Michigan Coverage Decisions, Issue 130

Firstbank Corp. v. Wolverine Mut. Ins. Co.

Unpublished. Decided August 13, 2009 Michigan Court of Appeals Docket No. 285850.

A fire partially damaged a residence owned by the Hillikers and subject to a $140,000 mortgage held by Plaintiff. The home was insured by defendant and the declarations page identified the Hillikers as the “named insureds” and the Bank as a “mortgagee.” The actual cash value of the house was $119,127.13 and the estimated replacement cost was $185,859.51. The Hillikers decided to replace the house and the insurer issued an initial check to the Hillikers for $119,127. After the initial check was issued, the Bank requested that the insurer include the Bank as a payee on additional checks. The insurer admitted the Bank should have been included as a payee on the check but rejected the Bank’s claim that the insurance proceeds be used to satisfy the mortgage. The Bank filed suit alleging it had a right to use the insurance proceeds to pay off the mortgage and that the “Mortgage Clause” provision within the policy required the insurer to include the Bank as a payee of the check. The trial court held that a mortgagee has no right to dictate whether an insured is paid actual cash value or rebuilds the damaged structure. The trial court also held that the insurer complied with the terms of the policy and properly settled the loss.

The Court of Appeals held that the Bank was entitled to be named as a payee to the insurance proceeds. The “Mortgage Clause” provides “If a mortgagee is named in the policy, any loss payable under Coverage A or B will be paid to the mortgagee and you, as interests appear.” The Court held that because there was a loss payable under Coverage A, the policy obligates the insurer to pay the Bank and the Hillikers. The Court held that the Bank is a third party beneficiary of the insurance policy. The Court found that the insurance policy does not state that the insurer must provide the Hillikers a replacement home, rather it provides that the insurer must pay the cost of a replacement home. The Court also held that the Bank is not entitled to use the insurance proceeds to satisfy the mortgage under the terms of the insurance policy.

[su_box title=”Kallas & Henk Note”] This case illustrates practical problems created by the precipitous drop in home values. In this case, the Bank was concerned that the value of its security (residence) was continuing to drop. It appears that the Bank wanted to use all proceeds of the insurance coverage to pay down the mortgage. Obviously, if this was done, the property would not be rebuilt.

Despite the ruling by the Court of Appeals, the insurer in this case remains exposed. The Court of Appeals remanded to the trial court for a determination of whether the mortgage documents give the Bank the right to apply the insurance proceeds to the mortgage. The Court also suggested that the way for the insurer to avoid the risk of double payment under the policy would be to interplead the policy limits to allow the Bank and the insured to litigate how the proceeds should be distributed. [/su_box]


Abay v. DaimlerChrysler Ins. Co.

Unpublished. Decided August 13, 2009 Michigan Court of Appeals Docket No. 283624.

A vehicle driven by Brooks collided with a vehicle driven by Abay, causing Abay’s death. In the underlying action, plaintiff alleged claims against Brooks and Lee, the owner of the vehicle Brooks was driving. Plaintiff filed a declaratory action against defendants DCIC, DaimlerChrysler, Brooks, and Brooks’ father, Trent. Brooks allegedly lived with Trent. Trent, a DaimlerChrysler retiree, leased a car from DaimlerChrysler which was insured by DCIC. The trial court found ambiguity in the policy stating that it contains both an individual named insured endorsement and a listed named insured business entity as the sole named insured. The trial court granted summary disposition in favor of plaintiff finding that liability coverage was extended to non-owned autos operated by Trent or his resident family members, including Brooks, because of an endorsement.

The Court of Appeals noted that the policy references to “you” are references to the named insured DaimlerChrysler. The definition of “insureds” includes (a) “you” as defined by the policy; (b) with exceptions, anyone else while using with your permission a covered ‘auto’ you own, hire or borrow . An endorsement to the policy states the changes within it apply if “you” are an individual. Because the “you” is not an individual, the endorsement does not apply. The Court found that the trial court erred in creating ambiguity where none exists and looking outside of the policy language. The Court noted that the policy does not extend to Trent or his family members when such persons use an automobile not owned by DaimlerChrysler, as provided in the endorsement. Therefore, coverage does not extend to Brooks. The dissent found that the policy’s definition of “you” as the “named insured” when applied in this policy results in violations of the no-fault act and must be rewritten to define “you” as “Daimler Chrysler Corporation and/or the person to whom DCCC leases the vehicle.”

[su_box title=”Kallas & Henk Note”] The Supreme Court has granted application for leave to appeal so they are likely to address the question of whether the policy as written is consistent with the requirements of Michigan law. If any provision of an insurance policy is inconsistent with the statutory requirement, the policy is deemed amended to provide coverage consistent with the statute. [/su_box]


Utica Mut. Ins. Co. v. Hastings Mut. Ins. Co.

Unpublished. Decided August 25, 2009 Michigan Court of Appeals Docket No. 281441.

A fire destroyed a residential property insured by defendant under a policy issued to the titleholder, Clifton. The Robinsons lived in the farmhouse on the property and had a land contract with the Cliftons. Clifton was the named insured, but the Robinsons paid the insurance premiums. Defendant determined that Clifton, as land contract vendor, was only entitled to receive his remaining interest under the land contract, not the policy limits, and that contents were not covered under the policy. Cliftons agreed to assign to plaintiff his rights under defendant’s policy. Plaintiff brought an action seeking coverage under the policy. The trial court denied defendant’s motion for summary disposition and granted plaintiff’s cross-motion for summary disposition.

The Court of Appeals, relying on Wilson v. Fireman’s Ins. Co. of Newark, New Jersey, held that the policy covered the residence and the premiums were based on it, not on the secured debt. The Court noted that there was no increased risk as a result of the land contract. The Court held that Clifton was entitled to the policy limit for the residential coverage.

[su_box title=”Kallas & Henk Note”] The defendant in this case took the seemingly rational position that Clifton’s loss could not exceed the remaining balance on the land contract. The Court of Appeals, held, however, that the terms of the contract required defendant to pay the loss as described in the contract-the value of the destroyed residence. One would assume that, under these circumstances, the buyer under the land contract would have an equitable action against Clifton for that portion of the insurance proceeds that represented their accumulated value. This could depend, however, on the terms of the land contract and whether it addresses what happens in the event of a total loss before the land contract is completed.  [/su_box]


Liberty Mut. Fire Ins. Co. v. Stoutenburg

Unpublished. Decided September 3, 2009 Michigan Court of Appeals Docket No. 286106.

After an altercation between Stoutenburg and Dimitrijevski, Stoutenburg ordered Dimitrijevski to leave his house, however, Dimitrijevski refused. Stoutenburg retrieved a gun from the house and returned to the porch, holding it pointed at the ground. The gun discharged and a bullet ricocheted off the ground and stuck Dimitrijevski in the ankle. Stoutenburg plead guilty to intentional discharge of a firearm and discharge of a firearm while under the influence of intoxicants causing serious impairment of a bodily function. Dimitrijevski filed suit against Stoutenburg for his injuries, and Stoutenburg filed a claim with plaintiff, plaintiff initiated this declaratory action claiming it had no duty to defend or indemnify Stoutenburg because the shooting was not an “occurrence”. The trial court granted summary disposition to plaintiff.

The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The Court of Appeals held that judicial estoppel precluded Stoutenburg from asserting that the firing of the fun was accidental. The Court noted that he was convicted by guilty plea of intentional discharge of a firearm and therefore, the intent element of the offense was satisfied and necessarily accepted as true. For him to assert that he did not intentionally fire the gun because he was unaware that it was loaded is wholly inconsistent with his guilty plea in the prior proceeding. Further, given his conviction by guilty plea, his position was successfully asserted in the prior criminal proceeding. The Court held that there was no genuine issue of material fact that Stoutenburg should have reasonably expected the harm resulting from firing a gun at Dimitrijevski’s feet and the trial court did not err in finding that Stoutenburg’s actions failed to constitute an “occurrence”. The concurrence wrote separately to state that judicial estoppel is an exceptional remedy and should not serve as a preclusive bar to all facts associated with plea-based convictions.

[su_box title=”Kallas & Henk Note”] The outcome of this case turned in large part on the acceptance by the court of the fact that the intentional discharge of the firearm in close proximity to people was likely to result in injury. Another judge or another panel of the Court of Appeals could easily have found that the discharge of the firearm into the ground was not likely to result in injury.  [/su_box]

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