Fresard v. Michigan Millers Mut. Ins. Co.

• Decision Date: 07 December 1982
• Docket Number: No. 2,Docket No. 65261,2
• Citation: 414 Mich. 686,327 N.W.2d 286
• Parties: George FRESARD, Individually, Donald Fresard, Individually, George Fresard, Jr., Individually, Thomas Fresard, Individually, Fresard Building Company, Inc., a Michigan Co-Partnership, and Fresard Builders, Incorporated, a Michigan Corporation, jointly and severally, Plaintiffs-Appellees, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, an Insurance Corporation, Defendant-Appellant. Calendar
• Court: Michigan Supreme Court

Page 286

327 N.W.2d 286

414 Mich. 686

George FRESARD, Individually, Donald Fresard, Individually George Fresard, Jr., Individually, Thomas Fresard Individually, Fresard Building Company, Inc., a Michigan Co-Partnership, and Fresard Builders, Incorporated, a Michigan Corporation, jointly and severally, Plaintiffs-Appellees, v. MICHIGAN MILLERS MUTUAL INSURANCE COMPANY, an Insurance Corporation, Defendant-Appellant.

Docket No. 65261.

Calendar No. 2.

Supreme Court of Michigan.

Argued Nov. 9, 1981.

Decided Dec. 7, 1982.

Hill, Lewis, Adams, Goodrich & Tait by C. Peter Theut, William A. Moore, Mount Clemens, for plaintiffs-appellees Fresards.

Conklin, Benham, McLeod, Ducey & Ottaway, P.C. by Martin L. Critchell, Detroit, for defendant-appellant Michigan Millers Ins. Co.

FITZGERALD, Chief Justice.

This case requires us to construe certain exclusion clauses in the comprehensive general liability insurance policy purchased from defendant by plaintiffs. We hold that the policy did not provide coverage for the claims at issue and that defendant insurance company, therefore, is not liable to indemnify plaintiffs. Accordingly, the judgment of the Court of Appeals is reversed.

I

Plaintiffs are builders who, beginning in 1968, purchased comprehensive general liability policies from defendant insurance company in connection with the development of a residential area called White Oaks Subdivision. Plaintiffs subsequently contracted with William and Delphine Harding for the construction of a house on one of the subdivision lots.

According to the parties' stipulation of facts, the Hardings alerted plaintiffs to an accumulation of water in the basement of the house after the foundation was laid, but before the structure was finished. Nonetheless, the house was completed and the transaction closed in November 1970.

Almost immediately after moving into their new dwelling, the Hardings began experiencing difficulties with excess water in the basement. Gradually the foundation began to deteriorate; the concrete floor collapsed and the walls caved in. Plaintiffs attempted repairs over several years, ultimately installing a replacement drainage system in early 1976.

According to the parties' stipulation, the standard drain tile material that had been used when the house was built was inadequate because the ground condition was abnormal. Sand, some of which came from beneath the footings, flowed into the drainage system through an opening and was carried away. This gradually undermined the substructure. The replacement "poroswall" system remedied the difficulty.

The Hardings eventually sued plaintiffs, alleging breaches of warranties regarding the quality of their lot and fitness of their house, as well as personal injury (emotional upset). Plaintiffs notified defendant insurance company, which agreed to participate in the suit on the condition that all rights be reserved under its contract with plaintiffs. After several days of trial, a settlement was reached in which plaintiffs and defendant each paid the Hardings $25,000.

A provision of the settlement was that the dispute between plaintiffs and defendant over insurance coverage be resolved through a motion for declaratory relief. Plaintiffs subsequently initiated such an action. The trial court found in plaintiffs' favor on cross motions for summary judgment, and the Court of Appeals affirmed. 97 Mich.App. 584, 296 N.W.2d 112 (1980). This Court granted leave to appeal. 411 Mich. 900 (1981).

II

It is helpful initially to understand the history and format of the policy under consideration. The first standardized comprehensive general liability policy was drafted more than 40 years ago, with most casualty companies adopting such forms after World War II. Revisions occurred in 1943, 1955, 1966 and 1973. Such a standard policy was in use in 1968 when plaintiffs began purchasing insurance from defendant in connection with the White Oaks Subdivision project.

Although the standard form is called a "general liability automobile policy", it includes basic definitions, conditions and other materials that apply to liability policies in general. This "jacket", together with standard inserts called "coverage parts", forms the complete policy. The inserts spell out the specific protection purchased by the insured. ¹

The particular policy under consideration in this case is a multiple-page document on legal-size paper. ² The first two pages contain "declarations", information such as the plaintiffs' address, the policy period, liability limits and premium charges.

The coverage details at issue in this case begin on the third page. Four main categories are listed at the top:

I. COVERAGE A--BODILY INJURY LIABILITY

COVERAGE B--PROPERTY DAMAGE LIABILITY

II. PERSONS INSURED

III. LIMITS OF LIABILITY

IV. POLICY PERIOD: TERRITORY

It is with category I that this case primarily is concerned. Category I begins with a general statement of coverage.

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

B. property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements."

The parties have stipulated that at all times relevant, the policy was in force. They further agree that under the basic coverage statement, defendant would be liable to plaintiffs for the damages which the Hardings claimed.

The next segment of the policy is entitled "Exclusions". There are 15 such exceptions to coverage and several have been debated in the course of this lawsuit. The parties' disagreement now centers on the effect to be accorded three of the exclusions. The entire section is preceded by the statement: "This insurance does not apply:

"(a) to liability assumed by the insured under any contract or agreement except an incidental contract; but this exclusion does not apply to a warranty of fitness or quality of the named insured's products or a warranty that work performed by or on behalf of the named insured will be done in a workmanlike manner;

"(k) to bodily injury or property damage resulting from the failure of the named insured's products or work completed by or for the named insured to perform the function or serve the purpose intended by the named insured, if such failure is due to a mistake or deficiency in any design, formula, plan, specifications, advertising material or printed instructions prepared or developed by any insured; but this exclusion does not apply to bodily injury or property damage resulting from the active malfunctioning of such products or work;

"(m) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith".

It is apparent from a reading of the above that not only are there exclusions to coverage, but there are exceptions to the exclusions.

This Court recently reiterated that "[a]ny clause in an insurance policy is valid as long as it is clear, unambiguous and not in contravention of public policy". Raska v. Farm Bureau Mutual Ins. Co. of Michigan, 412 Mich. 355, 361-362, 314 N.W.2d 440 (1982). The Raska majority noted that the only pertinent question was "whether the exclusionary clause in this contract is ambiguous, for if it is not ambiguous we are constrained to enforce it".

As stated by the Eighth Circuit Court of Appeals, "An insurance company may, with the insured's acceptance, insert as many exclusion clauses in its liability policy as it deems proper or necessary as long as they do not conflict with public policy or the statutory law". Biebel Brothers, Inc. v. United States Fidelity & Guaranty Co., 522 F.2d 1207, 1210 (CA 8, 1975).

These statements emphasize that freedom of contract is a much- and long-revered doctrine in American jurisprudence. When examining the language of this or any other insurance policy, we are mindful of several other principles of construction so rudimentary as to be axiomatic:

The contract should be viewed as a whole.

The intent of the parties should be given effect.

An interpretation of the contract which would render it unreasonable should be avoided.

Meaning should be given to all terms.

Ambiguities should not be forced.

Conflicts among clauses should be harmonized.

The contract should be viewed from the standpoint of the insured.

The insurer should bear the burden of proving an absence of coverage.

The use of standard policies presents a unique situation in which the precise language we are asked to analyze already has been interpreted by courts in other jurisdictions. The existence of so many opinions is both an advantage and a disadvantage. The benefit, of course, is the insight provided by learned jurists in other states and in the federal courts. The danger is that weight unfairly may be accorded a view merely because it has withstood attack for a period of time or because it is embraced by the majority of jurisdictions.

III

We turn now from these prefatory remarks to examine more closely the disputed exclusionary clauses. We note that coverage under the policy is lost if any one exclusion is applicable to the claims at issue. B.A. Green Construction Co, Inc. v. Liberty Mutual Ins. Co., 213 Kan. 393, 517 P.2d 563 (1973).

It is reasonable to assume that an insured reading the policy exclusions would begin with the first and ask, "What...