An automobile liability policy should not be voided on public policy grounds because the policyholder had a “sufficient” insurable interest, the Michigan Court of Appeals has ruled.

In MemberSelect Ins Co v Flesher (Docket No. 348571), Kenneth Flesher was hit by a motor vehicle while operating his motorcycle. The driver of the vehicle fled the scene. After the crash, Flesher learned the vehicle that struck him was a GMC Yukon owned by Nicholas Fetzer. Flesher filed a negligence suit against Fetzer. MemberSelect Insurance Company insured the Yukon owned by Fetzer. The policy identified Fetzer’s mother, Kelly Fetzer, as the principal named insured. While MemberSelect defended Fetzer in the negligence lawsuit, it also filed this action in Genesee County Circuit Court, seeking a declaration that Kelly had no insurable interest in the Yukon and, as a result, the policy was void. The two cases were consolidated.

Fetzer and MemberSelect filed a motion for summary disposition in the negligence suit, arguing that Flesher had not raised a genuine issue of material fact about whether the Yukon was involved in the collision. MemberSelect also filed a motion for summary disposition in the declaratory action, claiming Kelly had no insurable interest and the policy was therefore void.

The trial court granted the summary disposition motion filed by Fetzer and MemberSelect in the negligence suit but denied the summary disposition filed by MemberSelect in the declaratory action.

The Court of Appeals affirmed.

“[W]e cannot go so far as to say that the insurable interest requirement does not apply in the automobile liability insurance context; rather, we merely hold under the circumstances of this case that Kelly had a sufficient insurable interest in [Fetzer’s] well-being that we should not declare the policy void on public-policy grounds,” the Court of Appeals said.

“We would, however, be delighted if our Supreme Court would take the opportunity in this or some other case to clarify the insurable interest requirement, its applicability in the context of automobile liability insurance, and the continued viability of Clevenger [v Allstate Ins Co, 443 Mich 646 (1993)] in that regard,” the Court of Appeals implored.

Judge Mark T. Boonstra wrote the published opinion, joined by Judge Michael J. Riordan and Judge James Robert Redford. 

Background

Fetzer was 33 years old at the time of the crash. He did not live in the same household as his mother, Kelly.

Kelly testified at deposition that her son had asked her to add the Yukon to her insurance policy because he said it was too expensive for him to insure the Yukon under his own name. According to Kelly, she never rode in the vehicle and had no plans to ride in it in the future.

Fetzer acknowledged that he owned the Yukon and asked his mother to insure it under her auto policy because it would be less expensive that way. Fetzer testified that his mother paid the monthly premiums to MemberSelect and that he reimbursed her for the Yukon’s portion of those premiums.

Public Policy

On appeal, MemberSelect argued the trial court erred by finding that Kelly had an insurable interest. “We disagree,” the Court of Appeals said.

The Court of Appeals explained Michigan law requires that a named insured have an insurable interest to support a valid automobile liability insurance policy. The appeals court cited three cases in support of this principle: Morrison v Secura Ins, 286 Mich App 569 (2009); Allstate Ins Co v State Farm Mut Auto Ins Co, 230 Mich App 434 (1998); and Clevenger.

“This requirement is not set forth statutorily in either the insurance code of 1956, MCL 500.100 et seq., the Michigan vehicle code, MCL 257.1 et seq., or the no-fault insurance act, MCL 500.3101 et seq.,” the Court of Appeals noted. “Rather, it ‘arises out of long-standing public policy.’ … In other words, the requirement that an insured possess an insurable interest to obtain a valid insurance policy is based on a desire to avoid a situation in which an insured can receive a payout under a policy despite not actually having lost anything (and possibly with an incentive to act wrongfully to cause the payout).”

According to the Court of Appeals, Allstate “recognized, as do we, that Clevenger appears to hold that the insurable interest requirement applies in this automobile liability insurance context. … Unless and until the Supreme Court says otherwise, we are therefore bound by Clevenger and Allstate.”

‘Sufficient’ Interest

Next, the Court of Appeals examined current case law to determine the “contours” of what might comprise an “insurable interest.”

The Court of Appeals explained that both Clevenger and Allstate addressed the insurable interest issue in the context of an owner or registrant of a motor vehicle. However, “neither Clevenger nor Allstate stand for the proposition that only owners or registrants can ever have an insurable interest in the context of an automobile liability insurance policy,” the appeals court stated.

“This brings us to Morrison, which (unlike Clevenger and Allstate) is somewhat more factually akin to the situation before us in that the named insured was the mother of the vehicle’s adult driver,” the Court of Appeals wrote.

In Morrison, the appeals court noted the mother did have an insurable interest at the time the insurance policy was bought and paid for, the insured-against risk did not change, the basis for the insurable interest requirement was weak and the public policy favoring family units is strong. The Morrison panel also noted that “[t]he caselaw we have found on the genesis and development of the ‘insurable interest’ requirement shows that public policy forbids the issuance of an insurance policy where the insured lacks an insurable interest” and “[p]ublic policy does not appear to require an otherwise valid insurance policy to become void automatically.”

Based on these considerations, the Morrison Court “held that it did not need to decide whether the mother had an insurable interest at the time of the accident,” the Court of Appeals said.

“We conclude, reaching the issue that this Court declined to reach in Morrison, that Kelly had a sufficient interest in the well-being of her adult child that we should not void her insurance policy on public policy grounds,” the Court of Appeals wrote. “An insurable interest may be found, at least in some instances, in ‘the property, or the life insured’ by an insurance policy. … Although, unlike the adult child in Morrison, Nicholas does not live with Kelly (and in fact has several children of his own), we do not believe that is so dispositive a factor as to divest Kelly of an insurable interest; our courts have long noted that even a de minimis insurable interest may be insured.”

Further, “although in the context of the no-fault act specifically, rather than in the context of applying a public-policy doctrine that existed before the act was enacted, our Supreme Court has recently held that a registrant or owner of a vehicle may satisfy his or her statutory obligation to ‘maintain’ the security required by the no-fault act when ‘someone other than that owner or registrant purchased no-fault insurance for that vehicle,’” the Court of Appeals observed, citing Dye v Esurance Property & Casualty Ins Co, 504 Mich 167 (2019). “The Dye Court stated that ‘determining whether no-fault benefits are available to an injured person does not depend on ‘who’ purchased, obtained, or otherwise procured no-fault insurance.’”

Although Dye involved the interpretation of specific provisions of the no-fault act, “we conclude that Dye demonstrates that tensions may exist between the goals of the no-fault act and the application of the ‘insurable interest’ rule so as to void an insurance policy from its inception,” the Court of Appeals said. “It may be that the ‘insurable interest’ requirement in fact conflicts with the goals of the no-fault act; as discussed, other panels of this Court have questioned the applicability of such a requirement for policies (specifically, automobile liability insurance policies) that do not readily lend themselves to gambling and rarely, if ever, result in non-compensatory cash payouts to an insured.”

Accordingly, “[w]e conclude that the interest of a parent in an adult child’s welfare, including such aspects as being covered for potential injury, being protected from financial ruin from injuring another, even the avoidance of civil infraction or other legal penalties for driving while uninsured, is sufficient to avoid temptations and social ills of ‘wager policies.’”