The Michigan Supreme Court recently declined to hear the case of Progressive Marathon Ins. Co. v. Espinoza-Solis, effectively leaving in place a ruling from the Michigan Court of Appeals holding that Michigan’s minimum liability limit is $250,000/$500,000 pursuant to MCL 500.3009. Michigan liability limits for third-party bodily injury claims have been a hotly contested issue since the amendment of Michigan’s No Fault Act in 2019, with multiple cases pending in Michigan’s Court of Appeals on this issue.

The Espinoza-Solis Decision

The issues the Court of Appeals addressed in Progressive Marathon Ins. Co. v. Espinoza-Solis are two-fold: 1) what is Michigan’s minimum requirement for insurance liability limits under MCL 500.3009; and 2) is an insurance company required to provide coverage despite the insured’s failure to cooperate in the defense of the case.

The insured, Juan-Carlos Espinoza-Solis, was involved in a motor vehicle accident and failed to cooperate with Progressive in defending the underlying negligence lawsuit brought by the injured third party, Gjovalin Shkreli. Despite Espinoza-Solis’s complete failure to participate in his defense—ignoring counsel’s attempts at contact and failing to appear at depositions and trial—the court held that Progressive remained liable for the full $250,000 judgment entered against its insured.

The Espinoza-Solis court concluded that Michigan’s required minimum residual liability insurance for policies issued after July 1, 2020, is $250,000 per person and $500,000 per accident under MCL 500.3009(1)(a) and (b). Critically, the court held that an insurer may not assert the non-cooperation of its insured as a defense to a claim by a third-party victim to recover these mandatory minimum amounts unless the insured properly exercised the statutory option to select lower coverage under MCL 500.3009(5).

The decision reaffirmed the principle from a long-standing Michigan precedent, Coburn v. Fox 425 Mich 300; 389 NW2d 424 (1986) that held that residual liability insurance under the no-fault act is compulsory and exists for the protection of injured third parties and the public at large. Therefore, the insurer’s obligation to pay bodily injury liability damages within the statutorily required minimums remains intact regardless of the insured’s cooperation.

Key Takeaways

The Espinoza-Solis decision establishes several important principles for insurance companies and risk management professionals.

First, insurers cannot use an insured’s non-cooperation as a shield against third-party claims seeking recovery of the mandatory minimum $250,000/$500,000 liability limits for policies issued after July 1, 2020. This creates significant exposure for insurers when their insureds abandon participation in negligence litigation, as the insurer remains financially responsible for judgments up to the statutory minimums even when the insured provides no assistance in mounting a defense. In my experience in cases with non-cooperative or simply non-existent clients, it is often better to efficiently evaluate and attempt to resolve these cases early.

The Espinoza-Solis decision does not prevent insurers from pursuing available remedies against their insureds for breach of the cooperation clause, but such remedies must be sought separately and cannot be used to defeat third-party victims’ claims for the statutory minimums. While this avenue of recovery directly against the insured is possible, in practice it is likely inapplicable in most circumstances.

Second, the Espinoza-Solis Court held that only exception to this mandatory minimum coverage is if the insured affirmatively elected lower coverage limits pursuant to MCL 500.3009(5) by completing the proper form before the policy was issued—absent such an election, the default $250,000/$500,000 limits automatically apply.

Finally, the Michigan Supreme Court’s denial of leave to appeal solidifies this interpretation as the law in Michigan, meaning that minimum limits of $250,000 per person and $500,000 per accident are currently in effect for all policies issued after July 1, 2020. This interpretation is subject to change, as there are currently multiple cases on the docket of the Court of Appeals discussing the interpretation of MCL 500.3009 and interpretation of Michigan’s liability limits.