Michigan Supreme Court: Enforcement of a Contractural Claim Limitations Clause in an Underinsured Motorist Insurance Policy is not Subject to Judicial Tolling

On April 23, 2008, the Michigan Supreme Court held that a contractual claim limitations clause in an underinsured motorist insurance (UIM) policy is not subject to judicial tolling. McDonald v Farm Bureau Insurance Company (No. 132218).

The question before the Supreme Court was whether a contractual limitations period in an insurance policy is tolled from the time a claim is made until the insurance company denies the claim and, if it is not, whether the limitations period may be avoided under the doctrines of waiver or estoppel. The Court held, 4-3, that there is no automatic tolling when a claim is filed unless the contract so provides. Traditional contract doctrines such as waiver and estoppel can apply when the facts support them, which the Court held was not the case in McDonald. The Supreme Court reversed the Court of Appeals and remanded for entry of summary disposition in favor of defendant.

The Court noted that it has addressed the issue of tolling of limitations periods of insurance policies several times in the recent past. In DeVillers v Auto Club Ins Assn, 473 Mich 562, 702 NW2d 539 (2005), it held that the "one-year-back" limitation provided for in MCL 500.3145(1) for recovering PIP benefits could not be automatically tolled. Similarly in Rory v Continental Ins Co, 473 Mich 457; 703 NW2d 23 (2005), the Court emphasized that unambiguous contracts are not open to judicial construction and must be enforced as written.

The dissenters (Justices Kelly, Weaver and Cavanaugh) would have affirmed the Court of Appeals. Their position was characterized by the majority as wishing for the Supreme Court to serve as an ombudsman, rewriting contracts and statutes in the name of "public policy" whenever it appears that the plain terms of the text work some perceived inequity. The majority emphasized their unwillingness to serve that role.

This ruling will have limited impact on the enforcement of contractual one-year periods of limitation, which have already been banned by the "Notice and Order of Prohibition" issued by the Office of Financial and Insurance Services on December 16, 2005 (prohibiting uninsured motorist benefits policies with limitations periods of less than three years). The refusal to allow lower courts to use judicial tolling to rewrite insurance contracts in the name of public policy will have far-reaching effect.