PAUL L. MALONEY, Chief Judge.
In this lawsuit, the Plaintiffs seek insurance coverage under a specific policy that was in effect between 1998 and 1999. Before this Court are three motions for summary judgment.
The ultimate issue underlying this litigation and these motions is whether, under the 1998-1999 Commercial General Liability policy issued by National Union to Amway, National Union has a duty to defend Amway on the basis of an amended complaint filed in 2006 in a lawsuit in the United States District Court for the Western District of Missouri. The Court finds National Union's duty to defend was triggered.
Summary judgment is appropriate only if the pleadings, depositions, answers to interrogatories and admissions, together with the affidavits, show there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Tucker v. Tennessee, 539 F.3d 526, 531 (6th Cir. 2008). The burden is on the moving party to show that no genuine issue of material fact exists, but that burden may be discharged by pointing out the absence of evidence to support the nonmoving party's case. Fed.R.Civ.P. 56(c)(1); Bennett v. City of Eastpointe, 410 F.3d 810, 817 (6th Cir.2005) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). The facts, and the inferences drawn from them, must be viewed in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505,
The following facts are not in dispute and find support in the record or in relevant litigation history. On August 5, 2003, Plaintiffs were sued in the United States District Court for the Western District of Missouri. See Nitro Distrib., Inc. v. Alticor, Inc., Amway Corp., and Quixtar, Inc., No. 03-3290-cv-RED (W.D.Mo.) ("Nitro"). As a result of the Nitro action, coverage was requested under a Commercial General Liability ("CGL") policy, and was declined.
Approximately one year later, on September 5, 2006, the plaintiffs in the Nitro action filed an amended complaint. (ECF No. 1-2 Ex. A to Compl. "Nitro Amended Complaint.") The Nitro Amended Complaint added a claim for injurious falsehood. (Id. ¶¶ 216-22.) The relevant portions of the amended complaint, referring to the injurious falsehood allegations, are included here.
COME NOW the Plaintiffs, and for their additional cause of action against Defendants, further state and allege as follows:
(Nitro Amended Compl.)
On the basis of the amended complaint, the defendants in the prior suit in this
The Sixth Circuit Court of Appeals consolidated the two appeals. National Union Fire Ins. Co. of Pittsburgh v. Alticor, Inc., No. 05-2479 and 06-2538, 2007 WL 2733336 (6th Cir. Sept. 17, 2007) (per curiam) ("Alticor II"). In the opinion, the Sixth Circuit stated that the amended complaint
Id., at *4. The Sixth Circuit affirmed both of the trial court's orders. Id., at *9.
Based on the amended complaint, coverage was again requested in the Nitro action.
Meanwhile, discovery occurred in the Nitro action on the amended complaint. The defendants there, Plaintiffs here, received answers to interrogatories from the Nitro plaintiffs. After receiving the AIG Letter of December 19, 2006, Plaintiffs sent a second letter to AIG, on January 19, 2007, attaching relevant discovery responses. (ECF No. 1-4 Ex. C to Compl. "Response Letter" PgID 87-91.) Based on the answers to the interrogatories, Plaintiffs contended that the allegedly false
By letter dated February 15, 2007, the denial of coverage under the 98/99 policy was confirmed. (Plaintiffs' Brief Ex. 6 "Denial Letter.") The letter provided three reasons why National Union would not cover Plaintiffs under the 98/99 policy. First, the letter stated that "[i]t is the complaint against the insured, not an underlying plaintiffs discovery responses, that determines whether an insured owes a duty to defend its insured against allegations in an underlying complaint." (Id. at 2.) Second, after reviewing the interrogatory responses, "they do not demonstrate that the injurious falsehood claim is based on events that occurred in 1998." (Id.) Finally, the policy exclusions would preclude coverage because "the underlying plaintiffs assert that the statements were made with knowledge of their falsity or a reckless disregard for the truth precisely because the Defendants and co-conspirators know them to be false." (Id.)
With all of this information, Plaintiffs filed this lawsuit against National Union seeking coverage of the Nitro action under the 1998-1999 CGL issued by National Union.
This action comes to federal court on the basis of diversity of the parties. In diversity suits, federal courts apply the substantive law of the forum state. CenTra, Inc. v. Estrin, 538 F.3d 402, 409 (6th Cir.2008) (citing Himmel v. Ford Motor Co., 342 F.3d 593, 598 (6th Cir.2003)). This rule applies to actions arising from disputes over insurance contracts. Talley v. State Farm Fire and Cas. Co., 223 F.3d 323, 326 (6th Cir.2000). As this Court sits in Michigan, Michigan law governs the resolution of the dispute.
When applying state law to a diversity action, the federal court "must follow the decisions of the state's highest court when that court has addressed the relevant issue." Talley, 223 F.3d at 326. Where the state's supreme court has not weighed in on the issue, federal courts must anticipate how the state's supreme court would rule by considering "all available data, including the decisional law of the state's lower courts." Ziegler v. IBP Hog Mkt., Inc., 249 F.3d 509, 517 (6th Cir.2001). "`Where a state's highest court has not spoken on a precise issue, a federal court may not disregard a decision of the state appellate court on point, unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.' This rule applies regardless of whether the appellate court decision is published or unpublished." Id. (citations omitted).
The Michigan Supreme Court has provided guidelines for how courts should interpret insurance policies.
Rory v. Cont'l Ins. Co., 473 Mich. 457, 461, 703 N.W.2d 23 (2005). A court should begin by reviewing the contract to "determine what the agreement was and effectuate the intent of the parties." Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 566, 489 N.W.2d 431 (1992). "[T]he court must look at the contract as a whole and give meaning to all terms." Id. "Terms in an insurance policy either are clearly defined within the policy or are given their commonly used meanings." Grp. Ins. Co. of Michigan v. Czopek, 440 Mich. 590, 596, 489 N.W.2d 444 (1992) (citation omitted). That a policy does not define a word or phrase does not create an ambiguity within the policy. Id. When determining whether an insurance provision applies, a court "first must determine whether the policy is clear and unambiguous on its face." Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 206, 476 N.W.2d 392 (1991) (quoting Metro. Prop. & Liab. Ins. Co. v. DiCicco, 432 Mich. 656, 665, 443 N.W.2d 734 (1989)). "Where the policy is clear, [ ], `courts are bound by the specific language set forth in the agreement.'" Heniser v. Frankenmuth Mut. Ins., 449 Mich. 155, 160, 534 N.W.2d 502 (1995) ("Heniser"). The proper interpretation of a contract, and the legal effect of contractual provisions, are questions of law. DeFrain v. State Farm Mut. Auto. Ins. Co., 491 Mich. 359, 366-67, 817 N.W.2d 504 (2012).
When deciding whether an insured is entitled to coverage, Michigan courts employ a two-step process. Heniser, 449 Mich. at 172, 534 N.W.2d 502. First, the court must determine whether the policy provides coverage for the insured. Id. The insured bears the burden of establishing that the claims falls within the terms of the policy. Id. (citations omitted). Second, the court must determine whether the coverage is negated by any exclusion in the policy. Id. The insurer bears the burden of establishing that an exclusion applies. Id. at 161 n. 6, 534 N.W.2d 502.
Because the underlying lawsuit over which coverage is disputed was filed in Missouri, Missouri law governs the causes of action in the Nitro lawsuit. Missouri recognizes the tort of injurious falsehood. Lau v. Pugh, 299 S.W.3d 740, 749 (Mo.Ct.App.2009) (citing State ex rel. BP Prods. North America, Inc. v. Ross, 163 S.W.3d 922, 928 (Mo.Ct.App.2005) and Annbar Assocs. v. American Express Co., 565 S.W.2d 701, 706 (Mo.Ct.App.1978)). To establish a claim for injurious falsehood, a plaintiff must show that the defendant published a false statement that was harmful to the defendant and caused pecuniary loss, and the defendant intended for the publication to cause harm or recognized that the publication would do so and also knew the statement was false or acted in reckless disregard of its truth or falsity. Ross, 163 S.W.3d at 928.
Under Missouri law, a civil conspiracy is "an agreement or understanding between at least two persons to
When determining coverage under an insurance policy, the court starts with the language of the policy. National Union issued annual CGL insurance policies to at least one of the three Plaintiffs between 1991 to 2002. (Plaintiffs' Brief at 2; Defendant's Brief at 3.) See Alticor I, at *1. Without dispute, National Union issued an insurance policy, RM GL 113-54-67, to Amway effective November 1, 1997, through November 1, 1998. (Plaintiffs' Response Ex. B). Also without dispute, National Union issued a insurance policy, RM GL 612-23-20, to Amway effective from November 1, 1998, through November 1, 1999. (Defendant's Brief Ex. A "98/99 Policy") The 98/99 Policy included "personal and advertising injury liability" under Section I—Coverages, Coverage B. (Id. AIG POL 831.)
(Id.) The 98/99 Policy provides definitions for certain terms in Section V.
(Id. AIG POL 837 and 873.)
Illinois National issued annual CGL policies to at least one of the Plaintiffs between April 2002 and April 2004. (Plaintiffs' Brief 6-7; Defendant's Brief 3.) Without dispute, Illinois National issued an insurance policy, GL 612-52-12, to Alticor effective from April 1, 2002, through April, 2003. (Defendant's Brief Ex. B "02/03 Policy.") The 02/03 Policy contains a similar, but not identical, provision for coverage of personal and advertising injuries. (Id. AIG POL 600.) The 02/03 Policy also contains a similar, but not identical, definition of "personal and advertising injury." (Id. AIG POL 609.)
Both policies contain "other insurance" provisions. Both other insurance provisions begin as follows:
(98/99 Policy AIG POL 836; 02/03 Policy AIG POL 606.) Both policies contain identical provisions for contribution obligations.
(98/99 Policy AIG POL 836; 02/03 Policy AIG POL 607.) Finally, both policies contain identical endorsements altering the provision for excess insurance.
(98/99 Policy AIG POL 915; 02/03 Policy AIG POL 655.)
The parties have not argued that any portion of the relevant insurance policy is ambiguous. The parties, however, do not agree on the appropriate interpretation of Michigan law, as it applies to the underlying facts and the insurance policy. The parties also disagree on whether the facts giving rise to certain claims in the amended complaint in the lawsuit filed in Missouri trigger coverage under the 1998-1999 policy issued by National Union.
National Union asserts, and Plaintiffs do not expressly disagree, that the primary reason that Plaintiffs seek coverage under the 98/99 policy is financial. In its motion, National Union argues that all of the policies purchased by Plaintiffs are "fronting" or "matching deductible" policies. For example, the 98/99 policy has a $2 million per-occurrence limit and a $2 million deductible, or self-insured retention. The 98/99 policy, however, provides that National Union will reimburse Amway's defense costs to the extent that those costs exceeded the $2 million deductible. Beginning with the 99/00 policy, Amway opted to retain all responsibility for its defense costs. In other words, if the 98/99 policy provides coverage, any defense costs over $2 million would be paid for by National Union. If, however, the claim falls under a later issued policy, Plaintiffs would bear all defense costs under those policies.
National Union argues, based on the language in the Nitro Amended Complaint, the alleged injurious falsehood occurred during or after April 2002. National Union argues this conclusion is supported by Plaintiffs' motion, in the Nitro action, to dismiss the amended complaint and also the Nitro plaintiffs' response to the motion to dismiss. National Union argues that its 98/99 CGL does not apply because the factual assertions in support of the claims trigger coverage under the 02/03 CGL issued by Illinois National. National Union argues both policies have "other insurance" provisions and, under Michigan law, in such a situation, the policy that is more clearly applicable should be the primary policy.
Plaintiffs argue that, under Michigan law, National Union had a duty to defend it under the 98/99 policy. Plaintiffs contend that, looking beyond the allegations in the complaint, the discovery answers indicate the false statements were made as early as 1998. Plaintiffs argue coverage was triggered by the claim for injurious falsehood and the claim for conspiracy to defame. Plaintiffs further argue that, by denying coverage, National Union breached its duty to defend. As a result, Plaintiffs insist that National Union is liable for damages caused by its breach, including defense costs incurred after the amended complaint was served. Plaintiffs argue National Union is not entitled to the benefit of the deductible. Plaintiffs also seek 12% interest on untimely paid insurance benefits.
"In determining whether there is a duty to defend, courts are guided by established principles of contract construction." Citizens Ins. Co. v. Secura Ins., 279 Mich.App. 69, 74, 755 N.W.2d 563 (2008). An insurer's duty to defend is well-settled in Michigan law. See American Bumper and Mfg. Co. v. Hartford Fire Ins. Co., 452 Mich. 440, 450-51, 550 N.W.2d 475 (1996) and Protective Nat'l Ins. Co. of Omaha v. City ofWoodhaven, 438 Mich. 154, 159, 476 N.W.2d 374 (1991). An insurer's duty to defend depends on the allegations made in the complaint by a third party against the
The duty to defend is broader than the duty to indemnify. American Bumper, 452 Mich. at 450-51, 550 N.W.2d 475; Secura Ins., 279 Mich.App. at 74, 755 N.W.2d 563. The insurer's duty to defend arises under the policy "if there are any theories of recovery that fall within the policy." American Bumper, 452 Mich. at 452, 550 N.W.2d 475 (quoting Protective Nat'l Ins., 476 N.W.2d at 381); see Auto Club Grp. Ins. Co. v. Burchell, 249 Mich.App. 468, 480-81, 642 N.W.2d 406 (2001) ("It is well established that an insurer has a duty to defend an insured and that such duty `is not limited to meritorious suits and may even extend to actions which are groundless, false, or fraudulent, so long as the allegations against the insured even arguably come within the policy coverage.'") (quoting Detroit Edison, 102 Mich. App. at 142, 301 N.W.2d 832) (emphasis added in Auto Club). The Michigan Court of Appeals summarized the insurer's obligation when determining whether it has a duty to defend as follows:
Jonesville Prods., Inc. v. Transamerica Ins. Group, 156 Mich.App. 508, 512-513, 402 N.W.2d 46 (1987), rejected on other grounds by Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 208, 476 N.W.2d 392
The inquiry begins by examining the allegations in the Nitro Amended Complaint. Based on the terms of the 98/99 policy and Michigan law, the facts alleged in the amended complaint, and the theories under which recovery was sought, the filing of the amended complaint did not trigger a duty to defend under that policy. The factual allegations in the amended complaint, which support the claim for injurious falsehood, refer to events that occurred after 1999. The Team In Focus allegations outlined in Paragraphs 108 and 122 refer to events occurring between mid-2000 and 2002. More specifically, the injurious falsehood claim, in paragraph 216, references paragraphs 128 and 134. Paragraph 128 refers to events that occurred in the fall 2002 and a letter dated October 25, 2002. Paragraph 134(a) details the allegedly false statements that were made, but does not identify any dates on which the statements were made.
The civil conspiracy claim in the amended complaint also did not trigger a duty to defend upon the filing of the amended complaint. Again, the dates in the amended complaint do not allege that any aspects of the conspiracy occurred during the time the 98/99 policy was in effect. The civil conspiracy count was included in the original complaint, and the amended complaint simply adds, as part of the conspiracy, the allegation that the there was an agreement "to make or spread injurious falsehoods." (Compare Nitro Compl. ¶¶ 162 with Nitro Amended Compl. ¶ 224.) Paragraphs 216 and 217 of the amended complaint explain how the allegedly injurious statements were used as a part of the alleged conspiracy. Under Missouri law, the civil conspiracy claim relies on the underlying allegation of spreading injurious falsehoods. Greene, 372 S.W.3d at 890; Roth, 120 S.W.3d at 777. The civil conspiracy claim is a means of holding the defendants jointly and severally liable for the injurious falsehoods. Thus, under the civil conspiracy claim, the defendants there, Plaintiffs here, could be held liable for the civil conspiracy even if they did not make the injurious falsehoods.
Although the allegations in the Nitro Amended Complaint did not trigger coverage under the 98/99 policy, coverage was triggered under the 98/99 policy as the result of the answers produced by the Nitro plaintiffs during discovery. Cf., Sarkis, at *2. When determining whether an insurer has a duty to defend, the insurer must not stop at the factual allegations in the complaint and must "look beyond the allegations to analyze whether coverage is possible." Jonesville Prods., 156 Mich.App. at 512-13, 402 N.W.2d 46. When asked when the alleged false and injurious statements were made, the Nitro plaintiffs asserted that the statements were made as far back as 1998 and 1999. (Answers to Alticor Interrogatories PgID 16.) National Union became aware of the factual allegations contained in the discovery
Based on the discovery responses, coverage under the 98/99 policy is arguable and any doubt about coverage must be resolved in favor of the insured. Coverage is triggered even when the claims are groundless, false or fraudulent, so long as the allegations against the insure even arguably come within the policy coverage.
Michigan courts have limited insurance recovery on the basis of "other insurance" provisions. See, e.g., Kozak v. Detroit Auto. Inter-Ins. Exchange, 79 Mich.App. 777, 781-82, 262 N.W.2d 904 (1978) (per curiam) ("The rule in Michigan, in accord with Horr and Arminski, is that the insurer's liability under a policy containing an `other insurance' clause is limited to the amount on the face of the policy. When an insurer issues multiple insurance policies, each providing uninsured motorist coverage and containing an `other insurance' clause, the insured party may not pyramid his damages, but can recover only the maximum amount to which he is limited by the `other insurance' clause."). However, "`[o]ther insurance' refers only to two or more policies insuring the same risk, and the same interest, for the benefit of the same person, during the same period." Douglas Richmond, Issues and Problems in "Other Insurance," Multiple Insurance, and Self Insurance, 22 Pepp. L. Rev. 1373, 1376 (1995); see Frankenmuth Mut. Ins. Co., Inc. v. Cont'l Ins. Co., 450 Mich. 429, 438, 537 N.W.2d 879 (1995) ("Frankenmuth Mut.") (concerning the identification of the primary insurance policy, "the next inquiry should be whether the terms of the polices at issue cover the same loss, the same risk, and the same subject matter."); Upjohn Co. v. New Hampshire Ins. Co., 178 Mich.App. 706, 721, 444 N.W.2d 813, 819-20 (1989) rev'd on other grounds 438 Mich. 197, 476 N.W.2d 392 (1991) (upholding the trial court's decision that the "other insurance" provision did not apply "because it did not cover the same risks, interests, and subject matter.").
Federal courts have consistently held that successive or consecutively issued insurance policies do not implicate "other insurance" provisions within those policies. See, e.g., Taco Bell Corp. v. Cont'l Cas. Co., 388 F.3d 1069, 1079 (7th Cir. 2004) ("But this analysis does not fit the case in which the two policies, each with an `other insurance' clause, insure merely the same kind of risk, but not the same risk because the policies are successive.
Because the two policies, the 98/99 policy and the 02/03 policy were part of a series of consecutively issued policies, they were not concurrent and did not insure the same risks. The policy language in Section I, Coverage B 1 of the 98/99 policy limits the application of the insurance to offenses committed during the policy period. (98/99 Policy AIG Pol 831.) On this issue, Michigan law coincides with a host of authorities and other jurisdictions. Contrary to Defendant's assertion, Michigan courts have not rejected this general rule. In Arco Indus. Corp. v. American Motorists Ins. Co., 232 Mich.App. 146, 594 N.W.2d 61 (1998), a panel of the Michigan Court of Appeals, on second remand, faced a situation similar to this one. Arco had been sued by the Michigan Department of Natural Resources for environmental pollution. For eighteen years prior to the lawsuit, Arco had purchased comprehensive general liability policies from as many as seven different companies. After resolving other issues, the court held that "coverage was triggered—that is, that there was an injury-in-fact as defined in Arco II [Arco Industries Corp. v. American Motorists Ins. Co., 456 Mich. 305, 572 N.W.2d 617 (1998)]—under each successive comprehensive general liability policy in effect during the twenty years between the time Arco began operating the facility and the cessation of wastewater discharges into its seepage lagoon in 1987." Id. at 159, 594 N.W.2d 61. The court then considered five possible methods for allocating liability among successive insurers, and applied the time-on-the-risk method of apportionment.
Almost one year after Arco was released for publication, but before the Michigan Supreme Court resolved the appeal, a different panel of the Michigan Court of Appeals commented on the holding in Arco. See Dow Corning Corp. v. Cont'l Cas. Co., Inc., Nos. 200143-200154, 1999 WL 33435067 (Mich.Ct.App. Oct. 12, 1999) (per curiam) application for leave to appeal denied, 463 Mich. 854, 617 N.W.2d 554 (2000). Dow Corning was a case related to the litigation surrounding silicone breast implants. The lawsuit was brought by Dow Corning against the insurance companies that did not accept liability or did not settle their disputes. The panel in Dow Corning disagreed with Arco; "we are not persuaded by the reasoning in Arco, and we find Arco to be factually distinguishable from the present case." Id., at *7. The panel found three problems with the legal conclusions in Arco: (1) the analysis was not grounded in the language of the insurance policy, (2) the Arco panel did not distinguish between the trigger of coverage and the scope of coverage, and (3) any ambiguity should be resolved against the insurer. Id. The panel also found two factual distinctions. The policy at issue in Dow Corning did not limit an occurrence to accidents, which typically have limited duration. (Id.) Also, the policy in Dow Corning explicitly continued coverage when the occurrence continued after the termination of the policy. Id., at *8.
The Dow Corning opinion does not lead to the conclusion that the Michigan Supreme Court would conclude that "other insurance" provisions apply to successive or consecutive insurance policies. Neither Dow Corning nor Arco involved "other insurance" provisions. Rather, the relevant holdings, on which the parties here rely, concerned the proper allocation of damages. Extending the scope of "other insurance" provisions to encompass successive or consecutive insurance policies is "seriously flawed." Richmond, Issues and Problems in "Other Insurance," at 1336. "Other insurance" provisions "only affect insurers' rights among themselves: they do not affect the insured's right to recovery under each concurrent policy." Id. at 1380.
To the extent that either Arco or Dow Corning are applicable to "other insurance" provisions, subsequent authority has found that the Michigan Supreme Court would likely side with Arco, not Dow Corning. See Cont'l Cas. Co. v. Indian Head Indus., Inc., No. 05-73918, 2010 WL 188083, at *8 (E.D.Mich. Jan. 15, 2010) (Hood, J.) (considering the approaches Arco and Dow Corning and concluding that "the pro rata time-on-the-risk method must be applied in this case."). This Court finds the reasoning in Indian Head persuasive. The other authority cited by National Union on this issue does not require a different result. In each case, the policies at issue were concurrent, not consecutive. See Frankenmuth Mut., 450 Mich. at 454-55, 537 N.W.2d 879 (identifying the two policies relevant to the auto accident); Heinen v. Illinois Farmers Ins. Co., 566 N.W.2d 378, 379 (Minn.Ct.App.1997) (identifying
Having found that the other insurance provision does not apply, Plaintiffs' claim that National Union waived this defense by failing to raise it in the denial letter is moot.
A breach of the insurance policy occurred when National Union was given notice of the Nitro plaintiffs' interrogatory answers and then refused to provide coverage. Cf., United States v. Wapinski Real Estate, No. 99c100, 2000 WL 284299, at *2 (N.D.Ill. Mar. 6, 2000) (holding that the insurance company did not breach its duty to defend until it had notice of information produced in discovery). Under Michigan law, when an insurer wrongfully declines to defend, the insurer is liable for the costs of the defense. North Bank v. Cincinnati Ins. Cos., 125 F.3d 983, 986 (6th Cir.1997) (citing Detroit Edison, 102 Mich.App. at 144-45, 301 N.W.2d 832); see Cooley v. Mid-Century Ins. Co., 52 Mich.App. 612, 616, 218 N.W.2d 103 (1974) ("An insurer who wrongfully refuses to defend an action against the insured, on the ground that the action was not within the coverage of the policy, is liable for reasonable attorney fees incurred by the insured in the defense of the action brought against them.") (citing City Poultry & Egg Co. v. Hawkeye Cas. Co., 297 Mich. 509, 298 N.W. 114 (1941)).
However, the damages that can be awarded for a breach of an insurance contract are limited to the economic loss suffered by the insured. See Stryker Corp. v. XL Ins. America, 681 F.3d 806, 814 (6th Cir.2012) (citation omitted). The Sixth Circuit explained that, in Michigan, insurance policies are treated the same as any other commercial contract. Id. "Therefore, the standard contract rule that any damages beyond the value of the contract must be proven `to arise naturally from the breach or those that were in contemplation of the parties at the time the contract was made.'" Id. (citation omitted). In Stryker, the circuit court reversed the district court's decision that the self-insured retention and aggregate limits of liability within the policy did not apply because XL breached its duty to defend. Id. at 814-15. The Sixth Circuit noted that the district court relied on Capitol Reproduction, Inc. v. Hartford Ins. Co., 800 F.2d 617, 624 (6th Cir.1986), an opinion that relied on contract rules since repudiated by the Michigan Supreme Court. Id. at 814-15.
Plaintiffs are not entitled to recover the amount of the deductible under the 98/99 policy. Even though National Union breached the policy, under Michigan law, Plaintiffs would be responsible for the first $2 million in costs for their defense, as that was the agreement in the insurance policy. Plaintiffs could not have suffered damages for the first $2 million in defense costs by any breach because Plaintiffs agreed to pay the first $2 million in defense costs. The authority on which Plaintiffs rely in their brief, Capitol Reproduction, has since been fatally undermined by the holding in Stryker.
Plaintiffs seek an award of 12% interest on any untimely paid insurance benefits. National Union does not address this issue in its response brief. Under Mich. Comp. Laws § 500.2006(4), when insurance
Under § 500.2006(4), Plaintiffs are entitled to simple interest on the unpaid benefits submitted to, but not paid by, National Union.
National Union filed this motion as contingent upon the denial of its prior motion for summary judgment. In the event this Court finds National Union was obligated to provide coverage under its 98/99 policy, through this motion, National Union seeks an order allocating costs. National Union argues that the "other insurance" provisions, if they cannot be reconciled, require a pro rata allocation of costs between National Union and Illinois National, a time-on-the-risk allocation of costs. National Union argues that the costs should be equally apportioned among the policies. National Union argues, because Plaintiffs were functionally self-insured under some of the policies, Plaintiffs would share the costs of the defense.
There exist two primary methods of allocating defense costs among consecutive insurers: pro rata and joint and several. See United States Fid. and Guar. Co. v. Cont'l Ins. Co., No. CV-04-29-BLG-RFC, 2010 WL 4102250 (D.Mont. Oct. 18, 2010). Michigan courts and the Sixth Circuit have applied the pro rata, or time-on-the-risk, method for allocating damages and costs for situations involving consecutively issued insurance policies. See Budd Co. v. Travelers Indemn. Co., 820 F.2d 787, 790-91 (6th Cir.1987) (allocating defense costs); Ins. Co. of North America v. Forty-Eight Insulations, 633 F.2d 1212, 1224-25 (6th Cir.1980) (allocating defense costs); Arco Indus. Corp., 232 Mich.App. at 159-164, 594 N.W.2d 61 (allocating indemnifiable losses); see also Indian Head, at *5-*6 (discussing apportionment of both defense costs and liability and following Forty-Eight Insulations and Arco); Century Indemn. Co. v. Aero-Motive Co., 318 F.Supp.2d 530, 544-45 (W.D.Mich.2003) (same).
In situations where the insured had multiple, consecutively issued policies, or included periods of self-insurance, courts have applied time-on-the-risk to allocation of defense costs when some of the defense costs were related to claims arising across the policy periods. Forty-Eight Insulations, 633 F.2d at 1224; Aero-Motive, 318 F.Supp.2d at 545. The rationale for apportionment of defense costs is that the insurer should not be held responsible for those costs associated with defending occurrences that occurred outside the policy period. Budd, 820 F.2d at 791 (quoting Forty-Eight Insulations, 633 F.2d at 1224-25); Aero-Motive, 318 F.Supp.2d at 545. In order to apportion costs, however, there must be some reasonable means of prorating the costs between the covered and the uncovered claims. Budd, 820 F.2d at 791; Forty-Eight Insulations, 633 F.2d at 1224 (citation omitted); Aero-Motive, 318 F.Supp.2d at 545. Courts have found it reasonable to prorate defense costs in the same manner that damages or indemnifiable losses are apportioned. Forty-Eight Insulations, 633 F.2d at 1225; Aero-Motive, 318 F.Supp.2d at 545.
The 98/99 policy language supports the application of a pro rata, or time-on-the-risk, approach to defense costs. The relevant language is found in Coverage B, sections 1a and 1b, which was quoted
Having found that the policy and legal precedent support the conclusion that defense costs may be allocated using a time-on-the-risk approach, the Court finds, at this point, no reasonable basis for allocating defense costs. In order to allocate costs, there must be some determination that a duty to defend, or potentially a duty to indemnify, arose during some other policy period. Here, no such determination has been made. Importantly, the two causes of action in the instant complaint are narrow. In the first claim, Plaintiffs seek a declaration that coverage exists under one or more of the policies issued by National Union with an effective date prior to November 1, 1999. (Compl. ¶ 28.) In the second claim, Plaintiffs assert National Union's refusal to defend constitutes a breach of contract. (Compl. ¶ 32.) Equally as important, the record includes allegations that the allegedly false and injurious statements were made as early as 1998 and 1999. The record does not contain any evidence that the allegedly false statements were made earlier than 1998. Plaintiffs have only sued National Union. Plaintiffs have not sued any other insurer. The complaint, as written, requires the Court to examine National Union's policies issued prior to November 1, 1999. The complaint, as written, does not ask the Court to examine any insurance policy issued to Plaintiffs after November 1, 1999. National Union has not indicated that any other insurer is a necessary party to this action. National Union has not filed any cross-claim, counter-claims or third-party claims. National Union did not include allocation of defense costs as an affirmative defense.
The fact that Illinois National agreed that the complaint gave rise to a duty to defend under the 02/03 policy does not alter this conclusion. Illinois National is not a party to this lawsuit. The coverage of the 02/03 policy is not an issue in this lawsuit. Illinois National has not been afforded an opportunity to defend the terms and conditions of its policy in this matter. The fact that the policies issued after 98/99 are fronting policies also does
National Union's motion for summary judgment (ECF No. 26) is DENIED. National Union had a duty to defend Plaintiffs when Plaintiffs tendered the interrogatory answers to National Union on January 19, 2007. As a result of the dates disclosed in the interrogatory answers, the injurious falsehood claim in the amended complaint arguably occurred during the 98/99 policy period. The other insurance provision in the 98/99 policy does not apply to consecutively issued policies.
Plaintiffs' motion for summary judgment (ECF No. 28) is GRANTED IN PART and DENIED IN PART. The duty to defend was triggered when the interrogatory answers were tendered to National Union. By failing to defend under the 98/99 policy, National Union breached its contract. However, that breach does not require National Union to forgo the benefit of its bargain and National Union is entitled to the benefit of any deductible under the 98/99 policy. Plaintiffs are entitled to the statutory interest rate on untimely paid insurance benefits.
National Union's contingent motion for partial summary judgment (ECF No. 31) is DENIED, without prejudice. Although case law and the 98/99 policy indicate that allocation of defense costs would be permitted, at this point there is no reasonable basis for allocation of defense costs. On the record before this court, no other insurer and no other policy has been found to be required to provide a defense or indemnity for the underlying lawsuit.
For the reasons provided in the accompanying Opinion,
1. National Union's motion for summary judgment (ECF No. 26) is
2. Plaintiffs' motion for summary judgment (ECF No. 28) is
3. National Union's motion for partial summary judgment (ECF No. 31) is
