Michigan Coverage Decisions, Issue 124

Overall Trading, Inc. v. Hastings Mutual Ins. Co.

Unpublished. Decided January 15, 2009 Michigan Court of Appeals Docket No. 278859.

This action arose out of plaintiff’s claims for coverage for water damage to personal property in its warehouse that occurred on two separate occasions. The insurance policy requires that plaintiff fully comply with its provisions before filing a legal action. One provision required that the insured submit a proof of loss with the information requested by the insurer. Plaintiff submitted a single proof of loss for both the January and February claims. Defendant rejected plaintiff’s proof of loss because it disputed the alleged damages and because plaintiff did not submit supporting documentation. Defendant argued that because plaintiff failed to submit a sufficient proof of loss after it rejected the one that plaintiff originally submitted, plaintiff failed to satisfy the condition that it provide a sworn statement. Defendant alleged that plaintiff was required to submit a separate inventory of the February losses so that it could assess liability on that claim. The trial court denied Defendant’s Motion for Summary Disposition and granted Plaintiff’s Motion for Summary Disposition.

The Court of Appeals found that because defendant moved for summary disposition it had the initial burden of showing that it informed plaintiff what documentation was required to cure the proof of loss deficiency. The Court held that defendant failed to meet its burden of showing that plaintiff’s proof of loss was unsatisfactory. Defendant denied plaintiff’s January claim because it concluded that the cause of the loss was surface water infiltration which is not covered under the policy. Although the Court agreed that surface water infiltration is clearly excluded under the policy, plaintiff presented two reports which opined that the January loss was caused by water leakage through the roof. Therefore, the Court found that there was a genuine issue of material fact regarding the cause of the damage for the January incident. Plaintiff argued that any coverage issue was part of the appraisal process once defendant accepted plaintiff’s appraisal demand. The Court held that the appraisal process did not resolve the issue of coverage because the issue of coverage is for the court to decide. The Court noted that defendant never conceded coverage for the January claim or waived its right to assert the defense. The Court held that the trial court erred in allowing the January claim to be part of the appraisal process because a court is to determine coverage in a declaratory action before an appraisal of damage to the property. With regard to the February claim, the Court noted that defendant did not present any evidence that the February claim was not covered. Because the dispute regarding the February claim is about damages and not coverage, it is properly resolved in the appraisal process.

[su_box title=”Kallas & Henk Note”] There is a discussion in this decision regarding the impact of a bulletin issued by the Michigan Office of Financial and Insurance Services to the effect that disagreements over whether or caused by a covered event should be submitted to arbitration. In our experience, independent adjusters, are using this bulletin to take the position that the courts’ traditional role in determining whether a loss is covered is now exclusively within the province of the appraisers. This Court properly rejected the argument but on the limited basis that the bulletin is only applicable when an insurer concedes that a loss is covered and that, in this case, coverage was never conceded.

In our view, the bulletin improperly attempts to override legislation and case law for political purposes. The courts have interpreted the legislation governing property claims and appraisals and executive branch political appointees have no authority to contradict those interpretations. [/su_box]


Feldkamp v. Farm Bureau Ins. Co.

Unpublished. Decided January 15, 2009 Michigan Court of Appeals Docket No. 272855.

An automobile accident occurred in 2002. Farm Bureau provided no-fault insurance for plaintiff’s vehicle. The policy included underinsured motorist coverage. Kobish, who allegedly caused the accident, had no-fault insurance with GMAC. Plaintiff brought this suit against Farm Bureau for underinsured motorist coverage. On September 10, 2003, plaintiff’s attorney wrote a letter to Farm Bureau’s counsel indicating that GMAC had offered its policy limits to plaintiff to settle plaintiff’s claim against Kobish on the condition that plaintiff sign a release of any claims plaintiff might have against GMAC and Kobish. Plaintiff’s attorney requested that Farm Bureau provided written consent to the proposed settlement. In its response, Farm Bureau outlined plaintiff’s duties under the policy and requested a creditor’s exam of Kobish. Plaintiff filed a motion to compel Farm Bureau’s written consent for her to settle with Kobish, which the trial court granted. Farm Bureau filed a motion for relief from the order regarding written consent to settle, arguing that under the policy, plaintiff agreed to preserve Farm Bureau’s subrogation rights. The trial court denied the motion. The Court of Appeals reversed, finding that the release would potentially negate defendant’s contractual right to pursue subrogation against Kobish.

On remand, Farm Bureau filed a motion for summary disposition arguing that plaintiff’s settlement and release violated several policy provisions, prejudiced Farm Bureau’s rights of subrogation, and excluded plaintiff’s claim for UIM coverage. The trial court denied the motion, finding ambiguity in the policy. The Court of Appeals disagreed, holding that the terms in the Farm Bureau policy do not conflict with one another and are not ambiguous. The policy contains an exclusion which provides this policy does not apply to “bodily injury to an insured with respect to which such insured, his legal representative or any person entitled to payment under this coverage shall, without written consent of the company, make any settlement with any person or organization who may be legally liable therefor.” The Extended Family Protection Coverage endorsement also provides “the insured may not settle with anyone responsible for the accident without the Company’s written consent.” The Court held that because plaintiff took action that triggered an exclusion from coverage under the policy, coverage is excluded. The Court also noted that Farm Bureau had a contractual right to have its insured join the tortfeasor because the policy conditions provide that “in any action against the company, the company may require the insured to join such person or organization as a party defendant.” The Court found that Plaintiff presented no valid argument to rebut the conclusion that she violated this provision. Under the policy, violation of this provision amounts to a failure to fulfill a condition precedent to Farm Bureau’s duty to provided coverage. The Court held that because plaintiff failed to fulfill a condition precedent to Farm Bureau’s duty to provide coverage, Farm Bureau’s duty to provide UIM coverage was not triggered.

[su_box title=”Kallas & Henk Note”] There are no statutory requirements in Michigan that insurers offer or provide uninsured or underinsured motorist coverage.  Consequently, unlike other states, the courts have held that insurers may limit the coverage as they see fit. [/su_box]


GHD Operating, LLC v. Emerson Prew, Inc.

Unpublished. Decided February 3, 2009 Michigan Court of Appeals Docket No. 278857.

Danvers purchased insurance for Chem Strip from Auto-Owners through defendant Lys, a licensed insurance agent employed by defendant Emerson Prew. Auto-Owners cancelled Chem Strip’s insurance effective September 2, 2002, because of the nature of its operations. Danvers then contacted Lys who assured him that he would secure an extension of coverage while he sought coverage through a different company. In January of 2003, Lys presented Danvers with a business insurance quote dated January 9, 2003 from St. Paul Property & Casualty. Danvers told Lys to purchase the policy and gave Lys a check for $6,125 to bind coverage. On January 14, 2003, Emerson Prew and Lys issued a certificate of property insurance to plaintiff confirming that Chem Strip had property insurance with St. Paul Insurance from January 9, 2003 through January 9, 2004. The certificate of insurance was signed by Emerson Prew’s principal. Because plaintiff’s check was not cashed by St. Paul Insurance and because Danvers did not receive a policy or premium invoices, he telephoned Lys several times through August of 2003. Lys repeatedly advised Danvers not to worry, Chem Strip was insured by St. Paul. On September 1, 2003, Lys left the employment of Emerson Prew and neither Emerson Prew nor Lys informed plaintiff of Lys’ resignation. On November 3, 2003, Danvers called Emerson Prew and talked with the office manager Ralph Petersen. Petersen advised Danvers that Chem Strip did not have insurance coverage and that the policy had never been issued. Danvers faxed Emerson Prew a letter indicating that he was in the process of obtaining insurance from a different company but, until such time as new insurance was effective, Chem Strip would consider Emerson Prew liable for any damages. On December 11, 2003, while in the process of securing coverage, a fire completely destroyed plaintiff’s premises. On July 20, 2004, plaintiff sued defendants for negligence, claiming that their failure to procure insurance coverage and timely advise plaintiff that it did not have insurance resulted in Chem Strip being uninsured when the fire destroyed the business. The jury found that Lys and Emerson Prew were negligent in handling plaintiff’s property insurance and that their negligence was a proximate cause of plaintiff’s loss. The jury also found that Chem Strip was comparatively negligent.

On appeal, defendants argue that plaintiff’s negligence claim must fail for lack of proximate cause because more than 30 days before the fire plaintiff terminated its relationship with defendants and plaintiff could have procured insurance through other agencies. The Court noted that it is a question of fact for the jury whether the relationship between Chem Strip and Emerson Prew was terminated on November 3, 2003. The Court also found that it was a question of fact whether Chem Strip could have obtained replacement cost insurance coverage between November 3, 2003 and December 11, 2003. Defendants argued that plaintiff’s expert’s testimony was not sufficient to support the jury award of $2,215,000. In an effort to establish the benefits that plaintiff could have recovered under the policy that defendants claimed to have procured, plaintiff presented the testimony of Shipper, an insurance consultant, appraiser, and public adjuster. According to Shipper, both the total replacement cost and actual cash value of plaintiff’s loss exceeded the $2,215,000 limit stated on the certificates of insurance. Defendants argued that because Shipper’s testimony was not based on the actual policy at issue and because he failed to produce the policy that he looked at containing the meaning of “actual cash value”, his testimony could not support the jury verdict. The Court of Appeals disagreed. The Court noted that no actual policy existed that could be produced and that Shippers testimony was based on personal experience with commercial insurance policies. Further, defendant’s own witness agreed that actual cash value is generally considered replacement cost less depreciation. The Court held that plaintiff met its burden of proving damages with reasonable certainty.

The defendants also argued that they were entitled to JNOV because plaintiff’s reliance on certificates of insurance that contained disclaimers was not reasonable. The Court disagreed. The Court noted that the certificates were given to plaintiff days after he tendered a check to defendants in the amount of $6,125. Plaintiff was repeatedly advised by Lys (which Lys admitted) that the policy and future billings could take months to arrive. The Court also noted that the provisions of the certificates of insurance, when reasonably read, indicate to the reader that the insurance policies for the limits stated, had been issued. The certificate stated “This is to certify that the policies of insurance listed below have been issued to the insured named above for the policy period indicated . . .” The Court also noted that the trial testimony supported plaintiff’s position that its reliance on the certificates of insurance was reasonable. The Supreme Court denied an application for leave to appeal.

[su_box title=”Kallas & Henk Note”] This is a curious opinion, the result of which may have been influenced by the performance of defendant’s attorney.  A footnote states: “Because defendants’ brief on appeal contains more sarcastic remarks than actual arguments supported by an accurate representation of the facts and apposite case law, it is difficult to discern the precise nature of defendants’ arguments on appeal.”  In addition, the opinion notes that defendant failed to raise the claim that no duty was owed to plaintiff and consequently, the Court of Appeals never addressed the argument (an obvious argument that should have been raised). [/su_box]


Farm Bureau Gen. Ins. Co. v. Dynamic Land, LLC

Unpublished. Decided February 24, 2009 Michigan Court of Appeals Docket No. 282072.

Defendant was in the process of renovating a commercial property when a pipe burst on January 30, 2005. Defendant filed a claim for lost business income including loss of rent and actual expenses in the amount of $288,181 for the 12 months after the incident. The property was comprised of 2 rental spaces. The first floor had been rented from December of 2003 until July of 2004, but was not rented at the time of the incident. The second floor had been rented on a month-to-month basis, but the lease expired at the end of December 2004. Therefore, the building was unoccupied at the time of the incident. Plaintiff brought a declaratory action and filed a motion for summary disposition asserting that any lost business income defendant suffered was not caused by the pipe break. Defendant argued that lost rents were due for 12 months because the building was untenantable for 12 months following the pipe break. The trial court granted plaintiff’s motion and denied defendant’s later motion for reconsideration.

On appeal, defendant argued that even if it did not show 12 months of lost income, the length of time the property was untenantable presents a question of fact. The Court of Appeals disagreed. The policy provides coverage for “the actual loss of business income sustained.” The trial court reasoned that defendant had not shown any compensable actual loss. Even if the building was not “vacant”, the trial court noted that under the policy “in determining rents, due consideration will be given to the rental experience before the date of damages.” There were no tenants at the time of the pipe break and defendant failed to show that the damage resulted in any tenants being unable to move in. The lower floor had only been rented for 6 months in the prior 5 years. There was no evidence of any anticipated tenants for this space. The second floor had been vacated at defendant’s request a month before the pipe break because he planned to make renovations to help sell the building. The Court noted that even if the loss had not occurred, defendant would not have had any rental income because the building had no tenants and the ongoing renovations made the building untenantable. The Court held that defendant failed to present any evidence that the pipe break caused it to lose any rental income that it otherwise would have received. The Court also held that defendant’s argument that it was occupying the building and is entitled to “fair rental value” failed because defendant did not show that it suffered an actual loss of income. The Court noted that defendant was not paying rent to itself or renovating the building in order to install new tenants.

[su_box title=”Kallas & Henk Note”] Right result, easy call for the Court of Appeals. [/su_box]

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