MICHIGAN COVERAGE DECISIONS, Issue 123

Ellis v. Farm Bureau Ins. Co.

Published. Decided December 19, 2008 Michigan Supreme Court Docket No. 136069.

In this action for property loss under a homeowners policy, the Supreme Court reversed the Court of Appeals and remanded the case to Wayne County Circuit Court for entry of judgment in favor of the defendant. The Supreme Court held that defendant was not liable under the terms of the policy because the premises were vacant or unoccupied for more than 60 consecutive days before the loss. Two Justices concurred and Three dissented. Justice Young concurred and wrote solely to respond to Justice Kelly’s dissent. Justice Young stated “[u]nfortunately, I believe that Justice Kelly’s view of contract construction in this case foreshadows the future. I predict that we will see again the ascendency of a Michigan jurisprudence in which no contract will be enforced according to its plain meaning and the meaning given to such commonplace terms will be derived entirely from the imaginations of judges who share Justice Kelly’s judicial philosophy.” Justice Markman concurred noting that the fact that a contract does not define a relevant term does not render the contract ambiguous. Justice Kelly dissented finding that the insurance policy did not define the terms “vacant” or “unoccupied” and that these terms are ambiguous because there are numerous common definitions of the terms. Justice Kelly found that the terms are subject to judicial interpretation and that the property was not vacant or unoccupied within the meaning of the insurance policy.

[su_box title=”Kallas & Henk Note”] Justice Young’s statement that the dissenting opinions foreshadow the future is a reference to the change in composition in the Michigan Supreme Court as a result of the November, 2008 elections. Over the last several years, the Court has issued rulings in insurance coverage cases consistent with the case of Rory v Continental Insurance, issued in 2005. Rory held that insurance contracts are to be interpreted the same as any other contract and that no special rules should be applied to insurance contracts. The change in the Court as a result of the election is, in our view, likely to result in a significant change in rulings in insurance coverage cases. In her dissent, Justice Kelly (now chief Justice Kelly), notes that she dissented from the decision in Rory.

For practitioners dealing with insurance coverage disputes, this probable change in future case law in Michigan, and the possible outright reversal of Rory, is something that needs to be considered in making coverage decisions. [/su_box]

 

Buckman v. Allstate Ins. Co.

Unpublished. Decided December 23, 2008 Michigan Court of Appeals Docket No. 280171.

Plaintiff sought damages from a December 17, 2002 auto accident in which plaintiff was rear-ended by an uninsured driver. Plaintiff alleged in his complaint that on the date of the accident he was insured by defendant. Plaintiff attached to the complaint an Allstate policy containing an arbitration provision, but the policy did not contain a declaration sheet, the names of any insureds, or an effective date. Defendant admitted plaintiff was issued a policy of auto insurance that was in effect on December 17, 2002, but stated that the policy attached to the complaint was incomplete. Plaintiff moved to compel arbitration. Defendant argued that it was not required to submit the matter to arbitration. The trial court granted plaintiff’s motion for arbitration finding that the arbitration clause in the contract attached to the complaint was in effect at the time of the accident. Defendant filed a motion for reconsideration attaching a renewal declaration issued to plaintiff effective July 11, 2002 including the Michigan Auto Amendatory Endorsement. The “Michigan Auto Amendatory Endorsement” provided that in the event the parties cannot agree on the insured’s right to receive damages or the amount of damages, the disagreement will be resolved in a court of competent jurisdiction. The effective date on the amendatory endorsement was July 11, 2002. The trial court denied the motion for reconsideration.

The Court of Appeals held that the trial court erred in granting the motion to compel arbitration because the evidence submitted to the court was not adequate to demonstrate that the insurance contract that was effective on the date of the accident, contained an arbitration clause. The policy attached to the complaint did not contain a declaration sheet, policy number, effective dates, or the identity of the insured. It was not a complete contract and it lacked the pertinent information required to be included. The Court of Appeals held that based on the complaint and the motion, the evidence was not adequate to show that the matter was governed by the arbitration clause.

[su_box title=”Kallas & Henk Note”] The decision of the Court of Appeals in this case was based solely on the inadequacy of the proof of the insurance contracts submitted by Plaintiff in support of his Motion for Summary Disposition.  The remand did not require a finding in favor of Defendant insurer but held only that the trial court was in error in granting summary disposition in favor of Plaintiff. [/su_box]

 

Iroquois On The Beach, Inc. v. General Star Indemnity Co.

Published. Decided December 23, 2008 United States Court of Appeals For the Sixth Circuit Case No. 07-2458/2495.

Iroquois is a seasonal hotel insured under an “all-risk” policy issued by General Star. An inspection of the hotel revealed that water was entering the building because of the insufficient steel frame that failed to protect the building in windy conditions. The inspection suggested that the damage occurred gradually over several years. General Star denied coverage for the loss. The district court granted General Star’s motion for summary judgment on the basis that exclusion B.2.f precluded coverage. Exclusion B.2.f provided that the insurer “ will not pay for loss or damage caused by or resulting from continuous or repeated seepage or leakage of water, or the presence or condensation of humidity, moisture or vapor, that occurs over a period of 14 days or more.” Iroquois argued that the exclusion is inapplicable because windstorms, a covered loss, initiated the sequence of events that resulted in the loss and the exclusion contains no “anti-concurrent, anti-sequential” clause. Iroquois argued that the omission of that clause in B.2.f. indicates that the insurer intended to provide coverage where the loss is caused by wind if it was the first or last step leading to the seepage or leakage of water.

The Sixth Circuit Court of Appeals noted that the Supreme Court of Michigan has declined to adopt the doctrine of dual or concurrent causation because it found no reason to introduce a doctrine that departs from the literal interpretation of an unambiguous insurance contract. Under Michigan law, the default rule is that a loss is not covered when it is concurrently caused by the combination of a covered cause and an excluded cause. The Court found that the exclusion for seepage or leakage of water for at least 14 days to be dispositive and affirmed summary judgment.

[su_box title=”Kallas & Henk Note”] This decision from the Sixth Circuit is consistent with recent Michigan Supreme Court holdings with regard to dual causation.  Those holdings find that where any exclusion eliminates coverage there is no coverage, even if other provisions of the policy could be interpreted to provide coverage. [/su_box]

 

Tiel Oil Co. v. Employers Mutual Casualty Co.

Unpublished. Decided January 15, 2009 Michigan Court of Appeals Docket No. 280180.

The plaintiff suffered losses at two gas stations it owns and operates, one on February 6, 2004 in Big Rapids, and one on March 17, 2004 in Reed City. The losses occurred when the protective outer pipes of underground pipes containing gasoline cracked. Plaintiff carried insurance policies on both locations with defendant. Plaintiff notified defendant of both claims. On August 31, 2004, defendant sent two letters to plaintiff, one for each claim, stating that it had “determined that the damage was caused by the soil freezing and causing earth movement which cracked the pipe” and that “this type of claim is not covered by your insured policy.” The letter invited plaintiff to submit additional information and reserved the right to reassess its position in light of additional information it may receive in the future. Defendant sent another letter for each claim on October 8, 2004, indicating that the “possible causes of loss were earth movement, [or] water entering through a sump pump and freezing.” The letter stated that “our position of denial remains the same” and contained identical language as the first letter inviting submission of additional information. On December 21, 2005, plaintiff’s counsel requested that defendant “reconsider the denial”. Defendant responded on December 23, 2005, citing the frozen plumbing exclusion and stating “[i]n order to reconsider this claim, I will need to know exactly how this area is heated. After I receive this information, I may request other information or documentation.” It also contained the identical language inviting further submissions. Plaintiff responded in March of 2006 that there was no need to heat petroleum piping as petroleum does not freeze. Defendant sent a fourth letter four days later stating that “[t]he fact remains that this loss was caused by frozen plumbing” and that “our denial of this claim still stands.” Plaintiff mailed its complaint seeking declaratory relief to the court on October 5, 2006, but the documents were not filed with the court until Tuesday, October 10, 2006 due to the delay caused by Columbus Day federal postal holiday. Defendant moved for summary disposition alleging that it had formally denied liability for the losses on August 31, 2004 and plaintiff’s claims were untimely. Plaintiff alleged that there was a genuine issue of material fact because the term “formal denial” was ambiguous and it was unclear which of the letters was the “formal denial” that stopped the tolling for filing a claim. The trial court held that the actual denial was made on October 8th because the word “denial” was in the letter. Plaintiff argued that the claim was still timely filed because October 8th was a Sunday and October 9th was a legal holiday. The trial court ruled that October 9th was not a holiday within the meaning of the court rules and that the case was filed after the two year deadline established by the insurance policy. Therefore, the trial court granted defendant’s motion for summary disposition.

The Court of Appeals held that there was a genuine issue of material fact as to which date constituted the formal denial. The policy provides that no one may bring a legal action unless the action is brought within 2 years after the date on which the direct physical loss of damage occurred. The policy also included an endorsement which provided that “the time for commencing action against us is tolled from the time you notify us of the loss or damage until we formally deny liability for the claims.” The Court noted that the first 3 letters contain language indicating that both a denial (although not using that precise language) had occurred “at that time” and that additional information would be accepted and considered in reassessing the coverage dispute. The Court held that which letter constituted a formal denial was for a fact-finder. The Court also noted that there was a question regarding whether the filing of the complaint was timely because there was a material issue of fact regarding which letter constituted a formal denial. The Court reversed and remanded, finding that summary disposition in favor of defendant was improper.

[su_box title=”Kallas & Henk Note”] The decision of the Court of Appeals in this case is truly perplexing.  The Court held that it was an issue of fact for the jury to determine which, if any, of the letters constituted a denial.  In our view, however, where the facts are undisputed (the content of the letters and the receipt of the letters) it should be a question for the Court whether the language of the letters constituted a denial.  This decision also seems to be implying that language at the end of a denial letter which invites an insured to present any new or different information for consideration means that the letter did not constitute a denial.  One is left to wonder what this panel of the Court of Appeals would consider to be sufficient language to constitute a denial. [/su_box]

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