MICHIGAN COVERAGE DECISIONS, Issue 122

Frederick v. Farm Bureau Ins.

Unpublished. Decided November 25, 2008 Michigan Court of Appeals Docket No. 280629.

Plaintiffs filed a declaratory action against defendant, their homeowners insurance provider, after defendant denied coverage for a lawsuit filed against them by adjacent neighbors, Lundins. The Lundins claimed that plaintiffs attempted to remedy a flooding problem by negligently adding fill dirt and then not properly grading their property, causing Lundins to suffer property damage as a result of flooding. Defendant filed a motion for summary disposition alleging there was no “occurrence” and alleging that coverage was excluded by the intentional act and/or criminal act exclusions. Defendant argued that plaintiffs intentionally altered drainage patterns by having truckloads of dirt dumped on the property without consideration that it would render their property grade height higher than the Lundin property. The trial court held that the criminal act exclusion did not apply. The trial court found that there was no coverage under the policy because the intentional act exclusion applied. The intentional act exclusion was applicable because a reasonable man would know that adding a significant amount of dirt was going to change water drainage patterns which would cause flooding to surrounding properties.

The Court of Appeals held that any flooding on the Lundin property, after plaintiffs intentionally added fill dirt to their property, was not intended by plaintiffs. The Court also held that plaintiffs acts did not create a direct risk of harm from which flooding of the Lundin property should have reasonably been expected. Plaintiffs previously added fill dirt to their property and the Lundin property did not flood. Also, the property did not flood until more than 6 months after the recent fill dirt was added. The Court held that the flooding was an “accident” which constituted an “occurrence”. The policy contained an “intentional act” exclusion which excluded coverage for “property damage which may be the natural, foreseeable, expected, or anticipated result of the intentional acts of one or more Insureds or which is in fact intended by one or more Insureds, even if resulting . . . . property damage is of a different kind, quality or degree than initially expected or intended.” The Court held that a genuine issue of material fact exists regarding whether the exclusion applies.  The Court also found a genuine issue of material fact whether a reasonable person would have expected the Lundin property to flood. The Court held that because the allegations arguably came within the scope of coverage, defendant had a duty to defend.

[su_box title=”Kallas & Henk Note”] The Court relied on the Supreme Court’s decision in Allstate Ins. Co. v. McCarn (McCarn I) to find that the flooding was an accident. In McCarn, the Supreme Court noted that “if the act was intended by the insured, but the consequences were not, the act does constitute an accident, unless the intended act created a direct risk of harm from which the consequences should reasonably have been expected by the insured.” [/su_box]

 

Roberts v. Titan Ins. Co.

Published. Decided December 4, 2008 Michigan Court of Appeals Docket No. 280776.

12 year-old Roberts was injured when he crashed an Explorer he was driving into a tree. Roberts was intoxicated at the time of the accident. Vandenberg, Roberts and Irwin’s landlord and house mate, was the title owner of the Explorer. Roberts did not have permission to drive the Explorer and he was not related to Vandenberg. Vandenberg let Irwin (Robert’s m other) us e the Explorer for her daily needs. Vandenberg did not intend that Irwin have permanent use of the vehicle. Although Irwin felt that she owned the vehicle because she drove it all the time, she admitted that she was not the title owner. Roberts believed when he took the Explorer it belonged to Irwin. Neither Irwin nor Vandenberg gave him permission to drive at any time. He obtained the keys from Irwin’s backpack after Irwin had gone to bed. At the time of the accident, Irwin had no-fault insurance with Titan on an Escort. However, Irwin never owned or drove the Escort. Titan denied Roberts PIP benefits on the ground that Roberts had unlawfully taken the Explorer. Titan filed a motion for summary disposition arguing that Roberts unlawfully took the Explorer and that the insurance policy is void ab initio due to Irwin’s misrepresentation that she owned the Escort. Roberts argued that there was a genuine issue of material fact whether he had unlawfully taken the Explorer in light of the family member joy riding exception and in light of the fact that Roberts was an innocent third party to Irwin’s alleged misrepresentation. The trial court held that the family member joy riding exception to MCL 500.3113(a) as stated by the Priesman court was not binding in this case and the statute barred recovery. MCL 500.3113(a) provides that if a person is injured while using a vehicle he took unlawfully, he is not entitled to PIP benefits unless he reasonably believed that he was entitled to take and use the vehicle.

The plurality in Priesman v. Meridian Mut. Ins. Co. held that MCL 500.3113(a) did not apply to “joy riding” family members who most commonly were teenagers driving their parents’ car without permission. The plurality created a family member joyriding exception to MCL 500.3113(a). In Butterworth Hosp. v. Farm Bureau Ins. Co., the court recognized Priesman was not binding but felt compelled to follow the Priesman reasoning and extended the exception to adult family members from another household who take a relative’s vehicle joy riding. The Butterworth Court stated that MCL 500.3113(a) did not apply to any person who takes a family member’s vehicle for joy riding purposes, rather the statute only excluded coverage for someone who had an actual intent to steal the vehicle. The Court of Appeals found that the family member joyriding exception was binding. The Court found that Irwin qualified as an “owner” of the Explorer because she had use of the vehicle for more than 30 days and that because Roberts was a family member joy riding rather than attempting to steal the car, he did not “unlawfully” take the car and is not excluded from coverage. With regard to the misrepresentation allegation, the Court stated that it was Irwin, not Roberts, that allegedly misrepresented facts, and therefore, Roberts may not be denied coverage on the basis of his mother’s improper actions. The Court reversed summary disposition in favor of Titan and remanded.

[su_box title=”Kallas & Henk Note”] The Court of Appeals declared a conflict with Butterworth Hosp. v. Farm Bureau Ins. Co. The Court stated that were it not for the plurality decision in Priesman v. Meridian Mut. Ins. Co. adopted in Butterworth, supra, it would affirm the trial court. [/su_box]

 

Auto-Owners Ins. Co. v. Redland Ins. Co.

Published. Decided December 15, 2008 United States Court of Appeals For the Sixth Circuit Case No. 08-1023.

R & T leased tractor-trailer rigs to Everhart. The lease agreement required Everhart to maintain a “blanket policy of insurance . . .cover[ing] the usage of the insured vehicle[s] whi[le] engaging in the business of the carrier,” but provided R & T would maintain all other insurance coverage. Auto-Owners provided Everhart with a blanket insurance policy and R & T secured a nontrucking liability policy (“bobtail” insurance) from Redland. On June 22, 2004, Gale, an R & T employee, made a delivery to Grand Rapids in a truck leased to Everhart.  After delivery, he left a message on Everhart’s main line stating that he finished his delivery and was going to find a place to sleep and would probably wake up early and drive to Gary. W hile driving west on I-196 south, Gale apparently fell asleep and collided with another driver, killing the driver. The estate sued Gale, Everhart and R & T. Redland denied coverage and refused to defend Gale and R & T. Auto-Owners defended, settled for $1 million, and obtained an assignment of claims from R & T and Everhart. Auto-Owners sued Redland alleging its policy covered the truck and Redland breached its duty to defend. The district court granted summary judgment to Auto-Owners on the duty to defend claim but granted summary judgment to Redland on the coverage issue because the court found that the truck was being used “in the business” of Everhart when the accident occurred.

The Court of Appeals considered whether the driver of a tractor-trailer operates “in the business” of a motor carrier after he completes one delivery and in anticipation of receiving another, is in an accident while driving to find a place to sleep. The policy excludes coverage when a covered vehicle is “in the business of any trucking company or lessee of such auto.” The Court of Appeals agreed with the district court that the truck was being used “in the business” when the driver was involved in an accident while traveling in the direction of a presumed, but not confirmed, dispatch. The Court found that whether he was driving somewhere to get some sleep or driving in the direction of Gary for a new pickup, he was operating “in the business” of Everhart. Both activities directly served Everhart’s commercial interests. The Court also held that the catchall exclusion for other “in the business” activities of the trucker applies.

[su_box title=”Kallas & Henk Note”] The Court of Appeals made it clear that this decision was fact specific. The Court held that “In context of this insurance policy and on the undisputed facts of this case, the tractor-trailer rig was being ‘used . . . .in the business’ of Everhart” at the time of the accident and was not covered by the Redland policy. The Court also held that in light of the “particular circumstances of this case”, the “in the business” exclusion is not ambiguous. [/su_box]

 

Home-Owners Ins. Co. v. Selfridge

Unpublished. Decided December 18, 2008 Michigan Court of Appeals Docket No. 280112.

On December 24, 2004, 16 month old Porter Selfridge suffered severe burns at his grandparents’ home when he tipped over a coffee pot spilling coffee on himself. Plaintiff issued a homeowners policy to his grandparents, Larry and Betty Selfridge. Porter’s parents sued Porter’s grandparents to recover for Porter’s injuries. Plaintiff filed a declaratory action against Porter’s parents and grandparents, alleging that the policy was void because they acted in collusion in an attempt to defraud Plaintiff. Plaintiff also alleged Larry and Betty attempted to commit insurance fraud or made material misrepresentations, voiding the policy. The policy states that the entire policy is void if any insured “(a)intentionally concealed or misrepresented any material fact or circumstance, (b)engaged in fraudulent conduct; or (c)made false statements relating to this insurance.” The trial court held that inconsistencies between Larry’s deposition testimony and an affidavit signed by Larry and Betty were material false statements sufficient to void the policy as to Larry. The trial court held that Betty did not make false statements relating to the insurance and Larry’s conduct was insufficient to void the policy as to her. The trial court relied on the severability provision stating “the coverage provided by section II personal liability protection applies separately to each insured against whom a claim is made or suit is brought.”

The Court of Appeals held that the trial court erred by failing to declare the entire policy void based on its findings that Larry made false statements. Both Larry and Betty are named insureds. The policy states that the entire policy is void if any insured made false statements. Larry is “any” insured. The Court held that the severability clause did not override the plain language of the general policy conditions and that the entire policy was void.

[su_box title=”Kallas & Henk Note”] The Court of Appeals relied on the plain language of the policy which provided that “the entire policy is void” if “any insured” makes false statements in reaching its decision. The Supreme Court recently denied application for leave to appeal this decision of the Court of Appeals. [/su_box]

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