Hearn v. Rickenbacker

• Decision Date: 06 February 1987
• Docket Number: Docket No. 76415
• Citation: 400 N.W.2d 90,428 Mich. 32
• Court: Michigan Supreme Court
• Parties: , 66 A.L.R.4th 849 William A. HEARN, Jr., d/b/a W.A. Hearn's Men's Wear, Plaintiff-Appellee v. Floyd W. RICKENBACKER, d/b/a Rickenbacker & Associates, Defendant, and Michigan Basic Property Insurance Association, a Michigan corporation, Defendant-Appellant.

Page 90

400 N.W.2d 90

428 Mich. 32, 66 A.L.R.4th 849

William A. HEARN, Jr., d/b/a W.A. Hearn's Men's Wear, Plaintiff-Appellee v. Floyd W. RICKENBACKER, d/b/a Rickenbacker & Associates, Defendant, and Michigan Basic Property Insurance Association, a Michigan

corporation, Defendant-Appellant.

Docket No. 76415.

Supreme Court of Michigan.

Argued Oct. 9, 1986.

Decided Feb. 6, 1987.

Thomas Lazar, P.C. by Thomas Lazar, Southfield, for plaintiff-appellee.

Klemanski and Gordon, P.C. by John D. Honeyman, Troy, for defendant-appellant.

BRICKLEY, Justice.

I

This suit arises out of a commercial property fire loss. Because the action was dismissed on the defendant's motion for accelerated judgment, GCR 1963, 116.1(5) (MCR 2.116[C] ), the facts well-pleaded by the plaintiff and the reasonable inferences therefrom must be considered most favorably toward the plaintiff. Williams v. Polgar, 391 Mich. 6, 11, 215 N.W.2d 149 (1974).

Defendants are the insurance agent, Floyd W. Rickenbacker, doing business as Rickenbacker & Associates, ¹ and Michigan Basic Property Insurance Association, the insurer. On May 22, 1980, the Association issued a fire and theft insurance policy to the plaintiff upon receipt of a deposit premium and application. The policy's effective date was May 23, 1980.

The Association alleges that on June 27, 1980, it issued a letter to the plaintiff informing him that the premium balance was due and allowing fifteen days for payment. The Association further maintains that it received no response to its notice to the plaintiff on July 25, 1980, that the policy would be cancelled on August 24, 1980. The Association refunded a portion of plaintiff's deposit on August 13, 1980.

The plaintiff alleges that the defendant Rickenbacker tendered only one half of the premium to the Association and that the agent did not notify the plaintiff of the Association's notice, cancellation, or refund. Plaintiff asserts that he, being unaware of any cancellation, paid a further premium to defendant Rickenbacker in early October, 1980, in order to keep the original policy in effect. The fire loss occurred on October 20, 1980.

The Association refused to pay plaintiff's claim on December 5, 1980, alleging that the policy had been cancelled, and not reinstated until October 21, 1980. That denial was reaffirmed in a formal hearing January 14, 1981. Plaintiff filed suit on July 6, 1982, more than one year after the Association's formal refusal to pay. See Ford Motor Co. v. Lumbermens Mutual Casualty Co., 413 Mich. 22, 38, 319 N.W.2d 320 (1982) (period of limitation runs from date of loss, but is tolled from the time insured gives notice until insurer formally denies liability).

Plaintiff's complaint set forth three counts. The first count was based on defendants' refusal to pay the claim, an alleged breach of contract. The second count alleged fraud, on the basis of the actions and misrepresentations of Mr. Rickenbacker, said to be an agent of the Association. Finally, count three was grounded in negligence, and focused on the defendants' breach of various duties alleged to be owed to the plaintiff.

On April 23, 1983, the trial court granted defendants' motion for accelerated judgment, dismissing count I. The court relied on the one-year limitations provision contained in the policy, and in the Michigan Standard Policy set forth in M.C.L. § 500.2832; M.S.A. § 24.12832. Finding the same provision applicable to counts II and III, the trial court also dismissed those counts by accelerated judgment on June 23, 1983. Plaintiff appealed to the Court of Appeals.

The Court of Appeals affirmed the trial court's order as to the breach of contract claim, but reversed as to the fraud and negligence claims. Noting that the issue is one of first impression in Michigan, the Court of Appeals held "that the tort claims are independent of the contract of insurance and not limited to the twelve-month limitation period." Hearn v. Rickenbacker, 140 Mich.App. 525, 527, 364 N.W.2d 371 (1985).

We agree that where fraud and negligence claims are pleaded as causes of action separate and distinct from an alleged breach of contract, they should be governed by the applicable statutory limitations, rather than by the limitations provision contained in the contract of insurance. The grant of accelerated judgment as to counts II and III was thus inappropriate.

II

The contractual limitations provision in question reads:

"No suit or action on this policy for the recovery of any claim shall be sustainable in any court of law or equity unless all the requirements of this policy shall have been complied with, and unless commenced within twelve months next after inception of the loss." M.C.L. § 500.2832; M.S.A. § 24.12832 (lines 157-161) (emphasis supplied).

The question presented is whether the plaintiff's fraud and negligence counts amount to actions "on this policy" for purposes of applying the twelve-month limitations period. This is an issue of first impression in this Court, and courts of other jurisdictions have offered mixed responses to the same question, presented in varying factual contexts.

The two lines of authority may be summarized. The general rule appears to be that

"[w]here a contractual limitation refers only to actions upon a policy, it does not necessarily refer to different or collateral actions involving, in some measure, the policy proceeds." 20A Appleman, Insurance Law & Practice, § 11603, pp. 452-453; Florsheim v. Travelers Indemnity Co., 75 Ill.App.3d 298, 309, 30 Ill.Dec. 876, 393 N.E.2d 1223 (1979).

However, Appleman also notes that "a strong line of authority" holds

"that any form of action, growing out of the contract, is governed by the limitation provision contained in the policy." Id., p. 456.

Although we find the former rule applicable in the case at bar, it is not to say that the one-year limitations provision will not also be applied where a plaintiff's claim is truly contractual in nature and one "on [the] policy."

In assessing whether Mr. Hearn's claims of fraud and negligence are actions on the policy, we would apply the rule articulated in Richardson v. Allstate Ins. Co., 117 Cal.App.3d 8, 12, 172 Cal.Rptr. 423 (1981):

"[T]he nature of the right sued upon, not the form of action or the relief demanded, determines the applicability of the statute of limitations."

Similarly, in Plant v. Illinois Employers Ins., 20 Ohio App.3d 236, 237-238, 485 N.E.2d 773 (1984), the case relied on by the Court of Appeals, the court noted that tort liability

"does not arise from ... [the insurer's] mere obligation to perform a contract obligation.... Rather, the liability arises from the breach of the positive legal duty imposed by law due to the relationships of the parties." (Brackets in original) (quoting Hoskins v. Aetna Life Ins. Co., 6 Ohio St.3d 272, 276, 452 N.E.2d 1315 [1983] ).

It thus found the tort claim to be independent of the insurance contract and not subject to the limitations provision in the policy.

Although the tort alleged in Plant was for breach of the insurer's duty to act in good faith in the handling and payment of claims, a tort not recognized in this state, Kewin v. Massachusetts Mutual Life Ins. Co., 409 Mich. 401, 423, 295 N.W.2d 50 (1980), that fact should not obscure the applicability of the Ohio court's finding. Plaintiff Hearn did not allege in his complaint, nor does he now advocate the adoption of, the tort of breach of good faith. ² Moreover, we do not interpret the Court of Appeals opinion as favoring the creation of such a tort.

It is important to distinguish an action "arising out of the contractual relationship" and one "on the policy." See Murphy v. Allstate Ins. Co., 83 Cal.App.3d 38, 49, 147 Cal.Rptr. 565 (1978). While all three of plaintiff Hearn's counts may be said to have arisen out of his contractual relationship with the defendants, only the first one is an action on the policy.

Plaintiff Hearn's fraud and negligence counts, like certain claims in Austin v. Fulton Ins. Co., 444 P.2d 536, 538 (Alaska, 1968), are not actions "on this policy." In Austin, the Alaska Supreme Court distinguished plaintiff's claims based on estoppel and seeking reformation of the contract, on the one hand, from those alleging breach of warranty, amounting to misrepresentation and negligence, on the other. Regarding the latter two claims, the court held that the plaintiff's

"reliance is placed on matters outside the policies of insurance, and therefore his action against appellees is not one 'on this policy,' within the meaning of the limitation contained in the policies, and such twelve-month period of limitation has no application here." Id.

Likewise, Mr. Hearn's allegations regarding his fraud and negligence claims are based on actions falling outside the policy of insurance. He is not alleging negligence associated with nonpayment of his claim, but, rather, with the handling of his premiums and policy purchase generally, at a time prior to the fire loss. See McCarty v. First of Georgia Ins. Co., 713 F.2d 609, 612 (CA 10, 1983) ("The gravamen of the tort theory is not the continuing refusal to honor the claim ...").

As the Court of Appeals has observed in the past, the relationship between insurers and their insureds is "sufficient to permit fraud to be predicated upon a misrepresentation." Drouillard v. Metropolitan Life Ins. Co., 107 Mich.App. 608, 621, 310 N.W.2d 15 (1981) (quoting Bolden v. John Hancock Mutual Life Ins. Co., 422 F.Supp. 28, 31-32 (ED Mich., 1976). An action for fraud is not an action on the policy; it is an action in tort that arose when the fraud was perpetrated. See Asher v. Reliance Ins. Co., 308 F.Supp. 847, 853 (ND Cal, 1970); ³ Wabash Valley Protective Union v. James, 8 Ind.App. 449, 450, 35 N.E. 919 (1893).

The same reasoning applies to the plaintiff's negligence claims. If the defendant has breached a legal duty owed to the plaintiff apart from the contract of ...