Radenbaugh v. Farm Bureau General Ins. Co.

• Decision Date: 22 May 2000
• Docket Number: Docket No. 212080.
• Citation: Radenbaugh v. Farm Bureau General Ins. Co., 610 N.W.2d 272, 240 Mich. App. 134 (Mich. App. 2000)
• Parties: Ralph RADENBAUGH and Nila Radenbaugh, husband and wife, and Radco Enterprises, Inc., a Michigan Corporation, Plaintiffs-Appellees/Cross-Appellants, v. FARM BUREAU GENERAL INSURANCE COMPANY OF MICHIGAN, a Michigan insurance corporation, Defendant-Appellant/Cross-Appellee.
• Court: Court of Appeal of Michigan

610 N.W.2d 272

240 Mich. App. 134

Ralph RADENBAUGH and Nila Radenbaugh, husband and wife, and Radco Enterprises, Inc., a Michigan Corporation, Plaintiffs-Appellees/Cross-Appellants, v. FARM BUREAU GENERAL INSURANCE COMPANY OF MICHIGAN, a Michigan insurance corporation, Defendant-Appellant/Cross-Appellee.

Docket No. 212080.

Court of Appeals of Michigan.

Submitted January 5, 2000, at Lansing.

Decided March 3, 2000, at 9:20 a.m.

Released for Publication May 22, 2000.

Dewey & Schultz (by Garner F. Dewey), Standish, for the plaintiffs.

Willingham & Cote, P.C. (by Anthony S. Kogut), East Lansing, for the defendant.

Before: SMOLENSKI, P.J., and RICHARD ALLEN GRIFFIN and NEFF, JJ.

RICHARD ALLEN GRIFFIN, J.

This is a breach of contract action by plaintiffs Ralph Radenbaugh, Nila Radenbaugh, and Radco Enterprises, Inc. (herein collectively referred to as Radenbaugh) against their insurance carrier, defendant Farm Bureau General Insurance Company of Michigan, for defendant's alleged breach of its duty to defend and indemnify plaintiffs in a prior action brought against them by John M. Tornow and Josephine J. Tornow in the Benzie Circuit Court.

The underlying case arose out of the sale of a double-wide Commodore Homes of Indiana mobile home by Radenbaugh to the Tornows (herein collectively referred to as Tornow). In conjunction with the sale, Radenbaugh provided erroneous schematics and instructions to contractors hired by Tornow for the construction of the home's basement foundation and erection of the home on its basement. It was alleged and later proved at trial that Radenbaugh's conduct caused damage to the home and its basement. In response to the lawsuit filed by Tornow against Radenbaugh, defendant Farm Bureau refused to defend or indemnify its insured under a commercial general liability policy, thereby triggering the instant breach of contract action.

In the present case, plaintiffs and defendant filed cross-motions for summary disposition based on a detailed stipulated statement of facts. Plaintiffs' motion for summary disposition was granted in part in that the circuit court ruled that defendant breached its duty to defend and indemnify its insured in the previous action. Defendant Farm Bureau was ordered to pay the $11,000 settlement made by plaintiffs, as well as plaintiffs' attorney fees of $33,634.50 incurred in the underlying action. However, the circuit court denied plaintiffs' request that defendant indemnify plaintiffs for $22,600 in sanctions awarded against plaintiffs for filing a third-party action against the basement contractor, Leelanau Redi-Mix, and denied plaintiffs' request for $22,736 in attorney fees for prosecuting the present case. Defendant appeals as of right, and plaintiffs cross appeal. We affirm.

I

It is well settled that "if the allegations of the underlying suit arguably fall within the coverage of the policy, the insurer has a duty to defend its insured." Royce v. Citizens Ins. Co., 219 Mich.App. 537, 543, 557 N.W.2d 144 (1996), citing with approval American Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 207 Mich.App. 60, 67, 523 N.W.2d 841 (1994), aff'd. 452 Mich. 440, 550 N.W.2d 475 (1996). Further,

[a]n insurer has a duty to defend, despite theories of liability asserted against any insured which are not covered under the policy, if there are any theories of recovery that fall within the policy. Dochod v. Central Mutual Ins. Co., 81 Mich.App. 63, 264 N.W.2d 122 (1978). The duty to defend cannot be limited by the precise language of the pleadings. The insurer has the duty to look behind the third-party's allegations to analyze whether coverage is possible. Shepard Marine Construction Co. v. Maryland Casualty Co., 73 Mich.App. 62, 250 N.W.2d 541 (1976). In a case of doubt as to whether or not the complaint against the insured alleges a liability of the insurer under the policy, the doubt must be resolved in the insured's favor. 14 Couch on Insurance 2d, § 51:45, p. 538. [Western Casualty & Surety Group v. Coloma Twp., 140 Mich.App. 516, 520-521, 364 N.W.2d 367 (1985), quoting with approval Detroit Edison Co. v. Michigan Mut. Ins. Co., 102 Mich. App. 136, 141-142, 301 N.W.2d 832 (1980).]

Also, the following fundamental principles of insurance law apply:

It is well settled in Michigan that an insurer's duty to defend is broader than its duty to indemnify. Auto-Owners Ins. Co. v. City of Clare, 446 Mich. 1, 15, 521 N.W.2d 480 (1994). In order to determine whether an insurer has a duty to defend its insured, this Court must look to the language of the insurance policy and construe its terms to find the scope of the coverage of the policy. Arco Industries Corp. v. American Motorists Ins. Co., 448 Mich. 395, 402, 531 N.W.2d 168 (1995). Generally, an insurance policy is a contract between the insurer and the insured. Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 566, 489 N.W.2d 431 (1992). If a trial court is presented with a dispute between these parties over the meaning of the policy, the trial court must determine what the agreement is and enforce it. Kass v. Wolf, 212 Mich.App. 600, 604, 538 N.W.2d 77 (1995). When determining what the parties' agreement is, the trial court should read the contract as a whole and give meaning to all the terms contained within the policy. Churchman, supra at 566, 489 N.W.2d 431. The trial court shall give the language contained within the policy its ordinary and plain meaning so that technical and strained constructions are avoided. Hosking v. State Farm Mutual Automobile Ins. Co., 198 Mich.App. 632, 633-634, 499 N.W.2d 436 (1993). A policy is ambiguous when, after reading the entire document, its language can be reasonably understood in different ways. Trierweiler v. Frankenmuth Mutual Ins. Co., 216 Mich.App. 653, 656-657, 550 N.W.2d 577 (1996). If the trial court determines that the policy is ambiguous, the policy will be construed against the insurer and in favor of coverage. Heniser v. Frankenmuth Mutual Ins. Co., 449 Mich. 155, 160, 534 N.W.2d 502 (1995). However, if the contract is unambiguous, the trial court must enforce it as written. Arco, supra at 403, 531 N.W.2d 168. [Royce, supra at 542-543, 557 N.W.2d 144.]

Despite the parties' attempt to stipulate the facts, a factual dispute exists regarding whether defendant was given notice of the third, fourth, and fifth amended complaints filed in the underlying action. Defendant admits receiving notice and a demand to defend plaintiffs' second amended complaint. Because it is not the function of the court to resolve genuine issues of material fact in ruling on motions for summary disposition, Manning v. Hazel Park, 202 Mich.App. 685, 689, 509 N.W.2d 874 (1993), we will confine our analysis to the second amended complaint.

Unlike later complaints, the second amended complaint in the action by Tornow against the plaintiffs was inartfully drafted. While the general allegations of the complaint sound in negligence, breach of contract, and breach of warranty, count I is entitled "fraud and misrepresentations"; count II, while untitled, requests the circuit court to set aside as void the real estate deed; and count III is captioned "claim for relief under the consumer protection act." Although it is obvious there are theories alleged in the complaint for which there is no coverage under the general commercial liability insurance policy, it was the obligation of the circuit court to determine "if the allegations of the underlying suit arguably fall within the coverage of the policy." Royce, supra at 543, 557 N.W.2d 144. After reviewing the policy in depth, we agree with the circuit court that the allegations contained in the second amended complaint arguably fall within coverage and therefore defendant breached its duty to defend. Further, in view of the factual findings made in the prior action at the conclusion of the nonjury trial, we hold the lower court correctly ruled that defendant breached its duty to indemnify plaintiffs for their settlement of $11,000 and attorney fees of $33,634.50.

II

Defendant's first argument on appeal is that it owed no duty to defend or indemnify because an "occurrence," as defined by its policy, was not alleged. We disagree.

Defendant notes that the commercial liability policy at issue provides, in general, that "bodily injury" or "property damage" is covered if caused by an "occurrence." "Occurrence" is defined by the policy as follows:

"Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Relying almost exclusively on Hawkeye-Security Ins. Co. v. Vector Const. Co., 185 Mich.App. 369, 460 N.W.2d 329 (1990), defendant argues in its appellate brief that the second amended complaint alleged claims

for breach of contract, defective workmanship and breach of warranties [which are] clearly not covered by commercial liability insurance such as that offered through the Farm Bureau policy. Simply put, commercial liability policies do not insure the policyholder for breach of contract, breach of warranty claims, and shoddy workmanship claims.

Were the underlying complaint limited to claims relating solely to the insured's product, we would agree with defendant. However, it is clear that the underlying complaint alleged damages broader than mere diminution in value of the insured's product caused by alleged defective workmanship, breach of contract, or breach of warranty. Plaintiffs not only sold the double-wide mobile home in question, it was also alleged in the complaint and proved at trial that plaintiffs provided instructions and schematics to contractors hired by Tornow for the construction of the basement and for the erection of the mobile home on its basement. In this regard, paragraph ten of the second amended complaint alleged

the setting of the mobile home on the foundation which was prepared by subcontractors in conformity with specific written instructions from Radco

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