The Journal of Insurance & Indemnity Law
A quarterly publication of the State Bar of Michigan’s Insurance and Indemnity Law Section
Volume 13, No. 4 October 2020 In this Issue
Section News
From the Chair...... 2 Jason J. Liss
Editor’s Note...... 3 Hal O. Carroll
Annual Meeting and Program...... 3
State Bar of Michigan Insurance and Indemnity Law Section Ballot for Election of Officer and Council Members...... 4
2019-2020 Insurance Law Section Council ...... 23
Feature Articles
Insurance and the GIG Economy: The Repercussions of the Narrow Definitions Contained within the Limousine, Taxicab, and Transportation Network Company Act...... 5 By Michael J. Olcese, II and James McCoy
No One Knows What “Physical Loss” Means: All-Risk Insurance and the Coronavirus...... 9 By Chris Kozakand D. Andrew Portinga
To Defend or Not to Defend: That is the Question...... 12 By Henry S. Emrich
Spectrum Health: Court of Appeals Applies First Principles in Landmark No-Fault Decision...... 13 By Jack L. Hoffman
Pros and Cons of Self-Insured Retentions...... 15 By Renee Vander Hagen
Columns
Legislative Update...... 17 By Patrick D. Crandell Selected Insurance Decisions...... 18 By Deborah A. Hebert
This journal is published by the Insurance and Indemnity Law Section, State Bar of Michigan Hal O. Carroll, Journal Editor www.HalOCarrollEsq.com (734) 645-1404 Opinions expressed herein are those of the authors or the editor and do not necessarily reflect the opinions of the section council or the membership. The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
From the Chair
Our (Remote) Annual Meeting essay and in addition to the scholarship, her essay would be October 27, 2020 published in the January 2021 edition of our Journal. Our Via Zoom scholarship winner wrote an excellent essay addressing the le- When I began serving my term as gal tension workers’ compensation insurers face when navigat- Chairperson of the Insurance and In- ing the conflict between state and federal law concerning the demnity Law Section of the State Bar use of medical marijuana. So, be sure to look for the winning of Michigan last October, I could never scholarship essay in the next edition of the Journal. Jason J. Liss have imagined how radically our world Fabian, Sklar, King & Liss was about to change in just a few short Educational Program months or that our next annual business Construction Defect Claims after Skanska At the end of meeting would, of necessity, be held remotely. This year’s educational program, like our business meet- this month, on October 27th to be precise, we will be hold- ing (and most everything else we attend as lawyers these days), ing our annual business meeting and educational program will be via Zoom video conference on October 27, 2020 from via Zoom. The business meeting will be abbreviated and pri- 4:00 p.m. to 5:00 p.m. This year’s educational program is ti- marily focused on the annual election of incoming officers and tled “When is faulty workmanship covered? Understanding council members. coverage for construction defect claims after Skanska USA Officer and Council Member Elections Building Inc., v. M.A.P. Mechanical Contractors, Inc. and Amerisure Mut. Ins. Co.” By way of background, on June Incoming council members will be elected to fill the five 29, 2020, the Michigan Supreme Court reversed longstanding council seats which have two-year terms expiring this year. A precedent and held that unintentionally faulty subcontractor copy of the ballot is printed in this issue. work that damages an insured’s work product constitutes an Unlike incoming council members, incoming officers serve “occurrence” under a commercial general liability (CGL) policy. one-year terms and their election is pro forma since the pre- The program will explore the impact the Skanska decision vious year’s officers each move up the food chain one spot. will have on insurers and contractors alike. Patrick Cran- Therefore, no spoiler-alert is necessary for my hearty con- dell, of Collins Einhorn Farrell PC, will discuss the histori- gratulations to Nicole Wilinski, our current Chair-Elect, on becoming our section’s new Chair or my congratulations to cal treatment of insurance coverage for construction defect Lauretta Pominville and Rabih Hamawi on becoming our new cases, including the prerequisite of an “occurrence” to trig- Chair-Elect and Secretary, respectively. My final congratula- ger coverage as well as the potential business risk exclusions tions is to Patrick Crandell, who has graciously agreed to serve that preclude coverage, even if an “occurrence” is established. as our section’s incoming treasurer. Patrick has been an active Edward Bouchard, of Kotz Sangster, who represented the member of the Council, serving as the Council’s legislative insured in Skanska before the Michigan Supreme Court, will liaison, providing legislative updates to the Council at each walk attendees through the decision itself. Both speakers will of our quarterly meetings and to our section membership as provide their thoughts on what this decision will mean for a whole through his regular Legislative Update column in our insurers and contractors moving forward and will be available Journal. As discussed below, Patrick will also be a presenter at for a virtual question and answer session immediately follow- this year’s educational program. ing the presentation. I will wrap up my last From the Chair column by thanking Scholarship Award my fellow officers, council members and our membership as a Before moving onto a discussion of this year’s educational whole for the privilege of serving as your Chairperson. I look program, which was organized and will be introduced by our forward to Nicole’s leadership and, like my predecessor Gus incoming Chair, I would like to note that during our business Igwe, I plan to remain active on the council for the next year meeting, we will be formally announcing the winner of and in my position as Immediate Past Chair. awarding this year’s $5,000 annual scholarship. Perhaps the Finally, as we all know, insurance is about managing risk. most satisfying moment of my tenure as Chair was notify- So, as always, be safe and stay healthy as we wind our way ing this year’s recipient that she had submitted the winning through the current pandemic to a brighter future.
2 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
Editor’s A Special Note of Appreciation Notes By Hal O. Carroll www.HalOCarrollEsq.com
Producing each issue of the Journal requires the cooperation of many persons, and we always appreciate the efforts of the many contributors – authors at the input end and our printer at the output end. But it is especially appropriate to acknowledge the efforts of the many contributors now, with the disruption caused by the Covid19 virus. In spite of that disruption, the authors and commentators sent in their contributions, including even one that specifically address the effect of the virus on coverage. And our printer has arranged to send the issue out electronically. Thanks to everyone! The Journal is published quarterly in January, April, July and October. Copy for each issue is due on the first of the preced- ing month (December 1, March 1, June 1 and September 1). Copy should be sent in editable format to the editor at HOC@ HalOCarrollEsq.com.
Annual Meeting and Program 3:30 pm, October 27, 2020 Via Zoom
When is faulty workmanship covered? Coverage for construction defect claims after Skanska.
The State Bar of Michi- Patrick Crandell, of Col- gan Insurance & Indemnity lins Einhorn Farrell PC, will Section will host its Annual discuss the historical treatment Meeting and Educational Pro- of insurance coverage for con- gram on Tuesday, October 27, struction defect cases. He will 2020 from 3:30- 5:30 p.m. via address the policy requirement ZOOM. The business meeting that damage be caused by an will take place from 3:30-4:00 “occurrence” as well as the p.m. The educational program business risk exclusions that will begin at 4:00 p.m. may apply to take away cover- On June 29, 2020, the age if an “occurrence” is estab- Michigan Supreme Court re- lished. versed longstanding precedent Edward Bouchard, of and held that unintentionally faulty subcontractor work Kotz Sangster, who represented Skanska before the Michigan that damages an insured’s work product constitutes an “oc- Supreme Court, will walk attendees through the Skanska case currence” under a commercial general liability policy. This and explain how the recent decision will impact insurance year’s educational program, “When is faulty workmanship coverage for Skanska and other Michigan contractors. covered? Understanding coverage for construction defect Both speakers will provider their thoughts on what this de- claims after Skanska USA Building Inc., v. M.A.P. Me- cision will mean for insurers and contractors moving forward chanical Contractors, Inc. and Amerisure Mut. Ins. Co.,” and will be available for a virtual question and answer session will explore the impact that the Skanska decision will have on immediately following the presentation. insurers and contractors alike.
State Bar of Michigan Insurance and Indemnity Law Section 3 The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
State Bar of Michigan Insurance and Indemnity Law Section Ballot for Election of Officer and Council Members
October 27, 2020
Officers Officers are elected to one-year terms.
The candidates are:
Chairperson Nicole Wilinski, Collins Einhorn, Farrell PC Chairperson Elect Lauretta Pominville, McNish Group Secretary Rabih Hamawi, Law Office of Rabih Hamawi, PC Treasurer Patrick D. Crandall, Collins Einhorn
Council Members Vote For Not More Than Five Council members are elected to two-year terms. There are five vacancies, for terms that end in 2022. The candidates are: Douglas McCray* Nina M. Jankowski* Gail L. Storck* Emily M. Mayer Renee VanderHagen
* Indicates incumbent
www.michbar.org
4 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
Insurance and the GIG Economy: The Repercussions of the Narrow Definitions Contained within the Limousine, Taxicab, and Transportation Network Company Act
By Michael J. Olcese, II and James McCoy, Novaria, Tesija & Catenacci
Introduction Advancements In Technology Spur New Industries and New Business Models In our modern society, the near-constant, rapid develop- ment of new technologies spurs new industries. Too often, the Particularly popular and profitable advancements in tech- law has struggled to maintain pace with our technological ad- nology tend to act as building blocks for further advancements. vancements, sometimes even after these advancements have For instance, additional companies have piggybacked off the been widely-adopted by society. Our failure to timely craft technology pioneered by transportation network companies legislation that satisfactorily addresses these new technologies to carve out their own place in our economy. But instead of can not only hamper the economic expansion of these new transporting passengers, companies such as GrubHub, Insta- industries, but may also lead to unnecessary litigation. An ex- Cart, UberEats, and DoorDash provide novel food and gro- ample of our inability to timely address new technologies is cery delivery services. These food and grocery delivery services evidenced by the regulation of “transportation network com- had already been growing in popularity over the last several panies” and their progeny in the State of Michigan. years, but they are being utilized now more than ever as we all In the early 2010s, Uber, Lyft, and similar transportation adjust to life during the COVID-19 pandemic. 3 network companies roared to life, offering the public a new The swift development of these technologies has helped method to obtain transportation services, such as peer-to-peer drive new ways of doing business. Passenger transportation ridesharing services, via mobile applications accessed from an and food delivery services are part of what is now loosely be- individual’s smart phone. The Michigan No-Fault Act was si- ing referred to as the “gig economy.” In general, transportation lent as to the regulation of “transportation network compa- network companies and similar gig economy entities provide nies” until it was amended by Public Act 347 of 2016, with an individuals an opportunity to connect with consumers, via an effective date of March 21, 2017. 1 Public Act 347 of 2016 also online-enabled application, website, or similar system, to pro- created the Limousine, Taxicab, and Transportation Company vide the individual an opportunity to provide consumers with Act. 2 These regulations were not drafted until years after the certain services, like transportation or food delivery. Although transportation network companies had gained popularity and the services offered by such entities seem similar, whether such wide-use in Michigan, and after years of confusion and uncer- a service is regulated depends entirely on whether a passenger tainty regarding the obligations of these companies and their is being transported. insurers, under the No-Fault Act. This lack of clarity resulted in injured drivers and passengers having their claims denied Michigan’s regulations of “transportation network while costly and needless litigation wound its way through companies” do not address entities such as Michigan’s court system. GrubHub, UberEats, and DoorDash which are therefore not required to provide PIP coverage. Despite relying almost exclusively on automobiles to pro- However, the current definition of a vide their services, “gig economy” food and grocery delivery “transportation network company” under the entities like UberEats, GrubHub, InstaCart, and DoorDash Michigan No-Fault Act and the Limousine, are not regulated by the Michigan No-Fault Act or the Lim- Taxicab, and Transportation Network Company ousine, Taxicab, and Transportation Network Company Act. Act is limited to those involved in the business These Acts only regulate the transportation ofpassengers via of transporting riders or passengers through a digital network—not the transportation of food or other a prearranged ride. tangible property. Consequentially, such entities are not man- dated to provide personal protection insurance (“PIP”) cover- age for their drivers.
State Bar of Michigan Insurance and Indemnity Law Section 5 The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
In Michigan, drivers are statutorily required to obtain auto if five conditions are met.16 However, for the reasons described insurance coverage to comply with the Michigan No-Fault Act.4 above, MCL 257.2137 would be inapplicable to gig economy Further, the Limousine, Taxicab, and Transportation Network drivers who are connected to an entity’s digital network for the Company Act requires transportation network companies to purpose of transporting food and/or tangible property. maintain primary PIP coverage for a transportation network Generally, in determining whether an individual is an em- company driver while he/she is logged onto the transporta- ployee or an independent contractor, Michigan applies the tion network company’s digital network.5 However, the current economic realities test.17 The crux of the economic realities definition of a “transportation network company6” under the test focuses on the work performed, with an emphasis on: “(1) Michigan No-Fault Act and the Limousine, Taxicab, and Trans- control of a worker’s duties, (2) payment of wages, (3) right to portation Network Company Act is limited to those7 involved hire, fire and discipline, and (4) performance of the duties as in the business of transporting riders or passengers8 through a an integral part of the employer’s business towards the accom- prearranged ride. 9 Consequently, such regulations are not ap- plishment of a common goal.”18 The list of factors is nonex- plicable to those companies who are only transporting food, clusive, and no one single factor is dispositive in determining tangible goods, and/or other forms of property. whether one is an employee or an independent contractor.19 An agreement between the parties stating that their relation- The current statutory scheme of the Michigan ship is that of an independent contract is not determinative, No-Fault Act and the Limousine, Taxicab, and but is just one factor to be considered.20 Transportation Network Company Act does not For those drivers who are connected to a digital network mandate entities such as GrubHub, UberEats, and for the purpose of delivering food and/or tangible property, DoorDash to provide PIP coverage. the economic realities test would be applicable for determining When interpreting statutes, “our obligation is to discern whether one is an employee or an independent contractor. Of and give effect to the Legislature’s intent as expressed in the course, the analysis would not be quite so simple if the driver statutory language.”10 “If the language is unambiguous, ‘we were transporting both passengers and property throughout presume that the Legislature intended the meaning clearly ex- the week. Although this would be an issue of first impression pressed—no further judicial construction is required or per- in the State of Michigan, it should be noted a California court mitted, and the statute must be enforced as written.”11 “Stat- recently ordered Uber and Lyft to reclassify its drivers as em- 21 utes sharing subject matter or a common purpose are in pari ployees. Similar to the underlying PIP insurance coverage material and must be read together as a whole.”12 Moreover, issue, this inconsistency could result in needless litigation be- Michigan courts must “assume every word has some meaning tween the gig economy entities and drivers. and, as far as possible, give effect to every sentence, phrase, clause, and word, avoiding construction that would render Tips for insurance agents any part of the statute surplusage or nugatory.”13 Generally, insurance agents owe a duty to procure the in- By their plain language, neither the No-Fault Act nor the surance coverage requested by the insured.22 However, “under Limousine, Taxicab, and Transportation Network Company the common law, an insurance agent whose principal is the Act requires “gig economy” entities to provide PIP coverage if insurance company owes no duty to advise a potential insured the gig economy driver is transporting food and/or tangible above any coverage.”23 An exception to the “no duty” rule is property. Courts are prohibited14 from determining whether when a “special relationship” arises between the agent and the the Legislature intended for the Limousine, Taxicab, and Trans- insured.24 A “special relationship” may arise in the following portation Network Company Act and Michigan No-Fault Act situations: to include mandated PIP coverage for all “gig economy” drivers, (l) the agent misrepresents the nature or extent of including food and grocery delivery drivers, as the plain lan- the coverage offered or provided; (2) an ambiguous guage is abundantly clear that the typical mandated PIP cover- request is made that requires clarification; (3) an in- age is only required to those who are in the business of trans- quiry is made that may require advice and the agent, porting passengers through a prearranged ride. 15 though he need not, gives advices that is inaccurate, or (4) the agent assumes an additional duty by either 25 Employee or independent contractor? The economic express agreement with or promise to the insured. reality test would be utilized for gig economy food/ If an insured requests “full” automobile insurance cover- property delivery drivers. age, such a request could be deemed ambiguous under the Under the Limousine, Taxicab, and Transportation Net- circumstances and ultimately create a special relationship be- work Company Act, a transportation network company driver is tween the insured and the agent.26 Consequently, in such a deemed to be an independent contractor, and not an employee, situation, an insurance agent should clarify how the vehicle is 6 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020 being utilized. If the insured advises the motor vehicle may be erty will likely not be entitled to PIP coverage unless the driv- used for the purpose of transporting passengers or property, it er: (a) previously updated his/her personal auto policy, or (b) is important that the insured be advised of additional coverage the gig entity’s insurance carrier voluntarily decided to provide that may be purchased. PIP coverage that it is currently not required to provide. How- ever, this additional litigation expense for PIP benefits would Key inquiries for the claim management process not be necessary if our new regulations are drafted with a suffi- As more individuals are utilizing the services of our “gig cient understanding of how this new technology operates and economy,” the initial claims handling process is more impor- plans to function in the future. tant than ever. It is critical that the claims adjuster investigate As new technologies advance, we must ensure that our laws underlying facts of the motor vehicle accident to determine are written with the proper understanding of how these new whether a claimant should be afforded PIP coverage for an technologies will be utilized in the present, along with a reason- alleged injury. able anticipation of how these new technologies will be built In the first initial contact with a claimant, it is now more upon and utilized in the near future. Failure to do so, could re- important than ever for a claims adjuster to determine the pur- sult in the inadequate regulations and protections for Michigan- pose of the motor vehicle that was being utilized at the time of ders, such as those currently present in our “gig economy.” the accident. If a claimant mentions that he or she was work- About the Authors ing as an Uber and/or Lyft driver at the time of the accident, it is important for the claims adjuster to advise the claimant Michael J. Olcese, II is an associate attorney at Novara Tesija also submit a claim to with the appropriate insurance carrier, & Catenacci. He focuses his practice in general negligence, first as the Limousine, Taxicab, and Network Transportation Com- and third party no-fault claims, premises liability, labor and em- pany Act mandates the transportation network company to ployment, and insurance defense. He also serves as an Adjunct maintain primary automobile insurance coverage.27 Additional Law Professor at the University of Detroit Mercy School of Law review of the claimant’s underlying personal insurance policy where he teaches the Pre-Trial Litigation Law Firm Program would be needed to determine if coverage is to be afforded course. Michael can be reached at [email protected]. for such a claim as such coverage could be excluded under a “Commercial Exclusion” or “Ride-Sharing Exclusion.” James L. McCoy is an associate attorney at Novara Tesija & A proper investigation of these issues may allow adjust- Catenacci. He is a member of the firm’s insurance defense practice ers to quickly identify critical information that determines with a focus in general negligence, first and third party no-fault whether coverage is to be afforded under the applicable policy. claims, and premises liability. His email address is [email protected] This will further the adjuster to further assist the claimant in making a claim with the proper insurance carrier. Endnotes Conclusion: Our laws must continue to adapt as our 1 See MCL 500.3114 society exponentially advances 2 MCL 257.2101, et seq. As demonstrated above, the current statutory language of 3 Civicscience, Food Delivery Users Express Reluctance To Eat At the Limousine, Taxi, and Transportation Network Company Restaurants Again
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(1) “receives connections to potential passengers and related into UberEat’s digital network at the time of the accident, was services from a transportation network company in exchange for not entitled to PIP benefits from James River Insurance Com- payment of a fee to the transportation network company;” and pany, UberEat’s insurance carrier, as the underlying policy did (2) “uses a personal vehicle to offer or provide transportation not provide PIP coverage because UberEat’s had no obligation to network company prearranged rides to transportation network provide such coverage under the Limousine, Taxicab, and Net- company riders upon connection to through a digital network work Transportation Company Act and Michigan No-Fault Act. controlled by a transportation network company in return for 16 A “transportation network company driver” is deemed an inde- compensation or payment of a fee.” MCL 257.2102(n)(i), (ii) (emphasis added). pendent contractor, and not an employee, of a “transportation network company” if all the following conditions are met: 8 A “transportation network company rider” is defined as “an in- dividual who uses a transportation network company’s digital (a) The transportation network company does not prescribe network to connect with a transportation company driver who the specific hours during which the transportation network provides a transportation network company prearranged ride to company driver is required to be logged in to the transpor- the transportation network company rider in the transporta- tation network company’s digital network[;] tion network company driver’s personal vehicle between points (b) The transportation network company does not impose any chosen by the transportation network company rider.” MCL restrictions on the network company’s driver’s ability to 257.2102(p) (emphasis added). use other transportation network companies’ digital net- works[;] 9 A “transportation network company prearranged ride” is defined (c) The transportation network company does not assign a as transportation network company driver a particular terri- tory within this state in which he or she may provide trans- [T]he provision of transportation by a transportation net- work company driver to a transportation company rider, portation network company prearranged rides[;] beginning when a transportation network company driv- (d) The transportation network company does not restrict a er accepts a ride requested by a transportation network transportation network company drier from engaging in company rider through a digital network controlled by a other occupation or business[; and] transportation network company, continuing while the (e) The transportation network company and the transpor- transportation network company driver transports the tation network company driver agree in writing that the requesting transportation network company rider, and transportation network company driver is an independent ending when the last requesting transportation network contractor. company rider departs from the personal vehicle. Trans- portation network company prearranged ride does not MCL 257.2137. include a shared-expense carpooling or vanpooling ar- 17 Buckley v Professional Plaza Clinic Corp, 281 Mich App 224, 234 rangement or transportation provided using a taxicab, lim- (2008). ousine, or other vehicle. 18 Mantei v Mich Pub Sch Employees Retirement Sys, 256 Mich App MCL 257.2102(o) (emphasis added). 64, 78-79 (2003). 10 Gladych v New Family Homes, Inc, 468 Mich 594, 597; 664 19 Buckley, 281 Mich App at 235. NW2d 705 (2003). 20 Id. at 234. 11 Id., quoting DiBenedetto v West Shore Hosp, 461 Mich 394, 402; 605 NW2d 300 (2000) (emphasis added). 21 CNN, Court Orders Uber, Lyft To Reclassify Drivers As Employees In California,
8 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
No One Knows What “Physical Loss” Means: All-Risk Insurance and the Coronavirus
By Chris Kozak, Plews Shadley Racher & Braun LLP and D. Andrew Portinga, Miller Johnson
As the Covid-19 pandemic exploded, the key role of in- surance, while protecting insurers from paying for purely sen- surance quickly became apparent to both policyholders and timental, metaphorical, or intangible losses. For example, one insurers. This is particularly true for smaller businesses with court rejected a claim of “physical loss” by the owner of a golf less ready access to larger banks responsible for distributing course seeking coverage for changes to the “character” of a hole, money from the Paycheck Protection Program. But two words finding that those losses were not “physical” in any sense.10 stand at the gateway between businesses and their insurance: “Physical Loss.” The elusive meaning of “physical loss” At least in Michigan, the conventional wisdom is that the Lawyers may be comforted in the knowledge that the ba- words “physical loss” do not cover the havoc caused by the sic dispute is not a new one. One classic case (Hughes) was virus, on the theory that a virus does not result in tangible decided in 1962 when rapid erosion swept the earth from un- 1 damage to property. Recent orders out of the Ingham County derneath a house and left it “standing on the edge of and par- 2 Circuit Court (on appeal) and the Eastern District of Michi- tially overhanging a newly formed 30-foot cliff.”11 The insurer 3 gan (likely to be appealed), follow that view. This article asks denied coverage because the house itself was undamaged and whether these decisions are correct—in other words, whether there accordingly was no “physical loss or damage.”12 The Cali- a reasonable, coverage-preserving argument exists for reading fornia Court of Appeals disagreed, finding the policyholder’s the words “physical loss” to cover Michigan businesses’ inabil- interpretation reasonable and holding that: ity to use their property during the pandemic. If that is true, then these terms in an all-risk insurance policy are ambiguous To accept [the insurer’s] interpretation of its policy and must be construed in favor of the policyholder.4 would be to conclude that a building which has We do not here address the exclusions that appear in all- been overturned or which has been placed in such risk policies and that may negate coverage even if virus-based a position as to overhang a steep cliff has not been destruction is a “physical loss.”5 Those complex analyses are ‘damaged’ so long as its paint remains intact and its best left to individual cases. Our claim is, instead, that the walls still adhere to one another. Despite the fact term “physical loss” is not precise enough to bear the single that [property] might be rendered completely use- meaning that insurers assign to it, and that properly worded less to its owners, [the insurer] would deny that any exclusions are the proper place for insurers to eliminate the loss or damage had occurred unless some tangible risk of pandemic-induced shutdowns. injury to the physical structure itself could be de- tected. Common sense requires that a policy should All-risk policies and “physical loss” generally not be so interpreted in the absence of a provision specifically limiting coverage in this manner.13 “All risk” policies provide a species of coverage “not ordi- narily present in other types of insurance, and recovery is al- In subsequent years, other state high courts rejected simi- lowed for fortuitous losses unless the loss is excluded by a spe- lar arguments by insurers in cases where a policyholder was cific policy provision.”6 Insurers have traditionally expressed ordered to vacate a church because of gasoline in nearby soil that broad coverage by promising to pay for “direct physical (First Presbyterian)14 or where unstable rocks perched at the top loss or damage to property caused by or resulting from any of a hill prompted a government evacuation order (Murray).15 Covered Cause of Loss,” or some variant of that language.7 Many other published cases, too numerous to discuss here, “Covered Cause of Loss” is often defined circularly as “risks have held that the words “physical loss” are broad enough to of direct physical loss or damage.”8 The Sixth Circuit recently encompass situations where the policyholder loses the use of a observed that “one would struggle to think of damage not cov- physical asset.16 ered by this language.”9 There are certainly cases to the contrary. Two unpublished This breadth is intentional. It is designed to express the cases applying Michigan law take the alternate view, one from unique, universal property coverage provided by all-risk in- our court of appeals and one from the Sixth Circuit.17 The
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Michigan case has been criticized as “not particularly help- Dissatisfaction with the now-ubiquitous Zoom lifestyle ful” due to the lack of analysis.18 The Sixth Circuit’s unpub- demonstrate that this is not a metaphorical or intangible lished opinion reasoned that mold in a structure did not concern. Something is irretrievably lost when you must give cause a “direct physical loss” because “not a single piece of a lecture over Zoom, have a coffee date over Zoom, or attend [the policyholder]’s physical property was lost or damaged as church over Zoom. a result of mold or bacterial contamination.”19 Even under the Despite the easy availability of digital “presence,” people “tangible damage” rubric, that reasoning is shaky; mold is a have fought tooth and nail to get back into classrooms, coffee physical substance that, when present on property, causes ap- shops, and churches—sometimes even to the U.S. Supreme preciable damage. In any event, the court decided the case on Court. Wise or foolish, these efforts reflect the conviction that alternative, factual grounds because the claim failed even if the there is something important about being physically present policyholder’s argument was correct. It did not purport to en- in a space, designed for its purpose. The person who owns the gage in a full-blown prediction of what the Michigan Supreme space—typically the one seeking coverage—suffers this loss in Court would do.20 an equal measure. When a pandemic bars access to that physi- The recent Turek case follows Universal Image while ac- cal space for a time, it has foisted a real, tangible, “physical knowledging that the issue was still unsettled.21 Judge Luding- loss” on the policyholder. ton agreed that the “loss of use” argument “seems consistent Requiring the virus to be present on the property commits with one definition of loss,” but nevertheless held that the a similar error because it answers the wrong question. Cover- policy was unambiguous because it said “direct physical loss to age exists not because the virus molecules cause “damage” to covered property” rather than “direct physical loss of covered the floor and walls in the way water or smoke would. It causes property.”22 He also distinguished other Covid-19 cases find- a “loss” because the risk of transmitting a deadly virus was so ing coverage by observing that those policies involved prom- intolerable that humans could not be allowed to occupy the ises to insure against “physical loss or . . . physical damage,” physical space together. Governor Whitmer did not close only because the rule against surplusage would render the term businesses with the virus present. She shut all policyholders “loss” meaningless.23 out of their property because of the very real risk that patrons In Gavrilides, Judge Drananchuk of the Ingham County might spread the virus while present in the establishment. Circuit Court reached a similar conclusion. She ruled that That is the loss at issue, not any “damage” caused by the virus “direct physical loss of or damage to the property has to be molecules themselves. something with material existence, something that is tangible Neither does the distinction between “of” and “to” really . . . something . . . that alters the physical integrity of the make a difference. Hughes, First Presbyterian, and Murray—the property.” Judge Draganchuk noted that the complaint did leading cases rejecting insurers’ arguments—each involved the not allege that the virus was actually present on the covered word “to,” and each refused to draw the distinction the insur- property. She also noted that the policy at issue contained a ers make.26 If a person cannot use his property to serve food virus exclusion, which she ruled would apply. It is not clear (mortal or spiritual) to others, then the policyholder can fairly how the court would have applied the policy if the virus had say that it has suffered a “physical loss to” that property. As been present on the covered property, or if the policy has not the Hughes court said, the property is “rendered completely contained a virus exclusion. useless” even though “its paint remains intact and its walls still adhere to one another.”27 Or, as in the case of the rocks threat- “Physical Loss” does not require tangible damage ening to fall on a house: As Turek acknowledged, losing the use of a physical asset The properties insured by Allstate and State Farm in is “consistent with one definition of loss.”24 Losing the use of this case were homes, buildings normally thought a physical asset is the only thing required to preserve cover- of as a safe place in which to dwell or live. . . . [A] age in a typical property insurance policy, particularly in all- ll three of the plaintiffs’ homes became unsafe for risk policies, the broadest of all insurance products. It is only habitation, and therefore suffered real damage when through a cramped view of the modifiers (such as “physical” or it became clear that rocks and boulders could come “to”) that coverage is destroyed. That view of all-risk insurance crashing down at any time. The record suggests that is unwarranted. “Common sense requires that a policy should until the highwall . . . is stabilized, the plaintiffs’ not be so interpreted in the absence of a provision specifically houses could scarcely be considered “homes” in the limiting coverage in this manner.”25 sense that rational persons would be content to re- The loss caused by the virus is undeniably “physical.” No side there.28 one will soon forget how Americans were barred from non- essential physical spaces because of how dangerously trans- That is no different from0 a case where the property is missible the virus was. That is a physical, tangible “loss.” damaged by fire, wind, or other events traditionally covered by
10 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020 property and casualty insurance. That severe deprivation falls 6 10A Steven Plitt, et al., Couch on Insurance §148:50 (3d ed. comfortably within an all-risk policy, regardless of whether it 2019). says “loss of” or “loss to.” 7 K.V.G. Props, Inc v Westfield Ins Co, 900 F3d 818, 820 (6th Cir 2018) (Michigan law). Conclusion 8 Id. This ultimately returns to the point that these are general 9 Id. at 821. all-risk policies intended to insure against all fortuitous losses 10 Crestview Country Club, Inc v St Paul Guardian Ins Co, 321 F not specifically excluded. Courts should not allow insurers to Supp 2d 260 (D Mass 2004). shoehorn a new limitation into the vague (and often circular) 11 Hughes v Potomac Ins Co, 18 Cal Rptr 650, 651 (Cal Ct App definitions of “Covered Cause of Loss” and the broad coverage 1962). grant for “physical loss or damage.” As is traditional for all-risk Id. coverage, this issue should be litigated in the exclusions, not in 12 at 652. the coverage grant. 13 Id. at 655. 14 W Fire Ins Co v First Presbyterian Church, 437 P2d 52, 55 (Colo About the Authors 1968) Chris Kozak is an associate at Plews, Shadley, Racher & 15 Murray v State Farm Fire & Cas Co, 509 SE2d 1, 4-5, 16-17 (W Braun, LLP. He represents policyholders in Indiana and Michi- Va 1998). gan in coverage disputes, particularly in high-stakes, high-value 16 Port Auth of NY & NJ v. Affiliated FM Ins ,Co 311 F3d 226, 236 claims arising from sexual abuse and environmental contami- (3d Cir 2002); Bd of Educ of Township High School Dist No 211 nation. His experience includes coverage work in response to the v Int’l Ins Co, 720 NE2d 622, 601-02 (Ill Ct App 1999); Mellin Larry Nassar and Harvey Weinstein abuse cases. He also works on v N Sec Ins Co, 115 A3d 799 (NH 2015); Farmers Ins Co of Or v complex environmental and statutory-interpretation cases. Before Trutanich, 858 P2d 1332, 1335-36 (Or Ct App 1993); Hampton joining PSRB, Chris served as a law clerk on the U.S. Court of Foods, Inc v. Aetna Cas & Sur Co, 787 F2d 349, 352 (8th Cir Appeals for the Sixth Circuit and graduated from the Michigan 1986); Wakefern Food Corp v. Liberty Mut Fire Ins Co 1, 968 A2d 724 (NJ Ct App 2009); TRAVCO v Ward, 715 F Supp 2d 699, State University College of Law. His email address is ckozak@ 701 (ED Va 2010). psrb.com. 17 Acorn Investment Co v Mich Basic Prop Ins Ass’n, No. 284234, D. Andrew Portinga is a member at Miller Johnson. He is 2009 WL 2952677 (Mich Ct App, Sept 15, 2009); Universal the past president of the Federal Bar Association for the Western Image Productions, Inc v Fed Ins Co, 475 F App’x 569 (6th Cir 2012). District of Michigan, and he has chaired the United States Courts Committee for the State Bar of Michigan. He represents policy- 18 Tooling Mfg & Techs Ass’n v Hartford Fire Ins Co, 693 F3d 665, holders in complex, high-value disputes, and he has recovered over 676 (6th Cir 2012) $100 million for his clients. His email address is portingaa@ 19 Universal Image, 475 F App’x at 573. millerjohnson.com. 20 Id. at 574. Endnotes 21 Turek, slip op. at 10. 22 Id. at 11-12. 1 Rabih Hamawi, Coronavirus (Covid-19) and Business Income In- surance: Can Businesses that are Forced to Close or Limit their Op- 23 Id. at 13-14. This analysis is suspect. If “physical loss” includes erations Recover their Income Losses?, 13 Mich. J. Ins. & Indem. “loss of use” when the policy insures against “physical loss or L. 1, 3 (Apr. 2020). damage,” then it is unclear why the same words would mean 2 Gavrilides Mgmt Co v. Mich Ins Co, Case No 20-000258 (Ing- something more restrictive in a pure “physical loss” policy, sur- ham Cnty Cir Ct, 2020) (ruling from the bench), video available plusage issues aside. The operative term, which provides cover- at https://youtu.be/Dsy4pA5NoPw. age under both policies, is identical. 3 Turek Enters., Inc. v. State Farm Mut. Auto. Ins. Co., No. 1:20-cv- 24 Id. at 11-12. 11655-TLL-PTM, Dkt. 23 (Sept. 3, 2020). 25 Hughes, 18 Cal Rptr at 651. 4 Fragner v Am Cmty Mut Ins Co, 199 Mich App 537, 540 (1993). 26 Hughes, 18 Cal Rptr at 651; Murray, 509 SE2d at 16; First Pres- 5 O.L. Matthews, M.D., P.C. v Harleysville Ins Co, No. 19-1994, byterian, 437 P2d at 56. Slip op. at 6 (6th Cir, Sept 9, 2020) (observing that under Mich- 27 Id. igan law, an “all risk” policy is tempered only by its limitations 28 Murray, 509 SE2d at 4-5, 16-17. and exclusions).
State Bar of Michigan Insurance and Indemnity Law Section 11 The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
To Defend or Not to Defend: That is the Question
By Henry S. Emrich, Secrest Wardle
Failing to defend or otherwise participate in the defense of contract or agreement occurred, coverage should be voided. an insured where coverage is declined, while something cover- The District Court granted summary disposition against age counsel usually cautions against doing, is not uncommon Hamilton in the declaratory action because the court deter- among insurers. However, the recent unpublished decision in mined that Hamilton breached their duty to defend Transi- the case of Hamilton Specialty Ins Co v Transition Investment tion, which it deemed “outrageous,” stating that Hamilton LLC, 2020 WL 3397743 (CA 6, 2020), is an example of why could have defended Transition without giving up its rights. such a course of action should very rarely be pursued. In the The District Court then ordered Hamilton to pay the amount case of most insurance claims, an initial review is performed of the consent judgment and all of the legal expenses incurred when the claim is received. Where coverage is established, the by Transition in defending the matters. claim then moves to adjustment. In those cases where cover- On appeal, the Sixth Circuit upheld the District Court’s age is limited to certain claims only, a reservation of rights decision, indicating that where coverage is “possible” or “argu- is issued detailing the basis for the coverage limitation, the able,” even when the allegations are groundless, false, or fraud- covered claims are either adjusted or defended under the res- ulent, the insurance company must defend. And if the insurer ervation, and a declaratory judgment action pursued indepen- does not provide a defense, the insurer becomes liable for the dently. However, there are cases in which a coverage review costs of defense and any reasonable, good faith settlement paid results in a determination that no coverage exists. The claim by the insured. The court in Hamilton based its decision on is then denied because of the lack of coverage, the file closed, the fact that Hamilton breached its duty to defend Transition and any defense of the insured refused if and when litigation under a Reservation of Rights and left it to fend for itself. The against the insured is pursued, which is what happened in the Sixth Circuit also pointed to the insurance company’s decision Hamilton case. to deny the claim based on the allegations of the complaint, In Hamilton, supra, a faulty stove caused a fire to occur at only without developing any “sure fire evidence” that the pol- a rental property rented by Transition, the policyholder, to a icy barred coverage. tenant. This fire resulted in the death of three people and seri- Finally, the court declined to allow Hamilton to avoid li- ous injury to a fourth person. The allegations of the complaint ability for the settlement agreed upon to by Transition based alleged that Transition had failed to provide habitable premis- on the policy language barring liability for same without es and neglected to maintain the stove on the property. When Hamilton’s approval because Hamilton had already breached notified by Transition of litigation over the loss by the estates its agreement with Transition by declining coverage and not of the decedents and the injured party, Hamilton declined to defending, and therefore, could not be held responsible for defend or otherwise participate in any of the litigated matters Transition’s breach. Thus, in addition to defending question- and did not pursue a declaratory action, which forced Transi- able liability claims, Hamilton was even prevented from argu- tion to defend the cases on its own. ing whether the underlying settlement was reasonable or not. Eventually resolving all of the claims, Transition entered In other words, a defense of questionable liability claims with into a consent judgment in the amount of $3 million which counsel of the insurer’s choosing was prevented because of the was approved by the state court as being fair and reasonable. carrier’s decision to not provide a defense. Plaintiffs then filed a writ of garnishment against Hamilton’s insurance policy with Transition. Hamilton responded by pur- Conclusion suing a declaratory judgment action in the U.S. District Court The lesson to be learned here is that when coverage is re- – Eastern District of Michigan, claiming that the policy ex- viewed, an adequate investigation of the facts must be con- cluded coverage for several reasons. Even if coverage existed, ducted of any possible or arguable coverage under the policy. Hamilton alleged that because Transition had assumed liabil- If none exists, denial correspondence which clearly articulates ity by entering into a consent judgment without obtaining the bases for the denial of coverage and the facts that support Hamilton’s permission in violation of language in the policy each basis for denial must be sent to the insured. A declaratory that excluded coverage where an assumption of liability in a judgment action against the insured should then be pursued 12 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020 shortly after the denial, and in any case, no later than at the About the Author time any claim is pursued or formally litigated by a claimant. Henry Emrich is a partner in Secrest Wardle and practices in At the same time, the insurer should participate in any pre-suit the Grand Rapids office. His practice is focused on Commercial attempts at resolution or provide a defense to the insured with and Residential Property, Fire and Casualty; Environmental and independent counsel pursuant to a Reservation of Rights that Toxic Tort Litigation; Insurance Coverage; Professional Liability reiterates the reason coverage has been denied. Finally, every and Trucking/Commercial Vehicle Litigation. His email address legitimate effort should be pursued to challenge the damages is [email protected] being sought at every stage of the litigation. By doing so, the insurer has at least some control over the outcome in the li- ability case while preserving its right to avoid payment if it successfully establishes its coverage defenses, which they were prevented from doing in Hamilton, supra.
Spectrum Health: Court of Appeals Applies First Principles in Landmark No-Fault Decision
By Jack L. Hoffman, Kuiper Kraemer PC
Just before Labor Day weekend Court of Appeals Judge The recognition and calling out of obiter dicta Jane Markey authored a published decision interpreting is a big deal. At the end of the day, Spectrum’s Michigan’s No-Fault Act. In the opinion, Judge Markey ap- argument in support of the evidentiary ruling plies the too often ignored principles that the court must give of the trial court was that obiter dicta from the the language of the statute its plain meaning, and also calls out Court of Appeals are superior in authority to the obiter dicta for what it is and refusing to allow obiter dicta to text of the statute. divert her from the authority of the text itself. The case is Spectrum Health Hospitals v Farm Bureau Mu- tual Ins Co of Mich, et al, ______Mich App ______(2020) ableness of gross charge. Spectrum denied that the data was (Docket no. 354201, decided July 15, 2020) relevant, citing Mercy Mt Clemens Corp v Auto Club Ins Ass’n, The issue involved what evidence is relevant to whether a 219 Mich App 46, 54-55; 555 NW2d 871 (1996): health care provider’s gross charge was in excess of a reasonable Defendant sought to obtain information regarding pay- charge within the meanings of sections 3107(1) (a) and 3157 ments accepted by plaintiffs from third-party payers such of the no-fault act. Although the case arises under 1972 PA as Medicare, Medicaid, worker’s compensation, Blue Cross, 294, it retains its importance for the interpretation of 2019 HMOs, and PPOs in order to prove that plaintiffs’ custom- PA 21 for two reasons. ary charges for medical services were in fact significantly lower First and most simply, the identical language interpreted than the amounts they charged defendant. Reimbursement in the opinion remains in the new statute as the default and from Medicare, Medicaid, and worker’s compensation insur- umbrella condition. ance is set by statutory and regulatory limitations. Reimburse- Second and on a deeper level, the opinion points the way ment from Blue Cross, HMOs, and PPOs is set by contracts to the future application of the reform statute. between those entities and health-care providers. Under Mun- Farm Bureau argued that health care finance data in the son, Hofmann, Hicks, and Johnson, such information is not public domain and in common use in the industry relative to admissible to prove the customary charge that defendant must what the provider is actually paid in the health services market pay under § 3157. As stated in Hofmann, supra, p 109, “a for the same treatment, and the cost to the provider of provid- trial court would not be justified in using amounts that are ing the treatment, were relevant to the issue of the reason- subject to third-party contractual or statutory limitations State Bar of Michigan Insurance and Indemnity Law Section 13 The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020 as a benchmark for determining the extent of a health-care that trial courts and later appellate courts are bound to follow, provider’s customary charge.” In light of this precedent, we not the text of the statute, but the text of the obiter dicta conclude that the circuit court did not err in finding that the Spectrum’s conception of obiter dicta and stare decisis violates information sought on discovery was not relevant to whether separation of powers under Michigan Constitution, art. 3, §2. the amounts charged by plaintiffs met the requirements of §§ It is axiomatic under separation of powers that in the case 3107 and 3157 of the no-fault act and that it was not reason- of applying a statute, the statutory language must be enforced ably calculated to lead to the discovery of admissible evidence. according to its plain meaning, and cannot be judicially re- The circuit court did not abuse its discretion by granting vised or amended.1 An exception to the rule is where by the plaintiff’s requested protective order. ratio decidendi of a prior decision of a higher court or a prec- Judge Markey wrote and the Court of Appeals ruled that edentially binding decision of a Michigan appellate court of customary charges are not necessarily reasonable and that an the same level2, the judicial branch has fixed the interpretation insurer need not automatically pay them: of the statute by stare decisis. Under the common law rule the 3 Very much like Munson, the decision in Mercy ratio decidendi of a prior decision was binding on subsequent Mt Clemens mentioned reasonable charges and ac- courts but obiter dicta were not: knowledged that charges must be reasonable. Id. “It is a well-settled rule that any statements and at 52. But, like Munson, the analysis then focused comments in an opinion concerning some rule of solely on the question of customary charges and law or debated legal proposition not necessarily in- whether third-party payments were relevant to de- volved nor essential to determination of the case in termining a customary charge in cases not involv- hand are, however illuminating, but obiter dicta and ing insurance. Id. at 52-55. Missing from Mercy Mt lack the force of an adjudication.”4 Clemens was a recognition that customary charges are not necessarily reasonable and that an insurer The common law in this and other respects was incorpo- 5 need not automatically pay a customary charge. rated into the Michigan Constitution of 1850. Rather than assume Mercy Mt Clemens answered According stare decisis effect to obiter dicta, thereby elevat- the reasonableness question presented in the instant ing obiter dicta in authority over the text of the statute itself, case, we construe that decision as simply having re- is an infraction of separation of powers by the judicial branch solved the customariness issue that it actually ad- into the constitutional sphere of the legislature. dressed and decided. And any incidental reference “Judgments ought to be ever conformable to the letter to “reasonable” in Mercy Mt Clemens was nothing of the law. Were they to be the private opinion of the judge, more than dictum. See Aaron, 409 Mich at 722. people would then live in society without exactly knowing the Consequently, like the other cases cited by Spec- nature of their obligations.” Such were the values expressed by trum, Mercy Mt Clemens does not provide the an- the great Enlightenment legal philosopher Montesquieu. In swer to the question in this case. [Spectrum Health modern times the basis of the English and American systems Hosps v Farm Bureau Mut Ins Co, ___NW2d___; of law in Enlightenment thought has been challenged by the 2020 Mich. App. LEXIS 5804, at *47-48 (Ct App, legal skepticism school of legal philosophy, which encourages Sep. 3, 2020)] judges to pay less attention to the values of separation of pow- ers, judicial self-restraint, and a government of laws and not The recognition and calling out of obiter dicta is a big deal. men and more attention to judicial prerogative and the expres- At the end of the day, Spectrum’s argument in support of the sion of the judges’ own “judicial philosophy.” evidentiary ruling of the trial court was that obiter dicta from Philosophers may argue whether the Enlightenment think- the Court of Appeals are superior in authority to the text of ers or the legal skeptics are right about the reality of values. the statute. Hence, Spectrum could at one and the same time The fact remains that the constitutional systems of the United concede that the ratio decidendi of the decision in Hofmann States and the State of Michigan are based on Enlightenment v Auto Club Ins Ass’n, 211 Mich App 55; 535 NW2d 529 values that motivated the separation of powers. The great mass (1995) had nothing to do with the reasonable charge issue, yet of citizens who are governed under those systems accept those pluck out of the opinion the sentence “ACIA’s reliance on the values. Those who accept office under those systems take an amount that was ‘paid’ by BCBSM, as opposed to the amount oath to uphold the same values. that Plaintiffs ‘charged,’ is unwarranted,” and argue as if this We would be closing our eyes to reality if we did not recog- sentence itself were contained in the statute. Indeed, according nize in our society that old paradigms are being tested and new to Spectrum’s argument, remarks in an opinion of an appel- paradigms are being born. The American legal system with an late court are binding on lower courts and subsequent panels honorable record behind it has a crucial and necessary role to of the same court under the rule of stare decisis, to the extent play in this process. But its greatest contribution will come
14 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020 from adhering to its foundational values in Enlightenment (2) Conflicting Opinion. A panel that follows a prior pub- thought and common law practice. lished decision only because it is required to do so by sub rule (1) must so indicate in the text of its opinion, About the Author citing this rule and explaining its disagreement with the prior decision. The panel’s opinion must be pub- Jack Hoffmanis a shareholder in Kuiper Kraemer PC. His lished in the official reports of opinions of the Court practice focuses on provider charging issues under the Michigan no- of Appeals.” fault act. He repesented the defendant appelllant in Spectrum Health Hosps v Farm Bureau Mut Ins Co, _____ Mich App 3 Michigan is a stare decisis jurisdiction in which the ratio ______: ___NW2d___; 2020 Mich. App. LEXIS 5804 (Ct App, decidendi sets a precedent for the future. Morse Chain Sep. 3, 2020). He can be reached at [email protected].” Co v Formsprag Co, 380 Mich 475, 483; 157 NW2d 244 (1968).
Endnotes 4 Case, supra, 220 Mich at 382-83. “Obiter dicta does not create a binding rule of law.” Luster, supra, 239 Mich App 1 This point is covered in MCR 7.215(J)(1) & (2). “(J) Res- at 730 n 5. olution of Conflicts in Court of Appeals Decisions. 5 Michigan Constitution of 1850, Schedule, Sec. 1 “The com- (1) Precedential Effect of Published Decisions. A panel of mon law and the statute laws now in force, not repugnant the Court of Appeals must follow the rule of law es- to this constitution, shall remain in force until they expire tablished by a prior published decision of the Court of by their own limitations or are altered or repealed by the leg- Appeals issued on or after November 1, 1990, that has islature.” See also Const. 1963, art. III, § 7, “The common not been reversed or modified by the Supreme Court, law and the statute laws now in force, not repugnant to this or by a special panel of the Court of Appeals as pro- constitution, shall remain in force until they expire by their vided in this rule. own limitations, or are changed, amended or repealed.”
Pros and Cons of Self-Insured Retentions
By Renee Vander Hagen, Crum & Forster
There is often confusion about the differences between a claim’s conclusion, is paramount. This article explores some of deductible and a self insured retention (SIR) in a commercial the factors to consider when deciding if a CGL policy should general liability policy, and the confusion often comes at the have a self-insured retention or a deductible: worst time – when a claim occurs. A self–insured retention is a mechanism by which the policyholder and carrier share the Difference number 1 – Amount financial exposure for a loss, and a greater share (greater than a An SIR is like a deductible, in that each is an amount that deductible) is borne by the policyholder. In exchange for tak- the policyholder must pay before the carrier is obligated to ing on a greater share of the exposure, the carrier gives the poli- provide indemnity. The SIR is larger than a deductible, of- cyholder more control in the early stages of claim handling. ten much larger, and the increased amount leads to several While there are benefits to a SIR for the policyholder, not other important differences, because the larger amount of the every policyholder should have a SIR endorsement. There are SIR leads to a shifting of the risk toward the policyholder and differences in coverage issues, and differences in claim han- away from the carrier. Because the cost of claim management dling when a policy has a SIR versus a deductible. To avoid or litigation is borne by the policyholder starting with the first confusion, when an insured has a SIR endorsement on the dollar, the policyholder must have sufficient reserves to pay policy and a claim occurs, communication between the in- for the expense and indemnity if both are within the retention sured and insurer from the date of loss going forward to the amount. State Bar of Michigan Insurance and Indemnity Law Section 15 The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
Difference number 2 – Lower Premium then a policyholder might be a good candidate for a SIR en- Typically, the greater the SIR amount, the less premium dorsement. If not, then the carrier risks getting late notices of the policyholder would pay. In this way, the policyholder claims, facing coverage issues and “control” issues when claims shares in the exposure for a loss to a greater percentage, there- turn into lawsuits. by reducing the amount of the policyholder’s premium that is calculated by the carrier to insure the risk/exposure. Reporting the Claim Issues can arise when a claim arises involving an insured Difference number 3 – Claim handling with a self insured retention, regardless of the amount of that Since the policyholder is “self-insuring” up to the amount SIR. This is where “communication is paramount.” When of the SIR, the policyholder is extended greater control over should the policyholder report the claim to its carrier(s)? It managing the claim. Sometimes a policy with a large SIR is best to report every claim as soon as it occurs versus wait- will put the burden of defense on the policyholder. When ing until the SIR is exhausted. Reporting the claim when it that happens, the carrier will typically retain the right to be occurs avoids any issue taken by the carrier regarding “late involved in the defense. The higher the SIR, the longer the notice” as defined in the policy. Rather than taking the “go it claim handling remains with the policyholder, and this could alone” approach that the SIR might seem to invite, the poli- translate into resolutions more quickly. cyholder might benefit from the carrier’s input by welcoming a “team approach” when it comes to claim management, not- Difference number 4 – The TPA withstanding the SIR on the policy.
If the policyholder is going to be responsible for the de- Communication is critical fense, then the carrier may insist that the policyholder either has the ability “in-house” to defend the claim, or has hired a This “team approach” will foster communication between third-party administrator,” or TPA, to provide the usual claim the insured and insurer. Having a SIR is not giving the in- handling services. sured carte blanche to do whatever it wants in managing the It is not unusual for a policyholder and carrier to differ in claim pre-suit or after a lawsuit is filed. Understanding and how a claim is managed, especially when it comes to settling not overstepping the boundaries that remain, as defined by the or taking a case to trial. So if the claim handling remains with policy, is one benefit to open communication from day one. the policyholder for the life of the claim, policyholder satis- It is about balancing the expectations that the policyholder has faction presumably increases. However, that also presumes within the SIR, with the expectations of the carrier as defined that the policyholder understands its increased risk, and has a by the terms of the policy that remain in effect, notwithstand- person or team that understands risk and claim management ing the SIR. By keeping an open line of communication dur- (litigated or not), and knows how to negotiate the best resolu- ing the life of the claim, these expectations can be managed. tion for the policyholder. This specialized team also needs to The insured should not feel as if the carrier is intruding by re- know when the claim will exceed the SIR, and when reporting questing updates on the status of a claim, but should welcome the matter to the carrier is necessary. An investment in strong the outreach that is likely to prevent or head off issues before internal support, or a TPA, is essential when a policyholder they arise, especially if a matter is headed to trial. manages its own claims. Coverage Issues
Difference number 5 – Cleaner Claim History Aside from claim handling issues, several coverage-related Resolving claims within the SIR creates a “cleaner” claim questions arise with SIRs that don’t arise with deductibles. history since any claim resolved within the SIR should appear Having an SIR endorsement on a policy creates a condition on a loss run as a claim paid for $0. This is an important fea- precedent to coverage, to the extent that the claim is covered. ture when a policyholder decides to seek other proposals for The condition precedent is the exhaustion of the SIR before coverage from other carriers. the policy’s limits are opened, and typically, only the named insured can satisfy the SIR. To SIR or Not to SIR – Making the Decision When should the carrier issue a letter outlining the poten- tial for coverage limitations? It is probably best to do it at the Whether a policyholder is a proper candidate for a SIR outset when the claim is reported and coverage has been inves- should be considered when the policy terms are being dis- tigated. Otherwise, the carrier could risk facing an argument cussed. If a policyholder has an established claim/risk man- for estoppel or waiver, depending on the jurisdiction. Or, the ager that understands the nuances of a policy, maintains good policyholder might make decisions during the life of the claim practices with investigating claims, and can value claims accu- that are outside the scope of coverages offered in the policy. rately for being in or out of the self-insured retention amount, 16 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
Priority Issues when it is placed on the right policy/account. How it operates, SIRs can also trigger a discussion about priority of cover- and the coverage issues arising from self-insured retentions ages, especially when another entity seeks additional insured can be a bit tricky; but, with a good line of communication coverage from your policyholder. All policies at issue should between the policyholder and carrier, issues can be addressed be reviewed for applicable endorsements, and the wording of before they become problems. “other insurance” clauses in order to see how the coverages stack up. Don’t forget to factor in the “primary/non-contrib- About the Author utory” endorsements into the analysis. In some instances, an Having been in private practice with insurance defense firms, endorsement that is added to the policy after a self-insured re- tention endorsement is applied could modify the policy terms, and in-house counsel for Citizens and Progressive Michigan In- and affect the coverage analysis. If there is an excess policy surance Company before joining First Mercury Insurance Com- involved, the language of the respective policies need to be pany’s Claims Department, Renee Vander Hagen now reviews read to factor in excess insurance as well. coverage issues and oversees nationwide litigation involving the A self-insured retention is an effective policy addition when Crum & Forster group of companies. Her email address is Renee. its terms are known and understood by the policyholder, and [email protected]
Legislative Update: Quiet Until Lame Duck
By Patrick D. Crandell, Collins, Einhorn, Farrell PC
There continues to be limited activity in the House and quires a nonparticipating medical provider who is provid- Senate Insurance Committee – expect that continue up ing nonemergency services to give the patient certain dis- through November – with the House scheduled to meet 19 closures regarding the potential lack of health coverage for days and the Senate 17 days between September 1 and the those services (part of a bill package to regulate nonpartic- election. But there will be a flurry of post-election activity. ipating providers – HB 4459, 4460, 4990, 4491) Passed As a reminder, we’re nearing the end of the House’s two-year the House (106-0) on 6/24/20; Reported out of the Sen- legislative cycle (all pending legislation expires on December ate Insurance and Banking Committee on 9/9/20 31), so expect to see action on a variety of issues post-election • Grounds for disciplinary action – HB 4490 amends the through the end of the year. Public Health Code to include violating HB 4459 and There’s only been movement on one bill since the last up- 4460 as grounds for disciplinary action, beginning 1/1/21 date: (part of a bill package to regulate nonparticipating pro- • Reimbursement for chiropractic services – HB 4449 viders – HB 4459, 4460, 4990, 4491) Passed the House removes certain chiropractic services from the list of non- (107-0) on 9/10/20 reimbursable personal injury protection benefitsPassed by the House (102-5) on 12/10/19; Passed by the Senate • Fines for noncompliance – HB 4491 amends the Pub- (38-0) on 6/11/20; Signed by the Governor on 7/21/20 lic Health Code to proscribe fines for violating HB 4459 (PA 104’20 with immediate effect) and 4460 (part of a bill package to regulate nonparticipat- ing providers – HB 4459, 4460, 4990, 4491) Passed the House (104-2) on 9/10/20 Referred to Insurance Committees • Property insurance – Business interruption from Co- And here are the new referrals to the House and Senate vid-19 – HB 5928 requires property loss insurance poli- Insurance Committees: cies issued in Michigan to include coverage for loss of use • Disclosures regarding health insurance – HB 4460 re- and occupancy, loss or income or other business interrup- State Bar of Michigan Insurance and Indemnity Law Section 17 The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
tion coverages related to COVID-19; prohibiting denials annuity producers; proscribes duty of care; creates penal- based on lack of physical damage and a virus exclusion ties for violations • PIP benefits for bicyclist –HB 5934 requires unlimited • Reinsurers – SB 1015 amends the insurance code re- PIP benefits for an injured bicyclist seeking coverage un- garding reinsurers, requirements for reciprocal jurisdic- der the assigned claims plan tion of assuming insurer and other technical amendments • Regulating annuity providers – HB 6112-6115 creates Passed the Senate (37-0) on 9/2/20 the suitability in annuity transaction model act; regulates
Selected Insurance Decisions
By Deborah A. Hebert, Collins, Einhorn, Farrell PC
Michigan Supreme Court the Wayne County Airport Authority. The columns cracked, Limited application of anti-fraud provisions in no-fault caused panels to fall off the screen, and damaged some of the policies concrete pads at the base. The subcontractor who purchased the steel owed contractual indemnity to the general con- Meemic v Fortson tractor. It sued plaintiff for indemnity under their contract. Docket No 158302 Plaintiff presented the claim to its CGL insurer, Cincinnati ___ Mich ___, July 29, 2020 Insurance, but Cincinnati denied coverage, citing the lack Meemic’s named insureds submitted false statements of of an occurrence and the impaired property exclusion. Both attendant care provided for their son who was injured in a the trial court and the court of appeals held that Cincinnati car accident. A majority of justices held that Meemic could owed a duty to defend because the damage to property other not enforce its antifraud provision to bar the son’s claims for than its own work (the panels and concrete pads) was unfore- benefits because he was neither a party to the contract nor a seen, unexpected and unintended. And the impaired property party to fraud and did not benefit from the fraud since the fees exclusion did not apply because the property was physically were paid to his parents. The court’s holding was rooted in the injured, and the exclusion was not asserted as an affirmative premise that anti-fraud provisions were enforceable only to defense in Cincinnati’s answer to the complaint. the extent they are recognized “statutory defenses or common- law defenses that have not been abrogated.” The no-fault act A moped is not a “motor vehicle” as required by the does not recognize a fraud-based defense and common law “owned auto” exclusion in this UM policy only recognizes rescission for (1) fraud in the formation of Johnson v State Farm Mutual Automobile Insurance Company the contract or fraud in the performance of an essential term. Docket No. 347507 Plaintiff was not involved in the formation of the contract and June 25, 2020 did not fail to perform an essential condition of coverage. In a footnote, the court stated that its decision did not address Thirteen-year-old plaintiff was injured while riding his mo- fraud by a beneficiary. ped when it was struck by an uninsured motor vehicle. He was covered by his mother’s auto policy with State Farm, which Michigan Court of Appeals – Unpublished Decisions excluded UM coverage for bodily injury sustained “while oc- CGL coverage for damage to property cupying a motor vehicle or a motorcycle” not listed on the pol- other than insured’s product icy. State Farm denied coverage on the ground that the moped The impaired property exclusion does not apply was a motor vehicle not listed on the policy. The policy did not define “motor vehicle,” so the court applied the dictionary Cardinal Fabricating, Inc. v Cincinnati Insurance Company definition of motor vehicle, which limited the meaning of the Docket No. 348339 term to automobiles, trucks, buses and similar conveyances June 18, 2020 and determined that the exclusion did not apply to a moped. Plaintiff supplied steel for the construction of columnsin - tended to support a visual screen at the end of a runway for
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Insured’s waiver of lessor’s owner liability his medical records and testified by deposition. He also under- is binding on insurer went two independent medical examinations. At the close of Home-Owners Ins Co v Amco Ins Co discovery, Farm Bureau moved for summary disposition based Docket No. 347089 on plaintiff’s false statements during discovery regarding his June 25, 2020 medical history. Plaintiff had denied prior problems with his back, neck, and shoulder but his medical records revealed that This is a priority dispute. Amco insured the lessor of the at- he treated for those conditions prior to the accident. The panel fault vehicle. The lease was short-term (less than 30 days) and relied on an 1871 United States Supreme Court decision and stated that the lessor would assume liability up to the statutory a series of early federal and other state court decisions to hold limits of $20,000/$40,000, but only if the vehicle was being that “false statements made during discovery do not provide operated in accordance with the terms of the lease agreement. grounds to void the policy because, by that time, the claim has That agreement limited use of the vehicle to authorized driv- been denied and the parties are adversaries in litigation. Once ers. This accident occurred when an unauthorized driver, the suit is brought, what is truth and what is false is a matter for lessee’s 16-year-old son, failed to obey a stop sign. The court a jury or a judge acting as a factfinder. And if it can be shown held that because the lessee father, Home-Owners insured, that a party intentionally testified falsely, it is up to the Court agreed to waive his right to hold the lessor responsible under to determine what, if any, sanction is proper.” the owners liability statute, Home-Owners was bound by that agreement and owed primary coverage for the accident. Title insurance policy does not apply to adjoining alley
A motorcycle is a motor vehicle as defined in this UM/UIM Shower Curtain Solutions, Ltd., LLC v First American Title “owned-auto” exclusion Insurance Company Docket No. 346549 Holland v Springer June 18, 2020 Docket No 347562 June 25, 2020 Plaintiff purchased a parcel of property in Detroit. It was Reconsideration denied August 14, 2020 separated from another parcel of property by an alley that had been vacated by the City of Detroit and was being used by Plaintiff-decedent was killed in an accident while riding his the other property owner. Plaintiff sued for quiet title to the motorcycle. His auto policy expressly excluded UM and UIM northern half of the alley and prevailed. It also sued its title coverage for injuries sustained by an insured while occupying insurance company and its insurance agency on theories of a motor vehicle owned by the insured and not covered under negligence and breach of contract. As to the title insurer, the the policy. The policy did not define the term “motor vehicle” court looked at the terms of the insurance contract and con- so the panel applied the plain and ordinary meaning of that cluded that it did not cover title to the alley, so there was no term, rather than the statutory definition under Michigan’s breach of the insurance contract. As to the agency, the court no-fault act. It concluded, consistent with prior case law, that held that it was not a party to the insurance contract, which a motorcycle fits the common view of a motor vehicle. The eliminated the breach of contract claim. And Michigan does estate had no claim for UM/UIM coverage under the insured’s not recognize negligence as a viable cause of action against umbrella policy because that policy expressly excluded such insurance agents. coverage absent an endorsement expressly adding it. There was no such endorsement. UIM limit is reduced by settlements with other responsible parties Anti-fraud provisions and false statements during litigation Estate of Malaj v. Citizens Insurance Company of America Haydaw v Farm Bureau Insurance Company Docket No. 348408 Docket No. 345516 July 16, 2020 July 9, 2020 Plaintiff estate applied for UM and UIM benefits follow- Reconsideration denied August 24, 2020 ing an accident with a vehicle titled to someone without a In this first impression but unpublished opinion, the court policy, but possessed and maintained by constructive owners decided that fraud provisions in no-fault insurance policies who did insure the vehicle. The court held that because the cannot be applied to false statements made by the insured dur- vehicle was insured, it did not meet the policy definition of ing first-party litigation. Plaintiff was injured in an automo- an uninsured motor vehicle. The estate was not entitled to bile accident and sued his insurer for PIP benefits. During the UM benefits. Nor was the estate entitled to UIM benefits. course of litigation, he signed authorizations for the release of The policy had a per person limit of $250,000 and allowed
State Bar of Michigan Insurance and Indemnity Law Section 19 The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020 the insurer to offset any amounts the insured collected from coverage so Ford defended the underlying claim and then others for bodily injury as a result of the same accident. The commenced this action for contractual indemnity against the estate had settled with other legally responsible parties for a transportation company and the supplier of seats, and sued total amount that exceeded his UIM limits. their insurer for coverage. The trial court granted summary disposition for the insurer finding that the CGL policy exclud- Complaint for social host liability did not describe an ed coverage for claims arising out of the use of a motor vehicle, occurrence including loading and unloading, while the commercial auto Estate of Wells v. State Farm Fire and Casualty Company policy contained an exclusion for claims involving negligence Docket No. 348135 on the part of the customer, which was Ford. The Court of July 16, 2020 Appeals found a question of fact on whether the employee was Supreme Court application pending killed while unloading the vehicle seats, which triggered the potential for CGL coverage and a duty to defend. It affirmed State Farm’s homeowner’s policy does not cover claims of the lack of coverage under the auto policy because Ford’s own social host liability where the complaint alleges that the in- negligence was established in the underlying action. sureds knowingly furnished alcohol to minors and knowingly allowed the alcohol-impaired operation of a motor vehicle. Lack of competent evidence of a hit-and-run The complaint also expressly claimed that the motor vehicle accident for UM coverage accident was the reasonably foreseeable and direct result of the Candella v Liberty Mutual Insurance Company insured’s intentional act of furnishing alcohol to minors. That Docket No. 348146 conduct does not qualify as an occurrence or an accident un- August 13, 2020 der Michigan law. The dissenting opinion would have found a duty to defend because of a question of fact about whether the Plaintiff claimed he was struck from behind by another insureds expected or intended the injury. vehicle while sitting at a traffic light, but there was no physical damage to his car. He produced no police report, no photo- Question of fact as to whether injury graphs of the other vehicle, and no witnesses. He did produce occurred during unloading a license plate number of the vehicle that struck him, but that number failed to match up with any registered vehicle. Plain- Ford Motor Company v. Centra, Inc. tiff’s UM policy with Liberty Mutual stated that if there was Docket No. 349212 no direct physical contact with the hit-and-run vehicle, the July 23, 2020 facts of the accident had to be proved by “competent evidence Per the terms of an indemnity and insurance agreement, other than the testimony of a person making a claim.” There Ford sought coverage from the commercial insurer of the was no such evidence. The trial court granted summary dispo- transportation company whose employee was killed at a plant sition and the Court of Appeals affirmed. in Missouri while unloading vehicle seats. The insurer denied
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20 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
Liability coverage excluded for vehicle used to transfer Plaintiff is a third-party beneficiary of the insurance persons for a fee contract but its lawsuit is time-barred Farm Bureau General Insurance Company of Pontiac School District v Travelers Indemnity Co Michigan v. HORE Docket No 347614 Docket No. 347918 September 3, 2020 August 20, 2020 The Pontiac School District was a member of a self- Farm Bureau’s insured agreed to help his niece transport insurance group, Middle Cities Risk Management Trust several passengers to work in the course of her transportation (MCRMT), which was the named insured on an excess policy business. It was the first time he ever assisted his niece with her with Travelers. MCRMT covered losses up to $2 million after business, and he did not receive any fees for his service. The which Travelers’ policy provided coverage. In 2011, the Dis- insured lost control of his vehicle that day and collided with trict discovered substantial damage to one of its school build- a delivery truck, leading to bodily injury lawsuits by the pas- ings, a high school that had been closed and was vacant. It sengers. Farm Bureau’s policy excluded liability coverage “for submitted a claim to MCRMT several months later. MCRMT liability arising out of the ownership of operation of a vehicle denied the claim, after which the parties spent nearly five while it is being used to carry persons or property for a fee.” years engaged in administrative appeals, which ended with a The exclusion did not require that the insured received the fee replacement cost assessment of roughly $6,000,000. Travelers charged, only that the service was being provided for a fee. denied the excess claim for $4,000,000 stating that the Dis- The trial court applied the exclusion, and the Court of Ap- trict was not an insured under the policy issued to MCRMT peals affirmed. The fact that the insured had only volunteered and further asserting the two-year contractual limitation for to help his niece did not alter the fact that his vehicle was be- filing suit. The court of appeals rejected Travelers’ first argu- ing used to transport passengers for commercial purposes. The ment, holding that members of MCRMT were third-party dissenting opinion would not apply the exclusion because the beneficiaries of the insurance contract with rights of coverage. insured was not compensated. But the court did apply the two-year limitations provision, which stated: “in no event will this period of time [for filing A rescission analysis under Bazzi suit] exceed 2 years after the date on which the direct physical AAA Membership Select Ins Co v Auto Owners Ins Co loss or damage occurred.” The exceptions to the time limita- Docket No 349608 tion did not apply. Reconsideration pending No property damage coverage for home no longer used Plaintiff AAA insured a vehicle responsible for causing an as “residence premises” accident while transporting passengers to northern Michigan Hassanein v Encompass Indemnity Co to visit individuals incarcerated there. Two passengers sued the Docket No 347544 insured owner for bodily injury and AAA defended. It also Released September 10, 2020 filed this lawsuit for rescission based on the named insured’s failure to report that he used the vehicle to transport passen- Encompass denied coverage for fire damage to plaintiffs’ gers. Auto Owners insured one of the passengers and inter- property because it was not being used as their “residence vened, likely because of its exposure for UM coverage. The premises” at the time of the fire. The homeowners’ policy only trial court applied the Bazzi analysis and declined to rescind covered damage to the residence premises, which was defined based on the equities involved. It noted that the insured listed as the place where “the named insured resides and which is multiple vehicles on the policy with one driver, which should principally used as a private residence.” Plaintiffs had resided have alerted the insurer of the need for investigation, the in- in the insured location from 2005 to 2015 but leased it to nocent parties had no knowledge of any fraud and were in no a tenant toward the end of 2015 when they began spending way reckless or negligent, and it was not clear that the passen- more time in Egypt. The fire occurred in 2016. The Court of gers would have PIP or UM coverage under their own policies. Appeals affirmed summary disposition for Encompass because The fact that the named insured would be relieved of liability the damaged property was not plaintiffs’ “residence premises” for his bad acts did not outweigh the other factors. The Court at the time of the fire. The terms of the contract were not of Appeals affirmed, stating that even if it would have reached ambiguous. The court also affirmed summary disposition for a different conclusion, the trial court’s decision did not fall the independent insurance agent who sold plaintiffs the policy outside the range of reasonable and principled outcomes. because plaintiffs never informed the agent of the change in use of the property and there was no special relationship creat- ing a duty on the part of the agent to make sure plaintiffs had the correct coverage.
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Sixth Circuit Court of Appeals Retentions apply per occurrence and per policy period No property coverage for damage caused Livonia Public Schools v Selective Ins Co by an old leaky roof Case No 16-cv-10324 O.L. Matthews, MD v Harleysville Ins Co July 17, 2020 Case No 19-1994 This opinion resolves the coverage owed for defense costs ___ Fed Appx ___ incurred in an underlying lawsuit filed by three physically or September 9, 2020 mentally handicapped children alleging physical, verbal, and This is a property damage claim arising out of an old and emotional abuse by a special-needs teacher. Selective covered poorly maintained roof on plaintiff’s medical office building. plaintiffs for these claims, which alleged incidents occurring Harleysville’s policy promised to “pay for direct physical loss over two policy periods, 2010 – 2011 and 2011-2012. In of or damage to Covered Property . . . caused by or resulting prior proceedings, the court held that Selective owed defense from any Covered Cause of Loss.” A covered cause of loss was costs and indemnity but only after the insureds exhausted any cause other than one expressly excluded by the policy. The their $500,000 retention per policy period and per occur- court agreed that two of the three coverage exclusions asserted rence. Each occurrence consisted of the claims by each sepa- by Harleysville applied. One of the exclusions barred coverage rate plaintiff during a policy period. After the abuse claims for loss or damage resulting from wear and tear. “The record were resolved in the underlying case, Selective, in this declara- shows that wear and tear was a cause of loss here,” and that tory judgment action, moved to confirm that its defense ob- evidence included plaintiff’s own expert report. The roof was ligations were satisfied. Plaintiffs argued that there was never years past its useful life. The second exclusion that applied was any evidence of abuse during the second policy period and the “Leakage” exclusion, which applies when the property has asked for reimbursement of its three retention payments for previously been damage by the intrusion of rain. that period. The court denied the request. It was the allega- tions in the underlying complaint that triggered the duty to Federal District Court – Eastern District of Michigan defend, without regard to the merits of those claims. Plaintiffs “Prior and Pending” exclusion in EPL policy were obligated to exhaust their retentions for each “time on does not apply the risk” and that included the second policy period.
City of Grosse Pointe v US Specialty Ins Co Lack of a fire alarm results in loss of coverage Case No 18-cv-13428 New Hamilton Liquor Store Inc v AmGuard Ins Co July 13, 2020 Case No 17-cv-13077 In 2011, US Specialty covered the city under an Employ- July 23, 2020 ment Practices Liability (EPL) policy. It provided a defense Reconsideration pending and indemnity in response to a Title VII/ELCRA lawsuit filed Plaintiff purchased a commercial building and consulted by a female employee, who claimed she was denied a promo- with an insurance agent about coverage for the business. They tion and otherwise discriminated against on the basis of her met on three separate occasions and at one of the meetings, sex, and retaliated against for having filed an EEOC claim. plaintiff told the agent that the building was equipped with That lawsuit was settled in 2015. In 2018, the same employee alarms. He then purchased an insurance policy that included filed a second lawsuit claiming discrimination and retaliation, an endorsement with a section titled: “Protective Safeguards again on the basis of sex. As to the discrimination claim, plain- Symbols Applicable.” The endorsement excluded coverage for tiff complained that the city failed to promote her to a posi- fire damage if the insured failed to maintain an automatic fire tion that opened up in 2018, and failed to grant a request for alarm on the premises. Plaintiff only had motion-detecting accommodation in 2017. US Specialty denied coverage for the alarms near the doors so when a fire occurred on the premises, second lawsuit based on a “Prior and Pending” exclusion in it was not immediately identified as a fire. The cause of the the EPL policy. The court examined the second complaint, fire was arson. Someone had climbed onto the roof and cut a and concluded “that the City is potentially liable for dam- hole through the roof with a power saw and then poured gaso- ages from an ‘employment practices wrongful act’” committed line into the building. When AmGuard denied coverage, the in 2017 or 2018 or both. Those allegations triggered a duty insured filed suit claiming that the definition of a fire alarm to defend. And although the “Prior and Pending” exclusion includes motion detectors that can detect fires. The court dis- could limit indemnity coverage for the retaliation claim, it agreed. It held that a fire alarm is an alarm specifically de- would not apply to the sex discrimination claims arising out signed to detect fires, and that the policy clearly required such of actions taken in 2017 and 2018. an alarm as a condition of coverage.
22 State Bar of Michigan Insurance and Indemnity Law Section The Journal of Insurance and Indemnity Law Volume 13 Number 4, October 2020
2019-2020 Insurance Law Section Council
Chair Term Expires 2020 Jason J. Liss Patrick D. Crandell Fabian Sklar King & Liss PC Douglas McCray 33450 W 12 Mile Rd Nina M. Jankowski Farmington Hills MI 48331-3350 Steven M. Hickey Phone: (248) 553-2000 Gail L. Storck Fax: (248) 553-2020 e-mail: [email protected] Term Expires 2021 Chair-elect Nicholas Andrews Nicole E. Wilinsk Ann-Marie Earls Milea M. Vislosky Secretary Robert B. June Lauretta Pominville Daniel Steele, Jr.
Treasurer Rabih Hamawi
Immediate Past Chair Augustine O. Igwe
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