Michigan Coverage Decisions, Issue 149

Auto Club Group Insurance v Andrzejewski

Published, May 17, 2011. Court of Appeals Docket No. 297551.

Plaintiff provided homeowners insurance to the parents of a 13-year-old boy. The boy assaulted another boy during a basketball game and subsequently pleaded no contest to the assault in juvenile court. Plaintiff initiated this declaratory action for a finding that it’s policy did not provide coverage to either the boy or the parents because this was not an occurrence as defined in the policy and because the criminal acts exclusion applied. The trial court agreed with defendant and declared that there was no coverage available for the lawsuit filed by the injured boy.

The Court of Appeals affirmed addressing only the criminal acts exclusion. The exclusion applied to actions that were criminal in nature and which resulted in either a guilty plea or a plea of no contest. The court found that the actions of the insured fell within the terms of this exclusion.

[su_box title=”Kallas & Henk Note”] The criminal acts exclusion contained in the plaintiff’s policy is not typical. Its language is much broader and excludes more than a typical criminal and/or intentional acts exclusion. This language is probably the result of some court decisions which narrowly interpret similar exclusions. Although not relied on by the Court of Appeals, the policy definition of occurrence also is more comprehensive than that contained in most policies. Because homeowners coverage is not mandatory, an insurer is free to limit its risk in any way it sees fit. [/su_box]

 

Kent Cos. v Wausau Insurance

Unpublished. May 3, 2011. Court of Appeals Docket No. 295237.

Plaintiff installed a concrete slab above snowmelt tubing but below brick pavers. The owner of the Project claimed that plaintiff improperly installed the slab which caused damage to the snowmelt tubing requiring removal and replacement of both the concrete slab and the brick pavers. Plaintiff claimed coverage under its CGL policy with defendant. Defendant denied coverage. The trial court granted summary disposition in favor of defendant finding that the repair and replacement of the concrete slab did not constitute an occurrence and that the impaired property exclusion applied to eliminate coverage.

The Court of Appeals affirmed finding that the plaintiff was attempting to recover expenses incurred for replacing its own product due to its own defective work and that, under Michigan law, this does not constitute an occurrence. Further, the court found that expenses incurred to remove and replace the pavers were excluded by the impaired property exclusion – which provides that damage to property that has not been physically injured and arises out of a defect or deficiency in the insureds work is not covered.

[su_box title=”Kallas & Henk Note”] The Court was careful to note that there was no claim for damages to the snowmelt tubing. Presumably, damage to the tubing would constitute an occurrence because it was not the work of Plaintiff. In addition, the impaired property exclusion would not apply to eliminate coverage for damage to the tubing because it was physically injured. [/su_box]

 

Wellman v Home-Owners Insurance Company

Unpublished, May 24, 2011. Court of Appeals Docket No. 294394.

Plaintiff was injured while riding her motorcycle. She had an automobile policy with Defendant which provided uninsured motorist coverage for her automobile but did not provide uninsured motorist coverage specifically for the motorcycle. When she made claims for proceeds under the uninsured motorist coverage, defendant denied on the basis that, while she would have coverage if she was in her automobile, there was no coverage for the motorcycle because she had not purchased coverage for that vehicle.

The trial court held that, although the uninsured motorist coverage provisions clearly stated that they apply only to automobiles for which the coverage was purchased, the definition of automobile in the policy was ambiguous. The issue turned on whether the motorcycle was a “land motor vehicle”. The trial court held that because it was unclear which definition in the policy applied to the motorcycle, the question was left to the trier of fact to determine the intent of the parties.

The Court of Appeals reversed finding that there was coverage under the policy as a matter of law. The Court found that because “motor vehicle” was defined in the policy to mean a vehicle with more than 2 wheels, a “land motor vehicle” could not be a motorcycle and therefore the exclusion for automobiles owned but not insured did not apply.

[su_box title=”Kallas & Henk Note”] The Court of Appeals panel in this case, in a convoluted and confusing opinion, seems to have wanted to reach a certain outcome not justified by the facts or the terms of the coverage. Critically, in our view, the court erred in using the definition of “motor vehicle” in one section of the policy to define “land motor vehicle” in another section. Incredibly, the opinion concedes that the phrase “land motor vehicle” which, in common understanding includes a motorcycle, but the court did not apply that common understanding. [/su_box]

 

Cincinnati Insurance v Hall

Unpublished. June 14, 2011. Court of Appeals Docket No. 297600.

Plaintiff insured a social services company that provided training to developmentally disabled adults. One of its clients was injured as a result of an assault by another client. The assault was precipitated by an employee who directed the assault. Plaintiff denied coverage based on its abuse or molestation exclusion and filed a declaratory action seeking an order of the court that it had no duty to defend or indemnify the insured.

The 1st issue that the trial court had to address was whether plaintiff was estopped from denying coverage because it had not issued a reservation of rights letter specifying its defenses. The trial court held that it could not raise the defenses because it did not issue a written reservation of rights letter with a specific reliance on the abuse and molestation exclusion.

The 2nd issue addressed by the trial court was whether the abuse or molestation exclusion applied only to sexual acts or behaviors. The trial court held that the exclusion only apply to sexual acts or behaviors. Based on its findings on these 2 issues, the trial court denied summary disposition to Plaintiff and granted summary disposition in favor of the insured.

The Court of Appeals reversed. On the 1st issue, the court held that no written reservation of rights letter specifying policy defenses needs to be issued where the insurer files a declaratory action. The court held that this was sufficient notice to the insured. The reversal however, was limited and the court remanded to the trial court to determine if the insured was prejudiced by the five-month delay in filing the declaratory action. If so, the Court of Appeals reasons that the notice provided by the filing of the declaratory action would not be timely notice.

The Court of Appeals also reversed on the 2nd issue finding that abuse or molestation does not need to be sexual in nature. The court remanded to the trial court for a determination of whether that finding completely eliminates any coverage under the policy therefore making it ambiguous.

[su_box title=”Kallas & Henk Note”] In our view, the Court of Appeals was correct in finding that the filing of a declaratory action can constitute notice to the insured all policy defenses even if no reservation of rights letter is issued. We would question, however, the courts finding that a five-month delay in filing the declaratory action (after the underlying lawsuit is filed) might not be timely. There is a previous published decision in Michigan finding that four-months between filing of the underlying action and the declaratory action is, as a matter of law, timely.

We don’t question the Court of Appeals finding that abuse and molestation is not limited to sexual acts but disagree that there is something for the trial court to decide with regard to the elimination of all coverage. While it is not stated in the opinion, it is apparent that the insurance policy in question is a CGL policy. We cannot fathom how the Court of Appeals thinks that a CGL policy is illusory and excludes all coverage if it excludes abuse or molestation. [/su_box]

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