A Dismal Future for Contract Law in Michigan: Rory v Continental Insurance
Document Actions


A
Dismal Future for Contract Law in
By Larissa Werhnyak, MPLP Law Clerk
A July decision by the Michigan Supreme Court, Rory
v Continental Insurance Co, 473 Mich. 457 (2005) promises to profoundly
impact the future of contract law in the state of
In Rory, the Plaintiffs were involved in an automobile accident. It took approximately a year and a half to discover that the driver of the other vehicle was uninsured. Almost two years after the accident, Plaintiffs submitted a claim for uninsured motorist benefits. Plaintiffs had an insurance policy with the Defendant insurance company which included optional coverage for uninsured motorist benefits. Defendant denied the claim because it was not filed within one year of the accident, as required by the insurance policy. Plaintiffs sued the insurance company challenging Defendant's denial of benefits. Defendant filed a motion for summary disposition based on the one-year limitations provision in the contract.The trial court denied the motion, holding that the one-year limitations provision was unreasonable. Subsequently, the Court of Appeals affirmed, agreeing that the provision was unreasonable.
The Supreme Court, in an opinion by Justice Young, held that unambiguous contracts are to be enforced as written unless a provision violates the law or is subject to a traditional defense to enforcement. In reaching this decision, the Court virtually eliminated the ability of the courts to reformulate or void contractual provisions through the doctrines of reasonableness or based on the finding that the contract in question was one of adhesion.
The Supreme Court first considered the reasonableness
doctrine in
The Court next considered whether the contractually shortened
limitations period violated the law or public policy of
Finally, the Court addressed the trial court's conclusion
that the policy was an unenforceable adhesion contract. The Court noted that
both the trial court and the Court of Appeals assumed that adhesion contracts
are subject to a heightened level of judicial scrutiny. The Court disagreed
with this view, holding that adhesion contracts are no different than any
other contracts and should be enforced according to their plain meaning unless
a traditional contract defense applies. In reviewing the case law surrounding
the interpretation of adhesion contracts in Michigan, the Court found that
any doctrine of interpreting adhesion contracts under heightened scrutiny
was mere dicta until 1997, when the Court in Herweyer v Clark Hwy Services,
Inc, 455 Mich 14, "implicitly adopted" the adhesion contract
doctrine "without substantive analysis." The adoption of this doctrine,
the
While Rory involved an insurance contract, the
Michigan Court of Appeals has begun to apply Rory in employment contract
cases. A September Court of Appeals opinion, Clark v. Daimler Chrysler
Corp., 2005 WL 2217106, held that the decision in Rory applied
to employment contracts as well as insurance contracts. In
Consumer Law Section
Next Previous
Return to Front Page