Morgan v. Cincinnati Ins. Co.

Decision Date19 June 1981
Docket NumberDocket No. 63465,No. 6,6
Citation307 N.W.2d 53,411 Mich. 267
PartiesHelen MORGAN, Plaintiff-Appellant, v. CINCINNATI INSURANCE COMPANY, Defendant-Appellee. Calender
CourtMichigan Supreme Court

Edgar A. Hord, Kalamazoo, for plaintiff/appellant.

Kurt F. Letzring, Allen, Letzring & Denenfeld, Battle Creek, for defendant-appellee.

Harold Helper, Southfield, amicus curiae.

KAVANAGH, Justice.

We granted leave to appeal to consider whether the intentional burning of a home by one spouse will bar recovery under a statutory fire insurance policy where the policy names both spouses as "the insured". We hold in this case that it will not.

Plaintiff and her husband, as tenants by the entireties, owned a home which was insured by defendant. On January 20, 1974, it was extensively damaged by a fire started by plaintiff's husband, who was living apart from plaintiff as divorce proceedings between them were then pending. Plaintiff filed a claim under the insurance policy, which the defendant denied. Defendant asserted that since plaintiff and her husband were the insured and owned inseparable interests in the property as tenants by the entireties the fraud of plaintiff's husband was imputed to plaintiff. Plaintiff's suit was dismissed on defendant's motion for summary judgment. The Court of Appeals affirmed "with extreme reluctance". Morgan v. Cincinnati Ins. Co., 91 Mich.App. 48, 50, 282 N.W.2d 829 (1979). We reverse.

On appeal defendant contends that the question whether an innocent insured may recover on property insurance after another insured has committed some act of fraud depends on whether the interests of the insured are considered joint or several. Defendant asserts that the property interests of parties holding as tenants by the entireties are unified and cannot be separated and therefore plaintiff cannot show an interest in the insured property separate from that interest which has been tainted by fraud.

This argument misses the point, for no interest in the insured property was tainted by fraud, nor does that bear on the question before us. Claimant's right in this matter is determined not by interest in the insured property but by the rights under the contract of insurance.

In Monaghan v. Agricultural Fire Ins. Co. of Watertown, N.Y., 53 Mich. 238, 18 N.W 797 (1884), this Court addressed the issue of recovery by an innocent insured notwithstanding fraud by another insured. In Monaghan three minors owned a parcel of property and a house and barn on it by deed from their father. After the father's death their mother, who owned no interest in the real property, procured a fire insurance policy on the premises and contents, naming herself and the three minors as insured. After a fire damaged the house it was determined that the mother had committed fraud in reporting as destroyed certain items which she had removed from the house prior to the fire. The three minors instituted the action for recovery of fire insurance proceeds. The Court stated that recovery under the insurance contract was to be determined irrespective of the nature of ownership of the property insured. 1 Recovery was to be determined according to the contract interests held by the respective parties. The Court in Monaghan construed the contract interests created by the insurance policy to be joint. 2 As a direct result of making the initial determination that the contract interests of the parties were joint the Court made the statement for which the case has come to be recognized, i.e., "And if the right of action has become barred as to one of the joint contractors, it has to all of them". 53 Mich. 238, 252, 18 N.W. 797.

Since the decision in Monaghan the law applicable to insurance contracts has undergone considerable development. Recognizing the disparity in the bargaining positions of the companies which write insurance and the consumers who buy the policies, both the statutory law and judicial decisions have aimed at making certain that the interests of every insured are protected.

The rule stated in Monaghan is a general law of contracts. Under contract law "(i)f two or more persons promise one and the same performance, there is necessarily a relation of suretyship between them". 4 Corbin, Contracts, § 925, p. 702. Thus some courts have held that " '(b)ecause the agreement not to commit fraud is joint, with each insured promising that he and the other would not commit fraud, the breach caused by intentional destruction is chargeable to both insureds and precludes recovery by the innocent joint insured' ". Klemens v. Badger Mutual Ins. Co. of Milwaukee, 8 Wis.2d 565, 567, 99 N.W.2d 865, 866 (1959).

Without limiting the principles of law applicable to contracting parties generally, consistent with the effort to protect the interest of the insured we are moved to limit the rule of law articulated in Monaghan.

The standard fire insurance policy prescribed by statute provides:

"This entire policy shall be void if, whether before or after a loss, the insured has wilfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in case of any fraud or false swearing by the insured relating thereto." M.C.L. § 500.2832; M.S.A. 24.12832.

The insurer in this case would have us read this provision as if it stated "(t)his entire policy shall be void if * * * any person insured" has committed fraud. We believe such a reading is unwarranted, and hold that the provision voiding the policy in the event of fraud by "the insured" is to be read as having application only to the insured who committed the fraud and makes claim under the policy. The provision has no application to any other person described in the policy as an insured.

To adopt the reading of the insurer would require ascribing to the Legislature an intent to impose a mutual obligation of suretyship on each of several persons insured: that each insured must not only undertake to forbear from fraud himself, but must also undertake to prevent each of the other persons insured from engaging in fraud on pain of losing all interests under the policy. Such an intent is unlikely; as this case aptly illustrates, an insured often has no control over the conduct of others.

We no longer consider the application of the theory of implied suretyship appropriate in insurance law. In Michigan limitations on recovery under an insurance policy must be clearly stated in the contract. The implication of a mutual obligation of suretyship among several insured persons is in effect a limitation on recovery by implication and not to be permitted under Michigan law.

Furthermore, since the provision quoted above does not expressly create a joint obligation of suretyship, to read the fraud provision as creating one would be contrary to the reasonable expectations of an insured. An ordinary person seeing his or her name included in an insurance contract without limiting language would suppose his or her interest to be covered. It appears that the instant policy names "Robert Morgan and Helen Morgan", without more, as the insured under the policy.

Henceforth whenever the statutory clause limiting the insurer's liability in case of fraud by the insured is used it will be read to bar only the claim of an insured who has committed the fraud and will not be read to bar the claim of any insured under the policy who is innocent of fraud.

The summary judgment herein is set aside and the cause remanded for further proceedings.

Costs to plaintiff.


COLEMAN, C. J., not participating.

FITZGERALD, Justice (dissenting).

We are asked to decide whether the intentional burning of a home, held in tenancy by the entireties, by one spouse, will bar recovery by the innocent spouse under a statutory fire insurance policy naming them both as the insured.


Helen and Robert Morgan owned a home as tenants by the entireties. The home was insured by the defendant Cincinnati Insurance Company. On January 20, 1974, a fire occurred which extensively damaged both the dwelling and the personal property located in it. The Morgans were living separately at the time; divorce proceedings instituted by the plaintiff were pending. It was subsequently determined that Robert Morgan was responsible for starting the fire.

Mrs. Morgan filed a claim with the Cincinnati Insurance Company for benefits under the policy, seeking to recover for both the damage to the residence and personal property. This claim was denied. She then began this action to recover the proceeds under the policy. Defendant filed and was granted a motion for summary judgment regarding the real property claim on the grounds that the fraud by one coinsured acts as a bar to recovery by the innocent coinsured. The Court of Appeals affirmed, albeit reluctantly, finding that a tenancy by the entireties is an indivisible interest which precludes recovery by one innocent party. Morgan v. Cincinnati Ins. Co., 91 Mich.App. 48, 282 N.W.2d 829 (1979).

The question of the destroyed personal property was decided upon a stipulated statement of facts submitted by the parties and is not at issue before this Court. We consider here only the real property question.


The Michigan standard fire insurance form provides:

"This entire policy shall be void if, whether before or after a loss, the insured has wilfully concealed or misrepresented any material fact or circumstance concerning this insurance or the subject thereof, or the interest of the insured therein, or in the case of any fraud or false swearing by the insured relating thereto." M.C.L. § 500.2832; M.S.A. § 24.12832.

The Morgans' policy was issued in both of their names. It is defendant's position that the long-standing law in Michigan is that where recovery is barred by the fraud of one named insured, it is barred to them all. The cases cited to support this...

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