A.B. Petro Mart, Inc. v. Ali T. Beydoun Ins. Agency, Inc.

• Decision Date: 15 September 2016
• Docket Number: Docket No. 327481.
• Citation: 892 N.W.2d 460,317 Mich.App. 290
• Parties: A.B. PETRO MART, INC. v. ALI T. BEYDOUN INS. AGENCY, INC. Petro Mart v. Beydoun Ins.
• Court: Court of Appeal of Michigan — District of US

317 Mich.App. 290

892 N.W.2d 460

A.B. PETRO MART, INC.

v.ALI T. BEYDOUN INS. AGENCY, INC.

Petro Mart

v.Beydoun Ins.

Docket No. 327481.

Court of Appeals of Michigan.

Submitted Sept. 7, 2016, at Detroit.

Decided Sept. 15, 2016, at 9:05 a.m.

Hammoud Dakhlallah & Associates, PLLC (by Kassem M. Dakhlallah, Dearborn), for plaintiffs.

Gregory and Meyer, PC, Troy (by Kurt D. Meyer ), for defendant.

Before: CAVANAGH, P.J., and SAAD and FORT HOOD, JJ.

SAAD, J.

In this insurance coverage dispute, plaintiffs, A.B. Petro Mart, Inc. (Petro Mart) and Aref Bazzi, appeal the trial court's order that granted summary disposition in favor of defendant Prime One Insurance (Prime One).¹ For the reasons provided below, we affirm in part, reverse in part, and remand.

I. NATURE OF THE CASE

Plaintiffs filed this suit to recover insurance benefits related to the destruction of a gas pump at a gas station Petro Mart operated. There is no question that Petro Mart did not own the gas pumps—Bazzi did. Petro Mart instead operated the pumps in the course of selling gasoline at the gas station. There also is no dispute that Petro Mart insured the gas pumps with Prime One. The trial court granted summary disposition in favor of Prime One with respect to Petro Mart's claim because it determined that Petro Mart did not possess an insurable interest in the gas pumps.

Pursuant to Michigan law, an insurance contract to protect an insured from loss of property is an aleatory indemnity contract. See Kingston v. Markward & Karafilis, Inc., 134 Mich.App. 164, 174, 350 N.W.2d 842 (1984). And in order to be entitled to indemnity under such an insurance contract, the insured must have an insurable interest in the property. The question posed by this appeal is whether the trial court correctly applied Michigan law to hold that the insured must have a legal interest in or must be financially responsible for any damages to the insured property in order to have an insurable interest in the property.

In Michigan, legal interest is not synonymous with insurable interest because an insured's pecuniary interest in the insured property is sufficient to constitute an insurable interest. And because Petro Mart's ability to operate its gas station was financially affected by the functioning or nonfunctioning of the insured gas pumps, regardless of whether it was responsible for repairing any damage to the pumps, we hold that Petro Mart had an insurable interest in the pumps, and the trial court erred when it ruled otherwise.

II. BASIC FACTS

This dispute arises from an incident in which an automobile ran into and caused the destruction of one of the gas pumps located at the gas station at 3735 East Vernor in Detroit. The crash started a fire and destroyed the pump. Bazzi was the sole shareholder and owner of Petro Mart, and Petro Mart was the entity that operated the gas station. However, the gas pumps themselves were owned by Bazzi. Petro Mart insured the gas pumps by purchasing an insurance policy with Prime One, which provided, among other things, $30,000 in coverage for gas pumps. After the accident, Petro Mart filed a claim with Prime One. Prime One eventually declined coverage because it asserted that Petro Mart did not have an insurable interest in the gas pumps, as Bazzi—not Petro Mart—owned the pumps.

Plaintiffs sued Prime One for breach of contract because the gas pumps were expressly named and covered under the policy. Plaintiffs moved for summary disposition and argued that the clear and unmistakable language of the policy showed that the gas pumps were indeed covered under the policy. Plaintiffs further maintained that the fact that the policy was in the name of Petro Mart and the fact that Bazzi was the one who owned the pumps was not fatal because Prime One was well aware that Bazzi was the sole owner of Petro Mart and acknowledged this in its own claim file, where it referred to Bazzi as the "insured" many times. Thus, plaintiffs asserted that Prime One should not be allowed to claim that the insured party, Petro Mart, was not covered because it had no insurable interest in the pumps. Plaintiffs further argued that if there was no coverage due to the lack of an insurable interest, then the policy would be illusory because, even though premiums were paid for coverage on the gas pumps, no one could ever recover for any damage to the pumps. Plaintiffs also contended that Bazzi was entitled to the claim proceeds because he was a third-party beneficiary under the insurance contract.

Prime One responded to the motion and argued that there was no genuine issue of material fact that the policy holder, Petro Mart, did not have an insurable interest in the gas pumps. Prime One noted that even if Petro Mart was a closely held corporation with only Bazzi as its owner, the outcome would not change because Michigan law is clear that corporations are separate entities from their owners or stockholders. Further, Prime One asserted that it was not under any obligation to investigate the interest of the applicant, Petro Mart, in the subject property. Prime One argued that Bazzi cannot be considered a third-party beneficiary to the contract because there is nothing in the policy to demonstrate that Prime One directly promised to give or do anything for Bazzi. Prime One also claimed that the contract was not illusory because had Petro Mart actually owned the property, the policy would have provided coverage.

The trial court noted that there was no dispute that Bazzi owned the pumps and that Petro Mart merely operated them without any leasehold agreement. The court agreed with Prime One's arguments and ruled that Petro Mart had no legal ownership interest in the pumps and no obligation to repair the pumps. According to the court, recovery was precluded because Petro Mart did not suffer a pecuniary loss and therefore did not have an insurable interest in the property. The court further ruled that Bazzi could not recover as a third-party beneficiary because nothing in the policy directly provided any benefit for Bazzi. The trial court also held that the policy was not illusory because "[i]n the event that Petro Mart had actually owned the property and/or had some insurable interest in the property, the Policy would have provided coverage for at least a portion of the loss." Consequently, the trial court denied plaintiffs' motion and instead granted summary disposition in favor of Prime One pursuant to MCR 2.116(I)(2).

III. STANDARD OF REVIEW

This Court reviews a trial court's decision on a motion for summary disposition de novo. Johnson v. Recca,

492 Mich. 169, 173, 821 N.W.2d 520 (2012). Prime One moved for summary disposition under MCR 2.116(C)(10), which tests the factual sufficiency of a complaint and is reviewed by considering the pleadings, admissions, and other evidence submitted by the parties in the light most favorable to the nonmoving party. Joseph v. Auto. Club. Ins. Ass'n, 491 Mich. 200, 206, 815 N.W.2d 412 (2012). "Summary disposition pursuant to MCR 2.116(C)(10) is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." McCoig Materials, LLC v. Galui Constr., Inc., 295 Mich.App. 684, 693, 818 N.W.2d 410 (2012). " ‘Summary disposition is properly granted [under MCR 2.116(I)(2) ] to the opposing party if it appears to the court that that party, rather than the moving party, is entitled to judgment.’ " Michelson v. Voison, 254 Mich.App. 691, 697, 658 N.W.2d 188 (2003), quoting Sharper Image Corp. v. Dep't of Treasury, 216 Mich.App. 698, 701, 550 N.W.2d 596 (1996) (alteration in original).

Likewise, the interpretation of an insurance contract and whether the named insured has an "insurable interest" are questions of law that we review de novo. Citizens Ins. Co. v. Pro–Seal Service Group, Inc., 477 Mich. 75, 80, 730 N.W.2d 682 (2007) ; Morrison v. Secura Ins., 286 Mich.App. 569, 572, 781 N.W.2d 151 (2009).

IV. ANALYSIS

A. PLAINTIFF BAZZI

Under the clear language of the policy, the only named insured is Petro Mart. While Bazzi signed the insurance application,² he is not named anywhere in the policy itself. Indeed, the policy provides that "A B Petro Mart, Inc." is the sole named insured. Therefore, because Bazzi is not a party to the insurance contract, he cannot maintain a breach of contract claim against Prime One. See Miller–Davis Co. v. Ahrens Const., Inc., 495 Mich. 161, 178, 848 N.W.2d 95 (2014) (stating that it is essential to establishing a breach of contract claim that a plaintiff prove that there was a contract between the parties).

Plaintiffs assert that Bazzi nonetheless could have sustained a claim against Prime One because he is a third-party beneficiary of the contract. We disagree. Michigan's third-party beneficiary statute states, in pertinent part, the following:

Any person for whose benefit a promise is made by way of contract, as hereinafter defined, has the same right to enforce said promise that he would have had if the said promise had been made directly to him as the promisee.

(1) A promise shall be construed to have been made for the benefit of a person whenever the promisor of said promise has undertaken to give or to do or refrain from doing something directly to or for said person. [MCL 600.1405.]

"[N]ot every person incidentally benefitted by a contractual promise has a right to sue for breach of that promise...." Brunsell v. City of Zeeland, 467 Mich. 293, 296, 651 N.W.2d 388 (2002). "Thus, only intended, not incidental, third-party beneficiaries may sue for a breach of a contractual promise in their favor."

Schmalfeldt v. North Pointe Ins. Co., 469 Mich. 422, 427, 670 N.W.2d 651 (2003). Accordingly, "[a] person is a third-party beneficiary of a contract only when that contract establishes that a promisor has undertaken a promise directly to or for that person." Id. at 428, 670 N.W.2d 651 (quotation marks omitted). As already noted, the insurance contract simply does not refer to Bazzi. Hence,...