GULF UNDERWRITERS INS CO V MCCLAIN INDUSTRIES INC
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STATE OF MICHIGAN
COURT OF APPEALS
UNPUBLISHED
August 5, 2008
GULF UNDERWRITERS INSURANCE
COMPANY,
Plaintiff/Counter-DefendantAppellee/Cross-Appellee,
v
MCCLAIN INDUSTRIES, INC., MCCLAIN EZPACK, INC., MCCLAIN GALION, INC., a/k/a
GALION HOLDINGS, INC., SHELBY STEEL
PROCESSING COMPANY, MCCLAIN TUBE,
MCCLAIN GROUP LEASING, INC., MCCLAIN
SOUTHLAND COMPANY, d/b/a SOUTHLAND
EQUIPMENT CORPORATION, MCCLAIN
INTERNATIONAL, F.S.C., and MCCLAIN
LEASING CORPORATION,
Defendants/CounterPlaintiffs/Cross-Appellants,
and
GLEN HOLLIS and DEIDRE HOLLIS,
Defendants,
and
DAVID C. COOK,
Defendant-Appellant,
and
DANIEL BERG,
Defendant/Cross-Appellant.
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No. 273768
Macomb Circuit Court
LC No. 2005-000711-CK
Before: Saad, P.J., and Owens and Kelly, JJ.
PER CURIAM
In this insurance dispute, the trial court granted summary disposition in favor of plaintiff
Gulf Underwriters Insurance Company (“Gulf Underwriters”) pursuant to MCR 2.116(C)(10)
and denied cross-motions for summary disposition filed by defendants David C. Cook and
several affiliated corporate defendants (collectively referred to as the “McClain defendants”).
The trial court determined that Gulf Underwriters had no duty to defend or indemnify any of the
McClain defendants in pending or future product liability actions against them and awarded Gulf
Underwriters judgment of $227,708.65 against the McClain defendants for defense costs already
incurred. Cook, a plaintiff in a product liability action against the McClain defendants, appeals
as of right. Defendant Daniel Berg and the McClain defendants have filed cross-appeals. We
affirm in part, reverse in part, and remand for further proceedings.
I. Facts and Proceedings
Gulf Underwriters issued four liability insurance policies to the McClain defendants from
2000 to 2004. Each policy included a self-insured retention endorsement (“SIR endorsement”),
which provides in pertinent part:
In consideration of the premium charged, it is hereby agreed that such
coverage as is afforded by this policy shall be excess of a 250,000 Self-Insured
Retention each “claim.” It is also agreed that all expenses and costs under the
Supplementary Payments section stated in the Coverage Form (Section 1) shall
contribute to the exhaustion of the 250,000 Self-Insured Retention Limit and all
such expenses and costs shall be entirely borne by the insured.
All the terms of the policy including, but not limited to, those with respect
to notice of “claim” or “suit” and the Company’s right to investigate, negotiate,
defend and settle any “claim” apply irrespective of the application of the SelfInsured Retention.
The Company may, but is not obligated to, pay all or part of the SelfInsured Retention to effect settlement of any “claim,” “suit” or expense. Upon
notification of the action taken, the insured shall promptly reimburse the
Company for such Self-Insured Retention amount paid by the Company. . . .
***
The Self-Insured Retention obligation to this contract shall be considered to be an
executory contract under all circumstances and payments on this obligation shall
be paid by the insured. Failure to make the payment entitles the insurer to
terminate the contractual obligation between the parties as a failure to the SelfInsured Retention endorsement is a material breach to the entire contract. In the
event of a bankruptcy filing, the contract is deemed executory as under
11 U.S.C. 365, and the payments of the self-insured retention shall be made on a
monthly basis and treated as an administrative expense under 11 U.S.C. 507(a)(1).
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Section IV of the policy, titled COMMERCIAL GENERAL LIABILITY CONDITIONS,
provided,
1. Bankruptcy
Bankruptcy or insolvency of the insured or of the insured’s estate will not
relieve us of our obligations under this Coverage Part.
Cook and Berg, along with other individuals, allegedly sustained injuries associated with
products manufactured by the McClain defendants. Cook filed a product liability action against
the McClain defendants and Berg notified the McClain defendants of his intention to file suit.
As the tort claims were pending, the McClain defendants filed certificates of dissolution with the
state of Michigan. The parties do not dispute that the McClain defendants were insolvent at the
time of dissolution and that they claimed an inability to pay the SIR endorsement limit because
of their insolvency. The parties also agree that Gulf Underwriters paid some expenses toward
the McClain defendants’ defense of these claims, notwithstanding the McClain defendants’
failure to comply with the SIR endorsement.
Gulf Underwriters brought this action against the McClain defendants, Cook, Berg, and
other individual defendants and sought a declaration that it was not obligated to provide coverage
for the McClain entities because the McClain defendants failed to comply with the SIR
endorsement. Gulf Underwriters also asked to be reimbursed for expenses it had already
incurred in defending the personal injury claims against the McClain defendants. The McClain
defendants filed a counterclaim seeking a declaratory judgment that the insurance policies
remained in full force and effect notwithstanding their insolvency.
The parties filed cross-motions for summary disposition. The trial court granted
summary disposition for Gulf Underwriters and held that the McClain defendants’ failure to pay
the SIR endorsement limit negated Gulf Underwriters’ obligation to defend and indemnify the
McClain defendants. The court also awarded Gulf Underwriters $227,708.65 for defense costs
incurred to date. Cook, Berg, and the McClain defendants now appeal.
II. Analysis
Although Gulf Underwriters is not subject to the provisions of MCL 500.3006, we agree
with defendants’ contention that the insolvency provision provides an exception to the
requirement that McClain Industries must satisfy the SIR endorsement limit before Gulf
Underwriters is required to defend and indemnify defendants.1 Cook argues that MCL 500.3006
1
We review a trial court’s decision on a summary disposition motion de novo. Reed v Breton,
475 Mich 531, 537; 718 NW2d 770 (2006). “A motion under MCR 2.116(C)(10) tests the
factual sufficiency of the complaint.” Wilson v Alpena Co Rd Comm, 474 Mich 161, 166; 713
NW2d 717 (2006). The trial court must consider the affidavits, pleadings, depositions,
admissions, and other evidence submitted by the parties in the light most favorable to the party
opposing the motion. Reed, supra. The moving party is entitled to judgment as a matter of law
if the proffered evidence fails to establish a genuine issue of any material fact. Id.
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precludes Gulf Underwriters from denying coverage based on the McClain defendants’
insolvency because the statute requires insurers to include a provision in the policy stating that
“the insolvency or bankruptcy of the person insured shall not release the insurer from the
payment of damages for injury sustained or loss occasioned during the life of such policy.” Yet
MCL 500.3006 is inapplicable to this case because Gulf Underwriters is a “surplus lines carrier,”
i.e., an insurer that is not authorized by the state insurance commissioner to transact insurance in
the state of Michigan. MCL 500.108; MCL 500.1903(1)(d). Therefore, Gulf Underwriters was
not subject to the requirements of MCL 500.3006. MCL 500.1904(2).2
Regardless, Gulf Underwriters included a similar insolvency provision in the insurance
policies at issue in this case. The provision states, “Bankruptcy or insolvency of the insured or
of the insured’s estate will not relieve us of our obligations under this Coverage Part.”
Insurance policies are subject to the same principles of contract interpretation that apply
to other types of contracts. Royal Prop Group, LLC v Prime Ins Syndicate, Inc, 267 Mich App
708, 714; 706 NW2d 426 (2005). Contractual language must be given its ordinary and plain
meaning, and every word, clause, and phrase must be given effect. Id. at 715. A court must
avoid a construction that would render any part of the contract surplusage or nugatory. Id.
Contracts must be considered as a whole, harmonizing all parts of the contract as much as
possible. Czapp v Cox, 179 Mich App 216, 219; 445 NW2d 218 (1989). We will enforce policy
language as written, however inartfully worded or clumsily arranged, and we will not infer an
ambiguity where none exists in order to rewrite a policy under the guise of interpretation.
McKusick v Travelers Indemnity Co, 246 Mich App 329, 338; 632 NW2d 525 (2001); Van
Hollenbeck v Ins Co of North America, 157 Mich App 470, 477; 403 NW2d 166 (1987), Raska v
Farm Bureau Mut Ins Co of Michigan, 412 Mich 355, 362; 314 NW2d 440 (1982).
Gulf Underwriters’ assertion that the SIR endorsement precludes coverage unless the
insured pays the SIR limit has the effect of barring coverage when the insured is insolvent. Gulf
Underwriters maintains that there is a distinction between denying coverage based on insolvency
and denying coverage pursuant to the SIR endorsement, but this is a distinction without a
difference when the insured is insolvent and cannot pay the SIR limit because of that insolvency.
Although Gulf Underwriters is not articulating the McClain defendants’ insolvency as its reason
for denying coverage, its reliance on the SIR endorsement serves that purpose by allowing it to
avoid paying coverage for an insolvent insured. Essentially, Gulf Underwriters’ proposed
construction of its policies renders the insolvency provision nugatory, which is contrary to
principles of contract interpretation. See Royal Prop Group, supra at 715. Therefore, the trial
court erred when it failed to give effect to the insolvency provision and declared that Gulf
Underwriters properly could deny coverage pursuant to the SIR endorsement.
Gulf Underwriters’ SIR endorsement provides,
2
See Royal Prop Group, LLC v Prime Ins Syndicate, Inc, 267 Mich App 708, 725; 706 NW2d
426 (2005), which holds that a surplus lines insurance carrier’s forms are not subject to the
insurance code, except that the policy may not contain language that misrepresents the true
nature of the policy or class of policies.
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All the terms of the policy including, but not limited to, those with respect
to notice of “claim” or “suit” in the Company’s right to investigate, negotiate,
defend and settle any “claim” apply irrespective of the application of the SelfInsured Retention. [Emphasis added.]
This language prevents the SIR endorsement from trumping the insolvency provision. The SIR
endorsement clearly and unambiguously provides that Gulf Underwriters is obligated to provide
coverage in excess of the initial $250,000 of defense and indemnification costs, and the
insolvency provision does not affect this term of the policy. Further, although the insolvency
provision precludes Gulf Underwriters from relying on the McClain defendants’ insolvency to
avoid its obligations under the policy, the policy does not obligate Gulf Underwriters to pay the
initial $250,000 toward each claim. Rather, Gulf Underwriters is only obligated to pay amounts
in excess of the $250,000 SIR limit in relation to each claim against the McClain defendants.
Gulf Underwriters also asserts a claim for unjust enrichment, which the trial court
resolved by ordering the McClain defendants to reimburse Gulf Underwriters for defense costs
incurred in the personal injury claims. The amount of these costs was less than $250,000, so this
portion of the trial court’s order is consistent with the parties’ respective rights and obligations
under the policies. Accordingly, we affirm the trial court’s money judgment in favor of Gulf
Underwriters.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction.
/s/ Henry William Saad
/s/ Donald S. Owens
/s/ Kirsten Frank Kelly
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