Michigan Coverage Decisions, Issue 132

Nixon v. Farm Bureau Gen. Ins. Co. of Michigan

Unpublished. Decided October 1, 2009 Michigan Court of Appeals Docket No. 285343.

Defendant denied plaintiff’s claim under a homeowners’ insurance policy after a fire damaged plaintiff’s house. Defendant denied the claim on the basis that plaintiff made misrepresentations and that the fire was intentionally set by plaintiff or persons in privity with plaintiff. Plaintiff’s complaint alleged that defendant had no basis to deny her claim and its denial constituted a breach of contract, was done in bad faith, was intentional, tortious and amounted to a bad faith adjustment of her claim. The trial court denied defendant’s motion for partial summary disposition of plaintiff’s tort claim for bad-faith denial of insurance benefits.

The Court of Appeals reversed finding that even if defendant’s denial of benefits were in bad faith, Michigan does not recognize such conduct as tortious. “Michigan courts have held that breach of an insurance contract can support an independent tort claim only if the plaintiff alleges wrongdoing beyond the mere failure to pay insurance benefits.”

[su_box title=”Kallas & Henk Note”] This decision is consistent with a line of cases going back 30 years rejecting a tort claim for bad-faith denial of a first party insurance claim. [/su_box]


Citizens Ins. Co. of America v. Rippy

Unpublished. Decided September 17, 2009 Michigan Court of Appeals Docket No. 284510.

Rippy was in a car accident that resulted in the death of Trent. Trent’s estate filed a claim against Phillip & Barbara’s (Rippy’s daughter) umbrella policy alleging Rippy was a covered member of the household because she lived above the garage. Plaintiff subsequently rescinded the policy and filed a declaratory action. The trial court granted plaintiff’s motion for summary disposition finding that the umbrella policy could be rescinded and was void ab initio because Phillip misrepresented the household members in the policy application by omitting Rippy.

The Court of Appeals held that the trial court did not err in granting plaintiff’s motion for summary disposition, allowing plaintiff to rescind the contract, and declare it void ab initio. The Court noted that Phillip misrepresented the members of his household in the 2001 application and this misrepresentation was manifested on his behalf in renewal questionnaires. Plaintiff relied on the 2006 renewal questionnaire in making the 2006 to 2007 renewal contract. The Court found that the misrepresentation was material because plaintiff would have charged a higher premium for umbrella coverage if it had know that Rippy was a member of the household.

[su_box title=”Kallas & Henk Note”] This decision includes an interesting discussion on the relationship between insureds, Independent insurance agents and insurers. The basic rule in Michigan is that an independent insurance agent generally is the agent of the insured. In this case, the Court followed that rule to bind the insured to statements made by the independent agent in the application for insurance. Even though the insured had never signed the application submitted by the independent agent, containing false representations, the Court held that the insured was bound by those representations nonetheless. The opinion does suggest, however, that an independent agent could be the agent of the insurer for certain purposes. [/su_box]


Idalski v. Schwedt

Unpublished. Decided September 29, 2009 Michigan Court of Appeals Docket No. 287279.

The trial court originally held that plaintiff’s breach of contract claim for failure to pay uninsured motorist benefits was barred because plaintiff neither gave notice nor filed suit in accordance with the policy’s contractually shortened limitations period. The court then granted plaintiff’s motion for reconsideration because it was persuaded that defendant was required to show actual prejudice from plaintiff’s delay and did not do so.

The Court of Appeals held that the trial court erred in holding that defendant was required to show actual prejudice in order to rely on the contractual notice and limitations period. The Court relied on Rory v. Continental Ins. Co., stating that “there is no indication in Rory that an insurer must show prejudice in order to rely on a limitations or notice provision in an insurance contract.” The Court reversed, holding that the trial court’s ruling was incompatible with Rory.

[su_box title=”Kallas & Henk Note”] The Supreme Court in Rory v Continental Insurance Company, 473 Mich 457 (2005), held that insurance contracts are to be interpreted the same as any other type of contract and that the courts should not apply any special rules to insurance contracts. That decision had the potential to invalidate many prior appellate decisions. Many rules, specific to insurance companies, have developed in case law over the years. Application of the Rory principal, however, since it was released has been sporadic. Many decisions released since Rory have applied “special rules” in interpreting insurance contracts that were developed before Rory and are inconsistent with the holding in Rory. The decision in this case, however, is consistent with Rory in holding that a Court cannot impose a prejudice requirement where it is not required in the contract. [/su_box]


Progressive Michigan Ins. Co. v. Contract Towing, Inc.

Unpublished. Decided October 1, 2009 Michigan Court of Appeals Docket No. 286570.

Dodson approached Wilson, Contract Towing’s owner, in response to a help-wanted sign. Subsequently, Dodson worked at Wilson’s business and sometimes Wilson’s home, 5-6 days per week. Wilson allowed Dodson to live rent-free in a spare residence while providing him food and sometimes providing him small amounts of cash for sundry purposes. Wilson stated Dodson was not an employee of Contract Towing. The trial court noted that there was never any evidence of checks written to Dodson and or of any 1099s or W-2s issued to Dodson. Dodson was injured on Contract Towing’s premises while under a car attempting to disengage the transmission for easier towing. Contract Towing’s commercial auto policy excluded coverage for bodily injury to an employee of an insured . . . .arising out of or within the course of employment. The trial court held that Dodson was not an employee of Defendant when he was injured and Defendant could not avail itself of the employee exclusion in the commercial auto policy.

The Court of Appeals reversed and remanded to the trial court for the fact finder to determine at trial whether Dodson was injured in the course of employment. The Court noted that neither Dodson nor the trial court provided any explanation why performing services to work off a debt in lieu of direct monetary compensation constitutes something other than a master-servant relationship. The Court noted that the evidence also admits of the interpretation that Dodson was a mere volunteer.

[su_box title=”Kallas & Henk Note”] This case shows the difficulties that arise when an employer fails to purchase workers compensation insurance as required by law. Many policies, such as the one at issue in this case, exclude coverage for employees in the course of their employment. When an individual, such as Mr. Dobson, is injured while engaging in activities in furtherance of the insured’s business, it is usually the workers compensation carrier that must respond to the injuries. Where there is no workers compensation insurance, however, everyone involved has an incentive to characterize the insured individual as a nonemployee so as to provide protection to the insured for liability and to compensate the employee for lost wages and medical expenses.  [/su_box]

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