Michigan Coverage Decisions, Issue 7

Frankenmuth Mutual Insurance Company v Masters et al and Lake States Insurance Co.

Published June 15, 1999. Michigan Supreme Court, Number 110452.

In this declaratory action, Frankenmuth provided general liability insurance to Masters. Masters owned a clothing store and intentionally started a fire with the intent to destroy inventory and to collect first party insurance proceeds for that inventory. The fire ultimately spread to nearby businesses causing extensive property damage to those businesses.
The Trial Court held that there was no liability coverage for this incident because it was not accidental and, therefore, there was no “occurrence” as required under the policy. The Court of Appeals reversed finding that there was a question of fact whether the damage to the adjacent businesses was accidental. The Court of Appeals relied on interpretations of prior Michigan Supreme Court decisions.
The Supreme Court reversed and found that Frankenmuth was entitled to judgment as a matter of law. The Supreme Court adopted the following language from a prior decision: “When an insured acts intending to cause property damage or personal injury, liability coverage should be denied, irrespective of whether the resulting injury is different from the injury intended.”

[su_box title=”Kallas & Henk Note”] This unanimous opinion should eliminate the confusion in the courts created by inconsistent prior decisions of the appellate courts in Michigan on the interpretation of the “occurrence” requirement of general liability policies. In order to eliminate future confusion the Court specifically held that to the extent that prior decisions are in conflict with this decision, they are repudiated. [/su_box]

 

Henderson v State Farm Fire and Casualty Company

Decided July 8, 1999. Michigan Supreme Court Docket Number 110822.

State Farm issued a homeowner’s policy to Bonnie Twitchell. Living in the residence was Dawn Mysierowicz. Dawn was the 18 year old girlfriend of Twitchell’s 20 year old son. Dawn was sued for instigating an assault. She sought coverage under State Farm’s policy alleging she qualified as an insured because she was a resident under age 21 “in the care of” an insured.
The Trial Court granted summary disposition in favor of State Farm holding that because she was over the age of majority, not suffering from any disabilities and not under the control of Bonnie Twitchell, she was not “in the care of” the insured. The Court of Appeals reversed finding that the phrase “in the care of” was ambiguous and that there was no genuine issue of fact that coverage applied to her. The Supreme Court reversed the Court of Appeals’ finding that the phrase “in the care of” is not ambiguous and remanded the matter to the Trial court for trial to determine whether Dawn was actually “in the care of” Bonnie Twitchell. The Court listed eight factors that the fact finder should consider to determine whether an individual is “in the care of” another individual.

[su_box title=”Kallas & Henk Note”] This case is significant in that the majority opinion rejects the use of dictionary definitions by themselves to establish ambiguities in insurance contracts. A common practice of the courts and many litigants attempting to establish coverage is to use conflicting dictionary definitions to support their claim that insurance language is ambiguous. The Court emphasized that words are to be interpreted in the context of the phrase in which they are used and stated: “we do not ascribe ambiguity to words simply because dictionary publishers are obliged to define words differently to avoid possible plagiarism”.  [/su_box]

 

Smith v Globe Life Insurance Company

Decided July 13, 1999. Michigan Supreme Court Number 110065.

The insured, when applying for a credit life and disability policy from defendant, misrepresented prior health problems. He subsequently died of a heart attack and the personal representative of his estate made claim for benefits under the policy. Defendant denied coverage on the basis that the policy was void and rescinded because of misrepresentations in the application. The Trial Court granted summary disposition to the insurer based on misrepresentations. The Trial Court also granted summary disposition on plaintiff’s claim that defendant insurer violated provisions of the Michigan Consumer Protection Act on the basis that the Act was unavailable because activities of insurers are regulated by the Michigan Commissioner of Insurance.
The Court of Appeals reversed the Trial Court finding that there was the question of fact whether the insured had made the actual misrepresentations or whether the information contained in the application was filled in by the agent or someone else. The Court of Appeals also held that the Michigan Consumer Protection Act was available for actions against insurers under the circumstances.
The Supreme Court reinstated the summary disposition on the misrepresentation issue but affirmed the Court of Appeals on the Michigan Consumer Protection Act issue and remanded to the Trial Court for trial on this issue. The Court held that a statute governing rescission for disability policies did not limit rescission to situations where the insurer would not have issued the policy had it known the actual facts. The Court held that rescission was also available as a remedy where the actual cause of loss was related to the misrepresentation.

[su_box title=”Kallas & Henk Note”] Because this case involves a disability policy, it would normally be beyond the scope of this reporter, which is intended to cover property and casualty coverage issues. This case, however, has two findings that could have significant implications for all types of coverage and cases. While the Supreme Court’s opinion only addresses misrepresentation in an application for disability insurance, the Court’s reasoning could apply to misrepresentations in applications for other types of coverage. Recent case law in Michigan has held that the only way an insurer can rescind based on misrepresentation is if it can prove that it would not have issued the policy had it known the actual facts. This case suggests that rescission may also be appropriate where the actual loss is related to the misrepresentation.

A second very significant holding in this case pertains to the standard for granting summary dispositions. In recent years, trial courts have been relying on language from appellate decisions which state that summary disposition is appropriate only if it is impossible for the nonmoving party to support his or her claim at trial because of a deficiency that cannot be overcome or if a record “might be developed” that will leave open an issue upon reasonable minds may differ. In this case, the Supreme Court held that the proper standard is that the nonmoving party must present documentary evidence establishing the existence of a material factual dispute at the time of the hearing, or the motion should be granted. All pending cases in which a motion for summary disposition has been denied under the old standard, should be reviewed for possible reconsideration using the correct standard as applied in this decision. [/su_box]

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