Insurance

This summary also appears under Contracts

 

Issues: Interpretation & application of a CGL policy; Whether the contractual liability exclusion precluded coverage; Frankenmuth Mut. Ins. Co. v. Masters; Auto-Owners Ins. Co. v. Harrington; Hunt v. Drielick; Exclusionary clauses; Auto-Owners Ins. Co. v. Churchman; American Family Mut. Ins. Co. v. American Girl, Inc. (WI); "Property damage" defined; "Assumption of liability" defined; Pugh v. Zefi; "Especially" defined; Klapp v. United Ins. Group Agency, Inc.; "Assumed liability" defined; Gibbs M. Smith v. U.S. Fid. & Guar. Co. (UT); Olympic, Inc. v. Providence Wash Ins. Co. of AK; Fultz v. Union-Commerce Assoc.; MCL 440.2314 & 2315; Claim that jurisdictions have applied a "term of art" approach to interpreting the contractual liability exclusion in a manner that does not comport with Michigan's "plain meaning" approach to contract interpretation; Gilbert Texas Constr., LP, v. Underwriters at Lloyd's London (TX); Ewing Constr. Co. v. Amerisure Ins. Co. (TX); Envision Builders, Inc. v. Citizens Ins. Co. of Am.; Stare decisis; MCR 7.215(C)(1); Dyball v. Lennox; Claim that the trial court expanded the scope of the CGL policy to include contract claims; Radenbaugh v. Farm Bureau Gen. Ins. Co.; U.S. Fid. & Guar. Co. v. Citizens Ins. Co. of Am.; Gleason v. Michigan Dep't of Transp.; The Uniform Commercial Code (UCC)(MCL 440.2101 et seq.)

Court: Michigan Court of Appeals (Published)

Case Name: Travelers Prop. & Cas. Co. of Am. v. Peaker Servs., Inc.

e-Journal Number: 57660

Judge(s): Per Curiam – Borrello, Servitto, and Beckering

 

Defining "assumption of liability" for the first time, the court held that "in the context of a CGL policy, 'assumption of liability' means assuming the legal obligations or responsibilities of another." In this case, it held that "defendant did not assume the legal obligations or responsibilities of another when it contracted with the university to provide goods and services of a particular quality and to return the university's property to 'as was' condition in the event the university's property was damaged during completion of the contract." Thus, it held that the contractually-assumed liability exclusion in the CGL policy did not preclude coverage in this case and the trial court reached the correct result, albeit for different reasons. Defendant-insured, a corporation involved in the business of servicing commercial power generation systems, was hired to do work for a university. Following problems with the job, the university filed a breach of contract action against defendant. Defendant filed a claim with plaintiff-insurer under the CGL policy seeking defense and indemnity. Plaintiff claimed that it did not have a duty to defend and indemnify defendant in part because defendant's claim was excluded under the CGL policy's "contractual liability" exclusion. On appeal, plaintiff argued that the trial court erred in holding that the contractual liability exclusion did not preclude coverage. Plaintiff did not argue that the university's property damage did not arise from an "occurrence" within the meaning of the CGL's general insurance agreement. Instead, it contended coverage was precluded by the policy's contractual liability exclusion. Thus, the court proceeded by determining whether the contractual-liability exclusion applied to negate coverage. The critical language in the exclusion is the phrase, "assumption of liability," particularly, the term "assumption." Plaintiff argued that the term encompasses all contracts wherein the insured assumed any liability, including his or her own liability. Defendant argued that the term "assumption of liability" is generally understood to mean situations wherein an insured assumed the liability of a third party, such as indemnity or hold harmless agreements and that "assuming liability" is wholly distinct from assuming a duty to perform a contract in a certain manner. The CGL policy does not define the phrase "assumption of liability," and there was no published case law in Michigan defining the phrase in this context. The court held that consistent with "Olympic and American Family, many other courts and legal authorities have concluded that the contractual liability exclusion is limited to contracts wherein the insured assumes the liability of another." It found these authorities persuasive and held that "'assumption of liability' in the context of a CGL policy's contractually assumed liability exclusion refers to those contracts or agreements wherein the insured assumes the liability of another." In the event that the insured is a seller of goods, "the insured has additional inherent liabilities under the UCC." Thus, "in a contract, an insured need not assume liability for something that the law already imposes - i.e. liability for damages arising from breach of that contract." Affirmed.

 

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