Rental Property Fire Presents a Review of Residential Insurance Policies in Michigan
On September 29, 2015, the Michigan Court of Appeals affirmed a directed verdict granted to an insurance agent, Jervis-Fehtke (Jervis), on a professional negligence claim brought by a property owner, Williams, as a result of damage to Williams’ rental property caused by fire.
After a gas explosion destroyed Williams rental property, Williams submitted a claim to her insurer, Auto-Owners Insurance Company (Auto Owner). Auto-Owners denied the claim because Williams’ policy did not cover losses caused by explosions originating from outside of the property. Williams, appearing pro se, then filed suit against Auto-Owners and Jervis. As to Jervis, Williams alleged that Jervis negligently failed to to obtain the type of insurance coverage that Williams wanted for the property. The plaintiff also alleged deficiencies in Auto-Owner’s denial of coverage. The trial court granted summary disposition to Auto-Owners, and Williams did not appeal that order.
The case against Jervis proceeded to trial. Prior to trial, however, the trial court excluded evidence of payments made by other insurers to other property owners whose property had been damaged in the same explosion alleged to have damaged Williams’ property. The trial court also excluded evidence of Auto-Owner’s denial of coverage to Williams.
At trial, Williams testified that she told the Jervis agent that she wanted “full coverage” for her rental properties, and that the property at issue was the only one encumbered by a mortgage. Williams claimed that her understanding of “full coverage” was a policy that insured her property against all losses, regardless of cause. The agent testified that he told Williams that “full coverage” home insurance policies did not exist, but that a “replacement cost” policy, which would pay up to the market value of the property, may be available. However, the agent testified that based on his belief that Williams did not want a “replacement cost” policy, he did not contact the underwriters to see if such a policy was available. The agent further testified that he and Williams later discussed obtaining a “dwelling fire” policy for the properties, which would not pay as much. The agent denied telling the plaintiff that he would contact underwriters to obtain a “full coverage” policy.
In addition to these fact witnesses, at trial, Jervis presented an expert in residential insurance policies to testify as to the three types of insurance policies available for residential properties, which the expert explained are 1) homeowners; 2) replacement cost; and 3) “dwellingfire” policy. According to the expert, homeowners insurance was not available to the plaintiff because she did not occupy the property. The expert also claimed that replacement cost policies are only available if the replacement cost of the property to be insured was within a reasonable margin of the market value of the property. The expert contended that no company would have issued Williams a replacement cost policy because the value of the property was significantly below its replacement cost. Thus, Jervis’ expert claimed that a “dwelling fire” policy, i.e., the Auto-Owners policy, which only insured against the specific perils outlined in the policy, was the only type of policy available to Williams for the property. The Auto-Owners policy covered “internal” explosions only, however. Following this testimony, Jervis moved for a directed verdict, which was granted.
On appeal, Williams challenged both the exclusion of evidence and the directed verdict. The Michigan Court of Appeals affirmed the exclusion of evidence regarding payments made by other insurers and the denial by Auto-Owners of Williams’ claim. Although Williams argued that the documents from Auto-Owners supported her argument that she had different insurance than that outlined by Jervis, and thus Jervis was negligent, the Court ruled that because Williams never laid a foundation for these documents, they were inadmissible hearsay. The court further held that the Auto-Owners evidence was not relevant, and that even if it was relevant, it was cumulative and/or could mislead the jury because it was undisputed that Auto-Owners had denied Williams’ claim. Likewise, the court also affirmed the trial court’s exclusion of evidence regarding what other insurers paid to the other homeowners affected by the explosion on the grounds that the evidence was hearsay, irrelevant, and could mislead the jury.
The Court of Appeals also affirmed the trial court’s entry of a directed verdict in favor of Jervis. In doing so, the court found that Williams had failed to prove that Jervis’ negligence, if any, was the proximate cause of her alleged damages. In reaching this conclusion, the court indicated that there was unrefuted testimony at trial that Williams could not find any insurance policy that would have covered her property against the risk of damage from an external explosion. So, the court found that even if Jervis’ agent was negligent in finding a policy for Williams’ property, there was no question of fact as to whether this action was a “but for” cause of her alleged injuries. Since it concluded that the trial court had not erred in granting a directed verdict in favor of Jervis based on a lock of proximate causation grounds, the court declined to address the other elements of Williams’ prima facie negligence case against Jervis and affirmed the directed verdict in Jervis’ favor.