Shefman v. Auto-Owners Ins. Co.

• Decision Date: 15 September 2004
• Docket Number: Docket No. 242493.
• Citation: 687 N.W.2d 300,262 Mich. App. 631
• Parties: Peter SHEFMAN and Terrace Land Development Company, doing business as Shefman Terrace, Plaintiffs-Appellants, v. AUTO-OWNERS INSURANCE COMPANY, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

687 N.W.2d 300

262 Mich. App. 631

Peter SHEFMAN and Terrace Land Development Company, doing business as Shefman Terrace, Plaintiffs-Appellants, v. AUTO-OWNERS INSURANCE COMPANY, Defendant-Appellee.

Docket No. 242493.

Court of Appeals of Michigan.

Submitted January 13, 2004, at Lansing.

Decided June 29, 2004, at 9:05 a.m.

Released for Publication September 15, 2004.

Curt A. Benson, P.C. (by Curt A. Benson), Grand Rapids, for the plaintiffs.

Conlin, McKenney & Philbrick, P.C. (by Allen J. Philbrick), Ann Arbor, for the defendant.

Before: O'CONNELL, P.J., and WILDER and MURRAY, JJ.

PER CURIAM.

Plaintiffs Peter Shefman and Terrace Land Development Company, doing business as Shefman Terrace, filed this action for damages against defendant Auto-Owners Insurance Company, alleging that defendant wrongfully failed to defend or indemnify them under a commercial general liability insurance policy after plaintiffs were sued in both federal and state court. The trial court denied plaintiffs' motion for partial summary disposition, granted defendant's motion for summary disposition, and entered judgment in favor of defendant. Plaintiffs appeal by right. We affirm.

I

In 1988, plaintiffs began the development of a site for a condominium complex known as Shefman Terrace in the city of Ann Arbor. About August 1992, plaintiffs purchased a commercial general liability policy from defendant. The policy provided, inter alia, that defendant would defend plaintiffs against, and pay any sums resulting from, lawsuits alleging damages arising out of "personal injury" or "advertising injury." The relevant provisions of the policy state:

Coverage B. Personal and Advertising Injury Liability

1. Insuring Agreement.

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this coverage part applies. We will have the right and duty to defend any "suit" seeking those damages. We may at our discretion investigate any "occurrence" or offense and settle any claim or "suit" that may result. But:

* * *

No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments — Coverages A and B.

b. This insurance applies to:

(1) "Personal injury" caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you;

(2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services;

* * *

2. Exclusions.

This insurance does not apply to:

* * *

b. "Advertising injury" arising out of:

(1) Breach of contract, other than misappropriation of advertising ideas under an implied contract;

* * *

Section V — Definitions

1. "Advertising injury" means injury arising out of one or more of the following offenses:

* * *

d. Infringement of copyright, title or slogan.

* * *

10. "Personal injury" means, other than "bodily injury", arising out of one or more of the following offenses:

* * *

d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or....

In 1992, plaintiffs entered into an agreement with Timberlane Homes, Inc. (Timberlane) under which Timberlane had the right to purchase and develop two units in Shefman Terrace. In 1996, Timberlane filed a seven-count complaint against plaintiffs in the Washtenaw Circuit Court (state claim). Although the complaint contained multiple counts, the gravamen of the allegations in the complaint was that after Timberlane had developed and sold the first unit, plaintiffs attempted to cancel the agreement regarding the second unit, and thereafter "constructed two (2) homes within the same development stealing and duplicating T[imberlane]'s creative design for the home constructed by Timberlane on [the first] [u]nit."

Plaintiffs submitted the claim to defendant, requesting a defense of and coverage for the state claim, and defendant denied this request. Thereafter, plaintiffs retained legal counsel to defend the state claim, and, following extensive discovery, the state claim was mediated. After mediation, by order of the trial court, Timberlane's design misappropriation allegations were dismissed without prejudice from the state claim. Timberlane then filed an action against plaintiffs in the United States District Court alleging copyright infringement (federal claim).

After they were served with Timberlane's federal claim, plaintiffs sought a defense and coverage for the federal claim from defendant. Defendant declined to offer a defense or coverage, asserting that there was no showing of an "occurrence" under the policy, and that the complaint failed to allege "[b]odily injury, property damage, personal injury, or advertising injury, as defined in the policy." Defendant further stated that, in its view, "[plaintiffs were] not advertising [their] goods or services[, and the] complaint does not allege advertising injury." Plaintiffs retained legal counsel to also defend the federal claim, once again directly bearing the legal fees and costs associated with defending the case. Ultimately, both the state and federal claims were resolved by settlement.

Plaintiffs then filed the present action asserting that, given the terms of the general liability policy, defendant wrongfully denied a defense and coverage for the state and federal claims, and that plaintiffs incurred damages as a result. In answer to the complaint, defendant again asserted that plaintiffs were not entitled to a defense or coverage under the terms of the policy. Plaintiffs filed a motion for partial summary disposition under MCR 2.116(C)(9) and (10), and defendant opposed the motion and filed a countermotion for summary disposition under MCR 2.116(C)(8) and (10). Following a hearing on the motions, the trial court issued a written opinion and order denying plaintiffs' motion and granting defendant's motion for summary disposition under MCR 2.116(C)(10). In granting defendant's motion, the trial court concluded in part that there was no genuine issue of material fact that the injury alleged in both the state and federal claims against plaintiffs, that plaintiffs had allegedly constructed and sold homes using designs misappropriated from Timberlane, was not conduct done in the course of advertising. The trial court further concluded that because the underlying conduct alleged did not occur in the course of advertising, Coverage B, § 1(b)(2) of defendant's policy did not afford coverage and defendant was entitled to judgment as a matter of law.

II

This Court reviews de novo the trial court's rulings on a motion for summary disposition. Dressel v. Ameribank, 468 Mich. 557, 561, 664 N.W.2d 151 (2003). The construction and interpretation of insurance contracts is also a question of law that this Court reviews de novo. Henderson v. State Farm Fire Cas. Co., 460 Mich. 348, 353, 596 N.W.2d 190 (1999).

III

In Radenbaugh v. Farm Bureau Gen. Ins. Co. of Michigan, 240 Mich.App. 134, 137-139, 610 N.W.2d 272 (2000), this Court stated:

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

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