Michigan Coverage Decisions, Issue 136

Auto-Owners Ins. Co. v. Large

Unpublished. Decided February 2, 2010 Michigan Court of Appeals Docket No. 288530.

Large was involved in an auto accident with Fritz. At the time of the accident, Large was driving a vehicle owned by Bollinger’s, an auto dealership, while Large’s vehicle was being serviced. Bollinger’s had garage liability insurance with Auto-Owners, and Large had auto insurance with Citizens on her personal vehicle. Fritz filed suit against Large and Bollinger’s. Auto-Owners filed this declaratory action to determine the priority of insurance coverage. The trial court held that Auto-Owners must provide the first $500,000 in coverage for damages and Citizens was only liable on an excess basis.
The Court of Appeals affirmed holding that pursuant to the Court’s decision in Auto-Owners v. Martin, Auto-Owners is primarily liable for providing coverage to the full extent of its policy limits for damages resulting from Large’s permissive use of Bollinger’s vehicle and Citizens is liable only for amounts in excess of that coverage. The garage customer provision excluded residual liability coverage for garage customers except when the customer is uninsured or underinsured up to the applicable limit of the financial responsibility law. Auto-Owners argued that its primary liability coverage was limited to the 20/40 coverage requirement imposed by the no-fault act. The Court held that Auto-Owners knew or should have known that the garage customer exclusion was void. Leave was denied by the Supreme Court. 486 Mich. 905 (2010).

[su_box title=”Kallas & Henk Note”] The line of cases upon which this Court relied to issue its opinion is inconsistent with another line of cases upon which Auto-Owners relied. It appears that Auto-Owners relied on the principle that if a limitation on coverage is inconsistent with legally mandated coverage, the policy may be reformed to match the legally mandated coverage. Because the law only requires auto liability coverage in the amount of 20,000/40,000, Auto-Owners took the position that the policy should be reformed to only require that amount. [/su_box]


Ahrens Construction, Inc. v. Amerisure Ins. Co.

Unpublished. Decided February 9, 2010 Michigan Court of Appeals Docket No. 288272.

Ahrens subcontracted to build the roof of a natatorium and Miller-Davis was the general contractor on the project. After the project was completed, the roof trapped condensation and had to be rebuilt by Miller-Davis. Ahrens’ commercial liability carrier, Amerisure, determined there was no coverage and declined to defend Ahrens. Ahrens argued that Amerisure had a duty to defend in the underlying case because the damage to the property of others that resulted from the insured’s shoddy workmanship was an “occurrence”. The trial court held that the policy “does not provide coverage for the costs of damages arising out of the replacement of Ahrens’ work.” On appeal, Ahrens challenged Amerisure’s refusal to defend against the underlying complaint.
The Court of Appeals noted that the damages in the underlying complaint related solely to Ahren’s breach and failure to properly construct the roof requiring Miller-Davis to perform corrective work on the roof. The Court held that even if Miller-Davis’ award included expenses for damage to other property, the allegations in the complaint did not seek such expenses. The Court held that Amerisure did not breach its contract by refusing to defend where the only damages claimed arose directly from having to correct Ahrens’ defective work. The Court also held that there was no “occurrence” alleged in the complaint.

[su_box title=”Kallas & Henk Note”] Unlike many other states, in Michigan, the courts have held that repair and replacement of defective workmanship does not constitute an “occurrence” and therefore there is no coverage for such claims unless the defective workmanship caused property damage to other property (property other than the work of the insured). This decision is consistent with that principle of law. [/su_box]


Graves v. State Farm Mut. Ins. Co.

Unpublished. Decided February 25, 2010 Michigan Court of Appeals Docket No. 289822.

Plaintiff was injured in an auto accident. The vehicle plaintiff was driving was owned by her mother and insured by State Farm. Plaintiff filed a claim for uninsured motorist benefits. State Farm received conflicting information about the claim and requested that plaintiff and her mother submit to EUO’s, but they refused. Subsequently, plaintiff filed suit. The State Farm policy required anyone claiming uninsured motorist benefits to submit to an examination under oath. The trial court granted summary disposition with prejudice to State Farm.
The Court of Appeals affirmed, holding that the policy unambiguously requires the insured to submit to an EUO at State Farm’s request and states that legal action may not be brought until the insured fully complies with the provisions in the policy. The Court noted that when an insured does not submit to an EUO when required to do so, recovery is barred under the policy. The Court found that the trial court was compelled to dismiss State Farm with prejudice because it found that plaintiff acted willfully. Leave was denied by the Supreme Court. 784 N.W.2d 802 (2010).

[su_box title=”Kallas & Henk Note”] This decision is significant for its treatment of a dismissal with prejudice versus a dismissal without prejudice in this circumstance. In most cases, a dismissal for failure to comply with policy conditions before suit, would result in a dismissal without prejudice. In this case, however, the court affirmed because it found that the noncompliance with the policy condition was willful. [/su_box]


Kacho v. KSK Hospitality Group, Inc.

Unpublished. Decided March 2, 2010 Michigan Court of Appeals Docket No. 289012.

KSK owns Woody’s Diner, where Gibbons worked as a manager. Plaintiff alleged that while a customer at Woody’s, Gibbons negligently and without provocation beat, battered, and wounded plaintiff. KSK tendered its defense to its commercial liability insurer, St. Paul, which denied coverage. KSK argued there was coverage under the liquor liability form. The trial court disagreed, finding that plaintiff’s injury was not caused by an accident because Gibbons committed an intentional act, and the liquor liability protection form did not apply because the complaint did not allege the injury resulted from the selling, serving, or furnishing of alcoholic beverages.

The Court of Appeals reversed and remanded. KSK argued that coverage was available under an exception in the liquor liability protection form which provides coverage for intentional bodily injury or property damage that results from the use of reasonable force to protect people or property. Gibbons testified that he pushed plaintiff away to stop him from crushing another man’s skull. The Court held that the trial court erred in granting summary disposition to St. Paul because there was a question whether plaintiff’s injury resulted from Gibbons’ use of reasonable force to protect a person.

[su_box title=”Kallas & Henk Note”] The reasoning and application of law in this decision is wrong on so many bases that it is difficult to comment. Most fundamentally, however, the opinion accurately cites the law in Michigan that exclusions do not create coverage and then, inexplicably, finds that the exclusion in this case created coverage. [/su_box]

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