Michigan Coverage Decisions, Issue 200

Gregory and Lynn Durham v Auto Club Group Ins Co.

Unpublished, Decided December 13, 2016, Michigan Court of Appeals Docket No. 329667, leave denied September 12, 2017 (Docket No. 155185).

A fire claim on a homeowners policy and subsequent denial based on the insureds’ failure to use the property as their residence. The insurer rescinded coverage and denied the claim based on fraud and misrepresentation regarding the use of the property as a primary residence. The trial court granted summary disposition in favor of the insurer based on their relocation, including new jobs and new living quarters.

The Court of Appeals reversed the lower court ruling based on its determination that a material fact question precluded summary disposition and the doctrine of estoppel or waiver. The Court found that the rescission letter sent to the insureds did not address the residency defense and under estoppel, the insurer was precluded from asserting this additional defense. The Court distinguished the timing in the rescission letter which was based on the policy renewal acceptance versus the actual date of loss. The Court also found that the insurer had knowingly waived the defense because it had investigated and had knowledge of all of the facts relating to the residency issue but did not assert the defense. The Court further limited the insurer’s defenses on remand based on the lower court holding that there had been no fraud or misrepresentation by the policyholders.

Kallas & Henk Note
While the court recognized the doctrines of waiver and estoppel and the important exception of not expanding coverage via waiver or estoppel, the court distinguished the specific factual scenario presented when applying these doctrines.

 

Skanska-Schweitzer v Farm Bureau General Ins Co of Michigan

Unpublished, Decided December 13, 2016, Michigan Court of Appeals Docket No. 328031, leave denied October 3, 2017 (Docket No. 155186) .

The Farm Bureau policyholder added Plaintiff as an insured on its policy which provided coverage for Plaintiff resulting from ongoing operations by the Farm Bureau policyholder. A third-party was injured due to work performed by the Farm Bureau policyholder. Plaintiff and the Farm Bureau policyholder were sued by the injured party in a separate suit. Plaintiff sought defense and indemnity from Farm Bureau which was denied. Plaintiff filed a declaratory action seeking a ruling that Farm Bureau owed defense and indemnity. The trial court ruled that Farm Bureau did not owe defense and indemnity to Plaintiff because the work was not under the original contract between the parties, but under a separate contract.

The Court of Appeals overturned the lower court based on its analysis that the duty to defend is broader than the duty to indemnify and any doubt is resolved in favor of defending the insured. The Court found that the allegations in the third-party complaint were sufficient to trigger the duty to defend Plaintiff as an additional insured. The Court rejected the argument that no indemnity was owed on the basis that there were questions of material fact whether the Farm Bureau policyholder’s work was for the Plaintiff. The Court found that the work at issue was potentially sufficiently related to the ongoing operations of the Farm Bureau policyholder on behalf of the Plaintiff and remanded for further proceedings to resolve the factual questions.

Kallas & Henk Note
The Court followed the “duty to defend is broader” line of cases. Notably, this standard is contrary to insurance policy construction standards which dictate that duty to defend is determined by the policy language and only owed for losses covered by the policy.

 

Carl Melms v Auto Owners Ins Co.

Unpublished, Decided December 15, 2016, Michigan Court of Appeals Docket No. 329421.

The policy insured a barn which was destroyed by fire. The question of coverage arose regarding whether the intent was to provide coverage when the named insured did not reside at the property, but leased the property to tenants. The trial court found no question that the named insured did not reside at the property. Accordingly, the trial court granted summary disposition in favor of the insurance carrier.

The Court of Appeals affirmed the ruling based on its review of the dictionary definition of reside and it determination that the meaning of reside required the insured to actually live at the property.

Kallas & Henk Note
The Court followed the well-established principles of contract construction that an undefined term does not render an insurance policy ambiguous and an undefined term can be defined by use of a dictionary definition.

 

Arthur and Carole Lang v Auto Owners Ins Co.

Unpublished, Decided January 17, 2017, Michigan Court of Appeals Docket No. 329577.

Plaintiff was injured when he was involved in a motorcycle accident in which he took evasive action to avoid hitting an unidentified vehicle. Plaintiff admitted that he did not make any contact with the unidentified vehicle or any other vehicle or hitting anything coming out of the vehicle. Uninsured motorist benefits were denied because of no physical contact between the unidentified vehicle and the motorcycle. The trial court found that the contract provision required physical contact, had to be enforced, and granted summary disposition in favor of the insurance carrier.

The Court of Appeals upheld the trial court ruling in favor of the insurance carrier rejecting the Plaintiff’s argument that the public policy reason for the physical contact rule to prevent fraud should afford coverage in this case where there was no fraud and the accident had been corroborated by other parties. The Court stated that it was required to follow Michigan law enforcing the physical contact requirement contained in the policy versus the Ohio “corroborative evidence test”.

Kallas & Henk Note
The Court followed the long-standing Michigan contract interpretation standards for enforcing a contract as written.

 

James and Gretchen Overbeek v Freemont Ins Co et. al.

Unpublished, Decided January 17, 2017, Michigan Court of Appeals Docket No. 329339.

The Plaintiff was injured during a boat launch accident when the vehicle being used to load the boat into the water hit and injured him at the boat launch. The marine insurance policy excluded coverage for transportation of the insured boat and contained an charter use endorsement which extended coverage for passengers engaged in activities normally part of the chartered fishing trip and guide activities that did not involve the use of the boat, but excluded loss arising out of any land motor vehicle. The trial court determined that the policy afforded coverage for the injuries.

The Court of Appeals affirmed the lower court ruling. The Court rejected the insurer’s argument that the boat was being transported at the time of the accident. The Court reviewed the definition of transporting using the dictionary and concluded that the verb was transitive, requiring ongoing action, with the Court noting that no one was moving the boat or trailer and when the boat and trailer arrived at the boat launch the transporting was over when the injury occurred. Because the Court answered the question of coverage being afforded in basic policy, the Court declined to address whether the endorsement precluded coverage as unnecessary.

Kallas & Henk Note
The Court erred in its failure to review coverage under the policy endorsement. The proper approach is to read the contract as a whole, avoiding interpretations that render parts of the contract surplusage. Klapp v. United Ins. Group Agency, Inc., 468 Mich 459,468 (2003). The Court should have reviewed the policy in its entirety, including the coverage extension endorsement.

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