Michigan Coverage Decisions, Issue 164

Amerisure Ins. Co. v. Debruyn Produce Co.

Published. Decided October 16, 2012 Michigan Court of Appeals Docket No. 307128.

The defendant’s controller embezzled funds by writing unauthorized payroll checks to herself in addition to her salary. When it was discovered, the defendant filed a claim under its employee dishonesty coverage. That policy applies to losses caused by an employee’s dishonest acts through which the employee obtained a financial benefit – other than benefits earned in the normal course of business, such as salary. While the employee did not earn the funds she paid herself, the plaintiff denied coverage on the basis that not all unearned benefits constitute a covered loss.

The trial court disagreed and the Court of Appeals affirmed. The Court noted that the conduct was clearly dishonest, and held that the intended to cover benefits that were not knowingly provided by an insured.

[su_box title=”Kallas & Henk Note”] The Court went into a lengthy analysis of whether the excess amounts that the employee paid herself constituted a salary in order to conclude that the embezzled amounts were not a financial benefit earned in the normal course of business. While the plaintiff’s argument has been raised in several other jurisdictions in similar cases the Courts have consistently held that the policy applies. [/su_box]


Brittingham v. Michigan Ins. Co.

Unpublished. Decided October 4, 2012 Michigan Court of Appeals Docket No. 305173.

The plaintiffs’ home was damaged by water. The plaintiffs timely notified the defendant and defendant paid the claim under the plaintiffs’ home owners policy. As a result of the clean-up, which included the application of an anti-microbial, the plaintiffs became ill, and also claimed a right to recover for those damages under their policy. The plaintiffs did not provided notice of this separate loss until 15 months after the incident occurred. The defendant denied coverage due to the expiration of the limitations period in the policy, and the plaintiff filed suit.

The trial court held that the one-year limitation on when a lawsuit challenging a coverage denial could be filed was invalid because the policy term was inconsistent with MCL 500.2833(1)(q). While the statute also states that lawsuits are time-barred if not filed within one year of the loss, that time period is tolled from the date notice is given to the insurer until the claim is formally denied. The trial court held, however, that the plaintiffs’ suit was time-barred because they did not provide a loss notice to the defendant until more than one year after the loss. The Court of Appeals affirmed summary disposition for the defendant because the plaintiffs waited until after the limitations period in MCL 500.2833(1)(q) had expired.

[su_box title=”Kallas & Henk Note”] This decision demonstrates the application of the legal principle that statutory terms will be adopted into a policy that does not conform to the requirements of a statute. The Court rejected the plaintiffs’ claim that a letter to the defendant which only referenced telephone conversations in connection with a “July 2008″ loss, without providing any detail or stating what those conversations were, was too vague and insufficient to constitute a proper notice of the loss. [/su_box]


GM Sign, Inc. v. Auto-Owners Ins. Co.

Unpublished. Decided October 11, 2012 Michigan Court of Appeals Docket No. 301742.

The plaintiff filed a lawsuit against an insured of the defendant for blast faxing unsolicited advertising. The defendant was providing a defense in the underlying action, but subject to a reservation of rights. Before any determination of liability, the plaintiff filed this declaratory action, claiming that the defendant had a duty to defend and indemnify in the underlying case. The trial court held that an endorsement in the policy negated coverage because an endorsement to the policy expressly eliminated coverage for claims related to unsolicited advertising. A divided Court of Appeals affirmed.

While the Court held that there was no coverage for the claims in the underlying action based on the terms of the unambiguous endorsement, the Court was divided on whether the plaintiff had standing to bring the declaratory action. The issue was whether an actual controversy existed because the defendant was providing a defense in the underlying action and had not denied coverage. The majority held that there as an actual controversy in that the plaintiff had a substantial interest in determining whether there would be coverage for the claim,mainly because the underlying-defendant would not be able to satisfy any judgment. The plaintiff therefore had a legitimate reason to request a coverage decision in order to guide its decisions with regard to the underlying action, which is the primary reason for permitting declaratory actions.

[su_box title=”Kallas & Henk Note”] This panel was significantly divided over the standing issue, and two of the judges wrote lengthy concurring opinions to justify their respective positions and criticize the position of the other. The opinion concurring with the majority decision stated that there would be no issue if the insurer had initiated the declaratory action, which is the manner in which coverage issues are determined, and there should not be a different analysis when another interested party with a legitimate issue regarding coverage brings such an action. This decision is consistent with recent decisions giving an expansive interpretation of when declaratory relief may be sought. [/su_box]


Chu v. Grange Ins. Co.

Unpublished. Decided October 18, 2012 Michigan Court of Appeals Docket No. 304603.

The plaintiffs had a homeowner’s insurance policy with the defendant, and were paying the premium for that coverage in monthly installments. The plaintiffs failed to pay one installment, and were notified. When the defendant still did not receive the premium payment, it sent a cancellation notice to the plaintiffs stating that if the overdue payment was not received, the policy would be cancelled effective as of the date specified in the notice. Plaintiffs failed to make a payment before the cancellation date, but did send in payment approximately one week later – after the plaintiffs suffered a fire loss.

When the defendant discovered that the fire loss had occurred subsequent to the policy’s cancellation and prior to the plaintiffs’ payment, the defendant denied coverage because a policy was not in effect on the date of the loss. The Court of Appeals affirmed the trial court and held that the coverage denial was proper. There was no dispute that the plaintiffs did not pay the premium before the cancellation date and, as set forth in the policy and cancellation notice, coverage was not in effect as of the date of loss because the policy had been cancelled for non-payment of premium.

[su_box title=”Kallas & Henk Note”] Before discovering that the loss had occurred prior to payment of the overdue premium amount, the defendant had adjusted part of the plaintiffs’ claim. The Court was not persuaded that this constituted a waiver of the policy cancellation, particularly because the plaintiffs had not disclosed the true date of loss. This result is consistent with several prior cases in which the Courts uphold the principle that an insured is required to pay for coverage.  [/su_box]

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