Michigan Coverage Decisions, Issue 129

Auto-Owners Ins. Co. v. Keizer-Morris, Inc.

Published. Decided June 25, 2009 Michigan Court of Appeals Docket No. 284753.

While performing construction activities, Appellant was injured by an equipment explosion. Defendant manufactured and sold the equipment to appellant’s employer. Appellant filed suit against defendant for breach of warranty and negligence. Defendant attempted to turn its defense over to its insurer, plaintiff, but plaintiff denied coverage. Plaintiff filed a declaratory action that it had no duty to defend or indemnify defendant. Appellant sought to intervene in the declaratory action as a necessary party because defendant was dissolved or defunct and his rights would be affected if defendant lacked insurance coverage. The trial court denied the motion and denied reconsideration. The trial court then granted plaintiff’s motion for summary disposition.

The Court of Appeals agreed with appellant that his ability to recover damages from defendant depended on defendant’s having insurance coverage for the accident. Plaintiff argued that appellant was merely an incidental beneficiary under the policy and had no right to participate in the coverage litigation. The Court noted that “the injured party in an insurer’s action for declaratory judgment is a proper party to that action” and has standing to intervene. The Court also found that defendant did little to contest plaintiff’s position and inadequately represented appellant’s interests. Defendant did not oppose plaintiff’s motion for summary disposition and did not appear in the matter. The Court held that appellant was entitled to his own vigorous advocacy on the question of whether there was coverage under the policy. The Court reversed the trial court’s decision not to allow appellant to intervene and remanded the case to the trial court.

[su_box title=”Kallas & Henk Note”] In reaching its decision, the Court distinguished the Supreme Court decision of Schmalfeldt v North Pointe, 469 Mich 422 (2003) on the facts. In Schmalfeldt, the case relied on by the plaintiff, the Court held “only intended, not incidental, third-party beneficiaries may sue for a breach of a contractual promise in their favor.” The Court in Schmalfeldt also reaffirmed long-standing Michigan law that an injured person not named in an insurance contract is not a third-party beneficiary to the contract.

The holding of this decision is limited to its factual scenario where an injured party move to intervene in a coverage action between the insurer in its insured. This case does not address whether an insurer must named an injured third-party in a declaratory action to determine rights and obligations under the insurance contract. It holds only that where an injured third-party seeks intervention in the declaratory action, the court rules require that the trial court granted the motion to intervene. [/su_box]

 

Progressive Michigan Ins. Co. v. Super Kicker Rodeo Productions

Unpublished. Decided July 14, 2009 Michigan Court of Appeals Docket No. 286455.

The Johnston’s owned Super Kicker. Hart is the Johnston’s niece. On the day of the accident, Hart and the guys were tearing down the chutes used for receiving bulls or horses. Hart testified that she did not have any involvement in the loading of the panels, only in the disassembly thereof. Cody was on top of the trailer tying the panels. Hart was walking around the end of the trailer when the panels fell on her. Hart filed the underlying lawsuit against Super Kicker for injuries she sustained while “helping” at the rodeo. Hart explained that she just helped out whenever she was needed, she was not paid a salary, and she would have helped out irrespective of whether she received any money. Plaintiff, Progressive, filed a declaratory action on the basis that it owed no duty to indemnify or defend Super Kicker. Super Kicker filed a third-party action against ACE seeking a declaratory judgment that ACE was obligated to defend and indemnify defendants. It was undisputed that Super Kicker was generally covered by insurance policies with both insurers and that the injury was generally covered by both insurance policies. The trial court found a genuine issue of fact as to whether Hart was an employee for the purposes of certain policy exclusions for employees and denied summary disposition to the extent the insurers relied on those exclusions. The trial court also found there was no genuine issue of fact that Hart was “loading or unloading” the trailer for purposes of each policy’s exclusion relating to loading or unloading. The trial court granted summary disposition in favor of plaintiff and third-party defendant ACE.

The Court of Appeals noted that whether Hart was “loading or unloading” is irrelevant under the ACE policy because it covers injuries “arising out of the ownership, maintenance, use or entrustment to others of any. . .auto . . .owned or operated by or rented or loaned to any insured.” The policy defined “use” as including “loading or unloading”. The policy defined “auto” as including a trailer. The Court noted that Hart’s injury resulted from the use of an auto and the exclusion applied as to ACE. The exclusion that the trial court relied on in Progressive’s policy applied to injuries “resulting from anyone who is not [Super Kicker’s] employee loading or unloading an auto.” The definition of “auto” included the trailer. The Court held that Hart was not engaged in the loading process. The Court noted that Hart’s role was disassembly of the panels and stacking those panels. Although the ultimate goal was to move those panels onto the trailer, Hart’s activities were not incidental to or necessary for the movement itself. Further, the Court noted that the exclusion does not depend on who or what is injured, rather the exclusion depends on the cause of the injury (a non-employee engaging in loading or unloading). The alleged proximate cause of Hart’s injury was the result of the actions of an employee rather than a non-employee. The Court held that the trial court erred in granting summary disposition to Progressive on the basis of the policy exclusion for injuries “resulting from anyone who is not [Super Kicker’s] employee loading or unloading an auto.” The Court agreed with the trial court that there is a question of fact as to whether Hart was an employee and therefore the trial court correctly declined to grant summary disposition as to any matter dependent on whether H art was an “employee”.

[su_box title=”Kallas & Henk Note”] The outcome of this case appears to be very results oriented. Apparently, this panel of the Court of Appeals did not want to leave a very seriously injured person without any insurance recovery. This decision also adds increasing confusion over the question of what constitutes an employee for purposes of policy exclusions. In this case, despite the fact that the injured person clearly provided services for a business, was paid for those services and did not operate an independent business (as an independent contractor), the Court held that it was a question of fact for the jury to decide if she was an employee. [/su_box]

 

Citizens Ins. Co. of America v. Ladi

Unpublished. Decided July 21, 2009 Michigan Court of Appeals Docket No. 283557.

In 1997, an accident occurred at a fireworks show. Davis, the president of Fireworks North, a non-profit corporation, performed the show. Davis was also a partial owner of Second Chance Body Armor, a for-profit corporation. Davis did not obtain liability insurance for Fireworks North but he personally had a homeowner’s policy through Citizens and an umbrella policy through Auto-Owners. Numerous individuals sued Davis for injuries they received following the accident. Davis contacted Citizens and Auto-Owners and asserted that they each had a duty to defend him . Auto-Owners provided Davis with a defense and Citizens filed a declaratory action seeking a declaration that it had no duty to defend. Auto-Owners intervened in the declaratory action, arguing that Citizens was required to defend Davis and to reimburse Auto-Owners for the cost of defense provided. Each party filed a motion for summary disposition. The trial court granted summary disposition in favor of Citizens finding that Citizen s had no duty to defend Davis under the homeowner’s policy.

The Court of Appeals affirmed. The Court held that based on the face of the underlying complaint, Davis was not entitled to coverage. Citizens relied on two exclusions. The “business engaged in” exclusion provides that coverage is not available for personal injury or property damage arising out of or in connection with a ‘business’ engaged in by an ‘insured’. The Court noted that the policy’s definition of “business” is not dependent on profit motive. Coverage was not available to Davis because the alleged injuries were the result of Davis engaging in business through Fireworks North and Second Chance. The trial court also held that the underlying complaint established that Davis was engaged in “professional services”. The Citizens policy excludes coverage for injuries that are the result of professional services. The Court consulted dictionary definitions and held that the term “professional services” should be understood as meaning a service that is reserved for individuals with extensive training in the relevant field. The Court found that purchasing large-scale fireworks, designing a launch system, and igniting fireworks at the request of a municipality constitutes services that are reserved for professionals. The Court noted that the fact that Davis chose to engage in a service reserved for professionals rendered the resulting injuries excluded from coverage.

[su_box title=”Kallas & Henk Note”] This is another fact driven decision. Another panel could easily have decided that the activity in this case was not a business engaged in by the insured and not professional services. [/su_box]

 

Couture v. Farm Bureau Gen. Ins. Co.

Unpublished. Decided August 6, 2009 Michigan Court of Appeals Docket No. 283404.

Rodney Daniels purchased no-fault insurance from Lansky, an agent for Farm Bureau. The initial application included primary medical coverage and had bodily injury coverage in the amount of $20,000 per person and $40,000 per occurrence. Rodney went to Lansky several times to adjust the vehicles covered under the policy and to lower his monthly payments. Rodney authorized Lansky to do whatever it takes to lower his premium.  A policy was issued on July 27, 2006 which made Rodney’s medical coverage excess rather than primary and increased his coverage to $300,000 per person and per occurrence. Rodney did not really examine the policy. Subsequently, he changed vehicles on the policy and an amended policy was issued August 2, 2006 retaining the excess medical and $300,000 bodily injury coverage. On August 12, 2006, Rodney’s wife was in an accident with Thomas Couture, who died from his injuries. After the accident, plaintiff obtained a statement from Farm Bureau indicating that Rodney had $300,000 in coverage. Subsequently, Lansky testified that someone from Farm Bureau’s home office told him that there was an apparent keying error with the Daniels’ policy and that it erroneously amended coverage from $20,000 to $300,000 and changed the medical from primary to excess. Lansky testified that his office did not originate the change. Farm Bureau notified plaintiff that coverage was not $300,000, but was $20,000. Plaintiff sued Farm Bureau for declaratory relief and asked the court to declare that the policy provided $300,000 in coverage. Farm Bureau filed a cross-claim against the Daniels asserting that the amendment that increased coverage was the result of mutual mistake and asked the court to reform the contract to reflect $20,000 in coverage. The trial court concluded the change in coverage was the result of mistake, reformed the contract, and declared that the applicable coverage was $20,000.

The Court of Appeals held that Farm Bureau failed to present sufficient evidence to establish its right to reformation. Farm Bureau alleged that it was entitled to have the contract reformed to provide for $20,000 in coverage rather than $300,000 on the basis of mistake. The Court held that the trial court erred when it found that the amendment to coverage was the product of mutual mistake. The Court noted that Rodney was not mistaken about the coverage limit – he just did not care one way or another. The Court held that therefore, any mistake was unilateral and because there was no evidence of fraud or inequitable conduct on Rodney’s part, such a mistake did not warrant reformation. The Court held that because Farm Bureau failed to establish the grounds for reforming the contract on the basis of mistake, the terms must be enforced as written. Justice Zahra dissented, finding that there was more than sufficient evidence to support a finding of mutual mistake. The dissent relied on the fact that Rodney never requested the change in coverage from $20,000 to $300,000, he believed that the policy gave him only $20,000 in coverage, and Lansky never initiated a change in coverage.

[su_box title=”Kallas & Henk Note”] The Supreme Court has since reversed the judgment of the Court of Appeals for the reasons stated in the dissenting opinion and reinstated the declaratory judgment entered by the trial court (Docket No. 139676, decided 1/22/10). [/su_box]

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