Mich. Insurance Regulator Bans Limits on Time to File Auto Claims

May 30, 2006

Michigan’s governor and her insurance regulator are telling companies that they won’t be allowed to write policies that give injured motorists less time to file claims or lawsuits.

The move by the Office of Financial and Insurance Services, the second in five months, may be the best example yet of the tension between Democrats and the conservative Michigan Supreme Court, according to a recent Associated Press story.

Insurance Commissioner Linda Watters sent an order to Michigan insurers last week banning new or revised auto policies that give people less than three years to file claims for underinsured benefits. She took similar action in December related to uninsured motorist benefits.

Some companies write shorter time limits into their policies, which typically go unnoticed by motorists who don’t read the fine print.

Insurance policies include underinsured benefits to cover injuries motorists sustain in accidents with drivers who don’t have enough coverage to pay for their losses.

The impetus for the administration’s stance is the state Supreme Court, which 10 months ago struck down precedent and ruled that clear contracts, including insurance policies with shorter time restrictions to sue, must be enforced as written.

Michigan judges should no longer decide whether contracts are reasonable or not, the majority said in a 4-3 decision. The opinion threw out a claim for uninsured motorist benefits because it was submitted beyond a one-year limit written in the policy.

Justice Robert Young said a court can’t revise or void contracts to “achieve a result that it views as fairer or more reasonable.”

Critics say that reasoning is a blow to consumers who often sign take-it-or-leave-it terms in insurance policies and other contracts with no chance to bargain.

The ruling was cited by the Michigan Court of Appeals in September to block an employment discrimination suit filed by a former DaimlerChrysler AG employee. Before being hired, the worker signed a job application that included a six-month cutoff on legal action, far shorter than the usual three- to six-year deadline for personal injury and contract cases.

Because of the Court of Appeals ruling, Democrats and personal injury lawyers are trying to stem the impact of the shift in the law.

The insurance office, citing authority under the insurance code, said shorter time limits are misleading and unreasonably reduce the risk assumed by insurers. Democratic lawmakers introduced bills in February that would void quicker deadlines in the DaimlerChrysler case and other civil rights suits.

David Turfe is a St. Clair Shores attorney representing a woman and her mother who filed a claim for pain and suffering after getting in a crash with an uninsured motorist. Turfe, who lost the insurance case before the high court, said the insurance office’s action may be a “silver lining.”

Without it, he said, “insurance companies can write whatever they want.”

Supreme Court supporters say the response by Granholm’s insurance office shows the conflict between her administration and the seven-member court, which has five Republican-nominated justices.

“This position of Michigan’s insurance commissioner is a way of taking on our Supreme Court,” said David Campos, a lawyer with Garan Lucow Miller in Grand Rapids.

Campos, who writes insurance policies and is an admirer of the court, said the conservative majority stuck with its philosophy of interpreting the law, not creating it.

They said, “We’re going to apply the contract terms as written. We’re not going to rewrite it to say what ought to have been, what should have been,”’ he said.

Campos said it’s unacceptable for people to say they’re a victim and be excused for not reading or remembering what they signed.

For now, it doesn’t appear the insurance industry will challenge the administration’s action.

Peter Kuhnmuench, executive director of the Insurance Institute of Michigan, said the insurance commissioner has the authority to withdraw or not approve unreasonable policy forms. He said he doesn’t expect the industry to challenge the insurance commissioner’s ruling.

But some observers say the debate over what can be included in insurance policies, and other contracts, sets the stage for more legal skirmishes.

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