Michigan Coverage Decisions, Issue 34

Victoria Frazier v Western- Southern Life Insurance Company

Unpublished. February 8, 2002 State of Michigan Court of Appeals Docket No. 222570.

Plaintiff, the decedent’s intended beneficiary, filed to recover life insurance proceeds from Defendant insurer. The decedent applied for life insurance and paid a portion of the premium, but did not receive the required physical examination. After his death, the Defendant insurer denied coverage, claiming that the application was rejected sixty days after the date of application. The Trial Court granted summary disposition in favor of the insurer on the basis that the application and premium receipt expressly stated the terms of rejection after sixty days.

On appeal, the Plaintiff claimed the insurer’s actions constituted an implied acceptance. The Court of Appeals declined to find implied acceptance when it would be contrary to contract provisions and no premium refund was required. The Plaintiff further argued that the insurer should have a duty to process the application in a timely manner. The Court of Appeals found that the contract terms supersede any common-law duty. The Court further stated that a contracting party can waive rights by contract terms. The Court found that the application demonstrates a clear waiver of any right to timeliness and no duty to timely process the application existed.

[su_box title=”Kallas & Henk Note”] The Court of Appeals held that the parties’ freedom to contract and the unambiguous terms of the contract (application) to override any common-law implied duties.  [/su_box]


Michigan Basic Property Insurance Association v Michael and Dawn Crouch

Unpublished. February 22, 2002 State of Michigan Court of Appeals Docket No. 227812.

Plaintiff sought declaratory judgment that there was no coverage for third-party injuries under a homeowner policy because no accident occurred on an insured location. Plaintiff issued a homeowner’s policy to the insured providing personal liability coverage. This coverage excluded injuries arising out of a motor vehicle to any person, with an exception for a recreational off-road vehicle operated on an insured location. The third party sued for injuries sustained while operating the insured’s all-terrain vehicle. The Trial Court determined that coverage existed because the definition of insured location was ambiguous.

The Court of Appeals upheld the Trial Court finding coverage based on policy language being patently ambiguous. By including “any premises used by you in connection with an insured premises”, the Court stated that a connection with the premises could span to a range of associations, and that regular use of the neighboring property could be in connection with the insured’s property.

[su_box title=”Kallas & Henk Note”] The broad terms that define insured location were used to find in favor of coverage under a reasonable expectations analysis of the policy. [/su_box]


Sarah Arakelian v Auto Club Insurance Association

Unpublished. February 26, 2002 State of Michigan Court of Appeals Docket No. 227989.

Plaintiff filed a declaratory action seeking uninsured motorist benefits for her injuries sustained in an accident allegedly triggered by an unknown driver. The Plaintiff asserted that the unknown driver caused another car to collide with the vehicle in which she was a passenger. No physical contact was made with the unknown driver’s vehicle. The Defendant insurer denied coverage due to a physical contact requirement for uninsured motorist coverage.

The Trial Court granted summary disposition to the insurer based on the limitation requiring actual physical contact with the uninsured vehicle. The Court noted that physical contact requirement has been broadly construed to include indirect physical contact as long as a substantial physical nexus exists. The Court of Appeals upheld the Trial Court that there was no substantial physical nexus between the vehicles. Because there was no contact, there is no coverage.

[su_box title=”Kallas & Henk Note”] The Court of Appeals followed the proposition that the policy terms for the uninsured motorist policy control coverage. Even broadly construed, the physical contact requirement was valid to preclude coverage in the circumstances of the accident.  [/su_box]


Bernard E. Ely v Wolverine Mutual Insurance Company and William L. Fegel

Unpublished. March 1, 2002 State of Michigan Court of Appeals Docket No. 225584.

Plaintiff filed a lawsuit involving a coverage dispute under his yacht policy. Plaintiff’s yacht engines were damaged after overheating due to an anchor chain wrapping around the boat’s propeller, causing debris to clog the cooling system. The “all risk” policy contained an exclusion which precluded recovery for loss or damage caused by overheating or foreign matter entering the motor except by vandalism.

Plaintiff’s evidence showed that an anchor chain line wrapped around the boat’s propeller ultimately led to the engine damage. The Trial Court determined that the proximate cause of the Plaintiff’s loss was an anchor chain and line wrapped around the propeller, causing the engines to overheat and no foreign matter entered the motor. No evidence showed that an independent cause produced the damage. The Trial Court determined that the policy was ambiguous and therefore construed in favor of coverage.

Defendant argued that the exclusion is unambiguous and excludes coverage for overheating, regardless of whether the anchor chain caught on the propeller. The Court of Appeals held that in the context of “all risk” coverage, the exclusion could be reasonably read to exclude coverage if overheating or extreme temperature is the sole or independent cause of the damage, but not if the damage results from an accident which incidentally involves overheating. The Court of Appeals upheld the Trial Court’s determination that the proximate cause was not excluded by the policy and afforded coverage.

[su_box title=”Kallas & Henk Note”] The Court of Appeals relied on the premise that the proximate cause of loss (the natural and continuous sequence of events), is determinative of coverage. [/su_box]

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