Auto Owners Insurance Company v. Yamaha Motor Corporation, 2004 WL 257259 (Mich. App., February 12, 2004)

In this subrogation action, Auto Owners Insurance Company (“Auto Owners”) tried to recoup monies paid to its insured after a golf cart sold by Yamaha allegedly caused a fire at Auto Owners’ insured’s property. Before filing suit, Auto Owners and Yamaha had corresponded numerous times but Yamaha never advised that it was merely the golf cart’s distributor, and not its manufacturer.

Under Michigan’s conservative products liability statute, unlike the law in the majority of other jurisdictions, a seller of a defective and unreasonably dangerous product – who is not the actual manufacturer – is not automatically liable (along with the distributors, manufacturers, and others in the “stream of commerce”) for damages and injuries resulting from the defective product. The statute holds such sellers liable only if (a) the seller “failed to exercise reasonable care, including breach of any implied warranty, with respect to the product;” or (b) the seller “made an express warranty as to the product [and] the product failed to conform to the warranty.” MCL 600.2947(6).[i]

The appellate court in this case, following that statute, upheld the trial court’s dismissal of the claims against Yamaha, as it was demonstrated that it was merely the distributor and not the manufacturer of the golf cart. The subrogating plaintiff argued that Yamaha should not be able to benefit from this limitation because it lulled the carrier’s representative into thinking that Yamaha actually was the manufacturer, and/or that it would not raise such issues in litigation. As a result, the carrier did not sue any other parties, including the actual manufacturer, prior to the running of the statute of limitations. Nonetheless, the trial court and then this appellate court rejected this argument, known as “equitable estoppel.”

The court stated that equitable estoppel only would preclude Yamaha from asserting facts if it (1) negligently or intentionally induced the plaintiff to believe something, (2) the plaintiff justifiably relied and acted on that belief, and (3) the plaintiff would be prejudiced if Yamaha was now allowed to deny such facts. The appellate court went on to find that silence or inaction may only form the basis for equitable estoppel if the silent/inactive party, Yamaha in this case, had a duty to speak or take action. The appellate court decided that no such duty existed on the face of the parties’ relationship, and that the facts of the case did not establish such a duty. In turn, the court dispensed with the equitable estoppel argument by finding that – despite its silence on the distributor/manufacturer issue, and Auto Owners’ apparent misinterpretation of the issue – Yamaha had not unlawfully induced Auto Owners on the issue, and that Auto Owners had no basis to justifiably believe that Yamaha was the manufacturer. The appellate court affirmed the dismissal of this subrogation claim.

Practice Tips:

1. It is imperative that subrogation professionals understand the nature (and limitations) of the tort laws in the jurisdictions where they undertake recovery efforts. Without an appreciation of such laws, recovery roadblocks may not be avoided and necessary steps may not be taken to preserve subrogation claims. There are certain on-line legal resources available for different jurisdictions, and if well-established law cannot be gleaned, then recovery counsel should be consulted.

2. Whenever handling subrogation matters where the status or role of a party has a legal effect on recovery potential, as soon as practical after identifying subrogation targets, contact them to confirm the basic assumptions you are (consciously or unconsciously) making about the facts and circumstances of what their involvement was with the loss. A list of questions submitted to the target is one way to go about it. Another way is to submit a statement of basic items that the subrogee believes to be true and invites the target to admit or deny. Whatever way one pursues the information, if there is any question as to basic target identity or role, such questions need to be asked and answered right away.

3. As these issues must get fleshed out by recovery counsel prior to filing suit against the proper parties, do not tie recovery counsel’s hands by waiting until the statute is about to run before you assign the file for pursuit through litigation. If you do, you are inviting the fate suffered by Auto Owners in the above case.