United States: No Fault - "Household Exclusion" - MCL 500.3123(1)(b)

The Michigan Supreme Court recently decided that a driver who damages his own property may not recover for the damage under his rented vehicle's No Fault policy. State Farm Fire & Cas. Co. v Old Republic Ins. Co., 466 Mich 142; 644 NW2d 715 (2002). In this case, Ibrahim Mroue drove a rented Ryder truck into a bakery that he owned. State Farm, which insured the bakery, paid the claim under its property insurance policy and sought subrogation from Old Republic, which provided No Fault coverage on the rental truck.

The Court considered whether the No Fault "household exclusion," MCL 500.3123(1)(b), barred Mroue from obtaining No Fault property protection benefits from Old Republic. MCL 500.3123(1)(b) bars recovery for damage to "[p]roperty owned by a person named in a property protection insurance policy … if the person named … was the … operator of a vehicle involved in the motor vehicle accident out of which the property damage arose."

The Supreme Court interpreted Section 500.3123(1)(b) to mean that if Mroue was named in a No Fault policy covering any vehicle, then the household exclusion applied and Mroue could not recover under the property protection coverage of the Old Republic policy. Instead, Mroue could only recover from Old Republic if he was not named in any No Fault policy. Where the household exclusion applies, damaged property is to be covered by insurance other than a mandatory No Fault automobile policy. This precludes a person who damages his own property from collecting property protection insurance benefits under his No Fault policy.

The Supreme Court remanded the case to determine if Mroue was named in any No Fault policies.

Thus, if a claimant makes a claim under his or her No Fault policy for property damage to his or her own property, the insurer should consider whether any No Fault policies name the claimant as an insured. If so, the "household exclusion" should apply and preclude coverage.