Michigan Coverage Decisions, Issue 181

Steel Supply & Engineering Co. v. Illinois National Ins. Co.

Unpublished. Decided August 18, 2014, Case No. 1:13-CV-1034 (W.D. Mich 2014); Affirmed August 13, 2015, Fed App 0570N (6th Cir. 2015).

Plaintiff contracted with a City to supply and erect steel structures as a part of a larger construction project. During the course of the project, the City learned that Plaintiff’s work was defective. The City filed suit against Plaintiff and alleged that it was forced to hire experts to make a remediation plan, perform remediation, delay completion of the project, and compensate the other contractors for the costs of the delays. Defendant, as Plaintiff’s insurance carrier, initially agreed to defend the lawsuit filed by the City under a Reservation of Rights. Upon further investigation Defendant denied coverage for the claim and withdrew its defense and indemnity.

At issue in this case was whether the damages alleged by the City constituted an occurrence under the insurance policy. Defective workmanship alone does not constitute an occurrence, rather there must be damage to the property of others. Plaintiff argued that the City could raise additional allegations which would constitute an occurrence. The District Court found that Defendant’s duty, in determining whether there was an occurrence, is limited to examining the allegations in the underlying complaint. An insurance carrier does not owe a duty to look beyond the allegations of the complaint to determine what other claims a third party could potentially bring, but only to examine whether, under the facts alleged in the complaint, any theory of liability would be covered under the policy. The Sixth Circuit Court of Appeals affirmed the dismissal finding that there was no occurrence. There was no evidence that any third party sought contribution from the City, nor did the underlying complaint explicitly claim reimbursement to third-party property and therefore, there was no occurrence.

[su_box title=”Kallas & Henk Note”] The duty to defend is dependent upon an occurrence as alleged in the facts and allegations of the underlying complaint, and not upon the world of possibilities.  [/su_box]


Farm Bureau General Ins. Co. of Mich. v. Holstine

Unpublished. Decided September 2, 2014, Michigan Court of Appeals Docket No. 315917.

Defendant ran a meat processing business out of his garage. A child was injured while Defendant’s son was cleaning the meat processing equipment and Defendant was talking to a potential customer. The parents of the injured child filed suit and Plaintiff Insurer, filed a declaratory action on the basis of the business exclusion provision in Defendant’s homeowners insurance policy.

The garage where the injury occurred was determined to not be an “insured location” as defined under the policy because the garage was used solely for the meat processing business. The business exclusion also applied because Defendant had business cards, a customer ledger, customer receipts, income taxes, and assumed name paperwork that all supported that Defendant was engaged in a meat processing business, part-time. Finally, the “activities performed by a minor” exception did not apply because the injured child was not the one working at the time of the incident. The Court of Appeals found that all that was required to trigger the business exclusion was that the acts performed were normally performed for profit. Because the injury was caused by a piece of business equipment it arose out of the business activities of Defendant and the business exclusion applied.

[su_box title=”Kallas & Henk Note”] This case follows a long line of cases where the outcome is dependent upon the activity performed at the time to determine whether it was for business or personal use. These types of cases must be looked at on a case by case basis.  [/su_box]


Swistak v. Home-Owners Ins. Co.

Unpublished. Decided September 9, 2014, Michigan Court of Appeals Docket No. 317178.

Plaintiff was involved in a car accident; at the time of the accident her insurance policy included an underinsured motorist endorsement. Plaintiff filed suit against her insurance carrier over thirty seven (37) months later for underinsured motorist benefits. The policy language required any person seeking underinsured motorist benefits to “conform with any applicable statute of limitations applying to bodily injury clams in the state in which the accident occurred.” Defendant Insurer filed a motion for summary disposition on the basis that Plaintiff’s suit was barred by the Michigan three (3) year statute of limitations. Plaintiff argued that the word “any” in the insurance policy allowed her to choose any bodily injury statue of limitations, including the five (5) year period for domestic assault.

The Court of Appeals refused to find ambiguity in the limitations provision in the policy and gave effect to all terms, words, and phrases in the policy. The Court of Appeals found that “any applicable statute of limitations applying to bodily injury claims in the state” required applying the statute of limitation period for personal injuries arising from a car accident and not domestic assault. Plaintiff’s claim was dismissed as being barred by the applicable statue of limitations.

[su_box title=”Kallas & Henk Note”] This case follows established case law that all language in an insurance policy must be given effect and disfavors finding ambiguity in policy provisions. [/su_box]


Frost v. Progressive Mich. Ins. Co.

Unpublished. Decided September 23, 2014, Michigan Court of Appeals Docket No. 316157; Leave Granted March 31, 2015, Docket No. 150382 (Mich. 2015).

Plaintiff procured a no-fault automobile insurance policy through Progressive; a month later her car was destroyed. A month after that, Plaintiff’s minor daughter was injured while an occupant of an uninsured car; her claim was assigned by the Assigned Claims Facility to Citizens. Approximately three (3) months after the accident, Plaintiff’s no-fault insurer, Progressive, informed Plaintiff that her policy was rescinded ab initio because the policy was procured through fraud.

Citizens filed a claim for reimbursement against Progressive for the monies it paid on behalf of Plaintiff’s daughter for PIP benefits. The trial court denied Progressive’s motion for summary disposition finding that once the accident to Plaintiff’s daughter occurred, Progressive lost the ability to rescind the No-Fault policy to an innocent third-party, Plaintiff’s daughter. The Court of Appeals reversed and found the trial court’s ruling inconsistent with Titan Insurance Company v. Hyten, 491 Mich 547 (2012); wherein the Supreme Court held that an insurer is not precluded from rescinding a policy due to fraud in the application, even when the claimant is a third party, absent a contrary statutory provision.

[su_box title=”Kallas & Henk Note”] Cases have come down on both sides of this issue, regarding whether rescission is an available remedy in the no-fault context where there is fraud in an application for insurance and a third-party is injured. The Supreme Court has vacated this decision and ordered the Court of Appeals to hold this case in abeyance pending Bazzi v. Sentinel Insurance Company, 497 Mich. 886 (2014).  [/su_box]

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