Michigan Coverage Decisions, Issue 12

Czarnowski v State FarmFire and Casualty Company

Unpublished. Decided January 18, 2000. Michigan Court of Appeals Docket Number 216599.

Plaintiff police officer brought suit against defendant insured, for injuries sustained when the insured resisted arrest. Defendant denied coverage. Plaintiff and the insured subsequently entered into a consent judgment in the amount of $65,000. In this action, plaintiff sought payment of the judgment on the basis that defendant improperly denied coverage.

The Trial Court held in favor of the defendant finding that it had no duty to defend or to pay the consent judgment. The Court of Appeals affirmed, finding that the liability policy covered only “occurrences”. As is typical, “occurrence” is defined in the policy as an accident. The Court of Appeals held that the intentional act of resisting arrest and any consequent injury cannot be deemed accidental under Michigan law.

[su_box title=”Kallas & Henk Note”] The Court did not address plaintiff’s claim in the appeal that defendant was estopped from denying coverage because it breached its duty to defend. The issue was not raised at trial and the Court, therefore, held it could not be raised on appeal.  [/su_box]


Davis v Malcolm v Auto Club Group Insurance

Unpublished. Decided February 11, 2000. Michigan Court of Appeals Docket Number 212689.

In this garnishment action, plaintiff sought recovery against defendant insurer as a result of a judgment against its insured. It was alleged that plaintiff was injured as a result of the insured’s negligence in providing alcohol to minors at a party resulting in an assault and battery. The Trial Court granted summary disposition in favor of plaintiff finding that, because the allegations in the underlying complaint asserted only negligence against the insured, the criminal acts exclusion contained in defendant insurer’s policy did not apply.

The Court of Appeals reversed finding that the policy was unambiguous in excluding damages for bodily injury resulting from a criminal act. Under Michigan law, the furnishing of alcohol to a person under age 21 is a misdemeanor. The Court further found that altercations are the “natural, foreseeable, expected and anticipated consequence” of the criminal act of providing alcohol to minors.

The Court also rejected the contention that because the underlying complaint only alleged negligence, the criminal acts exclusion could not apply. The Court, in rejecting this contention, stated as follows: “we must focus on the cause of plaintiff’s injury and not his specific theory of liability. We have strongly disapproved of a plaintiff’s attempt to trigger insurance coverage by characterizing allegations of tortious conduct under the guise of negligent activity. . . . An insurer’s duty to defend and indemnify does not depend solely on the terminology used in a plaintiff’s pleading. . . . Rather, it is necessary for us to focus on the basis for the injury and not the nomenclature of the underlying claim in order to determine whether coverage exists.”

[su_box title=”Kallas & Henk Note”] This case continues a recent trend of Michigan appellate courts in giving broad application to intentional and criminal acts exclusions. It also contains the quoted language rejecting the common practice of mischaracterizing intentional or criminal acts as negligent acts for the purpose of attempting to invoke insurance coverage.  [/su_box]


Redmer v Auto-Owners Insurance et al

Unpublished. Decided February 15, 2000. Michigan Court of Appeals Docket No. 213603.

Plaintiff, a residential builder, was insured by defendant. Plaintiff constructed a home which allegedly encroached upon a neighbor’s property. The neighbor sued the homeowner who sued plaintiff for faulty workmanship and failure to use proper material and labor in constructing the home. Plaintiff incurred legal fees in defending that action and, in this coverage action, sought reimbursement from defendant insurer.

The Trial Court granted summary disposition in favor of plaintiff and awarded attorney fees plaintiff incurred in defending the underlying lawsuit. The Court of Appeals affirmed, rejecting defendant’s arguments that there was no “occurrence” as required under the policy and that the business risk exclusions defeat coverage. In rejecting defendant’s argument that there was no “occurrence” the court stated: “although plaintiff intended to construct the . . . home, because he did not do so with the intention of interfering with the [neighbor’s] use of their property or causing drainage and runoff problems, any property damage was the result of an accident and therefore was an “occurrence” under plaintiff’s insurance policy.”

The Court of Appeals also rejected defendant’s position because the exclusions only apply to injury to property on which the insured was performing operations. Because, in this case, the property damage was to the neighbor’s property, the Court reasoned that the exclusions did not apply.

[su_box title=”Kallas & Henk Note”] While this fact scenario is admittedly unusual, the Court of Appeals, in this case, has given plaintiff a very generous interpretation of “occurrence”. If the injury to the neighbor is the occurrence, as opposed to the improper construction, this raises questions related to the date of loss. If the accident occurs when the neighbor’s property is damaged, then it would appear that the insurance policy in place at the time of the construction would not apply as the occurrence was at a later date.  [/su_box]


Auto-Owners Insurance Company v Fabian and Farm Credit Services

Unpublished. Decided February 25, 2000. Michigan Court of Appeals Docket Number: 213706.

Plaintiff insured two separate parcels owned by defendant insured, one located in Ottawa County and one located in Van Buren County. Fire damaged the property in Ottawa County. The policy identified Farm Credit Services as mortgagee although Farm Credit only had a mortgage on the Van Buren County property. Plaintiff erroneously issued a settlement check for $70,000 made payable to the insured and Farm Credit. The insured used the money to pay off the mortgage on the Van Buren County property. Farmers Home Administration, who had the mortgage on the Ottawa County property, made a claim against plaintiff insurer which subsequently also paid $70,000 to Farmers Home Administration.

In this action, plaintiff brought suit against the insured for the first erroneously issued payment. The Trial Court entered judgment in favor of plaintiff and against the insured for $70,000. The Court of Appeals affirmed finding that a payment made under a mistake of material fact may be recovered provided the payment has not caused such a change in the position of the payee that it would be unjust to require a refund.

[su_box title=”Kallas & Henk Note”] The Court of Appeals rejected the insured’s argument that, because plaintiff insurer’s agent and representatives had sufficient knowledge to be able to correctly determine where the payment should go, plaintiff insurer should not be able to recover because of its own negligence. The Court noted that mistakes of this type are generally the result of a lack of investigation or other error and that this should not prevent a recovery in favor of the insurer. [/su_box]

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