ZAREMBA EQUIPMENT INC V HARCO NATIONAL INSURANCE COAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
ZAREMBA EQUIPMENT, INC.,
July 31, 2008
HARCO NATIONAL INSURANCE COMPANY
and PATRICK MUSALL,
Otsego Circuit Court
LC No. 04-010930-CK
Advance Sheets Version
Before: O’Connell, P.J., and Borrello and Gleicher, JJ.
Plaintiff Zaremba Equipment, Inc., commenced this insurance coverage lawsuit after a
fire destroyed its premises. A jury awarded plaintiff $2,353,778, exclusive of costs, attorney
fees, interest, and case evaluation sanctions. We affirm in part, reverse in part, and remand this
case for further proceedings.
I. Underlying Facts and Proceedings
On February 21, 2003, a fire consumed the primary building occupied by plaintiff, a
family-owned business that sells and services agricultural equipment, commercial vehicles, and
seasonal items, such as snow blowers and lawn mowers. Defendant Harco National Insurance
Company sold plaintiff the insurance policy at issue in this case, which took effect on February
1, 2003, and constituted plaintiff’s seventeenth consecutive Harco policy. Defendant Patrick
Musall, Harco’s agent, took plaintiff’s order for the most recent commercial insurance policy
Plaintiff filed suit seeking to recover (1) damages for breach of the commercial-insurance
contract, (2) penalty interest pursuant to MCL 500.2006, and (3) damages for defendants’ failure
to provide plaintiff with sufficient “replacement cost insurance coverage” of plaintiff’s business
building and its contents. The primary issues on appeal involve the coverage of the building and
its contents. The 2003-2004 policy stated limits of $525,000 for the building, and $700,000 for
its contents. After the fire, plaintiff learned that it would cost $1,192,000 to replace the building.
Plaintiff’s complaint alleged that at an unspecified time before the fire, it informed
defendants that “it wanted to be fully insured so it could rebuild and replace its property in the
event of a complete loss.” According to the complaint, Musall represented that Harco could
issue a policy for “replacement cost insurance coverage” adequate to rebuild plaintiff’s building
and replace its contents. The complaint additionally alleged that Harco’s failure to provide
replacement cost coverage as promised constituted fraud and innocent misrepresentation. The
complaint also pleaded a promissory estoppel claim and contained counts entitled “Breach of
Fiduciary Duty,” “Breach of Duty to Advise,” and “Negligence,” all similarly premised on
Musall’s inaccurate representation concerning the sufficiency of the promised insurance
coverage. The negligence count set forth seven duties allegedly breached by Musall, including
failures to accurately advise plaintiff and to “accurately represent the nature and extent” of the
building and contents coverage.
Defendants moved for partial summary disposition under MCR 2.116(C)(8), arguing that
pursuant to Harts v Farmers Ins Exch, 461 Mich 1; 597 NW2d 47 (1999), Musall owed plaintiff
no duty to advise it regarding the adequacy of the insurance it requested and, consequently, the
complaint failed to state any claims other than those for breach of contract and recovery of
penalty interest. Defendants explained that plaintiff’s complaint lacked specific allegations
establishing the existence of a special relationship between plaintiff and Musall and that in the
absence of any special relationship, Musall owed plaintiff no duty other than to provide it the
insurance it sought. Defendants withdrew this motion after plaintiff filed an amended complaint
alleging that Musall had misrepresented the “nature and extent of [plaintiff’s] coverage . . . .”
The amended complaint asserted that Musall’s misrepresentations gave rise to a “special
relationship” between the parties and imposed on defendants the duty to “accurately advise
[plaintiff] about the coverage provided” under its policy.
Shortly before the scheduled trial date, defendants filed motions in limine seeking to
prohibit the introduction at trial of (1) communications between plaintiff’s attorneys and Ed
Whalen, Harco’s adjuster, (2) testimony that the Harco policy was “too long or too difficult to
read,” and (3) any opinions regarding “adjusting” offered “by anyone other than a licensed
adjuster.” The trial court denied the motions in limine, and the case proceeded to trial.
The evidence revealed that plaintiff’s Harco policies for 2002-2003 and 2003-2004 stated
a policy limit of $525,000 on plaintiff’s building and shared identical language describing the
building and contents coverage:
C. Limits of Insurance
The most we will pay for loss or damage in any one occurrence is the
applicable Limit of Insurance shown in the Declarations.
G. Optional Coverages
If shown as applicable in the Declarations, the following Optional
Coverages apply separately to each item.
3. Replacement Cost
e. We will not pay more for loss or damage on a replacement cost basis
than the least of (1), (2) or (3), subject to f. below:
(1) The Limit of Insurance applicable to the lost or damaged property;
(2) The cost to replace the lost or damaged property with other property:
(a) Of comparable material and quality; and
(b) Used for the same purpose; or
(3) The amount actually spent that is necessary to repair or replace the
lost or damaged property.
If a building is rebuilt at a new premises, the cost described in e.(2) above
is limited to the cost which would have been incurred if the building had been
rebuilt at the original premises.
f. The cost of repair or replacement does not include the increased cost
attributable to enforcement of any ordinance or law regulating the construction,
use or repair of any property.
Musall testified that since 1998 or 1999 he had met with Jimmy Zaremba, plaintiff’s
business manager, at least twice a year to discuss plaintiff’s insurance needs, Harco’s available
coverages, and potential policy limits. Musall admitted that at some point before plaintiff
accepted Harco’s 2002-2003 insurance proposal, Jimmy presented a “Customgard John Deere
Insurance Proposal” prepared for plaintiff.1 The Deere insurance proposal included a “Building
Coverage” limit of $450,000 and identified an applicable “Extended Recovery Endorsement”
that included “Guaranteed Replacement Cost.” Musall conceded that Jimmy had asked him to
“meet or beat” the Deere proposal and expressed a desire “to be fully insured.” Musall utilized a
software program called “Marshall & Swift” to prepare a “cost estimate” for reconstructing
plaintiff’s building, which calculated a building value of $494,449. According to Jimmy, Musall
represented that Marshall & Swift was “the leader in the industry, and this is what insurance
agents use all the time to come up with evaluations on a building.” Although Musall did not
recall telling Jimmy about the Marshall & Swift estimate, he admitted that after its preparation,
plaintiff increased its building coverage limit to $525,000.
Musall also conceded that he made specific recommendations in response to Jimmy’s
request that plaintiff be “fully insured.” He admitted that he would have recommended more
coverage if he had known that it would cost $1,192,000 to replace the building because the
“intent was there” to insure plaintiff “for the cost of replacing the building.” Musall further
explained that if Jimmy had asked for $1.5 million of building coverage, Musall would have
advised him that “I didn’t feel he needed that much coverage.”
Jimmy recalled that in July 2001 a car had run into a nearby restaurant, killing some
customers. Jimmy heard that the restaurant owner “had a holy nightmare” with his insurance
Although Musall could not remember exactly when Jimmy produced the Deere proposal,
Musall opined that he sold plaintiff at least two additional Harco policies after he and Jimmy
reviewed and discussed the Deere quotation.
company and realized that if something happened to plaintiff’s building, zoning issues would
preclude rebuilding in the same location. At about the same time, Jimmy learned of Deere’s
“guaranteed replacement coverage” and consulted Musall to discuss the adequacy of plaintiff’s
coverage and to communicate his desire that plaintiff be “fully insured.” Jimmy asked Musall to
compare plaintiff’s 2001 Harco coverage, which included an 80 percent coinsurance provision
that obligated plaintiff to cover 20 percent of its own insured losses, with the Deere proposal.
According to Jimmy, Musall represented that for $500 less than the Deere quotation, Harco
would provide a building policy limit of $525,000 and that “with the replacement costs, we
would be fully insured.”
On April 18, 2002, Jimmy signed a two-year “Harco Dealer Package Application,” which
included a “Property Limits Schedule.” The schedule described limits of $525,000 for the
building and eliminated coinsurance. On the same schedule, Musall wrote, “All are agreed
value,” and checked a box indicating that the coverage was based on “replacement” value.
Jimmy admitted that all of Musall’s representations regarding the adequacy of plaintiff’s
coverage, including the Deere and appraisal discussions, concerned the 2002-2003 policy issued
the year before the policy covering the fire loss.
On January 10, 2003, Jimmy met with Musall and accepted Harco’s insurance proposal
for the policy year beginning February 1, 2003. The parties agreed that neither Musall nor Harco
delivered the 2003 policy to plaintiff before the February 21, 2003, fire. Jimmy conceded that he
had not read any of the previous Harco policies, the two-year coverage application that he signed
in 2002, or the renewal application signed in 2003.
The jury found for plaintiff on all claims and awarded damages exactly as itemized by
plaintiff’s accounting expert, including an award of $496,185 for breach of contract, $258,554 in
penalty interest, and $42,481 for “recovery of insurance proceeds.” For plaintiff’s building and
contents, the jury awarded $1,556,558 under three theories separately entitled on the verdict
form: negligence, fraud or innocent misrepresentation, and promissory estoppel. The trial court
denied defendants’ motions for judgment notwithstanding the verdict and a new trial.
On appeal, defendants raise several challenges to the jury’s award relating to the building
and contents coverage. We now address individually each theory supporting those aspects of the
II. Challenges to the Negligence Verdict
A. Comparative Negligence and Plaintiff’s Duty to Read Its Insurance Policy
Defendants challenge the trial court’s refusal to instruct the jury that plaintiff had a duty
to read its insurance policies. Although plaintiff did not receive a copy of the 2003-2004 Harco
policy before the fire, defendants insist that plaintiff owed a duty to read its 2002-2003 insurance
policy and the 2003-2004 insurance quotation it possessed, both of which set forth identical and
specific limitations of building coverage. According to defendants, the earlier policy and the
current quotation language expressly contradict any notion that the policy provided “full
replacement value” coverage. Defendants maintain that plaintiff’s admitted failure to read the
prior policy and the 2003-2004 quotation constituted comparative negligence and was a
proximate cause of plaintiff’s damages. Defendants reason that the trial court thus erred by
failing to instruct the jury regarding plaintiff’s duty to read its policy and by refusing to permit
the jury to assess comparative fault. Plaintiff responds that it cannot be held to a duty to read the
2003-2004 policy that it did not yet possess and contends that Harco cannot “hide behind” policy
language when a special relationship existed between the insurer and the insured.
This Court reviews de novo the content of a trial court’s jury instructions. Case v
Consumers Power Co, 463 Mich 1, 6; 615 NW2d 17 (2000). “In doing so, we examine the jury
instructions as a whole to determine whether there is error requiring reversal. The instructions
should include all the elements of the plaintiff’s claims and should not omit material issues,
defenses, or theories if the evidence supports them.” Id. Whether a duty exists also involves a
question of law, which we consider de novo. Dyer v Trachtman, 470 Mich 45, 49; 679 NW2d
At trial, plaintiff premised its negligence claims on Jimmy Zaremba’s meetings with
Musall in 2002, in which they discussed plaintiff’s interest in “full, replacement coverage” for its
building, the John Deere quotation, and the Marshall & Swift “appraisal.”2 Plaintiff advanced
three theories of liability arising from the 2002 encounters: (1) Musall negligently appraised the
value of plaintiff’s building as $496,000, which represented less than half the building’s actual
replacement value, (2) Musall negligently failed to procure the requested replacement-value
coverage so that plaintiff would be “fully insured,” and (3) Musall negligently failed to advise
plaintiff that the coverage contained in the Harco policy did not provide guaranteed “full
replacement value” in the event of a catastrophic loss, but instead required Harco to pay only a
defined limit of $525,000.
The parties agreed that Harts controlled plaintiff’s ability to prosecute its negligence
claims.3 In Harts, our Supreme Court considered whether an insurance agent owes a duty to
advise an insured regarding the adequacy of coverage. Harts, 461 Mich at 2. “[U]nder the
common law, an insurance agent whose principal is the insurance company owes no duty to
advise a potential insured about any coverage” because the agent’s job consists merely of
“present[ing] the product of his principal and tak[ing] such orders as can be secured from those
who want to purchase the coverage offered.” Id. at 8. In a footnote, the Supreme Court
observed: “This limited role for the agent may seem unusually narrow, but it is well to recall
that this is consistent with an insured’s obligation to read the insurance policy and raise questions
concerning coverage within a reasonable time after the policy has been issued. ” Id. at 8 n 4,
citing Parmet Homes, Inc v Republic Ins Co, 111 Mich App 140, 145; 314 NW2d 453 (1981).
Notwithstanding the general no-duty-to-advise rule, the Supreme Court concluded in
Harts that “when an event occurs that alters the nature of the relationship between the agent and
the insured,” a special relationship may result, creating a duty on the part of the agent to advise
an insured in some respect regarding insurance issues. Harts, 461 Mich at 10. The change in the
agent-insured relationship becomes manifest when
Plaintiff’s counsel contended at oral argument that Jimmy and Musall had a separate and
distinct conversation regarding replacement-value coverage in January 2003. This argument
finds no support in the record.
During a discussion of jury instructions, defense counsel stated: “But I can tell you, since we
started, since this has been decided in ’99, Harts runs the show. I mean, that’s the case that says
what we can do and can’t do . . . .”
(1) the agent misrepresents the nature or extent of the coverage offered or
provided, (2) an ambiguous request is made that requires a clarification, (3) an
inquiry is made that may require advice and the agent, though he need not, gives
advice that is inaccurate, or (4) the agent assumes an additional duty by either
express agreement with or promise to the insured. [Id. at 10-11.]
When a special relationship exists, an agent assumes a duty to advise the insured regarding the
adequacy of insurance coverage. Id. at 10-11.
At trial, defendants conceded that the jury could properly decide whether Musall had
adequately advised plaintiff. A supplemental jury instruction modeled on the Harts specialrelationship criteria, given without objection, began: “[G]enerally, an insurance agent has no
duty to advise a potential insured about any insurance coverage. However, the existence of a
special relationship between an agent and his insured will give rise to a duty to advise.” The
instruction continued by quoting the four Harts criteria for a special relationship, and concluded:
“If you find that a special relationship existed between Plaintiff and Defendant Musall because of
one or more of the four circumstances exists, then the law places upon Mr. Musall a duty to
Although the jury determined that Musall and plaintiff shared a special relationship, we
reject plaintiff’s contention that this finding, standing alone, eliminated any claim of comparative
fault associated with or arising from plaintiff’s duty to read its insurance documents. Under
Harts, an insurance agent may create a special relationship by engaging in conduct inconsistent
with merely taking a customer’s order. But we view as simply illogical the suggestion that an
agent’s decision to undertake additional responsibilities on behalf of an insured immunizes the
insured from the consequences of its own negligence. The negligence of one party does not
eliminate the legal requirement that an opposing party use ordinary care. See Mi Civ JI 10.04.
Further, the law applied in Michigan leaves no room to doubt that as a general rule, an
insured must read his or her insurance policy. As the Supreme Court summarized in Farm
Bureau Mut Ins Co of Michigan v Nikkel, 460 Mich 558, 567; 596 NW2d 915 (1999): “‘This
court has many times held that one who signs a contract will not be heard to say, when
enforcement is sought, that he did not read it, or that he supposed it was different in its terms.’”
(citation omitted). In Casey v Auto-Owners Ins Co, 273 Mich App 388, 394-395; 729 NW2d
277 (2006), this Court similarly observed:
It is well established that an insured is obligated to read his or her
insurance policy and raise any questions about the coverage within a reasonable
time after the policy is issued. Consistent with this obligation, if the insured has
In a footnote, the Supreme Court suggested that a request for “full coverage” might qualify as
“an ambiguous request for coverage” that in certain circumstances could require clarification.
Harts, 461 Mich at 11 n 11.
not read the policy, he or she is nevertheless charged with knowledge of the terms
and conditions of the insurance policy.
In Harts, our Supreme Court specifically and favorably referred to this Court’s decision
in Parmet Homes, in support of the general rule that an agent has no responsibility to advise a
customer regarding coverage. In Parmet Homes, the plaintiff filed suit seeking to recover fire
loss benefits under a builder’s risk policy. Shortly before the plaintiff’s prior policy expired, the
defendant, an independent insurance agency, had switched insurance companies to “better meet
the needs of plaintiff.” Some evidence demonstrated that the agent had not consulted the
plaintiff about the change, but had simply mailed it a copy of the new policy with premium
invoices bearing the new insurance company’s name. While the plaintiff’s former policy
required reports of construction starts every 90 days, the new policy required notice of
construction starts every 30 days. Parmet Homes, 111 Mich App at 143. The defendant
insurance company denied coverage for a fire loss, relying on the 30-day notice provision. Id. at
The plaintiff, insisting that it had not known that the defendant agent had changed
insurers or that a new notice requirement applied, brought a negligence action against the agent.
The plaintiff admitted, however, that it had never read the new policy. Id. at 144. The trial court
instructed the jury as follows:
“Generally, . . . the law in Michigan places a duty upon an insured to read
his insurance policy. It is for you to decide what a reasonably careful person
would, or would not do under the circumstances which you find existed in this
case. If you find that Parmet Homes acted reasonably in believing the policy to
be a renewal of the [Insurance Company of North America] policy, then Parmet
Homes does not have a duty to read the policy. If you find that a reasonably
careful person would have read his policy under the circumstances which you find
existed in this case, you may consider this with respect to the plaintiff’s conduct
in considering contributory negligence.” [Id. at 144-145.]
The defendants objected to the instruction excusing the plaintiff from reading the policy. Id. at
145. This Court approved the instruction, however, because the “plaintiff presented evidence
that it was led to believe” that the new policy merely renewed the prior one, explaining that no
duty to read exists when “a policy is renewed without actual notice to the insured that the policy
has been altered.” Id.
In Holton v A+ Ins Assoc, Inc, 255 Mich App 318, 319; 661 NW2d 248 (2003), this
Court addressed the application of comparative fault principles in a case involving an allegation
This Court recognized in Casey a limited exception to the insured’s duty to read the policy,
which it described as the situation “when the insurer renews the policy but fails to notify the
insured of a reduction in coverage.” Casey, 273 Mich App at 395. In that circumstance, the
insurer remains bound to the earlier policy and is estopped from denying coverage “on the basis
of the discrepancy between the current policy and the prior one that was not brought to the
insured’s attention.” Id. That exception does not apply here.
that an insurance agent negligently failed to secure the coverage requested. The defendant
insurer in Holton argued that the plaintiff’s comparative negligence caused the fire that
ultimately led to an insurance loss. Id. at 320. This Court framed the issue as “whether a
defendant insurer is entitled to an allocation of fault for conduct in an underlying property loss,
when a plaintiff seeks recovery for a shortfall in insurance coverage on the basis of the insurer’s
negligence in procuring insurance.” Id. at 321. The Court held that “the provisions for
comparative negligence” generally apply in a tort-based action brought against an insurance
agent, but that the plaintiff’s alleged negligence in starting the fire had no relevance to a
comparative fault analysis, given that the “[d]efendants have proffered no evidence showing that
plaintiffs’ or the contractor’s alleged negligence in causing the fire is a factor in whether the
resulting property damage would be covered under plaintiffs’ homeowner’s insurance, which
defendants allegedly failed to provide.” Id. at 323-325.6 Notably, the Holton Court specifically
cited MCL 600.2957(1) and MCL 600.6304(1) as authority for its conclusion that the plaintiff’s
action was “tort-based.” Id. at 323-324.
Pursuant to MCL 600.6304, a jury must consider comparative fault if any fault is
attributable to the plaintiff. MCL 600.6304 provides:
(1) In an action based on tort or another legal theory seeking damages for
personal injury, property damage, or wrongful death involving fault of more than
1 person, including third-party defendants and nonparties, the court, unless
otherwise agreed by all parties to the action, shall instruct the jury to answer
special interrogatories or, if there is no jury, shall make findings indicating both
of the following:
(a) The total amount of each plaintiff’s damages.
(b) The percentage of the total fault of all persons that contributed to the
death or injury, including each plaintiff and each person released from liability
under [MCL 600.2925d], regardless of whether the person was or could have been
named as a party to the action.
(2) In determining the percentages of fault under subsection (1)(b), the
trier of fact shall consider both the nature of the conduct of each person at fault
and the extent of the causal relation between the conduct and the damages
The statute defines “fault” as including “an act, omission, conduct, including intentional conduct,
a breach of warranty, or a breach of a legal duty, or any conduct that could give rise to the
In Holton, this Court did not address the insured’s duty to read the policy.
In MCL 600.2957(1), the Legislature provided:
In an action based on tort or another legal theory seeking damages for
personal injury, property damage, or wrongful death, the liability of each person
shall be allocated under this section by the trier of fact and, subject to [MCL
600.6304], in direct proportion to the person’s percentage of fault.
imposition of strict liability, that is a proximate cause of damage sustained by a party.” MCL
The doctrine of comparative fault requires that every actor exercise reasonable care.
Hierta v Gen Motors Corp (On Rehearing), 196 Mich App 20, 23; 492 NW2d 738 (1992). “The
general standard of care for purposes of comparative negligence, while differing in perspective,
is theoretically indistinguishable from the applicable standard for determining liability in
common-law negligence: the standard of conduct to which one must conform for his own
protection is that of ‘a reasonable [person] under like circumstances.’” Lowe v Estate Motors
Ltd, 428 Mich 439, 455-456; 410 NW2d 706 (1987) (citation omitted). The question of a
plaintiff’s negligence for failure to use due care is a question for the jury unless no reasonable
minds could differ or the determination involves some ascertainable public policy considerations.
Rodriguez v Solar of Michigan, Inc, 191 Mich App 483, 488; 478 NW2d 914 (1991).
Because plaintiff’s negligence claims in the instant case are tort-based, we conclude that
the plain language of MCL 600.6304 and MCL 600.2957 required the trial court to give
defendants’ requested instruction regarding comparative negligence. We additionally conclude
that plaintiff’s admitted failure to read the policy could qualify as comparative negligence and
that the trial court should have permitted the jury to consider whether plaintiff unreasonably
failed to read the 2002-2003 policy, the 2002 application, and the 2003-2004 insurance
quotation. We now apply these legal principles to plaintiff’s liability theories.
Plaintiff alleged that Musall negligently failed to procure the insurance coverage that
plaintiff requested: guaranteed replacement-value coverage for its building and contents.
According to plaintiff, Musall also neglected to advise plaintiff that the policy purchased
contained a defined limit rather than the “full replacement coverage” that plaintiff had
specifically requested. Defendants correctly observe that if plaintiff had read its 2002-2003
policy, it would have easily ascertained that regardless of Musall’s representations to the
contrary, the policy clearly and unambiguously provided that the “most we will pay for loss or
damage in any one occurrence is the applicable Limit of Insurance shown in the Declarations.”
In light of plaintiff’s legal duty to read its 2002-2003 insurance policy, a jury could have
reasonably concluded that during the months between plaintiff’s purchase of the 2002-2003
Harco policy and the February 2003 fire, plaintiff negligently failed to question Musall about its
building coverage. Similarly, a jury could have reasonably determined that plaintiff should have
discovered that the policy language contradicted Musall’s representations regarding “full” and
“guaranteed replacement value” coverage.8 Furthermore, MCL 600.6304(1)(b) unambiguously
requires the finder of fact to assess the percentage of fault attributable to a plaintiff if the
plaintiff’s fault constituted a proximate cause of the plaintiff’s damages. “[U]nder [MCL
600.6304], if a defendant presents evidence that would allow a reasonable person to conclude
that a plaintiff’s negligence constituted a proximate cause of [the plaintiff’s] injury and
subsequent damage, the trier of fact must be allowed to consider such evidence in apportioning
fault.” Shinholster v Annapolis Hosp, 471 Mich 540, 552; 685 NW2d 275 (2004). A jury could
We reject plaintiff’s contention that the policy lacked clarity or harbored ambiguity. On the
contrary, the policy clearly stated a coverage limitation of $525,000. See Wilkie v Auto-Owners
Ins Co, 469 Mich 41, 47-51; 664 NW2d 776 (2003).
reasonably conclude that plaintiff’s failure to read its 2002-2003 policy qualified as a proximate
cause of its failure to obtain clarification regarding the Harco policy limits before the February
In contrast, plaintiff’s liability claims arising from Musall’s negligent appraisal of its
building do not logically lend themselves to a comparative negligence analysis. In addition to
plaintiff’s insufficient coverage claim, plaintiff contended that Musall negligently calculated the
replacement value of its building. Plaintiff’s policy and the related documents do not contain,
however, any information that might have called into question the accuracy of the Marshall &
Swift computation or Musall’s allegedly negligent representation that plaintiff could replace its
building within the limits of the policy. Thus, under the negligent appraisal theory of liability,
plaintiff’s own failure to read its insurance documents does not represent a proximate cause of its
Plaintiff submitted all three of its negligence theories to the jury as a single unit, and the
jury returned a general verdict finding negligence on defendants’ part. Although our
comparative negligence analysis applies to some but not all of plaintiff’s negligence claims, we
must nevertheless reverse the entire negligence verdict because it is impossible to determine
which theories of negligence liability the jury adopted. Tobin v Providence Hosp, 244 Mich App
626, 645; 624 NW2d 548 (2001).
Finally, we reject plaintiff’s claim that defendants “waived” a comparative negligence
defense in this case by not including it as an affirmative defense in their first responsive
pleading. Defendants’ answer to plaintiff’s amended complaint included the following
affirmative defense: “Plaintiff has a duty to read the insurance policy and raise questions within
a reasonable time. It cannot claim it was defrauded if it has the policy in its possession because
of its precedent duty. It cannot claim estoppel because it should know what the policy covers.”
Defendants included similar language in their initial answer. Defendants also brought at least
two motions for summary disposition, asserting that plaintiff had a duty to read its policy, and
defendants requested a jury instruction delineating this duty, as well as an instruction regarding
comparative negligence. Defendants’ failure to specifically label the duty to read defense as a
comparative negligence defense should not prevent them from defending on that basis, as they
attempted to do throughout the proceedings. Meridian Mut Ins Co v Mason-Dixon Lines, Inc
(On Remand), 242 Mich App 645, 648; 620 NW2d 310 (2000). Additionally, defendants’ failure
to specifically label plaintiff’s duty to read the policy as an affirmative defense did not foreclose
the trial court from properly instructing the jury regarding comparative fault.
In summary, we hold that when an insurance agent elects to provide advice regarding
coverage and policy limits, the agent owes a duty to exercise reasonable care. The insured has a
duty to read its insurance policy and to question the agent if concerns about coverage emerge. A
jury should consider these corresponding duties in the crucible of comparative negligence.
B. Special Instruction 4(c)
Defendants next contend that the trial court erred when it submitted to the jury special
instruction 4(c), which described one of Musall’s duties as follows: “The duty to properly
procure and place insurance coverage on the Property so that the Policy would meet or exceed all
of [plaintiff’s] expectations regarding such coverage[.]” Defendants argue that this instruction
embodied a “rule of reasonable expectations,” which the Michigan Supreme Court specifically
disapproved in Wilkie v Auto-Owners Ins Co, 469 Mich 41, 51-63; 664 NW2d 776 (2003).
The rule of reasonable expectations permits a court to construe an insurance contract in a
manner contradicted by its unambiguous terms. As described by Professor Keeton, this rule
provides that the “objectively reasonable expectations of applicants and intended beneficiaries
regarding the terms of insurance contracts will be honored even though painstaking study of the
policy provisions would have negated those expectations.” Keeton, Insurance law rights at
variance with policy provisions, 83 Harv L R 961, 967 (1970). In Wilkie, our Supreme Court
rejected any notion that the rule of reasonable expectations, even “objectively reasonable ones,”
applies in Michigan: “The rule of reasonable expectations clearly has no application to
unambiguous contracts. That is, one’s alleged ‘reasonable expectations’ cannot supersede the
clear language of a contract.” Wilkie, 469 Mich at 60.
Contrary to defendants’ argument here, the analysis in Wilkie did not require that the trial
court eliminate special instruction 4(c). Wilkie applies to the construction of insurance contracts,
rather than the duties attendant to the procurement of insurance contracts. The cases overruled in
Wilkie, such as Powers v DAIIE, 427 Mich 602; 398 NW2d 411 (1986), also involved the
construction of contractual language, rather than a determination whether an agent properly
procured the coverage requested by the insured.
An insurance agent owes a duty to procure the insurance coverage requested by an
insured. Khalaf v Bankers & Shippers Ins Co, 404 Mich 134, 142-143; 273 NW2d 811 (1978);
Haji v Prevention Ins Agency, Inc, 196 Mich App 84, 87; 492 NW2d 460 (1992). “The insured’s
agent must strictly follow the insured’s instructions which are clear, explicit, absolute, and
unqualified.” 3 Couch, Insurance, 3d, § 46.28, p 46-33. Special jury instruction 4(c) addressed
Musall’s duty to procure the coverage plaintiff sought. It did not dictate any manner of
construing the words within plaintiff’s insurance policy, the issue resolved by our Supreme Court
Nevertheless, special instruction 4(c) incorrectly stated the law. Musall had no duty to
procure coverage that would “meet or exceed all of [plaintiff’s] expectations.” Instead, the law
only required Musall to procure the coverage actually ordered by plaintiff. Plaintiff’s
expectations might be relevant to this duty, but no recognized legal authority supports the portion
of the instruction given that concerned meeting or exceeding plaintiff’s expectations. Therefore,
on remand, the court should not give this specific portion of the instruction to the jury.
III. Challenges to the Fraud and Innocent Misrepresentation Verdicts
Defendants next contend that plaintiff’s failure to read the policies eliminates plaintiff’s
claims for fraud and innocent misrepresentation. In support of this argument, defendants rely
principally on Nieves v Bell Industries, Inc, 204 Mich App 459, 464; 517 NW2d 235 (1994), in
which this Court observed: “There can be no fraud where a person has the means to determine
that a representation is not true.”
To establish a prima facie case of fraud, a plaintiff must prove that (1) the defendant
made a material misrepresentation, (2) the representation was false, (3) the defendant knew that
it was false when it was made, or made it recklessly, without any knowledge of its truth and as a
positive assertion, (4) the defendant made the representation with the intention that the plaintiff
would act on it, (5) the plaintiff acted in reliance on it, and (6) the plaintiff suffered injury
because of that reliance. Hord v Environmental Research Institute of Michigan (After Remand),
463 Mich 399, 404; 617 NW2d 543 (2000). This Court has frequently reiterated that, to sustain a
fraud claim, the party claiming fraud must reasonably rely on the material misrepresentation.
See Foreman v Foreman, 266 Mich App 132, 141-142; 701 NW2d 167 (2005) (holding that the
plaintiff had to “show that any reliance on defendant’s representations was reasonable”); see also
Bergen v Baker, 264 Mich App 376, 389; 691 NW2d 770 (2004).
An innocent misrepresentation claim requires proof that (1) the defendant made a
material representation, (2) the representation was false, (3) the defendant made it with the
intention of inducing reliance by the plaintiff, (4) the plaintiff acted in reliance on the
representation, and (5) the plaintiff thereby suffered an injury that benefited the defendant.
State-William Partnership v Gale, 169 Mich App 170, 178; 425 NW2d 756 (1988). Reasonable
reliance also must exist to support claims of innocent misrepresentation. Novak v Nationwide
Mut Ins Co, 235 Mich App 675, 690-691; 599 NW2d 546 (1999).
Defendants argue that because the insurance documents previously provided to plaintiff
stated a definite coverage limit of $525,000 applicable to plaintiff’s building, plaintiff could not
have reasonably relied on Musall’s representations in 2001 or 2002 that the policy provided full
replacement coverage. We agree that if plaintiff had read the clear and unambiguous 2002
policy language, it would have learned that the policy did not provide unlimited replacement
value coverage for the building, but had a defined limit of $525,000. Furthermore, because the
record reflects no further discussions between the parties regarding the $525,000 policy limit, see
note 2 of this opinion, we agree with defendants that as a matter of law, plaintiff cannot prevail
on a fraud or innocent misrepresentation theory premised on Musall’s representations regarding
the policy limits. Under the circumstances of this case, plaintiff had the means to determine the
truth or falsity of Musall’s representations. But because plaintiff’s fraud and innocent
misrepresentation claims sound in tort, MCL 600.6304 compels the conclusion that a jury must
decide whether plaintiff’s failure to read the policy constituted a proximate cause of its
However, our resolution of this aspect of plaintiff’s fraud and innocent misrepresentation
claims does not end our inquiry. As noted previously, plaintiff’s fraud and innocent
misrepresentation claims also encompassed Musall’s statements regarding the accuracy of the
Marshall & Swift computation and whether plaintiff could actually replace its building for
$525,000. Neither the policy language nor any documents provided by defendants regarding the
policy would have shed light on the accuracy of the Marshall & Swift estimate or whether
Musall’s representation that the $525,000 coverage limit constituted adequate replacement
coverage. Therefore, the record could support plaintiff’s claims that Jimmy reasonably relied on
Musall to accurately evaluate the cost of replacing the building and also reasonably relied on
Musall’s representation that the Marshall & Swift calculation constituted a reasonable
assessment of the building’s replacement cost. But because the verdict form did not distinguish
between the proper and improper theories of fraud and innocent misrepresentation submitted to
the jury, a new trial is required on the remaining fraud and innocent misrepresentation theories.
Tobin, 244 Mich App at 645-646.
“In determining the percentages of fault under subsection (1)(b), the trier of fact shall consider
both the nature of the conduct of each person at fault and the extent of the causal relation
between the conduct and the damages claimed.” MCL 600.6304(2); see also Holton, 255 Mich
App at 323-326.
IV. Promissory Estoppel
The elements of a promissory estoppel claim consist of (1) a promise (2) that the
promisor should reasonably have expected to induce action of a definite and substantial
character on the part of the promisee and (3) that, in fact, produced reliance or forbearance of
that nature (4) in circumstances requiring enforcement of the promise if injustice is to be
avoided. Booker v Detroit, 251 Mich App 167, 174; 650 NW2d 680 (2002), rev’d in part on
other grounds 469 Mich 892 (2003). “‘A promise is a manifestation of intention to act or
refrain from acting in a specific way, so made as to justify a promisee in understanding that a
commitment has been made.’” State Bank of Standish v Curry, 442 Mich 76, 85; 500 NW2d
104 (1993) (citation omitted). The promise must be definite and clear, and the reliance on it
must be reasonable. Ypsilanti Twp v Gen Motors Corp, 201 Mich App 128, 134; 506 NW2d
556 (1993). This Court has held that no action for promissory estoppel may lie when an oral
promise expressly contradicts the language of a binding contract. See Novak, 235 Mich App at
We agree with defendants that the trial court erred by permitting the jury to consider
plaintiff’s promissory estoppel claim. Plaintiff failed to identify any promises made by Musall
beyond those contained in the insurance policy. Furthermore, Musall’s alleged representations
that plaintiff had “full coverage” or “replacement cost coverage” were not promises, but “words
of assurance or statements of belief . . . .” State Bank of Standish, 442 Mich at 90. Therefore,
on retrial, plaintiff may not submit a promissory estoppel claim to the jury.
V. Expert Testimony Regarding Musall’s Duties
Defendants next assert that the trial court erred by denying their motion for judgment
notwithstanding the verdict based on plaintiff’s failure to offer expert testimony regarding the
standard of care owed by Musall. According to defendants, because Musall was a licensed
professional at the time of his actions and omissions relevant to this case, plaintiff could establish
the standard of care required only through the introduction of expert testimony provided by a
similarly licensed professional. In support of this argument, defendants cite several cases from
other jurisdictions and one unpublished Michigan case, Nofar v Eikenberry, unpublished
memorandum opinion of the Court of Appeals, issued October 30, 1998 (Docket No. 197231).
This Court reviews de novo a trial court’s decision to deny a motion for judgment
notwithstanding the verdict. Attard v Citizens Ins Co of America, 237 Mich App 311, 321; 602
NW2d 633 (1999). The determination whether the nature of a claim involves ordinary
negligence or professional negligence is also subject to review de novo. Bryant v Oakpointe
Villa Nursing Ctr, Inc, 471 Mich 411, 419; 684 NW2d 864 (2004).
Aside from the unpublished Nofar memorandum opinion,10 Michigan’s appellate courts
have not considered the necessity of expert testimony in cases alleging negligence on the part of
Pursuant to MCR 7.215(C)(1), an unpublished opinion has no precedential value. However,
this Court may follow an unpublished opinion if it finds the reasoning persuasive. See Slater v
Ann Arbor Pub Schools Bd of Ed, 250 Mich App 419, 432; 648 NW2d 205 (2002).
an insurance agent. In Nofar, the trial court directed a verdict for the defendants on the
negligence claim because the plaintiff failed to present expert testimony regarding an insurance
agent’s breach of the standard of care. This Court affirmed, explaining that
[p]laintiffs failed to present any evidence as to the standard of care applicable to
insurance professionals. The complaint alleged that although defendants first
bound coverage on the building, they notified plaintiffs prior to the accident that
they exceeded their authority, but would try to obtain alternative coverage. The
complaint alleged that this conduct was negligent and below the standard of care
for professional licensed insurance agents. Where plaintiffs failed to support this
allegation with any evidence as to the proper standard of care, the trial court
correctly granted a directed verdict as to the negligence count. [Nofar, p 2.]
The Court observed elsewhere in Nofar that “[w]here the lack of professional care is so manifest
that it would be within the common knowledge and experience of laypersons, expert testimony is
not required.” Id.
In other jurisdictions, a split of authority exists regarding the necessity of expert
testimony in insurance agent negligence cases. Generally, the opinions focus on the underlying
duty allegedly breached by the agent and evaluate whether the duty inherently involved the
exercise of professional skills likely to fall outside the common understanding of lay jurors. For
example, Atwater Creamery Co v Western Nat’l Mut Ins Co, 366 NW2d 271 (Minn, 1985),
considered a claim that an insurance agent negligently failed to notice an insured’s gap in
coverage and to determine whether insurance was available to fill that gap. The plaintiff had not
requested that the agent review the coverage, but asserted the existence of an independent duty to
do on the basis of their 17-year relationship. Id. at 279. The Minnesota Supreme Court held that
the standard of care required of the agent had to be established through expert testimony because
the claimed deficiency in his performance centered on the “professional judgment of the agent in
the absence of requests for action . . . .” Id.
In Humiston Grain Co v Rowley Interstate Transportation Co, Inc, 512 NW2d 573, 575
(Iowa, 1994), the Iowa Supreme Court observed that “[b]ecause insurance agents are
professionally engaged in transactions ranging from simple to complex, the requirement of
expert testimony varies from jurisdiction to jurisdiction depending on the nature of the alleged
negligent act.” When an agent fails to procure the coverage requested, expert testimony is
generally unnecessary because this circumstance can be “commonly understood by laypersons . .
. .” Id. On the other hand, cases involving an “agent’s alleged failure to discern coverage gaps
or risks of exposure in more complex business transactions” may necessitate expert testimony.
Id. The court ruled in Humiston Grain that expert testimony was required to prove that the
defendant agent had overlooked the plaintiff’s subrogation rights despite the absence of a
specific request for information on this subject. Id. at 575-576.
We agree with the analyses in Atwater Creamery and Humiston Grain that the need for
expert testimony in an insurance coverage case should be determined on a case-by-case basis and
depends on the nature of the underlying claims of negligence raised against the agent. If the duty
alleged to have been breached falls beyond the understanding of the average juror, a trial court
may require that the party alleging negligence produce expert testimony supporting the claim.
This is entirely consistent with longstanding Michigan caselaw holding that when the claimed
negligence involves “‘a matter of common knowledge and observation,’” no expert testimony is
required. Daniel v McNamara, 10 Mich App 299, 308; 159 NW2d 339 (1968) (citation omitted).
Indeed, “while expert testimony is the traditional and the preferred method of proving medical
malpractice, exceptions to the need for expert testimony have been recognized.” Locke v
Pachtman, 446 Mich 216, 230; 521 NW2d 786 (1994).
Plaintiff’s negligence claims against Musall included (1) misrepresentation of coverage
terms, (2) miscalculation of the building replacement costs, (3) failure to advise plaintiff that the
policy did not include “full replacement coverage,” and (4) failure to provide plaintiff with “clear
and accurate advice” in response to plaintiff’s request for replacement value coverage. We
conclude that proof of these allegations does not require expert testimony. The law required
Musall to accurately represent the nature and extent of the coverage. Whether he breached this
duty constitutes a question of fact that the jury could answer on the basis of the jurors’ common
knowledge and ordinary experiences. Similarly, an average juror possesses the capability of
deciding whether Musall provided plaintiff with “clear and accurate advice” regarding the
replacement value coverage or instead failed to advise plaintiff that its coverage would not
suffice to replace its building.
If plaintiff had asserted that Musall’s standard of care required a certain type of appraisal
or a referral for a professional appraisal, or any other specific action, expert testimony might be
necessary. Here, however, plaintiff alleged that Musall voluntarily elected to perform an
appraisal and provided plaintiff with an incorrect building value. Defendants never claimed that
the value Musall selected represented the correct cash value of the premises or the replacement
value. Instead, defendants argued that the Marshall & Swift figure was only a “cost estimate,”
and not an appraisal. Plaintiff’s negligence allegations premised on the miscalculated building
value may be easily and readily understood by a lay juror; the record evidence reveals that
Musall’s miscalculation occurred in part because he applied an incorrect measure of the
building’s square footage to the Marshall & Swift calculation. The miscalculation issue thus
presented relatively simple questions of fact, rather than questions concerning the scope of
standard of care required of Musall. Musall vehemently denied that he used the Marshall &
Swift estimate to appraise the building. If the jury had instead believed that Musall intended the
Marshall & Swift calculation to serve as an appraisal, expert testimony would not have aided the
determination of whether Musall acted negligently.
The dissent argues that “significant questions” regarding Musall’s conduct “fell far
outside” a layperson’s knowledge. Post at ___. We reiterate that, in our view, this record
contains no such questions. Musall admitted that he undertook the Marshall & Swift calculation
to assist plaintiff and claimed that he repeatedly advised Jimmy that the Marshall & Swift value
did not constitute an appraisal. Jimmy denied this and testified that Musall vouched for the
accuracy and reliability of the Marshall & Swift calculation. The jury believed Jimmy, not
Musall. No expert witness could have added anything pertinent to the dispute between the two
parties regarding the content of their conversation. Furthermore, the trial court considered
defendants’ posttrial claim that expert testimony would have assisted the jury in deciding
whether Musall had been negligent and rejected it pursuant to the following logic:
There was ample evidence to support the negligence claim, and . . . I hate
to disparage the man, but I felt it was so obvious that he did an extremely
negligent job as an agent. It was so obvious I’m not sure expert testimony would
have either, number one, [been] needed or would have added anything that wasn’t
so patently obvious. And I don’t know if the transcript will convey that, but it
On retrial, however, should the court conclude that expert testimony will “assist the trier
of fact to understand the evidence or to determine a fact in issue,” it certainly remains free to
permit the testimony, in accordance with MRE 702.
VI. Plaintiff’s Use of Letters Regarding Settlement
Defendants next contend that the trial court erroneously permitted plaintiff to introduce
into evidence “dozens” of presuit letters written by plaintiff’s counsel that contained information
regarding settlement demands and settlement negotiations. Defendants challenge the letters as
constituting hearsay not permitted by any exception to the rule against hearsay and as
inadmissible evidence of settlement negotiations under MRE 408.
This Court reviews for an abuse of discretion a trial court’s decision to admit evidence.
Barnett v Hidalgo, 478 Mich 151, 158-159; 732 NW2d 472 (2007). The abuse of discretion
standard recognizes “‘that there will be circumstances in which there will be no single correct
outcome; rather, there will be more than one reasonable and principled outcome.’” Maldonado
v Ford Motor Co, 476 Mich 372, 388; 719 NW2d 809 (2006) (citation omitted). An abuse of
discretion occurs when the decision results in an outcome falling outside the range of principled
outcomes. Woodard v Custer, 476 Mich 545, 557; 719 NW2d 842 (2006).
Our review of the letters and their use during the trial reveals that plaintiff employed
multiple items of correspondence between the parties to prove that defendants delayed paying
claims that were not reasonably in dispute, in violation of MCL 500.2006, and that the violation
entitled plaintiff to 12 percent statutory penalty interest. Although the trial court submitted this
issue to the jury without objection, the parties later agreed that the court should have decided it.
The trial court independently affirmed the jury’s verdict in a separate posttrial order.
The letters referred to ongoing settlement negotiations, the need for additional
information to resolve various claims, requests by plaintiff for additional and faster payments,
and recapitulated previous events. But MRE 408 provides, in relevant part:
This rule does not require the exclusion of any evidence otherwise
discoverable merely because it is presented in the course of compromise
negotiations. This rule also does not require exclusion when the evidence is
offered for another purpose, such as proving bias or prejudice of a witness,
negativing a contention of undue delay, or proving an effort to obstruct a criminal
investigation or prosecution.
Because the rule explicitly contemplates the admissibility of evidence of settlement-related
discussions for the purpose of “negativing a contention of undue delay,” it logically follows that
evidence of settlement discussions may also qualify as admissible to prove undue delay.
Defendants’ hearsay argument has greater merit. Although plaintiff contends that it did
not offer the letters to prove the truth of the matters asserted in them, plaintiff’s counsel
vigorously argued regarding the substance of the letters during the trial. These arguments,
however, related only to plaintiff’s claim for penalty interest, and on appeal defendants have not
challenged the propriety of the trial court’s entry of that portion of the judgment awarding
penalty interest. Consequently, any error attending the introduction of the letters qualifies as
harmless. MCR 2.613(A) (“An error in the admission or the exclusion of evidence . . . is not
ground for granting a new trial, for setting aside a verdict, or for vacating, modifying, or
otherwise disturbing a judgment or order, unless refusal to take this action appears to the court
inconsistent with substantial justice.”); MRE 103(a) (“Error may not be predicated upon a ruling
which admits or excludes evidence unless a substantial right of the party is affected . . . .”).
It appears unlikely that the challenged letters will be relevant on retrial. Hearsay
evidence contained in the letters may be offered on retrial for a purpose other than “to prove the
truth of the matter asserted” as long as that purpose bears relevance to the underlying claims and
defenses of the parties. MRE 401; MRE 801(c). But we cannot envision how, and we find it
highly unlikely that, the letters might make the existence of Musall’s negligence, or the existence
of fraud or innocent misrepresentation, more probable than these matters would be without the
letters in evidence. MRE 401.
VII. Plaintiff’s Claims for Breach of Contract, Recovery of Insurance Premiums, and Penalty
On appeal, defendants have failed to brief any legal challenges to the jury’s awards
regarding plaintiff’s claims of breach of contract, recovery of insurance premiums, and penalty
interest. Because defendants have neglected to brief any issues criticizing the jury’s verdicts on
these claims, they have abandoned any legal challenges to these verdicts. Dep’t of
Transportation v Initial Transport, Inc, 276 Mich App 318, 334; 740 NW2d 720 (2007), rev’d in
part on other grounds 481 Mich 862, 863 (2008). We therefore affirm the judgment entered with
regard to the jury awards concerning plaintiff’s claims of breach of contract, recovery of
insurance premiums, and penalty interest claims.
We affirm the judgment in favor of plaintiff regarding its claims of breach of contract,
recovery of insurance premiums, and penalty interest. We reverse the judgment in favor of
plaintiff on its claims of negligence, fraud, and innocent misrepresentation and remand this case
for a new trial of these claims consistent with this opinion. We also reverse and vacate the
judgment in favor of plaintiff for promissory estoppel and vacate the trial court’s order granting
case evaluation sanctions and prejudgment and postjudgment interest. We do not retain
Borrello, J., concurred.
/s/ Elizabeth L. Gleicher
/s/ Stephen L. Borrello