Michigan Supreme Court Rules Physical Custody of Children Per Court Order Under Child Custody Act Determines “Domicile” for Purposes of Allocating Priority of Coverage and Risk Sharing Among Automobile Insurers Under Michigan’s Automobile No-Fault Insurance Act

In a 4-3 opinion (authored by Justice Kelly and Joined by Chief Justice Young and Justices Cavanagh and Viviano) the Court addressed the meaning of the legal term “domiciled” in MCL 500.3114(1) of Michigan’s No-Fault Automobile Insurance Act, which establishes the primary insurer for purposes of covering claims arising out of injuries from automobile accidents.

In Grange Insurance Co. v. Lawrence, the Court addressed the term “domiciled”.  Under MCL 500.3114(1) “personal protection insurance polic[ies]…appl[y] to accidental bodily injury to the person named in the policy, the person’s spouse, and a relative of either domiciled in the same household, if the injury arises from a motor vehicle accident.”  Further, under MCL 500.3115(2), where two or more insurers are in the same order of priority, the insurer paying benefits is entitled to partial recoupment from the other insurers in the same order of priority.  The first case addressed by the court involved a situation in which the trial court concluded the decedent who was killed in the accident had two “domiciles”, thus placing two insurers in the same order of priority of coverage.  Under MCL 500.3114(4) where no policy of a named insured, that person’s spouse or a relative of either domiciled in the same household covers the accident, the priority is established as the insurer of the motor vehicle, or the insurer of the operator of the motor vehicle.  This was the situation in the second case addressed by the opinion in which the decedent was a minor whose physical custodial parent lived in Tennessee.  She was living temporarily at her uncle’s house attending school in Michigan when she was killed in an accident while riding in a friend’s car.

The Court noted the term “domiciled” was a legal term of art which the common law jurisprudence in Michigan for the last 165 years had defined as a person’s principal residence.  The Court also pointed out under that jurisprudence “domicile” has always been a singular place at which a person resides at any given point in time.

The Child Custody Act (CCA), MCL 722.21 et seq., governs domestic orders of custody arising out of divorce proceedings.  Although “legal” custody and “physical” custody can have separate meanings under the CCA, the “physical” custody awarded by the court identifies and thus dictates the locus of the child’s “domicile”.  The CCA is therefore consistent with the common law.

Thus, a court order’s custody award designation of who has “physical” custody will be the determining factor for insurers in considering whose insurance covers the risk under MCL 500.3114(1), and whether and to what extent another insurer is entitled to seek subrogation based on the sharing provision in MCL 500.3115(2).

In the two cases consolidated for this opinion, the Court ruled the court’s orders awarding physical custody of the minor children killed in the separate accidents was the determinative factor in assessing which insurer would be liable for the claims asserted for insurance benefits.

In the first case, the child was killed while riding with the mother, who had physical custody and shared joint legal custody of the child with the child’s father.  The auto insurer of the mother sought to recoup partial benefits for the payout on the claim from a policy held by the child’s father.  The trial court found the child had two domiciles at the time of her death and thus, MCL 500.3115(2) allowed the insurers to share in the payment of the claims.  The Court of Appeals affirmed and appeal was granted by the Supreme Court.  The Supreme Court reversed, holding the insurer of the decedent’s mother was the primary insurer because she had been awarded physical custody in the divorce proceedings.

In the second case, the decedent’s father had physical custody of her and resided in Tennessee.  The “household” insurer of her uncle, in whose house she was temporarily residing to attend school, sought a declaration as to its liability for coverage vis-a-vis the insurer of the automobile in which she suffered her fatal injuries.  The household insurer argued that the insurer of the vehicle was primary because no policy of a named insured, a named insured’s spouse or a relative “domiciled” in the same household would apply because she was not “domiciled” in Michigan, but rather was domiciled in Tennessee per the court’s custody order.  The trial court disagreed, ruling that the “household” insurer covered the risk and was responsible.  The Court of Appeals reversed, concluding there was a question of fact concerning decedent’s true domicile.  The Supreme Court granted the appeal and reversed, holding that the insurer of the vehicle in which the decedent was killed was the primary insurer and covered the risk.  There was only one “domicile”, that being the locus in Tennessee.  As the decedent was not therefore “domiciled” in the uncle’s house, the priority insurer fell to the insurer of the vehicle in which she was riding at the time of her death.

In its opinion, the Court resolves the question of which insurance companies would be primarily liable to cover the risk and whether any other insurers would be required to share in payment of the claims.  Even where a minor child or ward has two legal residences, the only concern when assessing coverage is which household is the locus of the “domicile”.

Justice Zahra, joined by Justices Markman and McCormack, agreed that the No-Fault Act’s reference to “domicile” was defined by the common law, but disagreed that a court’s order issued under the Child Cutdosdy Act should be the end point in the analysis. Rather, Justice Zahra argued the court’s order should raise a rebuttable presumption of actual “domicile” but the parties might be afforded an opportunity to present evidence establishing a different domicile in accordance with the traditional factors for assessing same under the common law.  Justice Zahra points out the majority’s opinion assumes automatically that the a court’s custody order dictates the location of domicile (even where the arrangement of the parties or the actual circumstances might be different); the opinion allows, in some circumstances, the order to establish an alternate domicile system actually inconsistent with the common-law rule a person can have only one domicile at a given time; and the opinion’s effect infringes on an insurer’s ability to properly assess risk and burdens insurers with having to inquire about or determine the meaning and import of a court’s custody awards.

This is a very significant case that provides guidance to insurance companies writing auto no-fault policies in Michigan and to attorneys representing the diverse parties likely to be involved in such litigation.

If you would like more information about this case contact Carson J. Tucker, Chair of the Appeals and Legal Research Group at Lacey & Jones, LLP

Continuing its tradition of providing highly specialized and unique legal services to an exclusive clientele, Lacey & Jones, LLP works with insurance companies and businesses to develop comprehensive insurance coverage strategies for all lines of coverage.  From the simplest review (second look) of an in-house counsel’s coverage determination to complete coverage analysis involving high-exposure, multi-party, multi-jurisdiction, multi-claim events, the firm is capable of assisting its clients in making valuable choices and advising them on the proper course of action.  The firm’s coverage counsel and litigation team is also capable of pursuing coverage determinations and indemnity or subrogation in courts by filing declaratory judgment actions or indemnity and subrogation actions, respectively.

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