Michigan Coverage Decisions, Issue 176

Schumitsch v. Pioneer State Mut. Ins. Co.

Unpublished. Decided March 20, 2014 Michigan Court of Appeals Docket No. 313046.

The plaintiffs were insured under a farm owners policy. A barn on their property, and the contents, were destroyed in a fire. The policy, however, did not cover loss to farm structures or farm personal property. The plaintiff filed suit when their coverage claim was denied, claiming that their insurance agent misrepresented the terms of coverage to them. The plaintiffs also claimed that the insurer should have covered loss to farm structures and farm equipment under the policy.

The trial court granted summary disposition to the insurer because the plaintiffs had a duty to read their policy , understand its terms, and raise questions as to coverage, but they did not do so. The Court of Appeals affirmed and held that the plaintiffs could not have reasonably relied on any misrepresentation because they ignored information that had been provided to them (i.e., the insurance policy) which clearly set forth the limits of coverage.

[su_box title=”Kallas & Henk Note”] The Court reversed summary disposition as to the agent, however, and remanded the case for a determination as to whether the agent had assumed a duty to properly advise the plaintiffs on coverages in the policy. The Court noted that, consistent with the principles set forth in Harts v Farmers Ins. Exch., 461 Mich 1 (1999), an agent ordinarily does not have such a duty, unless the agent has misrepresented coverage or voluntarily provides advice that is inaccurate. [/su_box]


Dave Cole Decorators, Inc. v. Westfield Ins. Co.

Unpublished. Decided March 25, 2014 Michigan Court of Appeals Docket No. 313641.

The plaintiff was hired to paint steel components in a building. The paint did not adhere correctly and the plaintiff had to re-paint the same areas of the building. The plaintiff demanded reimbursement for its costs from its insurer, which denied coverage because the plaintiff’s defective work was not an occurrence, which the policy defined as an accident.

The trial court granted summary disposition to the insurer and the Court of Appeals affirmed. The only damage for which the insured was obligated to pay was to the plaintiff’s defective paint job. Because the damage was to the plaintiff’s own work, the defective paint job was not an accident, and therefor did not constitute an occurrence.

[su_box title=”Kallas & Henk Note”] The plaintiff argued that an accident had occurred because its defective work damaged the property of others, which has been held in prior cases to be an occurrence. The plaintiff was not required to pay for those damages, so the policy did not apply. A different result probably would have been reached if a claim had been made for damage to the building that resulted from the defective paint job. [/su_box]


Battery Solutions, Inc. v. Auto-Owners Ins. Co.

Unpublished. Decided March 18, 2014 Michigan Court of Appeals Docket No. 311168.

The plaintiff was sued for breach of contract related to an agreement to dispose of used batteries. Instead of disposing of the batteries, the plaintiff sold them to a third party, who sold them to consumers through a website in China. The plaintiff requested a defense in the lawsuit, claiming that the alleged contract damages included personal and advertising injury because the underlying plaintiff alleged damage to its reputation. The insurer denied a duty to defend and the plaintiff filed suit for a declaration that it was obligated to provide a defense.

The trial court denied summary disposition to the plaintiff, and granted summary disposition for the insurer. The Court of Appeals affirmed on the basis that the allegations against the plaintiff were not advertising injury because such damages have to arise from an advertisement in the course of the insured’s business, and the damages in the underlying action arose in the course of a third party’s business.

[su_box title=”Kallas & Henk Note”] The plaintiff attempted to compel a finding of coverage by raising speculative scenarios in which the policy should be held to apply. The Court rejected these arguments because there was no evidence to support them. The Court also noted that, even though there were other theories of liability raised, the claims in the underlying action all arose out of the plaintiff’s performance under a contract, and the policy unambiguously excluded coverage for contract damages. The decision affirms the principle that coverage in a policy is lost if any exclusion applies to a claim. [/su_box]


Tribble v. American Community Mut. Ins. Co.

Unpublished. Decided May 1, 2014 Michigan Court of Appeals Docket No. 314271.

The defendant applied for health insurance coverage through an independent agent. The agent completed the insurance application for the insured, which included a statement as to the insured’s weight and a denial that the insured participated in racing activities. This information was inaccurate. The insured denied giving the agent the inaccurate information. The application was submitted to the defendant for approval, but before the defendant approved coverage, the insured was seriously injured in a motorcycle accident while practicing for a racing event. The defendant was not advised of the accident, and it issued a policy. The defendant later rescinded the policy based on an exclusion which eliminated coverage for injuries incurred in a racing event, and for material misrepresentations in the application, and because the policy did not cover pre-existing conditions and the insured was injured prior to the policy’s effective date.

The insured filed bankruptcy to discharge the significant medical expenses he incurred, and the bankruptcy trustee filed this action asserting that coverage should have been provided. The trial court granted summary disposition to the defendant and the Court of Appeals affirmed. The Court held that the policy was not in effect at the time of the accident and that the plain terms of coverage stated that pre-existing conditions were not covered.

[su_box title=”Kallas & Henk Note”] The Court did not address the other bases on which coverage was denied and stated that it did not have to do so because, whether the exclusions applied and whether the misrepresentations in the application should be attributed to the insured was not a material consideration when the policy was not effective as of the date of the injuries. The Court also noted that the insured’s agent had a duty to properly advise the insured on the extent of coverage, but determined that the insured did not establish a breach of that duty when the insured was not able to show that there was a different coverage available that would have covered him for this incident. [/su_box]


Welch’s Steak & Ribs, Inc. v. North Pointe Ins. Co.

Unpublished. Decided May 22, 2014 Michigan Court of Appeals Docket No. 310697.

The insurer denied coverage for a fire loss at the plaintiff’s business due to the suspicion that the fire was an arson. One of the two persons accused of the arson confessed, and claimed that the owner of the insured paid him to start the fire. The other accused stated that there was no such arrangement. The insurer also raised an issue with the amount of the claimed loss, stating that it had been deceptively inflated. The plaintiff filed suit and a jury trial was conducted. The jury found that the plaintiff’s officers were not involved with the arson, but determined that the plaintiff had engaged in fraud with regard to the claim. The trial court directed a verdict in the plaintiff’s favor, finding that the jury had been confused by the testimony.

The Court of Appeals reversed in part, and stated that it was improper for the trial court to direct a verdict with regard to the jury’s finding that the plaintiff had committed fraud because that determination was an issue solely for the jury to decide. The plaintiff argued that there was no evidence of an intent to defraud, particularly when the insurer did not provide any evidence to rebut the plaintiff’s valuation, but the Court held that intent to defraud can be inferred when there is an extreme disparity between the actual loss and the amount that the insured claims. In this case, there was a 500% difference between what the insured had submitted as a proof of loss and other evidence of what the insured claimed the property was worth prior to the loss.

[su_box title=”Kallas & Henk Note”] The Court set forth a helpful analysis of the law as it applies to misrepresentations in the claims process and the evidence needed to deny a claim on this basis. If the insurer had not obtained evidence of the insured’s prior valuation of the destroyed property, the result would have been very different.  [/su_box]

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