State Farm Mutual Automobile Insurance v. Roe

573 N.W.2d 628 (1997) 226 Mich. App. 258

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellant,
v.
Michael Dean ROE, Wilbur Dean Roe, and Maureen Roe, Defendants-Appellees.

Docket No. 186031.

Court of Appeals of Michigan.

Submitted June 3, 1997, at Lansing. Decided October 31, 1997, at 9:25 a.m. Released for Publication February 10, 1998.

Smith & Brooker, P.C. by Francis B. Drinan, Saginaw, for State Farm Mutual Automobile Insurance Company.

Patterson, Gruber, Kennedy, Gill & Milster by Brian M. Kennedy, Bay City, for Michael D.Roe.

Thomas E. Bock, Bay City, for Wilbur D. Roe and Maureen L. Roe.

Before CORRIGAN, C.J., and MICHAEL J. KELLY and HOEKSTRA, JJ.

ON REHEARING

HOEKSTRA, Judge.

Plaintiff appeals as of right an order granting judgment in favor of defendants in this action for a declaratory judgment. Plaintiff claimed that an exclusion in the automobile policy issued to defendants Wilbur and Maureen Roe relieved it of the duty to defend the Roes and pay damages on their behalf or indemnify them for the injuries suffered by their son, Michael Roe, in a vehicular accident. After entering an order reversing the trial court's order and opinion and remanding the case for entry of a judgment in plaintiff's favor, this Court granted a rehearing. We again reverse and remand for entry of a judgment in plaintiff's favor.

A

Wilbur operated a logging and sawmill business, W.D. Roe Lumber Company, a sole proprietorship, which involved cutting and milling lumber at various sites around the state. Michael worked for his father and lived with his parents. Maureen, the wife of Wilbur and mother of Michael, was not an employee of W.D. Roe Lumber Company.

Wilbur paid his employees at varying hourly rates, but did not provide any benefits, although he provided transportation to and from the job sites for employees who wanted to ride with him. The employees did not pay for the gasoline used in transporting them. For several weeks before the accident, Wilbur and four employees, including Michael, worked at a job site that involved a drive of approximately one hour. As was his usual custom, Wilbur provided optional transportation to and from this job site to Michael and others.

On the day of the accident, Wilbur drove himself and his employees, including Michael, to the work site in an Oldsmobile that was titled in the names of both Wilbur and Maureen, insured by plaintiff under a no-fault policy, and primarily used by Maureen. While driving home from work, Wilbur was involved in a collision with another vehicle, causing extensive injuries to Michael. Plaintiff then paid statutory personal protection insurance benefits to Michael pursuant to the priorities set forth in M.C.L. § 500.3114(3); M.S.A. § 24.13114(3).

Eventually, Michael sued Wilbur and Maureen, claiming that his injuries were caused by negligent driving. In response, plaintiff brought this declaratory judgment action, claiming that the following exclusion in the liability section of the insurance policy relieved it of the duty to defend Wilbur and Maureen and pay damages on their behalf for the injuries suffered by Michael as a result of this accident:

THERE IS NO COVERAGE UNDER COVERAGE A:

1. FOR ANY BODILY INJURY TO:

* * * * * *

B. ANY EMPLOYEE OF AN INSURED ARISING OUT OF HIS OR HER EMPLOYMENT. This does not apply to a household employee who is not covered or required to be covered under any worker's compensation insurance.

Subsequently, pursuant to a consent judgment, the parties agreed that Michael would have a judgment against Wilbur and Maureen, jointly and severally, in the amount of $100,000. The parties also agreed that Michael would limit the recovery of this judgment to the proceeds of plaintiff's automobile liability policy issued to his parents, and plaintiff agreed to pay Michael the amount of $100,000 in the event of an adverse decision in its declaratory judgment action. Following a bench trial, the trial court found that the injury did not occur within the scope of Michael's employment and that plaintiff had a duty to indemnify Wilbur and Maureen. Thereafter, the trial court denied plaintiff's motion for judgment notwithstanding the verdict or a new trial.

B

On appeal, plaintiff argues that the trial court erred in ruling that Michael's injuries did not arise out of his employment, and, therefore, that the policy exclusion did not apply. An insurance policy is much the same as any other contract; it is an agreement between the parties. Auto-Owners Ins. Co. v. Churchman, 440 Mich. 560, 566, 489 N.W.2d 431 (1992). When presented with a dispute, a court must determine what the parties' agreement is and enforce it. Fragner v. American Community Mutual Ins. Co., 199 Mich.App. 537, 542-543, 502 N.W.2d 350 (1993). Exclusionary clauses are to be strictly construed against the insurer. Fire Ins. Exchange v. Diehl, 450 Mich. 678, 687, 545 N.W.2d 602 (1996). Exclusions limit the scope of coverage provided and are to be read with the insuring agreement and independently of every other exclusion. Hawkeye-Security Ins. Co. v. Vector Construction Co., 185 Mich.App. 369, 384, 460 N.W.2d 329 (1990).

Plaintiff argues that the "arising out of his or her employment" language of the exclusion should be construed in the same way as worker's compensation cases interpreting similar language found in the Worker's Disability Compensation Act. M.C.L. § 418.301(1) and (3); M.S.A. § 17.237(301)(1) and (3) provide:

(1) An employee, who receives a personal injury arising out of and in the course of employment by an employer who is subject to this act at the time of the injury, shall be paid compensation as provided in this act....

* * * * * *

(3) An employee going to or from his or her work, while on the premises where his work is to be performed, and within a reasonable time before and after his or her working hours, is presumed to be in the course of his or her employment. [Emphasis provided.]

In support of its position, plaintiff primarily relies upon Konopka v. Jackson Co. Rd. Comm., 270 Mich. 174, 258 N.W. 429 (1935), a worker's compensation case in which the Supreme Court held that the accident resulting in the death of a highway commission employee while he was being transported from his place of work to his home in a truck belonging to another employee arose out of and in the course of such employment and was compensable. In determining whether it was "an accident arising out of and in the course of his employment," the Court in Konopka held that if an accident arises out of transportation provided by the employer, it is an accident arising "in the course of the employment." Id. at 176-177, 258 N.W. 429. The test for determining whether transportation is employer-provided is whether, under the contract of employment and in light of all attendant circumstances, there is an express or implied undertaking by the employer to provide the transportation. Id.^[1]

We agree with plaintiff that the exclusionary language "arising out of his or her employment" should be construed in a manner consistent with the worker's compensation act and Konopka for several reasons. First, the exclusionary language at issue is identical to that used in § 301 of the worker's compensation act. While the claimed exclusion does not specifically state that the language in question is to be interpreted in accordance with the worker's compensation act, we believe it apparent that the exclusion was crafted in consideration of worker's compensation law. As support for our conclusion, we note that the policy at issue also excludes coverage for obligations of an insured or his insurer under any type of worker's compensation, disability, or similar law.

Second, we believe that construing the exclusionary language in accordance with worker's compensation case law supports the policy considerations underlying the worker's compensation act. Generally, the right to recover benefits for personal injury or occupational disease under the worker's compensation act is the exclusive remedy of an employee against an employer who has complied with the act. M.C.L. § 418.131(1); M.S.A. § 17.237(131)(1); Smith v. Mirror Lite Co., 196 Mich.App. 190, 192, 492 N.W.2d 744 (1992). If an employer fails to comply with the insurance requirements of the worker's compensation act, as Wilbur did,^[2] it is liable in tort for injuries to its employees. M.C.L. § 418.641(2); M.S.A. § 17.237(641)(2); McGillis v. Aida Engineering, Inc., 161 Mich.App. 370, 372, 410 N.W.2d 817 (1987). Here, the exclusion in the insurance policy sought to prevent plaintiff from becoming a worker's compensation insurer and limit plaintiff's liability to only those risks properly assumed by an automobile insurer.

In light of the foregoing, we conclude that the exclusionary clause barred coverage for Michael's injuries because they arose out of his employment. Similar to Konopka, it was customary for Wilbur to furnish employee transportation to and from the job site, even though employees could provide their own transportation. As in Konopka, the manner of going to and from the job site was not compulsory, but it was "the general method" that Wilbur would provide the employees with transportation. Further, similar to Konopka, the transportation arrangement was for the "mutual advantage" of employer and employees because Wilbur was assured a full crew of workers each day to assist him in conducting the sawmilling operations and the employees received free transportation. Moreover, unlike in Konopka, the transportation here was provided in a vehicle owned and operated by the employer, and not merely another employee. Thus, although transportation was not expressly made part of the employment contract and employees were not paid for their travel time, transportation became "an essential incident of the employment as to be a part of it." Id. Given that there was "an expressed or implied undertaking by the employer to provide the transportation" in light of all the attendant circumstances, we believe that the exclusion applied because the injuries that Michael sustained in the accident arose out of his employment. Because Michael's recovery under the terms of the consent judgment was limited to the proceeds of plaintiff's automobile policy and because plaintiff is not liable to indemnify Wilbur and Maureen, we reverse and remand for entry of a judgment in favor of plaintiff.

Contrary to defendants' claim, this case is not controlled by Francis v. Scheper, 326 Mich. 441, 40 N.W.2d 214 (1949). In Francis, our Supreme Court concluded that a phrase in an insurance policy excluding coverage for employees while "engaged in the employment ... of the insured" did not apply because the employee who was injured while being transported home from work had ceased the day's productive work for which he was being paid. We believe the exclusion in this case, excepting coverage for injury "arising out of his or her employment" to be broader than the phrase "while engaged in the employment of the insured," used in Francis. As noted by our Supreme Court in Nemeth v. Michigan Building Components, 390 Mich. 734, 736, 213 N.W.2d 144 (1973), "the concept of course of employment is more comprehensive than the assigned work." Similarly, we find the phrase "arising out of his or her employment" refers to a course of employment that is more expansive than merely the assigned work and more comprehensive than "engaged in the employment of the insured," which under Francis refers only to the performance of assigned work that an employee is paid to do.

Defendants further contend that the exclusion is contrary to public policy because it is broader than that permitted by chapter five of the Vehicle Code, the financial responsibility act, M.C.L. § 257.501 et seq.; M.S.A. § 9.2201 et seq., specifically § 520(b)(2), M.C.L. § 257.520(b)(2); M.S.A. § 9.2220(b)(2), which applies to all liability insurance policies. As a matter of law, when an automobile accident occurs in Michigan, the scope of liability coverage is determined by the financial responsibility act. Farmers Ins. Exchange v. Anderson, 206 Mich.App. 214, 217, 520 N.W.2d 686 (1994). Notwithstanding, § 520(e), M.C.L. § 257.520(e); M.S.A. 9§ .2220(e), provides that an insurer may exclude "any liability under any workmen's compensation law" and "any liability on account of bodily injury to or death of an employee of the insured while engaged in the employment, other than domestic, of the insured." Thus, under this section, an insurer may exclude not only all liabilities within the coverage of the worker's compensation act, but also those arising from nondomestic employment relationships even if they are not covered by the worker's compensation act. In this case, we believe the exclusion to be well within what is permitted by the statute and not contrary to public policy.

Michael also argues that even if his injuries arose out of his employment, the exclusion in section 1(a) of the policy excepts Wilbur and Maureen from any course or scope of employment exclusion by providing:

A FELLOW EMPLOYEE WHILE ON THE JOB AND ARISING FROM THE MAINTENANCE OR USE OF A VEHICLE BY ANOTHER EMPLOYEE IN THE EMPLOYER'S BUSINESS. You and your spouse are covered for such injury to a fellow employee.

Here, Wilbur and Maureen are the referenced "you and your spouse," and what they would be covered for are, among other things, vehicular injuries to Michael caused by "another employee," which must be a person other than themselves. Accordingly, this provision does not apply because Michael's injuries were not caused by another employee.

Michael further asserts that even if his injuries arose out of his employment, the sentence in the exclusion stating that "[t]his [exclusion] does not apply to a household employee who is not covered or required to be covered under any worker's compensation insurance" defeats the claimed exclusion because he was a member of the same household and was not covered under worker's compensation insurance. However, this exception to the exclusion is not applicable because Michael was not a household employee and was required to be covered under worker's compensation insurance.

There is likewise no merit to Michael's claim that the exclusion at issue does not apply to Maureen on the ground that she was liable to her son under the owners liability statute, M.C.L. § 257.401; M.S.A. § 9.2101, because she was not his employer when she allowed Wilbur to drive the vehicle involved in the accident. However, because the car was titled in the names of both Wilbur and Maureen and covered under an insurance policy issued to both of them, the exclusion is applicable because Michael was an employee of "an insured," namely, Wilbur.

Likewise, there is no merit to Michael's claim that even if coverage did not apply to Wilbur, it would still apply to Maureen because plaintiff had a separate and distinct duty to cover each of the insureds individually. As plaintiff points out, defendants' reliance on Shelby Mutual Ins. Co. v. United States Fire Ins. Co., 12 Mich.App. 145, 162 N.W.2d 676 (1968), is misplaced because there is nothing in the policy in question concerning the severability of the insured's interest and because the exclusionary clause applies as long as the person seeking recovery is an employee of "an insured."

Finally, we note that even though the worker's disability compensation magistrate denied Michael's claim for compensation, finding that his injuries did not arise out of and in the course of his employment under § 301 of the worker's compensation act, this Court is not bound by the magistrate's ruling in determining whether the exclusionary clause in plaintiff's insurance policy is applicable in this action.^[3] See Integral Ins. Co. v. Maersk Container Service Co., Inc., 206 Mich.App. 325, 330, 520 N.W.2d 656 (1994).

Reversed and remanded for entry of judgment for plaintiff.

CORRIGAN, C.J., concurred.

MICHAEL J. KELLY, Judge (dissenting).

Because I believe that the trial court correctly interpreted the insurance contract, I respectfully dissent.

Ordinarily, this Court reviews a trial court's factual findings for clear error. A finding is clearly erroneous when, although there is evidence to support it, the reviewing court on the entire record is left with a definite and firm conviction that a mistake was made. MCR 2.613; Andrews v. Pentwater Twp., 222 Mich.App. 491, 493, 563 N.W.2d 713 (1997). In this case, the trial court found that Michael Roe's injury "did not occur within the scope of [his] employment" and "[t]hus the plaintiff would have a duty to indemnify Wilbur and Maureen Roe." I fully agree with this determination, and I would not disturb it. When the language in the parties' contract for insurance is examined in light of existing case law, there is little basis upon which this Court could be left with a definite and firm conviction that the trial court was mistaken in granting judgment for defendants.

Plaintiff has successfully convinced the majority that the following contractual exclusion shields it from its obligations to defendants, primarily "because the exclusionary language... is identical to that used in § 301 of the worker's compensation act":

THERE IS NO COVERAGE UNDER COVERAGE A:

1. FOR ANY BODILY INJURY TO:

* * * * * *

B. ANY EMPLOYEE OF AN INSURED ARISING OUT OF HIS OR HER EMPLOYMENT. This does not apply to a household employee who is not covered or required to be covered under any worker's compensation insurance.

When interpreting a contract of insurance, we construe exclusionary clauses strictly against the insurer. Fire Ins. Exchange v. Diehl, 450 Mich. 678, 687, 545 N.W.2d 602 (1996). Moreover, we interpret exclusionary clauses in isolation, reading them with the insuring agreement and independently of every other exclusion. Hawkeye Security Ins. v. Vector Construction Co., 185 Mich.App. 369, 384, 460 N.W.2d 329 (1990). The majority opinion, I think, dilutes these principles of construction.

The majority interprets the exclusionary language in a manner consistent with the worker's compensation act because it finds that the exclusion contains language "identical" to the worker's compensation law. This is plainly not so. The worker's compensation act covers injuries "arising out of and in the course of employment," M.C.L. § 418.301(1); M.S.A. § 17.237(301)(1), not just injuries "arising out of employment." By adding the phrase "and in the course of employment" into the exclusionary clause contained in the contract, the majority has reformed the contract. This is unfortunate, because this revisionary act completely ignores that our courts have treated the phrase "arising out of employment" differently from the phrase "in the course of employment" for the purposes of the worker's disability compensation law, and whether the two phrases require separate tests remains an open question under Michigan law. See Simkins v. General Motors Corp., 453 Mich. 703, 712-713, n. 14, 724-725, 556 N.W.2d 839 (1996). Here, the insurer, a sophisticated business entity, purposefully chose not to employ the phrase "arising out of and in the course of employment," the words "generally used ... to refer to the connection between the injury and employment," id., and yet contends that it intended to disclaim liability for injuries compensable under the worker's compensation law. This purposeful omission of the phrase "in the course of employment" shows that plaintiff intended only to disclaim liability for injuries arising directly from the circumstances and conditions of employment:

"It is sufficient to say that an injury is received In the course of the employment when it comes while the workman is doing the duty which he is employed to perform. It `arises out of the employment, when there is apparent to the rational mind, upon consideration of all the circumstances, a causal connection between the conditions under which the work is required to be performed, and the resulting injury. Under this test, if the injury can be seen to have followed as a natural incident of the work and to have been contemplated by a reasonable person familiar with the whole situation as a result of the exposure occasioned by the nature of the employment, then it arises `out of the employment. But it excludes an injury which cannot fairly be traced to the employment as a contributing proximate cause and which comes from a hazard to which the workman would have been equally exposed apart from the employment. The causative danger must be peculiar to the work and not common to the neighborhood. It must be incidental to the character of the business and not independent of the relation of master and servant. It need not have been foreseen or expected, but after the event it must appear to have had its origins in a risk connected with the employment, and to have flowed from that source as a rational consequence." [Appleford v. Kimmel, 297 Mich. 8, 12-13, 296 N.W. 861 (1941), quoting McNicol's Case, 215 Mass. 497, 102 N.E. 697 (1913); see also Pearce v. Michigan Home & Training School, 231 Mich. 536, 537-538, 204 N.W. 699 (1925).^[1]]

By no stretch of the imagination can the injuries Michael Roe incurred in an automobile accident be considered "peculiar to the work" he performed at his family's logging and sawmill business. Therefore, his injuries cannot be said to have arisen from his employment, although it may be fair to say that they arose from the more comprehensive "course" of his employment. See Konopka v. Jackson Co. Rd. Comm., 270 Mich. 174, 176-177, 258 N.W. 429 (1935).

Unlike the majority, I find the case of Francis v. Scheper, 326 Mich. 441, 40 N.W.2d 214 (1949), to be instructive. I believe that Francis is helpful not because the exclusionary language in the instant insurance contract tracks that of the exclusionary clause considered by the Supreme Court in Francis, which disclaimed liability for injuries incurred while the employee was "engaged in the employment ... of the insured," id. at 445, 40 N.W.2d 214, but because the Supreme Court stated the following, which should be the lodestar here:

The phrase, "engaged in the employment," can fairly be construed as meaning, active in the work plaintiff was employed and paid to do. It was incumbent on defendant casualty company, who drafted the policy, in order to escape liability under the circumstances of this case, so to draft the policy as to make clear the extent of nonliability under the exclusion clause. [Id. at 447-448, 40 N.W.2d 214 (emphasis added).]

In this case, if, as it argues, plaintiff intended to disclaim liability for injuries covered by the worker's compensation disability law, it could have and should have made that intent clear. At the very least, plaintiff should have used language that actually is identical or comparable to the language used in the worker's compensation law. Because it did not do so, I would hold the insurer to the definition of the phrase "arising out of employment" that prior case law sets forth. Further, it should be of no consequence that, in a separate provision, the insurance policy "also excludes coverage for obligations of an insured or his insurer under any type of worker's compensation, disability, or similar law." After all, and as the majority correctly states, exclusionary clauses are to be read in isolation and independently of every other exclusion. Hawkeye Security, supra. Lastly, I fail to see why this case has become a vehicle for advancing the policy considerations underlying the worker's compensation disability law. This case involves an inartfully drafted private contract between an insurer and an insured; it does not concern the employer's liability for disability payments. The majority states that the employer "should not be rewarded by having his no-fault insurer bear the cost of his decision to drop his worker's compensation insurance." I do not consider the employer's attempt to hold the insurer to the terms of the insurance contract and gain the benefits for which the employer bargained and paid as a quest for an unjustified "reward." Quite the contrary. The majority has rewarded the insurer's ineptitude at the expense of the bluecollar logger who paid for coverage.

In light of these considerations, I would affirm.

NOTES

[1] See also Chrysler v. Blue Arrow Transport Lines, 295 Mich. 606, 608-609, 295 N.W. 331 (1940), where the Court followed Konopka in ruling that a fatal accident involving the plaintiff truckdriver, who had spent the weekend at home in Grand Rapids and was returning to Chicago to unload a truck, was compensable under the worker's compensation act as an accident arising out of and in the course of employment where his contract of employment contemplated free transportation by defendant employer in one of the defendant's trucks to and from the home city; Lemanski v. Frimberger Co., 31 Mich.App. 285, 187 N.W.2d 498 (1971), where this Court affirmed a finding by the Worker's Compensation Appeal Board that the injuries suffered by a journeyman sheet metal worker in an automobile accident while en route to the job site arose out of and in the course of his employment where the plaintiff was paid for travel to and from the job site under his employment contract; Stark v. L E Myers Co., 58 Mich.App. 439, 442-443, 228 N.W.2d 411 (1975), where this Court, while recognizing the general rule that injuries sustained by employees going to or from work were not compensable under the worker's compensation act, cited Chrysler, supra, and Lemanski, supra, in observing that among the considerations in making the ultimate determination whether "an injury to an employee while on the way to work is sufficiently employment-related to be compensable" is "[w]hether employer paid for or furnished employee transportation"; Torres v. Armond Cassil Co., 115 Mich.App. 690, 694, 321 N.W.2d 776 (1982), where this Court, quoting the considerations set forth in Stark, supra, reversed the appeal board's decision denying compensation for injuries suffered by the plaintiff in an automobile accident while being driven home from work because the plaintiff established that the employer furnished transportation; and, more recently, Botke v. Chippewa Co., 210 Mich.App. 66, 69, 533 N.W.2d 7 (1995), citing Stark, in connection with the "dual-purpose exception" whereby travel to and from work is covered by the worker's compensation act.

[2] Although Wilbur stated that he had carried worker's compensation insurance for a number of years, he apparently chose not to renew his coverage because his business was small and he was "winding it down." Given that Wilbur decided not to comply with his legal requirement as an employer, he should not be rewarded by having his no-fault insurer bear the costs of his decision to drop worker's compensation insurance. To find coverage under plaintiff's automobile policy for the injuries sustained by Michael would provide an incentive for other employers not to comply with their statutorily mandated obligation to carry worker's compensation insurance under M.C.L. § 418.611; M.S.A. § 17.237(611).

[3] Nonetheless, we believe that the magistrate's ruling was erroneous because the record shows that Wilbur furnished employee transportation. Although the magistrate sought to distinguish Konopka on the basis that the employment contract in this case did not provide for transportation, that it was "strictly voluntary on the part of the employees," and that "[i]n Konopka, the employees all gathered at the employer's place of business, from which they were conveyed to the job site," the purported distinctions miss their mark. In light of all the attendant circumstances, it is clear to us that here, as in Konopka, there was an implied undertaking by Wilbur to provide transportation.

[1] The Supreme Court has found, that Whetro v. Awkerman, 383 Mich. 235, 174 N.W.2d 783 (1970), a case in which that Court stated, "Michigan... no longer requires the establishment of a proximately causal connection between the employment and the injury to entitle a claimant to compensation," id. at 242, 174 N.W.2d 783, has no precedential effect. Dean v. Chrysler Corp., 434 Mich. 655, 660-661, 455 N.W.2d 699 (1990).