MARK A. GOLDSMITH, District Judge.
In this insurance coverage action, brought under the Court's diversity jurisdiction, Plaintiffs Abdallah Zayour and Z&A Property & Construction, LLC ("Z&A") assert that Defendant Liberty Mutual Fire Insurance Company breached a fire insurance policy by denying Zayour's claim under the policy. Compl. (Dkt. 1-1). Defendant filed a motion for summary judgment (Dkt. 48), seeking (i) an order that it properly rescinded the insurance policy and denied Zayour's claim due to Zayour's material misrepresentations on the insurance policy application and the proof of loss forms, or, in the alternative, (ii) an order that any damages available to Zayour under the insurance policy are limited to five percent of the covered loss amount. The Court conducted oral argument on April 17, 2014.
For the reasons that follow, the Court concludes that there is a genuine issue of material fact as to whether Zayour made a misrepresentation on the insurance policy application; furthermore, there is a genuine issue of material fact as to whether Zayour made a misrepresentation on the proof of loss forms with the intent to defraud Defendant. Therefore, Defendant is not entitled to summary judgment on the issues of whether it properly rescinded the policy or properly denied coverage to Zayour. However, the Court further concludes that Defendant is entitled to an order that any damages available to Zayour under the policy are limited by his five percent interest in the subject property, and are thus limited to five percent of the covered loss. Accordingly, the Court will deny in part and grant in part Defendant's motion for summary judgment.
Z&A was formed on January 14, 2005 by Zayour, the sole member at that time. Articles of Organization Certificate (Dkt. 48-2); Zayour Dep. at 10 (Dkt. 48-3). On March 21, 2008, Z&A purchased the residential rental property that is the subject of the instant insurance dispute, 6311 Forrer Street, Detroit, Michigan. Deed (Dkt. 48-4). Z&A owned the real property as well as the personal property inside the residence. Zayour Examination under Oath at 13, 40 (Dkt. 48-10).
In 2008, Ali Chouman (not a party to this action) became a member of Z&A. Zayour Dep. at 11. Beginning December 14, 2008, Chouman owned ninety-five percent of the membership interest in Z&A; Zayour owned five percent of the membership interest. Membership Agreement (Dkt. 48-8). Chouman and Zayour still own ninety-five percent and five percent of Z&A, respectively. Zayour Dep. at 8.
On August 7, 2008, Zayour applied for a Dwelling Fire Policy from Defendant.
Defendant's agent, Michael Meyer, sold Zayour the insurance policy. Meyer Dep. at 7 (Dkt. 48-6). Zayour first contacted Meyer over the phone, and Meyer subsequently met with Zayour to complete the application.
Meyer testified that Zayour stated he owned the subject property, and that Zayour never stated he had a corporation.
Zayour testified that he told Meyer over the phone that he, Zayour, had some houses and needed to be insured. Zayour Dep. at 14. Zayour testified that subsequently, when Meyer met with Zayour to complete the insurance application, Zayour asked Meyer why the policy was under his name "because the property is under company name."
On July 12, 2010, the Forrer Street property sustained fire damage. Proof of Loss Form (Dkt. 48-14). On the initial proof of loss form, dated August 2, 2010, Zayour listed himself as the owner of the subject property and noted that no other parties had an interest in the property.
Zayour filed a claim with Defendant under the fire insurance policy on August 2, 2010 (Dkt. 48-14). An appraisal award was entered in February 2011, setting amounts for replacement cost value and actual cash value. Appraisal Award (Dkt. 51-2). The appraisal award states that it "is subject to all policy provisions [and] policy conditions. . . ."
On May 13, 2011, Defendant notified Zayour that the insurance policy was rescinded on the ground that there was a material misrepresentation in the application for insurance: "Abdallah Zayour does not solely own the dwellings listed for the above-referenced policies. They are owned by Z&A Construction, LLC. As such, the dwellings insured under the abovereferenced policies do not meet the eligibility requirements for a Dwelling Fire insurance policy." Rescission Letter (Dkt. 48-12). That same day, Defendant also notified Zayour that his claim was denied. 5/13/11 Denial Letter (Dkt. 48-13).
Elaine Martino, a representative of Defendant, testified that the policy was rescinded and Zayour's policy fee refunded because "the properties were owned by an LLC, and properties that are owned by an LLC do not meet our eligibility requirements for a dwelling fire policy. Had we known the properties were owned by an LLC, we would not have written the policies on these particular contracts, for individual policyholders." Martino Dep. at 25 (Dkt. 48-11). Martino further testified that the underwriting rules are different for personal policies as opposed to commercial policies.
Summary judgment should be granted only if there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). As the Sixth Circuit has explained:
Defendant raises three arguments in support of its motion: (i) Defendant properly rescinded the policy because Zayour made a material misrepresentation on the insurance application by listing himself as "Named Insured"; (ii) Defendant properly denied the claim because Zayour made a material misrepresentation on the proof of loss forms by listing himself as the owner of the subject property; and (iii) in the alternative, Zayour's damages under the policy are limited to five percent of any covered loss. The Court addresses each argument in turn.
Defendant argues that Zayour made a material misrepresentation on the insurance application by listing himself as the named insured. Def. Br. at 9 (Dkt. 48). Defendant argues that both Meyer and Zayour understood that "Named Insured" meant the owner of the property, and Zayour is not the owner.
Plaintiffs respond that Defendant is not entitled to summary judgment because it cannot show that there was a misrepresentation, that the misrepresentation was intentional, that the misrepresentation was material, or that it relied on the misrepresentation. Pl. Resp. at 6 (Dkt. 50). Plaintiffs argue that Zayour made no written or oral representation that he owned the subject property, and that the application never asks for that information.
In light of the parties' arguments, the Court turns to governing law.
Furthermore, in Michigan, "[i]t is the well-settled law . . . that where an insured makes a material misrepresentation in the application for insurance . . . the insurer is entitled to rescind the policy and declare it void ab initio."
Therefore, for Defendant to demonstrate that it is entitled to summary judgment and a declaration that rescission was proper due to a material misrepresentation, it must show (i) that Plaintiff made a misrepresentation on the insurance application, (ii) that the misrepresentation was material, and (iii) that Defendant relied on the misrepresentation. For the reasons that follow, the Court concludes that there is a genuine issue of fact whether there was a misrepresentation on the insurance application.
Here, there is a genuine issue of fact whether the "Named Insured" block required the insurance applicant to list the owner of the property. The ordinary sense of the term "Named Insured" is that it identifies the party who is to be paid the insurance proceeds.
Further, the law recognizes that persons or entities without an ownership interest may purchase insurance because insurance law requires only that an insured have an "insurable interest."
Defendant argues that both it and Zayour understood the "Named Insured" section to mean the owner of the property. However, the evidence cited by Defendant does not unambiguously reflect any such understanding. It is true that Zayour acknowledged in his deposition and affidavit that, when Meyer presented him with the application, Zayour questioned why the policy was in his name. Zayour Dep. at 17-18; Zayour Aff. ¶¶ 13-14. But that does not necessarily mean that Zayour acknowledged that the term "Named Insured" meant the owner of the property. It is arguable that Zayour's comment only reflected his preference that his company be the named insured, but that after Meyer assured him that it was irrelevant whose name was inserted as the insured, he had no objection to listing himself as the insured, in accordance with the manner in which Meyer had prepared the insurance application.
Based on the plain language of the insurance application, there is at least a genuine issue of fact whether the insured party may be a party other than the property owner; accordingly, there is a genuine issue of fact whether Zayour made a misrepresentation by listing himself as the "Named Insured."
Defendant argues that Zayour breached the fraud-or-concealment provision of the insurance policy contract by stating that he owned the subject property on the proof of loss forms. Def. Br. at 17-19. Plaintiffs argue in response that Zayour did not breach the fraud-orconcealment provision because in the common sense meaning of the term "owner," Zayour is the owner of the subject property, as he listed on the proof of loss. Pl. Resp. at 12. Defendant replies that Z&A owned the subject property, not Zayour, and therefore Plaintiffs' argument is without merit. Def. Reply at 5.
The fraud-or-concealment clause of the insurance policy states: "We do not provide coverage if you have intentionally concealed or misrepresented any material fact or circumstance relating to this insurance." Policy at 17 of 22. The elements that an insurer must satisfy to prevail under this provision are set out in
Furthermore, the insured must show that the insured acted with an intent to defraud:
On this summary judgment record, Defendant has not satisfied all of the requirements for a false swearing defense. While Zayour did misrepresent his ownership interest, there is a factual question whether he did so with the intent to defraud.
The Court does agree with Defendant that Zayour misrepresented himself as the owner of the property on the proof of loss forms, because he stated several times under oath that Z&A owned the property, and that he did not.
Therefore, Zayour's representations on both the proof of loss and amended proof of loss forms that he was the owner of the property are plainly inconsistent with the record evidence. Further, any claim now by Zayour — after a summary judgment motion has been filed — that he was, in a "common sense" way, an "owner" of the property is untenable.
However, Defendant has not demonstrated an absence of genuinely disputed fact whether Zayour made the misrepresentation with the intent to defraud Defendant. In fact, in its briefs, Defendant raises no argument whatsoever as to the intent element, and Defendant has pointed to no evidence of any intent on Zayour's part. Because Defendant has "the initial responsibility of informing [the Court] of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact,"
Furthermore, there is at least some evidence in the record that would weigh against finding that Zayour intended to defraud Defendant. Specifically, in his examination under oath, Zayour told the examiner that he was a five percent owner of the property; he later clarified that he was a five percent owner of Z&A, which owned the property. Zayour Examination Under Oath at 12-13. Zayour also filed an amended proof of loss form less than a month after filing the initial proof of loss, which stated that Z&A had an interest in the property. The fact that Zayour informed Defendant's agents about Z&A's ownership status and interest in the property during the claim investigation creates an issue of fact as to whether Zayour intended to defraud Defendant.
Because Defendant has not shown that there is no genuine issue of fact as to whether Zayour misrepresented a fact on the proof of loss forms with the intent to defraud Defendant, summary judgment may not be awarded to Defendant on the ground that Zayour breached the fraud-or-concealment provision of the insurance policy.
Defendant argues that, if Zayour is entitled to coverage, any damages available to Zayour under the Policy are limited by his five percent ownership interest in Z&A, and thus are limited to five percent of any covered loss. Def. Br. at 20-21.
The policy at issue here provides: "Even if more than one person has an insurable interest in the property covered, we shall not be liable . . . for an amount greater than the interest of a person insured under this policy. . . ." Policy at 17 of 22. This language unambiguously limits coverage to "the interest of a person insured." Therefore, any coverage in this matter would be limited to Zayour's interest in the property "as of the date of loss."
As of the date of the loss, Zayour had only a five percent stake in the subject property, because he had a five percent interest in the LLC that was the legal title holder of the property.
The parties have cited no cases discussing the appropriateness of enforcing a provision, similar to the one found in the policy at issue, which limits recovery on a policy to the insured's insurable interest. But Michigan law generally requires courts to enforce insurance policies in accordance with their terms.
The Court rejects Plaintiffs' argument that the appraisal process undertaken by the parties overrides the limits imposed by the policy's express language limiting recovery to the insured's insurable interest. Plaintiffs contend that under the policy, the amount agreed upon during the appraisal process shall be the amount of loss. Pl. Resp. at 13. Plaintiffs further argue that Defendant is equitably estopped from "deny[ing] the existence of the appraisal award" because, by engaging in the appraisal process, Defendant represented to Plaintiffs that it would pay the amount agreed upon by the appraisers.
The Court disagrees. The policy provides: "If you and we fail to agree on the amount of loss, either can demand that the amount of loss be set by appraisal. . . . If the appraisers submit a written report of agreement to us, the amount agreed upon shall be the amount of the loss." Policy at 19 of 22. However, the appraisal process — which determines the amount of loss — is different from the coverage determination, which assesses whether, and to what extent, the insured is entitled to recover the amount of loss.
Accordingly, the Court grants Defendant's request for an order providing that any damages available to Zayour under the Policy are limited by his five percent insurable interest in the subject property, and are thus limited to five percent of the covered loss amount.
For the reasons stated above, the Court denies in part and grants in part Defendant's motion for summary judgment.
SO ORDERED.
Plaintiffs submitted an affidavit of Zayour, dated February 27, 2013, stating, "I was and am the sole owner of Z&A. . . . I signed a membership agreement with Ali Chouman to only serve as a security interest in the LLC. until I repaid Ali Chouman, Zayour Aff. ¶¶ 2, 19 (Dkt. 50-2). However, a party may not "create a genuine issue of material fact by filing an affidavit, after a motion for summary judgment has been made, that essentially contradicts his earlier deposition testimony." Penny, 128 F.3d at 415 (citation omitted). The initial motion for summary judgment (Dkt. 20) in this case was filed on January 18, 2013; Zayour's affidavit was prepared and filed after Defendant sought summary judgment. Because the affidavit is inconsistent with Zayour's previous testimony during the examination under oath, as well as the plain terms of the Membership Agreement and Zayour's subsequent deposition testimony, the Court concludes that the affidavit does not create a genuine issue of material fact regarding the ownership of the subject property.
