In Estate of Darryl Ile v. Foremost Ins. Co., ___ Mich App. ___ decided July 14, 2011, (Docket No. 295685), the Court of Appeals upheld a trial court’s decision in favor of the Plaintiff on an issue involving underinsured motorist coverage. In this case, Foremost Insurance Co. issued to the decedent a motorcycle insurance policy that included ―bundled uninsured motorist and underinsured motorist coverage.
Uninsured motorist coverage (UM) provides a source of recovery to an injured person for injuries caused by an uninsured driver/vehicle. Underinsured motorist coverage (UIM) provides coverage for an injured per-son, where the tortfeasor (the negligent driver) has insurance but is underinsured i.e has lower liability limits than the injured person‘s UIM coverage limits.
For example, where a person is seriously injured by a motorist who has the State statutory minimum liability limits of $20,0000 and the inured person‘s injuries are valued at more than $20,000 the tortfeasor is said to be underinsured. UIM/UM coverage is optional, thus the court‘s interpret the conditions of these insurance policy provisions under general contract law principals.
In this case, the insurance policy sold to the decedent by Foremost provided UM and UIM coverage in an amount equal to the minimum liability coverage limits permitted under Michigan law of $20,000/$40,000. Although Foremost offered higher limit options, the decedent selected this amount of coverage and paid a single, unallocated premium amount of $26 for UM/UIM coverage.
Under the language of the policy, foremost agreed to pay compensatory damages which an insured is legally entitled to recover from the owner or operator of an underinsured motor vehicle because of bodily injury. ‘The decedent was killed in a motorcycle accident involving the underlying tortfeasor‘s car in 2006. The Plaintiff settled the underlying tort case with the tortfeasor for the tortfeasor‘s full liability limits of $20,000.
Plaintiff sought to recover an additional $20,000 from Foremost under the decedent‘s UIM policy. Foremost denied the claim on the basis that the Plaintiff had already received the maximum amount payable under decedent‘s policy from the insurer of the tortfeasor‘s vehicle.
In other words, there was no UIM claim because the UIM limits on the decedent‘s policy did not exceed the liability limits on the tortfeasors policy.
The Plaintiff sued Fore-most arguing that the insurance contract it sold the decedent was illusory i.e that because the state li-ability limits are $20,000 and underinsured coverage only applies when the tortfeasor is insured, the decedent paid a premium for coverage that did not exist. The trial court held that the contract was illusory and that the Plaintiff was entitled to recover the $20,000 in UIM benefits in addition to the $20,000 already re-covered under the tortfeasor‘s policy.
On appeal, the Court of Appeals agreed with the Plaintiff and the trial court. The Court stated that an ―illusory contract is defined as ―[a]n agreement in which one party gives as consideration a promise that is so insubstantial as to im-pose no obligation‖. The insubstantial promise renders the agreement unenforceable.. An illusory contract, which cannot be enforced because it violates public policy.”
The Court determined that because Michigan mandates a minimum liability coverage for bodily injury equal to the amount of decedent‘s policy of $20,000/$40,000, there existed no possibility for the decedent to collect underinsured motorist benefits at the selected level of coverage. Thus, the UIM coverage in the Foremost policy was illusory and the Plaintiff was entitled to recover the $20,000 in UIM benefits, in addition to the $20,000 already received from the tortfeasor's policy.