Borman v. State Farm Fire & Cas. Co.

Decision Date29 August 1994
Docket NumberDocket No. 96266,A,No. 3,3
Citation521 N.W.2d 266,446 Mich. 482
PartiesDennis BORMAN, as Personal Representative of the Estate of Lillian Roach, Deceased, Plaintiff-Appellee, v. STATE FARM FIRE & CASUALTY CO., a Michigan insurance facility, Defendant-Appellant. Calendarpril Term.
CourtMichigan Supreme Court
in-Crisis, Inc., YWCA of Enid, Okl., Wisconsin Coalition Against Domestic Violence, Oklahoma Coalition on Domestic Violence, Family Violence Intervention Services, Colorado Domestic Violence Coalition, Kentucky Domestic Violence Ass'n, Domestic Violence Project, Inc./Safe House
OPINION

LEVIN, Justice.

This Court granted leave to appeal, limited to the issue whether § 2832 of the Insurance Code, 1 providing the form of the standard fire insurance policy, "prohibits an insurer from denying coverage to an insured who is innocent of wrongdoing based upon the wrongdoing of any other coinsured." 444 Mich. 927, 509 N.W.2d 772 (1994).

We hold that the provisions of the insurance policy issued by defendant State Farm Fire & Casualty Co., insofar as they deny coverage to an insured who is innocent of wrongdoing by another insured, are inconsistent 2 with the provisions of the standard policy, and, thus, contrary to the provisions of the standard policy, and are therefore void insofar as fire insurance coverage is involved. We further hold that State Farm is subject to liability under the policy to the plaintiff's decedent, who was an innocent insured, in the same manner and to the same extent as if the inconsistent provisions were not contained in the policy. 3

I

Dennis Borman commenced this action against State Farm as personal representative of the estate of Lillian Roach to recover for the loss of personal property belonging to Roach that was destroyed in December, 1988, by a fire at an adult foster care home that her grandson, Gary Borman, was purchasing on land contract. The fire was set or arranged to be set by Gary Borman or persons in privity with him. Roach was not complicit in the wrongdoing.

The circuit court granted summary disposition State Farm relying on the basis of language in the policy excluding coverage for intentional wrongful acts by "any insured," 4 citing this Court's decision in Allstate Ins. Co. v. Freeman, 432 Mich. 656, 443 N.W.2d 734 (1989). The Court of Appeals reversed, relying on this Court's decision in Morgan v. Cincinnati Ins. Co., 411 Mich. 267, 276, 307 N.W.2d 53 (1981). 5

II

In Morgan, Helen and Robert Morgan owned a home as tenants by the entireties. The home was extensively damaged by a fire started by Robert Morgan. Divorce proceedings were then pending.

The insurer claimed that the policy was voided when Robert Morgan intentionally started the fire. The insurer relied on the first sentence of the standard insurance policy prescribed by § 2832 of the Insurance Code.

Concealment fraud.

This entire policy shall be void if, whether before or after a loss, the insured has wilfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto. 6 ]

In Monaghan v. Agricultural Fire Ins. Co. of Watertown, N.Y., 53 Mich. 238, 254, 18 N.W. 797 (1884), this Court ruled that an "attempt to defraud the company by any one of the insured, by the making of false affidavits in relation to loss, is a complete bar to a recovery upon the policy." 7

In Morgan, this Court observed that "[s]ince the decision in Monaghan the law applicable to insurance contracts has undergone considerable development," in recognition of the disparity in the bargaining positions of insurers and consumers. The Court said: "both the statutory law and judicial decisions have aimed at making certain that the interests of every insured are protected." The Court said that it was "moved to limit the rule of law articulated in Monaghan." 8

This Court rejected the insurer's contention that "the insured" should be read as "any insured," with the result that the entire policy would be void if any insured committed fraud. The Court in Morgan said "[w]e believe such a reading is unwarranted,"and read "the insured" as voiding the policy only in the event of fraud by the insured who committed the fraud. This Court said:

We ... hold that the provision voiding the policy in the event of fraud by "the insured" is to be read as having application only to the insured who committed the fraud and makes claim under the policy. The provision has no application to any other person described in the policy as an insured.

* * * * * *

Henceforth whenever 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. 9 ]

III

State Farm contends that Morgan does not govern disposition of this case because the homeowner's policy provides that the policy is void "as to you or any other insured" if any person insured under the policy causes or procures a loss to property covered under the policy for the purpose of obtaining insurance benefits, or intentionally conceals or misrepresents any material fact or circumstance and provides that in such event the insurer "will not pay you or any other insured for this loss." 10

In Morgan, the insurer claimed that the first sentence of the standard policy bars recovery by an insured who seeks to defraud the insurer and by any other person insured under the policy, including an insured who is innocent of wrongdoing. This Court responded that the language of the standard policy applies only to the insured who committed the fraud and has no application to any other person insured under the policy. This Court thus read the standard policy as providing in effect for recovery by an innocent insured under that statutorily mandated fire policy.

The provisions in the homeowner's policy relied on by State Farm cover the same subject matter, fraud on the insurer, as the first sentence of the standard policy. While the standard policy contemplates "[a]dded provisions"--"any other provision or agreement not inconsistent with the provisions" of the standard policy 11--because the provisions of the homeowner's policy relied on by State Farm cover the same subject matter as the first sentence of the standard policy, and provide for less coverage to innocent insureds than is mandated under the first sentence as construed by this Court in Morgan, the provisions of the homeowner's policy relied on by State Farm are "inconsistent with the provisions" of the standard policy and hence "absolutely void." Thus, State Farm is liable to Lillian Roach's estate, insofar as fire insurance coverage is involved, in the same manner and to the same extent as if the inconsistent provisions were not contained in the policy. 12

IV

State Farm contends that Morgan was incorrectly decided. There were two opinions in Morgan. The concurring opinion, like the opinion for the Court, permitted recovery by the innocent spouse. 13 We have considered State Farm's arguments, and the analysis set forth in Morgan, and are not persuaded to change the rule there set forth.

This Court's decision in Allstate Ins. Co. v. Freeman, supra, is not implicated. The language there construed was "an insured" rather than "the insured." The insurance policy in that case was not a fire insurance policy subject to the strictures of § 2832 establishing a standard policy.

In the years following this Court's decision in Morgan, the Legislature frequently amended the Insurance Code, but did not specifically respond to this Court's decision in Morgan. In 1990, the Legislature repealed § 2832, but may have, advertently or inadvertently, reenacted § 2832. 14 Section 2833(2), added in 1990, requires that each fire insurance policy "shall contain, at a minimum, the coverage provided in the standard fire policy under former section 2832." 15

Because the loss in the instant case occurred before the January 1, 1992, effective date of repeal of "former § 2832," we need not and cannot now decide whether the coverage provided in the homeowner's policy issued by State Farm is less than the "coverage provided in the standard fire policy under former section 2832" as a result of the provisions relied on by State Farm stating in effect that an innocent insured may not recover for a loss intentionally caused by another insured.

V

State Farm and amicus curiae Auto Club Group Insurance Company contend that barring recovery by innocent insureds is necessary to address the problems of affordability and cost control for the insurer and the consumer. State Farm asserts that when a home is destroyed by fire, State Farm usually incurs a net loss after the mortgage holder or loss payee is paid and any litigation is successfully defended. It contends that homeowner's insurance will become more affordable if the equity of innocent coinsureds is forfeited to fire insurers.

Amici curiae on behalf of innocent coinsureds 16 contend that many cases of homeowners' arson are related to domestic violence, and an...

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