Michigan Coverage Decisions, Issue 143

Mason v. Auto Club Ins. Assoc.

Unpublished. Decided August 3, 2010 Michigan Court of Appeals Docket No. 289719.

Plaintiff was run off the road by two racing vehicles that did not stop and cannot be identified. One of the cars lost control and spun off the road kicking up debris and rocks. Mason stated that the rocks and debris from the other vehicle hit her car. Mason swerved to avoid the vehicle and hit the fence and the curb. Mason was insured under a policy issued by defendant which included UIM benefits. The policy defined an uninsured motor vehicle as “a hit-and-run motor vehicle of which the operator or owner are unknown and which makes direct physical contact with: (1) you or a resident relative [i.e., the insured], or (2) a motor vehicle which an insured person is occupying.” Defendant filed a motion for summary disposition on the basis that there was no direct physical contact. The trial court denied defendant’s motion for summary disposition finding that indirect physical contact was sufficient.

The Court of Appeals reversed. Although the policy did not define “direct”, the court found that “direct” means “without intermediary agents, conditions, etc. ; immediate direct contact.” The Court differentiated between policies that require “physical contact” and the instant policy which requires “direct physical contact”. The Court found that the policy makes clear that indirect contact, such as the contact that occurred in the present case, is insufficient to trigger UIM benefits. The Supreme Court denied application for leave to appeal.

[su_box title=”Kallas & Henk Note”] The outcome of this case was completely dependent on the specific policy language. One could argue that the addition of the word “direct” has nothing to a requirement of “physical contact”. This panel, however, felt that this additional word is dispositive. In previous cases it was held that the physical contact requirement was satisfied where the insured vehicle was struck by something that was struck by the uninsured motorist vehicle.  [/su_box]


Mikolasik v. Kantrow

Unpublished. Decided August 19, 2010 Michigan Court of Appeals Docket No. 292005.

Plaintiff was injured in an auto accident while driving his wife’s vehicle which was insured by Citizens. Plaintiff owned a different vehicle that was insured by defendant. Plaintiff sought underinsured motorist benefits from defendant and defendant denied coverage. The policy excluded underinsured motorist coverage for bodily injury sustained by a person “while occupying any vehicle owned by you or a family member for which insurance is not afforded under this policy”. The trial court granted summary disposition for defendant Farmers finding that plaintiff was precluded from receiving underinsured motorist benefits under the policy.The Court of Appeals affirmed. The Court found that plaintiff was occupying a vehicle solely owned by his wife and insured by another insurance company. Pursuant to the exclusion, plaintiff is not entitled to underinsured motorist coverage under his policy with defendant.

[su_box title=”Kallas & Henk Note”] Because underinsured motorist coverage is completely optional in Michigan, the courts have held that the coverage can be limited in any way an insurer deems appropriate. This particular limitation would essentially require the insured to ensure all vehicles and look to the insurer of the particular vehicle for underinsured motorist coverage. [/su_box]


TMW Enterprises, Inc. v. Federal Ins. Co.

Published. Decided August 25, 2010 United States Court of Appeals for the Sixth Circuit Docket No. 09-1542.

TMW bought a recently constructed building and insured it with Federal Insurance. The Federal policy was an “all-risk” policy which covered any direct physical loss or damage to the property unless caused by or resulting from an excluded peril. The policy excluded coverage for damage caused by or resulting from any faulty workmanship or construction. The exclusion also provided that this exclusion “does not apply to ensuing loss or damage caused by or resulting from a peril not otherwise excluded.” The contractors hired by TMW to renovate the building discovered that the original builder had improperly constructed the walls and water had entered the facility. Federal attributed the damage to construction defects and wear and tear, which were both excluded by the policy. The district court granted summary judgment in favor of Federal.

The Sixth Circuit affirmed in part and reversed in part, finding that a relevant exclusion to coverage applied. TMW argued that the exception to the exclusion which states that it does “not apply to ensuing loss or damage caused by or resulting from a peril not otherwise excluded” applies because the intruding water was a peril not otherwise excluded and the water-related damage is therefore a covered loss. The Sixth Circuit found that this theory of interpretation would create a virtual elimination of the exclusion. The Court found that there are two possible functions served by the clause, both of which defeat TMW’s argument. First, the clause simply means that what is not excluded is covered. Second, the ensuing loss clause could be construed as a “causation-in-fact-breaking link in coverage exclusions, establishing that independent, non-foreseeable losses caused by faulty construction are covered”. The dissent found that because the language of the exclusion is ambiguous it should be construed in TMW’s favor and against Federal. TMW argues that the ensuing loss clause eliminates from the scope of the faulty workmanship exclusion any loss or damage that is brought about by a subsequent, non-excluded peril, even if a listed excluded peril is present earlier in the causal chain. The dissent found that this interpretation was reasonable.

The case was remanded to the District Court to determine if the exception to the exclusion (as interpreted by the majority) applied.

[su_box title=”Kallas & Henk Note”] This case is notable for a very interesting and scholarly discussion of insurance contract principles by the majority. The majority rejects the proposition that the contract interpretation rule that a contract should be interpreted to avoid surplus language if that rule creates ambiguity where none otherwise exists. The ensuing loss clause has caused problems for insurers and, in our opinion, this majority opinion in this case reaches the correct interpretation and result. [/su_box]


Auto Club Group Ins. Co. v. Booth

Published. Decided August 31, 2010 Michigan Court of Appeals Docket No. 290403.

Booth, who was intoxicated, pulled back the slide of his handgun, allegedly to make sure the gun was not loaded, and saw no shell in the chamber. According to Booth, he inadvertently loaded a shell from the clip into the chamber when he released the slide mechanism. He placed the barrel of the gun against Bordo’s wrist and pulled the trigger. Bordo sustained damage to his wrist and hand. Booth plead no contest to a misdemeanor charge of careless, reckless, or negligent discharge of a firearm resulting in injury. Bordo filed suit against Booth alleging that Booth negligently caused his injuries. Plaintiff filed a declaratory action and moved for summary disposition on the ground that coverage was excluded under the criminal act exclusion.

The trial court, relying on Allstate v. McCarn, found that defendants were entitled to coverage under defendant Booth’s homeowner’s policy.

The Court of Appeals reversed and remanded. The policy excluded bodily injury resulting from a criminal act or omission committed by anyone. The exclusion applies whether or not the insured was charged with a crime; is convicted of a crime; or enters a plea of guilty. The Court found that the facts admitted by Booth established that his conduct undisputedly constituted at least one criminal act. The Court distinguished McCarn because the criminal act exclusion in McCarn was significantly different . Auto Club’s exclusion for criminal acts does not contain the reasonable expectation clause found in McCarn.

[su_box title=”Kallas & Henk Note”] The outcome of this case was totally dependent on the specific language in the criminal acts exclusion. Because there are many versions of intentional and criminal acts exclusions employed by different insurers, the outcome of each case may be dependent on the specific language used. In this case, because the exclusion applied to any criminal act, irrespective of intent and/or actual conviction, the court found the exclusion applicable. [/su_box]

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