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Bartlett Investments Inc v. Certain Underwriters At Lloyd's London

Court of Appeals of Michigan

March 2, 2017

BARTLETT INVESTMENTS INC, Plaintiff-Appellant,
v.
CERTAIN UNDERWRITERS AT LLOYD'S LONDON, Defendant-Appellee.

         Wayne Circuit Court LC No. 14-007014-CB

          Before: Stephens, P.J., and Servitto and Shapiro, JJ.

          PER CURIAM.

         Plaintiff is the owner of a vacant building in the city of Highland Park for which it purchased a commercial property insurance policy. Because vacant buildings carry a significantly greater risk for vandalism and damage than do occupied buildings, plaintiff had to obtain a policy that carried special certificates of coverage regarding vacant buildings. The certificates contained two provisions relevant to this appeal. First, the policy provided that "any loss or damage caused by Vandalism must be reported to [Lloyd's] within ten (10) days after the Insured first learns of the loss or damage." Second, it provided that, as a condition of coverage, the insured must assure that the building "be fully secured against unauthorized entry at all times" and that "the insured property shall be inspected regularly by the Insured or the Insured's agent during the policy period."

         On or about February 1, 2013 plaintiff's owner, Anwar Matty discovered extensive vandalism damage to the building. He submitted a claim for the losses, and defendant rejected the claim. The reason set forth in defendant's denial letter was:

[T]he claimed damages are a combination of overlap with the loss of January 6, 2013, [1] wear and tear, maintenance and theft. There was also an indication of long-term water damage . . . . As none of these are Covered Causes of Loss, Underwriters regrets that they are unable to provide payment for your claim.

         Following the denial, plaintiff filed suit. At the trial court, defendant relied on two grounds for denial that had not been referenced in the denial letter, failure to comply with the 10 day notice provision and failure to comply with the requirement to make "regular inspections" and to keep the building secured. Defendant brought a motion for summary disposition under MCR 2.116(C)(10), asserting that there was no question of fact that plaintiff had failed to comply with these provisions and, therefore, was not entitled to coverage. The trial court agreed and granted defendant's motion, dismissing the case. Although we disagree with portions of the trial court's analysis, we affirm.

         I. WAIVER OF DEFENSES NOT RAISED IN THE DENIAL LETTER

         Plaintiff argues that the trial court's decision was erroneous because Michigan law precludes defendant from obtaining relief on any defenses not explicitly stated in its first denial letter. Plaintiff relies heavily on Smith v Grange Mut Fire Ins Co, 234 Mich. 119, 122-123; 208 N.W.2d 145 (1926) where our Supreme Court stated:

[I]t must be accepted as the settled law of this State, that, when a loss under an insurance policy has occurred and payment refused for reasons stated good faith requires that the company shall fully apprise the insured of all of the defenses it intends to rely upon, and its failure to do so is, in legal effect, a waiver, and estops it from maintaining any defenses to an action on the policy other than those of which it has thus given notice.

         While Smith contains perhaps the clearest articulation of this rule, the doctrine appears to have been a part of Michigan jurisprudence long before Smith. See Johnson v Yorkshire Ins Co, 224 Mich. 493, 496-497; 195 N.W. 45 (1923) (holding that when an insurer denied payment alleging that no valid contract for insurance existed it waived the defense that the insured had failed to adequately submit a proof of loss), Popa v Northern Ins Co, 192 Mich. 237, 241; 158 N.W. 945 (1916) (stating that "when an insurance company has been notified of a loss under a policy issued by it, and it sends an adjusting agent to inquire into the loss, and such agent . . . refused payment, and denies all liability" that the insurer has waived the defense of failure to receive a proof of loss), and Castner v Farmers' Mut Fire Ins Co, 50 Mich. 273, 275; 15 N.W. 452 (1883) (stating that when the insurance company has asserted two grounds for denying coverage at the time the suit was initiated it "was not at liberty thereafter to vary their grounds and offer new or additional objections.").

         Defendant argues that in order to rely on the rule articulated in Smith, plaintiff is required to show that defendant's failure to specifically state these two provisions as grounds for denying coverage in its first denial letter prejudiced plaintiff. However, in our review of the case law, including more recent cases, we find no indication that an insured is required to show that it was prejudiced. See Mich Twp Participating Plan v Fed Ins Co, 233 Mich.App. 422, 436; 592 N.W.2d 760 (1999) (stating that "once an insurance company has denied coverage to its insured and stated its defenses, the insurer has waived or is estopped from raising new defenses."), Smit v Kaechele, 207 Mich.App. 674, 680; 525 N.W.2d 528 (1994) (stating the "general rule is that once an insurance company has denied coverage to an insured and stated its defenses, the company has waived or is estopped from raising new defenses" but that the rule cannot be applied to "broaden[] the coverage of a policy"), Durham v Auto Club Group Ins Co, unpublished opinion per curiam of the Court of Appeals issued December 13, 2016 (Docket No. 329667) (finding that when an insured denied coverage, after a full investigation having "knowledge of all necessary facts to assert" a "residency defense, " yet failed to assert such a defense in its first letter denying coverage that the defense was waived), p 1, 3-4.

         Similarly, in Jones v Jackson Nat'l Life Ins Co, unpublished opinion of the United States Court of Appeals for the Sixth Circuit, issued June 20, 1994 (Docket Nos. 93-1503 and 93-1528), p 10-13; 27 F.3d 566 (1994), the United States Court of Appeals for the Sixth Circuit found that upon its own review of Michigan law that there was no prejudice requirement for an insured to claim that an insurer waived any defense not explicitly mentioned in its first letter denying coverage.[2] In that case, the insurer's first denial letter had informed its insured's spouse that it was denying payment under the insured's life insurance policy because the insured's cancer diagnoses had pre-dated delivery of the policy. Id. at 10-13. The Sixth Circuit concluded that because this was the only grounds stated for denying coverage in the first denial letter that the insurer had waived any other defenses and that the insured was not required to show that it was prejudiced in order to assert that the insurer waived additional defenses. Id. In reaching this conclusion, the Sixth Circuit noted a distinction in the case law between when the rule articulated in Smith had been applied in the context of estoppel and when it had been applied in the context of waiver. See id. The Sixth Circuit noted that while an insured is required to show that it was prejudiced in order to invoke the doctrine of estoppel, it is not required to show prejudice to assert the doctrine of waiver. Id.[3] The Sixth Circuit pointed to our Supreme Court's opinion in Taylor v Supreme Lodge of Columbian League, 135 Mich. 231, 232; 97 N.W. 680 (1903). Id. In that case, our Supreme Court held that when an insurer had expressly informed a plaintiff's attorney by letter that it was declining coverage due to the insured's alleged lack of payment that the insurer waived any other defenses. Taylor, 135 Mich. at 232.

         Defendant argues in the alternative that it cannot be found to have waived any defenses not specifically stated in its initial denial letter because that letter contained ...


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