PETER SHEFMAN V AUTO OWNERS INSUR CO
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STATE OF MICHIGAN
COURT OF APPEALS
PETER SHEFMAN and TERRACE LAND
DEVELOPMENT COMPANY, doing business as
SHEFMAN TERRACE,
FOR PUBLICATION
June 29, 2004
9:05 a.m.
Plaintiffs-Appellants,
No. 242493
Washtenaw Circuit Court
LC No. 01-000583-CK
v
AUTO-OWNERS INSURANCE COMPANY,
Defendant-Appellee.
Official Reported Version
Before: O'Connell, P.J., and Wilder and Murray, JJ.
PER CURIAM.
Plaintiffs Peter Shefman and Terrace Land Development Company, doing business as
Shefman Terrace, filed this action for damages against defendant Auto-Owners Insurance
Company, alleging that defendant wrongfully failed to defend or indemnify them under a
commercial general liability insurance policy after plaintiffs were sued in both federal and state
court. The trial court denied plaintiffs' motion for partial summary disposition, granted
defendant's motion for summary disposition, and entered judgment in favor of defendant.
Plaintiffs appeal by right. We affirm.
I
In 1988, plaintiffs began the development of a site for a condominium complex known as
Shefman Terrace in the city of Ann Arbor. About August 1992, plaintiffs purchased a
commercial general liability policy from defendant. The policy provided, inter alia, that
defendant would defend plaintiffs against, and pay any sums resulting from, lawsuits alleging
damages arising out of "personal injury" or "advertising injury." The relevant provisions of the
policy state:
Coverage B. Personal and Advertising Injury Liability
1. Insuring Agreement.
a. We will pay those sums that the insured becomes legally obligated to
pay as damages because of "personal injury" or "advertising injury" to which this
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coverage part applies. We will have the right and duty to defend any "suit"
seeking those damages. We may at our discretion investigate any "occurrence" or
offense and settle any claim or "suit" that may result. But:
* * *
No other obligation or liability to pay sums or perform acts or services is
covered unless explicitly provided for under Supplementary Payments—
Coverages A and B.
b. This insurance applies to:
(1) "Personal injury" caused by an offense arising out of your business,
excluding advertising, publishing, broadcasting or telecasting done by or for you;
(2) "Advertising injury" caused by an offense committed in the course of
advertising your goods, products or services;
* * *
2. Exclusions.
This insurance does not apply to:
* * *
b. "Advertising injury" arising out of:
(1) Breach of contract, other than misappropriation of advertising ideas
under an implied contract;
* * *
Section V—Definitions
1. "Advertising injury" means injury arising out of one or more of the following
offenses:
* * *
d. Infringement of copyright, title or slogan.
* * *
10. "Personal injury" means, other than "bodily injury", arising out of one
or more of the following offenses:
* * *
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d. Oral or written publication of material that slanders or libels a person
or organization or disparages a person's or organization's goods, products or
services; or . . . .
In 1992, plaintiffs entered into an agreement with Timberlane Homes, Inc. (Timberlane)
under which Timberlane had the right to purchase and develop two units in Shefman Terrace. In
1996, Timberlane filed a seven-count complaint against plaintiffs in the Washtenaw Circuit
Court (state claim). Although the complaint contained multiple counts, the gravamen of the
allegations in the complaint was that after Timberlane had developed and sold the first unit,
plaintiffs attempted to cancel the agreement regarding the second unit, and thereafter
"constructed two (2) homes within the same development stealing and duplicating T[imberlane]'s
creative design for the home constructed by Timberlane on [the first] [u]nit."
Plaintiffs submitted the claim to defendant, requesting a defense of and coverage for the
state claim, and defendant denied this request. Thereafter, plaintiffs retained legal counsel to
defend the state claim, and, following extensive discovery, the state claim was mediated. After
mediation, by order of the trial court, Timberlane's design misappropriation allegations were
dismissed without prejudice from the state claim. Timberlane then filed an action against
plaintiffs in the United States District Court alleging copyright infringement (federal claim).
After they were served with Timberlane's federal claim, plaintiffs sought a defense and
coverage for the federal claim from defendant. Defendant declined to offer a defense or
coverage, asserting that there was no showing of an "occurrence" under the policy, and that the
complaint failed to allege "[b]odily injury, property damage, personal injury, or advertising
injury, as defined in the policy." Defendant further stated that, in its view, "[plaintiffs were] not
advertising [their] goods or services[, and the] complaint does not allege advertising injury."
Plaintiffs retained legal counsel to also defend the federal claim, once again directly bearing the
legal fees and costs associated with defending the case. Ultimately, both the state and federal
claims were resolved by settlement.
Plaintiffs then filed the present action asserting that, given the terms of the general
liability policy, defendant wrongfully denied a defense and coverage for the state and federal
claims, and that plaintiffs incurred damages as a result. In answer to the complaint, defendant
again asserted that plaintiffs were not entitled to a defense or coverage under the terms of the
policy. Plaintiffs filed a motion for partial summary disposition under MCR 2.116(C)(9) and
(10), and defendant opposed the motion and filed a countermotion for summary disposition
under MCR 2.116(C)(8) and (10). Following a hearing on the motions, the trial court issued a
written opinion and order denying plaintiffs' motion and granting defendant's motion for
summary disposition under MCR 2.116(C)(10). In granting defendant's motion, the trial court
concluded in part that there was no genuine issue of material fact that the injury alleged in both
the state and federal claims against plaintiffs, that plaintiffs had allegedly constructed and sold
homes using designs misappropriated from Timberlane, was not conduct done in the course of
advertising. The trial court further concluded that because the underlying conduct alleged did
not occur in the course of advertising, Coverage B, § 1(b)(2) of defendant's policy did not afford
coverage and defendant was entitled to judgment as a matter of law.
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II
This Court reviews de novo the trial court's rulings on a motion for summary disposition.
Dressel v Ameribank, 468 Mich 557, 561; 644 NW2d 151 (2003). The construction and
interpretation of insurance contracts is also a question of law that this Court reviews de novo.
Henderson v State Farm Fire & Cas Co, 460 Mich 348, 353; 596 NW2d 190 (1999).
III
In Radenbaugh v Farm Bureau Gen Ins Co of Michigan, 240 Mich App 134, 137-139;
610 NW2d 272 (2000), this Court stated:
It is well settled that "if the allegations of the underlying suit arguably fall
within the coverage of the policy, the insurer has a duty to defend its insured."
Royce v Citizens Ins Co, 219 Mich App 537, 543; 557 NW2d 144 (1996), citing
with approval American Bumper & Mfg Co v Hartford Fire Ins Co, 207 Mich
App 60, 67; 523 NW2d 841 (1994), aff 'd 452 Mich 440; 550 NW2d 475 (1996).
Further,
"[a]n insurer has a duty to defend, despite theories of liability asserted against any
insured which are not covered under the policy, if there are any theories of
recovery that fall within the policy. Dochod v Central Mutual Ins Co, 81 Mich
App 63; 264 NW2d 122 (1978). The duty to defend cannot be limited by the
precise language of the pleadings. The insurer has the duty to look behind the
third-party's allegations to analyze whether coverage is possible. Shepard Marine
Construction Co v Maryland Casualty Co, 73 Mich App 62; 250 NW2d 541
(1976). In a case of doubt as to whether or not the complaint against the insured
alleges a liability of the insurer under the policy, the doubt must be resolved in the
insured's favor. 14 Couch on Insurance 2d, § 51:45, p 538. [Western Casualty &
Surety Group v Coloma Twp, 140 Mich App 516, 520-521, 364 NW2d 367
(1985), quoting with approval Detroit Edison Co v Michigan Mut Ins Co, 102
Mich App 136, 141-142; 301 NW2d 832 (1980).]"
Also, the following fundamental principles of insurance law apply:
It is well settled in Michigan that an insurer's duty to defend is broader
than its duty to indemnify. Auto-Owners Ins Co v City of Clare, 446 Mich 1, 15;
521 NW2d 480 (1994). In order to determine whether an insurer has a duty to
defend its insured, this Court must look to the language of the insurance policy
and construe its terms to find the scope of the coverage of the policy. Arco
Industries Corp v American Motorists Ins Co, 448 Mich 395, 402; 531 NW2d 168
(1995). Generally, an insurance policy is a contract between the insurer and the
insured. Auto-Owners Ins Co v Churchman, 440 Mich 560, 566; 489 NW2d 431
(1992). If a trial court is presented with a dispute between these parties over the
meaning of the policy, the trial court must determine what the agreement is and
enforce it. Kass v Wolf, 212 Mich App 600, 604; 538 NW2d 77 (1995). When
determining what the parties' agreement is, the trial court should read the contract
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as a whole and give meaning to all the terms contained within the policy.
Churchman, supra at 566. The trial court shall give the language contained
within the policy its ordinary and plain meaning so that technical and strained
constructions are avoided. Hosking v State Farm Mutual Automobile Ins Co, 198
Mich App 632, 633-634; 499 NW2d 436 (1993). A policy is ambiguous when,
after reading the entire document, its language can be reasonably understood in
different ways. Trierweiler v Frankenmuth Mutual Ins Co, 216 Mich App 653,
656-657; 550 NW2d 577 (1996). If the trial court determines that the policy is
ambiguous, the policy will be construed against the insurer and in favor of
coverage. Heniser v Frankenmuth Mutual Ins Co, 449 Mich 155, 160; 534 NW2d
502 (1995). However, if the contract is unambiguous, the trial court must enforce
it as written. Arco, supra at 403. [Royce, supra at 542-543.]
Applying these principles in the instant case, we conclude that summary disposition was
correctly granted in favor of defendant. In GAF Sales & Service, Inc v Hastings Mut Ins Co, 224
Mich App 259, 261-262; 568 NW2d 165 (1997), this Court, reviewing a general commercial
liability policy with language identical to the one in the instant case, held that "[t]he policy
coverage for 'advertising injury' . . . requires three elements: an 'advertising injury' as defined in
the policy; a 'course of advertising' . . . ; and proof of a causal relationship between the first two
elements." Id. Assuming, without deciding, that plaintiffs presented sufficient evidence of the
first and second elements to survive summary disposition, we nevertheless conclude that the
underlying complaints by Timberlane did not allege any causal connection between an alleged
advertising injury suffered by Timberlane and advertising by plaintiffs, and that plaintiffs' cause
of action must fail. As noted by the trial court, Timberlane asserted in each lawsuit that plaintiffs
wrongfully constructed and sold homes that were built using Timberlane's misappropriated
designs, and that damages were incurred by Timberlane because of the construction and sale of
those homes. Timberlane did not allege that plaintiffs used the allegedly misappropriated
designs in plaintiffs' advertising or that damages resulted from such advertising; therefore, the
necessary third element cannot be established.1
Plaintiffs contend, nevertheless, that Timberlane's allegations that plaintiffs displayed and
exhibited the homes constituted allegations of a course of advertising sufficient to bring the
complaints within the scope of the policy. We disagree. "'Courts have repeatedly rejected an
insured's argument that advertising is part and parcel of selling and that an offense [that] occurs
during selling is an offense committed in the course of advertising.'" Farmington Cas Co v
Cyberlogic Technologies, Inc, 996 F Supp 695, 702-703 (ED Mich, 1998), quoting Poof Toy
Products, Inc v United States Fidelity & Guaranty Co, 891 F Supp 1228, 1234 (ED Mich, 1995).
Timberlane's claims went no further than to assert that plaintiffs misappropriated designs to
construct and sell homes. Because the alleged injury resulting to Timberlane from the
1
Thus, we need not decide whether the trial court properly applied a narrow rather than broad
definition of the term "advertising," which was not otherwise defined in the policy. See GAF,
supra at 263-264.
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construction and sale of homes by plaintiffs does not constitute an injury that occurred in the
course of advertising, plaintiffs' claim for a defense or coverage must fail.
Affirmed.
/s/ Peter D. O'Connell
/s/ Kurtis T. Wilder
/s/ Christopher M. Murray
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