Meridian Mutual Insurance v. Wypij , 226 Mich. App. 276 ( 1998 )

573 N.W.2d 320 (1997) 226 Mich. App. 276

MERIDIAN MUTUAL INSURANCE COMPANY, Plaintiff-Appellee,
v.
Lawrence WYPIJ, d/b/a Vip-E Construction, Defendant, and
Jack D. Cox, Defendant-Appellant.

Docket No. 180794.

Court of Appeals of Michigan.

Submitted August 12, 1997, at Detroit. Decided November 4, 1997, at 9:00 a.m. Released for Publication February 10, 1998.

William J. Leidel, Detroit, for plaintiff-appellee.

Bernstein & Bernstein by Michael J. Butler, Southfield, for Jack D. Cox.

Before WAHLS, P.J., and TAYLOR and HOEKSTRA, JJ.

WAHLS, Presiding Judge.

Defendant Jack D. Cox appeals as of right from an order granting plaintiff's motion for summary disposition and denying his motion for summary disposition in this declaratory judgment action. We affirm.

Plaintiff Meridian Mutual Insurance Company issued a commercial general liability policy to defendant Lawrence Wypij, who was doing business as Vip-E Construction. The policy covered bodily injury, but contained an exclusion for employees:

2. Exclusions.

This insurance does not apply to:

* * * * * *

e. "Bodily injury" to:

(1) An employee of the insured arising out of and in the course of employment by the insured; or

(2) The spouse, child, parent, brother or sister of that employee as a consequence of (1) above.

This exclusion applies:

(1) Whether the insured may be liable as an employer or in any other capacity; and

(2) To any obligation to share damages with or repay someone else who must pay damages because of the injury.

This exclusion does not apply to liability assumed by the insured under an "insured contract."

While this policy was in effect, defendant Wypij hired defendant Cox to work on a roofing project on a residential home. While working on the project, Cox apparently fell from the roof because of an improperly installed roofing jack and sustained serious injuries. Cox sued Wypij, and plaintiff then brought a declaratory judgment action to determine the parties' rights under the insurance contract. In the declaratory judgment action, the trial court found that the employee exclusion clause in the insurance policy applied to Cox's claim and held that plaintiff had no duty to defend or indemnify Wypij.^[1] The only question on appeal is whether the trial court properly applied the employee exclusion clause.

Defendant Cox argues that the employee exclusion provision should not bar coverage in this case. He offers two alternative grounds for this assertion: (1) he was not an "employee" as that term is used in the insurance policy, and (2) an employee exclusion clause should only be applied where the employee can bring a claim under the Worker's Disability Compensation Act (WDCA), M.C.L. § 418.101 et seq.; M.S.A. § 17.237(101) et seq. We disagree.

The construction of a contract with clear language is a question of law that we review de novo. Auto Club Ins. Ass'n v. Lozanis, 215 Mich.App. 415, 418-419, 546 N.W.2d 648 (1996). Courts view insurance contracts similarly to other contracts, as agreements between the parties, and will determine the terms of the agreement and enforce them accordingly. Id.at 419, 546 N.W.2d 648. If terms are not defined in the contract, they will be interpreted in accordance with their common usage. While ambiguities in a policy are generally construed in favor of the insured, the Court will not create ambiguities where none exist. Cavalier Mfg. Co. v. Employers Ins. of Wausau (On Remand), 222 Mich.App. 89, 94, 564 N.W.2d 68 (1997).

In this case, the trial court noted that the term "employee" is not defined in the insurance contract. The court then apparently relied on the "economic reality test" to determine whether Cox was an employee. Under these circumstances, we believe that the economic reality test properly aided the trial court in determining whether Cox was an "employee" for purposes of the contract. The economic reality test involves four basic factors: (1) control of the worker's duties; (2) payment of wages; (3) the right to hire, fire, and discipline; and (4) performance of the duties toward the accomplishment of a common goal. Hoste v. Shanty Creek Management, Inc., 221 Mich.App. 144, 149, 561 N.W.2d 106 (1997). In applying these factors, the totality of the circumstances surrounding the work must be examined, with no single factor controlling. Id. In worker's compensation cases, the economic reality test is used to help distinguish between an employee and an independent contractor. Id. at 148,561 N.W.2d 106.

While the economic reality test has generally been applied to claims brought under the WDCA, this Court has also applied it in other circumstances. See, e.g., Chilingirian v. City of Fraser, 194 Mich.App. 65, 69-70, 486 N.W.2d 347 (1992), remanded to the Court of Appeals 442 Mich. 874, 500 N.W.2d 470 (1993), opinion on remand 200 Mich.App. 198, 504 N.W.2d 1 (1993) (economic reality test used to determine whether the plaintiff was an employee under the Whistleblowers' Protection Act); Citizens Ins. Co. of America v. Auto. Club Ins. Ass'n, 179 Mich.App. 461, 464-465, 446 N.W.2d 482 (1989) (economic reality test is the appropriate standard to determine the existence of an employment relationship under the no-fault act); McCarthy v. State Farm Ins. Co., 170 Mich.App. 451, 454-456, 428 N.W.2d 692 (1988) (economic reality test was appropriate to determine whether the defendant was an "employer" of the plaintiffs under the Civil Rights Act); Imbrunone v. Inkster Public Schools, 161 Mich.App. 132, 135-136, 410 N.W.2d 300 (1987) (economic reality test was appropriate to determine which school districts were the petitioner's employers for purposes of the teacher tenure act).

We recognize that, until now, we have not used the economic reality test in cases involving construction of a private contract. However, we conclude that the test properly focuses on the characteristics of an employer-employee relationship, regardless of the context in which it is applied. In addition, as noted above, the test is especially useful in distinguishing between employees and independent contractors. Thus, we conclude that in a case such as this, where the term "employee" is not defined in the contract and where one party alleges that the business relationship was one of being an independent contractor rather than being an employee, a trial court may properly apply the economic reality test.^[2]

In this case, there is evidence that both Cox and Wypij viewed Cox as an independent contractor. However, neither Cox nor Wypij had the authority to bind plaintiff on this point. We agree with the trial court that Cox was in fact an employee. In addition to the four-factor economic reality test identified above, this Court has identified eight principles that comprise basically the same test, but illuminate additional factors that may be helpful in determining the existence of an employer-employee relationship. Hoste, supra at 149-150, 561 N.W.2d 106. While most of these additional factors are not applicable here, we note two that are helpful: (1) Does the employee furnish his own equipment and materials? and (2) Does the individual seeking employment hold himself out to the public as one ready and able to perform tasks of a given nature?

The deposition testimony in the record below makes it clear that the four factors in the economic reality test and the two additional factors identified above all weighed in favor of a finding that Cox was an employee. The evidence below established that (1) Wypij controlled the type and amount of work performed by Cox, (2) Wypij paid Cox's wages, (3) Wypij hired Cox, and had the authority to fire him, (4) Cox performed his duties toward the accomplishment of a common goal, that is, the completion of Wypij's projects, (5) Cox used Wypij's tools, and (6) Cox did not hold himself out to the public as an independent contractor ready and able to perform work, but, instead, he simply worked on Wypij's projects under Wypij's direction. Under these circumstances, Cox was clearly an employee rather than an independent contractor, and the trial court properly granted summary disposition for plaintiff.

Defendant Cox argues that even if he could be considered an employee, an employee exclusion clause should not be applied where, as here, the injured worker cannot make a claim under the WDCA. We disagree. Cox cites Michigan Mut. Liability Co. v. Ohio Casualty Ins. Co., 123 Mich.App. 688, 333 N.W.2d 327 (1983), overruled in part in Century Mut. Ins. Co. v. League General Ins. Co., 213 Mich.App. 114, 120-121, 541 N.W.2d 272 (1995), to support his position. The panel in Michigan Mutual, supra at 696-699, 333 N.W.2d 327, held that an employee exclusion clause similar to the one at issue here did not exclude coverage for an injury to an employee of the named insured. However, Michigan Mutual is factually distinguishable from the instant case. First, the injured employee was not seeking to sue his employer, who was the named insured.

Instead, the employee sued a third party who was covered under the omnibus provisions of his employer's policy. Id.at 695-697, 333 N.W.2d 327. The panel in Michigan Mutual found that the "insured" for purposes of the employee exclusion clause was the party claiming coverage, rather than the named insured. The Court relied in part on the presence of a severability of interest clause in the insurance policy. Id. at 696-699, 333 N.W.2d 327. Our case is distinguishable regarding this point, because there is no question that Cox sued his employer, rather than a third party.

Michigan Mutual is also distinguishable on at least one other ground. The panel there relied on its interpretation of the purpose of the employee exclusion clause: "The obvious purpose of the employee exclusion is to make clear that the automobile liability policy does not provide coverage for claims arising under workers' compensation laws." Id. at 696-697, 333 N.W.2d 327. While this may have been the purpose of the employee exclusion clause in Michigan Mutual, we must conclude that the employee exclusion clause in this case had a broader purpose. In construing contracts, we must look at the policy as a whole and give meaning to all terms. Auto-Owners Ins. Co. v. Harrington, 455 Mich. 377, 381, 565 N.W.2d 839 (1997). Here, the policy contained a separate clause that made it clear that any claims covered under the worker's compensation laws are excluded from coverage. Thus, in order to give meaning to all terms in the contract, we must assume that the employee exclusion clause had some purpose beyond simply excluding worker's compensation claims. We conclude that the purpose of the employee exclusion clause in this case was, just as it states, to exclude coverage for any claim for bodily injury to an employee of the insured arising out of and in the course of employment by the insured. Thus, Michigan Mutual is distinguishable, and the trial court properly granted summary disposition for plaintiff.

Affirmed.

NOTES

[1] Wypij never responded to the declaratory judgment suit, and a default was entered against him. Wypij has not appealed.

[2] Although an independent contractor might still be considered an "employee" in some circumstances, see Chilingirian v. City of Fraser (On Remand), 200 Mich.App. 198, 200, 504 N.W.2d 1 (1993), we must strictly construe the employee exclusion in favor of the insured. Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 567, 489 N.W.2d 431 (1992). Thus, in the absence of any definition in the insurance contract, we will define the term "employee" narrowly to exclude an independent contractor.