Craft Recreation Company LLC v. Home-Owners Insurance Company ( 2015 )

STATE OF MICHIGAN
COURT OF APPEALS
CRAFT RECREATION COMPANY, LLC, d/b/a UNPUBLISHED
LAKEWOOD LANES, September 15, 2015
Plaintiff-Appellee,
v No. 321435
Oakland Circuit Court
HOME-OWNERS INSURANCE COMPANY, LC No. 2013-136669-CB
Defendant-Appellant.
Before: MURRAY, P.J., and METER and OWENS, JJ.
PER CURIAM.
In this insurance coverage dispute, defendant appeals as of right a judgment for plaintiff
and challenges an opinion and order granting summary disposition to plaintiff. Resolution turns
on whether defendant’s insurance policy was authorized under MCL 500.2826 or MCL
500.2827, provisions of the Michigan Insurance Code, MCL 500.100 et seq. We hold that the
trial court correctly determined that plaintiff’s policy falls under § 2827 and thus, defendant was
required to remit the policy limits to plaintiff without regard to whether the structure was
actually repaired or replaced because the damage exceeded the policy limits.
Plaintiff is a limited liability company which operated a bowling alley under the name
Lakewood Lanes. The business premises were insured by defendant. In August 2012, a fire
destroyed the business, resulting in a total loss. The parties do not dispute that the damages were
in excess of the policy limit. The policy between the parties provided:
d. [Defendant] will not pay on a replacement cost basis for any loss or
damage:
(1) Until the lost or damaged property is actually repaired or replaced;
and
(2) Unless the repairs or replacement are made as soon as reasonably
possible after the loss or damage.
e. [Defendant] will not pay more for loss or damage on a replacement cost
basis than the least of:
-1-
(1) The Limit of Insurance applicable to the lost or damaged property;
(2) The cost to replace, on the same premises, the lost or damaged
property with other property:
(a) Of comparable material and quality; and
(b) Used for the same purpose[.]
Defendant refused to remit the full policy limit and argued that plaintiff was required to rebuild
the structure before it would become liable. Plaintiff filed suit; both parties moved for summary
disposition. Relying on Cortez v Fire Ins Exch, 196 Mich. App. 666; 493 NW2d 505 (1992), and
distinguishing Smith v Mich Basic Prop Ins Ass’n, 441 Mich. 181; 490 NW2d 864 (1992), the
trial court held that the policy language fell under § 2827, and that plaintiff was therefore entitled
to recover up to the policy limit.
The construction and interpretation of an insurance contract is a question of law subject
to de novo review. Henderson v State Farm Fire & Cas Co, 460 Mich. 348, 353; 596 NW2d 190
(1999). The interpretation of a statute is reviewed de novo, McAuley v Gen Motors Corp, 457
Mich. 513, 518; 578 NW2d 282 (1998), overruled in part on other grounds by Rafferty v Markovitz,
461 Mich. 265, 273 n 6; 602 NW2d 367 (1999), as is a decision on a motion for summary disposition,
Rory v Continental Ins Co, 473 Mich. 457, 464; 703 NW2d 23 (2005).
Interpretation of insurance policy terms follows Michigan’s established principles of
contract construction. Henderson, 460 Mich. at 353.
First, an insurance contract must be enforced in accordance with its terms. A
court must not hold an insurance company liable for a risk that it did not assume.
Second, a court should not create ambiguity in an insurance policy where the
terms of the contract are clear and precise. Thus, the terms of a contract must be
enforced as written where there is no ambiguity. [Id. at 354 (citations omitted).]
However, if there is ambiguity in the contract, the ambiguity will be “liberally construed in favor of
the insured and against the insurer, who drafted the contract.” Morinelli v Provident Life & Acc Ins
Co, 242 Mich. App. 255, 262; 617 NW2d 777 (2000).
The foremost rule of statutory construction or interpretation is to discern and give effect to
the intent of the Legislature. Sun Valley Foods Co v Ward, 460 Mich. 230, 236; 596 NW2d 119
(1999). Each word or phrase of a statute is given its commonly accepted meaning, unless a word or
phrase is expressly defined, and then courts must apply it in accordance with that definition.
McAuley, 457 Mich. at 518. “To discern the true intent of the Legislature, the statutes must be read
together, and no one section should be taken in isolation.” Apsey v Memorial Hospital, 477 Mich.
120, 132 n 8; 730 NW2d 695 (2007).
MCL 500.2806 provides that a “policy or contract of fire insurance shall not be made,
issued, or delivered . . . unless it conforms to the provisions of this chapter.” Two separate
provisions may authorize the policy at issue. Section 2826 provides:
-2-
An insurer may issue a fire insurance policy, insuring property, by which
the insurer agrees to reimburse and indemnify the insured for the difference
between the actual value of the insured property at the time any loss or damages
occurs, and the amount actually expended to repair, rebuild, or replace with new
materials of like size, kind, and quality, but not to exceed the amount of liability
covered by the fire policy. A fire policy issued pursuant to this section may
provide that there shall be no liability by the insurer to pay the amount specified
in the policy unless the property damaged is actually repaired, rebuilt, or replaced
at the same or another site.
In contrast, § 2827 provides:
(1) An insurer may issue a fire policy, insuring property, by which the
insurer agrees to reimburse and indemnify the insured for the difference between
the actual cash value of the lost or damaged insured property at the time of the
loss or damage, and the amount actually necessary to repair, rebuild, or replace
the lost or damaged insured property to a condition and appearance similar to that
which existed at the time of the loss or damage based on the use of conventional
materials and construction methods which are currently available without
extraordinary expense. The insurer’s liability shall not exceed the amount of
liability covered by the contract of insurance.
* * *
(3) The contract of insurance established pursuant to subsection (1) may
provide that there shall be no liability on the part of the insurer to pay an amount
in excess of the actual cash value of the lost or damaged insured property at the
time of the loss or damage, unless the lost or damaged property is actually
repaired, rebuilt, or replaced at the same or another contiguous site. However,
this subsection shall not apply if the amount of loss or damage to the insured
property under the standards of subsection (1) exceeds the amount of liability
covered by the contracts.
The policy at issue states that the insurer will cover the cost to replace or repair the property with
other property of “comparable material and quality.” The policy in Smith referred to “like
construction and use,” Smith, 441 Mich. at 185 n 3, while in Cortez the policy required
“equivalent construction,” Cortez, 196 Mich. App. at 669. Section 2826 covers the use of “new
materials of like size, kind, and quality,” while § 2827 covers the use of “conventional materials
and construction methods.” The language from neither case nor statute exactly matches that of
the policy at issue.
-3-
The word “like” means, in part, “of the same form, appearance, kind, character,
amount[.]” Random House Webster’s College Dictionary (1997).1 The word “conventional”
means, in part, “conforming or adhering to accepted standards” and “ordinary rather than
different or original.” Id. Turning to the words in the policies, “equivalent” means, in part,
“equal in value, measure, force, effect, or significance,” while the term “comparable” means, in
part, “capable of being compared; permitting comparison,” and “compare” means, in part, “to
examine . . . in order to note similarities and differences” and “to consider or describe as similar;
liken[.]” Id.
These definitions show that the term “like” includes an element of being “the same,”
while “comparable” includes the examination of similarities and differences. A different
material could be used in repairing a home under § 2827 as long as the differences did not
outweigh the similarities. In addition, § 2826 refers to “new materials . . . .” This Court has
determined that “equivalent construction” clauses are authorized under § 2827, which allows
“conventional materials and construction methods.” Cortez, 196 Mich. App. at 668-669. The
Cortez Court stated:
Defendant contends contract provisions limiting an insurer’s liability to
pay replacement cost only in the event the damaged property is actually repaired
or rebuilt are expressly authorized by statute. We agree. Section 2826 of the
Insurance Code . . . provides for this type of insurance contract. However, § 2826
. . . addresses replacement-cost insurance provisions that require the insurer to
provide replacement with “new materials of like size, kind and quality.” The
contract of insurance at issue in this case provides for replacement cost for
“equivalent construction.” Thus, this policy is subject to § 2827 of the code, . . .
which addresses replacement-cost policies that require the insurer to rebuild or
replace the lost or damaged property “to a condition and appearance similar to
that which existed at the time of loss based on the use of conventional materials
and construction methods.” [Cortez,196 Mich App at 668-669 (emphasis in
original).]
The “comparable material” phrasing under the policy here is most closely authorized under the
“conventional materials” phrasing of § 2827 and is similar to the phrase “equivalent
construction” construed in Cortez. Contrary to defendant’s argument, Smith does not control
because it did not address the distinctions between the sections. See Smith, 441 Mich. at 187 n 6.
Finally, any ambiguity must go against the defendant, who drafted the policy. Morinelli, 242
Mich. App. at 262. Therefore, the trial court did not err in applying § 2827(1) and (3) and in
granting summary disposition to plaintiff.
1
The terms are not defined in the statute and thus this Court may look to the dictionary for the
ordinary meaning of the words. Stanton v Battle Creek, 466 Mich. 611, 617; 647 NW2d 508
(2002).
-4-
Affirmed.
/s/ Christopher M. Murray
/s/ Patrick M. Meter
/s/ Donald S. Owens
-5-