clark Hwy Services, Inc, 455
Mich 14; 564 NW2d 857 (1997), the Court of Appeals agreed
with the trial court that the insurance policy was adhesive
and “should receive close judicial scrutiny.” 262 Mich App
at 687.
4
471 Mich 904 (2004).
5
Van v Zahorik, 460 Mich 320; 597 NW2d 15 (1999).
6
most favorable to the nonmoving party.6 Moreover, questions
involving the proper interpretation of a contract or the
legal effect of a contractual clause are also reviewed de
novo.7 In ascertaining the meaning of a contract, we give
the words used in the contract their plain and ordinary
meaning
that
would
be
apparent
to
a
reader
of
the
instrument.8
III. Analysis
A. THE “REASONABLENESS DOCTRINE” IN MICHIGAN
Under the language of the insurance policy at issue,
an
insured
is
required
to
file
a
claim
or
lawsuit
for
uninsured motorist benefits “within 1 year from the date of
the
accident.”
Plaintiff
asks
this
Court
to
refuse
to
enforce that provision of the insurance contract because
the limitations period is not “reasonable.” This action,
being a claim arising under the insurance policy, is a
first-party claim against the insurer.
Therefore, contrary
to the Court of Appeals conclusion that a three-year period
6
Radtke v Everett, 442 Mich 368, 374; 501 NW2d 155
(1993).
7
Archambo v Lawyers Title Ins Corp, 466 Mich 402, 408;
646 NW2d 170 (2002); Bandit Industries, Inc v Hobbs Int'l,
Inc (After Remand), 463 Mich 504, 511; 620 NW2d 531 (2001).
8
Wilkie v Auto-Owners Ins Co, 469 Mich 41, 47; 664 NW2d
776 (2003).
7
of limitations applies to this lawsuit, plaintiff’s suit
against
Continental—in
the
absence
of
the
limitations
provision contained in the policy—would be governed by the
general
six-year
period
of
limitations
applicable
to
contract actions.9
Uninsured
motorist
insurance
motorist to obtain coverage from his
permits
an
injured
own insurance company
to the extent that a third-party claim would be permitted
against the uninsured at-fault driver.10 Uninsured motorist
coverage is optional—it is not compulsory coverage mandated
by
the
no-fault
act.11
Accordingly,
the
rights
and
limitations of such coverage are purely contractual and are
construed without reference to the no-fault act.12
9
MCL 600.5807(8). If plaintiffs brought suit against
the at-fault driver instead of their own insurance carrier,
such a third-party claim would be limited to being brought
within three years pursuant to former MCL 600.5805(9), now
MCL 600.5805(10), which governs claims for injury to person
or property.
10
The owner or operator of a vehicle is subject to tort
liability for noneconomic loss only if the injured motorist
has suffered death, serious impairment of a body function,
or
permanent
serious
disfigurement.
MCL
500.3135(1);
Kreiner v Fischer, 471 Mich 109; 683 NW2d 611 (2004); Auto
Club Ins Ass'n v Hill, 431 Mich 449; 430 NW2d 636 (1988).
11
Twichel v MIC Gen Ins Corp, 469 Mich 524, 533; 676
NW2d 616 (2004).
12
Id.
8
In
support
of
their
claim
that
a
contractual
limitations provision may be disregarded on the basis of an
assessment
of
“reasonableness,”
plaintiffs
rely
on
Tom
Thomas Org, Inc v Reliance Ins Co.13 In Tom Thomas, the
plaintiff
filed
suit
fifteen
months
after
the
loss
to
recover for property damage under an insurance policy. The
policy contained a one-year limitation on filing suit.
Even a cursory reading of Tom Thomas reveals that the
holding
of
the
case
was
premised
on
“judicial
tolling”
rather than reasonableness. In fact, the majority in Tom
Thomas specifically declined to address the reasonableness
of
the
one-year
limitation;
instead,
it
predicated
its
holding on “reconciliation of the provisions of the policy”
by the imposition of judicial tolling.14
In dicta, the
Court noted the “general rule” that a shortened contractual
period of limitations was “valid if reasonable even though
the
period
is
less
than
that
prescribed
by
otherwise
applicable statutes of limitation.”15
13
396 Mich 588; 242 NW2d 396 (1976).
14
The Tom Thomas Court held that the contractual period
of limitations was judicially tolled “from the time the
insured gives notice until the insurer formally denied
liability.” Id. at 597.
15
Id.
“general
at 592 (emphasis added). In support of the
rule,” the Tom Thomas Court cited a secondary
(continued…)
9
In Camelot Excavating Co, Inc v St Paul Fire & Marine
Ins
Co,16
this
Court
expanded
upon
the
“reasonableness”
dicta articulated in Tom Thomas. In Camelot, the plaintiff
sought
payment
on
a
labor
and
material
bond
from
the
defendant. The defendant moved for summary disposition on
the basis of the one-year limitations period contained in
the bond contract.
Citing Tom Thomas for the proposition
(…continued)
source rather than Michigan authority. However, the opinion
subsequently noted that prior Michigan case law had
enforced shortened contractual limitations periods without
resort to a “reasonableness” analysis. Id. at 592 n 4.
In fact, prior case law had consistently upheld the
validity of contractually shortened limitations periods;
such provisions could be avoided only where the insured
could establish waiver on the part of the insurer or
estoppel. See
McIntyre v Michigan State Ins Co, 52 Mich
188; 17 NW 781 (1883); Law v New England Mut Accident
Ass'n, 94 Mich 266; 53 NW 1104 (1892); Turner v Fidelity &
Cas Co, 112 Mich 425; 70 NW 898 (1897) (insurance company
waived one-year limitation by conduct); Harris v Phoenix
Accident & Sick Benefit Ass’n, 149 Mich 285; 112 NW 935
(1907)(failure of the insured to sue within six months was
not waived); Friedberg v Ins Co of North America, 257 Mich
291; 241 NW 183 (1932)(where settlement negotiations are
broken off by the insurer near the end of the contractual
limitations period, the provision was deemed waived); Hall
v Metro Life Ins Co, 274 Mich 196; 264 NW 340 (1936); Barza
v Metro Life Ins Co, 281 Mich 532; 275 NW 238 (1937)(the
plaintiff was bound by two-year limitations clause where
there was no evidence of waiver or estoppel); Bashans v
Metro Mut Ins Co, 369 Mich 141; 119 NW2d 622 (1963)
(insurer did not waive two-year “binding” limitations
clause); Better Valu Homes, Inc v Preferred Mut Ins Co, 60
Mich App 315; 230 NW2d 412 (1975).
16
410 Mich 118; 301 NW2d 275 (1981).
10
that a shortened period of limitations is acceptable “where
the limitation is reasonable,”17 Camelot relied on case law
from
foreign
jurisdictions
in
articulating
a
three-part
test for evaluating the reasonableness of a contractually
shortened limitations period.18
Ultimately, the Court held
that the one-year period of limitations was reasonable, and
that no public policy considerations precluded enforcement
of the contractual provision.
In
the
end,
Camelot
enforced
the
contractually
shortened limitations period at issue. However, rather than
simply enforcing the contract as written, the decision in
Camelot
was
premised
upon
the
adoption
of
a
“reasonableness” test found in the dicta of Tom Thomas. In
17
Camelot also cited Barza v Metro Life and Turner v
Fidelity, n 15 supra, in support of the “rule” that a
contractual
limitations
provision
may
be
upheld
if
reasonable. Camelot, supra at 126. However, neither Barza
nor Turner may be properly read as requiring reasonableness
before a contractual provision may be deemed valid. In both
cases, the analysis focused on whether the insurer waived
the otherwise binding limitations provision.
18
Camelot
held
that
a
contractually
shortened
limitations period is reasonable if (1) the claimant has
sufficient opportunity to investigate and file an action,
(2) the time is not so short as to work a practical
abrogation of the right of action, and (3) the action is
not barred before the loss or damage can be ascertained.
Id. at 127.
11
failing to employ the plain language of the contract, the
Camelot Court erred.
A
fundamental
tenet
of
our
jurisprudence
is
that
unambiguous contracts are not open to judicial construction
and must be enforced as written.19
Courts enforce contracts
according
terms
to
their
unambiguous
because
doing
so
respects the freedom of individuals freely to arrange their
affairs via contract. This Court has previously noted that
“‘[t]he
general
rule
[of
contracts]
is
that
competent
persons shall have the utmost liberty of contracting and
that their agreements voluntarily and fairly made shall be
held valid and enforced in the courts.’”20
When
provisions
a
court
based
on
abrogates
its
own
unambiguous
independent
contractual
assessment
of
19
Harrington v Inter-State Business Men's Accident
Ass'n, 210 Mich 327; 178 NW 19 (1920); Indemnity Ins Co of
North America v Geist, 270 Mich 510; 259 NW 143 (1935);
Cottrill v Michigan Hosp Service, 359 Mich 472; 102 NW2d
179 (1960); Henderson v State Farm Fire & Cas Co, 460 Mich
348; 596 NW2d 190 (1999); Cruz v State Farm Mut Automobile
Ins Co, 466 Mich 588; 648 NW2d 591 (2002).
20
Terrien v Zwit, 467 Mich 56, 71; 648 NW2d 602 (2002),
quoting Twin City Pipe Line Co v Harding Glass Co, 283 US
353, 356; 51 S Ct 476; 75 L Ed 1112 (1931).
12
“reasonableness,” the court undermines the parties’ freedom
of contract.21 As this Court previously observed:
This approach, where judges . . . rewrite
the contract . . . is contrary to the bedrock
principle of American contract law that parties
are free to contract as they see fit, and the
courts are to enforce the agreement as written
absent some highly unusual circumstance such as a
contract in violation of law or public policy.
This
Court
has
recently
discussed,
and
reinforced, its fidelity to this understanding of
contract law in Terrien v Zwit, 467 Mich 56, 71;
648 NW2d 602 (2002). The notion, that free men
and women may reach agreements regarding their
affairs without government interference and that
courts will enforce those agreements, is ancient
and irrefutable. It draws strength from commonlaw roots and can be seen in our fundamental
charter, the United States Constitution, where
government
is
forbidden
from
impairing
the
contracts of citizens, art I, § 10, cl 1. Our own
state constitutions over the years of statehood
have
similarly
echoed
this
limitation
on
government
power.
It
is,
in
short,
an
unmistakable and ineradicable part of the legal
fabric of our society. Few have expressed the
force of this venerable axiom better than the
late Professor Arthur Corbin, of Yale Law School,
21
Justice
Kelly
maintains
that
reviewing
contract
provisions for “reasonableness” is “essential in order to
accurately
implement
the
intent
of
the
contracting
parties.” Post at 6.
However, it is difficult to
rationalize implementing the intent of the parties by
imposing
contractual
provisions
that
are
completely
antithetic to the provisions contained in the contract.
Rather, the intent of the contracting parties is best
discerned by the language actually used in the contract. As
this Court noted in Quality Products & Concepts Co v Nagel
Precision, Inc, 469 Mich 362, 375; 666 NW2d 251 (2003), “an
unambiguous contractual provision is reflective of the
parties’ intent as a matter of law.”
13
who wrote on this topic in his definitive study
of contract law, Corbin on Contracts, as follows:
“One does not have ‘liberty of contract’
unless
organized
society
both
forbears
and
enforces, forbears to penalize him for making his
bargain and enforces it for him after it is made.
[15 Corbin, Contracts (Interim ed), ch 79, §
1376, p 17.]”[22]
Accordingly, we hold that an unambiguous contractual
provision providing for a shortened period of limitations
is to be enforced as written unless the provision would
violate law or public policy. A mere judicial assessment of
“reasonableness” is an invalid basis upon which to refuse
to
enforce
traditional
contractual
contract
provisions.
defenses
may
be
Only
used
to
recognized
avoid
the
enforcement of the contract provision.23 To the degree that
Tom Thomas, Camelot, and their progeny abrogate unambiguous
contractual
terms
on
the
basis
of
reasonableness
determinations, they are overruled.24
22
Wilkie, supra at 51-52.
23
Examples of traditional defenses include duress,
waiver, estoppel, fraud, or unconscionability. See Quality
Products & Concepts Co, supra (waiver); Beloskursky v
Jozwiak, 221 Mich 316; 191 NW 16 (1922) (estoppel); Hackley
v Headley, 45 Mich 569; 8 NW 511 (1881) (duress); Witham v
Walsh, 156 Mich 582; 121 NW 309 (1909) (fraud); Gillam v
Michigan Mortgage-Investment Corp, 224 Mich 405; 194 NW 981
(1923) (unconscionability).
24
Justice Kelly maintains that the
Camelot
Court
“applied a very old and well tested legal rule” when it
(continued…)
14
B. THE PROVISION
IS NOT CONTRARY TO LAW OR PUBLIC POLICY
We next consider whether the contractually shortened
period of limitations violates law or public policy. As
noted by this Court, the determination of Michigan’s public
policy
“is
not
merely
the
equivalent
of
the
personal
preferences of a majority of this Court; rather, such a
policy must ultimately be clearly rooted in the law.”25 In
ascertaining the parameters of our public policy, we must
look to “policies that, in fact, have been adopted by the
public
through
reflected
in
our
our
various
state
and
legal
federal
processes,
and
are
constitutions,
our
statutes, and the common law.”26
As an initial matter, we note that this Court has
previously held that Michigan has “no general policy or
statutory
enactment
.
.
.
which
would
prohibit
private
(…continued)
adopted the so-called “reasonableness doctrine.” Post at 7.
However, as even the Tom Thomas Court recognized, Michigan
jurisprudence enforced contractually shortened limitations
provisions without regard to the “reasonableness” of the
provisions. See n 15 of this opinion. Citation of case law
from other jurisdictions simply does not alter the fact
that the “very old and well tested legal rule” of Michigan
eschewed using “reasonableness” as a basis for abrogating
contractually shortened limitations provisions.
25
Terrien, supra at 67.
26
Id. at 66-67.
15
parties from contracting for shorter limitations periods
than
those
consistent
specified
with
our
by
general
case
law,
statutes.”27
which
had
This
held
is
that
contractually shortened periods of limitations were valid,
and were to be disregarded only where the insured could
establish estoppel or prove that the insurer waived the
contractual provision.28
27
Camelot, supra at 139.
28
See n 15 of this opinion.
Amicus cites Price v
Hopkin, 13 Mich 318 (1865), and Lukazewski v Sovereign Camp
of the Woodmen of the World, 270 Mich 415; 259 NW 307
(1935), in support of the claim that Michigan case law has
a “long-standing policy” of disregarding “unreasonable”
contractual limitations periods. However, both cases are
distinguishable.
In Price, the Legislature shortened a statute of
limitations from twenty to fifteen years, giving the
amendment retroactive effect. The plaintiff’s grantor “was
entitled by the existing statutes to bring her action
within
twenty
years,”
but
the
statutory
amendment
immediately severed her cause of action. Price, supra at
323-324.
Justice Cooley held that the retroactive
statutory amendment was unconstitutional as violative of
due process because it annihilated a vested right without
permitting a “reasonable time” to bring the lawsuit.
Id.
at 324-328.
Likewise, Lukazewski is also distinguishable. There,
the plaintiff was the beneficiary of a life insurance
policy that required “proof of the insured’s actual death.”
The policy also required that all lawsuits be commenced
within one year from the date of death. The insured
disappeared in 1925, but proof of his death was not
established until 1932. The defendant “denied liability on
the ground that both the contractual and statutory
limitations” had expired. Lukazewski, supra at 417-418.
(continued…)
16
Likewise,
prohibiting
limitations
there
is
contractual
period
in
no
Michigan
provisions
uninsured
statute
that
motorist
explicitly
reduce
the
policies.
The
Legislature has proscribed shortened limitations periods in
only
one
specific
context:
life
insurance
policies.
MCL
500.4046(2).29
(…continued)
The Lukazewski Court held that, because the policy
required affirmative proof of the decedent’s death, the
one-year limitations period would not begin to run until
the death was discovered. The Lukazewski Court utilized the
doctrine of judicial tolling, which is not at issue in the
present case, to suspend the running of the contractual
limitations period. However, it is unclear why the
contractual limitations period was considered at all, as
the contract provision violated the law. 1917 PA 256 was
enacted four years before the issuance of the life
insurance policy. 1917 PA 256, part 3, ch 2, § 4, contains
a provision that is substantively identical to our current
MCL 500.4046(2), see n 29 of this opinion.
Thus, because
the policy required actual proof of death, the cause of
action did not accrue until death could be proven. The
plain language of the statute provided the plaintiff six
years from the time the cause of action accrued to file
suit.
29
MCL 500.4046 states in pertinent part:
No policy of life insurance other than
industrial life insurance shall be issued or
delivered in this state if it contain [sic] any
of the following provisions:
* * *
(2) A provision limiting the time within
which any action at law or in equity may be
commenced to less than 6 years after the cause of
action shall accrue[.]
17
Notwithstanding
the
fact
that
the
Commissioner
approved for use the contract at issue in this case, the
Commissioner now argues to this Court that MCL 500.2254
precludes contractual periods of limitations that are less
than six years. The statute provides in part:
No article, bylaw, resolution or policy
provision
adopted
by
any
life,
disability,
surety, or casualty insurance company doing
business in this state prohibiting a member or
beneficiary from commencing and maintaining suits
at law or in equity against such company shall be
valid and no such article, bylaw, provision or
resolution shall hereafter be a bar to any suit
in any court in this state: Provided, however,
That any reasonable remedy for adjudicating
claims established by such company or companies
shall first be exhausted by the claimant before
commencing suit: Provided further, however, That
the company shall finally pass upon any claim
submitted to it within a period of 6 months from
and after final proofs of loss or death shall
have been furnished any such company by the
claimant.
The plain language of the statute states that “[n]o
. . .
policy
beneficiary
provision
from
commencing
against [the insurer]
(Emphasis added.)
.
.
.
prohibiting
and
maintaining
a
[a
member
or
lawsuit]
. . . shall be valid . . . .”
The common definition of “prohibit” is
“to forbid by authority or command.”30
Clearly, the statute
proscribes contractual provisions that forbid or preclude
30
New International Dictionary of the English Language
(1954), p 1978.
18
the commencement or maintenance of a lawsuit. The statute
does not, however, bar the imposition of conditions that
may be placed on the commencement and maintenance of a
lawsuit.31
While
nothing
contractually
context
of
Legislature
in
shortened
our
statutes
limitations
life
insurance
has
provided
explicitly
periods
policies,
a
we
mechanism
outside
note
to
addresses
the
that
the
ensure
the
reasonableness of insurance policies issued in the state of
Michigan.
MCL
500.2236(1)
requires
that
all
“basic
insurance
policy” forms be filed with the Commissioner's office and
be approved by the Commissioner before a policy may be
issued by an insurance company. If the Commissioner fails
to
act
within
thirty
days
after
the
policy
form
is
submitted, the form is deemed approved. MCL 500.2236(1).
One of the factors that the Commissioner may consider in
determining whether to approve an insurance policy is the
reasonableness of the conditions and exceptions contained
therein. MCL 500.2236(5) and (6) provide:
31
We note that Justice Kelly’s construction of this
provision would render invalid any contractual limitations
provision
in
an
insurance
contract,
even
one
that
paralleled the applicable statutory limitations period.
Post at 15-16.
19
(5) Upon written notice to the insurer, the
commissioner may disapprove, withdraw approval or
prohibit the issuance, advertising, or delivery
of any form to any person in this state if it
violates any provisions of this act, or contains
inconsistent, ambiguous, or misleading clauses,
or
contains
exceptions
and
conditions
that
unreasonably or deceptively affect the risk
purported to be assumed in the general coverage
of the policy. The notice shall specify the
objectionable provisions or conditions and state
the reasons for the commissioner’s decision. If
the form is legally in use by the insurer in this
state, the notice shall give the effective date
of the commissioner’s disapproval, which shall
not be less than 30 days subsequent to the
mailing or delivery of the notice to the insurer.
If the form is not legally in use, then
disapproval shall be effective immediately.
(6) If a form is disapproved or approval is
withdrawn under the provisions of this act, the
insurer is entitled upon demand to a hearing
before the commissioner or a deputy commissioner
within 30 days after the notice of disapproval or
of withdrawal of approval. After the hearing, the
commissioner shall make findings of fact and law,
and either affirm, modify, or withdraw his or her
original order or decision. [Emphasis added.]
Clearly,
responsibility
insurance
branch
of
contract
charged
policies:
the
the
Legislature
evaluating
to
with
the
the
of
32
assigned
“reasonableness”
person
reviewing
Commissioner
has
and
within
the
of
an
the
executive
approving
insurance
Insurance.32
The
statute
In other contexts, the Legislature has explicitly
assigned the responsibility of assessing the reasonableness
of private contracts to the judiciary. See, for example,
MCL
445.774a,
which
governs
noncompetition
covenants
between an employer and an employee.
(continued…)
20
permits,
but
disapprove
does
or
not
withdraw
require,
an
the
insurance
Commissioner
contract
if
to
the
Commissioner determines that a condition or exception is
unreasonable
or
deceptive.
The
decision
to
approve,
disapprove, or withdraw an insurance policy form is within
the sound discretion of the Commissioner. In this instance,
the Commissioner has approved the Continental policy form
containing the shortened limitations provision for issuance
and use in the state of Michigan.33
Our
courts
have
a
very
limited
scope
of
review
concerning the decisions made by the Commissioner.
500.244(1)
provides
that
an
aggrieved
person
may
MCL
seek
judicial review of an “order, decision, finding, ruling,
opinion, rule, action, or inaction” of the Commissioner as
provided by the Administrative Procedures Act, MCL 24.201
et seq.
MCL 24.306 provides:
(1)
Except
when
a
statute
or
the
constitution provides for a different scope of
review, the court shall hold unlawful and set
aside a decision or order of an agency if
substantial rights of the petitioner have been
(…continued)
33
Justice Kelly erroneously reads MCL 500.2236(5) as
rendering the Commissioner’s review of a policy form
discretionary. Post at 18-19.
However, under that
statutory subsection, the Commissioner’s discretion extends
only to the ability to “disapprove, withdraw approval or
prohibit the issuance” of a policy form.
21
prejudiced because the decision or order is any
of the following:
(a) In violation of the constitution or a
statute.
(b) In excess of the statutory authority or
jurisdiction of the agency.
(c) Made upon unlawful procedure resulting
in material prejudice to a party.
(d) Not supported by competent, material and
substantial evidence on the whole record.
(e) Arbitrary, capricious or clearly
abuse or unwarranted exercise of discretion.
(f)
Affected
by
material error of law.
other
substantial
an
and
Here, plaintiffs have not challenged the decision of
the
Commissioner
to
allow
issuance
of
the
Continental
policy, much less shown that the Commissioner’s decision
was arbitrary, capricious, or a clear abuse of discretion.34
Accordingly, the explicit “public policy” of Michigan is
that the reasonableness of insurance contracts is a matter
for the executive, not judicial, branch of government.
such,
the
lower
courts
were
34
not
free
to
invade
As
the
Certainly, if the Commissioner were to determine
subsequently that the provision at issue unreasonably
affected the risk assumed in the policy, MCL 500.2236(5)
and (6) provide the appropriate mechanism for withdrawing
approval of the policy condition.
22
jurisdiction
of
the
Commissioner
and
determine
de
novo
whether Continental’s policy was reasonable.
C. ADHESION CONTRACTS
We turn finally to the trial court’s conclusion that
the policy was an “adhesion contract” and was therefore
unenforceable.
assumption
The
that
trial
“adhesion
court’s
ruling
contracts”
are
rested
subject
on
to
the
a
greater level of judicial scrutiny than other contracts—
and, indeed, that so-called adhesion contracts need not be
enforced if the court views them as unfair. The Court of
Appeals reached a similar conclusion:
We further note that the concern the Court
expressed in Herweyer is present here as well.
The insured had the option of accepting uninsured
motorist coverage or rejecting it, but could not
have bargained for a longer limitations period.
Accordingly, the policy should receive close
judicial scrutiny. [262 Mich App at 687][35]
35
Justice Kelly charges that, in addressing the Herweyer
adhesion contract issue, we are “engag[ing] in judicial
activism”. Post at 28. This is a strange accusation given
that both the trial court and the Court of Appeals relied
on the adhesion contract principles announced in Herweyer
as a basis for invalidating the contractual limitations
provision at issue. We think it unremarkable for this Court
to address an issue that all the lower courts addressed.
Moreover, because it was Herweyer that literally ignored
nearly a century of contrary precedent in adopting a new
rule of contractual construction (see n 15 of this
(continued…)
23
The contract construction approach of the lower courts
is inconsistent with traditional contract principles.
“adhesion contract” is simply that: a contract.36
An
It must
be enforced according to its plain terms unless one of the
traditional contract defenses applies.
Indeed,
a
careful
examination
of
our
contract
jurisprudence reveals that the “adhesion contract doctrine”
existed in Michigan solely in dicta until it was implicitly
adopted by this Court in Herweyer v Clark Hwy Services,
Inc.
Moreover,
substantive
it
analysis,
was
and
adopted
without
in
Herweyer
reference
to
without
and
in
contravention of more than one hundred years of contrary
case law from this Court.
Before turning to the state of the “adhesion contract
doctrine” in our jurisprudence, it is important to begin
(…continued)
opinion), the claim of “judicial activism” would seem most
accurately applied to the Herweyer majority.
36
There are many descriptive labels that are used to
categorize species of contracts:
“unilateral,” see, e.g.,
Sniecinski v Blue Cross & Blue Shield of Michigan, 469 Mich
124, 138 n 9; 666 NW2d 186 (2003), “executory,” see, e.g.,
Kolton v Nassar, 358 Mich 154, 156; 99 NW2d 362 (1959),
“installment,” Twichel v MIC Gen Ins Corp, 469 Mich 524,
532 n 5; 676 NW2d 616 (2004), etc.
The fact that a
particular label is attached to a contract does not exempt
the contract from the application of standard contract law
principles.
24
with a sense of how the notion of an “adhesive” contract
arose in the first place.
The term “adhesion contract” was
originally
as
coined
simply
a
descriptive
label
for
common contract practice in the insurance industry.
term
was
introduced
University
Patterson
of
to
in
a
1919
Colorado
Law
describe
a
law
School
life
review
The
article
by
Edwin
W.
professor
insurance
a
policy
term
requiring “delivery of the policy to the applicant” before
the policy became effective.37 Professor Patterson made the
observation that “[l]ife-insurance contracts are contracts
of ‘adhesion.’ The contract is drawn up by the insurer and
the insured, who merely ‘adheres’ to it, has little choice
as to its terms.”38 Patterson noted that “a majority of the
courts
have
strictly
enforced”
such
contractual
stipulations, although some courts had “executed successful
flanking movements” to find either that the insurer had
waived
the
delivered.39
requirement,
Thus,
the
or
that
original
the
policy
designation
of
had
been
“adhesion
contract” described a type of contract, but did not suggest
37
Patterson, The delivery of a life-insurance policy, 33
Harv L R 198 (1919).
38
Id. at 222.
39
Id. at 221.
25
that
such
a
description
rendered
the
contract
or
its
provisions unenforceable.
It
was
not
until
a
quarter-century
later
that
Patterson’s label for life insurance contracts evolved into
something
resembling
a
“doctrine.”
In
1943,
Yale
Law
School Professor Friedrich Kessler expanded on Patterson’s
description of practices in the life insurance industry to
argue that courts should simply refuse to enforce unfair
provisions
of
“adhesion
contracts”
rather
than
utilize
traditional contract law principles.40 While conceding that
“society as a whole ultimately benefits from the use of
standard
contracts,”
maintained
that
such
Professor
contracts
Kessler
were
nonetheless
typically
used
by
enterprises with “strong bargaining power,” and that the
“weaker party” frequently could not “shop around for better
terms, either because the author of the standard contract
[had] a monopoly” or because all competitors used the same
clauses.41
Kessler
expressed
concern
that
“powerful
industrial and commercial overlords” would impose “a new
40
Kessler, Contracts of adhesion—some thoughts about
freedom of contract, 43 Colum L R 629 (1943). Kessler
advocated that the “task of adjusting” contract law as it
applied to adhesion contracts had to “be faced squarely and
not indirectly.” Id. at 637.
41
Id. at 632.
26
feudal
order
of
their
own
making
upon
a
vast
host
of
vassals.”42
While noting that “freedom of contract has remained
one of the firmest axioms in the whole fabric of the social
philosophy
of
our
culture,”43
Kessler
asserted
that
the
meaning of “freedom of contract” varied with “the social
importance of the type of contract and with the degree of
monopoly
enjoyed
contract.”44
Thus,
by
the
Kessler
author
of
advocated
the
standardized
nonenforcement
of
clauses contained in standardized contracts, but only where
the type of contract was of sufficient “social importance”
and where the author of the contract enjoyed a monopoly
over the socially important good or service.
The groundwork for the “adhesion contract doctrine”
was thus laid in academia, first in Patterson’s positive
analysis
and
then
in
Kessler’s
normative
article.
In
Michigan, the notion was first imported into our case law
in 1970.
In Zurich Ins Co v Rombough,45 the issue to be
determined was whether an insurer had a duty to defend when
42
Id. at 640.
43
Id. at 641.
44
Id. at 642.
45
384 Mich 228; 180 NW2d 775 (1970).
27
its
policy
provisions.46
insurance
law
contained
The
opinion
that
two
apparently
noted
ambiguous
that
policy
“[i]t
conflicting
is
provisions
elemental
must
be
construed against the insurance company and most favorably
to the premium-paying insured.”47
After noting this legal
principle, the Rombough Court cited the following language
from a California Supreme Court case to further support its
rule of construction:
Justice Tobriner, writing for the California
Supreme Court in the case of Gray v. Zurich
Insurance Company (1966), 65 Cal 2d 263 (54 Cal
Rptr 104, 419 P2d 168), construing similar
provisions, said:
“In interpreting an insurance policy we
apply the general principle that doubts as to
meaning must be resolved against the insurer and
that any exception to the performance of the
basic underlying obligation must be so stated as
clearly to apprise the insured of its effect.
“These
principles
of
interpretation
of
insurance contracts have found new and vivid
restatement in the doctrine of the adhesion
contract. As this court has held, a contract
entered into between two parties of unequal
bargaining strength, expressed in the language of
a standardized contract, written by the more
46
The policy contained an exclusion clause, indicating
that the policy did not apply if insured vehicles were
“used to carry property in any business.” Id. at 230. The
policy also contained a provision indicating that the
company would provide a defense for any lawsuit even if the
suit was “groundless, false or fraudulent.” Id. at 231.
47
Id. at 232.
28
powerful bargainer to meet its own needs, and
offered to the weaker party on a ‘take it or
leave it basis’ carries some consequences that
extend beyond orthodox implications. Obligations
arising from such a contract inure not alone from
the
consensual
transaction
but
from
the
relationship of the parties.
“Although courts have long followed the
basic precept that they would look to the words
of the contract to find the meaning which the
parties expected from them, they have also
applied the doctrine of the adhesion contract to
insurance policies, holding that in view of the
disparate bargaining status of the parties we
must ascertain that meaning of the contract which
the insured would reasonably expect.”[48]
The Rombough Court concluded by purporting to “adopt” the
reasoning
of
Gray
v
Zurich,
holding
that
the
policy
language was “sufficiently ambiguous” to require plaintiff
to provide a defense.49
Thus,
the
term
“adhesion
contract”
was
first
introduced in Michigan jurisprudence in support of the rule
of
contra
proferentem,50
wherein
contract
terms
are
48
Id. at 232-233. The practice of interpreting contracts
on the basis of reasonable expectations rather that the
plain language of the contract was repudiated by this Court
in Wilkie, supra at 63.
49
Rombough, supra at 234.
50
See also Klapp v United
Mich
459;
663
NW2d
447
proferentem as a rule of legal
after all conventional means
have been applied).
29
Ins Group Agency, Inc, 468
(2003)
(discussing
contra
effect, to be utilized only
of contract interpretation
construed against the drafter in the event of an ambiguity
to
meet
However,
the
“reasonable
because
expectations”
Rombough
was
decided
of
on
the
the
insured.
basis
of
contra proferentem—a rule of interpretation providing that
truly
ambiguous
against
the
contractual
drafter51—its
language
language
is
to
be
construed
regarding
adhesion
contracts is, as we stated in Wilkie,52 properly classified
as obiter dicta.
Subsequently, in Cree Coaches, Inc v Panel Suppliers,
Inc,53 this Court referred again to the “adhesion contract”
concept. The defendant in Cree Coaches had constructed a
building
for
the
plaintiff
pursuant
to
a
contract
that
limited the warranty to one year after the contract was
completed. Six years later, the building collapsed from the
weight of snow. In upholding the provisions limiting the
plaintiff’s warranty claims and the warranty period, the
Court noted in dicta—and without analysis—that the Court
did not regard the construction contract “as a contract of
adhesion from which public policy would grant relief.”54
51
See, e.g., Twichel, supra at 535 n 6.
52
Wilkie, supra at 55-56.
53
384 Mich 646; 186 NW2d 335 (1971).
54
Id. at 649.
(continued…)
30
This digression was cryptic at best, because this Court had
never before declined to enforce an “adhesion contract.”
The
term
“adhesion
contract”
was
discussed
again
a
decade later in Camelot Excavating Co, Inc v St Paul Fire &
Marine Ins Co.55 In his concurring opinion, Justice Levin
agreed with the majority that a clause in a construction
insurance bond limiting the time within which the insured
could bring suit to one year was enforceable.
however,
that
“[a]n
adhesion
He stated,
contract–such
as
most
contracts of insurance–in which the shortened period has
not
actually
been
bargained
for,
or
which
operates
to
defeat the claim of an intended beneficiary not involved in
the bargaining process,” would “present a different case.”56
Again, the basis for Justice Levin’s assertion is unclear,
because
contract
characterization
had
never
of
before
an
agreement
as
an
adhesive
been
pivotal
in
the
Court’s
analysis or enforcement of a contract.
The development of the notion that adhesion contracts
were
subject
to
different
standards
of
enforcement
was
dealt a significant blow in Raska v Farm Bureau Mut Ins Co
(…continued)
55
410 Mich 118; 301 NW2d 275 (1981).
56
Id. at 142-143.
31
of Michigan.57 There, the plaintiff brought suit for breach
of an automobile policy and for a declaratory judgment that
an “owned automobile” exclusion was ambiguous and should be
construed against the insurer, and was void as contrary to
public policy. This Court not only enforced the contractual
policy
exclusion,
insurance
policy
but
is
held
valid
that
as
“[a]ny
long
clause
it
as
in
clear,
is
an
unambiguous and not in contravention of public policy.”58 In
dissent,
Justice
Williams
stated
that
he
would
have
declined to enforce the contractual exclusion because “an
insurance contract, as a contract of adhesion, is construed
in
favor
of
“reasonable
therefore,
contract
the
insured,”
expectations”
stands
must
be
for
the
as
well
of
as
the
insured.59
proposition
interpreted
like
because
that
any
of
the
Raska,
an
insurance
other
contract:
according to its plain unambiguous terms.
This Court’s first attempt at describing the elements
of the adhesion contract doctrine—a doctrine the Court had
yet
to
adopt—was
the
plurality
57
412 Mich 355; 314 NW2d 440 (1982).
58
Id. at 361-362 (emphasis added).
59
Id. at 364.
32
opinion
in
Morris
v
Metriyakool.60 There, the plaintiff signed an arbitration
agreement
upon
admission
to
the
hospital
for
medical
treatment. The hospital presented the arbitration agreement
pursuant to the former medical malpractice arbitration act
(MMAA).61 At issue was the question whether the MMAA was
unconstitutional
as
violative
of
the
plaintiff’s
due
process rights.
After determining that the act did not
implicate due process concerns, Justice Kavanagh, joined by
Justice Levin, rejected the plaintiff’s assertion that the
contract was one of adhesion, holding:
Contracts of adhesion are characterized by
standardized forms prepared by one party which
are offered for rejection or acceptance without
opportunity
for
bargaining
and
under
the
circumstances that the second party cannot obtain
the
desired
product
or
service
except
by
acquiescing in the form agreement. Regardless of
any possible perception among patients that the
provision of optimal medical care is conditioned
on their signing the arbitration agreement, we
believe that the sixty-day rescission period, of
which patients must be informed, fully protects
those who sign the agreement. The patients’
ability to rescind the agreement after leaving
the hospital allows them to obtain the desired
service without binding them to its terms. As a
result, the agreement cannot be considered a
contract of adhesion. [62]
60
418 Mich 423; 344 NW2d 736 (1984).
61
Former MCL 600.5040 et seq.
62
Id. at 440 (citations omitted; emphasis added).
Justices Kavanagh and Levin further determined that the
arbitration agreement was not “unconscionable” because it
(continued…)
33
Writing separately, Justice Ryan, joined by Justice
Brickley, held that the MMAA did not violate due process
concerns because there was no state action. In addressing
the plaintiff’s claim that the arbitration agreement was an
adhesion contract, Justice Ryan stated:
A contract of adhesion is a contract which
has some or all of the following characteristics:
the parties to the contract were of unequal
bargaining strength; the contract is expressed in
standardized language prepared by the stronger
party to meet his needs; and the contract is
offered by the stronger party to the weaker party
on a “take it or leave it” basis. Therefore, the
essence
of
a
contract
of
adhesion
is
a
nonconsensual agreement forced upon a party
against his will. [63]
Justice Ryan agreed with the majority, however, that the
contracts at issue in Morris were not adhesion contracts.
Thus, while a majority of the Morris Court agreed that the
contracts
at
issue
were
not
contracts
of
adhesion,
a
majority could not agree on what, in fact, made a contract
one of adhesion.64
(…continued)
was “not a long contract” and because arbitration was “the
essential and singular nature of the agreement.” Id. at
441.
63
Id. at 471-473 (citation omitted).
64
Justice Williams concurred with Justice Kavanagh on
ground of constitutionality only, while Justice
(continued…)
the
34
The plurality opinion of Powers v Detroit Automobile
Inter-Ins Exch65 asserted that all insurance contracts are
adhesion
contracts:
nonnegotiated,
take-it-or-leave-it,
standardized forms, drafted by “insurance and legal experts
of
a
state,
hundreds
national,
and
maybe
or
international
thousands
of
miles
organization,
away.”66
The
plurality opinion utilized the now-repudiated doctrine of
reasonable expectations to resolve the case,67 noting that
an ambiguity was not a necessary precondition for invoking
that
doctrine.
Thus,
rather
than
assessing
whether
the
contract was indeed adhesive, the Powers plurality opinion
decreed
that
adhesion,
all
insurance
applying
the
contracts
reasonable
were
contracts
expectations
of
doctrine
without regard to ambiguity.
(…continued)
Cavanagh
issued
a
dissent
addressing
only
the
constitutional issue. Justice Boyle did not participate in
the resolution of the case.
65
427 Mich 602;
Wilkie, supra at 63.
398
NW2d
66
411
(1986),
overruled
by
Id. at 608.
Only Justice Archer joined Justice
Willams’s opinion. Justices Brickley and Cavanagh concurred
in the result only.
67
See Wilkie, supra.
35
The concept of “adhesion contracts” took yet another
turn in Auto Club Ins Ass’n v DeLaGarza.68
The DeLaGarza
majority concluded that the insurance policy at issue was
ambiguous and was therefore to be construed “against the
drafter
of
the
provision
and
in
favor
of
coverage.”69
Again, in dicta, the Court endorsed the notion that certain
contracts are adhesive and are therefore to be construed in
favor of the insured.70
68
433 Mich 208; 444 NW2d 803 (1989).
69
Id. at 218.
70
Id. at 215 n 7, noting the “judicial predisposition
toward the insured,” and quoting 7 Williston, Contracts (3d
ed), § 900, pp 19-20:
“The fundamental reason which explains this
and other examples of judicial predisposition
toward the insured is the deep-seated, often
unconscious but justified feeling or belief that
the powerful underwriter, having drafted its
several
types
of
insurance
‘contracts
of
adhesion’ with the aid of skillful and highly
paid legal talent, from which no deviation
desired by an applicant will be permitted, is
almost certain to overreach the other party to
the contract.
The established underwriter is
magnificently qualified to understand and protect
its own selfish interests.
In contrast, the
applicant is a shorn lamb driven to accept
whatever contract may be offered on a ‘take-itor-leave-it’
basis
if
he
wishes
insurance
protection.”
36
Finally, in Herweyer v Clark Hwy Services, Inc,71 this
Court declined to enforce the plain language of a contract
arguably
because
the
contract
at
issue
was
adhesive.
Herweyer concerned the validity of a shortened limitations
provision in an employment contract and the application of
a saving clause that required enforcement of the contract
“as far as legally possible.” In concluding that the sixmonth
limitations
unenforceable,
period
Herweyer
in
cited
the
contract
Justice
at
Levin’s
issue
was
concurring
opinion in Camelot:
In Camelot, Justice Levin expressed concerns
about the development of a rule authorizing
contractually shortened periods of limitation. He
reasoned:
“The rationale of the rule allowing parties
to contractually shorten statutory periods of
limitation is that the shortened period is a
bargained-for term of the contract. Allowing such
bargained-for terms may in some cases be a useful
and proper means of allowing parties to structure
their business dealings.
“In the case of an adhesion contract,
however, where the party ostensibly agreeing to
the shortened period has no real alternative,
this rationale is inapplicable.”[72]
Solely on the basis of Justice Levin’s concurring opinion
in Camelot, the Herweyer Court indicated—for the first time
71
455 Mich 14; 564 NW2d 857 (1997).
72
Herweyer, supra at 20-21 (citation omitted).
37
in
this
Court’s
history—that
a
so-called
“adhesion
contract” was unenforceable simply because of the disparity
in the contracting parties’ “bargaining power”:
We
share
Justice
Levin's
concerns.
Employment contracts differ from bond contracts.
An employer and employee often do not deal at
arms length when negotiating contract terms. An
employee in the position of plaintiff has only
two options: (1) sign the employment contract as
drafted by the employer or (2) lose the job.
Therefore, unlike in Camelot where two businesses
negotiated the contract’s terms essentially on
equal footing, here plaintiff had little or no
negotiating leverage. Where one party has less
bargaining power than another, the contract
agreed upon might be, but is not necessarily, one
of adhesion, and at the least deserves close
judicial scrutiny.[73]
The Herweyer Court did not cite a single majority opinion
of
this
Court
to
support
its
conclusion.
More
astonishingly, the majority failed to recognize—much less
distinguish
or
case
belying
law
overrule—more
its
than
a
century
conclusion
that
of
a
contrary
shortened
limitations period was unenforceable.74
The preceding analysis shares many similarities with
our decision in Wilkie, in which we also sought to clarify
this
73
state’s
contract
jurisprudence.
As
in
Wilkie,
Id. at 21 (emphasis added).
74
See n 15 of this opinion; see also
at 592 n 4.
38
Tom Thomas, supra
analyzing
the
concept
of
adhesive
contracts
in
our
jurisprudence requires that we confront “a confused jumble
of
ignored
precedent,
silently
acquiesced
to
plurality
opinions, and dicta, all of which, with little scrutiny,
have been piled on each other to establish authority.”75
Here,
this
“confused
jumble”
is
exemplified
by
Herweyer, which held for the first time in our contract
jurisprudence
that
an
adhesion
contract
is
subject
to
“close judicial scrutiny” and may be voided if the contract
fails to meet the court’s satisfaction. This holding was
inconsistent not only with a century of case law to the
contrary,76 but with the very principles upon which that
jurisprudence is based—namely, freedom of contract and the
liberty of each person to order his or her own affairs by
agreement.
Today
we
are
faced
with
a
choice.
We
may
follow
Herweyer and its summary conclusion that “[w]here one party
has less bargaining power than another, the contract agreed
upon might be, but is not necessarily, one of adhesion, and
at the least deserves close judicial scrutiny.”77
75
Wilkie, supra at 60.
76
See n 15 of this opinion.
77
Or we
Herweyer, supra at 21.
(continued…)
39
may,
consistently
with
the
many
cases
that
Herweyer
presumptively displaced without overruling them, hold that
an adhesion contract is simply a type of contract and is to
be enforced according to its plain terms just as any other
contract.
We choose the latter course because it is most
consonant with traditional contract principles our state
has historically honored.
As with any contract, the “rights and duties” of a
party to an adhesion contract are “derived from the terms
of the agreement.”78 A party may avoid enforcement of an
“adhesive”
traditional
contract
contract
only
by
defenses,
unconscionability, or waiver.79
establishing
such
as
one
fraud,
of
duress,
As we stated in Raska,80 and
reaffirmed in Wilkie:81
The expectation that a contract will be
enforceable other than according to its terms
surely may not be said to be reasonable. If a
person signs a contract without reading all of it
or
without
understanding
it,
under
some
circumstances
that
person
can
avoid
its
obligations on the theory that there was no
(…continued)
78
Wilkie, supra at 62.
79
See n 23 of this opinion.
80
Raska, supra at 362-363.
81
Wilkie, supra at 63.
40
the
contract at all for there was no meeting of the
minds.
But to allow such a person to bind another
to an obligation not covered by the contract as
written because the first person thought the
other was bound to such an obligation is neither
reasonable nor just.
Therefore, we hold that it is of no legal relevance
that a contract is or is not described as “adhesive.”
In
either case, the contract is to be enforced according to
its plain language.
Regardless of whether a contract is
adhesive, a court may not revise or void the unambiguous
language of the agreement to achieve a result that it views
as fairer or more reasonable.82
82
In dissent, Justice Kelly
opines that adhesion
contracts should be viewed “with skepticism” because
“[m]ost people simply do not have the opportunity, time, or
special ability to read the policy before agreeing to it.”
Post at 23, 25. However, an insured’s failure to read his
or her insurance contract has never been considered a valid
defense. This Court has historically held an insured to
have knowledge of the contents of the policy, in the
absence of fraud, even though the insured did not read it.
See Cleaver v Traders' Ins Co, 65 Mich 527; 32 NW 660
(1887); Wierengo v American Fire Ins Co, 98 Mich 621; 57 NW
833 (1894); Snyder v Wolverine Mut Motor Ins Co, 231 Mich
692; 204 NW 706 (1925); Serbinoff v Wolverine Mut Motor Ins
Co, 242 Mich 394; 218 NW 776 (1928); House v Billman, 340
Mich
621;
66
NW2d
213
(1954).
Additionally,
the
Commissioner is precluded from approving an insurance
policy that fails to obtain a prescribed “readability
score” as set forth in MCL 500.2236(3).
41
The
term
Patterson
“adhesion
originally
contract”
intended,
be
may,
used
as
to
Professor
describe
a
contract for goods or services offered on a take-it-orleave-it basis.
But it may not be used as a justification
for creating any adverse presumptions or for failing to
enforce a contract as written.
To the extent that Herweyer
held to the contrary, it is overruled.83
In this case, plaintiffs do not argue that they were
fraudulently
defendant,
duress,
or
applies.84
induced
that
that
to
they
any
sign
entered
other
Therefore,
their
into
the
traditional
irrespective
of
agreement
with
contract
under
contract
whether
defense
their
contract is labeled “adhesive” under Kessler’s standard,
the competing Morris standards, or any other definition of
83
Justice
Kelly
believes
that
overruling
Herweyer
represents a “radical change of the law,” and that this
Court should continue to “right the wrongs of adhesion
contracts.” Post at 27. However, as stated previously, the
dissent overlooks the fact that Herweyer created a “radical
change of the law” in Michigan.
84
Justice Kelly suggests that there is never a meeting
of the minds with a standardized form contract “[i]f the
consumer does not read and comprehend the individual
clauses of the contract . . . .” Post at 23.
If this is
indeed the case, then no contract exists at all. See
Quality Products, supra at 372 (“Where mutual assent does
not exist, a contract does not exist.”) If the contract
does not exist, there is nothing for a court to “revise.”
42
the
term,
we
must
enforce
the
plain
language
of
that
agreement.85
IV. CONCLUSION
Consistent with our prior jurisprudence, unambiguous
contracts, including insurance policies, are to be enforced
as written unless a contractual provision violates law or
public policy. Judicial determinations of “reasonableness”
are
an
invalid
basis
upon
which
to
refuse
to
enforce
unambiguous contractual provisions. Traditional defenses to
enforcement
fraud,
or
proven.
of
the
contract
at
unconscionability,
Moreover,
nothing
issue,
have
in
such
neither
our
law
or
as
been
waiver,
pled
public
nor
policy
precludes the enforcement of the contractual provision at
issue.
Finally,
in
the
specific
arena
of
insurance
contracts, the Legislature has enacted a mechanism whereby
policy provisions may be scrutinized and rejected on the
basis of reasonableness. This responsibility, however, has
been
explicitly
Commissioner
has
assigned
approved
to
the
85
the
Commissioner.
policy
form
at
The
issue.
We are at a loss to understand Justice Weaver’s
dissent. Nothing in this opinion breaks new ground. Justice
Weaver’s objection to the proposition that an insurance
contract be enforced in accordance with its plain terms,
just as any other contract, is a proposition found in
Raska, Wilkie, and Klapp, supra. We do not purport to
address the laundry list of issues raised in her dissent.
43
Plaintiffs
have
not
challenged
in
the
appropriate
forum
that this action was an abuse of discretion.
Accordingly, we reverse the Court of Appeals decision
and remand for entry of summary disposition in favor of
defendant.
Robert P. Young, Jr.
Clifford W. Taylor
Maura D. Corrigan
Stephen J. Markman
44
S T A T E
O F
M I C H I G A N
SUPREME COURT
SHIRLEY RORY and ETHEL WOODS,
Plaintiffs-Appellees,
v
No. 126747
CONTINENTAL INSURANCE COMPANY,
also known as CNA INSURANCE COMPANY,
Defendant-Appellant.
_______________________________
KELLY, J. (dissenting).
I dissent today because the majority has come to what
I believe to be the incorrect conclusion on nearly every
count.
Not only does it reach the wrong result in this
case, it takes a drastic step in the wrong direction with
respect
to
contract
law
in
general.
The
majority’s
decision constitutes a serious regression in Michigan law,
and it gives new meaning to the term “judicial activism.”
Therefore, I cannot let it pass without comment.
It is a legitimate exercise for courts to review the
reasonableness of contractual clauses that limit the period
during which legal actions can be brought.
Courts have
conducted reviews of this type for well over a century.
These
reviews
constitute
a
necessary
step
in
ensuring
accurate
enforcement
of
the
intent
of
parties
to
a
contract.
Moreover, in deciding this case, it is unnecessary to
reach the issue of adhesion contracts.
Yet the majority
does so, apparently using this dispute as a vehicle to
reshape the law on adhesion contracts more closely to its
own desires.
offered
by
traditional
appropriate
Therefore,
I believe that the scrutiny and protections
safeguards
I
would
adhesion
for
leave
the
that
contract
people
law
of
law
offer
this
state.
unmolested
and
would
affirm the decision of the Court of Appeals.
I. THE LONG HISTORY OF JUDGING LIMITATIONS PERIODS
REASONABLENESS
FOR
The majority opinion includes an extensive discussion
of
what
its
author
“reasonableness
believes
doctrine”
in
to
be
the
Michigan.
history
It
of
the
effectively
concludes that this Court created new law when it evaluated
a
shortened
limitations
period
for
reasonableness
in
Herweyer v Clark Hwy Services, 455 Mich 14, 20; 564 NW2d
857 (1997), Armand v Territorial Constr, Inc, 414 Mich 21,
27-28; 322 NW2d 924 (1982), Camelot Excavating Co, Inc v St
Paul Fire & Marine Ins Co, 410 Mich 118; 301 NW2d 275
(1981), and Tom Thomas Org, Inc v Reliance Ins Co, 396 Mich
588, 592; 242 NW2d 396 (1976).
2
This is not accurate.
It has long been the law that all limitations periods
are
subject
to
judicial
review
for
reasonableness.
Statutes of limitations enacted by the Legislature must be
subject
to
such
review.
“Generally
speaking,
the
time
determined by the legislature within which an action may be
brought is constitutional where it is reasonable.”
Limitations of Actions, § 5, p 23.
54 CJS,
(Emphasis added.)
This
Court recognized and applied this rule more than 140 years
ago when it wrote:
[T]he
legislative
authority
is
not
so
entirely unlimited that, under the name of a
statute limiting the time within which a party
shall resort to his legal remedy, all remedy
whatsoever may be taken away. . . . It is of the
essence of a law of limitation that it shall
afford a reasonable time within which suit may be
brought[,] and a statute that fails to do this
cannot possibly be sustained as a law of
limitations . . . . [Price v Hopkin, 13 Mich 318,
324-325 (1865) (citations omitted).]
The essential reasoning behind this rule is that an
unreasonable limitations period offers an aggrieved party
no recourse to the courts.
And it unfairly divests that
party of a right that it supposedly provided.
54 CJS,
Limitations of Actions, § 5, p 24.
For almost 140 years, this same rule and reasoning
were
applied
to
limitations
contract and by a statute.
3
periods
created
both
by
a
[P]arties to a contract may, by an express
provision therein, provide another and different
period of limitation from the provided statute,
and . . . such limitation, if reasonable, will be
binding and obligatory upon the parties.
[1
Wood, Limitation of Actions (4th ed, 1916), § 42,
p 145.]
This rule of law was generally accepted and widely cited by
courts throughout the country.
See Longhurst v Star Ins
Co, 19 Iowa 364, 370-371 (1865), Gulf, C & S F R Co v
Trawick, 68 Tex 314, 319-320; 4 SW 567 (1887), Gulf, C & S
F R Co v Gatewood, 79 Tex 89, 94; 14 SW 913 (1890), Sheard
v United States Fidelity & Guaranty Co, 58 Wash 29, 33-34;
107 P 1024 (1910), Pacific Mut Life Ins Co v Adams, 27 Okla
496, 503; 112 P 1026 (1910), Fitger Brewing Co v American
Bonding Co of Baltimore, 127 Minn 330; 149 NW 539 (1914),
Gintjee v Knieling, 35 Cal App 563, 565-566; 170 P 641
(1917), Columbia Security Co v Aetna Accident & Liability
Co, 108 Wash 116, 120; 183 P 137 (1919), and Page Co v
Fidelity & Deposit Co of Maryland, 205 Iowa 798; 216 NW 957
(1927).
The United States Supreme Court discussed a similar
topic well over a century ago.
In Express Co v Caldwell,1
the Court considered a common carrier’s right to enter into
1
88 US (21 Wall) 264; 22 L Ed 556 (1875).
4
a contract to limit its liability.2
It held that, while a
common carrier could enter into such a contract, courts
could
review
the
contract
provision
for
reasonableness.
This review was deemed essential because carriers were in a
position of advantage over members of the public requiring
their service.
Express Co, supra at 267.
In 1865, the Iowa Supreme Court used similar reasoning
when
it
subjected
contractual
reasonableness review.
twelve-month
which
the
reasonably
have
periods
to
a
The court was asked to enforce a
limitations
necessary
limitations
period
facts
been
to
under
bring
ascertained
in
a
circumstances
claim
twelve
could
months.
in
not
It
refused, saying that to do so would impute a dishonest
purpose to the company.
Longhurst, supra at 371.
By
putting
this
construction
upon
the
contract of insurance, you preserve the upright
intent of the company intact. Whereas if you put
the
other
construction
upon
it,
you,
by
implication, charge, or perhaps it would be
better to say, judicially determine, that the
company
granted
a
policy
for
a
valuable
consideration paid, which at the time, they had
reason to believe, would be no risk to them and
no protection to the insured, and thereby
obtained
money
for
themselves
under
false
pretenses. True charity thinketh no evil. It is
therefore right for us to presume, that it was
the honest intent of the company, to insure the
2
Under common law, a common carrier would act as an
insurer against all loss or damage except that stemming
from an act of God or “the public enemy.” Id. at 266.
5
plaintiff’s mechanic’s lien upon the premises
specified, against loss by fire, and, upon the
other hand, that it was the expectation of the
insured, in paying the required premium, that his
policy would cover the loss and give him the
requisite protection. [Id.]
From these cases, one can see that the reasonableness
doctrine is far from a novel legal idea.
It has a solid
foundation well recognized by the courts of this country,
most notably the United States Supreme Court.
Also from these cases, the necessity of having such a
review
becomes
apparent.
Courts
have
recognized
that
insurers are in a position of power and control over the
people purchasing their product.
Careful judicial review
is imperative so that the power is not abused.
supra;
Longhurst,
supra.
Moreover,
this
Express Co,
review
is
essential in order to accurately implement the intent of
the contracting parties.
Because the overriding intent of
a
is
contract
contract
of
should
insurance
not
be
protection unreasonably.3
to
read
so
provide
as
to
protection,
the
eliminate
that
Id.; Spaulding v Morse, 322 Mass
3
The majority argues that the best way to discern the
intent of the parties is by using the language contained in
the contract. But in truth, the majority’s decision today
indicates that this is the only way to discern their
intent. I simply disagree, as does the majority of modern
courts.
As the great Learned Hand stated, “There is no
more likely way to misapprehend the meaning of language—be
it in a constitution, a statute, a will or a contract—than
(continued…)
6
149, 152-153; 76 NE2d 137 (1947).
Otherwise, the insurer
would collect money without providing coverage.
Hence,
application
of
the
reasonableness
rule
contractual construction is well founded and reasoned.
of
And
Michigan courts following this rule have wisely joined the
general trend of all courts in this country.
Rather than
creating new law or diverting from established contractual
interpretation principles, our Court in Camelot applied a
very old and well tested legal rule.4
II. MODERN COURTS DISCUSSION
The
contractual
long-established
limitations
OF THE
rule
periods
for
ISSUE
that
HAND
courts
their
has not been abandoned in modern times.
AT
review
reasonableness
In fact, several
state courts have faced the very issue presented in this
(…continued)
to read the words literally, forgetting the object which
the document as a whole is meant to secure.”
Central
Hanover Bank & Trust Co v Comm’r of Internal Revenue, 159
F2d 167, 169 (CA 2, 1947).
I believe that courts should
give effect to the actual intent of the parties as
expressed through the document as a whole. The protections
contracted for should not be unreasonably eliminated.
4
It is true that cases decided before Tom Thomas and
Camelot upheld contractual limitations periods without
discussing reasonableness.
But this does not mean that
Michigan courts “eschewed” the principle.
Likely, the
issue was not raised in those cases. When Michigan courts
had the issue actually before them, they followed the welltested legal rule established by courts throughout the
United States legal system, including by the Supreme Court.
7
case.
Nearly every court that has considered an uninsured
motorist
insurance
contract
that
limits
the
applicable
statutory period of limitations has found the limitation
unreasonable.
For example, in Elkins v Kentucky Farm Bureau Mut Ins
Co,5 the insurance contract limited an uninsured motorist
claim to one year following the accident.
with
the
two-year
statutory
claims against a motorist.
period
Id.
of
This conflicted
limitations
for
The Kentucky court found
the one-year limitations period unreasonable and refused to
enforce it.
It stated:
[I]t makes no sense to allow two years (or
more) to file a suit against an uninsured or
underinsured tort-feasor and yet permit the
insurer to escape liability if the suit involving
it is not filed within one year. Such would not
only be an unreasonably short time, but it would
completely frustrate
the no-fault insurance
scheme. [Id. at 424.]
The Kentucky court noted that it was following the
majority of courts that have ruled on the issue.
v
Globe
American
Cas
Co,
442
NE2d
8
(Ind
See Scalf
App,
1982);
Sandoval v Valdez, 91 NM 705; 580 P2d 131 (1978); Signal
Ins Co v Walden, 10 Wash App 350; 517 P2d 611 (1973); Burgo
v Illinois Farmers Ins Co, 8 Ill App 3d 259; 290 NE2d 371
5
844 SW2d 423 (Ky App, 1992).
8
(1972); Nixon v Farmers Ins Exch, 56 Wis 2d 1; 201 NW2d 543
(1972).
Therefore, the majority today has not only rejected
the
long-established
rule
regarding
review
for
reasonableness, but it has also broken company with the
majority
of
courts
addressing
the
issue.
This
fact
strongly suggests that the majority is not on the firm
legal ground it claims.
Rather, it is pushing Michigan law
out on a tenuous ledge, distancing it from the law of our
sister states.
III. THE LIMITATIONS PROVISION UNDER REVIEW
WAS
UNREASONABLE
Given that the “reasonableness doctrine” has been so
well established, it should be applied without hesitation
to
the
facts
demonstrates
limitations
of
the
this
case.
shocking
provision
in
A
review
inequity
defendant’s
of
of
the
the
uninsured
facts
one-year
motorist
insurances contract.
The section of the contract in question provides:
We will pay compensatory damages which any
covered person is legally entitled to recover
from the owner or operator of an uninsured motor
vehicle because of bodily injury:
1.
Sustained by any covered person; and
2. Caused by an accident arising out of the
ownership, maintenance or use of an uninsured
motor vehicle;
9
Claim or suit must be brought within 1 year
from the date of the accident.
[Emphasis in
original.]
This Court in Herweyer articulated the three-pronged
test for determining if a limitations clause is reasonable:
It is reasonable if (1) the claimant has
sufficient opportunity to investigate and file an
action, (2) the time is not so short as to work a
practical abrogation of the right of action, and
(3) the action is not barred before the loss or
damage can be ascertained.
[Herweyer, supra at
20, citing Camelot, supra.]
All prongs of the test outlined in Camelot and Herweyer
weigh against allowing a shortened limitations period in
this case.
Plaintiffs did not have sufficient time to investigate
and file an action.
Under the contract, the liability for
uninsured
motorist
coverage
uninsured
motorist
becomes
pursuant
to
MCL
is
triggered
liable
500.3135(1).
for
only
once
noneconomic
Liability
for
an
loss
noneconomic
loss occurs only if the plaintiffs suffered “death, serious
impairment
of
body
disfigurement.”
MCL
function,
or
500.3135(1).
permanent
While
serious
death
may
be
ascertainable at the time of the accident, the other two
injuries are less readily identifiable.
A party may not know that his injury is permanent
until
considerable
time
elapses.
During
this
attends physical therapy and attempts to heal.
10
time,
he
This may
well take longer than a year.
Quite often, an injured
individual will do everything in his power to escape the
label
“permanently
impaired.”
I
believe
that
most
individuals are willing to work for a living and will exert
considerable effort to recover from an injury in order to
return to work.
defendant’s
recovery.
The contractual limitation contained in
insurance
form
discourages
attempts
at
For these reasons, it is unreasonable and should
be held to be against public policy.
Also, a party may not learn that he has a serious
impairment until after one year has passed.
Some injuries,
especially soft tissue injuries, are difficult to diagnose.
And proper diagnosis and determination of permanency may
take a long time.
this
fact
by
limitations
The Legislature seems to have recognized
enacting
for
a
bringing
three-year
statutory
suits
noneconomic
for
period
of
damages.
Given these considerations, the first prong of the Herweyer
test weighs against finding this limitation reasonable.
The
one-year
limitation
also
works
as
a
practical
abrogation of the right created by the insurance agreement.
This is the second consideration under the Herweyer test.
Herweyer, supra at 20.
The best way that a plaintiff can
find out if a party is uninsured is to sue him.
If an
insurance company presents a defense, then the party is
11
insured.
However, the time required to reach this point
can easily exceed one year.
Under
injured
in
a
one-year
an
period
automobile
of
limitations,
accident
would
an
be
insured
forced
to
immediately ascertain whether a serious impairment exists.
He then would be obliged to file suit against the other
motorist well before one year has elapsed.
This is because
the case might have to progress through at least part of
the discovery process for the injured person to determine
if the other motorist is uninsured.
Then, the insured
would have to make a claim with his insurance company.
In
many instances, all this cannot be accomplished within one
year.
The clause providing the one-year limitations period
mandates that injured insureds bring suit immediately after
their automobile accident.
This might be even before they
determine if they have a permanent impairment.
In effect,
the
be
clause
requires
that
baseless
lawsuits
filed.
Filing such a lawsuit might be the only way a party could
claim the uninsured motorist coverage that he paid for.
But this early filing still might not move the case along
quickly enough to satisfy the one-year limitation.
This is exactly what happened to plaintiffs, Shirley
Rory and Ethel Woods.
They did not know that the other
12
party to the accident was uninsured until suit had been
brought and discovery was underway.
They did not delay in
the least in making their claim with defendant.
well
within
the
limitations
noneconomic damages.
period
for
They filed
claims
of
But the majority would still leave
them without the uninsured motorist coverage they paid for.
Clearly,
this
is
a
practical
abrogation
of
plaintiffs’
rights.
That
plaintiffs’
the
one-year
rights
limitations
becomes
even
clause
clearer
abrogates
when
one
contemplates that an insurer for the third party might deny
coverage well into the suit.
That insurer could determine
that its insured should not receive coverage only after
defending him for many months.
This delayed notice would
be outside the control of the injured motorist.
But it
could deny him the uninsured motorist coverage he paid for
from his own insurer.
If a third-party insurer waits for a
year to deny coverage, the clause would absolutely bar the
injured motorist from the benefit of his insurance.
The
majority simply ignores this inequity.6
Also, after one year, the injured party may still be
receiving medical treatment.
A permanent injury may not
6
Some would see this ruling as an open invitation for
insurance company gamesmanship.
13
yet have been diagnosed.
A third-party insurance company
could deny coverage at that point.
The injured motorist
would
power
have
done
everything
against the third party.
sustain
a
policy
claim
under
because
coverage
until
the
too
in
his
to
bring
suit
But he would not be able to
his
uninsured
third-party
late.
motorist
insurer
The
did
contractual
insurance
not
deny
limitations
clause simply fails to give an adequate period in which to
ascertain the loss or damage.
Id.
Given that the clause providing a one-year limitations
period
is
found
of
the
Herweyer test, it must be adjudged to be unreasonable.
Id.
Therefore,
the
disposition
in
wanting
trial
this
under
court
case
all
three
correctly
and
the
prongs
denied
Court
of
summary
Appeals
appropriately affirmed that decision.
IV. THE ONE-YEAR LIMITATIONS PERIOD
AND
MCL 500.2254
The majority concludes that the one-year limitations
clause is not contrary to the law or to public policy.
But
to reach this conclusion, it relies on a strained reading
of MCL 500.2254.
I agree with the Commissioner of the
Office of Financial and Insurance Services who filed an
amicus curiae brief concluding that MCL 500.2254 forbids a
one-year limitations clause.
14
MCL 500.2254 provides:
Suits
at
law
may
be
prosecuted
and
maintained by any member against a domestic
insurance corporation for claims which may have
accrued if payments are withheld more than 60
days after such claims shall have become due. No
article, bylaw, resolution or policy provision
adopted by any life, disability, surety, or
casualty insurance company doing business in this
state prohibiting a member or beneficiary from
commencing and maintaining suits at law or in
equity against such company shall be valid and no
such article, bylaw, provision or resolution
shall hereafter be a bar to any suit in any court
in this state: Provided, however, That any
reasonable
remedy
for
adjudicating
claims
established by such company or companies shall
first be exhausted by the claimant before
commencing suit: Provided further, however, That
the company shall finally pass upon any claim
submitted to it within a period of 6 months from
and after final proofs of loss or death shall
have been furnished any such company by the
claimant. [Emphasis added.]
Under the language of this statute, a policy provision
may
not
prohibit
a
beneficiary
from
maintaining a suit.
MCL 500.2254.
what
limitations
the
one-year
expiration
of
longer
entitled
is
the
one-year
to
and
But this is exactly
clause
period,
maintain
commencing
a
the
suit
does.
After
beneficiary
for
no
uninsured
motorist coverage, even though his claim is allowable by
statute
for
another
two
contravenes the statute.
years.
The
limitations
clause
This means it is contrary to
Michigan law and Michigan public policy.
15
In order to support its position, the majority argues
that nothing in the statute forbids conditions being placed
on the commencement and maintenance of a lawsuit.
But such
conditions are exactly what the statute speaks of.
It
forbids
or
a
policy
provision
“prohibiting
a
member
beneficiary from commencing and maintaining suits[.]”
MCL
500.2254.
Any “condition” in a policy would be a policy
provision.
Changing its label does not change what it is.
Therefore,
any
condition
prohibiting
a
beneficiary
from
commencing and maintaining a suit would equally violate the
statute.7
In
addition,
the
Legislature
explicitly
lists
two
“conditions” that are exceptions to the general rule in MCL
500.2254.
Insurance companies may include in their policy
provisions these two “conditions”:
(1) the claimant must
exhaust any alternative remedies mandated by the policy,
such as arbitration, and (2) the claimant must give the
insurer six months to decide whether to honor the claim
before the claimant may bring suit.
7
MCL 500.2254.
The
The majority claims that my interpretation would
render invalid a contractual limitations period that
paralleled the applicable statutory limitations period.
This is not true.
In such a situation, the contractual
provision would not limit the commencement and maintenance
of a lawsuit, but instead, the statute of limitations
would.
16
inclusion
of
these
two
conditions
indicates
that
the
Legislature did not intend to allow any others.
This
Court
has
long
relied
on
expressio unius est exlusio alterius.8
of
construction
sense.
362;
that
is
a
product
the
legal
maxim
The maxim is a rule
of
logic
and
common
Feld v Robert & Charles Beauty Salon, 435 Mich 352,
459
NW2d
279
(1990),
quoting
2A
Sands,
Sutherland
Statutory Construction (4th ed), § 47.24, p 203.
In fact,
this Court long ago stated that no maxim is more uniformly
used to properly construe statutes.
Taylor v Michigan Pub
Utilities Comm, 217 Mich 400, 403; 186 NW 485 (1922).
If exceptions such as the one-year limitations clause
were permissible, it would be pointless for the Legislature
to have listed only two exceptions in the statute.
It
would contravene the well established maxim of expressio
unius est exlusio alterius.
And it would write into the
statute what the Legislature chose to omit.
cannot
agree
with
the
majority’s
Therefore, I
interpretation
of
MCL
500.2254.
V. APPROVAL
OF
INSURANCE FORMS
BY THE
COMMISSIONER
The majority argues that the Legislature assigned the
task of evaluating an insurance provision’s reasonableness
8
This translates as “the expression of one thing is
the exclusion of another.”
17
to
the
Commissioner
Insurance Services.
of
the
Office
of
Financial
and
It relies on MCL 500.2236(5), which
provides:
Upon written notice to the insurer, the
commissioner may disapprove, withdraw approval or
prohibit the issuance, advertising, or delivery
of any form to any person in this state if it
violates any provisions of this act, or contains
inconsistent, ambiguous, or misleading clauses,
or
contains
exceptions
and
conditions
that
unreasonably or deceptively affect the risk
purported to be assumed in the general coverage
of the policy.
The notice shall specify the
objectionable provisions or conditions and state
the reasons for the commissioner’s decision. If
the form is legally in use by the insurer in this
state, the notice shall give the effective date
of the commissioner’s disapproval, which shall
not be less than 30 days subsequent to the
mailing or delivery of the notice to the insurer.
If the form is not legally in use, then
disapproval
shall
be
effective
immediately.
[Emphasis added.]
By using the term “may,” the Legislature has signaled
that
what
follows
“may”
is
a
discretionary
act.
This
contrasts with the use of the term “shall,” which signals a
mandatory act.
100;
523
indicates
Murphy v Michigan Bell Tel Co, 447 Mich 93,
NW2d
that,
310
in
(1994).
Nothing
granting
this
in
this
discretion
statute
to
the
commissioner, the Legislature intended to rob the courts of
review of the same matter.9
Moreover, it could be argued
9
The majority accuses me of reading the review of
policy forms as discretionary.
That is not my argument.
(continued…)
18
that, by not making the commissioner’s review mandatory,
the
Legislature
acknowledged
that
a
court’s
exercise
of
similar review is well-founded and appropriate.
The majority ignores the discretionary nature of the
commissioner’s review when it concludes that plaintiffs can
challenge
the
one-year
limitations
clause
challenging the approval of the insurance form.
commissioner
is
not
required
to
review
only
by
But the
“conditions
that
unreasonably or deceptively affect the risk purported to be
assumed
in
the
general
coverage
of
the
policy.”
MCL
500.2236(5).
The majority’s argument amounts to little more than a
red herring.
It is an attempt to distract from the patent
inequity of its ruling today.
Because the commissioner’s
review is discretionary, reference to MCL 500.2236(5) adds
little to this discussion.
And it does not justify the
majority’s decision to radically change existing law.
(…continued)
While the commissioner is required to review all forms, the
discretionary nature of his disapproval means that his
review for reasonableness is also discretionary.
The
statute would allow the commissioner to let a form enter
into use even if he found terms within it to be
unreasonable.
The statute does not mandate disapproval
when a portion of the form is unreasonable. Therefore, the
review for reasonableness is discretionary.
19
VI. ADHESION CONTRACTS
Not
precedent
content
used
to
with
overturning
protect
the
just
people
of
one
line
of
Michigan,
the
majority goes on to discuss the tangentially related topic
of adhesion contracts.
It overrules the line of cases
offering protection to Michiganians from such contracts and
departs
from
well-established
precedent
and
from
the
majority of other courts that have addressed the issue.
Its decision also defies common sense.
A. THE HISTORY
OF
ADHESION CONTRACTS AND BALANCING
OF THESE CONTRACTS
THE
INEQUITIES
In discussing the history of adhesion contracts, the
majority misses one important point.
Before courts applied
protections from adhesion contracts, they struggled to deal
with the problems presented by form contracts.10
Although
they did not always explicitly state what they were doing,
they often acted in a way to balance out the inequities
presented by such contracts.
10
I would note that form contracts came into use only
toward the end of the eighteenth century.
Meyerson, The
reunification of contract law:
The objective theory of
consumer form contracts, 47 U Miami L R 1263 (1993).
Relatively speaking, it was a short time before there was
discussion of treating them as contracts of adhesion.
During the intervening time, courts found other ways to
counterbalance the inequities of these one-sided contracts.
20
In his early work in the field, Professor Karl N.
Llewellyn noted:
[W]e have developed a whole series of semicovert techniques for somewhat balancing these
[form-contract] bargains. A court can “construe”
language into patently not meaning what the
language is patently trying to say. It can find
inconsistencies between clauses and throw out the
troublesome one. It can even reject a clause as
counter to the whole purpose of the transaction.
It can reject enforcement by one side for want of
“mutuality,” though allowing enforcement by the
weaker side because “consideration” in some other
sense
is
present.
[Book
review,
The
standardization
of
commercial
contracts
in
English and Continental Law, by O. Prausnitz, 52
Harv L R 700, 702 (1939).][11]
Courts have long recognized the inherent problems of
form
contracts
and
attempted
through
compensate for their inequities.
various
methods
to
The great legal minds of
the early twentieth century began to see the drawbacks of
this “semi-covert” action, and they called for uniformity
in
the
field.
From
this
developed
the
protections of the adhesion contract theory.
reunification of contract law:
concept
and
Meyerson, The
The objective theory of
consumer form contracts, 47 U Miami L R 1263, 1277-1278
(1993).
Despite the majority’s argument, the idea of balancing
the inequities of form contracts (or what are now more
11
See also Keeton, Insurance law rights at variance
with policy provisions, 83 Harv L R 961, 968-973 (1970).
21
commonly
known
recognized.
as
“adhesion
contracts”)
has
been
long
And there is good reason for this longstanding
recognition.
Namely,
the
bargained-for
exchange
fundamental to traditional contracts simply does not exist
in adhesion contracts.
As
the
Pennsylvania
Supreme
Court
noted
when
abandoning the strict construction approach to which the
majority regresses today:
The
rationale
underlying
the
strict
contractual
approach
reflected
in
our
past
decisions is that courts should not presume to
interfere with the freedom of private contracts
and redraft insurance policy provisions where the
intent of the parties is expressed by clear and
unambiguous language.
We are of the opinion,
however, that this argument, based on the view
that insurance policies are private contracts in
the traditional sense, is no longer persuasive.
Such a position fails to recognize the true
nature of the relationship between insurance
companies
and
their
insureds.
An
insurance
contract is not a negotiated agreement; rather
its conditions are by and large dictated by the
insurance company to the insured. The only aspect
of the contract over which the insured can
“bargain” is the monetary amount of coverage.
[Brakeman v Potomac Ins Co, 472 Pa 66, 72; 371
A2d 193 (1977).]
The average person does not sit down and bargain for
each of the terms in his insurance contract.
Quite the
opposite
insurance
policies.
virtually
is
true.
He
may
never
read
his
Most are long and contain nuanced subclauses
indecipherable
to
22
people
not
experienced
in
contractual interpretation or insurance law.
despite
the
policies.
increased
In
most
use
of
situations,
plain
the
This is true
English
individual
in
such
pays
his
insurance premiums and then receives the contract in the
mail days or weeks later.
the
opportunity,
time,
Most people simply do not have
or
special
ability
to
read
the
policy before agreeing to it.
And what incentive does the insurance industry have to
assure that their insureds read their polices?
If people
were to read all the language in their insurance contracts,
the insurance providers would be flooded with questions and
requests to change clauses.
“[i]f
it
is
both
It has been observed that
unreasonable
and
undesirable
to
have
consumers read these terms, courts should not fashion legal
rules in a futile attempt to force consumers to read these
terms[.]” Meyerson, supra at 1270-1271.
If
the
individual
consumer
clauses
does
of
the
not
read
and
contract,
there
agreement on the particular terms in them.
meeting of the minds.
comprehend
can
be
the
no
There can be no
Moreover, when one side presents a
contract on a take-it-or-leave-it basis and is in a place
of
considerable
bargained-for
power
over
exchange.
the
other,
Hence,
23
an
there
can
outdated
be
no
strict
construction
policy
of
construing
these
agreements
is
utterly unworkable.12
It is for that reason that the majority of the courts
in
this
country
has
disavowed
the
strict
policy in construing contracts of adhesion.13
construction
Instead, they
12
The majority contends that consumers should be
assumed to know all the contents of their insurance
policies. But it notes that without a meeting of the minds
no contract exists. The purpose of modern judicial review
of adhesion contracts is to balance the inequity that they
present. Instead of either forcing a consumer to abide by
a term that he never knew of or rejecting the entire
contract, the court balances the inequities of the contract
to enforce its overriding intent.
Therefore, what was
fairly bargained for is enforced and what the parties minds
truly met on remains.
But the majority, instead of
continuing to balance these inequities, returns to the
generally unworkable strict construction approach.
In
doing so, it ignores the true nature of adhesion contracts.
Brakeman, supra.
13
For but a few examples, see Lechmere Tire & Sales Co
v Burwick, 360 Mass 718; 277 NE2d 503 (1972), State Farm
Mut Automobile Ins Co v Johnson, 320 A2d 345 (Del, 1974),
Dairy Farm Leasing Co, Inc v Hartley, 395 A2d 1135 (Me,
1978), Jarvis v Aetna Cas & Surety Co, 633 P2d 1359 (Alas,
1981), State Farm Mut Automobile Ins Co v Khoe, 884 F2d 401
(CA 9, 1989), Jones v Bituminous Cas Corp, 821 SW2d 798
(Ky, 1991), Nieves v Intercontinental Life Ins Co, 964 F2d
60 (CA 1, 1992), Broemmer v Abortion Services of Phoenix,
Ltd, 173 Ariz 148; 840 P2d 1013 (1992), Grimes v Swaim, 971
F2d 622 (CA 10, 1992), United States Fidelity & Guaranty Co
v Sandt, 854 P2d 519 (Utah, 1993), Buraczynski v Eyring,
919 SW2d 314 (Tenn, 1996), Coop Fire Ins Ass’n v White
Caps, Inc, 166 Vt 355; 694 A2d 34 (1997), Alcazar v Hayes,
982 SW2d 845 (Tenn, 1998), Andry v New Orleans Saints, 820
So 2d 602 (La App, 2002), Parilla v IAP Worldwide Services
VI, Inc, 368 F3d 269 (CA 3, 2004), and Iberia Credit
Bureau, Inc v Cingular Wireless LLC, 379 F3d 159 (CA 5,
2004).
24
follow
the
more
equitable
and
balanced
modern
viewing adhesion contracts with skepticism.
trend
of
I believe it
is a serious mistake for the majority to regress Michigan
law away from this well-accepted modern trend that has been
created to protect individuals.14
The majority contends that it bases its decision on
the “freedom of contract and the liberty of each person to
order his or her own affairs by agreement.”
Ante at 39.
It also states that contracts “voluntarily and fairly made”
should
be
enforced.
Ante
at
12.
In
making
these
statements, the majority either ignores or intentionally
obfuscates the fact that adhesion contracts are not fairly
made or bargained for by individuals managing their own
affairs.
Instead, the majority is creating a rule that permits
insurance companies to bargain unfairly so that they can
maximize their financial profit.
14
The burden of this rule
The majority accuses the Herweyer Court of being the
true judicial activists. It claims that Herweyer rejected
“a century” of precedent.
As noted, earlier in this
opinion, this truly is not the case.
Courts had been
balancing the inequities of form contracts nearly since
their inception.
This Court in Herweyer merely followed
that trend.
It is only this majority that is reshaping
Michigan law and clearly reversing longstanding precedent.
In doing so, it is ignoring the current state of contract
law and breaking away from the well-established modern
trend
of
adhesion
contract
interpretation
recognized
throughout this country.
25
is carried by the average individual who has little, if
any,
bargaining
power
when
purchasing
insurance.
The
choice made by the majority regresses our judicial system
by decades, if not centuries.
into
the
era
when
courts
It places the state back
either
used
covert
means
of
interpreting contracts or ignored equity altogether.
B.
THE CONTINUED ATTACK
ON
INSURANCE CONTRACT PROTECTIONS
Today, the majority continues its attack on the welldeveloped
protections
created
in
insurance
law
that
it
started in Wilkie v Auto-Owners Ins Co 469 Mich 41; 664
NW2d 776 (2003).
erroneously
I
expectations.
In
Wilkie, the majority struck down,
believe,
the
doctrine
of
reasonable
Adding this decision to Wilkie, the majority
has now struck down all reasonable means of objectively
interpreting
insurance
contracts.
Without
objective
standards, courts cannot be expected to accurately discern
the intent of the parties.
An objective standard produces an essential
degree of certainty and predictability about
legal rights, as well as a method of achieving
equity not only between insurer and insured but
also among different insureds whose contributions
through premiums create the funds that are tapped
to pay judgments against insurers.
[Keeton,
Insurance law rights at variance with policy
provisions, 83 Harv L R 961, 968 (1970).]
The
abandonment
considerations
of
destabilizes
these
the
26
important
system.
The
equitable
only
ones
benefited
are
the
unscrupulous
can
insurance
now
more
companies.
easily
Those
create
that
are
deliberately
confusing insurance forms with hidden clauses that change
the
meaning
of
the
policy.
They
may
thereby
collect
payments for coverage that is wholly illusory without worry
of interference from Michigan courts.
this position.
I cannot agree with
As Justice Cavanagh once wisely stated:
I object to [the majority’s] attempt to
distance itself from the policy choices inherent
in its decision today. Simply put, the majority
and I differ with regard to the policies that
should guide the interpretation of insurance law.
I would prefer not to disregard the manner in
which the insurance industry operates. Though an
adhesion contract may be a necessary ingredient
in the trade, I cannot condone a doctrine of
interpretation
that
all
but
ignores
the
potentially precarious effect on the bound party.
[Wilkie, supra at 70 (Cavanagh, J., dissenting).]
This Court should not abandon the protections created
to right the wrongs of adhesion contracts.
I must dissent
from its radical change of the law.
VII. CONCLUSION
The reasonableness doctrine is well-established in the
law.
Judicial
review
constitutes
a
necessary
step
to
ensure that the actual intent of parties to a contract is
enforced.
Therefore, it is inappropriate to overturn the
various decisions that support the ability of courts to
27
review
for
reasonableness
the
shortening
of
limitations
periods.
In this case, the one-year time limit was so short
that it acted as a practical abrogation of the right to
bring a lawsuit.
Therefore, plaintiffs paid for coverage
from which they could never benefit.
the
only
proper
action
by
the
In such a situation,
Court
is
to
find
the
limitations period unreasonable.
In deciding this case, it is unnecessary to reach the
issue of adhesion contracts.
The majority, by venturing
into this area of the law and using this case as a vehicle,
subjects
activism.
itself
The
to
claims
scrutiny
that
it
engages
and
protections
in
judicial
offered
by
traditional adhesion contract law offer a necessary aegis
for the people of this state.
I see no reason to attack
this fundamental tenet of our law.
Therefore, I would affirm the decision of the Court of
Appeals.
Marilyn Kelly
28
S T A T E
O F
M I C H I G A N
SUPREME COURT
SHIRLEY RORY AND ETHEL WOODS,
Plaintiffs-Appellees,
v
No. 126747
CONTINENTAL INSURANCE COMPANY,
also known as CNA INSURANCE COMPANY,
Defendant-Appellant.
_______________________________
CAVANAGH, J. (dissenting).
As
the
majority
accurately
faced with a choice today.
could
continue
insurance
to
and
this
See ante at 39.
acknowledge
agreements
observes,
the
follow
unique
Court
is
This Court
character
well-reasoned
of
precedent
examining contractually shortened limitations periods for
reasonableness.
in
which
insurance
abrogate
the
majority
makes
dissent
Or this Court could disregard the manner
from
agreements
“reasonableness
the
today’s
wrong
come
existence
and
Because
the
doctrine.”
choice,
decision
into
and
I
must
concur
in
respectfully
the
result
reached by Justice Kelly’s dissent.
As a general proposition, “[a]n insurance policy is
much the same as any other contract.”
Churchman,
440
Mich
560,
566;
489
Auto-Owners Ins Co v
NW2d
431
(1992).
Accordingly, a clear and unambiguous insurance policy is
usually
applied
Sokolowski,
374
as
written.
Mich
New
340,
342;
Amsterdam
132
Cas
NW2d
66
Co
v
(1965);
Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 111; 595
NW2d
832
(1999).
This
general
principle,
however,
is
subject to numerous caveats that are deeply rooted in our
jurisprudence, including the following: where a contractual
limitations
provision
shortens
the
otherwise
applicable
period of limitations, the provision must be reasonable to
be enforceable.
Herweyer v Clark Hwy Services, Inc, 455
Mich 14, 20; 564 NW2d 857 (1997).
See also 44A Am Jur 2d,
Insurance, § 1909, p 370; anno: Validity of contractual
time
period,
shorter
than
statute
of
limitations,
for
bringing action, 6 ALR3d 1197.
As noted by the majority, there is little doubt that
parties
may
generally
contract
for
shorter
periods
of
limitations, and this Court has enforced such provisions
where they have been reasonable.
in
Herweyer,
factors
to
supra
assist
at
our
20,
To this end, this Court
rearticulated
courts
in
the
determining
following
whether
contractual limitations provision is reasonable:
It is reasonable if (1) the claimant has
sufficient opportunity to investigate and file an
action, (2) the time is not so short as to work a
practical abrogation of the right of action, and
2
a
(3) the action is not barred before the loss or
damage can be ascertained.
In
my
view,
this
particularly
fitting
reasonableness
when
insurance
inquiry
policies
is
purport
to
shorten the otherwise applicable period of limitations.
As
Justice Levin once observed:
The rationale of the rule allowing parties
to contractually shorten statutory periods of
limitation is that the shortened period is a
bargained-for term of the contract.
Allowing
such bargained-for terms may in some cases be a
useful and proper means of allowing parties to
structure their business dealings.
In the case of an adhesion contract,
however, where the party ostensibly agreeing to
the shortened period has no real alternative,
this
rationale
is
inapplicable.
[Camelot
Excavating Co, Inc v St Paul Fire & Marine Ins
Co, 410 Mich 118, 141; 301 NW2d 275 (1981)
(Levin, J., concurring).]
Nonetheless,
reasonableness
the
inquiry
majority
no
longer
posits
has
any
that
place
in
the
our
jurisprudence because this inquiry undermines the parties’
freedom of contract.
ignores
operates.
approach
the
manner
In my view, however, such an approach
in
which
the
insurance
industry
In this regard, I believe that the majority’s
is
based
on
the
fiction
3
that
the
shortened
limitations period was a truly bargained-for term.1
In
other words, I believe that the majority’s entire premise
must
fail
insurance
adhesion
because
it
agreements
contracts
ignores
the
unique
and
disregards
inherently
tend
ingredient in the trade . . . .”
to
the
“be
character
notion
a
of
that
necessary
Wilkie v Auto-Owners Ins
Co, 469 Mich 41, 70; 664 NW2d 776 (2003) (Cavanagh, J.,
1
In the typical insurance agreement, Justice Levin
prudently noted,
[t]here is no meeting of the minds except
regarding the broad outlines of the transaction,
the insurer’s desire to sell a policy and the
insured’s desire to buy a policy of insurance for
a designated price and period of insurance to
cover loss arising from particular perils (death,
illness,
fire,
theft,
auto
accident,
“comprehensive”).
The
details
(definitions,
exceptions, exclusions, conditions) are generally
not discussed and rarely negotiated.
The policyholder can, of course, be said to
have agreed to whatever the policy says—in that
sense his mind met with that of the insurer. Such
an analysis may not violate the letter of the
concept that a written contract expresses the
substance of a meeting of minds, but it does
violate the spirit of that concept.
To be sure, contract law principles are not
confined by the concept of a “meeting of the
minds.”
Nevertheless, a point is reached when
the
label
“contract”
ceases
to
fully
and
accurately describe the relationship of the
parties and the nature of the transaction between
insurer and insured.
[Lotoszinski v State Farm
Mut Automobile Ins Co, 417 Mich 1, 14 n 1; 331
NW2d 467 (1982) (Levin, J., dissenting).]
4
dissenting).2
Accordingly, I would not torture the term
“adhesion contract” and turn a blind eye to the manner in
which these adhesion contracts are made simply to bolster
what is perceived as a preferred result.
Instead, I would
embrace, rather than divorce, reality and acknowledge how
insurance
policies
typically
come
into
existence.
Therefore, I would affirm the decision of the Court of
2
I must additionally note that, contrary to the
majority’s rationale, decisions such as Camelot Excavating,
Herweyer, and Tom Thomas Org, Inc v Reliance Ins Co, 396
Mich
588,
592;
242
NW2d
396
(1976),
were
not
groundbreaking.
For example, 44A Am Jur 2d, Insurance, §
1909, pp 370-371 provides:
In the absence of statutory regulation to
the contrary, an insurance contract may validly
provide for a limitation period shorter than that
provided in the general statute of limitations,
provided that the interval allowed is not
unreasonably short. [Emphasis added.]
Section 1909 cites the following cases in support of this
view:
Thomas v Allstate Ins Co, 974 F2d 706 (CA 6, 1992)
(applying Ohio law); Doe v Blue Cross & Blue Shield United
of Wisconsin, 112 F3d 869 (CA 7, 1997); Wesselman v
Travelers Indemnity Co, 345 A2d 423 (Del, 1975); Phoenix
Ins Co v Aetna Cas & Surety Co, 120 Ga App 122; 169 SE2d
645 (1969); Nicodemus v Milwaukee Mut Ins Co, 612 NW2d 785
(Iowa, 2000) (contractual limitations provision in an
insurance policy is enforceable if it is reasonable); Webb
v Kentucky Farm Bureau Ins Co, 577 SW2d 17 (Ky App, 1978);
Suire v Combined Ins Co of America, 290 So 2d 271 (La,
1974); L & A United Grocers, Inc v Safeguard Ins Co, 460
A2d 587 (Me, 1983) (in property insurance, a limit of one
year from the time of loss is not unreasonably short);
O'Reilly v Allstate Ins Co, 474 NW2d 221 (Minn App, 1991);
Commonwealth v Transamerica Ins Co, 462 Pa 268; 341 A2d 74
(1975); Donahue v Hartford Fire Ins Co, 110 RI 603; 295 A2d
693 (1972); Hebert v Jarvis & Rice & White Ins, Inc, 134 Vt
472; 365 A2d 271 (1976).
5
Appeals and conclude that the shortened limitations period
in
this
insurance
policy
is
unreasonable
and,
thus,
unenforceable.
I
must
also
observe
that
my
disagreement
with
the
current majority with respect to the principles governing
the interpretation of insurance policies is nothing new.
See Wilkie, supra.
I recognize that the majority’s view in
this case and others is theoretically consistent with the
notion
of
freedom
majority’s
approach
Nonetheless,
majority’s
of
could
while
own
contract.
arguably
today’s
desire
to
In
decision
demonstrate
the
have
abstract,
some
may
its
the
appeal.
placate
the
self-described
fidelity, I believe that the majority’s position ignores
how
the
effects
citizens.
today’s
insurance
today’s
industry
decision
Therefore,
decision
and
I
functions
will
must
concur
have
and
on
discounts
this
respectfully
in
the
result
reached
Michael F. Cavanagh
6
state’s
dissent
Justice Kelly’s dissent.
the
from
by
S T A T E
O F
M I C H I G A N
SUPREME COURT
SHIRLEY RORY and ETHEL WOODS,
Plaintiffs-Appellees,
v
No. 126747
CONTINENTAL INSURANCE COMPANY,
also known as CNA INSURANCE COMPANY,
Defendant-Appellant.
_______________________________
WEAVER, J. (dissenting).
I
respectfully
dissent
from
the
majority
opinion’s
holdings that the “insurance policies are subject to the
same
contract
construction
principles
that
apply
to
any
other species of contract,” and that “unless a contract
provision violates law or one of the traditional defenses
to the enforceability of a contract applies, a court must
construe
written.”
and
apply
unambiguous
contract
provisions
as
Ante at 2.
In so holding, the majority is eliminating over five
decades’ worth of precedent that created
specialized rules
of interpretation and enforcement for insurance contracts.
These specialized rules recognize that an insured is not
able to bargain over the terms of an insurance policy;
indeed, it is common practice for the insured to receive
the
actual
itself,
terms
only
of
the
after
contract,
having
the
insurance
purchased
the
policy
insurance.
Further, in most cases the average consumer will not read
the
policy;
the
consumer
will
rely
on
the
agent’s
representations of what is covered in the policy.
Even if
the insured were to read the policy, insurance policies are
not easy to understand and contain obscure provisions, the
meaning of which requires legal education to grasp.
The
with
by
longstanding
stating
rules
that
that
the
insurance
majority
contracts
does
are
away
to
be
interpreted in the same way as any other contract include:
●Courts
must
interpret
insurance
perspective of an average consumer.
read
using
the
ordinary
language
policies
from
the
The contract must be
of
the
layperson,
not
using technical medical, legal, or insurance terms.1
By
contrast, the usual rule of contract interpretation is that
“technical terms and words of art are given their technical
meaning when used in a transaction within their technical
field.”
2 Restatement Contracts, 2d, ch 9, § 202, p 86.
See also Moraine Products, Inc v Parke, Davis & Co, 43 Mich
App 210, 213; 203 NW2d 917 (1972).
1
“Insurance policies should be read with the meaning
which ordinary layman would give their words.”
Bowman v
Preferred Risk Mut Ins Co, 348 Mich 531, 547; 83 NW2d 434
(1957).
2
●If reading the contract one way provides that there
is coverage, but reading it another way provides that there
is
not
coverage
under
the
same
circumstances,
then
the
contract is ambiguous and must be construed against its
drafter and in favor of coverage.2
This is different from
general contract law, which finds a contract ambiguous “if
its provisions may reasonably be understood in different
ways.”
Universal Underwriters Ins Co v Kneeland, 464 Mich
491, 496; 628 NW2d 491 (2001).
(Emphasis added.)
The
“reasonableness” requirement can be a severe limitation on
finding an ambiguity.
●If a limitation on coverage is not expressed clearly
enough to inform the insured of the extent of coverage
2
An ambiguity in an insurance policy is broadly
defined
to
include
contract
provisions
capable
of
conflicting interpretations.
Auto Club Ins Ass’n v
DeLaGarza, 433 Mich 208, 214; 444 NW2d 803 (1989).
“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.”
Raska v Farm Bureau Mut Ins Co of Michigan, 412 Mich 355,
362; 314 NW2d 440 (1982).
3
purchased, the provision is construed against the drafter,
the insurance company.3
●In
interpreting
a
policy,
exceptions
to
general
liability are to be strictly construed against the insurer.4
●The contract of insurance may include not only the
written
policy,
application.5
but
also
the
advertising
and
the
The general rule of contract interpretation,
3
When 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
drafter.”
Auto Club Ins Ass’n v DeLaGarza, 433 Mich 208,
214-215; 444 NW2d 803 (1989).
4
Technical constructions of insurance policies are not
favored and exceptions to the general liability provided
for in an insurance policy are to be strictly construed
against the insurer. Francis v Scheper, 326 Mich 441, 448;
40 NW2d 214 (1949). Exclusion clauses in insurance policies
are construed strictly against the insurer.
Century
Indemnity Co v Schmick, 351 Mich 622, 626-627; 88 NW2d 622
(1958).
5
Where the advertising and the application stated that
the policy would be in force as soon as the application and
$1 for the first month’s premium was received, but the
policy was not issued until 18 days later, the Court held
that the advertising and the application created an
ambiguity about when the policy should go into effect. The
Court construed this ambiguity in favor of the insured,
stating:
If there is any doubt or ambiguity with
reference to a contract of insurance which has
been drafted by the insurer, it should be
construed most favorably to the insured.
Under
that rule the application and advertising in the
case before us must be construed most favorably
(continued…)
4
in contrast, is that “[a]bsent an ambiguity or internal
inconsistency, contractual interpretation begins and ends
with the actual words of a written agreement.”
Universal
Underwriters, supra at 496.
These specialized rules of interpretation protect the
consumer buying insurance, especially no-fault insurance,
which
every
automobile
owner
is
required
by
law
to
purchase; they should not be so lightly swept aside with no
discussion
and
without
regard
for
five
decades
precedent.
For these reasons, I dissent and concur in the
result of Justice Kelly’s dissent.
Elizabeth A. Weaver
(…continued)
to the insured.
We construe this to mean the
policy would be in effect without delay. [Gorham
v Peerless Life Ins Co, 368 Mich 335, 343-344;
118 NW2d 306 (1962) (citation omitted).]
5
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