Michigan Coverage Decisions, Issue 196

21st Century Premier Ins Co v Zufelt

Published opinion per curiam of the Court of Appeals, issued May 24, 2016 (Docket No. 325657)

Zufelt obtained insurance in June 2012 when he had seven points on his driving record, but failed to disclose three points. The insurance policy required an eligible person to have less than 6 points. By September 2012, four of Zufelt’s seven points were “dropped” from his driving record, and, in December 2012, the policy automatically renewed for six months. At the renewal, Zufelt had five eligibility points. Zufelt was then involved in a March 2013 accident, in which he and the other driver were injured. The other driver sued for damages, and the Zufelts sought defense and indemnity under the policy.

The insurer sought rescission of the contract, arguing that Zufelt made a material misrepresentation on his insurance application by omitting information on his driving record. An intervening party argued that Zufelt was an eligible driver at the policy renewal, therefore, was properly covered under the policy at the time of the disputed accident. The trial court ruled that rescission of the policy was proper based on the false information on the original application.

The Court of Appeals affirmed, noting that nothing in the renewal indicated that the parties intended to alter the eligibility terms and the right to rescission set forth in the original agreement. The policy contained a misrepresentation/fraud provision which allowed the policy to be voided. The Court determined that Zufelt was not an “eligible person” since he made a material misrepresentation in the initial application, and the material terms from the initial application applied to the renewal and the policy renewal did not cure the initial misrepresentation made.

Kallas & Henk Note
The Court of Appeals noted that the plain language of the misrepresentation provision did not require intent to be applied and further cited Russell v State Farm Mut Auto Ins Co, 47 Mich App 677, 680(1973) for the proposition that a renewal contract is based upon and subject to the terms and conditions as were contained in the original policy.

 

Atlantic Casualty Insurance Co v Gustafson

Published opinion per curiam of the Court of Appeals, issued May 26, 2016 (Docket No. 325739) leave denied December 8, 2017 (Docket No. 154026)

A homeowner was injured by a piece of debris while watching one of the defendant’s employees clearing brush with a brush hog near the homeowner’s pond. The homeowner brought suit against the defendant. Plaintiff, the defendant’s insurance company, brought this action seeking declaratory relief, arguing that an Exclusion of Injury to Employees, Contractors and Employees of Contractors applied to void coverage for the defendant. The exclusion stated in pertinent part, that the term “contractor” included “any property owner”. The plaintiff argued that the injured homeowner was encompassed by that phrase. The trial court determined that the exclusion barred coverage.

The Court of Appeals reversed and held that the relationship between the categories of persons listed in the exclusion are those who have a commercial interest in being on the job site, rendering the exclusion ambiguous. The Court of Appeals found that this conclusion is in accordance with the meaning and purpose of the exclusion – to avoid the that a commercial entity that had (or should have) its own commercial liability policy from tagging onto the one issued to another commercial customer.

Kallas & Henk Note
The Court of Appeals’ conclusion is contradictory to standards set forth in Michigan law regarding ambiguity, applying the principle that an ambiguous provision is construed against the insurance carrier. Unfortunately, the Supreme Court considered the case, holding oral argument, but ultimately denied leave based on no majority willing to grant leave or take other action to address the issues.

 

Bazzi v Genex Physical Therapy, Inc.

Unpublished opinion per curiam of the Court of Appeals, issued June 14, 2016 (Docket No. 320518)

The plaintiff was injured while driving a vehicle owned by his mother, a third-party defendant in the case. Sentinel Insurance Company obtained a default judgment against the policy owners which rescinded the policy, and moved for summary disposition on the plaintiff’s claim for PIP benefits and claims seeking payment for services provided, based on fraud in the application. The motion was denied by the trial court, which ruled that the plaintiff had a claim based upon the innocent third-party rule.

Relying on the Michigan Supreme Court’s decision in Titan Ins Co v Hyten, 491 Mich 547(2012), the Court of Appeals ruled that there is no innocent third-part rule for PIP benefits claims. If an insurer is entitled to rescind a no-fault policy based on fraud, the insurer is not obligated to pay PIP benefits to a plaintiff innocent of the fraud. The Court emphasized that none of the parties identified a provision in the no-fault act that restricted the use of the fraud defense in regards to claims for PIP benefits. The Court remanded the case back to the trial court for consideration of two questions: (1) whether the default judgment conclusively established fraud, and, therefore, provided a basis for Sentinel to rescind the policy, or whether the remaining parties are entitled to litigate the issue of fraud; and (2) whether there is an issue of material fact regarding fraud. The Court stated that if the trial court were to rule in favor of Sentinel on either of those questions, then Sentinel’s motion for summary disposition must be granted.

Kallas & Henk Note
In a complex analysis of the Titan opinion, the Court of Appeals ruled that the innocent third-party rule and the easily ascertainable rule were one and the same, and that both rules were overturned by Titan. This case has been appealed to the Michigan Supreme Court and oral argument was held on January 11, 2018, with the decision of the Court yet to be issued.

 

James Glass v Farm Bureau General Insurance Co. of Michigan

Unpublished opinion per curiam of the Court of Appeals, issued June 14, 2016 (Docket No. 326461)

Plaintiff’s home suffered extensive fire damage. The insurance company paid the actual cash value of the property and provided additional living expenses. The insured decided not to repair the property but to relocate and purchase another residence on a land contract. The purchase was dependent upon the insurance payment for the balance of the repair cost. The policy contained claim payment provisions which did not pay replacement cost until the replacement was completed and limited additional living expenses to the duration of the shortest time required to repair or replace the damaged property. The insurer denied payment on the basis that a land contract was not a “replacement” of the damaged property and discontinued additional living expenses after four months. The trial court granted summary disposition in favor of the insurance company.

The Court of Appeals affirmed on the basis that the land contract terms were contingent based on the insurance payment rather than “actual replacement” as required to receive payment under the policy. The Court examined the definition of actual in reaching its conclusion. The Court also rejected Plaintiff’s attempt on appeal to assert that additional living expense should have been continued as the repairs would have taken longer than four months to complete because no evidence was provided in the lower court.

Kallas & Henk Note
The Court’s focus on the dictionary definition of “actual” followed the long-standing rules for construction of undefined policy terms in accordance with commonly used meanings in context.

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