Michigan Coverage Decisions, Issue 128

Auto-Owners Ins. Co. v. Martin

Published. Decided June 16, 2009 Michigan Court of Appeals Docket No. 281482.

Martin was driving a vehicle with the permission of the owner, Grand Greenville, a used car dealership, when he was involved in an accident with Mapes. Martin was interested in purchasing the vehicle and the trial court determined that he was driving it with Grand Greenville’s permission. Grand Greenville had a garage liability insurance policy issued by Auto-Owners which provided garage liability coverage of up to $1 million. Martin was insured with State Farm which provided a $100,000 liability limit for each person. Auto-Owners filed a declaratory action seeking a determination as to the priority of coverage under Auto-Owners and State Farm’s policies. The trial court held that Auto-Owners was responsible for paying the first $20,000 on behalf of Martin under the No-Fault Act, State Farm was responsible for paying the next $100,000 under its policy insuring Martin, and Auto-Owners would be responsible for paying up to the next $980,000 pursuant to its coverage of Grand Greenville.

The Auto-Owners policy excluded coverage for “garage customers” with certain exceptions. The Court of Appeals found that the Auto-Owners policy violated the no-fault act. The Court noted that the no-fault act clearly directs that a policy sold pursuant to the act must provide residual liability coverage for use of the insured vehicle. The Court noted that vehicle owners are required to provide primary coverage for their vehicles and all permissive users of their vehicles, and any attempt to shift liability away from the owner to the driver violates the no-fault act. The Court held that the exclusionary clause was ambiguous in light of the fact that Auto-Owners knew, or should have known, for at least 8 years prior to issuing the policy, that its attempt to exclude garage customers (a subset of permissive users) from coverage violated the no-fault act, yet it still included the exclusion in the policy. Therefore, the Court found that the policy must be construed in favor of the insured and provide coverage of policy limits to both the owner of the vehicle and its permissive users. The Court of Appeals reversed and remanded to the trial court for a grant of summary disposition in favor of State Farm and Martin, and a declaratory judgment that Auto-Owners is primarily liable for Martin’s use of Grand Greenville’s vehicle, up to its $1 million policy limit. The Court noted that State Farm is only liable on an excess basis after Auto-Owners’ coverage has been exhausted, and that Auto-Owners was obligated to defend Martin in the underlying action and State Farm is entitled to reimbursement for those defense costs.

[su_box title=”Kallas & Henk Note”] Where a policy provision is in conflict with a mandatory coverage provision, the Michigan insurance code provides that the policy will be deemed to be amended to conform with the statutory provision. It is not uncommon to see standard forms that conflict with statutory provisions, particularly in Michigan with its extensive no-fault act. [/su_box]


Mosher v. Essex Ins. Co.

Unpublished. Decided June 16, 2009 Michigan Court of Appeals Docket No. 279135.

In August of 2002, Essex issued a CGL policy to Vision d/b/a Wild Woody’s Chill & Grillin April of 2003, plaintiffs’ decedent, Verschure, was struck and run over in the parking lot of Wild Woody’s by a vehicle driven by Elassal. The accident occurred shortly after a confrontation in the parking lot between Elassal, Verschure and Verschure’s friend, Flora. Employees of Wild Woody’s began running at Elassal. Elassal ran to his car, put it in reverse, and “floored” it to leave the parking lot. Elassal hit and ran over Verschure who had left Flora’s car. Verschure died from his injuries.  Elassal was charged with manslaughter with a motor vehicle and assault and battery. He pled guilty to attempted manslaughter. Plaintiffs filed a wrongful death action against Vision alleging that Wild Woody’s employees negligently caused Elassal to attempt to flee the parking lot causing Elassal to accidentally kill Verschure, and that the employees negligently failed to call the police before the altercation escalated to the point resulting in Verschure’s death. Essex refused to defend or indemnify Vision. Subsequently, Vision entered into a consent judgment with plaintiffs and conveyed to plaintiffs their rights to a breach of contract cause of action against Essex. Plaintiffs allege that the claims brought in the wrongful death action were covered occurrences within the meaning of the CGL policy. Essex filed a motion for summary disposition which was denied by the trial court.

The Court of Appeals found that the auto exclusion eliminates any coverage for liability for bodily injury resulting from any automobile The exclusion in the CGL policy provides “This insurance does not apply to bodily injury . . .arising out of, caused by or contributed to by the ownership, nonownership, maintenance, use or entrustment of others of any auto.” The Court held that the exclusion does not require the insured to be the one using the auto involved, rather, the exclusion indicates that there is no coverage for any bodily injury caused by, among other things, the use of any auto. The Court of Appeals found that there was no coverage for the liability arising out of Verschure’s death and remanded for entry of summary disposition in favor of Essex.

[su_box title=”Kallas & Henk Note”] Plaintiff argued that the auto exclusion should not eliminate coverage because of the specific allegations that non-auto related actions by the insured cause the incident. The Court of Appeals relied on the Court decision in Vanguard v Clarke which rejected coverage under a dual causation theory. The Supreme Court in Vanguard held that if any exclusion applies to eliminate coverage, coverage is not resurrected because of alternative theories of recovery. [/su_box]


Auto Club Group Ins. Co. v. Mitchell

Unpublished. Decided June 18, 2009 Michigan Court of Appeals Docket No. 284335.

Mitchell was insured under a homeowner’s policy issued by plaintiff. A 15-year old boy named Cody lived with Mitchell. Cody took a rifle and bullets from Mitchell’s home and went into the woods with a friend, Marissa King. Cody, apparently believing that the gun was not loaded, pointed the gun in King’s direction and said “you’re lucky this isn’t loaded” or “the gun’s not working.” The gun fired and a bullet struck King in the abdomen. Cody pled nolo contendere to the charge of maiming or injuring by discharge of a firearm pointed or aimed intentionally, without malice, at another. A civil lawsuit was filed against Mitchell for negligent supervision and/or entrustment arising from the shooting. Plaintiff advised Mitchell that his policy would not provide coverage for the shooting, but plaintiff agreed to defend Mitchell under a reservation of rights. Plaintiff then filed this declaratory action, and subsequently, a motion for summary disposition. The motion for summary disposition argued that even if the shooting was an “occurrence”, coverage was precluded by the “criminal act” and other exclusions Mitchell argued that the shooting was “accidental” and not criminal in nature.  The trial court held that plaintiff had no duty to defend or indemnify its insured in the underlying action. The trial court held that reasonable minds could not differ in finding that Cody’s actions constituted a “criminal act”.

The Court of Appeals affirmed. The policy excludes coverage for bodily injury resulting from “a criminal act or omission committed by anyone” or “an act or omission, criminal in nature, committed by an insured person”The exclusion applies whether or not anyone is charged with a crime, convicted of a crime, or enters a plea of guilty. The trial court held that there was no genuine issue of material fact that Cody’s actions violated a criminal statute which requires that a firearm be carelessly, recklessly, or negligently discharged causing death or injury. The Court of Appeals agreed. The Court noted that Cody knew the gun had a malfunctioning magazine, yet he continued to load it will bullets, and allowed it to be pointed in the victim’s direction. The Court held that there was no genuine issue of material fact that the shooting was a criminal act.

[su_box title=”Kallas & Henk Note”] This decision is consistent with prior Michigan decisions. While not necessary to the decision, the facts in this case would likely constitute an “occurrence” because the shooter did not know the gun was loaded and/or did not believe it was working. The policy criminal acts exclusion, however, eliminates coverage by virtue of the negligent discharge of a firearm. [/su_box]


Great Northern Ins. Co. v. Ngo

Unpublished. Decided June 25, 2009 Michigan Court of Appeals Docket No. 285569.

Defendant Ngo owned and operated a nail store. On March 30, 2005, an employee of Ngo stole 2 diamond rings that belonged to a customer who was insured by plaintiff. Ngo was insured under a business liability policy issued by Farm Bureau. Ngo’s employees were also insureds under the policy the employee was convicted of two counts of larceny for the theft of the rings. Plaintiff filed a complaint against Ngo for the theft of the rings alleging that he was negligent for failing to take measures to ensure the rings were not stolen. By way of consent judgment, Ngo admitted the allegations in the first amended complaint and assigned to plaintiff any rights he may have under the policy.  Plaintiff filed a writ of garnishment against garnishee defendant, Farm Bureau. Farm Bureau moved for summary disposition on the grounds that there was no accident and, alternatively, the intentional and criminal acts exclusion barred coverage. The trial court granted Farm Bureau’s motion and held that there was no “occurrence” or accident since the rings were stolen. Plaintiff argued that whether an “accident” occurred should be viewed from Ngo’s standpoint, not from that of the employee who stole the rings, because Ngo did not intend the employee’s act.

The policy provided “We will pay . . .all sums which the Insured becomes legally obligated to pay as damages because of . . .property damage caused by an occurrence to which this insurance applies.” “Occurrence” is defined as an “accident”The Court of Appeals noted that in determining whether an accident occurred, the incident must be viewed from the standpoint of the insured actor who caused the injury. The Court held that there was no coverage because the theft of the rings by Ngo’s employee, who was an insured under the policy, was clearly intentional, and was not an “accident” as required by the policy.

[su_box title=”Kallas & Henk Note”] The outcome of this case appears to hinge on the fact that the employee that stole the rings was also an insured under the policy the outcome may be different in a circumstance where the theft was by someone not included under the definition of “who is an insured”. [/su_box]

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