RONALD SCHMALFELDT V NORTH POINTE INSURANCE CO
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STATE OF MICHIGAN
COURT OF APPEALS
RONALD SCHMALFELDT,
FOR PUBLICATION
August 23, 2002
9:10 a.m.
Plaintiff-Appellee,
v
No. 227697
Berrien Circuit Court
LC No. 00-003666-AV
NORTH POINTE INSURANCE COMPANY,
Defendant-Appellant.
Updated Copy
October 25, 2002
Before: Meter, P.J., and Markey and Owens, JJ.
METER, P.J.
Defendant appeals by leave granted from the circuit court's order granting plaintiff 's
motion for summary disposition and reversing an earlier order by the district court. The circuit
court ruled that defendant was obligated to make payments for plaintiff 's injuries under the
medical payment provision of an insurance policy. We reverse.
Factual Background
In August 1997, plaintiff allegedly suffered dental injuries during a bar fight at the Elite
Bar in Watervliet, Michigan. Plaintiff asserted below that he incurred approximately $2,000 in
medical bills as a result of the injuries. Plaintiff claimed that (1) an action against the individual
who struck him was not feasible because the individual had not been identified and (2) an action
against the bar was not feasible because it had breached no duties. Accordingly, plaintiff
contacted the bar's insurance company, defendant, and attempted to secure direct payment for the
medical bills.
The portion of the insurance contract on which plaintiff relied in seeking payment states,
in relevant part:
1. Insuring Agreement.
a. We will pay medical expenses as described below for "bodily injury"
caused by an accident:
(1) On premises you own or rent;
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* * *
b. We will make these payments regardless of fault. These payments will
not exceed the applicable limit of insurance. We will pay reasonable expenses
for:
* * *
(2) Necessary medical, surgical, x-ray and dental services, including
prosthetic devices.
* * *
Exclusions.
We will not pay expenses for "bodily injury:"
a. To any insured.
Defendant refused to make the requested payments because the bar asked it not to do so,
and plaintiff filed his complaint and a motion for summary disposition under MCR 2.116(C)(10)
in the district court. At the motion hearing, plaintiff argued that the contract was a classic thirdparty beneficiary contract and that he was therefore entitled to sue for the payments as a thirdparty beneficiary. Defendant argued that plaintiff 's suit had to be dismissed because, under
MCL 500.3030,1 a person cannot directly sue an insurance company. Defendant further argued
that even disregarding MCL 500.3030, plaintiff 's suit was not viable because defendant did not
undertake a promise directly for the benefit of plaintiff, and therefore plaintiff was not a thirdparty beneficiary under Michigan law.
The Courts' Rulings
The district court ruled, in part, as follows:
I think both parties agree that there really are no issues of fact here. It
seems to be a purely legal question as to whether or not, number one, Plaintiff has
a right of direct action against the insurance company, and number two, if so,
whether this is an enforceable third-party beneficiary contract.
The—this is—involves an insurance policy, which I believe is fairly
common in commercial and even homeowner's policies, which gives the insured
the option to pay medical expenses of a third-party who is injured on the insured's
1
MCL 500.3030 states:
In the original action brought by the injured person . . . the insurer shall
not be made or joined as a party defendant, nor, except as otherwise provided by
law, shall any reference be made to such insurer or to the question of carrying of
such insurance during the course of trial.
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premises. Typically it has fairly low limits, and typically the purpose for such a
policy is to provide for prompt and undisputed payment of medical expenses
without having to argue with one's insurance company about fault or who's at
fault and so forth. It appear [sic]—that this is a policy that the Elite Bar had with
North Pointe Insurance, which at the—so that the Elite Bar could pot [sic] to pay
the medical expenses of patrons who suffer injury on the premises, apparently
with the hope of avoiding full-blown litigation, which certainly would benefit
North Pointe Insurance as well as the Elite Bar.
The Court denies the motion for summary disposition. Although I
understand that Plaintiff would—or Defendant would like me to rule that Plaintiff
has no right of direct action against the insurance company, I'm not going to do so
and find that it's not necessary in light of my ruling that the Plaintiff, the Court
finds, has no—is not a third-party beneficiary of this contract and therefore has no
third-party beneficiary rights.
* * *
North Pointe Insurance never undertook to do anything directly for Mr.
Schmalfeldt. It undertook to do something for North Pointe Insurance. Mr.
Schmalfeldt was not known to North Pointe Insurance at the time this insurance
contract was entered into, and there was—the Court finds that Mr. Schmalfeldt
would certainly be an incidental beneficiary, but not a—would not directly benefit
from this insurance policy.
* * *
So the Court not only denies the motion for summary disposition, but
under Michigan Court Rule 2.116(I)(2) finds that the Defendant is entitled to
summary disposition and orders that a judgment of no cause of action enter for the
reasons that the Court stated orally.
Subsequently, plaintiff appealed the case to the circuit court. Defendant contended that
the gist of the district court's holding—that plaintiff was not a third-party beneficiary of the
contract—was correct, because the provision at issue was intended to benefit defendant (by, for
example, reducing litigation costs) and the insured (by facilitating "goodwill" payments for
minor injuries) and not persons such as plaintiff.
The circuit court disagreed, ruling, in part, as follows:
The Court finds looking objectively at this provision within the
commercial generalable [sic]—general liability insurance policy and even taking
it in the context of the whole policy that this coverage, coverage C, directly
benefited persons who are members of the general public who were patrons or
persons on the premises of the Elite Bar in general, and Mr. Schmalfeldt in
particular, who sustain bodily injury while on the premises without regard to fault.
They are the persons, in this case Mr. Schmalfeldt was the person who suffered
the loss, and in this case the loss was almost $2,000 of dental bills.
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The insured as to this part of the policy was not the direct beneficiary, I
find as a matter of law, but rather the indirect and incidental beneficiary, because
of the fact that it is in the nature of a no-fault reimbursement for out-of-pocket
expenses incurred by the person who sustained the bodily injury. They are the
ones who would directly benefit by the insurance coverage. The insured in this
case realizes an indirect and incidental benefit in the form of, you know, goodwill
and perhaps reduction of litigation by payment of—of an out-of-pocket expense
so that the person doesn't get a lawyer and file a lawsuit and they don't have to go
through the expense and difficulty and hassle, if you will, of going through
litigation in perhaps many cases.
So while I find that there is a benefit to both the insured and Mr.
Schmalfeldt, I find that [the district court] got the benefits backwards and that the
direct benefit is, in fact, to Mr. Schmalfeldt and that the indirect benefit as to this
part of the policy is to the insured.
*
* *
. . . [A]s Mr. Field said, this is not a case which is sounding in tort, rather
it's a case which is sounding in contract and breach thereof. And so obviously the
insurance company would have to be made a party to the contract [sic, lawsuit].
* * *
. . . I find that . . . the Plaintiff-Appellant was entitled to summary
disposition in his favor on the basis that he was in fact and in law a third-party
beneficiary of the contract. There are no material issues of fact in dispute herein,
and therefore Defendant-Appellee is liable to pay these amounts as submitted.
Defendant now appeals from this ruling, arguing that the district court's assessment of the
issue should prevail over that of the circuit court. We agree.
Standard of Review
This Court reviews de novo an order granting summary disposition. Spiek v Dep't of
Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998). "When reviewing a motion granted
under MCR 2.116(C)(10), we must examine all relevant documentary evidence in the light most
favorable to the nonmoving party and determine whether there exists a genuine issue of material
fact on which reasonable minds could differ." Progressive Timberlands, Inc v R & R Heavy
Haulers, Inc, 243 Mich App 404, 407; 622 NW2d 533 (2000).
Analysis
In Michigan, third-party beneficiary status is defined by MCL 600.1405, which states, in
part:
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Any person for whose benefit a promise is made by way of contract, as
hereinafter defined, has the same right to enforce said promise that he would have
had if the said promise had been made directly to him as the promisee.
(1) A promise shall be construed to have been made for the benefit of a
person whenever the promisor of said promise had undertaken to give or to do or
refrain from doing something directly to or for said person.
An objective standard is used to determine a plaintiff 's status. Krass v Tri-County Security, Inc,
233 Mich App 661, 665-666; 593 NW2d 578 (1999). The law presumes that a contract has been
executed for the benefit of the contracting parties, Oja v Kin, 229 Mich App 184, 193; 581
NW2d 739 (1998), and the mere fact that a third person would incidentally benefit does not give
the third person a right to sue for the breach of contract. Kammer Asphalt Paving Co, Inc v East
China Twp Schools, 443 Mich 176, 190; 504 NW2d 635 (1993).
No published Michigan case has addressed the issue of direct versus incidental
beneficiaries in the context of a medical payment provision such as that at issue in the instant
case.2 However, in Allstate Ins Co v Keillor, 190 Mich App 499, 502; 476 NW2d 453 (1991),
rev'd on other grounds sub nom Allstate Ins Co v Hayes, 442 Mich 56; 499 NW2d 743 (1993),
the Court concluded that under the following language, the defendant Keillor, who was injured in
an automobile accident, did not constitute a third-party beneficiary of the contract at issue: "We
will pay all sums arising from the same loss which an insured person become [sic] legally
obligated to pay as damages because of bodily injury or property damage covered by this part of
the policy." The Keillor Court concluded that the "plaintiff 's policy did not establish a promise
or duty to benefit the defendant as an injured third-party." Keillor, supra at 502. In Hayes,
supra at 63, the Supreme Court noted that the Keillor panel "correctly concluded that Keillor was
not a third-party beneficiary . . . ." The Court also stated:
The policy issued by Allstate is not one of indemnity, that is, the policy
does not require that the insured first pay any judgment before the insurer is liable
to its insured. The policy is, instead, one of liability. That is, the insured is not
required to first pay the judgment. After all, "the purpose of the liability policy is
to shield the insured from being required to make any payment on the claim for
which he is liable." 11 Couch, Insurance, 2d (rev ed), § 44:4, p 188. [Hayes,
supra at 62, n 6.]
2
Contrary to the circuit court's and plaintiff 's contention, Hoehner v Western Casualty & Surety
Co, 8 Mich App 708; 155 NW2d 231 (1967), does not squarely address the issue at hand. In
Hoehner, the Court construed another aspect of a medical payment provision and did not rule on
the issue presented by the instant case. See id. at 718. While it is true that in Hoehner, the Court
operated under the assumption that the injured was a third-party beneficiary of a medical
payment provision and entitled to payment, the issue simply was not addressed, and Hoehner
cannot be considered precedential with respect to the instant case. As noted by defendant, the
parties in Hoehner may have simply conceded that the injured was a third-party beneficiary
entitled to enforce the medical payment provision.
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While the medical payment provision at issue in the instant case differs from the
provision at issue in Keillor and Hayes because the instant provision does not refer to liability,
we nonetheless find Keillor and Hayes instructive. Indeed, like the provision in Keillor and
Hayes, the purpose of the provision in the instant case is essentially to "shield the insured" from
having eventually to pay out-of-pocket expenses. We conclude that the contract at issue in the
instant case benefits the insured and that plaintiff was merely an incidental beneficiary who was
not entitled to enforce the contract.
This conclusion finds support in cases from other jurisdictions. In Zegar v Sears
Roebuck & Co, 211 Ill App 3d 1025, 1027-1028; 156 Ill Dec 454; 570 NE2d 1176 (1991), the
plaintiff fell in a Sears store and sued the store's insurer under a medical payment provision
materially similar to that in the instant case. The court reasoned as follows:
We do not find that the insurance contract between Sears and Allstate
contemplates a direct action against the insurer for an injured party's medical
expenses whenever any person is injured on the insured premises of a Sears store.
The medical payment coverage may be viewed as a salutary attempt to allow, but
not require, Sears to pay relatively small, easily ascertainable medical
reimbursements, without a formal determination of fault. This would allow Sears,
as insured, to facilitate settlement of some claims by paying actual medical costs
without admitting or contesting liability. . . .
* * *
. . . We believe that although in some respects Zegar may be viewed as a
third party beneficiary of the contract between the insured and insurer, the
coverage provisions of an insurance policy are primarily for the benefit of the
contracting parties and only incidentally for injured claimants. [Id. at 1030-1031
(emphasis in original).]
In Trouten v Heritage Mut Ins Co, 632 NW2d 856, 862 (SD, 2001), the South Dakota
Supreme Court favorably cited Zegar and noted that an injured person could not maintain a
direct action against an insurance company under a medical payment provision because doing so
would "provide for potential multiplicity of lawsuits, i.e., a direct claim against the insurer and a
tort claim against the insured, which both arise out of the same incident."
We agree with the Zegar court's conclusion that a medical payment provision such as that
involved in the instant case is primarily "for the benefit of the contracting parties and only
incidentally for injured claimants." Zegar, supra at 1031. This conclusion dovetails with the
language found in Keillor and Hayes and leads us to conclude that the circuit court erred in
reversing the district court's grant of summary disposition to defendant. As an incidental
beneficiary of the contract between defendant and the bar, plaintiff had no right to sue for breach
of the contract. Kammer, supra at 190.3
3
We acknowledge that there is a split of authority among the states with regard to the issue we
address today. For example, Hunt v First Ins Co of Hawaii, 82 Hawaii 363, 369; 922 P2d 976
(continued…)
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In light of our resolution of the case, we need not address the additional issue defendant
raises on appeal.
Reversed and remanded for entry of judgment in favor of defendant. We do not retain
jurisdiction.
/s/ Patrick M. Meter
/s/ Jane E. Markey
/s/ Donald S. Owens
(…continued)
(1996), Desmond v American Ins Co, 786 SW2d 144 (Mo App, 1990), and Maxwell v Southern
American Fire Ins Co, 235 So 2d 768, 770-771 (Fla App, 1970), conclude that an injured person
is indeed a third-party beneficiary under a medical payment provision in an insurance contract.
We believe, however, that our holding today represents the best-reasoned view.
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