Zaremba Equip. v. Harco Nat'L Ins.

• Citation: 761 N.W.2d 151,280 Mich. App. 16
• Decision Date: 31 July 2008
• Docket Number: Docket No. 274745.
• Parties: ZAREMBA EQUIPMENT, INC. v. HARCO NATIONAL INSURANCE COMPANY.
• Court: Court of Appeal of Michigan (US)

761 N.W.2d 151

280 Mich. App. 16

ZAREMBA EQUIPMENT, INC. v. HARCO NATIONAL INSURANCE COMPANY.

Docket No. 274745.

Court of Appeals of Michigan.

Submitted April 8, 2008, at Detroit.

Decided July 31, 2008, at 9:00 a.m.

[761 N.W.2d 155]

Howard & Howard Attorneys, P.C. (by Michael F. Wais), for the plaintiff.

John R. Monnich and John P. Jacobs, P.C. (by John P. Jacobs), Royal Oak, for the defendants.

Before: O'CONNELL, P.J., and BORRELLO and GLEICHER, JJ.

GLEICHER, J.

Plaintiff Zaremba Equipment, Inc., commenced this insurance coverage lawsuit after a fire destroyed its premises. A jury awarded plaintiff $2,353,778, exclusive of costs, attorney fees, interest, and case evaluation sanctions. We affirm in part, reverse in part, and remand this case for further proceedings.

I. Underlying Facts and Proceedings

On February 21, 2003, a fire consumed the primary building occupied by plaintiff, a family-owned business that sells and services agricultural equipment, commercial vehicles, and seasonal items, such as snow blowers and lawn mowers. Defendant Harco National Insurance Company sold plaintiff the insurance policy at issue in this case, which took effect on February 1, 2003, and constituted plaintiff's seventeenth consecutive Harco policy. Defendant Patrick Musall, Harco's agent, took plaintiff's order for the most recent commercial insurance policy considered here.

Plaintiff filed suit seeking to recover (1) damages for breach of the commercial-insurance contract, (2) penalty interest pursuant to MCL 500.2006, and (3) damages for defendants' failure to provide plaintiff with sufficient "replacement cost insurance coverage" of plaintiff's business building and its contents. The primary issues on appeal involve the coverage of the building and its contents. The 2003-2004 policy stated limits of $525,000 for the building, and $700,000 for its contents. After the fire, plaintiff learned that it would cost $1,192,000 to replace the building.

Plaintiff's complaint alleged that at an unspecified time before the fire, it informed defendants that "it wanted to be fully insured so it could rebuild and replace its property in the event of a complete loss." According to the complaint, Musall represented that Harco could issue a policy for "replacement cost insurance coverage" adequate to rebuild plaintiff's building and replace its contents. The complaint additionally alleged that Harco's failure to provide replacement cost coverage as promised constituted fraud and innocent misrepresentation. The complaint also pleaded a promissory estoppel claim and contained counts entitled "Breach of Fiduciary Duty," "Breach of Duty to Advise," and "Negligence," all similarly premised on Musall's inaccurate representation concerning the sufficiency of the promised insurance coverage. The negligence count set forth seven duties allegedly breached by Musall, including failures to accurately advise plaintiff and to "accurately represent the nature and extent" of the building and contents coverage.

Defendants moved for partial summary disposition under MCR 2.116(C)(8), arguing that pursuant to Harts v. Farmers Ins. Exch., 461 Mich. 1, 597 N.W.2d 47 (1999), Musall owed plaintiff no duty to advise it regarding the adequacy of the insurance it requested and, consequently the complaint failed to state any claims other than those for breach of contract and recovery of penalty interest. Defendants explained that plaintiff's complaint lacked specific allegations establishing the existence of a special relationship between plaintiff and Musall and that in the absence of any special relationship, Musall owed plaintiff no duty other than to provide it the insurance it sought. Defendants withdrew this motion after plaintiff filed an amended complaint alleging that Musall had misrepresented the "nature and extent of [plaintiff's] coverage. ..." The amended complaint asserted that Musall's misrepresentations gave rise to a "special relationship" between the parties and imposed on defendants the duty to "accurately advise [plaintiff] about the coverage provided" under its policy.

Shortly before the scheduled trial date, defendants filed motions in limine seeking to prohibit the introduction at trial of (1) communications between plaintiff's attorneys and Ed Whalen, Harco's adjuster, (2) testimony that the Harco policy was "too long or too difficult to read," and (3) any opinions regarding "adjusting" offered "by anyone other than a licensed adjuster." The trial court denied the motions in limine, and the case proceeded to trial.

The evidence revealed that plaintiff's Harco policies for 2002-2003 and 2003-2004 stated a policy limit of $525,000 on plaintiff's building and shared identical language describing the building and contents coverage:

C. Limits of Insurance

The most we will pay for loss or damage in any one occurrence is the applicable Limit of Insurance shown in the Declarations.

* * *

G. Optional Coverages

If shown as applicable in the Declarations, the following Optional Coverages apply separately to each item.

* * *

3. Replacement Cost

* * *

e. We will not pay more for loss or damage on a replacement cost basis than the least of (1), (2) or (3), subject to f. below:

(1) The Limit of Insurance applicable to the lost or damaged property;

(2) The cost to replace the lost or damaged property with other property:

(a) Of comparable material and quality; and

(b) Used for the same purpose; or

(3) The amount actually spent that is necessary to repair or replace the lost or damaged property.

If a building is rebuilt at a new premises, the cost described in e.(2) above is limited to the cost which would have been incurred if the building had been rebuilt at the original premises.

f. The cost of repair or replacement does not include the increased cost attributable to enforcement of any ordinance or law regulating the construction, use or repair of any property.

Musall testified that since 1998 or 1999 he had met with Jimmy Zaremba, plaintiff's business manager, at least twice a year to discuss plaintiff's insurance needs, Harco's available coverages, and potential policy limits. Musall admitted that at some point before plaintiff accepted Harco's 2002-2003 insurance proposal, Jimmy presented a "Customgard John Deere Insurance Proposal" prepared for plaintiff.¹ The Deere insurance proposal included a "Building Coverage" limit of $450,000 and identified an applicable "Extended Recovery Endorsement" that included "Guaranteed Replacement Cost." Musall conceded that Jimmy had asked him to "meet or beat" the Deere proposal and expressed a desire "to be fully insured." Musall utilized a software program called "Marshall & Swift" to prepare a "cost estimate" for reconstructing plaintiff's building, which calculated a building value of $494,449. According to Jimmy, Musall represented that Marshall & Swift was "the leader in the industry, and this is what insurance agents use all the time to come up with evaluations on a building." Although Musall did not recall telling Jimmy about the Marshall & Swift estimate, he admitted that after its preparation, plaintiff increased its building coverage limit to $525,000.

Musall also conceded that he made specific recommendations in response to Jimmy's request that plaintiff be "fully insured." He admitted that he would have recommended more coverage if he had known that it would cost $1,192,000 to replace the building because the intent was there" to insure plaintiff "for the cost of replacing the building." Musall further explained that if Jimmy had asked for $1.5 million of building coverage, Musall would have advised him that "I didn't feel he needed that much coverage."

Jimmy recalled that in July 2001 a car had run into a nearby restaurant, killing some customers. Jimmy heard that the restaurant owner "had a holy nightmare" with his insurance company and realized that if something happened to plaintiff's building, zoning issues would preclude rebuilding in the same location. At about the same time, Jimmy learned of Deere's "guaranteed replacement coverage" and consulted Musall to discuss the adequacy of plaintiff's coverage and to communicate his desire that plaintiff be "fully insured." Jimmy asked Musall to compare plaintiff's 2001 Harco coverage, which included an 80 percent coinsurance provision that obligated plaintiff to cover 20 percent of its own insured losses, with the Deere proposal. According to Jimmy, Musall represented that for $500 less than the Deere quotation, Harco would provide a building policy limit of $525,000 and that "with the replacement costs, we would be fully insured."

On April 18, 2002, Jimmy signed a two-year "Harco Dealer Package Application," which included a "Property Limits Schedule." The schedule described limits of $525,000 for the building and eliminated coinsurance. On the same schedule, Musall wrote, "All are agreed value," and checked a box indicating that the coverage was based on "replacement" value. Jimmy admitted that all of Musall's representations regarding the adequacy of plaintiff's coverage, including the Deere and appraisal discussions, concerned the 2002-2003 policy issued the year before the policy covering the fire loss.

On January 10, 2003, Jimmy met with Musall and accepted Harco's insurance proposal for the policy year beginning February 1, 2003. The parties agreed that neither Musall nor Harco delivered the 2003 policy to plaintiff before the February 21, 2003, fire. Jimmy conceded that he had not read any of the previous Harco policies, the two-year coverage application that he signed in 2002, or the renewal application signed in 2003.

The jury found for plaintiff on all claims and awarded damages exactly as itemized by plaintiff's accounting expert, including an award of $496,185 for breach of contract, $258,554 in penalty interest, and $42,481 for "recovery of insurance proceeds." For plaintiff's building and contents, the...