Mich. OFIS Acts on Auto Policy Language

Millions of Michigan auto insurance consumers will reportedly benefit from recent actions taken by the Office of Financial and Insurance Services (OFIS) designed to ensure that policy language is reasonable and fair to insurance buyers. The Acting Commissioner has held that auto policies cannot contain language that effectively denies coverage for an accident if a consumer fails to arrange for a vehicle inspection within an arbitrary number of days after an accident. Acting Commissioner Ken Ross issued a Prohibition Order that specifically prohibits Michigan insurers, in new policy forms, from requiring a policyholder to make a vehicle available for inspection within a set number of days after an accident without also including mandatory extension language to permit a policyholder to act as soon as reasonably possible thereafter and language limiting the inspection requirement to a vehicle within the policyholder’s possession. An Order Withdrawing Approval was also entered and it applies to existing policy forms. The orders came in response to a Michigan Supreme Court ruling (Rory v Continental Ins Co (2005)) that confirmed the OFIS Commissioner has the responsibility to evaluate the “reasonableness” of provisions or conditions in an insurance contract. The statute permits, but does not require, the Commissioner to disapprove or withdraw approval of a policy form that the Commissioner determines is unreasonable or deceptive. The decision to approve, disapprove, or withdraw approval of an insurance policy form is within the sound discretion of the Commissioner. Typical provisions in an automobile insurance policy require the policyholder to make the vehicle involved available for inspection by the insurer within 15 days of an accident. A policyholder seriously injured or killed in the accident or his personal representative may not be able to satisfy these time requirements and may not have possession or control of the vehicle involved. In hit and run situations, particularly those involving pedestrians, the insured may not be able to identify the involved vehicle within 15 days of an accident, if ever. Without a time extension to permit a policyholder to act as soon as reasonably possible, a 15-day or day-specific vehicle inspection requirement tied to the date of the accident or a vehicle inspection requirement not limited to vehicles within the policyholder’s possession are conditions that unreasonably affect the risk assumed in the coverage of the policy. A person who has purchased coverage may find coverage denied as a result of circumstances beyond his or her control. The Prohibition Order and Order Withdrawing Approval have been sent to all Michigan private passenger automobile insurance companies.