Michigan Coverage Decisions, Issue 170

Auto-Owners Ins. Co. v. All Star Lawn Specialists Plus, Inc.

Published. Decided July 9, 2013 Michigan Court of Appeals Docket No. 307711.

The underlying plaintiff worked as a laborer for the defendant performing lawn maintenance. In the course of his duties, the underlying plaintiff was injured while unclogging a jammed leaf vacuum machine which fell on him because it had not been attached to the truck that towed it to the work site. The insurer covered the defendant under a workers compensation policy, a general liability policy, and a no-fault auto policy. The underlying plaintiff claimed coverage under the general liability and no-fault policies for his injuries, and the insurer brought this action to determine the relative rights of the parties in those policies. The trial court granted summary disposition to the underlying plaintiff finding that he was an independent contractor as defined in the Workers Disability Compensation Act (finding that if 1 of the 3 elements set forth in the Act applied, then the employee was an independent contractor), and that this definition applied to the interpretation of the employer liability exclusion in the general liability policy (and finding that coverage was therefore available because he was not an employee), and that the parked vehicle exclusion in the auto policy was inapplicable.

The Court of Appeals reversed in part. With regard to workers compensation, the Court held that it was obligated to follow a prior Court of Appeals decision, even though it disagreed with its reasoning. The WDCA lists 3 elements of an independent contractor, and the language used suggests that all 3 elements must be fulfilled. The Court held that summary disposition was not appropriate on the issue of whether the employer liability exclusion in the general liability policy applied because there was a question of fact as to whether the underlying plaintiff was an employee under the economic realities test (the Court held that the WDCA definition is not applicable to insurance construction.) Finally, the Court held that the parked vehicle exclusion applied to eliminate coverage under the auto policy because the car was stopped at the time of the accident.

[su_box title=”Kallas & Henk Note”] The Court was explicit in stating that it disagreed with the Court’s prior decision regarding the interpretation of the WDCA, and the Court has convened a special panel to consider a reversal of that prior decision. This opinion also sets forth standards for determining whether a person is an employee or independent contractor, both under the WDCA and for purposes of construing liability policies. [/su_box]


Fremont Ins. Co. v. Martin

Unpublished. Decided August 15, 2013 Michigan Court of Appeals Docket No. 310906.

The issue in this case was whether the defendant was an insured under his father’s homeowners policy for serious injuries that the underlying plaintiff suffered. The defendant lived in his own apartment, where he kept all of the possessions he needed for daily living, and only left a few incidental items at his father’s house. The defendant had not formally changed his address with the post office and on his driver’s license, but he had notified others of the address change and routinely referred to the apartment as his residence.

He did, however, host a party at his father’s house, without his father’s knowledge, and, as a result of alcohol consumed at the party, the underlying plaintiff was injured in a motor vehicle accident. The insurer denied coverage for the son on the basis that the defendant was not a resident relative. The trial court granted summary disposition for the insurer, and the Court of Appeals affirmed on the basis that, under the totality of the circumstances, the defendant was not residing with his father at the time of the accident.

[su_box title=”Kallas & Henk Note”] The Michigan Supreme Court has now set out the considerations to follow when determining resident relative status, and the determination will vary depending on the facts of a particular case. [/su_box]


Farm Bureau Mut. Ins. Co. of Mich. v. Bowers

Unpublished. Decided July 9, 2013 Michigan Court of Appeals Docket No. 311811.

The plaintiff insured a boat that was owned by the injured party’s parents. The spouse of the injured party accidentally caused injury to him while she was operating the boat. The policy included in its definition of an insured any person legally responsible for watercraft owned by an insured, but excluded coverage for injuries to an insured person. The plaintiff argued that both the injured party and his spouse were legally responsible for the boat, because they were using it with the owners’ permission, and, as an insured person, coverage for damages to the injured party was excluded.

The trial court determined that the injured party’s spouse was legally responsible for the boat, because she was operating it at the time of the accident, and that, as a result, the injured party was not. The trial court held therefore that coverage was available because the injured party did not meet the definition of an insured person. The Court of Appeals found there was insufficient evidence as to whether the injured party was legally responsible for the boat. The Court was principally concerned as to whether the parents had given full control of the boat to the injured party and his spouse such that the parents no longer had the right to say how and when the boat should be used. As a result, the Court remanded the case to the trial court for further development of the facts.

[su_box title=”Kallas & Henk Note”] Even though this decision involves a policy that is not commonly issued, it is instructive and can apply to the interpretation of other policies, including whether a party is an insured, and therefore excluded. [/su_box]


Nagy v. Westfield Ins.

Unpublished. Decided July 30, 2013 Michigan Court of Appeals Docket No. 311046.

The plaintiff was injured in a motor vehicle accident while driving a vehicle owned by her husband’s business. The insurance maintained by the at-fault driver was insufficient to compensate for the plaintiff’s injuries, and the plaintiff sought under-insured motorist benefits from the auto policy, issued by the defendant to the husband’s business. While the policy covered the vehicle for no-fault purposes, UIM coverage was limited to vehicles that were licensed or garaged in a state that required UIM coverage. The vehicle that the plaintiff was driving was licensed and garaged in Michigan, which is a state that does not mandate UIM coverage.

The policy contained an endorsement, however, which defined an insured as any person occupying a covered auto. The plaintiff argued, and the trial court agreed, that the endorsement modified the policy and that she was an insured for UIM coverage by virtue of the endorsement because she was occupying a covered vehicle. The Court of Appeals rejected the plaintiff’s argument and reversed the trial court. The policy defined the vehicle differently for purposes of UIM coverage than it did for other purposes and the vehicle was not a covered auto. Because the plaintiff was not occupying a covered auto, she was not an insured and not entitled to UIM benefits.

[su_box title=”Kallas & Henk Note”] This decision reflects the analysis that must be used to interpret a policy, particularly garage policies, that delineate covered vehicles for different coverages by way of symbols set forth in the declarations or endorsements. [/su_box]


Cincinnati Ins. Co. v. Vemulapalli

Unpublished. Decided July 30, 2013 Michigan Court of Appeals Docket No. 309980.

This case arises out of a water damage claim related to a plumbing system failure in August 1988. In prior decisions, the plaintiff was held liable for payment of the cost to replace a fire alarm system damaged by the plumbing failure (which exceeded $650,000.00), rather than the actual cash value of that system (about $32,000.00). The issue then became whether the plaintiff was liable to pay penalty interest under the Michigan Unfair Trade Practices Act, and specifically MCL 500.2006(3). The Court of Appeals in one of its prior opinions directed the trial court to consider whether the plaintiff had complied with the UTPA by providing notice to the defendant of the information needed to file a satisfactory proof of loss, as required by the UTPA, once the defendant’s right to make a claim for replacement cost had been decided.

The trial court held that the defendant had not submitted a satisfactory proof of loss, that the plaintiff’s obligation to pay under the UTPA was not triggered as a result, and that the defendant was only entitled to interest at the judgment rate set forth in MCL 600.6013. The Court of Appeals was very critical of this decision and remanded the case for further proceedings. The Court gave specific instructions that the trial court was to determine whether the insurer had first provided sufficient notice to the defendant as to the information needed for a satisfactory proof of loss and then to consider whether MCL 500.2006 applied.

[su_box title=”Kallas & Henk Note”] This decision and the 14 year history of this case demonstrates the problems created by the penalty interest provision of the UTPA. The principal amount due was determined and paid in 2005. Since then the parties have been fighting over how to apply the penalty interest. This office has asked the Michigan Supreme Court to address (and correct) what we believe have been erroneous applications of penalty interest. [/su_box]

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