Michigan Coverage Decisions, Issue 27

Citizens Insurance Company v Chrysler Insurance Company et al

Unpublished. Decided September 18, 2001. Michigan Court of Appeals Docket No. 219332.

In this action, Citizens insured a vehicle repair company for automobile liability. In the course of their business, the vehicle repair company worked on a vehicle for a dealership insured by Chrysler Insurance. While returning the vehicle to the dealership, an employee of the vehicle repair company was involved in an accident injuring the occupants of the other vehicle. They sued for personal injuries and a settlement was reached. This action was to determine who would be ultimately liable for the amount of the settlement. Chrysler Insurance contended that it did not have coverage under its garage liability policy for the reason that it covered only events occurring in the course of garage operations for the dealership. In addition, Chrysler and the dealership contended that they were entitled to indemnification from the vehicle repair company and its employee because their liability was passive arising only by operation of law.

The Trial Court held in favor of Chrysler finding that its liability was limited to damages arising out of its garage operations only. In addition, however, the Trial Court held that this provision of the contract was in violation of Michigan law and that therefore the contract would provide coverage for the minimum mandatory amount required under Michigan law ($20,000/$40,000). Also, the Trial Court held that the dealership and Chrysler were entitled to indemnity under common law principles for the amounts it contributed to the settlement.

The Court of Appeals affirmed finding that the Chrysler Insurance policy, when read as a whole, provided coverage for damages caused by the dealership’s vehicles when used in its garage operations. The Court of Appeals also affirmed the finding that this provision was contrary to Michigan law requiring liability coverage for all permissive users of covered vehicles. Finally, the Court also affirmed the Trial Court finding that the dealership and Chrysler were entitled to common law indemnification from the vehicle repair shop and its employee.

[su_box title=”Kallas & Henk Note”] The unusual aspect of this case is that the Court of Appeals resolved conflicting language in the Chrysler garage liability policy without finding an ambiguity creating coverage. The Court of Appeals seemed to agree that while the definition of insured in the policy would eliminate coverage and the basic insuring agreement and definition of garage operations would provide coverage, this did not create an ambiguity. Rather, the Court applied general insurance contract interpretation law that an insurance policy must be read as a whole and effect must be given to all its provisions to find that the specific definition of insured eliminated coverage. It is our opinion that many Courts would disagree with this resolution. [/su_box]


John Boerman v American Empire Surplus Lines Insurance Company

Decided October 2, 2001 United States District Court, Western District of Michigan, Southern Division Case No. 00-CV-172.

Plaintiff filed a declaratory action seeking to determine whether Defendant had a duty to defend him in a third party lawsuit relating to pollution damage caused by Plaintiff’s excavating business operations and further claiming indemnification for a default judgment entered against him. The Defendant insurer provided coverage on a “claims-made“ basis, covering only those claims first made against the insured during the oneyear policy period. Only claims or lawsuits actually filed during the effective policy period were covered under the policy.

In 1996, a lawsuit claiming negligence was filed against the Plaintiff, upon the discover y of pollution, relating to a 1994 excavation of underground storage tanks done by Plaintiff. Plaintif f never notified Defendant insurer about the lawsuit. The Defendant insurer denied coverage on the basis of failure to provide notice during the appropriate policy period.

The District Cour t determined that the insurer did not have a duty to defend or provide coverage on the basis that the Defendant failed to provide notice of claim during the applicable policy.

[su_box title=”Kallas & Henk Note”] This decision contains an excellent discussion of the need for strict adherence to the notice requirements contained in a claims made policy. The Court cited decisions from around the country supporting Defendant’s position that failure to enforce the notice provisions would defeat the purposes and benefits of claims made coverage. The decision also rejects an argument by the insured that statements made by an independent insurance agent regarding the terms and conditions of coverage could bind the carrier under Michigan law.  [/su_box]


Ronald Connors and David Cook v Citizens Insurance Company

Unpublished. Decided October 19, 2001 State of Michigan Court of Appeals Docket No. 222224.

Plaintiff filed a declaratory judgment action against his homeowner’s insurer to determine the applicability of an exclusion eliminating coverage for “motor vehicles” or any other motorized land conveyances to his ownership of a machine, referred to as a “racing snowmobile” and/or a “drag sled”. Plaintiff sought this determination in order to obtain coverage for lawsuit filed against him due to the operation of this machine on a frozen lake, loss of control by the operator, and subsequent striking and injuring a third party.

The Defendant insurer argued that because the machine fit the statutory definition of a “snowmobile”, it was a “motor vehicle” and therefore coverage was excluded by the application of this policy exclusion. Plaintiff argued that the statutory definition should not determine the classification of the machine as a “motor vehicle”, therefore the exclusion would not apply.

The Court agreed with the Defendant insurer that “drag sled” was a “motor vehicle” within the meaning of the policy exclusion. The lack of definition for the term “motor vehicle” does not create an ambiguity in the policy. The Court applied a commonsense view in determining that the machine in question was a type of snowmobile and clearly a motor vehicle. The Court found it irrelevant that the use of the machine was limited to icy surfaces.

[su_box title=”Kallas & Henk Note”] In this case, the Court of Appeals panel rejected dictionary definitions of “motor vehicle” because the definitions varied depending on the dictionary consulted. Rather, the Court looked to the contract as a whole to determine that motorized vehicles of all sorts were excluded from coverage and that the intent of the contracting parties was to exclude coverage for motorized vehicles except those specifically covered.  [/su_box]


Ramon Soria and Felipe Soria v AAA Michigan

Unpublished. Decided October 26, 2001 State of Michigan Court of Appeals Docket No. 216155.

Plaintiffs filed a breach of contract action against their insurer after the denial of a claim in regards to a stolen vehicle. The insurer denied the claim on the basis of no insurable interest on the part of the named insured. The vehicle was purchased by the insured’s son and titled to him, while the insurance was placed in his father’s name. The insured’s son was uninsurable because he had a revoked drivers license.

The Trial Court granted summary disposition to Defendant on the basis that the named insured had no insurable interest in the vehicle. The Court of Appeals determined that there was a question of fact whether both father and son were considered owners under Michigan law based on possessory usage of vehicle by the son. Because of this question on the ownership issue, the Court reversed the dismissal of the Plaintiff’s breach of contract claim.

[su_box title=”Kallas & Henk Note”] It appears from this decision that there was insufficient factual development in the Trial Court. The Court of Appeals relied on general principles under Michigan law preventing summary dispositions where conflicting facts are present. [/su_box]

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