Dke Inc v. Secura Insurance Company ( 2020 )

Order Michigan Supreme Court
Lansing, Michigan
January 31, 2020 Bridget M. McCormack,
Chief Justice
158988-9 David F. Viviano,
Chief Justice Pro Tem
Stephen J. Markman
Brian K. Zahra
DKE, INC., Richard H. Bernstein
Plaintiff-Appellee, Elizabeth T. Clement
Megan K. Cavanagh,
Justices
v SC: 158988-9
COA: 333497; 337834
Oakland CC: 2005-068745-CK
SECURA INSURANCE COMPANY,
Defendant-Appellant.
_________________________________________/
On order of the Court, the application for leave to appeal the November 6, 2018
judgment of the Court of Appeals is considered, and it is DENIED, because we are not
persuaded that the questions presented should be reviewed by this Court.
ZAHRA, J. (dissenting).
I respectfully dissent from the Court’s decision to deny the application. Plaintiff,
DKE Inc., sued its insurer, Secura Insurance Company, for denying coverage after
plaintiff’s building was found to have been set on fire by Patrick Winter, the son of
DKE’s owner. Even assuming that United Gratiot Furniture Mart, Inc v Mich Basic
Prop Ins Ass’n 1 was properly decided and that the trial court erred by failing to instruct
the jury that an arsonist must have had “complete dominance and control” over the affairs
of DKE to have precluded insurance benefits for the property the arsonist has burned, 2 I
1
United Gratiot Furniture Mart, Inc v Mich Basic Prop Ins Ass’n, 159 Mich. App. 94
(1987).
2
But for the unique procedural posture involving the law-of-the-case doctrine, I would
question whether United Gratiot was properly decided. Specifically, I would question
the soundness of its holding “that an insurance carrier may assert arson as a defense
against a corporation’s claim of fire loss [only] if it is factually demonstrated that the
individual who set or procured the setting of the fire exercised complete dominance and
control over the affairs of the corporation.” Id. at 101 (emphasis added).
As explained by the United States Court of Appeals for the Sixth Circuit in K & T
Enterprises, Inc v Zurich Ins Co, 97 F3d 171, 177-178 (1996):
It makes little sense to craft a rule that requires an insurance
company to demonstrate that an arsonist completely controlled a
corporation before allowing the insurance company to deny the corporation
the right to collect on a fire insurance policy. First, it will be extremely
difficult for any insurance company to demonstrate that an arsonist had
complete control over a corporation. . . . Second, such a rule would
2
believe, just as did the panel in United Gratiot, that the failure to precisely instruct the
jury on this point of law is not an error that requires reversal of the jury verdict.
Significantly, in United Gratiot, the plaintiff argued that the corporate form should
be disregarded only when the arsonist is the sole shareholder. 3 The trial court rejected
this argument, concluding that “dominance and control” was the appropriate standard,
and denied the plaintiff’s motion for directed verdict. Later, the trial court “instructed the
jury to ignore the corporate existence if it found that the alleged arsonist ‘controlled the
management and the operation of the corporation.’ ” 4 The jury instructions did not
mention “dominance and control,” let alone “complete dominance and control.” 5 These
are phrases used by the panel in United Gratiot in the opinion affirming the trial court’s
action.
In the present case, the trial court gave the following jury instructions:
Defendant has the burden of proof on the following proposition: (1)
That Patrick Winter, to whom the property was entrusted, had dominion
encourage some corporate officers deliberately to remain blissfully ignorant
of any plans for arson by other corporate officers. Third, such a rule gives
an incentive to a financially-distressed corporation plotting arson of the
corporate property to disperse control, or perhaps create formal titles giving
the impression of dispersed control, in order to insure that fire insurance
proceeds can be collected later. Fourth, and most distressingly, by making
it more difficult for insurance companies to deny liability in cases of arson,
it is clear that the ultimate effect of this rule would be to encourage arson
for profit.
For these reasons, the K & T Enterprise court surmised that there is “no reason to
assume that the Michigan Supreme Court would extend United Gratiot, rather than limit
it to its core holding.” Id. at 179. Accordingly, the K & T Enterprise court agreed with
the insurer’s reading of United Gratiot as stating that “complete control of the
corporation is a sufficient condition to proper denial of liability, but . . . the facts of that
case do not require our court to conclude that complete control is a necessary condition
for proper denial of liability.” Id. at 177.
3
United Gratiot, 159 Mich. App. at 97-98.
4
Id. at 102.
5
The trial court confessed that “the instructions as to this test of ‘dominance and control’
were scanty . . . .” Id. at 103. The Court of Appeals held that “[w]hile we agree that the
instruction could have been more specific, we do not believe reversal is required. If a
jury charge is erroneous or inadequate, reversal is required only where failure to reverse
would be inconsistent with substantial justice.” Id.
3
and control over the affairs of the corporation DKE Inc. and the property at
21751 W. Nine Mile Road[.]
* * *
The defendant insurance company is not required to pay for this loss
if you find that a person in sufficient control of DKE committed arson.
* * *
Exactly how much control constitutes sufficient control is a decision
left to your good judgment.
* * *
The fact that an alleged arsonist is not a stockholder of the
corporation at the time of the fire does not in and of itself mean that the
alleged arsonist was not exercising the requisite amount of dominion and
control over the affairs of the corporation to preclude coverage of the claim.
* * *
If Patrick Winter exercised sufficient control over the corporation
DKE’s affairs, any . . . arson on his part would be imputed to the
corporation.
DKE maintains that the above instructions do not follow the exact verbiage of
United Gratiot, which refers to “complete dominance and control.” 6 In my view,
6
DKE relies on Black’s Law Dictionary to give meaning to the words “complete” and
“sufficient” as used by the Court of Appeals panel in United Gratiot. Preliminarily,
resort to a dictionary is most useful in the interpretation of statutes, as we assume the
Legislature accorded the plain and ordinary meaning to the words used to write the law.
Dictionaries are far less helpful in defining words used by courts in the interpretation of
statutes, contracts, or the common law, as such interpretations are largely driven by
context and the application of the facts to the applicable law. Contrary to the assertions
advanced by DKE, I conclude that resort to dictionaries is entirely unhelpful in
understanding the holding in United Gratiot. First, resort to a legal dictionary is not an
appropriate tool of interpretation to define words that do not have unique legal meaning.
“ ‘An undefined statutory term must be accorded its plain and ordinary meaning. A lay
dictionary may be consulted to define a common word or phrase that lacks a unique legal
meaning.’ ” Hecht v Nat’l Heritage Academies, Inc, 499 Mich. 586, 621 n 62 (2016),
quoting Brackett v Focus Hope, Inc, 482 Mich. 269, 276 (2008). Second, it appears that
DKE has engaged in some dictionary shopping, especially in regard to the word
4
comparison of the instructions in the present case to a snippet from the United Gratiot
opinion misses the point. DKE and the Court of Appeals majority fail to appreciate that
sufficient control is premised on the instruction that “[d]efendant has the burden of proof
on the following proposition: . . . That Patrick Winter, to whom the property was
entrusted, had dominion and control over the affairs of the corporation DKE Inc. and the
property at 21751 W. Nine Mile Road[.]” Thus, the issue is whether plaintiff was denied
substantial justice when the trial court instructed the jury that defendant must show
Patrick Winter exercised “sufficient dominance and control” instead of “complete
dominance and control.” I view this as a distinction without much of a difference.
Further and more importantly, the Court has failed to recognize that this is a
contract case, the outcome of which turns on the terms of the contract. Defendant denied
coverage on the basis of a provision of the policy that states:
2. We will not pay for loss or damage caused by or resulting from
any of the following:
* * *
f. Dishonesty
Dishonest or criminal acts by you, anyone else with an interest in the
property, or any of your or their partners, employees, directors, trustees,
authorized representatives or anyone to whom you entrust the property for
any purpose:
(1) Acting alone or in collusion with others;
(2) Whether or not occurring during the hours of employment.
“control.” “Complete” is commonly defined as “having all necessary parts, elements, or
steps.” Merriam-Webster’s Collegiate Dictionary (11th ed). “Sufficient” is commonly
defined as “enough to meet the needs of a situation or a proposed end.” Id. I make this
observation to highlight that the common definitions of “complete” and “sufficient” are
not as strikingly dissimilar as DKE would suggest.
5
Although a provision may be added to a fire insurance policy, it must be consistent
with the mandates of MCL 500.2833; any provision of a policy that is contrary to the
provisions of MCL 500.2833 is void. The above exclusion is consistent with MCL
500.2833, which only specifically requires, in pertinent part, that fire insurance policies
contain a provision stating “that the policy may be void on the basis of misrepresentation,
fraud, or concealment.” MCL 500.2833(1)(c). Further, MCL 500.2236(1) requires that
all “basic insurance policy” forms be filed with the Department of Insurance and
Financial Services and be approved by its director, the Commissioner, before a policy
may be issued by an insurance company. See MCL 500.102. If the Commissioner fails
to act within 30 days after the policy form is submitted, the form is deemed approved.
MCL 500.2236(1).
Here, the Commissioner approved the policy and the policy is presumptively, if
not conclusively, reasonable. On the other hand, the Commissioner has not approved any
provision requiring that “misrepresentation, fraud, or concealment” be committed by
someone with “complete dominion and control over the affairs of the corporation.”
Indeed, I conclude that this standard is plainly contrary to MCL 500.2833 in that it
precludes a determination of “misrepresentation, fraud, or concealment” if committed by
someone who does not have “complete dominion and control over the affairs of the
corporation.” Comparing the pertinent insurance contract language to the instructions
provided the jury on the question of dominion and control, I cannot conclude that
defendant was denied substantial justice. Accordingly, because the jury was adequately
instructed, I would hold that the Court of Appeals erred by reversing the jury verdict.
MARKMAN, J., joins the statement of ZAHRA, J.
CAVANAGH, J., did not participate due to her prior relationship with Garan Lucow
Miller, P.C.
I, Larry S. Royster, Clerk of the Michigan Supreme Court, certify that the
foregoing is a true and complete copy of the order entered at the direction of the Court.
January 31, 2020
a0128
Clerk