Mina v. General Star Indem. Co., Docket No. 173992

• Decision Date: 10 September 1996
• Docket Number: Docket No. 173992
• Parties: George MINA, Plaintiff-Appellant, v. GENERAL STAR INDEMNITY COMPANY, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

Page 1

555 N.W.2d 1

218 Mich.App. 678

George MINA, Plaintiff-Appellant, v. GENERAL STAR INDEMNITY COMPANY, Defendant-Appellee.

Docket No. 173992.

Court of Appeals of Michigan.

Submitted April 2, 1996, at Detroit.

Decided Sept. 10, 1996, at 9:25 a.m.

Released for Publication Nov. 8, 1996.

Daniel Randazzo, Bingham Farms, for plaintiff.

Morrison, Mahoney & Miller by Charles R. Tuffley, David J. Berkal, and Jeffrey R. Learned, Southfield, for defendant.

Before MARK J. CAVANAGH, P.J., and MARILYN KELLY and J.R. JOHNSON, ^* JJ.

PER CURIAM.

Plaintiff appeals as of right from a judgment of no cause of action entered following a jury trial. We reverse and remand for a new trial.

Plaintiff was the owner of a business known as Mr. Ted's Lounge. On February 22, 1991, plaintiff purchased a fire insurance policy from defendant that covered Mr. Ted's Lounge. On May 27, 1991, Mr. Ted's Lounge was destroyed by a fire. Subsequent investigation established that the fire had been intentionally set. Plaintiff notified defendant of the loss, but defendant denied the claim on the basis of fraud, false swearing, and arson.

On December 11, 1991, plaintiff filed a complaint claiming that he was entitled to the insurance proceeds for the loss of his property and the interruption of his business. Defendant raised the affirmative defenses of arson, fraud, and false swearing.

Trial began on December 2, 1993. The jury found that defendant had not established that plaintiff set or procured the setting of the fire. However, the jury also found that plaintiff had misrepresented and concealed material facts or committed fraud and false swearing. The trial court entered a judgment of no cause of action. Plaintiff's motion for a new trial was denied.

I

Plaintiff first raises several claims of defects in the jury instructions. However, plaintiff did not object to the instructions at trial. To preserve for review an issue concerning a jury instruction, a party must object on the record before the jury retires to deliberate. MCR 2.516(C). This Court will review an unpreserved issue concerning an error in jury instruction only when necessary to prevent manifest injustice. Phillips v. Deihm, 213 Mich.App. 389, 403, 541 N.W.2d 566 (1995). Manifest injustice results where the defect in instruction is of such magnitude as to constitute plain error, requiring a new trial, or where it pertains to a basic and controlling issue in the case. Joba Construction Co. Inc. v. Burns & Roe, Inc., 121 Mich.App. 615, 639, 329 N.W.2d 760 (1982).

A

Plaintiff argues that the trial court erred in instructing the jury that defendant had the burden of proving its affirmative defense of fraud and false swearing by a preponderance of the evidence. Plaintiff asserts that the jury should have been instructed that the defendant had to prove fraud by clear and convincing evidence.

In reaching its decision, the trial court relied on Campbell v. Great Lakes Ins. Co., 228 Mich. 636, 638, 200 N.W. 457 (1924). In Campbell, the Supreme Court held that when an insurer raises fraud and false swearing as an affirmative defense, it is only required to prove the misconduct by a preponderance of the evidence. Id. at 640-641, 200 N.W. 457. The Supreme Court has not overruled or otherwise modified its holding in Campbell. Notwithstanding this fact, plaintiff argues that the trial court erred in instructing the jury that defendant's affirmative defense of fraud and false swearing had to be proved by a preponderance of the evidence because more recent Michigan case law holds that the proper burden of proof for allegations of fraud is clear and convincing evidence.

For many years, in actions at law, the Supreme Court upheld jury instructions stating that fraud must be proved by a preponderance of the evidence. See McNaughton v. Smith, 136 Mich. 368, 377, 381, 99 N.W. 382 (1904); Hinchman v. Weeks, 85 Mich. 535, 545-546, 48 N.W. 790 (1891). Furthermore, the Court rejected instructions that required a greater degree of proof than preponderance of the evidence. See Silverstone v. London Assurance Corp., 176 Mich. 525, 533, 142 N.W. 776 (1913); Sweeny v. Devens, 72 Mich. 301, 303-304, 40 N.W. 454 (1888); Watkins v. Wallace, 19 Mich. 56, 76 (1869).

In other cases in which jury instructions were not at issue, the Court required fraud to be established by a preponderance of the evidence. See Columbus Pipe & Equipment Co. v. Sefansky, 352 Mich. 539, 545, 90 N.W.2d 492 (1958); Essenburg v. Russell, 346 Mich. 319, 325, 78 N.W.2d 136 (1956); Kirk v. Vaccaro, 344 Mich. 226, 231, 73 N.W.2d 871 (1955); Howard v. Reaume, 310 Mich. 119, 125, 16 N.W.2d 686 (1944).

However, in Grimshaw v. Aske, 332 Mich. 146, 157, 50 N.W.2d 866 (1952), the Court stated, without citing any authority, that fraud "must be affirmatively established by clear and convincing evidence." The next year the Court, relying on Grimshaw, again stated that fraud must be established by clear and convincing evidence in Tel-Craft Civic Ass'n v. Detroit, 337 Mich. 326, 332, 60 N.W.2d 294 (1953). In 1959, the Court stated in Vargo v. Ihlenfeldt, 359 Mich. 265, 268, 102 N.W.2d 550 (1960), that fraud "must be proved clearly and convincingly," but cited only the trial court opinion in support of the proposition.

In equity cases, the Supreme Court also has been inconsistent. In some cases, the Court has stated that fraud must be proved by clear and convincing evidence. See Flynn v. Korneffel, 451 Mich. 186, 199, 547 N.W.2d 249 (1996); ¹ Margolis v. Benton, 343 Mich. 34, 38, 72 N.W.2d 213 (1955); see also Broaden v. Doncea, 340 Mich. 564, 66 N.W.2d 216 (1954) (requiring "clear and satisfactory proof"); Buck v. Sherman, 2 Doug 176, 182 (Mich.1845) (stating that proof of fraud must be "so clear and conclusive as to leave no rational doubt upon the mind as to its existence"). In other equity cases, the Court has required that fraud be proved only by a preponderance of the evidence. See Franko v. Olszewski, 316 Mich. 485, 491, 25 N.W.2d 593 (1947); Goodrich v. Waller, 314 Mich 456, 461, 22 N.W.2d 862 (1946); Collins v. Norris, 314 Mich. 145, 148, 22 N.W.2d 249 (1946); Fahey v. Pell, 310 Mich. 280, 281, 17 N.W.2d 183 (1945); Steele v. Shaffer, 241 Mich. 632, 633-634, 217 N.W. 777 (1928); Allison v. Ward, 63 Mich. 128, 138, 29 N.W. 528 (1886). In still other cases, the Court has merely stated that "convincing" evidence was required, ² or that fraud must be "clearly proved," ³ without further elaborating on the burden of proof.

Perhaps the clearest example of the confusion in Michigan case law regarding the question of the burden of proof in fraud cases can be found in Modern Displays, Inc. v. Hennecke, 350 Mich. 67, 85 N.W.2d 80 (1957). In Modern Displays, a case sounding in both law and equity, the Court quoted both standards, on the same page, with apparent approval. See id. at 73, 85 N.W.2d 80.

In recent years, Hi-Way Motor Co. v. Int'l Harvester Co., 398 Mich. 330, 247 N.W.2d 813 (1976), ⁴ and its progeny have generally been relied upon for the burden of proof in fraud cases. In Hi-Way Motor, the Court stated that fraud must be established by "clear, satisfactory and convincing evidence." Id. at 336, 247 N.W.2d 813. Unfortunately, in the Hi-Way Motor opinion, the Supreme Court did not overrule its previous cases holding that fraud had to be proved by a preponderance of the evidence. In fact, the opinion made no mention of them. In Jim-Bob, Inc. v. Mehling, 178 Mich.App. 71, 90, 443 N.W.2d 451 (1989), and Gorman v. Soble, 120 Mich.App. 831, 840, 328 N.W.2d 119 (1982), this Court cited Hi-Way Motor in support of statements that fraud must be proved by "clear, satisfactory and convincing evidence," without noting any conflict with precedent.

After considering the above, we are unable to say with any degree of certainty exactly what standard of proof courts should apply in fraud cases. ⁵ The Supreme Court has alternately required fraud to be established by a preponderance of the evidence and by clear and convincing proof, with little consistency and no detailed analysis. While the most recent Supreme Court pronouncements regarding the question have stated that fraud must be proved by clear and convincing evidence, ⁶ we think it unlikely that the Supreme Court would overrule a significant body of case law without at least mentioning that it was doing so.

Therefore, unless and until the Supreme Court offers us additional guidance on this issue, we cannot find that the trial court erred in relying on Campbell, supra. In Campbell, the Supreme Court addressed the identical issue that is presented in the present case. The Supreme Court has never overruled Campbell. Accordingly, the trial court properly followed Campbell and instructed the jury that defendant had to prove its defense of fraud and false swearing by a preponderance of the evidence. Hence, manifest injustice did not result.

B

Plaintiff also contends that the trial court erred in instructing the jury that certain statements he made regarding his financial status were material. Plaintiff argues that this issue should have been decided by the jury rather than the trial court.

The trial court advised the jury as follows:

I instruct you that the facts relating to the status of the plaintiff's debts, including debts with the City of Detroit, State of Michigan, Comerica Bank, attempts to sell the business and [the] financial condition of George Mina and Mr. Ted's Lounge are material.

The insurer's defense of "false swearing" is an allegation that the insured submitted fraudulent proof of loss. Fraud or false swearing implies something more than mistake of fact or honest misstatements on the part of the insured. It may consist of knowingly and intentionally stating upon oath what is not true, or stating a fact to be true although the declarant does not know if it is true and has no grounds to believe that it is true. In order to prevail, the insurer must prove not only...