TOV Injury and Safety Blog

No homeowner coverage for defective workmanship or mold

Hometowne Building Company built a house for a customer in South Lyons and then experienced problems with water seepage and mold.  After several unsuccessful attempts at remediation, the owner sued Hometowne and ultimately, one of its insurers, the North American Specialty Insurance Company (NASIC) settled the claim with the owners.  NASIC then sued Amerisure Mutual to force it to contribute to the settlement.  Amerisure argued that two exclusions in its policy let it off the hook, and the Court of Appeals agreed. 

The Court concluded that the "defective workmanship" exclusion precluded coverage for any damage to the structure caused by mistakes made by Hometowne.  This would leave limited liability for Amerisure to cover injury or damage to contents caused by defective workmanship, however, the policy also contained a "fungi or bacteria" exclusion which eliminated any contents coverage for damage caused by mold, fungi or mildew or their ramifications.

Court reaffirms: no remedy for Michigan insureds when Farm Bureau acts in bad faith

Shirley Nixon sued Farm Bureau General after it refused to pay benefits under her homeowner's policy and accused her of intentionally setting fire to her home.  The trial court refused to dismiss her "bad faith" claim or her cause of action for "intentional infliction of emotional distress."  Farm Bureau appealed to the Court of Appeals, arguing that even if it acted in "bad faith" and wrongfully denied Nixon's purchased benefits, she had no claim for damages.

Citing an earlier case where Blue Cross wrongfully refused to pay for treatment of Stage IV metastatic breast cancer treatment, the Court of Appeals reversed the lower court ruling in Nixon's case and dismissed her claim for "bad faith."  The Court held that "the mere failure to pay insurance benefits" does not create a cause of action against the insurer in Michigan.  Unlike most states, Michigan does not recognize a cause of action for bad-faith refusal to pay an insurance claim, no matter how egregious the insurer's conduct, as "[f]ailure to pay a contractual obligation does not amount to outrageous conduct, eve if it is willful or in bad faith."  

Do you still have doubt about the power of insurance companies to control the law in Michigan?

Home owner cannot hold insurer responsible for allowing fraudulent "agent" to cancel policy

Robert Gaines purchased a home which he immediately sold to a realtor-friend.  The realtor-friend was authorized to manage the transaction, and she allowed her boyfriend to purchase homeowner's coverage.  Before Gaines could sell the home to his friend, however, the house burned.  When Gaines sought coverage from Michigan Basic, he was informed that "his son" [actually the friend's boyfriend]had cancelled the coverage prior to the sale.  Gaines sued the insurer for negligence in allowing a third-party to cancel coverage, however, his claim was dismissed.  The Court pointed to the fact that Notice of Cancellation had been mailed to the proper address, precluding Gaines from arguing that the insurer should be estopped from cancelling.  The Court also rejected his claim that he should be treated as an "equitable subrogee," noting that the protection provided under that doctrine applies only to a third-party who pays the legal debt of another.

Insurer limits pay-out from vandalism claim related to plumbing removal

Acorn Investment Company [AIC] owned a single-family rental home in Detroit that was insured with Michigan Basic.  After the tenants moved out, vandals removed copper piping and other fixtures, resulting in substantial water damage to the home. Michigan Basic relied on several exclusions in the policy to deny payment to AIC, which then filed suit.  The lower court granted judgment in favor of the insurer, relying on language in the policy related to both vandalism and earth movement, and AIC appealed.

Bank can't grab fire insurance proceeds to pay off loan

Since the economy has turned home equity upside-down on so many people, a new problem has surfaced.  When a structure suffers damage that is insured, the mortgagee bank is tempted to grab the money for repayment of its loan, rather than allowing the home to be re-built.  That's exactly what happened to Allen and Julie Hilliker in Ogemaw County after their home suffered a fire loss.  They were insured by Wolverine Mutual and elected to have the home re-built.  Rebuilding would cost $185,859.51, but the actual cash value of the home was only $119,127.13---less than the $140,000.00 mortgage. 

Commercial tenant held responsible for damage caused by fire

In American States Insurance and Ratcliff v. Hampton, dba VIP Truck & Trailer, a building owner and his insurer sued the tenant who caused a fire in the leased premises for the damage caused to his building.  Under the parties' written lease, Hampton had assumed responsibility for any damage resulting from "his negligence or the negligence of invitees or guests."  Hampton argued, however, thast Ratliff's purchase of fire insurance and his admission that his building was under-insured constituted proof that the landlord had assumed the risk associated with a fire caused by Hampton.

The Courts rejected this analysis, and distinguished this case from a prior case where the tenant's only relevant leasehold duty was to pay the insurance premiums incurred by the landlord.

Insurer avoids claim for water damage after corporate identity change

The owners of the Alexis Manor Apartments decided to convert them to condomimiums.  To facilitate the change, they created a second corporation and transferred title to the building.  They maintained the same insurance policy with Michigan Millers.  When they suffered water damage, they attempted to collect on the policy, but were denied.  The court ultimately ruled that despite taking the owners' money for coverage, the insurer and the agent who sold the insurance owed the owners no duty to procure the proper coverage, because only the predecessor corporation was a "client" of the insurer and agent.  By accepting premiums from the new corporation, the insurer and agent did not incur any obligation to the property-owning corporation.  The case is Belfor USA Group, Inc., v. Alexis Manor Apartments, et al.

Pioneer State Mutual avoids paying for water damage

Pioneer State Mutual, a recent entrant in the "cheapest insurer" competition with long-standing champion Allstate and aggressive newcomer Farm Bureau, gained "cheapness standing" when it won a recent battle with one of its insureds.  It avoided paying for water damage to the insured's home by citing fine-print exceptions to its coverage.

Farm Bureau's efforts to avoid paying fire loss are discredited by court

Brittany Smith's home burned.  She had bought coverage with Farm Bureau.  Farm  Bureau demanded that Smith complete the copious Proof of Loss which can be required by law (and it has short time limits, by the way) and she filled it out including between $900 and $1,000 dollars of personal property in the residence destroyed by fire but not owned by her.  She explained that apparent discrepancy to Farm Bureau when it forced her to sit for an examination under oath.  Nevertheless, Farm Bureau attempted to void her policy and refused to pay her the insured value of her loss--which was in excess of $200,000.00 in real and personal property.

Farm Bureau evades another obligation

Dynamic Land, L.L.C., bought commercial insurance from Farm Bureau on a two-unit commercial building.  It was renovating the insured property when a sprinkler system pipe broke.  It attempted to recover for lost rent and actual expenses of nearly $300,000.00, incurred over the twelve months the property was under repair.  Farm Bureau denied payment, arguing that the company had not shown an "actual loss of business income" during the repair period. 

Verdict against insurance agent is upheld

GHD Operating, LLC, sought to insure its plant against fire and casualty and retained the Emerson Prew Agency to help it.  An employee of Emerson issued a certificate of property insurance through St. Paul, but failed to actually confirm the coverage.  GHD was belatedly made aware of the lack of coverage, but before it could secure a substitute policy, the factory burned to the ground.  A jury found Emerson responsible for the loss, but attributed 40 percent negligence to GHD.   The Court upheld the jury's verdict over repeated motions and appeals by the Emerson Agency, confirming that Emerson's negligence in securing coverage or notifying GHD of the lack of coverage, was a proximate cause of the uninsured loss suffered by GHD.

Hastings Mutual loses in dispute over coverage

Hastings Mutual had insured a warehouse owned by the Plaintiff, Overall Trading, Inc., but declined to pay for water damage suffered during the months of January and February  of 2005.  Hastings claimed the damage was caused by surface water run-off, a non-covered event, while the company presented proof from two engineers alleging that the damage was caused by a roof leak.  Overall Trading filed suit against the company, and Hastings claimed the suit should be dismissed because Overall never filed a new Proof of Loss after Hastings rejected the claim initially.  Hastings also sought dismissal based on Overall's failure to file a document distinguishing between the January and February losses.

Insurer who repeatedly demanded more information cannot argue ultimate suit was filed late

Employers Mutual insured two gas stations operated by the Tiel Oil Company in Reed City.  The gas stations suffered an in-ground petroleum leak after water infiltrated underground pipes, froze, and fractured the pipes.  The insurer was notified of the loss but declined to pay, offering serial excuses based upon its interpretation of various policy clauses. 

The latest in insurance "loophole" arguments

A superficial search of this weblog will provide numerous examples of insurers attempting to avoid obligations they have collected premiums to cover--through nonsensical or perverse construction of the insurance policy contract.  The industry hit a new low in Texas this fall, however, when Great American Insurance Company filed an argument claiming that it was not responsible to provide "excess" coverage for several deaths that resulted from an office building fire.  The insurer is claiming that although its policy including fire liability coverage, it owes no coverage for the seven deaths that occurred in a 2007 fire because the victims all died of smoke inhalation.  The insurer is arguing that it owes no coverage for smoke inhalation deaths because it included an exclusion in the policy for damages caused by "pollution".   

Farm Bureau denies another claim on a technicality

Farm Bureau has been one of the more aggressive insurers in relying on the pro-insurance Michigan Supreme Court to avoid paying claims.  It was successful again in Sherman-Nadiv v. Farm Bureau, where the insured wasn't allowed to challenge a jury verdict because it had not filed the proper motion in the lower court.  The case involved a rental property that the plaintiffs had insured with Farm Bureau.  The policy contained language in the fine print that excluded coverage if the home was "unoccupied" for 30 days, unless it was "being constructed".

Court addresses penalty interest and proof of loss issues

In Frans v. Harleysville, the Court of Appeals addressed a number of procedural issues pertinent to statutory fire policies.  Among other principles, it noted that where an insurer merely rejects a proof of loss but does not identify the deficiencies, it is held to have waived the proof of loss requirement.  The court also noted that 12 percent interest is due whenever payment is late, regardless of whether it was "unreasonably delayed".  The court refused the insured's arguments suggesting that the insurer had waived certain policy language addressing policy limits and surrender of debris.  It also refused to award the Plaintiff pre-filing interest on the parties' arbitration award.