Michigan Coverage Decisions, Issue 125

Aladdin’s Carpet Cleaning, Inc. v. Farm Bureau Gen. Ins. Co.

Unpublished. Decided February 26, 2009 Michigan Court of Appeals Docket No. 278605.

After Earns’ home was damaged by water, he contacted his homeowner’s insurance company, which retained plaintiff to remediate the water damage. Earns filed a complaint alleging that plaintiff had “failed to use proper methods to prevent cross-contamination of dangerous potentially toxic mold throughout the home and in fact caused cross-contamination.” Earns’ alleged negligence, misrepresentation, and violation of the Michigan Consumer Protection Act (MCPA). Plaintiff contacted its general liability carrier, defendant Farm Bureau, and asked defendant to defend it in the Earns litigation. Defendant concluded that it was not obligated to defend plaintiff under either plaintiff’s Guardian Policy or plaintiff’s Commercial Umbrella Liability Policy. The Earns litigation was eventually settled and dismissed. Plaintiff filed the present action alleging that Farm Bureau breached the insurance contract by failing to defend plaintiff and pay its litigation costs in the underlying action. The circuit court determined that defendant Farm Bureau owed plaintiff a duty to defend in the underlying action and found that the alleged mold contamination was an occurrence covered by the Commercial Umbrella Liability Policy.

Defendant argued that the circuit court erred in finding that it had a duty to defend plaintiff in the underlying action. The Court of Appeals disagreed. The Commercial Umbrella Liability Policy provided that with respect to any occurrence not covered by the underlying insurance Farm Bureau will defend any suit against the Insured seeking damages on account of personal injury, property damage or advertising liability. Plaintiff’s Guardian Policy was listed as an underlying insurance policy and it contained an exclusion for damage caused by or resulting from “any type or form of fungus, including mold or mildew . . .” The Court held that Earns’ allegations of negligence against plaintiff satisfied the definition of an “occurrence.” Earns did not allege that the actions or inactions by plaintiff were intentional nor did Earns allege that any of the mold damage should have been expected. Rather, Earns alleged that plaintiff failed to take adequate precautions to prevent the alleged mold contamination. The policy defined “occurrence” as: “an accident, including continuous or repeated exposure to conditions, which results in personal injury, property damage, or advertising liability and which is neither expected nor intended from the standpoint of the insured.” Although the policy did not define “accident”, the Court recognized that Michigan courts have held that an accident is “an undesigned contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated, and not naturally to be expected.” The Court held that neither the MCPA claim nor the misrepresentation claim described an “occurrence”. However, the Court held that Earn’s negligence claim at least arguably alleged an “occurrence.” The Court noted that there was no admissible evidence to suggest that the alleged mold damage should have been anticipated or foreseen by plaintiff and held that unless there is a specific exclusion for mold-related damage, defendant had a duty to defend plaintiff in the underlying litigation. The Court held that there was no provision in the Commercial Umbrella Liability Policy that expressly excluded coverage for the alleged mold-related damage. The Court declined to express an opinion concerning whether the mold alleged in this case was or was not a “pollutant” within the pollutant exclusion in the policy, because the question presented was limited to determining whether the alleged mold contamination could arguably have been covered by the policy. The Court also held that because the damages due to plaintiff as a result of defendant’s breach of duty to defend were not liquidated or otherwise certain, the court was required to hold a trial on the issue of damages before entering an award of damages for plaintiff.

[su_box title=”Kallas & Henk Note”] The Court of Appeals’ treatment of the pollution exclusion in this case is difficult to rationalize.  They acknowledge the presence of the pollution exclusion in the umbrella policy but state that the determination of whether mold is a pollutant is unnecessary to the decision.  In our view, if mold is a pollutant under the definition contained in the policy (and we believe that it is), the exclusion would be applicable and therefore there should be no coverage and no duty to defend. [/su_box]


Smith v. Farm Bureau Ins. Co.

Unpublished. Decided March 5, 2009 Michigan Court of Appeals Docket No. 281034.

Plaintiff was insured by defendant at the time her house was destroyed by fire. Defendant denied coverage based on an alleged fraudulent statement made by plaintiff in her claim. Defendant argued that the trial court should have granted it JNOV because reasonable minds could not differ regarding whether plaintiff made a fraudulent statement. The Court of Appeals disagreed. The insurance policy permits defendant to void coverage if the insurer “intentionally conceals any material fact or circumstance.” The Court noted that it was not disputed that the inventory accompanying the sworn statements of loss included items that did not belong to plaintiff. Therefore, the Court found that the element of falseness was satisfied. The Court also held that the value of the property claimed by plaintiff was relevant to the investigation and therefore, was material. The public adjuster who inventoried the lost property testified that the items in question amounted to approximately $900-$1000. The Court noted that in order to prevail on a defense of false swearing, defendant must prove that the statement was made with the intent to defraud. The trial court noted that the intent to defraud was not present because plaintiff admitted during her examination under oath, prior to the submission of the revised sworn statement, that some of the items listed on the form were not her own possessions. The trial court also noted the defendant failed to take this opportunity to go through the list of items and ask which ones belonged to plaintiff. The Court held that because plaintiff admitted to the discrepancies both at her examination under oath and at trial, a reasonable juror could find that she entered the sworn statement without the intent to defraud. The Court also held that the $900-$1000 difference the amount claimed and the amount plaintiff lost is negligible enough that a reasonable juror could conclude that the revised statement was not submitted with the requisite intent to deceive.

Defendant also alleged that the trial court committed error requiring reversal when it denied defendant’s motion for remittitur because evidence produced at trial regarding the value of the home did not support the jury verdict of $147,000. The Court of Appeals agreed. The Court noted that the insurance policy covers replacement using new material of like kind and quality. The Court held that because plaintiff has not repaired or replaced the lost property she is only entitled to receive its actual cash value. The Court noted that the only evidence offered to prove the actual cash value of the home was the testimony of Mark Amos who stated that it had a value of $110,000 at the time that he sold it to plaintiff. Therefore, the Court of Appeals remanded the case to the trial court for a remitter of the verdict reflecting the actual cash value of the home to be $110,000.

[su_box title=”Kallas & Henk Note”] This appears to be results oriented decision.  The Court undoubtedly felt that a complete denial of the otherwise valid claim as a result of false statements related to a small portion of the claim was unduly harsh. [/su_box]


Holliday v. Pioneer State Mut. Ins. Co.

Unpublished. Decided March 5, 2009 Michigan Court of Appeals Docket No. 281319.

Plaintiff alleged that wind blown water infiltrated his roof during a storm and caused his loss. Plaintiff submitted bills for his roof repair and for repairs to the walls and ceilings in the house. The trial court held that plaintiff was not entitled to coverage under the Landlord Furnishings section or the Personal Property section. The Court noted that the Landlord Furnishings paragraph applies to appliances, carpeting, and other household furnishings in an apartment on the premises. The Court stated that plaintiff did not request reimbursement for any damage to anything but his own residence. The Court also found that the Personal Property section did not apply because plaintiff did not make any claims for personal property.

The Court of Appeals held, alternatively, that an exclusion applied. The policy excludes coverage for any seepage/leakage of water that continues over a period of weeks, months, or years. Plaintiff alleged his loss occurred as a result of strong winds that created an opening in his roof and allowed rain to enter the home. In support of its motion for summary disposition, defendant included affidavits and an engineer’s report demonstrating that the roof had been leaking for a long period and that the damage was long-term because the roof and attic showed signs of advanced decay and mold. The engineer determined that the water damage and mold in the attic were the direct result of defective construction and ongoing deterioration. The engineer did not find any evidence that the damage to the roof covering was wind-related. The Court noted that plaintiff did not submit any evidence to refute defendant’s motion. The Court held that there was no material factual dispute that plaintiff’s loss was excluded from coverage because it was a result of “constant or repeated seepage or leakage of water or the presence of condensation or humidity, moisture, or vapor, over a period of weeks, months or years.”

[su_box title=”Kallas & Henk Note”] Both the trial court in Court of Appeals appeared to have reached the right result based on a fact driven analysis. [/su_box]


Mclaren v. Emcasco Ins. Co.

Unpublished. Decided March 17, 2009 Michigan Court of Appeals Docket No. 277582.

Plaintiff alleged that he suffered cervical and lumbar injuries in an auto accident in January of 2004. Plaintiff’s medical records show that he had a history of cervical and lumbar conditions before the accident. Because the other driver was uninsured, plaintiff brought this action against his insurer under the uninsured motorist provision of his policy. The trial court granted defendant’s motion for summary disposition because plaintiff failed to provide evidence to establish that the accident caused his injuries.

Plaintiff alleged that the symptoms he experienced after the accident were different and more severe than his symptoms before the accident. Plaintiff also alleged that the post-accident treatments he received, including a cervical fusion, demonstrate a causal connection between the accident and his conditions. The Court of Appeals disagreed. Recovery is allowed for pre-existing conditions if the trauma caused by the accident triggered symptoms from that pre-existing condition. The Court noted that the fact that plaintiff’s symptoms became worse after the accident does not, in and of itself, establish that the accident caused the worsened symptoms. The Court found that there is no medical documentation or expert testimony indicating that the accident triggered an exacerbation of plaintiff’s symptoms. The Court held that plaintiff’s claim that defendant admitted causation in plaintiff’s previous PIP lawsuit against defendant is unavailing because the causation standard in a PIP action is distinct from the proximate cause standard applicable in this action.

[su_box title=”Kallas & Henk Note”] The outcome of this case appears to be the result of Plaintiff’s failure to present medical or expert testimony related to causation.  By implication, the court found that Plaintiff’s testimony that his symptoms increased following the accident was insufficient in the absence of medical testimony. [/su_box]

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