Michigan Coverage Decisions, Issue 144

Executive Property Development, LLC v. Nautilus Ins. Co.

Unpublished. Decided September 23, 2010 Michigan Court of Appeals Docket No. 291368.

Vandalism occurred to two properties owned by Plaintiff when the properties were vacant. No one was permitted to enter the buildings pursuant to a trial court order issued in November 2005. Thereafter, defendant issued policies of insurance for the properties. The damage was discovered on July 1, 2007, but it is unclear when the vandalism occurred. The first six policies, issued in three-month intervals, were identical and contained a “Vandalism Exclusion” endorsement which indicated that vandalism was not a covered cause of loss, and a “Vacancy Permit” endorsement which stated that it did not apply to vandalism. Plaintiff did not dispute that the first six policies precluded coverage for vandalism. Plaintiff alleged that the seventh policy, effective June 30, 2007 through September 30, 2007, provided coverage for vandalism because it did not contain the “Vandalism Exclusion” or “Vacancy Permit” endorsements. However, the seventh policy contained a “Building and Personal Property Coverage Form” which stated that if “the building where the loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs,” defendant would not pay for loss or damage caused by certain otherwise-covered causes of loss, including vandalism. Defendant filed a motion for summary disposition arguing that vandalism was not a covered cause of loss when the damage occurred. The trial court granted summary disposition to defendant.

The Court of Appeals affirmed. The Court held that the properties had been vacant for well over 60 consecutive days when the damage allegedly occurred, and therefore, there was no coverage under the seventh policy. The Court held that the fact that defendant knew that the properties were vacant when it issued the policies is irrelevant. The parties were free to agree to limited coverage for the vacant properties. Application for leave to appeal was denied. 488 Mich. 1041 (2011).

[su_box title=”Kallas & Henk Note”] The Court of Appeals followed recent Supreme Court decisions rejecting claims that coverage is modified based on information available to the insurer. [/su_box]


Duffiney v. Home-Owners Ins. Co.

Unpublished. Decided September 28, 2010 Michigan Court of Appeals Docket No. 292583.

Plaintiff’s decedent was killed in a single-vehicle accident at approximately 3:39pm. A witness described hearing what sounded like hard metal hitting the road, immediately followed by squealing tires. A police detective reported that an item had struck the underside of the subject vehicle. A large industrial valve was found in the ditch to the right of the location. A truck driver reported that he was driving at the place in question at approximately 3:30pm when he saw a tow truck carrying what appeared to be a large valve and the load appeared loose. A police officer recalled that shortly before hand he was driving in the area of the accident and noticed a large circular piece sliding across the lane and on to the shoulder of the road. The accident scene had no overpass from which a valve could have been thrown onto the freeway and there were no reports of pedestrians in the area. The decedent’s auto policy with defendant included uninsured motorist coverage, which defined “uninsured automobile” to include a “hit and run” vehicle, which in turn was defined as a vehicle whose owner or operator is unknown and “that causes bodily injury by actual physical contact with the injured person or the automobile the injured person is occupying.” Defendant filed a motion for summary disposition on the basis that plaintiff’s allegation that the valve had just fallen off a vehicle was based on speculation and conjecture. The trial court granted the motion on the basis that plaintiff had not established a sufficient physical nexus between the phantom vehicle and plaintiff’s vehicle.

The Court of Appeals reversed and remanded, finding that plaintiff offered more than speculation and conjecture in support of her theory of the accident. The Court noted that the physical contact requirement is broadly construed to include “indirect physical contact” “as long as a substantial physical nexus between the disappearing vehicle and the object cast off or struck is established by the proofs.” The Court found that the evidence permitted a reasonable inference that the negligent loading of a truck caused the valve to fall from it. The Court also found that the evidence permitted a reasonable inference that the vehicle’s striking of the valve caused it to go out of control. Application for leave to appeal was denied. 488 Mich. 1049 (2011).

[su_box title=”Kallas & Henk Note”] The decisions of the Court of Appeals in these “physical contact” cases are inconsistent at best. This panel of the Court of Appeals was stretching to find coverage. [/su_box]


Bradley v. State Farm Mut. Auto. Ins. Co.

Published. Decided September 28, 2010 Michigan Court of Appeals Docket No. 292716.

Plaintiff was injured when her vehicle was struck by an uninsured motorist. Plaintiff filed a complaint against William Bowen as the driver of the car and Sandra Bowen as the owner of the car. AIG was the insurer of Sandra’s vehicle. William was specifically excluded under the AIG policy as he was charged with stealing the vehicle and Sandra was dismissed. William failed to defend the lawsuit and a judgment was entered against him. Plaintiff unsuccessfully attempted to settle with defendant, her insurance company, following entry of the default judgment. Subsequently, Plaintiff filed suit against defendant alleging breach of its uninsured motorist coverage contract. Defendant filed a motion for summary disposition arguing that plaintiff breached the contract by failing to join William and Sandra as parties. The trial court found that plaintiff breached the contract when she failed to follow the unambiguous policy language that required joinder of all tortfeasors, and therefore, she was not entitled to uninsured motorist benefits.

The Court of Appeals reversed. Plaintiff alleged that defendant incurred no prejudice by the failure to join William and Sandra as party defendants. The Court, relying on Koski v. Allstate Ins. Co., 456 Mich. 439 (1998), held that defendant’s subrogation rights will not be prejudiced by allowing the suit to be litigated. The Court noted that defendant can subrogate to plaintiff’s right to enforce the $50,000 default judgment against William, at least up to the policy limit of $25,000, and attempt collection if defendant becomes obligated to pay benefits to plaintiff. The dissent stated that the Court is obligated to follow the most recent pronouncement on how an insurance policy is to be construed, which is found in Rory v. Continental Ins. Co., 473 Mich. 457 (2005). The dissent found that the joinder provision was unambiguous and required plaintiff to join defendant, Sandra, and William. The dissent stated that the majority, by requiring defendant to show prejudice from plaintiff’s failure to comply with the joinder provision, fails to enforce the joinder provision as written.

[su_box title=”Kallas & Henk Note”] We think the dissent is correct. The majority failed to follow the directive in Rory that an insurance contract must be enforced as written. [/su_box]


Springborn v. Allstate Ins. Co.

Unpublished. Decided October 7, 2010 Michigan Court of Appeals Docket No. 292064.

In March of 2006, Plaintiff applied for automobile insurance with defendant but the independent insurance broker stated she could not issue the policy because plaintiff’s husband had too many violations and points on his driving record. The broker stated that it was defendant’s policy that spouses could not be excluded. In October of 2006, plaintiff submitted an online application for auto insurance with defendant. Defendant alleges that plaintiff represented herself as divorced in this application by checking a box on the computer screen. Plaintiff stated that she did not remember checking the divorced box. Defendant issued plaintiff a policy after plaintiff submitted the online application. On April 4, 2007, plaintiff’s husband was driving the car when an accident occurred. Defendant subsequently voided the policy, alleging that plaintiff materially misrepresented her marital status on the application. Plaintiff filed suit alleging breach of contract. The trial court granted defendant’s motion for summary disposition.

The Court of Appeals reversed and remanded. The Court noted that defendant’s entire argument that there existed no genuine issue of material fact about plaintiff’s misrepresentation, turns on the admissibility of the printout. The Court found that defendant did not submit any foundational testimony or evidence to support the origin or authenticity of the printout. The Court held that the trial court erred when it considered the content of the printout in ruling on defendant’s motion because defendant did not meet the requirements of MRE 1001(3). The Court also found that defendant failed to meet the requirements for admissibility of the printout under MRE 901. The Court noted that if the defendant establishes the admissibility of the printout, defendant will establish that plaintiff, mistakenly or otherwise, represented herself as divorced, even though she was legally married. As a result of this representation, defendant issued a policy when it otherwise would not have done so. If Defendant establishes that the printout accurately reflects the data input by plaintiff during the application process, it will be entitled to summary disposition.

[su_box title=”Kallas & Henk Note”] This case highlights the difficulties in relying on computer generated records. Many insurance coverage disputes turn on the use of such records, but companies typically are not prepared to present the foundational testimony required for their admission into evidence.  [/su_box]

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