Auto-Owners v Keizer Morris
Unpublished, June 28, 2011. Court of Appeals Docket No. 297657.
Plaintiff insurer brought this declaratory action for a ruling that it had no duty to defend or indemnify Defendant in a products liability action. Plaintiff issued a CGL policy with an exclusion for products liability. The defendant insured asserted that the exclusion did not apply because one of the allegations in the underlying products liability action was for breach of implied warranty and that the exclusion only applied to warranties that were “made”. The defendant insured reason that because implied warranties arise by operation of law they were not “made”. The trial court granted summary disposition in favor of plaintiff finding that the exclusion was applicable to the claims made against Defendant.
Court of Appeals affirmed rejecting plaintiff’s contention that implied warranties were not made. The court used ordinary dictionary definitions to find that all warranties, whether express or implied, were “made” under common definitions.[su_box title=”Kallas & Henk Note”] Give the insured’s attorney credit for creative argument. Had this argument prevailed, however, the products liability exclusion would have been worthless given the fact that most products cases include claims for breach of implied warranty. [/su_box]
Chrisman Company v Ohio Casualty
Unpublished, June 21, 2011. Court of Appeals Docket No. 296316.
Plaintiff, a construction contractor, contracted to build a parking structure. The parking structure was actually constructed by subcontractors. There was a failure of the concrete in the structure and repairs were made. Plaintiff looked to defendant insurers for reimbursement for the costs to repair (presumably under a CGL policy, although this is not stated in the opinion). Defendant insurers moved for summary disposition in the trial court on the bases (1) that plaintiff violated the voluntary payment and no action clauses of the policies and (2) that there was no occurrence. The trial court granted summary disposition to the insurers based on plaintiff’s voluntary payment for the costs to correct the problem.
The Court of Appeals affirmed but not on the same basis as the trial court. The Court of Appeals did not address the alleged violation of the conditions of the policy for voluntary payments but instead addressed only the occurrence argument. The court held that because the damages were only to the work of the insured (the parking structure itself) there was no occurrence. The court cited previous decisions in Michigan which hold that defective workmanship resulting in costs to correct the work does not constitute an occurrence as defined in this CGL policy.[su_box title=”Kallas & Henk Note”] The decision in this case is consistent with prior Michigan decisions. There is a split of authority, around the country, however, on this question of whether defective workmanship alone can constitute an occurrence as defined in the CGL policy. There are other states (probably a majority) that have held that a situation such as this does constitute an occurrence. It should also be noted that the Michigan Supreme Court has never addressed this question and the Michigan case law is based on Court of Appeals decisions. [/su_box]
Smith v Farmers Insurance Exchange
Unpublished, June 21, 2011. Court of Appeals Docket No. 297229.
Plaintiff was involved in an accident with a hit and run driver that was not identified and sought uninsured motorists benefits from defendant insurer. The policy provides that for a hit and run accident, the plaintiff is required to notify the insurer within 30 days of the accident. In the trial court, defendant moved for summary disposition alleging a failure to comply with the 30 day notice requirement. The trial court denied summary disposition on the basis that the defendant insurer failed to show it was prejudiced by the late notice.
The Court of Appeals affirmed based on another very recent decision from the Court of Appeals which imposed a prejudice requirement in order to rely on the notice requirement as a condition of coverage. The court held that even though it had been established that the notice was late, the insurer had not provided sufficient evidence of prejudice.[su_box title=”Kallas & Henk Note”] The prior decision relied on by the Court, DeFrain v State Farm, for the first time (in March 2011), introduced the prejudice requirement. In our view, this is not consistent with recent Michigan Supreme Court decisions which have held that the courts are not to impose special rules or enhanced obligations on insurance companies in applying their contracts. In our view, because the notice provision is a condition of coverage, we suspect that the Supreme Court, if it addresses this issue, will ultimately find that there is no prejudice requirement for application of the notice requirement. [/su_box]
Fire Insurance Exchange v Miller
Unpublished, June 23, 2011. Court of Appeals Docket No. 297544.
Defendant insured was the landlord of a group home. A resident of the home drowned in a bathtub and it was alleged that the defective premises contributed to the death. Defendant was sued by the estate and consented to a $100,000 judgment. Plaintiff initiated this declaratory action seeking a ruling from the trial court that it had no duty to defend or indemnify Defendant in the underlying action and no obligation to pay the judgment. The trial court found defendant insured was entitled to summary disposition and that plaintiff was liable to pay the judgment.
The Court of Appeals affirmed the finding that the no action clause of the insurance policy, which prohibits an action under the policy until the obligation of the insured has been determined by a final judgment or agreement signed by the insurer, could not be used by Plaintiff to deny coverage. The court reasoned that the no action clause prohibits anybody from suing the insurer and that it was not applicable in this case because the insurer initiated the declaratory action.[su_box title=”Kallas & Henk Note”] This reasoning by the Court of Appeals is both odd and presents a dangerous situation for insurers. In this type of situation, it is always a dilemma for the insurer whether to wait for the insured to attempt to recover against the insurance company or for the insurer to initiate a declaratory action seeking a court declaration that there is no duty under the policy. In most cases, the filing of a declaratory action is considered by insurers to be the safest course of action. This panel of the Court of Appeals, however, turned it around and held that the insurer could not rely on the no action clause because it had initiated the litigation against the insured (as opposed to the insured suing for reimbursement or for coverage). This is an odd result because, presumably, the court would have held that there was no right to recover if the insured had initiated the lawsuit. [/su_box]