Michigan Coverage Decisions, Issue 199

Altman Management Co v AON Risk Ins Servs West, Inc.

Unpublished opinion per curiam of the Court of Appeals, issued September 20, 2016 (Docket No. 328593), leave denied May 2, 2017 (Docket No. 154651).

The plaintiff management company sued the defendant risk services company for breach of contract and negligence after the defendant mishandled a claim which resulted in a default judgment against the plaintiff. Both parties had erred in their handling of the claim. The indemnification clause provided that the plaintiff management company was to indemnify the defendant risk services company for “all” damages or losses “arising by reason of, or arising out of any error or omission” by the plaintiff management company. The trial court determined that the indemnification clause in the parties’ contract applied to bar the plaintiff’s lawsuit.

The Court of Appeals determined that the broad language of the indemnification clause of the parties’ agreement encompassed the matter before the court, since the plaintiff management company’s numerous errors and omissions had played a part in the default judgment entered against it. The Court reviewed case law and determined that “arising out of” has been held to mean “almost any causal connection or relationship”, and affirmed the trial court.

[su_box title=”Kallas & Henk Note”] The Court of Appeals followed Michigan case law finding that it is not contrary to Michigan’s public policy for a party to contract against liability for its own ordinary negligence. [/su_box]


Dewley v Pioneer State Mut Ins Co.

Unpublished, Decided October 25, 2016, Michigan Court of Appeals Docket No. 324751.

The plaintiff lived with another person, and got into an accident while driving the insured’s car. The plaintiff wasn’t named as a driver on the other party’s policy, and it was later determined that plaintiff’s driving record would have rendered her ineligible for coverage. The defendant insurer rescinded the policy based on fraud. The trial court, at bench trial, found sufficient evidence for fraud in that the plaintiff and the insured failed to inform defendant of her residency and the use of the vehicle.

The Court of Appeals affirmed. The insured renewed the policy and failed to disclose information. He understood that all drivers needed to be identified at the policy renewal. The trial court found she was not an innocent third party. However, the Court of Appeals found that plaintiff’s status was not material to the defendant’s entitlement to rescind under the reasoning in 315 Mich App 763; 891 NW 2d 13 (2016)(2016) (Docket No. 320518).

[su_box title=”Kallas & Henk Note”] The Court of Appeals followed the Supreme Court’s decision in Titan v. Hyten and Bazzi v. Sentinel as the most recent pronouncements in Michigan law regarding rescission and innocent parties. [/su_box]


Stanton v Auto Owners Ins Co.

Unpublished, Decided October 25, 2016, Michigan Court of Appeals Docket No. 324751.

A minor “volunteer and/or employee” was injured while operating a cherry catcher on the plaintiff insured’s farm. Defendant insurer filed a declaratory action after the minor sued the plaintiffs seeking a determination that there was no coverage under the farm policy, arguing that coverage was excluded for employee personal injury actions. The minor was determined to be an employee and prevailed against the insured. The defendant insurer then settled the declaratory action case. The plaintiffs later filed this suit for breach of contract against the defendant, claiming that the defendant voluntarily paid the sums, as it should have known that the underlying minor was not an employee, but a volunteer and claiming that the insurer did not fulfill its duty to defend by it retention of counsel under reservation of rights and retention of counsel with loyalty to the insurance carrier.

The trial court granted defendant’s summary disposition on the issue of res judicata and plaintiff’s amended the complaint to assert breach of duty of loyalty claims based on the retained counsel and the representation provided in the prior settled matter. Plaintiffs appealed, and the Court of Appeals affirmed.

[su_box title=”Kallas & Henk Note”] The Court closely examined the issue of the relationships created by the retention of defense counsel for an insured and declined to find that an attorney retained by an insurance carrier has any duty to any party other than the insured client. [/su_box]


Kens Holding LLC v Auto Owners Ins Co.

Unpublished, Decided November 1, 2016, Michigan Court of Appeals Docket No. 325427.

The plaintiff sold a commercial building to HCSL under a land contract. The defendant issued a commercial insurance policy to HCSL which also listed the plaintiff under “Additional Interests”, “Contract Holder”, and a separate notation identifying plaintiff as “Land Contract Holder”. The building was damaged by fire and defendant denied the claim based on misconduct by HCSL and took the position that coverage for KEN Holdings was also voided based on a particular loss payable provision. In the original appeal, the Court of Appeals found that the policy was ambiguous regarding which loss payable clause applied to govern the plaintiff’s right to recover under the policy and remanded to the trial court.

On remand, the trial court heard testimony from competing experts and again granted summary disposition in favor of the insurer. KEN Holdings appealed claiming ambiguity based on the loss payable provisions. The Court of Appeals focused on the interpretation of the disputed loss payable endorsement and which category of interested party applied to KEN Holdings, determining that because all categories were contained on one endorsement for a single premium and without a “pre-selection” of which category applied, the determination of coverage rested on whether the party factually meets the requirements under the loss payable endorsement and determined that KEN Holdings did meet the requirements and coverage was afforded as a matter of law. The panel was split in its decision with the dissent determining that the majority improperly applied the contra-insurer rule to justify its ruling. The dissent would have remanded for a factfinder to address the issue based on the conflicting testimony presented.

[su_box title=”Kallas & Henk Note”] The dissent properly would have remanded the matter for a determination by a factfinder in accordance with Michigan law under Klapp v. United Ins. Group Agency, 468 Mich 459; 472 NW 2d 447 (2003). [/su_box]


Oakwood Health Care Inc. v Hartford Ins Co of the Midwest

Unpublished, Decided November 22, 2016, Michigan Court of Appeals Docket No. 328162.

The defendant insurer issued a commercial insurance policy which did not include any information regarding the injured Plaintiff as an employee or operator of any of the insured vehicles. The application affirmed that all information was disclosed and was signed by the Plaintiff’s father, the owner of the business entity insured. The insurer filed a motion for summary disposition arguing that it was entitled to rescind and such rescission was not prohibited by the innocent third-party rule. The trial court agreed that material misrepresentation had been made regarding the vehicle ownership and use and that the insurance carrier would be entitled to rescind, but denied the motion based on the injured Plaintiff being an innocent third-party.

The Court of Appeals reversed the denial of the motion based on the innocent third-party rule provided a detailed analysis of the Supreme Court’s reasoning pertaining to rescission involving innocent third-parties as set forth in Titan Ins. Co. v. Hyten, 491 Mich 547; 817 NW 2d 562(2012) and the extension of the abrogation of the innocent third-party rule in the decision issued in Bazzi v. Sentinel Ins. Co., 315 Mich App 763; 891 NW 2d 13 (2016).

[su_box title=”Kallas & Henk Note”] This is one of a number of cases which followed the dictates regarding innocent third-parties as clarified by Bazzi v. Sentinel Ins. Co., 315 Mich App 763; 891 NW 2d 13 (2016). Of note, Bazzi v. Sentinel Ins. Co., was recently argued before the Michigan Supreme Court and a decision is still pending. [/su_box]

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