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Wilson v. State Farm Fire and Casualty Co.

United States District Court, E.D. Michigan, Southern Division

November 21, 2019





         This is an insurance case. Plaintiffs Johnnie Wilson, Hassan Turner, and Turner's grandchildren (C.S., Z.S., N.S. and A.S.) are suing state farm for denying their claims for the loss suffered after a fire at their home. The named insured on the policy was Johnnie Wilson. It is undisputed that Wilson's son, Hassan Turner, and his grandchildren (C.S., Z.S., N.S. and A.S.), were all insured persons under the fire insurance policy.[1]

         The parties consented to a jury trial. The jury unanimously found that Wilson had a wrongful connection to the fire and that Turner did not. (ECF No. 44).

         State Farm now asks the Court to find that Turner and his grandchildren are precluded from recovering under the fire insurance policy. State Farm argues that because the policy excludes coverage for “innocent co-insureds”, the jury's finding that Wilson had a wrongful connection to the fire also precludes Turner and the grandchildren from coverage for their loss of personal property. The fire insurance policy states: “If you or any person insured under this policy causes or procures a loss to property covered under this policy for the purpose of obtaining insurance benefits, then this policy is void and we will not pay you or any other insured for this loss.” (ECF No. 51-2, PageID.537). Turner and the grandchildren argue that Michigan law deems this language void. Therefore, they say, they are entitled to collect under the policy as “innocent co-insureds.”

         During the trial, State Farm filed a motion for judgment as a matter of law on these grounds. The Court denied the motion, saying that the issue was preserved. State Farm has renewed the motion. (ECF No. 51).


         A “[J]udgment as a matter of law is appropriate ‘[i]f a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue.'” Burley v. Gagacki, 729 F.3d 610, 621 (6th Cir. 2013) (quoting Fed.R.Civ.P. 50(a)). The decision to grant judgment as a matter of law and remove the consideration of the case from the jury should occur only when “there is a complete absence of pleading or proof on an issue material to the cause of action or when no disputed issues of fact exist such that reasonable minds would not differ.” Id.

         III. ANALYSIS

         The Michigan Supreme Court first addressed whether one insured may recover after a coinsured causes a loss in Monaghan v. Agric. Fire Ins. Co., 53 Mich. 238 (1884). Answering in the negative, the court reasoned “if the right of action has become barred as to one of the joint contractors, it has to all of them […]. Any attempt on [one insured's] part to defraud the company by not complying with the conditions of the policy, or any false swearing or concealment or fraud in reference to the proofs of loss, would defeat a recovery.” Id.

         Almost a century later, the Michigan Supreme Court introduced the “innocent co-insured” doctrine in Morgan v. Cincinnati Ins. Co., 411 Mich. 267 (1981). The supreme court explained, “[W]henever the statutory clause limiting the insurer's liability in case of fraud by the insured is used it will be read to bar only the claim of an insured who has committed the fraud and will not be read to bar the claim of any insured under the policy who is innocent of fraud.” Id. at 277. The decision was grounded in public policy, the court noting that barring recovery to all insureds based on one's fraudulent conduct would require “that each insured must not only undertake to forbear from fraud himself, but must also undertake to prevent each of the other persons insured from engaging in fraud on pain of losing all interests under the policy.” Id. The supreme court declined to impose such a requirement, noting that “an insured often has no control over the conduct of others.” Id. at 276.

         In Borman v. State Farm Fire & Cas. Co., 446 Mich. 482 (1994), the supreme court expanded the scope of the “innocent co-insured” doctrine to cover not only fraudulent acts, but intentional conduct as well. The supreme court prohibited “an insurer from denying coverage to “an insured” who is innocent of wrongdoing based upon the wrongdoing of any other coinsured.” Id. at 489. The supreme court then concluded that an intentional acts exclusion was not permissible where the exclusion barred recovery to an innocent spouse. Id. at 490.

         The dissent in Borman found a distinction between “the” insured and “any”/ “an” insured as the terms are used in an insurance policy to preclude collection. When the policy uses “any/an insured, ” the dissent stated, all co-insureds, including innocent co-insureds, are precluded from recovery. Id. at 494. A small number of Michigan Court of Appeals cases have applied the reasoning of the dissent to bar coverage to innocent co-insureds. State Farm asks the Court to do the same.

         When deciding a diversity case under state law, a federal court must apply the law of the forum state's highest court. Durmishi v. Nat'l Cas. Co., 720 F.Supp.2d 862 (E.D. Mich. 2010). If the state's highest court has decided an issue, the court is bound to apply the rule ...

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