Tag: indemnify

This is a continuing series on navigating insurance coverage issues, stay tuned for more!

When an insurer receives a claim, the question of whether it will defend and/or indemnify is easier to answer in some cases than others.

Background

When interpreting an insurance policy, there are two questions involved: (1) Does the policy provide coverage?; and (2) If the policy provides coverage, is there an exclusion that negates the coverage? Auto Owners Ins Co v Seils, 310 Mich App 132, 146; 871 NW2d 530 (2015).  The insured has the burden of establishing the claim falls within the terms of the policy and the insurer has the burden of establishing that an exclusion applies. Id.

“The duty to defend and the duty to indemnify are distinct and separable duties.” Michigan Ed Employees Mut Ins Co v Turow, 242 Mich App 112, 116; 617 NW2d 725 (2000). The duty to defend is broader than the duty to indemnify. Auto-Owners Ins Co v City of Clare, 446 Mich 1, 15; 521 NW2d 480 (1994).

“The duty to defend arises from the language of the insurance contract.” Citizens Ins Co v Secura Ins, 279 Mich App 69, 74; 755 NW2d 563 (2008). “Insurance policies are interpreted like any other contract.” Bridging Communities, Inc v Hartford Cas Ins Co, 345 Mich App 672, 681; 9 NW3d 92 (2023). A court must enforce policy language that is unambiguous. Matouk v Michigan Muni League Liab & Prop Pool, 320 Mich App 402, 409; 907 NW2d 853 (2017). If there is any doubt as to whether a claim against an insured falls within the parameters of coverage under the policy, the doubt must be resolved in favor of the insured. Polkow v Citizens Ins Co of Am, 438 Mich 174, 180; 476 NW2d 382 (1991). An insurance contract is ambiguous when the language is “capable of conflicting interpretations.” Farm Bureau Mut Ins Co of Michigan v Nikkel, 460 Mich 558, 566; 596 NW2d 915 (1999). See also Farmers Ins Exch v Kurzmann, 257 Mich App 412, 418; 668 NW2d 199 (2003) (stating that language in an insurance contact is ambiguous when it is “subject to more than one reasonable interpretation”). Terms that are not defined in the policy will be given their “commonly used meaning.” Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 113-114; 595 NW2d 832 (1999) (quotation marks and citations omitted). “An insurance policy must be read as a whole in order to discern and effectuate the intent of the parties.” Farmers Ins Exch, 257 Mich App at 418.

“An insurance company will not be held responsible for a risk that it did not assume.” Allstate Ins Co v Fick, 226 Mich App 197, 201; 572 NW2d 265 (1997). “An insurer is not required to defend its insured against claims specifically excluded from policy coverage.” Am Bumper & Mfg Co v Natl Union Fire Ins Co, 261 Mich App 367, 375; 683 NW2d 161 (2004). However, “[i]t is well settled that if the allegations of the underlying suit arguably fall within the coverage of the policy, the insurer has a duty to defend its insured.” Radenbaugh v Farm Bureau Gen Ins Co of Michigan, 240 Mich App 134, 137; 610 NW2d 272 (2000) (quotation marks and citations omitted). This duty applies even if a claim is groundless or frivolous. Am Bumper & Mfg Co, 261 Mich App at 451. An insurer must look beyond the language of the pleadings to determine whether coverage is possible. Citizens Ins Co v Secura Ins, 279 Mich App 69, 75; 755 NW2d 563 (2008). Exclusionary clauses “are strictly construed in favor of the insured.” Auto-Owners Ins Co v Churchman, 440 Mich 560, 567; 489 NW2d 431 (1992).

Conclusion

In sum, although an insurer may deny coverage and in turn, decline to provide a defense, it should not do so unless it is very clear that none of the allegations are covered under the policy at issue. It is also important for insurers to consider whether the policy language might be governed by the laws of a different state. See, e.g., Farm Bureau Ins Co v Abalos, 277 Mich App 41, 45; 742 NW2d 624 (2007) (stating that the court must balance the expectations of the contracting parties and the interests of the states to determine which state law to apply).

This alert serves as a general summary and does not constitute legal guidance. Please contact us with any specific questions. When it matters in Michigan, we are the trusted legal advisors for businesses and individuals.

Dakota A. Larson is an experienced attorney handling complex liability, coverage, and bad faith claims in multiple lines of insurance and in multiple jurisdictions. You can reach her at 517.377.0872 or at dlarson@fraserlawfirm.com.