Nationwide Property & Casualty Insurance Co. v. Brown
Docket: Case No. 15-14491
Court: District Court, E.D. Michigan; April 24, 2017; Federal District Court
Plaintiff Nationwide Property and Casualty Insurance Company is seeking declaratory relief to declare that the property insurance policy for Defendant James Brown is void concerning water damage at the Browns' Detroit home. Defendants James and Tamara Brown have counterclaimed for breach of contract and requested the appointment of an umpire. On January 27, 2017, Plaintiff filed a motion for summary judgment on all claims and a motion to dismiss the counterclaims. The court held a hearing on April 17, 2017, and decided to grant the motion for summary judgment, rendering the motion to dismiss moot.
The undisputed facts reveal that on November 6, 2013, James Brown submitted an insurance application to Nationwide for his property at 13947 Bramell St., Detroit. The application included an attestation provision confirming the truthfulness of the stated facts. James also completed a Michigan Supplemental Application, which reiterated that misrepresentation could void coverage, and he signed it as well. The supplemental application contained questions regarding the property, including ownership, occupancy, and tax status, to which James responded affirmatively to ownership and occupancy, denied delinquency in property taxes, and indicated no business operations conducted from the insured location.
Nationwide issued a homeowners' insurance policy (Policy No. 91 21 HP 345848) to James for the property at 13947 Bramell, effective from October 30, 2013, to October 30, 2014. The policy includes a Michigan Amendatory Endorsement that outlines provisions regarding concealment, fraud, or misrepresentation. Specifically, the insurer may void the policy or deny coverage if any insured party conceals or misrepresents material facts during the application, renewal, or claims process. If the policy is voided, the insured must reimburse any claim payments received. Additionally, the insured is required to notify Nationwide of any changes affecting the policy's premium risk, such as changes in occupancy.
The policy includes exclusions for losses due to neglect, meaning any loss resulting from the insured's failure to protect the property is not covered, even if other perils contributed to the loss. It also imposes conditions precedent to coverage, stipulating the insured's duties after a loss, which include immediate notice to the insurer, protecting the property from further damage, and providing requested documentation. Furthermore, the policy mandates that no legal action can be initiated unless there has been full compliance with its provisions, and any action must be commenced within one year of the loss or damage occurring.
On September 15, 2014, Nationwide informed James that his insurance policy would not be renewed due to the deteriorating condition of his residence, effective after October 30, 2014. A follow-up letter on October 7, 2014, indicated the policy would be canceled for nonpayment on October 19, 2014. On October 13, Tamara reported water damage to the house, claiming it originated from the second floor after returning home from a trip. During her examination under oath (EUO), she stated that the lights were not functioning and she left to stay with her sister without shutting off the water. Claims adjuster James Smith arrived later that day, identified the source of the leak as a supply line for the second-floor bathroom toilet, and took measures to stop further flooding.
An inspection by Nederveld revealed damage to the water supply line that appeared to be caused by forcible contact with tools, inconsistent with normal use. Tamara contacted Nationwide about the claim, stating that James was in Alabama and hospitalized due to a stroke. Although James did not attend the initial EUO scheduled for November 25, 2014, Tamara did, reiterating his absence. However, in a subsequent EUO on December 29, 2014, she contradicted her earlier statements by claiming that James had returned to Michigan on the day of the water damage discovery. James ultimately appeared for his EUO on July 8, 2015, asserting he had been in Tuscaloosa and was unaware of Tamara's claims regarding his health and absence. Tamara's attempts to secure guardianship over James were ultimately denied by the probate court, and her statements about his condition were deemed false.
Summary judgment is appropriate when the movant demonstrates that there is no genuine dispute regarding any material fact and is entitled to judgment as a matter of law, as outlined in Federal Rule of Civil Procedure 56(a). The court must evaluate evidence favorably for the non-moving party and draw all reasonable inferences in their favor. The initial burden lies with the movant to show the absence of a genuine dispute, which can be satisfied by indicating a lack of evidence supporting the non-moving party's case. Subsequently, the burden shifts to the non-movant to present sufficient evidence to establish a "genuine issue for trial." Summary judgment is not suitable if the evidence shows enough disagreement to necessitate a jury's review. In assessing a summary judgment motion, the judge does not weigh evidence or make credibility determinations but rather decides if a genuine issue for trial exists.
The court has diversity jurisdiction under 28 U.S.C. 1332 and applies Michigan law, as both parties acknowledge. Under Michigan law, insurance contracts are interpreted like other contracts, following established contract interpretation principles. The contract comprises the policy application, declarations page, amendatory endorsement, and the policy itself. Courts enforce contract language based on its plain meaning, aiming to uphold the parties' intent as expressed in the entire document. The meaning of a contract is a legal question.
The plaintiff's arguments for voiding the policy or denying coverage include alleged misrepresentations in the policy application, failure to prevent further damage and notify the plaintiff, and lack of cooperation during the claims process. The court concludes that James misrepresented business operations on the premises and that Tamara's actions warrant voiding the policy or denying coverage. The court will address the plaintiff's argument regarding delinquent property taxes but will not discuss other arguments.
The insurance policy allows the Plaintiff to void the policy if any insured person concealed, misrepresented, or omitted material facts during the application process, as supported by Michigan law that permits insurers to rescind policies for material misrepresentations, regardless of intent. The Plaintiff identifies three specific misrepresentations: the status of taxes owed, the existence of business operations on the property, and the ownership of the property at the time of application. The underwriting manager's affidavit indicates that the insurer relied on these representations and would not have issued the policy had they known the truth. The Defendants argue that without underwriting manuals or guidelines, the Plaintiff's claims cannot be substantiated, asserting that such documents are essential for determining eligibility for coverage based on the misrepresentations. The court finds that the Defendants’ requests for documents do not specifically seek underwriting manuals or guidelines, and the Plaintiff has already produced substantial discovery. Additionally, the affidavit does not mention any underwriting guidelines.
Defendants misunderstand the applicable law regarding reliance on misrepresentations in insurance applications. The case of Lake States indicates that insurer guidelines can demonstrate reliance on misrepresentations, particularly when those misrepresentations pertain to eligibility for coverage. Courts often accept affidavits that confirm an insurer's reliance on statements made in applications, as exemplified in Lake States, where an underwriter’s affidavit indicated that knowledge of other drivers would have altered the issuance of a policy. Similarly, Defendants submitted an unchallenged affidavit from their Personal Lines Underwriting Manager asserting that the status of property taxes is crucial to their decision-making process regarding insurance. The court notes that Defendants were not surprised by the misrepresentation claims, as they were included in the discovery plan. Ultimately, the court finds that underwriting guidelines are not essential to prove reliance or the significance of the alleged misrepresentations. Plaintiff alleges that James made significant misrepresentations concerning property tax status, business operations on the premises, and ownership of the property. The court will deny the Plaintiff's motion regarding the property taxes, grant it concerning James's business operations, and will not address issues related to Tamara’s businesses or property ownership.
James allegedly misrepresented the status of property taxes on his supplemental insurance application by indicating that the taxes were not delinquent for two or more years, which is a material fact under Michigan law (Mich. Comp. Laws 500.2103(2)(j)). The court affirms that the delinquency of property taxes is pertinent to insurance eligibility, referencing previous case law which has established that such misrepresentations are significant. Although the defendants argued that James was on a payment plan, this did not clarify whether his statement was misleading as the payment plan began in January 2015, while the application was signed in November 2013. The court notes that both parties failed to adequately address how taxes from 2012 could be considered delinquent by two years before 2014. The terms "delinquent" and "delinquent by two or more years" are undefined in the application and policy, necessitating interpretation according to their commonly understood meanings, consistent with the reasonable expectations of the parties involved. The application is deemed a component of the insurance contract, and no evidence suggests that a special meaning was intended for these terms.
At the motion hearing, Plaintiff contended that "delinquent by two or more years" referred to unpaid taxes from at least two separate tax years. Plaintiff frequently cited Judge Michelson’s opinion in Hatcher for support. However, the court determined that Judge Michelson's interpretation differed significantly from Plaintiff's argument, asserting that "delinquent two or more years" should be understood according to its common meaning. The court noted that dictionary definitions label "delinquent" as referring to debts that are past due or unpaid. Consequently, the Defendant’s application inquired whether any property taxes had been overdue for two or more years at the time of the application.
Plaintiff argued for interpretation aligned with Michigan law, which excludes individuals with property taxes delinquent for two or more years from insurance eligibility. The court, however, indicated that the relevant interpretation should focus on the commonly understood meaning of the phrase rather than Michigan's General Tax Act or Insurance Code. Nationwide rescinded the policy based on a material misrepresentation by the insured, not as a result of the statutory provision. The application question regarding property taxes did not explicitly reference the Michigan Insurance Code or suggest that its terms should be defined by it.
Ultimately, the court agreed with Judge Michelson's reasoning, concluding that as of November 6, 2013, there were no property taxes on the insured location that had been delinquent for two years or longer, since the 2012 taxes were not due before November 6, 2011. Therefore, James's statement on the application was not a misrepresentation.
James misrepresented the existence of business operations at the insured location, specifically regarding a nonprofit called C.O.P.E., associated with him. Evidence indicates that James stored numerous football equipment items in the basement of the rented house, which he leased for profit to a football team. Testimonies reveal that while some equipment was leased, other items were donated, and all equipment was significant enough to occupy a large portion of the basement. Defendants claimed minimal business activity, but the evidence contradicts this assertion, demonstrating extensive storage and use of the premises for business purposes. The policy's provision limiting business property coverage to $500 does not negate the existence of business operations, as the application focused on any business activities rather than the value of stored property. The court concluded that James's misrepresentation of his business activities was material, justifying Nationwide's right to rescind the insurance policy. Consequently, the court granted summary judgment to the Plaintiff, focusing solely on James's operations and not addressing Tamara's activities.
The Plaintiff's original complaint alleges that Tamara Brown made false statements regarding James Brown’s alleged stroke, hospitalization, and extended absence from Michigan, which were not disputed by the Defendants in their responses. In the initial answer, James admitted the probate court's inquiry into competency but did not address the truth of Tamara’s statements. In the amended complaint, the Plaintiff reiterated the allegation, and the Defendants again failed to deny the specific claims about Tamara’s statements. According to Federal Rule of Civil Procedure 8(b), a failure to deny an allegation results in its admission. The court notes that the Defendants did not provide evidence or arguments to dispute the veracity of Tamara’s statements or her intentions during the claims process. Consequently, the court finds that Tamara misled agents of Nationwide and concealed important information, leading to significant delays in James’s examination under oath (EUO). As a result, the court grants the Plaintiff summary judgment based on Tamara Brown's misleading conduct.
The contract includes two key provisions regarding coverage denial or policy voidance due to misrepresentation. The first provision allows Nationwide to deny coverage if any insured or claimant has concealed or misrepresented material facts or engaged in fraudulent conduct in relation to claims (Dkt. 33-5, Pg. ID 714). The policy also mandates cooperation with claims processes, including submission to examinations under oath (Dkt. 33-5, Pg. ID 713). The Plaintiff argues that the policy can be voided due to false statements without needing to prove fraudulent intent, citing 21st Century Premier Ins. Co. v. Zufelt. However, the court distinguishes Zufelt, noting that it addressed misstatements in applications rather than claims processes and involved different contract language.
The concealment provision explicitly requires material misrepresentation or fraudulent conduct related to claims for denial or rescission. Therefore, while intent is not necessary, the concealed fact must be deemed material. Defendants claim they substantially complied with coverage conditions and that any misrepresentations were not material, arguing that questions of fraud intent should be left to a jury (Dkt. 38, Pg. ID 1782). The court disagrees, finding the misrepresentations made by Tamara were indeed material, significantly hindering Nationwide’s investigation of a potentially fraudulent claim. The court emphasizes the importance of examinations under oath in preventing fraud, citing Michigan case law that supports their necessity. Ultimately, the court concludes that Tamara's material misrepresentations justify denying coverage or voiding the policy under the concealment provision and asserts that the Defendants did not substantially comply with the cooperation requirements.
"Willful noncompliance" with an insurer's request for an Examination Under Oath (EUO) signifies a failure to comply with policy conditions requiring cooperation in the claims process. In the case of Allen v. Michigan Basic Property Ins. Co., the court held that an insured's refusal to submit to an EUO based on the Fifth Amendment did not meet the required cooperation standard. Willful noncompliance encompasses deliberate efforts to withhold material information or a pattern of noncooperation with the insurer. In instances of noncooperation, the burden shifts to the insured to prove that they did not deliberately withhold information, a challenging endeavor.
In this case, the defendants argued that their eventual submission to the EUO constituted substantial compliance; however, the court disagreed, noting that misleading claims made by Tamara resulted in a pattern of noncooperation. The delay in the investigation critically undermined the utility of any interviews conducted. Tamara's repeated false statements regarding James's condition further illustrated this noncooperation, which continued during litigation. Consequently, the court determined that this behavior constituted willful noncompliance with policy conditions, leading to the grant of summary judgment.
Regarding waiver and estoppel, the defendants claimed that the insurer's failure to return premiums meant they had waived the right to void the policy. However, they failed to provide authoritative support for this claim or demonstrate how their situation met the elements of equitable estoppel. The court noted that issues raised in a cursory manner are typically considered waived, reinforcing the need for thorough argumentation in legal discourse.
Defendants' argument regarding waiver is insufficiently developed and forfeited. The court finds that neither equitable estoppel nor waiver applies, as Defendants have not adequately addressed their elements. Plaintiff is granted summary judgment based on material misrepresentations made by James regarding business operations and Tamara during the claims process. The court determines that the policy can be declared void "ab initio" due to these misrepresentations and that Plaintiff is entitled to reimbursement of $41,560.18 already paid on the claim. Michigan courts support this enforcement. Consequently, Plaintiff is entitled to a declaratory judgment declaring the policy void and repayment of the claim amount, minus premiums paid by Defendants. The court will terminate Plaintiff's Rule 37 motion as moot, indicating no further issues remain. The parties are ordered to collaborate on a stipulated judgment by May 8, 2017, or submit competing proposed judgments if an agreement cannot be reached. The court clarifies that any ambiguity regarding policy terms must be construed against the insurer. Although the court declines to address the Rule 37 motion further, it notes Defendants' inadequacies in discovery compliance. Equitable estoppel requires a party to induce another to believe certain facts, leading to reliance and prejudice if the inducing party denies those facts.
