Michigan Coverage Decisions, Issue 178

Twp. of Maple Forest v. Clearwater Drilling, LLC

Unpublished. Decided May 29, 2014 Michigan Court of Appeals Docket No. 314798.

The defendant was sued for causing damage to the plaintiff’s building. The damage arose when the defendant, which was drilling a well on the plaintiff’s property using a water-chemical solution under high pressure, broke through into the septic system servicing the building, and the contents of the system flooded the building. The defendant claimed coverage for the resulting damages under its general liability policy, which the insurer denied, relying on a pollution exclusion. The policy also contained an endorsement, however, providing limited coverage for damages resulting from the over-spray of pollutants.

The defendant filed a third-party complaint for a declaration that the policy applied. The trial court granted summary disposition to the insurer in part because the policy clearly excluded coverage for pollutants and the water-chemical solution, mixed with the sewage from the septic system, constituted a pollutant. The trial court also ruled, however, that there was a question of fact as to whether the chemical solution was a pollutant before it entered the septic system. The court subsequently ruled that the chemical was not a pollutant because, when mixed with water alone, it was non-toxic, and the endorsement, which only covered over-spray of pollutants, did not apply. The Court of Appeals affirmed this decision, but reversed on the issue of whether the insurer had a duty to defend the principal damage claims against the defendant. The Court stated that the claims as made by the plaintiff were arguably within coverage and the insurer had the duty to defend against those claims.

[su_box title=”Kallas & Henk Note”] This decision is confusing in that the Court of Appeals held that the policy plainly did not apply, but also found that the claims were arguably within the policy’s coverage. The Court focused on a narrow review of the plaintiff’s complaint and, because the plaintiff did not specifically allege that its property was damaged by a pollutant, there was “arguably” a claim within coverage.  This case is a good example of the inconsistent treatment in the courts on the duty to defend. On the one hand, the contract language says there is only a duty to defend for claims that are covered. On the other hand,  the courts in cases like this, find a duty to defend where there is a finding of no coverage. [/su_box]


Hunt v. Drielick

Published. Decided June 26, 2014 Michigan Supreme Court, 496 Mich 366 (2014).

In January, 1996, the driver of an unloaded semi-tractor was involved in a multi-vehicle accident which resulted in injuries to two persons and the death of the plaintiff’s decedent. The insured employed the semi-tractor driver, who was under dispatch to pick up a load for delivery when the accident occurred, but who was driving without an attached trailer. The driver was to pick up the load from a company with whom the insured only had a verbal lease, contrary to federal trucking regulations . The insurer provided coverage for the vehicle, but only when not carrying property for another or when the semi was not being used for another’s business purpose. The trial court initially held that the exclusion did not apply, but the Court of Appeals reversed on the basis that there was a question of fact whether the semi was being used for a business purpose.

On remand ,the trial court again held that the business-use exclusion was inapplicable, but the Court of Appeals reversed finding that the semi was being used to carry property for another even though a load had not been attached (see Coverage Reporter 165). The Supreme Court reversed, and held that the plain language used in the first part of the exclusion applied only when the semi-tractor was actually hauling a load, and not merely when it was being used during a time when the purpose of operating the vehicle was to carry property. The Court also noted that additional facts had to be developed as to whether the second part of the exclusion applied, namely whether the semi was being used for the business purpose of another when there was not a written lease between the two trucking companies.

[su_box title=”Kallas & Henk Note”] Despite the long procedural history of this case, and the complicated facts involved, the decision stands for the simple proposition that all policy terms are to be given effect and interpreted according to their commonly understood meaning. [/su_box]

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