GREGORY J BUSCH V STEWART ARTHUR HOLMES
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STATE OF MICHIGAN
COURT OF APPEALS
GREGORY J. BUSCH,
FOR PUBLICATION
March 20, 2003
9:05 a.m.
Plaintiff-Appellant,
v
No. 235160
Saginaw Circuit Court
LC No. 00-035520-CZ
STEWART ARTHUR HOLMES and
UNDERWRITERS AT LLOYDS LONDON,
Defendants-Appellees.
Updated Copy
May 23, 2003
Before: Whitbeck, C.J., and Griffin and Owens, JJ.
GRIFFIN, J.
Plaintiff Gregory J. Busch appeals by right from an order of the circuit court granting
summary disposition in favor of defendants Stewart A. Holmes and Underwriters at Lloyds,
London pursuant to MCR 2.116(C)(10) regarding plaintiff 's complaint alleging breach of an
insurance contract for defendants' refusal to indemnify plaintiff for $157,350 in attorney fees
incurred by plaintiff in defending a criminal indictment. We affirm.
I
On January 19, 1999, a grand jury for the United States District Court for the Western
District of Michigan indicted plaintiff for "knowingly violat[ing] Section 1321(b)(3) of Title 33
of the United States Code by knowingly discharging oil into and upon the navigable waters of the
United States in a quantity that may be harmful."1
At the time of the alleged crime, plaintiff was insured under a "Limited U.S. Oil Pollution
Insurance Policy" underwritten by defendant Holmes on behalf of defendant Underwriters at
1
Pursuant to subsection 1319(c)(2) of the Clean Water Act, a knowing violation of subsection
1321(b)(3) of the Act is a criminal offense for which a first offender is subject to a fine of not
less than $5,000 nor more than $50,000 for each day of violation, or imprisonment for not more
than three years, or both. 33 USC 1319(c)(2). A negligent violation of subsection 1321(b)(3) is
also a criminal offense, subjecting the offender to lesser criminal sanctions. 33 USC 1319(c)(1).
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Lloyds, London. Following the indictment, plaintiff demanded coverage under the insurance
policy. Defendants denied plaintiff 's request in a denial letter that states, in pertinent part:
The indictment presently pending against your client charges Mr. Busch
with "knowingly discharging oil." If found guilty of the violation, Title 33,
Section 1321(b)( 3) provides for the assessment of a civil penalty. The insurance
policy, however, provides coverage for removal costs and contains express
exclusions for wilful discharges and for penalties. For these reasons, on behalf of
the interested insurers signatory to captioned policies, we do not waive and hereby
expressly reserve any right the insurers may have to deny coverage and refuse to
indemnify your client for any penalty which may be imposed or for any costs or
expenses incurred in defending against the indictment.
You have pointed out that although Mr. Busch has been charged with
knowingly discharge [sic] of oil, it is possible that at the trial the evidence may
only establish an accidental discharge. If that should be the case, please be
assured that the interested insurers will re-visit this issue and consider any claim
for indemnification which may be covered by the policy.
Thereafter, plaintiff incurred $157,350 in attorney fees in defending the criminal
indictment. The criminal proceedings were terminated by a plea-bargain agreement wherein the
United States Attorney agreed to dismiss the charge of knowingly discharging oil in violation of
33 USC 1321(b)(3) in exchange for plaintiff 's plea of guilty to one count of negligently causing
water pollution by discharging oil (33 USC 1319[c][1]), the payment of a civil penalty of
$25,000 to settle all potential civil and administrative claims, and the suspension of his coastguard license for sixty days.
Following the conclusion of the criminal case, defendants paid plaintiff $10,000 in partial
indemnity for the civil penalty, but refused to indemnify plaintiff for the $157,350 in attorney
fees incurred in defending the criminal indictment. Plaintiff then brought the present action for
declaratory relief and breach of contract. The circuit court granted summary disposition in favor
of defendants, ruling that the insurance policy clearly and unambiguously did not provide
indemnity for attorney fees incurred in defending this criminal prosecution. We agree.
In its ruling, the circuit court distinguished the duty-to-defend cases relied on by plaintiff
on the basis that the case at bar was a criminal prosecution rather than a civil case, and therefore
the pleadings could not be readily amended to trigger a duty to indemnify. Further, the circuit
court relied on Patterson v Standard Accident Ins Co, 178 Mich 288, 291; 144 NW 491 (1913),2
2
We note that the present case is distinguishable from Patterson for the reason that the policy at
issue does not contain the word "suit." See also Michigan Millers Mut Ins Co v Bronson Plating
Co, 445 Mich 558; 519 NW2d 864 (1994).
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for the principle of law that, "[i]t would be against public policy for this Court to hold an
insurance company has a duty to defend a criminal prosecution."3 Plaintiff now appeals.
3
It is not necessary for us to address the public-policy argument in light of our disposition that
the insurance policy clearly does not afford coverage. Cf. Bowman v Preferred Risk Mut Ins Co,
348 Mich 531, 545-546; 83 NW2d 434 (1957).
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II
In South Macomb Disposal Auth v American Ins Co (On Remand), 225 Mich App 635,
653-654; 572 NW2d 686 (1997), Judge (now Chief Justice) Corrigan summarized the following
well-established principles that guide our interpretation of insurance policies:
We apply general rules of construction in interpreting insurance policies.
Interpretation of a contract with clear language is a question of law, which is
reviewed de novo. Auto Club Ins Ass'n v Lozanis, 215 Mich App 415, 419; 546
NW2d 648 (1996). A court determines whether the policy is clear and
unambiguous on its face. Upjohn Co v New Hampshire Ins Co, 438 Mich 197,
206; 476 NW2d 392 (1991). Courts may not create ambiguities where none exist,
but must construe ambiguous policy language in the insured's favor. Fire Ins
Exchange v Diehl, 450 Mich 678, 687; 545 NW2d 602 (1996). Clear and
unambiguous language may not be rewritten under the guise of interpretation;
contract terms must be enforced as written, and unambiguous terms must be
construed according to their plain and commonly understood meaning. Upjohn,
supra at 207; Lozanis, supra. Additionally, an insurance contract should be
viewed as a whole and read to give meaning to all its terms. Fresard v Michigan
Millers Mut Ins Co, 414 Mich 686, 694; 327 NW2d 286 (1982). Conflicts
between clauses should be harmonized, and a contract should not be interpreted so
as to render it unreasonable. Id.
Exclusionary clauses are strictly construed in the insured's favor. AutoOwners Ins Co v Churchman, 440 Mich 560, 567; 489 NW2d 431 (1992). A
clear and specific exclusion must be given effect; an insurance company may not
be held liable for unassumed risks. Id. If any exclusion in an insurance policy
applies to a claimant's particular claims, coverage is lost. Id.
Further, "[t]his Court reviews the grant or denial of summary disposition de novo to
determine if the moving party is entitled to judgment as a matter of law." Maiden v Rozwood,
461 Mich 109, 118; 597 NW2d 817 (1999).
III
At the outset, we note that plaintiff has misstated the issue in terms of whether defendants
breached a duty to defend, rather than a duty to indemnify. At oral argument, plaintiff 's counsel
conceded that the insurance policy does not contain a duty-to-defend clause. On the contrary, the
policy contains only a clause that provides indemnity for "[c]osts, charges and expenses incurred,
. . . defending against or investigating or adjusting any liabilities insured against . . . ."
The civil cases relied on by plaintiff that hold "an insurer's duty to defend is broader than
the duty to indemnify," Auto-Owners Ins Co v Clare, 446 Mich 1, 15; 521 NW2d 480 (1994),
and Polkow v Citizens Ins Co of America, 438 Mich 174; 476 NW2d 382 (1991), are inapplicable
because the policy at issue does not contain a duty-to-defend clause. Rather, defendant's duty is
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the more limited duty to indemnify. Accordingly, the doctrine that an insurer has a duty to
defend "arguable" claims is not involved.
We interpret an insurance contract similarly to any other contract, and look to the plain
language of the insurance policy in determining the scope of coverage for indemnity. South
Macomb Disposal Auth, supra. The insurance policy at issue is entitled: "Limited U.S. Oil
Pollution Insurance Policy." Its coverages are contained in section I, "Insuring Agreement." In
summary, under section I:
[T]he Underwriters do hereby agree to indemnify the Assured for such
amounts . . . as the Assured shall . . . have become liable to pay and shall pay, by
reason of or with respect to:
FIRST: Liability under Section 1002 of the Act [Oil Pollution Act, 33
USC 2702] for a discharge of oil . . . for the following specified removal costs or
damages:
* * *
SECOND: Liability under Section 1005(a) of the Act [Oil Pollution Act,
33 USC 2705(a)] to a claimant for interest on an amount paid in satisfaction of a
claim under Section 1002 of the Act;
THIRD: Liability under any State statute, regulation or common law
action, consistent with and equivalent in nature or scope to liabilities imposed
under the Act, for removal costs or damages . . . ;
FOURTH: Costs, charges and expenses incurred, . . . in defending
against or investigating or adjusting any liabilities insured against under Sections
FIRST, SECOND or THIRD above, . . . . [Emphasis added.]
As previously noted, plaintiff was indicted by the federal grand jury for knowingly
violating the Clean Water Act by knowingly discharging oil. The insurance policy, however,
provides liability coverage for specified removal costs and damages incurred for violations of the
Oil Pollution Act. The relevant section of the Oil Pollution Act provides:
Notwithstanding any other provision or rule of law, and subject to the
provisions of this Act, each responsible party for a vessel or a facility from which
oil is discharged, or which poses the substantial threat of a discharge of oil, into or
upon the navigable waters or adjoining shorelines or the exclusive economic zone
is liable for the removal costs and damages specified in subsection (b) of this
section that result from such incident. [33 USC 2702(a) (emphasis added).]
The contractual indemnity provision for defense costs relied on by plaintiff provides that
"costs, charges and expenses incurred . . . in defending against or investigating or adjusting any
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liabilities insured against under Sections FIRST, SECOND or THIRD above," will be reimbursed
by defendants. The referred sections (First, Second, and Third) provide liability coverage that the
assured shall "become liable to pay and shall pay, by reason of or with respect to . . ." "specified
removal costs or damages." The indictment, however, did not seek removal costs or damages but
criminal penalties.
Plaintiff 's argument that defendants were estopped from denying coverage because of the
Confirmation of Insurance,4 which provides additional coverage for "fines and penalties as
covered under the Oil Pollution Act,"5 does not alter this result because this document does not
refer to defense costs. The only duty to indemnify for defense costs is contained in the fourth
subparagraph of the policy, and this duty is limited to the liability incurred by the preceding first,
second, and third paragraphs. The contractual provision provides for indemnity for defense costs
incurred for liability that the assured shall assume for removal costs and damages only. The
insurance policy, by its plain language, does not provide defense costs for defending criminal
charges asserting criminal responsibility that may arise irrespective of removal costs and
damages.
Finally, even if the insurance policy were deemed to cover defense costs for some
criminal violations, a clear and specific exclusion contained in the policy precludes coverage for
the claimed attorney fees. Specifically, section II provides:
II. EXCLUSIONS
THIS INSURANCE DOES NOT APPLY:
1. To any liability which would otherwise be covered under Sections
FIRST, SECOND, THIRD or FOURTH above, if the incident giving rise to the
liability is the result of the Assured's wilful misconduct.
Here, plaintiff 's claimed attorney fees all were incurred in defense of a criminal
indictment that charged plaintiff with knowingly violating the Clean Water Act by knowingly
discharging oil. 33 USC 1319(c)(2). Because the liability arose solely from plaintiff 's alleged
intentional misconduct, the willful-misconduct exclusion operates to exclude any coverage that
otherwise would apply. See, generally, Allstate Ins Co v Miller (After Remand), 226 Mich App
574; 575 NW2d 11 (1997). Cf. State Farm Fire & Casualty Co v Couvier, 227 Mich App 271;
575 NW2d 331 (1998).
Plaintiff 's additional arguments of waiver or estoppel are not preserved for appeal
because these arguments were not set forth in plaintiff 's statement of the question involved.
4
This is a two-page document that supplements defendants' standard Limited U.S. Oil Pollution
Insurance Policy.
5
This additional grant of coverage for fines and penalties has a limit of liability of $10,000 for
each incident and $30,000 in the aggregate.
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Therefore, we need not consider them. MCR 7.212(C)(5); Lansing v Hartsuff, 213 Mich App
338, 351; 539 NW2d 781 (1995).
Affirmed.
/s/ Richard Allen Griffin
/s/ William C. Whitbeck
/s/ Donald S. Owens
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