Michigan Coverage Decisions, Issue 5

Continental Casualty Company vs. Harvey

Published. May 6, 1999. United States District Court Western District of Michigan Southern Division

Plaintiff provided a professional liability policy to Harvey, an engineer. The policy included an endorsement which excluded coverage for any wrongful act occurring prior to the inception of the policy. Policy inception date was April 1, 1996. Prior to that date Harvey was retained by developers to design a commercial structure and provide consultation on code requirements. Harvey apparently provided incorrect advice on the need to install a sprinkler system in the building. The advice was provided prior to April 1, 1996 but the principal construction of the building took place after April 1, 1996. The developers filed a professional malpractice action against Harvey.

In this declaratory action, Continental sought a ruling that it had no duty to defend or indemnify Harvey because of its exclusion for prior acts. The developers (standing in the shoes of Harvey) argued that coverage existed for damages occurring after the policy inception date even if the incorrect advice was provided prior to the inception date. The Court rejected this position and held that the prior acts exclusion unambiguously excluded coverage for wrongful acts occurring prior to the inception date even if damages flowing from those wrongful acts occurred after the inception date.

[su_box title=”Kallas & Henk Note”] The Court, applying Michigan law, rejected the creative argument that this circumstance constituted a “continuing tort” which required the Court to allocate damages incurred before and after the policy inception date. The Court held that such an allocation would be contrary to the plain language of policy. [/su_box]


Kirschner vs. Process Design Associates Inc. vs. General Accident Insurance Company of America

Published. May 11, 1999. Michigan Supreme Court, Docket No.’s 109609, 109610.

In this garnishment action, plaintiff as judgment creditor against the principal defendant Process Design sought to recover a judgment against Process Design under a general liability policy issued by garnishee defendant to Process Design. The insurer refused to pay the judgment as result of an exclusion for negligent design. The plaintiffs alleged that the insurer was estopped from denying coverage because it did not notify plaintiffs in the underlying action of its reservation of rights. Additionally, it argued that the insured’s failure to disclose in interrogatories that the defense was under a reservation of rights, estopped the insurer from relying on the exclusion.

The Michigan Supreme Court rejected both arguments holding that (1) the plaintiffs stand in no better position than the principal defendant and (2) the insurer properly notified the insured that it was defending under the reservation of rights. The Court also rejected plaintiff’s argument that the insureds answers to interrogatories could bind the insurer for the reason that defense counsel who answered the interrogatories was acting on behalf of the insured and not the insurer.

[su_box title=”Kallas & Henk Note”] In a concurring opinion, Justices Kelly and Cavanaugh would require insurers to notify the trial court and all other parties of limitations on coverage and would allow a court to consider whether to enforce policy exclusions where untimely notice has prejudiced a plaintiff. It is clear that these two Justices have failed to recognize that plaintiffs and the defendants they are suing are adversaries. [/su_box]


Allstate Insurance Company vs. Thom

Unpublished: Decided May 18, 1999. State of Michigan Court of Appeals.

In this declaratory action, plaintiff sought a ruling that it had no duty under its homeowners policy to defend or indemnify the insured. The insured homeowner was sued by the next friend of a minor child who had been cared for in the insureds home. The minor child apparently sustained personal injuries from “shaken baby syndrome”. The plaintiff denied coverage on the basis that policy excluded coverage for liability asserted against an insured for injuries sustained by another insured. The trial court granted plaintiff summary disposition finding that the exclusion did apply.

The Court of Appeals affirmed finding that a foster child is considered a resident of the foster parent household even if the placement is temporary.

[su_box title=”Kallas & Henk Note”] What is interesting about this decision is the citation in the opinion to prior unpublished decisions of the Court of Appeals. Normally, appellate courts are reluctant to cite prior unpublished decisions. Many litigants make the mistake of neglecting to cite unpublished decisions because of the general perception that appellate courts will only rely on published decisions.  [/su_box]


Veterans of Foreign Wars vs. Auto Owners

Unpublished. Decided May 25, 1999. Michigan Court of Appeals Docket Number 202664.

Plaintiff sought coverage under the personal injury and advertising injury portions of the commercial general liability policy issued by defendant. Plaintiff was sued in the underlying action for tortious interference with an employment relationship between a company who had contracted with plaintiff and its former employees. The trial court granted summary disposition in favor of defendant insurer.

The Court of Appeals affirmed finding that the tortious interference with employment relationship claim asserted in the underlying action did not involve the personal or advertising injury as defined in policy. The court found dispositive the fact that there was nothing in the underlying action which alleged that the insured was being sued for disparagement of goods, products or services or that the alleged injuries were caused by advertising activities.

The dissenting opinion would have found a duty to defend under the advertising injury coverage. The dissent applied a broad definition of advertising finding that the allegation of solicitation of donors constituted advertising activity.

[su_box title=”Kallas & Henk Note”] This case is most notable for the following statement contained in the majority opinion: “We note that for courts generally to order coverage by an insurer merely because a conceptual possibility exists that the insured’s actions could fall within the scope of the applicable liability policy would undermine the well settled proposition that an insurer will not be responsible for a risk that it did not assume.” [/su_box]

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