Lee v. Evergreen Regency Co-op. & Management Systems, Inc., Docket No. 83164

• Decision Date: 04 August 1986
• Docket Number: Docket No. 83164
• Citation: 390 N.W.2d 183,151 Mich.App. 281
• Parties: Ronnie E. LEE, Plaintiff-Appellee, v. EVERGREEN REGENCY COOPERATIVE & MANAGEMENT SYSTEMS, INC., jointly and severally, Defendants-Appellees, and Lexington Insurance Company, Garnishee-Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 183

390 N.W.2d 183

151 Mich.App. 281

Ronnie E. LEE, Plaintiff-Appellee, v. EVERGREEN REGENCY COOPERATIVE & MANAGEMENT SYSTEMS, INC. jointly and severally, Defendants-Appellees and Lexington Insurance Company, Garnishee-Defendant-Appellant.

Docket No. 83164.

Court of Appeals of Michigan.

Submitted Jan. 9, 1986.

Decided March 13, 1986.

Released for Publication Aug. 4, 1986.

Howard R. Grossman and Donald H. Robertson, Flint, for plaintiff-appellee.

Nill, Kirby, Rockwell & Swann, P.C. (by Philip D. Swann), Flint, for garnishee-defendant-appellant.

Before WAHLS, P.J., and MacKENZIE and R. TAHVONEN ^*, JJ.

PER CURIAM.

Plaintiff is a former tenant of defendant Evergreen Regency Cooperative. Defendant Management Systems, Inc., is Evergreen's rental agent. This case arises from a post-judgment garnishment action commenced by plaintiff against defendant Lexington Insurance Company as Management Systems' professional liability insurer. Lexington appeals by leave granted from orders of the trial court denying its motion for summary judgment and motion to amend its pleadings to add certain policy defenses. We reverse and remand for entry of summary judgment in favor of Lexington.

The insurance policy upon which plaintiff seeks to collect was issued by Lexington to Management Systems on September 26, 1981, and was effective until September 26, 1982. It was a "claims made" policy, which limited coverage in accordance with the following clause, policy paragraph 1:

"To pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as Damages resulting from any claim or claims first made against the Insured and reported to the Company during the Policy Period for any Wrongful Act of the Insured or of any other person for whose actions the Insured is legally responsible, but only if such Wrongful Act occurs during the Policy Period and solely in the conduct of the Insured's Profession as stated in Item 6 of the Declarations."

Under the heading "Exclusions", the policy stated:

"This policy does not apply:

* * *

* * *

"b) to any claims arising out of (1) false arrest, detention or imprisonment; (2) libel, slander or defamation of character; (3) discrimination; (4) wrongful entry or eviction, or invasion of any right of privacy;

"c) to any claim arising out of bodily injury to, or sickness, disease or death of any person, or damage to or destruction of any property including the loss of use thereof[.]"

On December 8, 1981, plaintiff returned to the apartment he rented from Evergreen and Management Systems and found his belongings had been put in the street. On February 4, 1982, he commenced a wrongful eviction action against Evergreen and Management Systems seeking damages for the eviction, property loss, and personal injury. For unknown reasons, Management Systems did not notify Lexington of the claim until April 4, 1983, several months after the reporting period set forth in the policy had expired. Lexington responded with a letter denying the claim on the basis of "your late reporting of this law suit to us", apparently in reference to the following policy provision:

"The Insured shall, as a condition precedent to the availability of the rights provided under this policy, give written notice to the Company as soon as practicable of any claim made against the Insured. Notice given by or on behalf of the Insured to any authorized representative of the Company, with particulars sufficient to identify the Insured, shall be deemed notice to the Company."

On November 9, 1983, plaintiff obtained a $22,870.04 judgment against Evergreen and Management Systems. On December 15, 1983, he filed this garnishment action against Lexington. Lexington's answer denied liability on the basis that Management Systems' claim was not made within the policy period.

On June 4, 1984, Lexington sought to amend its pleadings to add as a defense that the policy specifically excluded liability for wrongful eviction, property damage, and personal injury. The trial court denied the motion, holding that the amendment would be futile because Lexington had waived all defenses not originally raised in its denial letter to Management Systems, including the policy exclusion.

On August 15, 1984, Lexington moved for summary judgment pursuant to GCR 1963, 117.2(3), alleging that there was no issue of material fact because Management Systems did not make its claim within the policy period, as required by the policy. The court denied the motion, holding that the "claims made" defense had also been waived when it was not raised in the denial letter. The court ruled that the only defense raised in the letter was that Management Systems did not give the insurer timely notice, and denied summary judgment because the question of whether notice was timely is a factual issue.

The sole issue on appeal is whether the trial court erred in determining for purposes of both motions that Lexington had waived or was estopped from asserting defenses not raised in its denial letter, thus exposing the insurer to liability for coverage beyond the scope of its policy.

As a general rule, once an insurance company has denied coverage to an insured and stated its defenses, the company has waived or is estopped from raising new defenses. Castner v. The Farmers Mutual Fire Ins Co of Van Buren County, 50 Mich. 273, 15 N.W. 452 (1883); Smith v. Grange Mutual Fire Ins Co of Michigan, 234 Mich. 119, 208 N.W. 145 (1926). However, as noted in 1 A.L.R.3d 1139, 1144:

"[T]he courts of most jurisdictions agree that [waiver and estoppel] are not available to broaden the coverage of a policy so as to protect the insured against risks not included therein or expressly excluded therefrom. The theory underlying this rule seems to be that the company should not be required by waiver and estoppel to pay a loss for which it charged no premium, and the principle has been announced in scores of cases involving almost every conceivable type of policy or coverage provision thereof." (Footnotes omitted.)

Michigan recognized this limitation in Ruddock v. Detroit Life Ins. Co., 209 Mich. 638, 177 N.W. 242 (1920). In Ruddock, the Court noted that cases where insurance companies have been estopped from raising new defenses have largely been instances where the company was trying to...