Melson v. Prime Ins. Syndicate, Inc.

• Decision Date: 29 November 2005
• Docket Number: No. 03-1914.,03-1914.
• Parties: Sarah MELSON, Plaintiff-Appellant, v. PRIME INSURANCE SYNDICATE, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

429 F.3d 633

Sarah MELSON, Plaintiff-Appellant, v. PRIME INSURANCE SYNDICATE, INC., Defendant-Appellee.

No. 03-1914.

United States Court of Appeals, Sixth Circuit.

Argued: August 12, 2004.

Decided and Filed: November 29, 2005.

ARGUED: Patrick A. King, Fabian, Sklar & King, Farmington Hills, Michigan, for Appellant. Jeffrey R. Learned, Grotefeld & Denenberg, Bingham Farms, Michigan, for Appellee. ON BRIEF: Patrick A. King, Fabian, Sklar & King, Farmington Hills, Michigan, for Appellant. Jeffrey R. Learned, Grotefeld & Denenberg, Bingham Farms, Michigan, for Appellee.

Before: MOORE and COLE, Circuit Judges; MARBLEY, District Judge.^*

OPINION

COLE, Circuit Judge.

Plaintiff-Appellant Sarah Melson brought this action against Defendant-Appellee Prime Insurance Syndicate, Inc. ("Prime"), alleging that Prime's decision not to pay her insurance policy's face value for a loss caused by fire damage to Melson's commercial property violated both Michigan state law and the terms of the insurance policy. Melson appealed the district court's grant of summary judgment in favor of Prime, contending that the district court's judgment was erroneous because: (1) Prime's Coinsurance Provision — upon which it relied to deny Melson full coverage — is invalid, as against Michigan public policy; and (2) the Coinsurance Provision is ambiguous, and thus fraudulently misrepresents the true nature of the Policy. On appeal, we held that the Coinsurance Provision provided Melson with accurate notice as to the conditions of the Policy's coverage. We were unable to determine with certainty, however, whether the Coinsurance Provision violated Michigan public policy, and thus sought guidance from the Michigan Supreme Court in the form of two certified questions.¹ That court declined to answer our questions. In re Certified Questions from the United States Court of Appeals for the Sixth Circuit, 472 Mich. 1225, 696 N.W.2d 687 (2005). This opinion follows.

I. BACKGROUND

On September 28, 1995, Melson purchased two adjoining properties for commercial use in Detroit, Michigan, located at 20338-54 and 20426-40 W. Seven Mile Road, respectively. The total purchase price for both properties was $250,000, which included the land and all other elements of the real estate.

On October 12, 1995, Melson insured both properties with Prime. The total insurance coverage for both buildings was $480,000 — including $185,000 for the property at issue. According to the insurance policy ("Policy"), Prime was required to pay the full amount of actual loss in the event of a fire, subject to certain limitations and conditions. One of these conditions was the imposition of a coinsurance penalty if it were determined that Melson had underinsured the property. Attached to the policy under a provision titled "Additional Conditions," the Coinsurance Provision states:² "We will not pay the full amount of any loss if the replacement cost value of Covered Property at the time of the loss times the Coinsurance Percentage shown for it in the Declarations is greater than the limit for the property." The Policy's Commercial Property Coverage Declarations page ("Declarations page") listed a coinsurance amount of 80%. This required Melson to insure the property at 80% of its replacement cost value to avoid triggering the coinsurance penalty.

On January 16, 2001, a fire damaged the building located at 20426-40 W. Seven Mile Road Each party agrees that the actual cash value of the loss exceeded the total coverage of $185,000.³ Prime calculated the actual cash value of the loss at $255,778.28. Without a Coinsurance Provision, Prime would have been required to pay the policy's full face value — $185,000. Here, however, Prime contends that because the Policy imposed a coinsurance requirement, it is not responsible for indemnifying Melson for the policy's full face value. Prime argues that it is only required to cover a percentage of that loss, because Melson failed to meet the coinsurance requirement. Specifically, Prime contends that because Melson insured less than 80% of the building's total replacement cost with them, it is only responsible for the proportion of the loss equal to the proportion that was "adequately insured."

Prime determined that the full replacement cost of the building was $468,347. Applying the Coinsurance Provision, Prime determined that the replacement cost value ($468,347) multiplied by the Coinsurance Percentage (.80) required Melson to have insured the property for $374,677.60, rather than $185,000. Prime then determined that it would only pay a sum equal to the proportion of insurance that Melson had versus what she was required to have. That is, Prime agreed to pay the equivalent proportion of $185,000/$374,678 of whatever loss was incurred.

Prime used the following formula to calculate its payment:

(1) multiply the replacement cost value of the covered property by the Coinsurance Percentage

($468,347 × .8) = $374,677.60;

(2) divide the limit of insurance of the property by the figure determined in step (1)

(185,000/374,677.60) =.4939 (3) multiply the total amount of loss, before the application of any deductible, by the figure determined in step (2)

$255,677.28 × .49 = $126,292.53; and

(4) subtract the deductible from the figure determined in step (3)

$126,292.53 — $1,000 = $125,292.53.

Pursuant to these calculations, Prime sent Melson two checks totaling $125,292.53 on April 4, 2001. Melson filed an action in federal district court, alleging that Prime's refusal to pay the full $185,000 was a violation of both the terms of the contract and Michigan state law. The district court granted Prime's motion for summary judgment. Melson appealed, alleging that Prime misrepresented the nature of the policy, that the policy was ambiguous, and that the Coinsurance Provision was contrary to Michigan public policy. Although we affirmed the district court's order on Melson's first two claims, we were unable to determine whether coinsurance clauses violated Michigan public policy. We certified two questions to the Michigan Supreme Court, which declined to provide guidance after determining that it did not have jurisdiction. Our opinion addresses only whether coinsurance clauses violate Michigan public policy.

II. DISCUSSION

A. Standard of Review

We review the district court's grant of summary judgment de novo. Stephenson v. Allstate Ins. Co., 328 F.3d 822, 826 (6th Cir.2003). Summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. CIV. P. 56(c). When reviewing a motion for summary judgment, the facts, and any inferences drawn therefrom, must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The party opposing summary judgment, however, must present more than a "mere scintilla" of evidence; the evidence must be such that a reasonable jury could find in favor of the plaintiff. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. The Public Policy Claim

Melson argues that Prime's Coinsurance Provision is contrary to Michigan public policy for two reasons: (1) the Michigan legislature revoked the statutory authorization permitting inclusion of coinsurance provisions in property policies; and (2) the Michigan legislature requires that property policies pay, at a minimum, actual cash value benefits upon a loss. "When and how state law applies to a particular case is a matter on which the state supreme court has the last word." Houston v. Dutton, 50 F.3d 381, 385 (6th Cir.1995). If state law is unsettled, as in this case, we anticipate how the state's supreme court would rule on the issue of state law. C & H Entertainment, Inc. v. Jefferson County Fiscal Court, 169 F.3d 1023, 1025 (6th Cir.1999). In order to determine how the state supreme court would rule, we look to the decisions of the state's intermediate courts unless we are convinced that the state supreme court would decide the issue differently. United of Omaha Life Ins. Co. v. Rex Roto Corp., 126 F.3d 785, 789 (6th Cir.1997).

1. Michigan Public Policy

With few exceptions, courts have held that "[a]n insurer is free to define or limit the scope of coverage as long as the policy language fairly leads to only one reasonable interpretation and is not in contravention of public policy." Farm Bureau Mut. Ins. Co. v. Nikkel, 460 Mich. 558, 596 N.W.2d 915, 920 (1999) (quoting Heniser v. Frankenmuth Mut. Ins. Co., 449 Mich. 155, 534 N.W.2d 502, 505 (1995)). Regarding the determination of whether an insurance contract contravenes public policy, the Michigan Supreme Court has stated:

Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests. As the term `public policy' is vague, there must be found definite indications in the law of the sovereign to justify the invalidation of a contract as contrary to that policy.

Terrien v. Zwit, 467 Mich. 56, 648 N.W.2d 602, 609 (2002).

First, Melson contends that although coinsurance provisions were permitted in property policies in Michigan pursuant to M.C.L. § 500.2840, the authority of insurers to include such provisions was revoked by Public Act 1990, No. 305, § 2, effective December 14, 1990.⁴ In support of her contention that the deletion of § 500.2840 from Michigan's Insurance Code constitutes a prohibition on coinsurance provisions, Melson cites to several cases for the proposition that "[w]here a statute is repealed and another statute is enacted that covers the same subject area . . . a change in wording reflects a legislative intent to change the statute's meaning."...