Can you pay for your grandchild’s MI No-Fault car insurance?

Yes, but if it’s not done the right way, then your grandson or granddaughter may be driving uninsured and will be denied No-Fault if there’s a car crash

In the case of young, millennials who are struggling to make ends meet with jobs, rent and school loans, that “help” is more and more frequently taking the form of contributing to their ever-increasing Michigan No-Fault car insurance costs.

As a car crash attorney, I see first-hand how this trend has been developing as I’m regularly reviewing clients’ dec sheets and answering insurance questions for clients, family, friends and visitors to the Michigan Auto Law website.

It’s heartening to see how generous grandparents can be in paying for part or all of their grandkids’ auto insurance.

But it’s heartbreaking when it’s not done the right way and the grandson or granddaughter ends up being “uninsured” and disqualified from receiving No-Fault benefits and protections — and from being able to claim pain and suffering compensation — after being injured in an auto accident.

So, what’s the “right way”?

The right way is as follows:

• If a grandparent is a co-owner of the grandchild’s car (either by as a titled owner or a constructive owner), then the grandparent can personally pay for and purchase a policy for the car and the grandchild will be considered “insured.”
• If a grandparent is not a co-owner of the grandchild’s car, then, in order for the grandchild to be considered an “insured” driver, the grandparent must give the money to the grandchild (either as a gift or a loan) and the grandchild will personally, him- or herself, pay for and purchase the auto insurance policy for his or her vehicle.

What does it matter whether it’s the owner who pays for car insurance?

It matters because, under Michigan’s No-Fault Law, a car is deemed to be insured only if the owner or a co-owner (titled or constructive) procured and paid for the auto insurance policy for the vehicle.

As the Michigan Court of Appeals in Adams v. Curtis recently acknowledged — under Michigan’s auto No-Fault Law:

• “To insure a vehicle properly, an owner of the vehicle must maintain the insurance on that vehicle. MCL 500.3101(1).”
• “If a vehicle is not insured by an owner (titled or constructive), then the vehicle cannot be properly insured under Michigan law.”
• “Thus, it is not sufficient for a nonowner to insure a vehicle, at least when noneconomic damages or [No-Fault] benefits are sought.”

Sadly, given these weird, illogical and punitive rules, it won’t matter how much, how often, how timely or how dutifully a grandparent pays the premiums for the insurance on his granddaughter’s car if the grandparent isn’t a co-owner.

The insurer will gladly lap up those premium dollars, sock them away in the vault and, then, without missing a beat, deny all No-Fault coverage after the granddaughter has been injured in a motor vehicle — shamefully blaming her for being an “uninsured” driver.

This is an important insurance issue that has evolved under Michigan’s tough auto laws into an unacceptable, shameful game of “gotcha” by the insurance companies. Most people have no idea that they are actually uninsured until it is too late — after the car crash has occurred and the insurance company that was paid the money to insure the vehicle refuses to pay PIP benefits.

When is a grandparent a co-owner under MI’s No-Fault auto insurance law?

A grandparent could be a co-owner by either being named on the title or under the No-Fault Law’s “constructive owner” provisions.

In Adams, the Michigan Court of Appeals explained in general terms what a “constructive owner” is:

“[T]o be a constructive owner, the driver must use the vehicle in a way that an owner would, such as using the vehicle for personal use and driving it on a regular basis.”

To make such a “constructive owner” determination, the Adams court identified the following factors that should be considered:

• Did the person have the right to use the car or was she periodically borrowing the car?
• Did the person ask for permission from the title owner to use the car?
• Was the person’s use of the car regular over a period of months or more? Daily? Or was use sporadic?
• Did the person park the car at his residence?
• Did the person use the car to go to and from work? To run errands?
• Did the person pay for the car?
• Did the person pay for the car insurance?
• Did the person have his own set of keys?
• Did the person fuel and maintain the car?

Why is it so bad to drive without the proper, legally required car insurance?

There are lots of things that are bad, unpleasant and financially ruinous about driving “uninsured,” i.e., driving without following the mandatory Michigan car insurance requirements.

Aside from the criminal penalties, the other legal consequences from driving “uninsured” — or driving without the legally required No-Fault auto insurance — are dire:

• You’ll be disqualified from collecting No-Fault benefits if you’re injured in a car crash.
• You’ll be forbidden from suing the at-fault driver for pain and suffering compensation, i.e., non-economic loss.
• You may be sued by other auto insurance companies for reimbursement for any No-Fault benefits the insurers paid out to the at-fault driver and anyone else injured in the car accident.