STATE OF MICHIGAN
COURT OF APPEALS
BARTLETT INVESTMENTS INC, FOR PUBLICATION
March 2, 2017
Plaintiff-Appellant, 9:00 a.m.
v No. 328922
Wayne Circuit Court
CERTAIN UNDERWRITERS AT LLOYD’S LC No. 14-007014-CB
LONDON,
Defendant-Appellee.
Before: STEPHENS, P.J., and SERVITTO and SHAPIRO, JJ.
PER CURIAM.
Plaintiff is the owner of a vacant building in the city of Highland Park for which it
purchased a commercial property insurance policy. Because vacant buildings carry a
significantly greater risk for vandalism and damage than do occupied buildings, plaintiff had to
obtain a policy that carried special certificates of coverage regarding vacant buildings. The
certificates contained two provisions relevant to this appeal. First, the policy provided that “any
loss or damage caused by Vandalism must be reported to [Lloyd’s] within ten (10) days after the
Insured first learns of the loss or damage.” Second, it provided that, as a condition of coverage,
the insured must assure that the building “be fully secured against unauthorized entry at all
times” and that “the insured property shall be inspected regularly by the Insured or the Insured’s
agent during the policy period.”
On or about February 1, 2013 plaintiff’s owner, Anwar Matty discovered extensive
vandalism damage to the building. He submitted a claim for the losses, and defendant rejected
the claim. The reason set forth in defendant’s denial letter was:
[T]he claimed damages are a combination of overlap with the loss of January 6,
2013,[1] wear and tear, maintenance and theft. There was also an indication of
long-term water damage . . . . As none of these are Covered Causes of Loss,
Underwriters regrets that they are unable to provide payment for your claim.
1
Defendant provided coverage for the January loss and that loss is not at issue in this case.
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Following the denial, plaintiff filed suit. At the trial court, defendant relied on two
grounds for denial that had not been referenced in the denial letter, failure to comply with the 10
day notice provision and failure to comply with the requirement to make “regular inspections”
and to keep the building secured. Defendant brought a motion for summary disposition under
MCR 2.116(C)(10), asserting that there was no question of fact that plaintiff had failed to
comply with these provisions and, therefore, was not entitled to coverage. The trial court agreed
and granted defendant’s motion, dismissing the case. Although we disagree with portions of the
trial court’s analysis, we affirm.
I. WAIVER OF DEFENSES NOT RAISED IN THE DENIAL LETTER
Plaintiff argues that the trial court’s decision was erroneous because Michigan law
precludes defendant from obtaining relief on any defenses not explicitly stated in its first denial
letter. Plaintiff relies heavily on Smith v Grange Mut Fire Ins Co, 234 Mich 119, 122-123; 208
NW2d 145 (1926) where our Supreme Court stated:
[I]t must be accepted as the settled law of this State, that, when a loss under an
insurance policy has occurred and payment refused for reasons stated good faith
requires that the company shall fully apprise the insured of all of the defenses it
intends to rely upon, and its failure to do so is, in legal effect, a waiver, and estops
it from maintaining any defenses to an action on the policy other than those of
which it has thus given notice.
While Smith contains perhaps the clearest articulation of this rule, the doctrine appears to
have been a part of Michigan jurisprudence long before Smith. See Johnson v Yorkshire Ins Co,
224 Mich 493, 496-497; 195 NW 45 (1923) (holding that when an insurer denied payment
alleging that no valid contract for insurance existed it waived the defense that the insured had
failed to adequately submit a proof of loss), Popa v Northern Ins Co, 192 Mich 237, 241; 158
NW 945 (1916) (stating that “when an insurance company has been notified of a loss under a
policy issued by it, and it sends an adjusting agent to inquire into the loss, and such agent . . .
refused payment, and denies all liability” that the insurer has waived the defense of failure to
receive a proof of loss), and Castner v Farmers’ Mut Fire Ins Co, 50 Mich 273, 275; 15 NW 452
(1883) (stating that when the insurance company has asserted two grounds for denying coverage
at the time the suit was initiated it “was not at liberty thereafter to vary their grounds and offer
new or additional objections.”).
Defendant argues that in order to rely on the rule articulated in Smith, plaintiff is required
to show that defendant’s failure to specifically state these two provisions as grounds for denying
coverage in its first denial letter prejudiced plaintiff. However, in our review of the case law,
including more recent cases, we find no indication that an insured is required to show that it was
prejudiced. See Mich Twp Participating Plan v Fed Ins Co, 233 Mich App 422, 436; 592 NW2d
760 (1999) (stating that “once an insurance company has denied coverage to its insured and
stated its defenses, the insurer has waived or is estopped from raising new defenses.”), Smit v
Kaechele, 207 Mich App 674, 680; 525 NW2d 528 (1994) (stating the “general rule is that once
an insurance company has denied coverage to an insured and stated its defenses, the company
has waived or is estopped from raising new defenses” but that the rule cannot be applied to
“broaden[] the coverage of a policy”), Durham v Auto Club Group Ins Co, unpublished opinion
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per curiam of the Court of Appeals issued December 13, 2016 (Docket No. 329667) (finding that
when an insured denied coverage, after a full investigation having “knowledge of all necessary
facts to assert” a “residency defense,” yet failed to assert such a defense in its first letter denying
coverage that the defense was waived), p 1, 3-4.
Similarly, in Jones v Jackson Nat’l Life Ins Co, unpublished opinion of the United States
Court of Appeals for the Sixth Circuit, issued June 20, 1994 (Docket Nos. 93-1503 and 93-
1528), p 10-13; 27 F3d 566 (1994), the United States Court of Appeals for the Sixth Circuit
found that upon its own review of Michigan law that there was no prejudice requirement for an
insured to claim that an insurer waived any defense not explicitly mentioned in its first letter
denying coverage.2 In that case, the insurer’s first denial letter had informed its insured’s spouse
that it was denying payment under the insured’s life insurance policy because the insured’s
cancer diagnoses had pre-dated delivery of the policy. Id. at 10-13. The Sixth Circuit concluded
that because this was the only grounds stated for denying coverage in the first denial letter that
the insurer had waived any other defenses and that the insured was not required to show that it
was prejudiced in order to assert that the insurer waived additional defenses. Id. In reaching this
conclusion, the Sixth Circuit noted a distinction in the case law between when the rule articulated
in Smith had been applied in the context of estoppel and when it had been applied in the context
of waiver. See id. The Sixth Circuit noted that while an insured is required to show that it was
prejudiced in order to invoke the doctrine of estoppel, it is not required to show prejudice to
assert the doctrine of waiver. Id.3 The Sixth Circuit pointed to our Supreme Court’s opinion in
Taylor v Supreme Lodge of Columbian League, 135 Mich 231, 232; 97 NW 680 (1903). Id. In
that case, our Supreme Court held that when an insurer had expressly informed a plaintiff’s
attorney by letter that it was declining coverage due to the insured’s alleged lack of payment that
the insurer waived any other defenses. Taylor, 135 Mich at 232.
2
While we recognize that unpublished decisions from the Federal Court of Appeals are not
binding, we can turn to them as persuasive authority. See Jodway v Kennametal, Inc, 207 Mich
App 622, 630-631; 525 NW2d 883 (1994) (adopting the rationale of an unpublished opinion
from the Federal District Court for the Eastern District of Michigan).
3
In Dahlmann v Geico General Ins Co, unpublished opinion per curiam of the Court of Appeals
issued March 22, 2016 (Docket Nos. 324698 and 325225), p 3, 9-10, we determined that when
an insured did not show that it was prejudiced by an insurer’s asserting a basis for denying
benefits that was different than the grounds stated in its initial denial letter that the insured could
not assert the doctrine of estoppel to preclude the insurer from obtaining relief on the alternate
grounds. However, as the opinion noted that the insured had asserted estoppel as the basis for
relief, it did not explicitly address whether the same requirements would apply in the context of
waiver. See also Potesta v United States Fidelity & Guaranty Co, 202 W Va 308, 314-318; 504
SE2d 135 (1998) (discussing the common law application of the principles of waiver and
estoppel in this context and holding that while prejudice on the part of the insured is a
requirement in order to assert estoppel it is not a requirement for an insured to assert waiver).
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Defendant argues in the alternative that it cannot be found to have waived any defenses
not specifically stated in its initial denial letter because that letter contained the following general
reservation of rights language:
By stating the above, Minuteman Adjusters, Inc. and Underwriters do not waive
any of their rights or defenses that they now have or may discover in the future.
All rights, defenses and privileges afforded by the above-referenced policy or by
law are expressly reserved.
We reject defendant’s argument that this general language was sufficient to apprise
plaintiff of its intent to rely on the 10 day notice provision as a reason for declining coverage. In
Meirthew v Last, 376 Mich 33, 37-38; 135 NW2d 353 (1965) our Supreme Court determined that
similar general reservation of rights language was not sufficient to comply with an insurer’s
notice obligations finding that such general language “smacks of bad faith for want of specific
reference to that clause of the policy” the insurer intended to rely upon. If general reservation of
rights language like that relied upon by defendant were sufficient to comply with an insurer’s
obligations, then insurers would be able to issue overly broad and vague denial letters without
giving their insureds any indication of what provisions in the policy they ultimately intend to rely
upon in denying coverage.
However, the doctrine has an exception for waivers that would “protect the insured
against risks that were not included in the policy.” Kirschner v Process Design Assoc, 459 Mich
587, 593-594; 592 NW2d 707 (1999). This exception does not apply to the 10 day notice
requirement because a failure to meet this after-loss requirement did not expand by type or by
extent the risks undertaken by defendant in the policy. Had plaintiff given notice within 10 days,
it would not have affected the type or extent of the loss suffered. On the other hand, we
conclude that requiring defendant to provide coverage for repeated vandalism to a vacant
building that, contrary to the explicit requirements of the policy, was not secured or regularly
inspected would substantially expand the degree of risk undertaken by the insurer. Unlike the
10 day notice requirement, these actions were to take place before the loss and were specifically
directed at reducing the likelihood and possible extent of the type of loss actually suffered.4
In sum, because defendant failed to specifically reference the 10 day notice requirement
in the initial denial letter, it has waived that defense. However, despite the defendant’s failure to
raise the defense that plaintiff, contrary to a condition of the policy, failed to secure and inspect
4
To fall within this exception to the waiver rule, an insurer-defendant must show not only that
application of the waiver rule would expand the scope of coverage in theory, but that the specific
loss suffered was one that would not have been within the policy’s original scope of coverage.
See Kirschner, 459 Mich at 594-595 (stating that the doctrine of waiver and estoppel cannot be
applied so as to “make a contract of insurance cover a loss it never covered by its terms, to create
a liability not created by the contract and never assumed by the defendant under the terms of the
policy.”). Thus, if plaintiff’s loss was unrelated to a failure to secure and regularly inspect the
building, defendant’s failure to raise that failure in its initial denial letter would still constitute a
waiver of the defense.
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the building the doctrine of waiver does not apply. This is because the requirement to secure and
inspect the building was one that required plaintiff to take pre-loss actions specifically intended
to prevent or limit the type of loss for which it now claims coverage.
II. WAS THERE A QUESTION OF FACT AS TO REGULAR INSPECTION
Because defendant is entitled to rely on the claimed failure to secure and inspect, we must
determine whether the trial court erred by finding no question of fact as to whether plaintiff
complied with these provisions. We agree with the trial court that plaintiff did establish a
question of fact as to the building being secured but not as to it having been regularly inspected.
The Vacancy Permit states:
In consideration of the premium charged, it is understood and agreed that
Condition 6 (Vacancy) of the Loss Conditions of Policy Form CP 00 10 04 02 is
deleted and replaced by the following:
(1) Permission is granted for the insured building(s) on the property set forth
in the Declarations to be vacant or unoccupied during the period of this
insurance, subject to the following warranties by the Insured:
• All doors, windows and other means of ingress into the insured
building(s) shall be fully secured against unauthorized entry at all
times during the policy period.
* * *
• The insured property shall be inspected regularly by the Insured or
the Insured’s agent during the policy period.
The Vacancy Permit clearly requires plaintiff to both secure the building and regularly inspect
the building. The evidence regarding each requirement will be addressed in turn.
While the trial court found that plaintiff complied with the requirement to secure the
building, on appeal, defendant argues that there was no genuine issue of material fact regarding
plaintiff’s lack of compliance with this requirement.5 “A genuine issue of material fact exists
when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an
issue upon which reasonable minds might differ.” West v GMC, 469 Mich 177, 183; 665 NW2d
468 (2003). We agree with the trial court that there was sufficient evidence to create a genuine
question of fact on this issue.
5
In its reply brief, plaintiff argues that this Court should not consider this issue because
defendant did not file a cross appeal. Plaintiff is incorrect; a prevailing party does not need to
file a cross appeal to urge an alternative grounds for a lower court’s ruling. Middlebrooks v
Wayne Co, 446 Mich 151, 166 n 41; 521 NW2d 774 (1994).
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The Vacancy Permit required that plaintiff keep “[a]ll doors, windows and other means of
ingress into the insured building(s) . . . fully secured against unauthorized entry at all times.”
Matty testified that, other than the front door of the building, every other door was bolted shut.
Matty also testified that when he discovered the three-by three hole and the roof hole that they
were covered by bricks and steel sheets respectively. Based on this testimony, there appears to
be evidence that plaintiff complied with its obligations to secure the building under the Vacancy
Permit. While the evidence also shows that vandals were ultimately able to gain access to the
building, the mere fact that Matty’s efforts to secure the building were unsuccessful does not in
and of itself mean that he failed to comply with the policy’s requirements. If the mere act of
vandalism was sufficient evidence to show a failure to secure the building, then plaintiff would
never be able to recover for a vandalism loss, and the policy explicitly states that vandalism loss
is covered. Matty’s testimony was sufficient for a reasonable trier of fact to conclude that
plaintiff fulfilled its obligation to secure the premises under the Vacancy Permit. The trial court
did not err in rejecting this argument.
The trial court did conclude, however, that there was no genuine issue of material fact
and that plaintiff failed to meet its obligation to ensure that the property was “inspected
regularly.” At his deposition, Matty testified as follows concerning whether he made regular
inspections of the property:
Q. Did you conduct regular inspections of the property?
A. No, I just, like I said, I would just go in there myself when I was showing
the building to people and most of the time it was like once or twice every
couple months, so --
Matty did not remember how many times he went into the building in December of 2012, but he
did claim to walk by the front door every day. Matty was also the owner of a meat store adjacent
to the vacant building, so he would casually view the property on his way to work every day.
Matty further testified that the mayor of Highland Park also used to bring people in to see the
building, but Matty acknowledged that he did not go along the alley behind the building because
“[t]he alley is not the nicest place to walk.”
Whether Matty’s actions in showing the building to prospective purchasers once or twice
every couple of months constitutes regularly inspecting the building, despite Matty’s direct
answer of “no” when specifically asked about regular inspections, turns on the interpretation of
the policy’s requirement that the property be “regularly inspected.” The policy itself does not
define this term, and we decline to adopt the extraordinarily flexible meaning suggested by
plaintiff. Instead we conclude that “regularly inspect” means that the insured or his agent is to
assess the subject property with the purpose of discovering any significant change in condition
and that this inspection is to occur at generally consistent, albeit not precise, and reasonable
intervals.6 Matty’s deposition testimony that he and the mayor of Highland Park would go
6
This Court can consult a dictionary to interpret undefined terms in an insurance policy. Vushaj
v Farm Bureau Gen Ins, 284 Mich App 513, 515; 773 NW2d 758 (2009). Merriam-Webster’s
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inside the building in order to show the property to prospective buyers is not evidence of a
critical appraisal at reasonable intervals. Similarly, walking by the front door of the property and
casually viewing a portion of the outside of the property while working at a store adjacent to the
subject property is not evidence of a careful assessment of its condition. Because plaintiff failed
to present evidence to create a genuine issue of material fact on whether it complied with the
requirement to regularly inspect the subject property in the Vacancy Permit, the trial court did
not err in granting defendant’s motion for summary disposition.
Affirmed. As prevailing party, defendant may tax costs.
/s/ Cynthia Diane Stephens
/s/ Deborah A. Servitto
/s/ Douglas B. Shapiro
Collegiate Dictionary (11th ed) defines “inspect” as “to view closely in critical appraisal” and
defines “regular” as “recurring, attending, or functioning at fixed, uniform, or normal intervals.”
New Oxford American Dictionary (3rd ed), defines the respective terms as “look at closely
typically to assess . . . condition or to discover any shortcomings” and “doing the same thing or
going to the same place frequently or at uniform intervals.” Webster’s New Twentieth Century
Dictionary of the English Language (2nd ed) defines them respectively as “to look at carefully;
to examine critically” and “consistent or habitual in action.”
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