AMI Stamping, LLC v. ACE American Insurance Co.

NOT RECOMMENDED FOR PUBLICATION
File Name: 17a0557n.06
No. 16-2341
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT FILED
Oct 05, 2017
DEBORAH S. HUNT, Clerk
AMI STAMPING, LLC, )
)
Plaintiff-Appellant, )
)
ON APPEAL FROM THE
v. )
UNITED STATES DISTRICT
)
COURT FOR THE EASTERN
ACE AMERICAN INSURANCE COMPANY, )
DISTRICT OF MICHIGAN
)
Defendant-Appellee. )
)
BEFORE: COLE, Chief Judge; ROGERS and GRIFFIN, Circuit Judges.
GRIFFIN, Circuit Judge.
In this insurance contract dispute, the district court ruled that defendant ACE American
Insurance Company was entitled to rescind plaintiff AMI Stamping, LLC’s insurance policy
because AMI made a material misrepresentation regarding property value at the time it applied
for coverage. The district court granted summary judgment in favor of ACE. We affirm.
I.
AMI is a Michigan limited liability company. Because it has no employees, it transacts
business through its chairman or the employees of affiliated company Revstone Industries, LLC.
Revstone purchases insurance for itself and its affiliated entities through insurance agency Todd
Associates, Inc. Spankie Carolanne, who is licensed to sell property and casualty insurance
“with the State of Ohio,” manages the Revstone account at Todd Associates. In that capacity,
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AMI Stamping LLC v. ACE American Ins. Co.
she “obtain[s] insurance based on the risk characteristics . . . and the exposures that [her clients]
have[.]” She also handles client calls and correspondence, produces insurance proposals and
applications, “counsel[s] the insured when they have questions about insurance[,]” and
“market[s] [insurance accounts] to various companies” when the policies come up for renewal.
In 2009, Revstone purchased a commercial properties policy from ACE issued by ACE’s
managing general agent Starr Technical Risks Agency, Inc.1 The policy provided replacement
cost coverage. The policy contained a Commercial Property Conditions provision that voided
coverage if the insured “intentionally conceal[ed] or misrepresent[ed] a material fact concerning”
the covered property. It also contained an Unintentional Errors and Omissions Endorsement
providing that “[the] failure of the Insured to disclose all hazards existing as of the inception date
of the Policy shall not prejudice the Insured with respect to the coverage afforded by this Policy”
if the omission was unintentional. The policy was originally valid for a one-year term, but was
renewed through January 18, 2012.
In early 2010, AMI acquired a security interest in a Detroit, Michigan building and in the
equipment and machinery stored there. Revstone’s assistant general counsel, Kiel Smith,
contacted Carolanne to add AMI and its new assets to the existing Revstone policy. Carolanne
asked Smith to provide, among other information, an “[a]ppraisal of the buildings and personal
business property” in order “[t]o determine the proper insurance values to report to [ACE].”
In response, Smith sent Carolanne a document he described as an “[a]ppraisal of the
equipment” that identified each piece, listed its value, and reported a total valuation of $138,100.
Smith did not share any of the earlier appraisals done for AMI that placed significantly higher
1
Starr was a named defendant in this action, but the parties stipulated to dismiss all claims
against it on March 4, 2014.
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AMI Stamping LLC v. ACE American Ins. Co.
values on the equipment in question.2 Carolanne then reached out to Vito Maniaci, an
underwriter for Starr, and asked him to add the property to Revstone’s policy. She told Maniaci
the building was valued at $1,920,000 and “the value of the personal property (per appraisal) is
$138,100, which consists entirely of machinery and equipment.”
ACE endorsed the Revstone policy effective February 11, 2010, adding AMI as an
Additional Insured and the property to the schedule of insured locations for a pro-rata premium
of $1,357. ACE renewed coverage for a premium of $1,499. At his deposition, Maniaci
confirmed that he “relied on information from Carolanne,” including information regarding asset
values, in preparing the Revstone policy. He clarified that the premium “depend[ed] on the
value[]” of the property being insured. At her deposition, Carolanne similarly stated that the
premium “is based on a rate times the value of the property.”
In early 2012, AMI discovered the equipment had been stolen. Smith reported the loss to
Carolanne. A claims adjuster later contacted Smith on behalf of ACE to “finalize the claim” and
confirm that “the exact amount you are claiming” was indeed $138,100. Smith responded that it
was not and, because the policy provided for payment of the equipment’s replacement cost, he
would be submitting a replacement cost valuation.
AMI commissioned an appraisal of the equipment’s replacement cost value, which the
appraiser concluded was $1,907,000. AMI then submitted a proof of loss for that amount. ACE
declined to pay the claim, rescinded coverage, and refunded AMI its $2,856 in premiums paid.
ACE did so on the grounds that AMI misrepresented at the time of application that: (1) the
2
AMI was “aware” of these two 2006 appraisals when it purchased insurance for the
equipment in 2010. Although these appraisals include values for equipment and other property
not at issue here, there is no dispute that they valued the relevant equipment at $385,450 (forced
liquidation value), $415,300 (fair market value), and $462,800 (orderly liquidation value).
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AMI Stamping LLC v. ACE American Ins. Co.
building had the required protective safeguards against fire and theft; and (2) the equipment was
valued at $138,100.
AMI filed suit in Michigan state court, alleging that ACE breached the insurance contract
by rescinding it. ACE removed, invoking diversity jurisdiction. The parties filed cross motions
for summary judgment, and the district court ultimately granted judgment in favor of ACE. AMI
timely appeals that ruling.
II.
We review de novo a district court’s decision to grant summary judgment. Rogers v.
O’Donnell, 737 F.3d 1026, 1030 (6th Cir. 2013). Summary judgment is proper only when “the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Although we view the evidence in a light
most favorable to the opposing party, Rogers, 737 F.3d at 1030, that party “has an affirmative
duty [under Federal Rule of Civil Procedure 56(c)] to direct the court’s attention to those specific
portions of the record upon which it seeks to rely to create a genuine issue of material fact.”
Chicago Title Ins. Corp. v. Magnuson, 487 F.3d 985, 995 (6th Cir. 2007) (quoting In re Morris,
260 F.3d 654, 665 (6th Cir. 2001)).
III.
ACE argues it was entitled to rescind because AMI misrepresented the equipment’s value
during the insurance application process. Because this is a diversity case, we apply Michigan
substantive law, Kepley v. Lanz, 715 F.3d 969, 972 (6th Cir. 2013), meaning we “follow the
decisions of the state’s highest court when that court has addressed the relevant issue.” Savedoff
v. Access Grp., Inc., 524 F.3d 754, 762 (6th Cir. 2008) (internal quotation marks omitted).
Michigan courts have long recognized that “[a] false representation in an application for
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AMI Stamping LLC v. ACE American Ins. Co.
insurance which materially affects the acceptance of risk entitles the insurer to cancellation as a
matter of law.” Gen. Am. Life Ins. Co. v Wojciechowski, 22 N.W.2d 371, 374 (Mich. 1946); see
also Wiedmayer v. Midland Mut. Ins., 324 N.W.2d 752, 754–55 (Mich. 1982) (following
Wojciechowski). “A misrepresentation on an insurance application is material if, given the
correct information, the insurer would have rejected the risk or charged an increased premium.”
Montgomery v. Fid. & Guar. Life Ins. Co., 713 N.W.2d 801, 803 (Mich. Ct. App. 2005).
Important here, “[r]ecission is justified without regard to the intentional nature of the
[material] misrepresentation, as long as it is relied upon by the insurer.” Lakes State Ins. Co. v.
Wilson, 586 N.W.2d 113, 115 (Mich. Ct. App. 1998) (emphasis added). This is so even in cases
of innocent misrepresentation “because otherwise the party responsible for the misstatement
would be unjustly enriched if he were not held accountable for his misrepresentation.” Lash v.
Allstate, 532 N.W.2d 869, 872 (Mich. Ct. App. 1995); see also 21st Century Premiere Ins. Co. v.
Zufelt, 889 N.W.2d 759, 764 (Mich. Ct. App. 2016). The rationale for Michigan’s rule is
obvious: the insurer, in making underwriting decisions and in setting premiums, has the right to
rely on the information the insured provides as true and accurate. See 12A Appleman on
Insurance Law & Practice § 7292 (2011).
A.
We have little difficulty concluding these requirements are met here. Although AMI
asserts it made no misrepresentation because Carolanne asked for an “appraisal” of the
equipment’s value and that is exactly what AMI provided, this argument ignores the importance
of accurate valuations to an insurer’s risk assessment and premium calculations. When
Carolanne asked for an appraisal of the business personal property, she did so because ACE
needed “the proper insurance values” to endorse the Revstone policy. Smith attached an
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AMI Stamping LLC v. ACE American Ins. Co.
“[a]ppraisal of the equipment” to his response that reported a valuation of $138,100. That
document does not specify what type of valuation the $138,100 figure represents, but as the
district court aptly stated, it was a grossly inaccurate description of the equipment’s value “by
any measure.”
Indeed, AMI admitted before the district court that its initial valuation was inaccurate,
and concedes on appeal that Smith “made an honest mistake about the value of the property.”
ACE alleged in its counterclaim that AMI advised it on February 21, 2013, “that the $138,100
valuation . . . was incorrect.” AMI did not deny this allegation in its answer, admitting “that it
provided additional information to ACE regarding the value of the property.” Pursuant to
Federal Rule of Civil Procedure 8(b)(6), “[a]n allegation—other than one relating to the amount
of damages—is admitted if a responsive pleading is required and the allegation is not denied.”
The district court did not clearly err in deeming this allegation admitted. See Himes v. United
States, 645 F.3d 771, 776 (6th Cir. 2011) (reviewing factual findings for clear error).
AMI’s admission makes sense. When it applied for coverage in 2010, AMI had two
other appraisals from 2006 in its records showing much higher orderly liquidation ($462,800),
forced liquidation ($385,450), and fair market ($415,300) values for the equipment. After an
adjuster informed AMI that ACE was “ready to finalize the claim” and sought to confirm
$138,100 as the loss amount, AMI commissioned yet another appraisal rather than settle its claim
based on the original valuation. AMI then submitted proof of loss based on that latest appraisal’s
replacement-cost-value determination of $1.9 million––an amount nearly fourteen times the
valuation AMI submitted only three years earlier and upon which its premium was based. The
$138,100 value was significantly lower than those calculated under the four valuation methods
the three other appraisals used.
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The significant disparity between the coverage amount AMI bargained for and the loss
amount it submitted lends further support to the conclusion that the $138,100 figure inaccurately
represented the equipment’s value “by any measure.” AMI argues defendant never specified that
the appraisal should reflect a replacement cost value, but it applied for coverage under an
existing replacement cost policy. Moreover, AMI presents no evidence that Maniaci or
Carolanne were aware of the 2006 appraisals or had any other reason to suspect that $138,100
did not reflect the equipment’s replacement cost or was otherwise an inaccurate valuation.3
Defendant rightfully expected AMI to provide an accurate valuation of its own property. That
AMI’s misrepresentation of that value may have been an innocent one made by “a young
attorney [who] was unaware that different types of valuation existed” is of no consequence under
Michigan law. See Lakes State Ins. Co., 586 N.W.2d at 115.
Maniaci’s and Carolanne’s unrebutted deposition testimony establishes both the
materiality of AMI’s misrepresentation and defendant’s reliance on it in calculating the
appropriate premium to charge. As to ACE’s reliance, Maniaci expressly stated he relied on the
property value information Carolanne gave him when he prepared the Revstone policy. These
values, Maniaci emphasized, “are supplied by the insured through the broker.” Their accuracy is
crucial because, as both Maniaci and Carolanne explained, the premium for the type of coverage
AMI bought is based on the value of the property to be insured. Thus, as to materiality, had
ACE known from the outset that AMI valued the equipment at approximately $1.9 million, or at
3
Maniaci’s and Carolanne’s testimony on this point is unrebutted. Because the Revstone
policy was a replacement cost policy, and in light of his prior discussions with Carolanne about
this type of policy, Maniaci testified at his deposition that he assumed the asset value information
she provided him reflected its replacement cost. For her part, Carolanne testified she knew ACE
typically requested replacement cost values for property to be insured.
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any of the values from either 2006 appraisal, it would have charged AMI more than $1,499 a
year to insure the property. AMI identifies no record evidence suggesting otherwise.
B.
AMI raises two counterarguments instead. Neither persuades.
Carolanne’s agency status. First, AMI asserts no misrepresentation can be attributed to it
because Carolanne was not acting as its agent when she communicated the valuation to ACE—
she was ACE’s agent. AMI’s position conflicts with that taken in its answer to defendant’s
counterclaim, where it referred to Carolanne as “its agent” and “insurance broker.” That aside,
under Michigan law, she was AMI’s agent at all relevant times.
In her deposition, Carolanne described herself as an “independent agent” and Revstone as
a “client.” In Michigan, “when an insurance policy is facilitated by an independent insurance
agent or broker, [that individual] is considered an agent of the insured rather than an agent of the
insurer.” Stone v. Auto-Owners Ins. Co., 858 N.W.2d 765, 772 (Mich. Ct. App. 2014) (internal
quotation marks omitted). An insurance agent is “independent” if she has “the power to place
insurance with various insurance companies.” Harwood v. Auto-Owners Ins. Co., 535 N.W.2d
207, 209 (Mich. Ct. App. 1995).
Carolanne’s unrebutted deposition testimony makes clear that she shopped her client’s
insurance policies to “various companies” at renewal as part of her duties, and that she shopped
the Revstone account specifically to at least seven insurers. “Testimony that an agency deals
with numerous insurance companies is generally sufficient to prove that the independent agent is
an agent of the insured and not of the insurer.” Estate of Morse ex rel. Morse v. Titan Ins. Co.,
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Docket No. 309837, 2014 WL 3971438, at *4 (Mich. Ct. App. 2014). Michigan law provides no
support for AMI’s contention that Carolanne was ACE’s agent.4
To avoid this unfavorable result, AMI posits that Ohio law should govern the question of
Carolanne’s agency status instead because she is licensed in Ohio and her office is located there.
The district court rejected that argument, a determination we review de novo. Wahl v. Gen. Elec.
Co., 786 F.3d 491, 493 (6th Cir. 2015); see also Salve Regina Coll. v. Russell, 499 U.S. 225, 231
(1991). We find that the district court did not reversibly err.
As a threshold matter, the parties do not dispute that Michigan law governs the policy.
Moreover, AMI cites no authority for its proposition that, under the facts of this case, Ohio law
governs the issue of who Carolanne represented in that transaction. Nor does AMI engage in any
meaningful choice-of-law analysis. Because this is a diversity action, Michigan’s choice-of-law
rules apply, Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 389 (6th Cir. 2017), and
Michigan courts generally look to the Restatement (Second) of Conflict of Laws in resolving
such questions. See Chrysler Corp. v. Skyline Indus. Servs., Inc., 528 N.W.2d 698, 703 (Mich.
1995).
The Second Restatement explains that “the local law of the state which, with respect to
the particular issue, has the most significant relationship to the parties and the transaction”
determines “[t]he rights and duties of a principal and agent toward each other.” Restatement
4
Carolanne also testified she was the “authorized representative” of ACE. AMI takes this
to mean that she was ACE’s agent. But this authorization did not include the authority to bind
ACE to a contract. See In re Estate of Capuzzi, 684 N.W.2d 677, 679 (Mich. 2004)
(“longstanding legal principle that a duly authorized agent has the power to act and bind the
principal to the same extent as if the principal acted.”). Moreover, Carolanne explained that “an
independent agent” was “an authorized representative” of every insurer he or she placed
insurance with. As an independent agent who could place insurance with various companies, she
was AMI’s agent under Michigan law.
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(Second) Conflict of Laws § 291 (1971). The Second Restatement directs us to consider five
“contacts” in deciding which state has such a relationship “in the absence of an effective choice
of law by the parties.” Id. § 188(2). These contacts include: “(a) the place of contracting, (b)
the place of negotiation of the contract, (c) the place of performance, (d) the location of the
subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation
and place of business of the parties.” Id.
Of these contacts, only the “place of negotiation of the contract” arguably points to Ohio.
The parties to the transaction, of which Carolanne was not one, are domiciled in Pennsylvania
(ACE) and Michigan (AMI). Starr is a New York corporation, and Maniaci executed the policy
endorsement in Illinois. The building and equipment AMI insured was located in Michigan,
where the theft occurred. Although Smith initially reported the loss to Carolanne, she was not
involved in the claims process. The property adjuster who did administer AMI’s claim was
located in Michigan, while Starr’s general adjuster was located in Texas.
Carolanne was licensed and worked in Ohio, but her relationship to the parties and the
transaction was simply to facilitate the deal––she had no ongoing involvement in its
performance. That said, “the particular issue” at hand is whether she was AMI’s or ACE’s agent
while performing her duties in Ohio, not which state’s law should govern a court’s interpretation
of the policy. See Restatement (Second) Conflict of Laws § 291 (1971). But even if Ohio law
should govern the issue, AMI does not explain why the question of Carolanne’s agency status is
relevant here given that AMI was the source of the misrepresentation and AMI identifies no
evidence that Carolanne knew or should have known that the valuation Smith provided was
inaccurate. AMI cites no authority, and we find none, for the proposition that because it
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communicated an inaccurate property value to its insurer indirectly, AMI cannot be held to
account for that misrepresentation.
Finally, AMI’s reliance on a producer agreement between Todd Associates and ACE as
evidence of Carolanne’s status as ACE’s agent is misplaced. That agreement did not become
effective until June 1, 2010, several months after AMI applied for insurance in February 2010.
Furthermore, the agreement applies to accident and health insurance only, not property
insurance. AMI counters that regardless of the agreement’s effective date or scope, Carolanne
was ACE’s agent because she “behaved” like ACE’s agent. However, AMI does not articulate
how nor provide specific examples of this “behav[ior].” At bottom, the district court did not
reversibly err in holding AMI to account for the misrepresentation it made to ACE through
Carolanne.
Policy provisions. AMI also relies on two policy provisions for relief, arguing they bar
defendant from rescinding the policy. Under Michigan law, “[a]n insurance policy is much the
same as any other contract. It is an agreement between the parties in which a court will
determine what the agreement was and effectuate the intent of the parties.” Auto-Owners Ins.
Co. v. Churchman, 489 N.W.2d 431, 433 (Mich. 1992). “[T]he construction and interpretation
of an insurance contract is a question of law for a court to determine[.]” Henderson v. State
Farm Fire & Cas. Co., 596 N.W.2d 190, 193 (Mich. 1999).
AMI first notes how the Unintentional Errors and Omissions Endorsement provides that
the insured will not be “prejudice[d] . . . with respect to [coverage]” if it unintentionally fails to
“disclose all hazards existing as of the inception date.” Yet this endorsement does not forgive an
innocent misrepresentation of property value, but rather an innocent failure to disclose a hazard.
On its face, this endorsement has no applicability here.
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Next, AMI points to the policy’s Commercial Property Conditions provision. That
provision voids coverage if the insured intentionally “conceal[s] or misrepresent[s] a material
fact concerning . . . The Covered Property[.]” According to AMI, this provision necessarily
operates as a waiver of defendant’s common law right to rescind coverage for unintentional
misrepresentations. On appeal, AMI takes issue with the district court’s reliance on Seneca
Specialty Ins. Co. v. W. Chicago Prop. Co., LLC, No. 08-12335, 2010 WL 431734 (E.D. Mich.
Feb. 2, 2010) in rejecting that argument.
We find no flaw in the district court’s analysis. In Seneca Specialty, the district court
applied Michigan law and rejected the same argument AMI makes here “because [the insurer’s]
right to void the contract ab initio in cases of unintentional misrepresentations exists completely
separate from the terms of the contract itself.” Id. at *2. The district court in this case agreed,
correctly noting that Michigan law requires a waiver of a known right to be voluntary and
intentional. See Sweebe v. Sweebe, 712 N.W.2d 708, 712 (Mich. 2006); see also Quality Prods.
& Concepts Co. v. Nagel Precision, Inc., 666 N.W.2d 251, 258 (Mich. 2003). AMI specifies no
evidence that ACE intended to waive its right under Michigan common law to rescind coverage
based on an innocent, material misrepresentation––and a “waiver cannot be inferred by mere
silence.” Moore v. First Sec. Cas. Co., 568 N.W.2d 841, 844 (Mich. Ct. App. 1997).
AMI’s only argument is that Seneca Specialty does not apply because AMI never made
any misrepresentation in the first instance, innocent or otherwise. But AMI concedes that if it
“had made an unintentional [mis]representation, Seneca Specialty would support the District
Court’s contention that contract provisions regarding misrepresentations do not operate as a
waiver of common law rights regarding rescission.” We agree and conclude that AMI has not
established a genuine dispute of material fact that it made a material misrepresentation in
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applying for insurance coverage upon which defendant relied. Accordingly, ACE was entitled to
rescind the policy as a matter of law regardless of whether AMI’s misrepresentation was
innocent or intentional.
IV.
For these reasons, we affirm the district court’s judgment.
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