An insured in Ann Arbor is injured in an accident that occurs while he is operating a business whose activity is unlawful in the jurisdiction where it is carried on. His disability policy contains the illegal occupation provision. How should the insurer respond to his disability claim?

Why C is correct

The illegal occupation optional provision authorized by M.C.L. 500.3452 relieves the insurer of liability for any loss sustained while the insured is engaged in an occupation or employment that is illegal where it is carried on. Because the injury occurred during unlawful work, the provision applies and the claim may be denied. The result is not a temporary suspension or a discretionary reduction; while the illegal work lasts, the policy simply provides no coverage for losses arising from that period.

Why the other options are wrong

• A) Under this provision the insurer's liability turns on what the insured was doing when the loss occurred, so an accident during unlawful work is not covered.
• B) The provision denies liability for the loss; it does not create a suspension mechanism that revives benefits after a job change.
• D) There is no discretionary partial payment; the provision removes liability for the loss entirely during the illegal employment.

Memory hook

Injured on the wrong side of the law? The illegal occupation provision says no coverage.