Michigan Coverage Decisions, Issue 11

Echols v Indiana Insurance Company

Decided November 29, 1999. United States District Court, Eastern District of Michigan, Southern Division.

Plaintiff sought to recover for the value of a stolen vehicle. In his application for insurance, plaintiff answered no to the question whether he had any prior losses. After the alleged theft of the vehicle, defendant insurer discovered that plaintiff had made three prior claims for stolen vehicles and that one of his insurers had denied the claim for misrepresentation. Defendant rescinded the policy and returned the premium to plaintiff on the basis of the misrepresentation in the application.

Plaintiff asserted that the question on the application was ambiguous and that he interpreted the term “loss” to be synonymous with accident. The Court rejected this subjective interpretation of the application question and held under Michigan law that an insured’s subjective interpretation of a term is irrelevant. The court is to\ take an objective view of the relevant language and if not ambiguous, it is to be interpreted as written. The Court also held that Michigan law clearly provides for recission of an insurance contract based on misrepresentation, whether that misrepresentation is innocent or intentional. On this basis, the District Court granted summary disposition to defendant insurer.

[su_box title=”Kallas & Henk Note”] This case contains an excellent discussion of the standard for summary judgments under Rule 56 (c) of the Federal Rules of Civil Procedure and standards for courts in determining whether insurance terms are actually ambiguous or merely subject to erroneous subjective interpretation. [/su_box]


Westfield Insurance Company v Argonics, Inc.

Decided December 13, 1999. United States District Court, Western District of Michigan.

Plaintiff issued a general commercial liability policy to defendant manufacturer and seller of products including replacement blades for conveyor belt cleaners. In this action, plaintiff sought a declaratory ruling that it had no duty to defend or indemnify defendant in an action brought against defendant by a competitor for patent infringement and “unfair competition”.

Defendant sought coverage under both “advertising injury” and “personal injury” coverages. The Court held, consistent with prior decisions from the 6th Circuit Court of Appeals and Michigan appellate courts, that the specific language contained in the advertising injury and personal injury coverages was unambiguous. The Court also held that claims for patent infringement were not covered under the advertising injury coverage as that coverage was limited to enumerated offenses, not including patent infringement. The Court also held that general allegations of unfair competition and vague allegations of other wrongdoing do not give rise to a duty to defend. The District Court granted summary disposition in favor of plaintiff insurer.

[su_box title=”Kallas & Henk Note”] This case is significant in its requirement that, in order for the duty to defend to arise, the complaint in the underlying action must allege that the insured “specifically committed one of the four types of advertising injury specified in the policy”. The Court rejected the argument that vagaries in the allegations against the insured require an insurer to defend until it can be conclusively determined that the claims do not include one of the types of offenses specifically covered in the policy.  [/su_box]


Blackburn v Cassani v State Farm Insurance Company

Unpublished. Decided January 7, 2000. Michigan Court of Appeals Docket No. 209062.

In this garnishment action, plaintiff sought to recover a judgment obtained against State Farm’s insured in an underlying action. State Farm had defended the underlying action under a reservation of rights based on an exclusion for intentional or criminal acts. Plaintiff alleged in the underlying action that the insured sexually assaulted plaintiff.

The underlying action was mediated for $25,000. Both parties accepted and a judgment was entered. In this action, the plaintiff alleged (1) State Farm was estopped from denying responsibility for the judgment because the attorney who accepted the mediation award was retained by State Farm and (2) State Farm was estopped from denying coverage because it had failed to notify plaintiff, as opposed to the insured, of its reservation of rights.

The Court of Appeals rejected both arguments. With respect to the defense attorney, the Court relied on the recent Supreme Court decision of Kirschner v Process Design 459 Mich 587 (1999), which made clear that the attorney represents only the insured and can only bind the insured by his or her actions. The Court held that the insurer could not be estopped based on any action or inaction of defense counsel. With respect to the second argument, the Court also relied on the Kirschner decision and held that an insurer has no duty to inform a plaintiff in an underlying action of its reservation of rights.

[su_box title=”Kallas & Henk Note”] The rationale for the decision in this case and the Kirschner decision derives from Michigan’s rejection of the view of the majority of jurisdictions that defense counsel retained by the insurer has an attorney-client relationship with both the insured and the insurer. In Atlantic International v Bell 438 Mich 512 (1992) the Michigan Supreme Court held that there is no attorney-client relationship between defense counsel retained by the insurer and the insured.  [/su_box]


Sentry Insurance v Claimsco International, Inc., Quality Services LLC, and Intercargo Insurance Company

Published. Decided January 14, 2000. Michigan Court of Appeals Docket Number 208758.

Plaintiff insured a truck owned by Castle. Claimsco International insured a truck owned by Quality. The truck owned by Castle struck and totaled the truck owned by Quality. Claimsco paid for the loss and made a subrogation claim against plaintiff as the insurer of the at fault driver. Plaintiff’s adjuster settled for $46,800 notwithstanding the fact that under Michigan no-fault law, the maximum recovery for damage to a vehicle is $500 (Michigan’s no-fault law requires that an insured look to its own insurer).

The Trial Court granted summary disposition to plaintiff on the basis that there was a “mistake of law” and that plaintiff was entitled to recover the amount paid in excess of $500. The Court of Appeals reversed and remanded the matter to the trial court for further findings of fact. The reversal was based, in part, on the finding that the trial court erred by basing its decision on a “mistake of law”. The Court of Appeals held that the only basis for the claim for unjust enrichment would be for a “mistake of fact”. The Court of Appeals reasoned that a “mistake of law” ( in this case a misunderstanding of Michigan no-fault law) will not justify rescission of a settlement. The Court held that only a “mistake of fact” can support a claim for unjust enrichment. In this case, the Court held there was a genuine issue of material fact whether plaintiff was operating under a “mistake of fact” where the accident occurred.

[su_box title=”Kallas & Henk Note”] This case illustrates the difficulties that adjusters based in states other than Michigan have in understanding and applying the complexities of Michigan no-fault law. While the Court of Appeals in this case held that there was a genuine issue of fact on whether the adjuster was mistaken as to the location of the accident, it is likely that the adjuster did not understand the limitations on recovery contained in Michigan’s no-fault act. Michigan law is clear, however, that ignorance of the application of the law may not form the basis for the rescission of a settlement.  [/su_box]

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