Michigan Coverage Decisions, Issue 10

Dow Corning Corporation v Continental Casualty Company, Inc.

Unpublished. Decided October 12, 1999. Michigan Court of Appeals Number 200143-200154.

In this appeal, the Court grappled with the infamous breast implant litigation. In this action, Dow Corning sought indemnity and defense costs for the defense of the implant litigation. The trial court basically held in favor of Dow Corning finding that all primary carriers over a 23 year period were liable for all defense costs for all years and for indemnity costs for all years up to their policy limits.

The Court of Appeals affirmed the trial court findings on all significant issues except one issue involving excess carriers.

Defendant insurers argued that their occurrence policies were not “triggered” until actual injuries to the plaintiffs in the underlying action occurred. The Court of Appeals rejected this argument and found a continuous trigger of coverage based on policy language. The Court held that since the allegation in the underlying lawsuits was that injury commenced immediately upon implant, the injuries were continuous and coverage was triggered upon implant. The Court also rejected the argument that the defendant insurers were entitled to litigate this issue in the coverage action.

The Court of Appeals also rejected the insurer’s claim that defense costs and indemnity payments must be allocated in part to Dow Corning for years in which Dow Corning was uninsured. The Court held that there was nothing in the policy language which would allow for such allocation. This was based on the Court’s interpretation that the policies required coverage even if damages occurred outside of a carrier’s policy term because the injuries were of a continuous nature. In rejecting the carrier’s argument on this issue, the Court also distinguished a recent decision in Arco Industries Corp. vs. American Motorist Insurance Company 232 Mich App 146 (1998). The Court in Arco Industries applied a time on the risk approach and allocated damages to the insured for uninsured years. The Court in this case held that because the Court of Appeals panel in Arco was construing different policy language, the decision was not binding.

The Court did reverse the trial court’s finding that excess policies were triggered when the underlying primary policies for their policy years were exhausted. The Court held that because the primary policies were obligated to pay for all years in which injuries occurred, the excess policies were not triggered until all primary policies for all years were exhausted. The basis for the finding was again in the policy language of the excess insurer’s “other insurance” clauses. These clauses provided that no payments would be made under the policy as long as there was any available valid insurance. The Court of Appeals held that this policy provision protected the excess insurers as long as any of the primary insurers for all years had not exhausted their limits.

The Court also rejected an argument made by some insurers that they were not liable for defense costs because Dow Corning had not tendered the defense of those lawsuits. The Court held that the policies in question only required the insured to “report” the claims and that this was done.

[su_box title=”Kallas & Henk Note”] There were several other issues addressed by the court in this decision. They have not been summarized here for the reason that they are unique to the facts of this case and not particularly helpful or important for other coverage cases. It is likely that this case will be addressed by the Michigan Supreme Court because of the different approach to allocation of damages in this case and the Arco decision. [/su_box]


Auto-Owners Insurance Company v Allied Adjusters & Appraisers, Inc. et al

Published. November 5, 1999. Michigan Court of Appeals Docket Number 202933.

Plaintiff, homeowners carrier, filed this declaratory action seeking a ruling from the court that defendant homeowners could not use any individual previously employed by them to act as an independent appraiser. Defendant homeowners had fire losses at their homes. They could not agree with plaintiff insurance carrier on the value of the losses. Defendant homeowners retained the services of Allied Adjusters to adjust their losses. Unable to agree, the parties initiated the appraisal process provided for by MCL 500.2833. Pursuant to this statute, each party to the dispute names an “independent appraiser” and if the two “independent appraisers” are unable to agree on a value, they are to choose a “competent and impartial” umpire to resolve the dispute.

Auto-Owners objected to the use of defendant homeowners’ adjuster to act as the ” independent appraiser”. It was Auto-Owners’ position that because the adjuster had been retained by defendants to negotiate with Auto-Owners, by definition the adjuster could not be “independent”. The Trial Court disagreed and entered summary disposition in favor of defendant homeowners.

The Court of Appeals affirmed the Trial Court. The Court of Appeals interpreted the requirements of the statute as follows: “the independent appraiser may be biased toward the party who hires and pays him, as long as he retains the ability to base his recommendation on his own judgment. The umpire, in contrast, may not favor either party; he must serve only equity, fairness, and justice.”

[su_box title=”Kallas & Henk Note”] On its face, this decision seems counter-intuitive. The statutory requirement that the appraiser be “independent” would seem to eliminate an adjuster who has already taken a position as an advocate for one of the parties. This was a practical decision, however, to make the appraisal process more simple. Had the Court of Appeals agreed with plaintiff, this would have opened the door to challenges of appraisers named by the parties. This would defeat the purpose of the statute, which is to keep resolution of disputes over valuation of losses out of court. [/su_box]


Ivy Mortgage Corporation v Michigan Basic Property Insurance Association

Unpublished. November 12, 1999. Michigan Court of Appeals Docket Number 211750.

Michigan Basic provided fire insurance for a property that was destroyed by fire on November 17, 1996. Plaintiff mortgage company agreed to provide the mortgage on the property prior to November 17, 1996 but did not close on the mortgage until November 21, 1996, after the property was destroyed. Apparently, the property owner did not disclose to the mortgage company that the property no longer existed.

Plaintiff sought to recover under the fire insurance policy issued by defendant on the basis of its mortgagee’s interest. Defendant Michigan Basic denied coverage asserting that plaintiff had no insurable interest in the property at the time of loss. The Trial Court agreed and granted summary disposition in favor of Michigan Basic.

The Court of Appeals affirmed the summary disposition rejecting plaintiff’s argument that because they had agreed to provide the mortgage based on Michigan Basic’s representation that they were insuring the property, Michigan Basic was estopped from denying coverage. The Court held that the equitable doctrine of estoppel cannot be used to contravene contract law.

[su_box title=”Kallas & Henk Note”] This opinion takes the position that lack of insurable interest trumps all other considerations. The Court acknowledged that plaintiff suffered a loss, but that the loss occurred after the property was destroyed. As a result, the Court reasoned that there could be no recovery because: “the rights of insured parties are fixed at the time of the loss”. Because plaintiff did not loan the money until after the loss, they had no loss when the property was destroyed. [/su_box]

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