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141255 - Progressive Michigan Insurance Company v Smith

Progressive Michigan Insurance Company,
Daniel S. Saylor
(Appeal from Ct of Appeals
(Kent – Leiber, D.)
William Smith and Sheri Harris,
Scott Mihelsic and Andrea Mihelsic,
Devin R. Day
Pioneer State Mutual Insurance Company,
Intervening Defendant.


​William Smith owned a pickup truck, but did not have a driver’s license because he had too many points on his record; he could not obtain no-fault automobile insurance or license plates. Smith added his friend Sheri Harris to the truck’s title as a co-owner, and she obtained insurance from Progressive Michigan Insurance Company. But, in order to do so, she signed a form listing Smith as an excluded driver under the insurance policy, as permitted under MCL 500.3009(2).

Some time later, Smith was driving the truck when he collided with a vehicle occupied by Scott and Andrea Mihelsic. The Mihelsics sued Smith; he failed to defend the lawsuit and the court entered a default against him. Progressive brought a declaratory judgment action, asking the court to rule that Progressive was not liable for any judgment that the Mihelsics obtained against Smith. Both Progressive and the Mihelsics brought motions for summary disposition, each side asserting that there was no real dispute about the facts and that the court should rule in their favor as a matter of law. Progressive argued that it had no duty to indemnify Smith because he was an “excluded person” under MCL 500.3009(2).

But the Mihelsics contended, among other things, that Smith was not excluded from coverage because the notice of exclusion on the certificate of insurance did not use the exact language required under MCL 500.3009(2). That statute states, “If authorized by the insured, automobile liability or motor vehicle liability coverage may be excluded when a vehicle is operated by a named person. Such exclusion shall not be valid unless the following notice is on the face of the policy or the declaration page or certificate of the policy and on the certificate of insurance: Warning--when a named excluded person operates a vehicle all liability coverage is void--no one is insured. Owners of the vehicle and others legally responsible for the acts of the named excluded person remain fully personally liable.” [Italics added.] The declaration page of Harris’ insurance policy named Smith as an “excluded driver” and contained a notice using the exact language set forth in MCL 500.3009(2). The back side of the certificate of insurance issued by Progressive also named Smith as an excluded driver and contained the following notice: “WARNING: When a named excluded person operates a vehicle, all liability coverage is void – no one is insured. Owners of the vehicle and others legally responsible for the acts of the named excluded person remain fully personally responsible.” [Italics added.]

The trial court denied the Mihelsics’ motion for summary disposition, but granted Progressive’s motion. According to the trial judge, the fact that the certificate of insurance used the word “responsible” instead of “liable” did not defeat the named driver exclusion. But in a split published decision, the Court of Appeals reversed the trial court, holding that Progressive’s failure to use the exact language required under MCL 500.3009(2) invalidated the exclusion of coverage. The majority noted that the statute itself says that failure to follow its requirements results in the invalidity of the exclusion. According to the majority, the Legislature did not merely set forth the substance of the required warning, but required use of “the following notice” provided verbatim for insurers. Moreover, the statute says that if the required notice is not provided, the named person exclusion “shall not be valid”; the statute could not be clearer, the majority said.

The dissenting Court of Appeals judge would have affirmed the trial court in ruling that Progressive complied with the statutory requirement. She reasoned that the use of the word “responsible” instead of “liable” did not frustrate the Legislature’s intent that insurers provide strong warnings about the impact of the named driver exclusion. It was fair to assume that the language used in Progressive’s policy was approved by the Commissioner of Insurance, the dissenting judge noted. The judge said she would have ruled that the named driver exclusion remained fully effective and that there should be no insurance coverage under Progressive’s policy. Progressive appeals.