Michigan Coverage Decisions, Issue 161

Huntington National Bank v. First American Title Ins. Co.

Unpublished. Decided May 24, 2012 Michigan Court of Appeals Docket No. 303496.

The plaintiff held a mortgage on a parcel of property for which the defendant had issued a title insurance policy. In the underlying lawsuit, two lien holders sought foreclosure of construction liens in the total amount of $682,896.00. The plaintiff waited 16 months before reporting the lawsuit to the defendant, which refused to defend and indemnify the plaintiff on the basis that it had failed to provide prompt notice of the suit as required in the title policy. After judgment was entered for the lien holders, the plaintiff again requested indemnification, and the defendant again denied liability for the same reason. The plaintiff filed suit, claiming breach of contract for failure to pay the claim.

The trial court granted summary disposition to the defendant, and the Court of Appeals affirmed. In order to find that the defendant did not have a duty to defend or indemnify based on untimely notice, the Court held that the defendant had to show that it was actually prejudiced by the late notice. According to the majority, the defendant was actually prejudiced because the plaintiff had stipulated to the entry of two orders in the underlying action which acknowledged the priority of the construction liens and impacted the defense of the case, and the ability to protect the property interests that the plaintiff asserted. The Court also held that whether the defendant could have altered the outcome of the case was not relevant; it was sufficient for a showing of prejudice that the defense was affected by the plaintiff’s actions.

[su_box title=”Kallas & Henk Note”] The dissenting opinion would have reversed, because the only real issues in the underlying lawsuit were whether the amount and the timing of the liens were valid, and the plaintiff’s stipulations did not affect the determination of those issues. This panel also did not have the benefit of the Supreme Court’s opinion addressing the actual prejudice requirement in DeFrain v. State Farm Mut. Ins. Co., 491 Mich 359 (2012), which was released a week later, and found that actual prejudice is not required when a notice provision sets a specific time, such as 30 days, for providing notice. [/su_box]


Coral Reef Productions, Inc. v. Axis Surplus Ins. Co.

Unpublished. Decided June 19, 2012 Michigan Court of Appeals Docket No. 302706.

The plaintiff was sued for improperly accessing the customer list of a competitor and unfairly competing by soliciting those customers. When the plaintiff made a claim for defense and indemnification under a professional liability policy that the defendant had issued, the defendant denied coverage on the basis that the policy did not apply.

The trial court held that, because the plaintiff’s actions for which it was being sued were dishonest and fraudulent, such conduct was not a professional service and was not covered. The Court of Appeals affirmed this result, but for different reasons. The Court first noted that the policy was ambiguous with regard to the conduct arguably covered by its terms, primarily because the policy did not define the professional services to which it applied. The Court found, however, that at least one exclusion (an exclusion for claims arising out of unfair competition) was applicable to the claims in the underlying action, and held that the insurer had no duty to defend or indemnify the plaintiff in that action.

[su_box title=”Kallas & Henk Note”] The Court’s opinion did not include the full text of the insuring agreement that it believed was ambiguous, and making such a determination seems unnecessary in light of the final result, but this does demonstrate the importance of clearly defining terms that are considered important to coverage or in policies that provide coverages for specialized risks. [/su_box]


Westfield Ins. Co. v. Allstate Ins. Co.

Unpublished. Decided June 21, 2012 Michigan Court of Appeals Docket No. 295486.

The underlying defendant caused a serious injury accident while driving his personal vehicle on business for his employer. The underlying plaintiff initially filed suit against the employer for owner’s liability, but later added the defendant-driver. Westfield insured the employer through a commercial auto policy. Allstate insured the underlying defendant’s vehicles. Westfield defended in the underlying action, and subsequently filed this lawsuit requesting reimbursement of defense costs alleging that Allstate had primary responsibility as the insurer for the at-fault driver. The trial court agreed, but limited Westfield’s recovery to the limits of liability in the Allstate policy.

Westfield appealed only from the decision to limit its recovery. The Court of Appeals agreed with the trial court that the amount should be restricted, but held that the trial court did not properly consider all of the policy language in calculating the amount. The Court of Appeals determined that Westfield was not necessarily entitled to policy limits, only that amount of defense costs which arose after the defendant-driver was added as a defendant in the underlying action.

[su_box title=”Kallas & Henk Note”] The Court of Appeals’ decision also includes a detailed analysis of the distinction between primary and excess coverages, and when a true excess policy is triggered. [/su_box]


Titan Ins. Co. v. Hyten

Published. Decided June 15, 2012, Michigan Supreme Court, 491 Mich 547 (2012).

The defendant applied for auto insurance with the plaintiff and misrepresented that she had a suspended driver’s license at the time of application. While the application advised the defendant that the plaintiff could review her record, the application also provided that the plaintiff could also rely on the defendant’s representations as being accurate. After the policy was issued, the defendant caused an accident and injured the occupants of the other vehicle. The plaintiff denied coverage to the defendant due to the her fraud in the insurance application, and filed this action for a declaration that it did not have a duty to defend her or pay any amount above the no-fault minimum. The trial court relied on Court of Appeals precedents and held that, because the defendant’s fraud was easily ascertainable, the plaintiff could not deny liability under the policy, and the Court of Appeals affirmed.

The Michigan Supreme Court reversed, and over-ruled several prior decisions of the Court of Appeals. The basis for the Court’s decision was grounded in general contract principles, which permit a contracting party to avoid liability under a contract for material misrepresentations made in connection with that contract. The fact that a third party was injured was not relevant, except to the extent that an applicable statute prevents complete denial of liability to such injured third persons.

[su_box title=”Kallas & Henk Note”] The Supreme Court applied a traditional fraud analysis in its decision. A defrauded party does not have a specific duty to investigate if representations purporting to be true are in fact true, and that party may rely on those representations unless there is actual knowledge to the contrary. The Court further reasoned that the burden of a person’s misconduct should remain with the person engaging in that misconduct, in this case the person making the misrepresentations. [/su_box]


Williams v. Travelers Prop. & Cas. Co. of America

Unpublished. Decided June 28, 2012 Michigan Court of Appeals Docket No. 301454.

The plaintiff was sued for premises liability due to a fall in an apartment building he owned. The underlying action was filed one day before the statute of limitations. The plaintiff was served about three months after that action was filed, but failed to respond to the complaint and a default judgment was entered. The plaintiff was not notified of the judgment until 1-½ years later, and he successfully had the judgment set aside. He then notified the defendant, and requested defense and indemnification, on the basis that he was providing notice as soon as practicable, as required by his liability policy. The notice was given over 5 years after the fall, and almost 2 years after the plaintiff was first notified of the lawsuit. When the defendant denied coverage due to untimely notice, the plaintiff filed suit.

The trial court held that the plaintiff’s late notice relieved the defendant of any obligation in the insurance policy, and the Court of Appeals affirmed, finding that the defendant was actually prejudiced by the late notice. While the plaintiff was aware of the fall which led to the underlying action, he did not take any statements, or keep any records related to the fall, he did not photograph the area in which the fall occurred, and otherwise did not have any documentary evidence related to the fall. The defendant therefore did not have an opportunity to investigate or assess liability and could not be expected to defend.

[su_box title=”Kallas & Henk Note”] The underlying plaintiff was also less than diligent. She not only waited to file suit until the day before the statute of limitations expired, she also waited to serve the complaint until only a few days before the summons expired, and waited a significant time to enforce her judgment. It is likely that there was very little, if any, evidence related to this fall. The burden dealing with the failures of the parties in the underlying action was properly placed on them as the persons responsible for the delays.  [/su_box]

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