ROYAL PROPERTY GROUP LLC V PRIME INSURANCE SYNDICATE INCAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
ROYAL PROPERTY GROUP, LLC,
August 23, 2005
Wayne Circuit Court
LC No. 02-232203-CK
PRIME INSURANCE SYNDICATE, INC.,
Official Reported Version
WHITCOMB & COMPANY, INC.,
Before: Whitbeck, C.J., and Zahra and Owens, JJ.
In this insurance case, defendant insurer, Prime Insurance Syndicate, Inc. (Prime),
appeals as of right the trial court's entry of judgment in favor of plaintiff insured, Royal Property
Group, LLC (Royal), for $228,729.84. The significant issues in this case are (1) whether the
insurance policy is ambiguous in regard to the method of valuation used to determine
coinsurance liability and (2) whether a coinsurance clause that determines an insured's
coinsurance liability on the basis of the replacement cost value (RCV) of the property is against
public policy where an insurer's liability is limited to the actual cash value (ACV) of the loss.
Reading the policy as a whole, we hold that there is but one reasonable interpretation of the
policy. The insured's coinsurance obligation is based on the RCV of the property and the
insurer's limit of liability is based on the ACV of the loss. We further hold that Michigan's
public policy does not prohibit an insurer from issuing a policy of insurance that measures an
insured's coinsurance liability using the RCV of the property while limiting its liability to the
ACV of the loss. We reverse the trial court's order granting Royal partial summary disposition,
and remand with instructions that summary disposition be granted to Prime.
I. Basic Facts and Proceedings
Royal, through its agent, defendant Whitcomb & Company, Inc., applied for commercial
property insurance from Prime to cover three apartment buildings that Royal owned and operated
in the city of Detroit. The coverage for "Building 2" is at issue in this case. In regard to
Building 2, the policy application contains the following section:1
Prime later issued a policy to Royal. The declarations page of the policy contains a
section titled, "COVERAGES PROVIDED—INSURANCE AT THE DESCRIBED PREMISES
FOR COVERAGES FOR WHICH A LIMIT OF INSURANCE IS SHOWN," which provides in
regard to Building 2:2
OF COVERED COINSURANCE RATES
In a section titled, "ADDITIONAL CONDITIONS," the policy states:
The following conditions apply in addition to the Coverage Conditions
and the Loss Conditions.
This is not an actual reproduction of the table contained in the policy application, though it
reflects its form and content. The handwritten entries on the policy application are emphasized
This is not an actual reproduction of the table contained in the declarations page of the policy,
though it reflects its form and content. The hand-typed entries on the declarations page are
emphasized in bold.
A Coinsurance percentage of 80% applies to this policy.
a. We will not pay the full amount of any loss if the replacement cost
value of Covered Property at the time of loss multiplied by the 80% Coinsurance
percentage shown for it in the Declarations is greater than the limit of insurance
for the property.
Instead we will determine the most we will pay using the following steps:
(1) multiply the replacement cost value of covered property at the time of
loss by the coinsurance percentage;
(2) divide the limit of insurance of the property by the figure determined
in step (1);
(3) multiple the total amount of loss, before the application of any
deductible, by the figure determined in step (2); and
(4) subtract the deductible from the figure determined in step (3).
We will pay the amount determined in step (4) or the limit of insurance,
whichever is less. For the remainder, you will either have to rely on other
insurance or absorb the loss yourself.
Three detailed examples are provided that show how the coinsurance clause operates when the
sum of the RCV of the covered property and the coinsurance percentage is more than
(underinsurance), less than (overinsurance), and equal to (adequate insurance) the amount of the
Building 2 was destroyed in a fire on April 16, 2002. At the time of the fire, Building 2
had an ACV of between $814,270 and $1,280,769, and an RCV of $3,659,396. Prime paid out
$372,270.16 under the policy.3 Royal disputed the amount of the payment and claimed that
Prime reduced its payment by improperly applying the coinsurance clause.
Royal filed this action to recover the policy limit. In Royal's view, the policy application
and the declarations page of the policy require the coinsurance clause be construed to state
"actual cash value" instead of "replacement cost value." Under this formulation, the ACV of the
loss would exceed the policy limit of $600,000 and would entitle Royal to the policy limit.
Prime moved for partial summary disposition, arguing that it had properly applied the
coinsurance clause to reduce Royal's recovery. After holding a hearing, the trial court concluded
Part of this payment ($105,270.08) went to the city of Detroit to cover demolition costs.
that the notations on the declarations page of the policy rendered the policy ambiguous in regard
to coinsurance liability. The trial court denied Prime's motion for summary disposition and
ordered that summary disposition be issued in favor of Royal.4 The trial court subsequently
granted Royal's motion for entry of final judgment and ordered Prime pay Royal an additional
$228,729.84. This appeal ensued.
II. Operation of the Coinsurance Clause
A. Standard of Review
"This 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). Summary disposition is appropriate under MCR 2.116(C)(10)
when, "[e]xcept as to the amount of damages, there is no genuine issue as to any material fact,
and the moving party is entitled to judgment or partial judgment as a matter of law." "A genuine
issue of material fact exists when the record, giving the benefit of reasonable doubt to the
opposing party, leaves open an issue upon which reasonable minds might differ." West v Gen
Motors Corp, 469 Mich 177, 183; 665 NW2d 468 (2003). Accordingly, when deciding a motion
under MCR 2.116(C)(10), this Court reviews "the entire record in the light most favorable to the
party opposing the motion, including affidavits, pleadings, depositions, admissions, and other
evidence submitted by the parties." Corley v Detroit Bd of Ed, 470 Mich 274, 278; 681 NW2d
Further, resolution of this issue depends on interpretation of the insurance policy, which
is also reviewed de novo. Wilkie v Auto-Owners Ins Co, 469 Mich 41, 47; 664 NW2d 776
(2003). "Similarly, whether contract language is ambiguous is a question of law that we review
de novo." Klapp v United Ins Group Agency, Inc, 468 Mich 459, 463; 663 NW2d 447 (2003),
citing Farm Bureau Mut Ins Co v Nikkel, 460 Mich 558, 563; 596 NW2d 915 (1999).
"An insurance policy is much the same as any other contract. It is an agreement between
the parties in which a court will determine what the agreement was and effectuate the intent of
the parties." Auto-Owners Ins Co v Churchman, 440 Mich 560, 566; 489 NW2d 431 (1992),
citing Eghotz v Creech, 365 Mich 527, 530; 113 NW2d 815 (1962).5 "[I]nsurance polices are
Royal did not move for summary disposition. The trial court exercised its authority under
MCR 2.116(I)(2) to render judgment in favor of Royal when resolving Prime's motion for
The insurance policy contains a choice-of-law clause, which provides, "The provisions of this
policy are to be construed in accordance with the laws of the State of Illinois, as the state in
which the policy has been entered." However, neither party has raised the choice-of-law issue,
and the trial court's decision was based solely on Michigan law. We have unilaterally surveyed
Illinois law. Illinois rules of insurance policy interpretation are substantially similar to those of
Michigan. Compare Hobbs v Hartford Ins Co of the Midwest, 214 Ill 2d 11, 17-18, 20-25; 823
subject to the same contract construction principles that apply to any other species of contract."
Rory v Continental Ins Co, 473 Mich 457, 461; 703 NW2d 23 (2005) (emphasis in original).
"'The primary goal in the construction or interpretation of a contract is to honor the intent of the
parties[.]" Klapp, supra at 473, quoting Rasheed v Chrysler Corp, 445 Mich 109, 127 n 28; 517
NW2d 19 (1994). "[T]he language of the parties' contract is the best way to determine what the
parties intended." Klapp, supra at 476.
Accordingly, an insurance contract should be read as a whole and meaning should be
given to all terms. Wilkie, supra at 50 n 11. The policy application, declarations page of policy,
and the policy itself construed together constitute the contract. Hall v Equitable Life Assurance
Society of the United States, 295 Mich 404, 408; 295 NW 204 (1940).6 The contractual language
is to be given its ordinary and plain meaning. Id. at 408. An insurance contract must be
construed so as to give effect to every word, clause, and phrase, and a construction should be
avoided that would render any part of the contract surplusage or nugatory. Klapp, supra at 467.
"[U]nless a contract provision violates law or one of the traditional [contract] defenses to the
enforceability of a contract applies, a court must construe and apply unambiguous contract
provisions as written." Rory, supra at 461. "[T]he judiciary is without authority to modify
unambiguous contracts or rebalance the contractual equities struck by the contracting parties
because fundamental principles of contract law preclude such subjective post hoc judicial
determinations of 'reasonableness' as a basis upon which courts may refuse to enforce
unambiguous contractual provisions." Id. A provision in a contract is ambiguous if it
irreconcilably conflicts with another provision, or when it is equally susceptible to more than a
single meaning. Lansing Mayor v Public Service Comm, 470 Mich 154, 165 n 6, 166; 680
NW2d 840 (2004).
"The term 'coinsurance' means a relative division of the risk between the insurer and the
insured." 15 Couch, Insurance 3d, § 220:3, p 220-8. "Coinsurance clauses are provisions in
insurance policies that require the insured to maintain coverage to a specified value of the
property, and stipulate that, upon his or her failure to do so, he or she becomes a coinsurer and
must bear his or her proportionate part of the loss." Id. at 220-9. As one court explained, "That
[coinsurance] clause does not undertake to define the nature of the insurer's liability; its role,
instead, is simply to decrease that liability if the demand specified in the clause is not met."
Carley Capital Group v Fireman's Fund Ins Co, 278 US App DC 143; 877 F2d 78, 82 (1989).
The crux of Royal's claim is that the parties intended that the coinsurance be based on the
ACV of the property. In support, Royal cites the portions of the policy application and the
declarations page of the policy, claiming that they suggest that the coinsurance percentage is
based on the ACV of the property. Royal adds that nowhere on the policy application or the
NE2d 561 (2005), with Klapp, supra at 467, 469-476, and Churchman, supra at 566-567. The
conclusion we reach in regard to the application for the policy and the interpretation of the
coinsurance clause is the same under Michigan law and Illinois law. See page ___.
The declarations page is generally considered part of the insurance policy. See 1 Appleman,
Insurance 2d, § 4.4, p 417. Also, the instant policy expressly provides that the "'Application' . . .
form [is] part of the policy."
declarations page is there any indication that coinsurance would be determined by the RCV of
the property. Royal then argues that because the coinsurance clause in the policy states that
coinsurance is applied using the RCV of the property, it irreconcilably conflicts with the policy
application and the declarations page. Royal concludes that this conflict presents an ambiguity
that must be interpreted in its favor because (1) the entries on the policy application and the
declarations page are not printed and, thus, control over the printed coinsurance clause contained
in the policy, see Martin v Ohio Cas Ins Co, 9 Mich App 598, 601-602; 157 NW2d 827 (1968),
and (2) ambiguities in an insurance policy are construed in favor of the insured (the rule of
contra proferentem), see Klapp, supra at 470-471.
The trial court concluded that the policy was ambiguous with respect to coinsurance
because the declarations page of the policy conflicted with the coinsurance clause. The trial
court did not mention the policy application. The trial court's conclusion is predicated on a
finding that the declarations page states that coinsurance would be based on the ACV of the
property. However, nowhere on the declarations page does it state that the 80 percent
coinsurance requirement would be based on the ACV of the property. The only information
related to coinsurance is the entry "80" under the heading "Coinsurance %." Royal argues that
the "Broad-ACV" entry under "Covered Causes of Loss" heading on the declarations page of the
policy shows that coinsurance would be determined on an ACV basis. However, the "BroadACV" entry clearly refers to the portion of the policy entitled, "Causes of Loss—Broad Form."
The form begins by stating that "[w]hen Broad is shown in the Declarations, Covered Causes of
Loss means the following . . . . " The form then delineates several causes of accidents covered
and not covered by the policy. Nothing in this form refers to coinsurance, and, thus, there is no
basis to infer that the declarations page indicates that the parties intended coinsurance be based
on ACV. Therefore, we conclude that the trial court erred in finding the declarations page
expressed that coinsurance would be determined on an ACV basis.
Royal also claims that the policy application indicates that coinsurance would be
determined on the basis of the ACV of the property. Again, however, the only information
related to coinsurance is the entry "80" under the heading "Coins %." Royal specifically argues
that the "ACV" entry under the "Valuation" heading of the policy application shows that
coinsurance would be calculated on an ACV basis. However, the headings and respective entries
in this section are separated by columns, and there is no indication on the policy application that
the "ACV" entry supplements the "Coins %" heading. Accordingly, there is no basis to assume
that the parties intended that coinsurance be based on the ACV of the property. In sum, we find
that Royal's interpretation of the policy application and the declarations page of the policy is
unduly strained. Radenbaugh v Farm Bureau Gen Ins Co of Michigan, 240 Mich App 134, 138;
610 NW2d 272 (2000), citing Hosking v State Farm Mut Automobile Ins Co, 198 Mich App 632,
633-634; 499 NW2d 436 (1993).
Further, we conclude that Royal's construction of the policy overemphasizes the policy
application and the declarations page of the policy. Our Supreme Court has not specifically
addressed the weight to be given an insurance policy application or the declarations page of an
insurance policy. However, we agree with a recent opinion by the Illinois Supreme Court, which
The declarations page is but one piece of the insuring agreement.
Although it contains important information specific to the policyholder, the
declarations page cannot address every conceivable coverage issue. Thus, some
uncertainty could arise if the declarations page is read in isolation from the rest of
the agreement. [Hobbs v Hartford Ins Co of the Midwest, 214 Ill 2d 11, 23; 823
NE2d 561 (2005), citing Zurich Ins Co v Raymark Industries, Inc, 118 Ill 23, 50;
514 NE2d 150 (1987) (citation omitted).]
We also extend this rationale to a policy application that is deemed part of the insurance policy.
"'Any provision of a lengthy document is bound to be ambiguous in the sense that it creates
questions that can be answered only by reference to other portions of the document.'" Hobbs,
supra at 23, quoting In re Estate of Striplin, 347 Ill App 3d 700, 706; 807 NE2d 1255 (2004).
Here, the same can be said of the declarations page and the policy application. They are only
parts of the insurance policy, and should not be read in isolation from the policy because
uncertainty or ambiguity could arise. Thus, we agree with the observation of the Supreme Court
of Illinois that "[t]his is precisely why an insurance policy must be interpreted from an
examination of the complete document." Hobbs, supra at 23, citing Zurich, supra.
In regard to coinsurance, we conclude that there is no ambiguity. Neither the policy
application nor the declarations page of the policy addresses the operation of coinsurance, except
to indicate a percentage that would be integrated in the coinsurance clause. The coinsurance
clause, however, is very specific, providing in part:
We will not pay the full amount of any loss if the replacement cost value
of Covered Property at the time of loss multiplied by the 80% Coinsurance
percentage shown for it in the Declarations is greater than the limit of insurance
for the property.
This Court is required to read contracts as a whole, giving harmonious effect, if possible,
to each word and phrase. Wilkie, supra at 50 n 11, citing Singer v Goff, 334 Mich 163, 168, 54
NW2d 290 (1952). Also, specific provisions normally override general ones. Sobel v Steelcraft
Piston Ring Sales, Inc, 294 Mich 211, 219; 292 NW 863 (1940); Haefele v Meijer, Inc, 165 Mich
App 485, 498; 418 NW2d 900 (1987), remanded on other grounds 431 Mich 853 (1988).
Here, the coinsurance clause specifically addresses the operation of coinsurance. Further,
the language of the coinsurance clause is consistent with the policy application and the
declarations page of the policy. The coinsurance percentage listed in each of those documents,
80 percent, is the same percentage stated in the coinsurance clause. Therefore, because the
coinsurance clause specifically addresses the operation of coinsurance in a manner consistent
with the policy application and declarations page, the clause must be enforced as written. Rory,
supra. The trial court improperly created an ambiguity by accepting Royal's strained
interpretation of the policy application and the declarations page and then finding Royal's
interpretation inconsistent with the coinsurance clause within the policy. VanDyke v League Gen
Ins Co, 184 Mich App 271, 275; 457 NW2d 141 (1990), citing Farm Bureau Mut Ins Co of
Michigan v Hoag, 136 Mich App 326, 332; 356 NW2d 630 (1984).
Royal's claim on appeal suggests that it was led to believe that coinsurance would only
require them to insure the property to 80 percent of its ACV. However, such a claim does not
require the policy to be interpreted; rather, the claim requires the policy to be reformed.7 Neither
the litigants nor the trial court raised the issue of reformation. This Court need not consider
issues that have not been presented or preserved. Caldwell v Chapman, 240 Mich App 124, 132;
610 NW2d 264 (2000); Booth Newspapers, Inc v Univ of Michigan Bd of Regents, 444 Mich
211, 234, 234 n 23; 507 NW2d 422 (1993).8
III. Public Policy
Royal argues that this Court should affirm the trial court's ruling because the coinsurance
clause violates Michigan public policy. We disagree.
A. Standard of Review
5 Corbin, Contracts (1998 rev ed), § 24.18, p 174-175, provides:
A party who seeks judicial reformation of a written contract usually
asserts that the written words do not express to others the meaning that both
parties had intended. The request for reformation is therefore a request that the
court alter the words of the document. This alteration may involve deleting words
or punctuation, rearranging words or punctuation, or inserting words or
punctuation. In contrast, a party who seeks interpretation asks the court not to
change the actual words of the document but to determine the meaning of those
words. One who asks for interpretation does not, therefore seek replacement of
any the words written in the document. Instead, this party asserts that the words
properly express the meaning which both parties understood and to which they
both assented. [Emphasis added.]
Royal is not requesting this Court to determine the meaning of "RCV" or "ACV." The
meanings of those acronyms are patently clear. Rather, Royal seeks to replace "RCV" with
"ACV" throughout the coinsurance clause.
It is elemental that courts will not make a new contract of insurance for the parties under
the guise of construing the contract." Edgar's Warehouse, Inc v United States Fidelity &
Guaranty Co, 375 Mich 598, 602; 134 NW2d 746 (1965). Here, Royal would have this Court
rewrite the coinsurance clause to state "ACV" at every instance "RCV" is stated. "Obviously the
interpretation urged involves reading into the contract [words] not contained therein. This the
Court may not do. Plaintiff 's right of recovery rests on the contract as written. Under the guise
of interpretation it may not be reformed or modified." Cottrill v Michigan Hosp Service, 359
Mich 472, 476; 102 NW2d 179 (1960).
Because we conclude that the insurance policy is not ambiguous in regard to coinsurance, we
need not address Royal's claim that it is entitled to have ambiguities construed in its favor
pursuant to Martin, or the rule of contra proferentem.
Whether an insurance contract violates public policy is a question of law that this Court
reviews de novo. Cardinal Mooney High School v Michigan High School Athletic Ass'n, 437
Mich 75, 80; 467 NW2d 21 (1991).
"A contract that violates Michigan's public policy is unenforceable." Pitsch v Blandford,
264 Mich App 28, 31; 690 NW2d 120 (2004), citing Morris & Doherty, PC v Lockwood, 259
Mich App 38, 59-60; 672 NW2d 884 (2003), citing Evans & Luptak, PLC v Lizza, 251 Mich
App 187, 196; 650 NW2d 364 (2002). As stated in Terrien v Zwit, 467 Mich 56, 66-67; 648
NW2d 602 (2002):
In defining "public policy," it is clear to us that this term must be more
than a different nomenclature for describing the personal preferences of
individual judges, for the proper exercise of the judicial power is to determine
from objective legal sources what public policy is, and not simply assert what
such policy ought to be on the basis of the subjective views of individual judges.
This is grounded in Chief Justice Marshall's famous injunction to the bench in
Marbury v Madison, 5 US (1 Cranch) 137, 177; 2 L Ed 60 (1803), that the duty of
the judiciary is to assert what the law "is," not what it "ought" to be. [Emphasis in
For this reason,
"[c]ourts must proceed with caution in determining what exactly constitutes
Michigan's 'public policy,' and not merely impose its [sic] belief of what public
policy should be. In other words, Michigan's 'public policy' must be clearly
apparent in 'our state and federal constitutions, our statutes, and the common law,'
as well as our 'administrative rules and regulations, and public rules of
professional conduct[.]'" [Pitsch, supra at 31 quoting Morris & Doherty, PC,
supra at 54-55 (citations omitted).]
In other words, "[t]he public policy of Michigan is not merely the equivalent of the personal
preferences of a majority of this Court; rather, such a policy must ultimately be clearly rooted in
the law. There is no other proper means of ascertaining what constitutes our public policy."
Terrien, supra at 67.
"Coinsurance clauses are, generally, held enforceable in the absence of statutory
prohibition to the contrary." 44 Am Jur 2d, Coinsurance Clauses, § 1499, p 770; see also anno:
Validity, construction, and effect of insurance policy provision requiring insured to maintain
coverage to specified value of property (coinsurance clause) 43 ALR3d 566, pp 569-570. No
Michigan statute currently prohibits coinsurance, and our Supreme Court even "dismiss[ed] [a]
plaintiff 's claim that there is something vicious about coinsurance," stating that "[i]ts legality is
no longer a debatable question . . ." as it "has been authorized by law for over 40 years . . . ."
Masonic Temple Ass'n of Grand Rapids v Michigan Fire & Marine Ins Co, 323 Mich 662, 671;
36 NW2d 317 (1949), citing Fine Arts Corp v Kuchins Furniture Mfg Co, 269 Mich 277; 257
NW 822 (1934). Thus, coinsurance clauses generally do not violate Michigan public policy.
Royal argues, however, that this specific coinsurance clause violates public policy
because it prevents the insured from receiving the entire policy limit unless the covered property
is insured for much more than the ACV of the loss. Particularly, Royal asserts that the policy is
illusory,9 because "Prime would be collecting a premium on a policy that an insured could never
collect [on] by definition" as "the [ACV] will always be a significantly smaller amount than
Although Prime concedes that "it is unusual for a policy to base coverage and
coinsurance on different property values," at least one other jurisdiction has found no
disharmony within an insurance policy that measures the insurer's liability one way and the
coinsurance requirement another way. Carley Capital Group, supra at 82 n 44. Moreover,
basing coverage and coinsurance on different property values is not unprecedented in the context
of commercial property insurance. See Keeton and Widiss, Insurance Law (student ed), § 3.8, p
Here, nothing has been presented to clearly establish that the coinsurance clause in this
case transgresses our state and federal constitutions, our statutes, the common law, our
administrative rules and regulations, or our public rules of professional conduct. Terrien, supra
at 67, 67 n 11; Pitsch, supra. Royal essentially argues that the insurance policy should be
reformed because it is unfair to base coinsurance liability on the RCV of the property while
allowing Prime to limit its liability to the ACV of the loss. However, this Court cannot rely on
litigants' subjective views of fairness to establish the public policy of this state. In sum, Royal's
public policy claim is not clearly rooted in the law, Terrien, supra at 67, and because "[t]here is
no other proper means of ascertaining what constitutes our public policy," id., Royal's claim
must be rejected.
Royal last argues that the coinsurance clause conflicts with "a public policy interest
against promoting fraudulent or deceptive practices codified in Michigan's Uniform Trade
Practices Act [MCL 500.2001 et seq.] as well as the Surplus Lines [Insurance] Act [MCL
500.1901, et seq.] . . . ." We disagree. Because Prime is a surplus lines carrier, its rates and
forms are not subject to the Uniform Trade Practices Act. A surplus lines insurance carrier is not
authorized to "transact insurance in Michigan but [is] eligible to write insurance business under
[the Surplus Lines Insurance Act]." MCL 500.1903(1)(a). Surplus lines insurance carriers are
only permitted to issue insurance when coverage is unavailable from an authorized carrier. MCL
"'Historically, the function of surplus lines insurance was to provide lines
of insurance that were in excess of the lines, or amounts of a particular line,
which could be absorbed by the insurance companies admitted to do business
within a state. Today it has come to mean any insurance placed with insurance
Plaintiff concedes that an insured could recover the full policy limit on the loss of a new
building whose RCV has not depreciated more than 20 percent.
companies not admitted to do business in a particular state. Non-admitted
insurers provide valuable services in addition to their historic function. First,
non-admitted insurers are often responsible for the introduction of wholly new
lines of insurance coverage in areas in which admitted companies have shown
little interest. Moreover, they can write insurance risk by risk, whereas their
admitted counterparts, because of the restrictions imposed by state regulation and
the belief that actuarial tables based on extensive sampling are necessary, are
confined to writing only class insurance. The ability to so individualize insurance
coverage enables such insurers, through the use of non-standard forms, to tailor
their policies to the exact needs of the insured, and also to perform a valuable
service in writing deductibles. Finally, the existence of surplus lines insurers
provides an escape from the rigid rate and form regulations imposed by states on
admitted insurers. . . .'" [Allen v Michigan Property & Cas Guaranty Ass'n, 129
Mich App 271, 277; 341 NW2d 500 (1983), quoting OAG 1979-1980, No. 5612,
p 510, in turn quoting Lockwood, Insurance—State Regulation—Surplus Lines
Insurance, 61 Mich L R 1171-1172 (1963).]
Under MCL 500.1904(1), except for rates that are unfairly discriminatory, a surplus lines
insurance carrier's rates are not "subject to [the insurance] code . . ." Also, under MCL
500.1904(2), "[f]orms used by unauthorized insurers pursuant to . . . [the Surplus Lines
Insurance Act] shall not be subject to [the insurance] code, except that a policy shall not contain
language which misrepresents the true nature of the policy or class of policies." Thus, the
coinsurance clause is not subject to the Uniform Trade Practices Act. Further, that Prime paid
Royal under the property insurance policy establishes that the true nature of the policy was not
misrepresented. 10 Thus, we conclude that Royal's contention that Prime's policy is violative of
the Surplus Lines Insurance Act is without merit.
Moreover, we conclude that the lower court record does not reflect that Prime's business
practices are fraudulent or deceptive.11 An insured is obligated to read the insurance policy. See
Marlo Beauty Supply, Inc v Farmers Ins Group of Companies, 227 Mich App 309, 324; 575
NW2d 324 (1998); Parmet Homes Inc v Republic Ins Co, 111 Mich App 140, 145; 314 NW2d
453 (1981), citing House v Billman, 340 Mich 621; 66 NW2d 213 (1954), and Russel v State
Farm Mut Automobile Ins Co, 47 Mich App 677; 209 NW2d 815 (1973). Here, the coinsurance
clause gives plain and unambiguous instruction on how to calculate the amount that recovery is
reduced by insurance is not maintained at the specified percentage of the RCV indicated on the
"Nature" is defined as "[a] kind, sort, type, order; general characteristic."
Dictionary (6th ed).
Notably, the trial court dismissed with prejudice the count for fraud contained in Royal's
complaint. The trial court concluded that Royal failed to show that it could reasonably have
relied on Prime's alleged misrepresentations considering that Royal could have read the policy.
Royal did not appeal the trial court's decision in this regard, and Royal is precluded from
challenging this finding on appeal.
declarations page. As previously mentioned, the coinsurance clause provides three examples of
how the clause operates, one of which specifically addresses how the coinsurance clause would
operate in a case like Royal's, where the amount of the policy limit is significantly less than the
coinsurance percentage of the RCV. There is no reasonable dispute that had Royal read this
portion of its policy, it would have understood the extent and effect of the coinsurance clause.
Given the clarity of the coinsurance clause, we cannot conclude that it was fraudulent or
Moreover, Prime's status as a surplus lines insurance carrier supports the above
conclusion that Royal is not entitled to relief on public policy grounds. Royal was not able to
obtain coverage from an authorized insurer, presumably because of the high degree of risk
involved in insuring the buildings. Indeed, to obtain any insurance coverage, Royal was required
to go to an agent or broker specially licensed to transact in surplus lines insurance. MCL
500.1905. Certainly, Royal must have be been aware that Prime was willing to insure against
higher risks, and that Prime's insurance policy would be tailored to enable it to take those higher
risks. In other words, Royal should have known to pay particular attention to the policy because
it was obtained through a surplus lines insurance carrier.
Reversed and remanded for further proceedings consistent with this opinion. We do not
/s/ Brian K. Zahra
/s/ William C. Whitbeck
/s/ Donald S. Owens