Frankenmuth Mut. Ins. Co. v. Masters
| Decision Date | 15 June 1999 |
| Docket Number | No. 9,110881,Docket Nos. 110452,9 |
| Citation | 460 Mich. 105,595 N.W.2d 832 |
| Parties | FRANKENMUTH MUTUAL INSURANCE COMPANY, Plaintiff/Counter- Defendant-Appellant, v. George Edwin MASTERS and George Enger Masters, doing business as Masters Men's Shop, Defendant/Cross-Defendant, and Beverly Masters, Auto Owners Insurance Company, City of Alpena, and Citizens Insurance Company of America, Defendants, and Lake States Insurance Company, Larry D. Sanderson, Barbara A. Sanderson, G & L Ventures, Inc., doing business as Owl CafE, Richard J. Ritzler, Suzette E. Ritzler, and Shirley J. Ritzler, Defendants-Appellees, and Meridian Mutual Insurance Company and State Mutual Insurance Company, Defendants/Counter-Plaintiffs-Appellees, National Fire & Indemnity Exchange, Defendant/Cross-Plaintiff. Frankenmuth Mutual Insurance Company, Plaintiff/Counter- Defendant-Appellee, v. George Edwin Masters and George Enger Masters, doing business as Masters Men's Shop, Defendant/Cross- Defendant, and Beverly Masters, Auto Owners Insurance Company, City of Alpena, and Citizens Insurance Company of America, Defendants, and Lake States Insurance Company, Larry D. Sanderson, Barbara A. Sanderson, G & L Ventures, Inc., doing business as Owl CafE, Richard J. Ritzler, Suzette E. Ritzler, and Shirley J. Ritzler, Defendants-Appellees, and Meridian Mutual Insurance Company and State Mutual Insurance Company, Defendants/Counter-Plaintiffs-Appellants, National Fire & Indemnity Exchange, Defendant/Cross-Plaintiff. Calendar |
| Court | Michigan Supreme Court |
Braun, Kendrick, Finkbeiner, P.L.C. (by Scott C. Strattard and Jeffrey C. Wilson ), Saginaw, for plaintiff-appellee Frankenmuth Mutual Insurance Company.
Freel & Freel, P.C. (by Timothy R. Freel and Renee E. Nesbit ), East Tawas, for defendants-appellees Lake States Insurance Company.
Klemanski & Honeyman, P.C. (by James C. Klemanski and Edward J. Everhart ), Troy, for defendants counter-plaintiffs-appellees Meridian and State Mutual Insurance Companies.
This is an action for declaratory judgment. Frankenmuth Mutual Insurance Company seeks a determination of its obligation to indemnify its insureds for collateral property damage resulting from the insureds' intentional destruction of their inventory by fire.
We hold that the collateral damage was not "accidental" as defined in the insurance policies at issue. Consequently, no "occurrence" triggered Frankenmuth's liability under the policies. Therefore, we reverse the decision of the Court of Appeals and reinstate the trial court's grant of summary disposition in favor of Frankenmuth.
This case arises out of a fire that began on the premises of the Masters & Son Men's Clothing Store in Alpena, Michigan. George Edwin Masters (George Sr.) and his son, George Enger Masters (George Jr.), intentionally set the fire. 1 The fire occurred at the Masters & Son Men's Clothing Store during the early morning hours of August 17, 1993. Both confessed to police that their plan had been to start a small smokey fire that would damage their clothing inventory and allow them to collect casualty insurance. They denied intending to destroy their building or any of the neighboring buildings.
The resulting fire extensively damaged the clothing store and spread to nearby businesses, causing collateral damage from both the fire and the efforts to extinguish it.
The clothing store was owned by George Sr. It was insured by a casualty and comprehensive general liability policy written by Frankenmuth Mutual (commercial policy). George Sr. and his wife also owned a home, insured under a homeowners policy also written by Frankenmuth. 2
Certain of the other businesses damaged by the fire had full casualty insurance coverage, while others were only partially covered. They, along with their insurers, sought to impose liability against the Masters. The Masters in turn asked Frankenmuth to defend and indemnify pursuant to the commercial and homeowners policies. Frankenmuth then filed the instant declaratory judgment action, seeking a determination whether there was coverage for the property damage.
Frankenmuth sought summary disposition, arguing two theories. First, it asserted that neither policy provided coverage because the policies define "occurrence" as an "accident" and this intentionally set fire cannot be construed as an accident. Second, even if the fire and resulting damage could be construed as an occurrence, the policies' intentional-acts exclusion clauses negate coverage. 3
The trial court granted summary disposition in favor of Frankenmuth, pursuant to MCR 2.116(C)(10). It held that, to find whether there had been an "occurrence," it must examine the events from the standpoint of the insureds and subjectively evaluate their intent. It reasoned that our recent decisions in Arco Industries v. American Motorists Ins. Co. 4 and Frankenmuth Mut. Ins. Co. v. Piccard 5 provided guidance in this area. The trial court concluded that Arco and Piccard were distinguishable from the instant case, stating:
Turning to the case at bar, it is necessary for this Court to ascertain whether or not the Masterses [sic] had the subjective intent for the "occurrence" in question. It is undisputed that setting the initial fire was not an accident, i.e., no occurrence under the policy. It is clear that the Masterses intended to burn property; the crime they were convicted of required a finding by the jury of the specific intent to burn property, a subjective standard.
The Masterses had the specific intent to burn property--the questions of whose or how much are wholly irrelevant. What is relevant is that the character of the resulting harm is consistent with the harm intended by the Masterses. To the contrary, in Piccard and Arco, the character of the resulting harm was inconsistent with that intended by the insured.
The trial court also went on to discuss the alternative argument, concluding that both policies' intentional-acts exclusions would also bar recovery here.
The subrogee insurance companies appealed to the Court of Appeals, which partially reversed the trial court's holding in a published decision. 225 Mich.App. 51, 570 N.W.2d 134 (1997). It found Arco controlling:
[W]e must analyze whether the Masters' conduct, from their perspective, evidenced an intent to burn the two adjoining buildings. Second, we must analyze whether the Masters had an awareness that harm was likely to follow from the performance of their actions. Further, the [Arco ] Court stated: "Mere knowledge of potential danger does not equal knowledge of actual, intentional, expected harm."
In the present case, the trial court found that the Masters had the specific intent to burn property and that the questions of whose property and how much property they intended to burn were "wholly irrelevant." The trial court also stated that the character of the resulting harm was consistent with the harm intended by the Masters. We believe that the trial court erred in ruling that the Masters, as a matter of law, intended to burn the adjoining buildings and that the question of whose property they intended to burn was irrelevant. The Supreme Court's decision in Arco certainly instructs to the contrary. In Arco, although there were intentional discharges of volatile organic compounds into the environment by the insured, there was no evidence presented establishing that the intentional discharges were intended or expected to harm the environment. Thus, there was an occurrence within the meaning of the policy such that the insurer had a duty to defend.
The case before us presents a similar situation. Although the Masters intended to start a fire in their store, there is evidence that they did not intend or expect to burn the adjoining buildings. Therefore, the trial court erred in deciding this case under a motion for summary disposition. There is a question of fact regarding whether the Masters intended or expected to burn the adjoining buildings. This issue should not have been decided as a matter of law. [225 Mich. App at 59-60, 570 N.W.2d 134 (citations omitted).]
The Court of Appeals then went on to examine the intentional-acts exclusion provisions. It concluded that, since the homeowners policy's exclusion used objective language, there was no coverage under this policy. However, because the commercial policy's exclusion used subjective language, there is a question of fact about whether the Masters intended or expected to damage property other than their own store.
Both Frankenmuth and the subrogee insurers sought leave to appeal in two separate applications. This Court granted leave in both on October 12, 1998. 459 Mich. 878, 586 N.W.2d 744 (1998).
In determining whether Frankenmuth must indemnify the Masters, we examine the language of the insurance policies and interpret their terms in accordance with well established Michigan principles of construction. Arco, supra at 402, 531 N.W.2d 168; Michigan Millers Mutual Ins. Co. v. Bronson Plating Co., 445 Mich. 558, 567, 519 N.W.2d 864 (1994).
An insurance policy must be enforced in accordance with its terms. Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 207, 476 N.W.2d 392 (1991). We will not hold an insurance company liable for a risk it did not assume. Arco, supra; Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 567, 489 N.W.2d 431 (1992).
In interpreting ambiguous terms of an insurance policy, this Court will construe the policy in favor of the insured. Auto Club Ins. Ass'n v. DeLaGarza, 433 Mich. 208, 214, 444 N.W.2d 803 (1989); Powers v. DAIIE, 427 Mich. 602, 624, 398 N.W.2d 411 (1986). However, we will not create ambiguity where the terms of the contract are clear. Churchman, supra at 567, 489 N.W.2d 431; Patek v. Aetna Life Ins. Co., 362 Mich. 292, 106 N.W.2d 828 (1961). Where there is no ambiguity, we will enforce the terms of the contract as written. Arco, supra at 402, ...
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