Lower Town Project, LLC v. Lawyers Title Insurance Corporation

Filing 61

ORDER denying 31 Motion for Summary Judgment; denying 33 Motion for Summary Judgment; denying 34 Motion for Summary Judgment; denying 35 Motion for Summary Judgment. Signed by District Judge Nancy G. Edmunds. (CHem)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

Lower Town Project, LLC,
Case No. 10-11615
Plaintiff,
Honorable Nancy G. Edmunds
v.
Lawyers Title Insurance Co.,
Defendant/Third-Party Plaintiff,
v.
Scott Chappelle, Strathmore Development
Company Michigan, LLC, Lower Town
Development Group, LLC, Clark
Construction Co., and Terra Management
Co.,
Third-Party Defendants.
/

ORDER AND OPINION DENYING LOWER TOWN PROJECT’S MOTION FOR
SUMMARY JUDGMENT [33]; DENYING LAWYERS TITLE’S MOTION FOR
SUMMARY JUDGMENT [35]; DENYING CHAPPELLE, STRATHMORE, LOWER
TOWN DEVELOPMENT, AND TERRA’S MOTION FOR SUMMARY JUDGMENT [34];
AND DENYING CLARK’S MOTION FOR SUMMARY JUDGMENT [31]
This case arises out of a failed commercial real estate development project. Plaintiff
Lower Town Project has filed suit against Defendant Lawyers Title Insurance Company,
seeking insurance coverage (the reimbursement of a settlement amount) from Lawyers
Title pursuant to an insurance policy (the “Policy”) the two parties executed. The settlement
resolved a state court controversy between Lower Town Project and several
companies–Clark Construction Company, Conestoga-Rovers and Associates, and H&M
Demolition Company–that had filed liens on Lower Town Project’s commercial real estate

development project, Broadway Village. Those companies filed suit to foreclose on the
liens.
Both during the settlement negotiations with the companies and now, Lower Town
Project alleges that those liens on Broadway Village were defects in the title, for which the
Policy provides coverage. Lawyers Title alleges that the Policy does not provide coverage
for the settlement due to the liens. Lawyers Title advances other arguments why the Policy
does not provide coverage as well.
In addition to the breach of the Policy claim, Lawyers Title has filed a third party
complaint for misrepresentation and indemnification against several of the players involved
in the controversy: Scott Chappelle, Lower Town Development, Terra Management
Company, and Clark. The Court will discuss their roles below.
Before the Court:

! Lower Town Project’s motion for summary judgment as to liability against Lawyers
Title. (Dkt. 33.)
! Lawyers Title’s motion for summary judgment on Lower Town Project’s claims and
Lawyers Title’s motion for summary judgment on its claims against Chappelle,
Strathmore, Lower Town Development, and Terra. (Dkt. 35.)
! Chappelle, Strathmore, Lower Town Development, and Terra’s motion for
summary judgment on Lawyers Title’s indemnity and misrepresentation claims
against them. (Dkt. 34.)
! Clark’s motion for summary judgment on Lawyers Title’s indemnity and
misrepresentation claims. (Dkt. 31.)

2

The Court heard the parties on June 29, 2011.1 For the reasons stated below, the Court
DENIES Lower Town Project’s motion for summary judgment as to liability against Lawyers
Title; DENIES Lawyers Title’s motion for summary judgment against Lower Town Project;
DENIES Lawyers Title’s motion for summary judgment against Chappelle, Strathmore,
Lower Town Development, and Terra; DENIES Chappelle, Strathmore, Lower Town
Development, and Terra’s motion for summary judgment on Lawyers Title’s
misrepresentation claims; DENIES Clark’s motion for summary judgment on Lawyers Title’s
misrepresentation claims; and DENIES AS PREMATURE Lawyers Title’s indemnification
claims against Chappelle, Strathmore, Lower Town Development, Terra, and Clark.
I.

Facts
A. Background parties
Lower Town Development was formed in June, 2002, to own and redevelop a real

estate project. The real estate project, Broadway Village, was a 774,000 square-foot urban
mixed-use development.2 Broadway Village’s plans included space for retail, restaurants,
offices, multi-family housing, and parking. (Def.’s Mot. for Summ. J., Ex. E, Lower Town
Project Operating Agreement.)

1

At the hearing, and in the briefs, the parties discussed a possible misnumbering of the
policy at issue in this case. The parties dispute the misnumbering’s relevance and have
not fully addressed the issue. Lawyers Title claims only one policy exists; the other parties
disagree. (See also Chappelle’s Mot. for Summ. J. at 12-13; Lawyers Title’s Resp. to
Chappelle’s Mot. for Summ. J. at 12-13.)
2

The project was also known as “Lower Town.” The parties refer to the project also as
Lower Town. Because several parties contain the “Lower Town” name, the Court will refer
to the project as “Broadway Village.”
3

Lower Town Development is one of two members that formed Lower Town, LLC.
(Def.’s Mot. for Summ. J., Ex. F, Def’s. First Set of Interrog., Ans. No. 2.) On October 18,
2007, Lower Town LLC formed Lower Town Project. (Def.’s Mot. for Summ. J., Ex. E,
Lower Town Project Operating Agreement.) Lower Town, LLC is the sole member of
Lower Town Project. (Def.’s Mot. for Summ. J., Ex. E, Lower Town Project Operating
Agreement.)
On November 14, 2007, Lower Town Development transferred Broadway Village to
Lower Town Project by warranty deed. (Def.’s Mot. for Summ. J., Ex. A, Warranty Deed.)
B. Scott Chappelle’s role
The third-party complaint alleges that Chappelle, Lower Town Development,
Strathmore, Terra, and Lower Town Project were all Chappelle-controlled entities.
Chappelle was the president of Strathmore, and before that, Terra. (Lawyers Title’s
Resp. to Clark, Ex. L, Chappelle Interrog., Answer 3.) He also owned/managed Lower
Town Development.
Strathmore was the manager of Lower Town Development. (Def.’s Mot. for Summ.
J., Ex. E, Lower Town Project Operating Agreement.) Before Strathmore, Terra was the
manager of Lower Town Development.

(Def.’s Mot. for Summ. J., Ex. G, Terra

Management Agreement.)
Chappelle, in his various roles, signed contracts and assignments on behalf of Terra,
Lower Town Project, Lower Town, LLC, Lower Town Development, and Strathmore.
(Lawyers Title’s Resp. to Clark, Ex. N, Terra-Clark Assignment.)
Lower Town Project states that Chappelle, through his various entities, was primarily
involved at Broadway Village on behalf of Lower Town Project. (Lawyers Title’s Resp. to
4

Clark, Ex. F, Lower Town Project Interrog., Answer 3.) But Lower Town Project states that
it never employed Chappelle. (Id.) Chappelle, on behalf of Lower Town Development,
managed both Lower Town, LLC, and Broadway Village until May 7, 2009. Lower Town
Project states that Chappelle had “broad oversight responsibilities” over Broadway Village
as Strathmore’s president. (Id., Answer 6.)
C. Management of Lower Town Project
Strathmore also entered into a property management and leasing agreement with
Lower Town, LLC. (Def.’s Mot. for Summ. J., Ex. H, Strathmore Property Agreement.) The
agreement provided that Strathmore would manage and operate Broadway Village.3 (Id.)
3

The agreement included a “Supervision of Design and Construction” provision:
“[Strathmore] will supervise and oversee ordinary repairs, maintenance, replacements,
substitutions, improvements, additions and alternations (“Ordinary Work”). [Strathmore]
will supervise and oversee capital projects, replacements, substitutions, improvements,
additions and alterations, including, without limitation Space Planning, Design
Documentation and Tenant Improvements (“Capital Projects”). . . . [Strathmore] shall
perform Design and Construction Management Services subject to Owner’s written
approval and guidelines. . . . [Strathmore] shall ensure that all appropriate insurance has
been obtained and is in effect and shall oversee the administration of the applicable
construction contracts. [Strathmore’s] responsibilities in performing the Design and
Construction Management services shall include, without limitation: development plans,
selecting materials, analyzing plans, working with outside consultants, writing specifications
and suggesting revisions thereof; suggesting contractors and supervising constructions;
coordinating, when appropriate, with [Lower Town, LLC], tenants, architects, engineers,
contractors and other consultants to prepare and finalize construction plans; identifying and
contracting on behalf of [Lower Town, LLC] appropriate professional services when
required; negotiating all contracts; monitoring the construction schedule and the quality of
workmanship . . . administering and coordinating job site construction meetings as
necessary to ensure the timely flow of information between tenants, space planners and
contractors; coordinating labor and material suppliers; managing the change order process
. . . obtaining and reviewing all necessary lien waivers and releases; reviewing all payment
requests pursuant to the contract documents . . . obtaining from contractors,
subcontractors, material suppliers or other consultants all reasonably available guarantees,
instructions, equipment manuals, warranties and all other pertinent documents relating to
Work; and, at Owner’s option, any or all other duties.” (Def.’s Mot. for Summ. J., Ex. H,
Strathmore Property Agreement at 14-15.)
5

D. Scott Chappelle’s affidavit
As part of the closing that transferred Broadway Village to Lower Town Project, on
November 14, 2007, Scott Chappelle, as Strathmore’s President and Lower Town
Development’s manager, executed an affidavit. (Def.’s Mot. for Summ. J., Ex. B, Affidavit.)
In this affidavit, Chappelle made a declaration that is central to this dispute. Chappelle
declared:
That no work has been performed or material delivered to [Broadway Village]
for a period of (120) days prior to the date of this affidavit, and if any work
has been performed or materials delivered during said 120 day period,
proper sworn statements and waiver of liens showing payment or release of
lien rights have been obtained and submitted to Transnation Title Insurance
Company for its approval.
(Id.)
E. Transnation issues the insurance policy
On December 19, 2007, Transnation issued the Policy that insured Broadway Village
against certain losses or defects in its title.4 (Def.’s Mot. for Summ. J., Ex. D, Insurance
Policy.) The Court will discuss more fully the Policy and its relevant provisions below.
F. Clark, Conestoga, and H&M file claims of liens on Broadway Village
After Broadway Village’s transfer to Lower Town Project, a dispute arose involving
several companies that had provided labor and services to Broadway Village before the
Policy was issued–Conestoga, Clark, and H&M.5 Conestoga was an environmental firm
that worked on Broadway Village. Clark was the general contractor for Broadway Village.

4

Lawyers Title is the successor to Transnation. The Court therefore references the
proper entity as the timing of the facts sees fit.
5

H&M is not a party to this dispute. Its lien amount was included in Clark’s lien.
6

On June 4, 2008, Conestoga filed a claim of lien on Broadway Village for
$1,319,886.76. (Def.’s Mot. for Summ. J., Ex. R, Conestoga Claim of Lien.) The claim
shows that Conestoga first provided labor on April 7, 2004, and last did so on April 11,
2008. (Id.)
On October 2, 2008, Clark filed a claim of lien on Broadway Village for $1,520,719.95.
(Def.’s Mot. for Summ. J., Ex. Q, Clark Claim of Lien.) The lien shows that Clark first
provided labor for Broadway Village on April 15, 2004, and last provided labor on July 11,
2008. (Id.)
On June 20, 2008, H&M filed a claim of lien against Broadway Village for $49,013.50.
(Def.’s Mot. for Summ. J., Ex. S, H&M Claim of Lien.)
G. The parties’ prior litigation, Lower Town Project’s request for Lawyers
Title's involvement, and Lawyers Title’s investigation
On October 31, 2008, Conestoga filed a complaint to foreclose its construction lien
against Broadway Village in Michigan state court. (Compl., Ex. C, Lower Town Project
letter to Lawyers Title.) Clark and H&M followed suit. (Id.) Lower Town Project states that
the total liens’ amount was almost $3,000,000.00. (Id.)
Lawyers Title states that Strathmore, Lower Town Development, and Chappelle,
retained counsel, appeared in that litigation, and actively defended their positions. (Def.’s
Mot. for Summ. J., at 12.)
On July 30, 2009, nine months after the complaint, Lower Town Project submitted
notice of the litigation to Lawyers Title. (Compl., Ex. C, Lower Town Project's letter to
Lawyers Title.) The letter shows that, after discovery in the state court suit, Lower Town
Project learned that the construction liens involved work done prior to the Policy. (Id.)
7

Lower Town Project then asked Lawyers Title “to honor its commitments under the [Policy]
and to indemnify and defend Lower Town [Project].” (Id.)
On September 15, 2009, Lower Town Project notified Lawyers Title that it had
participated in a facilitative mediation with Conestoga, Clark, and H&M. (Pl.’s Mot. for
Summ. J., Ex. E, Lower Town Project-Lawyers Title Correspondence.) Lower Town Project
notified Lawyers Title of the settlement offer and invited Lawyers Title to participate in the
negotiations. (Id.) On October 26, 2009, Lower Town Project notified Lawyers Title about
the case evaluation award in the litigation. (Id.)

In the October 26 letter, Lower Town

Project requested guidance from Lawyers Title. (Id.) The letter shows that Lower Town
Project was told that Lawyers Title could take up to six months to decide whether it would
assume Lower Town Project’s defense costs. (Id.) The letter also shows Lower Town
Project’s predicament: “[Lawyers Title’s] utter inaction in this matter has put Lower Town
[Project] in an impossible position: if it settles, it risks coverage arguments from [Lawyers
Title]; if it does not settle, it risks losing the property in its entirety.” Lower Town Project
requested a response no later than November 2, 2009. (Id.)
On November 10, 2009, Lower Town Project and Lawyers Title corresponded.
Lawyers Title wrote that it was still “continuing [its] coverage analysis.” (Id.) When Lower
Town Project asked if Lawyers Title objected to the $1,700,000.00 settlement, and stated
that it was meeting with Conestoga, Clark, and H&M, Lawyers Title stated that it
“anticipate[d] having [its] coverage analysis shortly,” but that it “[could not] advise [Lower
Town Project] as to Lawyers [Title’s] position.” (Id.) Lawyers Title added that it was “not
waiving any defenses available under the [P]olicy.” (Id.)

8

At the end of November, 2009, Lower Town Project settled the litigation for
$1,600,000.00; in the settlement, Lower Town Project agreed to release all the claims.
(Def.’s Mot. for Summ. J., Ex. T, Settlement Agreement.) Chappelle signed the settlement
as president of Strathmore, Terra, and Lower Town Development. (Id.) An executive
committee member signed on Lower Town Project’s behalf. (Id.)
Lower Town Project states that Lawyers Title formally denied coverage on April 21,
2010, in its answer to Lower Town Project’s complaint in this case. (Pl.’s Mot. for Summ.
J. at 6.)
H. Lower Town Project’s complaint
On April 21, 2010, Lower Town Project filed a two count complaint against Lawyers
Title. Count I is a breach of insurance contract claim. In Count II, Lower Town Project
alleges that Lawyers Title violated Michigan Complied Law 500.2006, by failing to timely
pay the insurance contract’s benefits.
In its complaint, Lower Town Project states that, as soon at it learned that the affidavit
was false, and that the liens were related to labor and material furnished prior to Broadway
Village’s sale to Lower Town Project, Lower Town Project notified Lawyers Title and asked
it to honor the policies. (Compl. ¶ 11; Ex. C to Compl.) Lower Town Project states that
Lawyers Title requested information from it to investigate the claim and that Lower Town
Project complied with all the requests. (Compl. ¶ 12.) Lower Town Project also requested
that Lawyers Title defend Lower Town Project in the state court litigation or agree to pay
the judgment obtained by the lien claimants and/or authorize a settlement. (Compl. ¶ 13.)
Lower Town Project states that Lawyers Title did not comply with any of its requests.
(Compl. ¶ 14.)
9

I. Lawyers Title’s third-party complaint
On May 28, 2010, Lawyers Title filed a third-party complaint. (Dkt. 6.) Lawyers Title
filed its complaint against Chappelle, Strathmore, Lower Town Development, Clark, and
Terra.
Lawyers Title states that, around November 14, 2007, Transnation Title conducted
a closing for an equity transaction between Lower Town Development and Lower Town
Project for Broadway Village. (Third Party Compl. ¶ 9.) Lawyers Title states that, at the
closing, Chappelle, Strathmore’s president and manager of Lower Town Development,
executed an affidavit that no companies had performed any work at Broadway Village for
120 days prior to the affidavit or that if work had been performed, those entities that
performed the work executed waivers of liens. (Id. ¶ 10; Ex. A.)
Lawyers Title next alleges that, right before the closing, on October 31, 2007, Clark
and Terra executed an assignment and agreement relating to Broadway Village, in which
Clark and Terra represented and warranted that there was no outstanding default under
its contract, and that the contract was not subject to any claim, set-off, lien, or
encumbrance. (Id. ¶ 11; Ex. B.) The assignment assigned Clark’s contract with Terra to
Lower Town Project. (Id. ¶ 12.) Chappelle signed the assignment for Terra and Lower
Town Project. (Id.)
Lawyers Title states that it relied upon the representation and thereafter issued the
Policy to Lower Town Project for Broadway Village, dated December 19, 2007. (Id. ¶ 13.)
Lawyers Title’s theory is that, if the Court finds that Lawyers Title is liable to Lower
Town Project, then Lawyers Title is entitled to indemnification from the third-party
defendants. Lawyers Title asserts seven claims against the third-party defendants:
10

! Count I: indemnity against Chappelle, Strathmore, and Lower Town Development;
! Count II: indemnity against Clark;
! Count III: indemnity against Terra;
! Count IV: misrepresentation against Lower Town Development, Strathmore, and
Chappelle;

! Count V: misrepresentation against Clark; and
! Count VI: misrepresentation against Terra.
II.

Summary judgment standard
“The court shall grant summary judgment if 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). A moving party may meet that burden “by ‘showing’ – that is,
pointing out to the district court -- that there is an absence of evidence to support the
nonmoving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Revised
Rule 56 expressly provides that:
A party asserting that a fact cannot be or is genuinely disputed must support the
assertion by:
(A) citing to particular parts of materials in the record, including depositions,
documents, electronically stored information, affidavits or declarations,
stipulations (including those made for purposes of the motion only), admissions,
interrogatory answers, or other materials; or
(B) showing that the materials cited do not establish the absence or presence
of a genuine dispute, or that an adverse party cannot produce admissible
evidence to support the fact.
Fed. R. Civ. P. 56(c)(1). The revised Rule also provides the consequences of failing to
properly support or address a fact:

11

If a party fails to properly support an assertion of fact or fails to properly address
another party’s assertion of fact as required by Rule 56(c), the court may:
(1) give an opportunity to properly support or address the fact;
(2) consider the fact undisputed for purposes of the motion;
(3) grant summary judgment if the motion and supporting materials – including
the facts considered undisputed – show that the movant is entitled to it; or
(4) issue any other appropriate order.
Fed. R. Civ. P. 56(e). “The court need consider only the cited materials, but it may
consider other materials in the record.” Fed. R. Civ. P. 56(c)(3).
When the moving party has met its burden under rule 56, “its opponent must do more
than simply show that there is some metaphysical doubt as to the material facts.”
Matsushita Electric Industries Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
Ultimately a district court must determine whether the record as a whole presents a
genuine issue of material fact, id. at 587, drawing “all justifiable inferences in the light most
favorable to the non-moving party,” Hager v. Pike County Bd. Of Education, 286 F.3d 366,
370 (6th Cir. 2002).
III.

Analysis
The Court’s first task in this set of motions is to determine whether Lower Town

Project is entitled to coverage under the Policy for the alleged defects on Broadway
Village’s title. If the Court finds that Lower Town Project is not entitled to coverage, then
Lawyers Title’s third party complaint is rendered moot and the Court need not address the
remaining claims.

12

But that is not the case here. As the Court will discuss below, although the Policy is
clear, there is a genuine issue of material fact whether a Policy exclusion applies so that
Lawyers Title does not have to provide coverage. Because there is a genuine issue of
material fact, the Court will address the remaining motions for summary judgment relating
to Lawyers Title’s third-party complaint. As to Lawyers Title’s third party complaint, the
Court finds that it has brought forth sufficient evidence on its misrepresentation claims
against the third-party defendants and will allow the claims to proceed if Lawyers Title is
found to be liable to Lower Town Project. And as to the indemnification claims, the Court
finds that these motions depend upon the resolution of the Policy controversy. The Court
will therefore deny summary judgment on those claims as well.
A.

Lower Town Project–Lawyers Title motions for summary judgment
1. The Policy is clear, but there is a genuine issue of material fact whether
a Policy exclusion applies
a. Michigan contract construction principles
The rules of construction for insurance contracts are the same as those for any other

written contract. Comerica Bank v. Lexington Ins. Co., 3 F.3d 939, 942 (6th Cir. 1993).
The court must first determine whether the contract language at issue is ambiguous. That
question is one of law for the court. Mayer v. Auto-Owners Ins. Co., 338 N.W.2d 407, 409
(Mich. Ct. App. 1983). Construction of a contract, whether it is ambiguous or unambiguous,
likewise presents a question of law for the court. Fragner v. Am. Cmty. Mut. Ins. Co., 502
N.W.2d 350, 352 (Mich. Ct. App. 1993). The function of the court is to determine and give

13

effect to the parties' intent as discerned from the policy's language, looking at the policy as
a whole. Auto-Owners Ins. Co. v. Churchman, 489 N.W.2d 431, 434 (Mich. 1992).
A contract that admits of but one interpretation is unambiguous. Fragner, 502 N.W.2d
at 352. In contrast, a contract provision is ambiguous if it is capable of two or more
constructions, both of which are reasonable. Petovello v. Murray, 362 N.W.2d 857, 858
(Mich. Ct. App. 1984).
If a contract is clear and unambiguous, the court must enforce the contract as written,
according to its plain meaning, Clevenger v. Allstate Ins. Co., 505 N.W.2d 553, 557 (Mich.
1993), without looking to extrinsic evidence. Upjohn Co. v. New Hampshire Ins. Co., 476
N.W.2d 392, 396 n. 6 (Mich. 1991). It is improper for the court to ignore the plain meaning
of the policy's language in favor of a technical or strained construction. Arco Indus. Corp.
v. Travelers Ins. Co., 730 F. Supp. 59, 66 (W.D. Mich. 1989).
If the contract is ambiguous, the court must determine the intent of the parties. To
do so, the court may look to extrinsic evidence such as custom and usage. Michigan
Millers Mut. Ins. Co v. Bronson Plating Co., 496 N.W.2d 373, 379 (Mich. Ct. App. 1992),
aff’d, 519 N.W.2d 864 (Mich. 1994).
In addition, certain rules of construction apply. Ambiguous terms in an insurance
policy are construed in favor of the insured. Arco Indus. Corp. v. Am. Motorists Ins., 531
N.W.2d 168, 172 (Mich. 1995). Accord Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776,
786-87 (Mich. 2003) (holding that “[t]he rule of reasonable expectations clearly has no
application to unambiguous contracts. That is, one’s alleged ‘reasonable expectations’
cannot supersede the clear language of a contract. . . . [Moreover], if a contract is
14

ambiguous and the parties’ intent cannot be discerned from extrinsic evidence, the contract
should be interpreted against the insurer. In other words, when its application is limited to
ambiguous contracts, the rule of reasonable expectations is just a surrogate for the rule of
construing against the drafter.”).
It is the insurer's responsibility to clearly express limits on coverage. Auto Club Ins.
Ass'n v. DeLaGarza, 444 N.W.2d 803, 806 (Mich. 1989). Thus, insurance exclusion
clauses are construed strictly and narrowly. Auto-Owners v. Churchman, 489 N.W.2d at
435; Farm Bureau Mut. Ins. Co. v. Stark, 468 N.W.2d 498, 501 (Mich. 1991).
b. The Transnation/Lawyers Title insurance policy issued to Lower
Town Project for Broadway Village
The Policy, issued December 19, 2007, contains a covered risks section. That section
states:
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS
FROM COVERAGE CONTAINED IN SCHEDULE B, AND THE
CONDITIONS . . . [Transnation] insures, as of Date of Policy and, to the
extent stated in Covered Risks 9 and 10, after Date of Policy, against loss or
damage, not exceeding the Amount of Insurance, sustained or incurred by
the Insured by reason of:
2. Any defect in or lien or encumbrance on the Title.
(Compl., Ex. A, Transnation Policy.) The exclusions are at issue in this case. The
exclusions:
The following matters are expressly excluded from the coverage of this
policy, and [Transnation] will not pay loss or damage, costs, attorneys’ fees,
or expenses that arise by reason of: . . .

15

3. Defects, liens, encumbrances, adverse claims, or other matters
(a)
created, suffered, assumed, or agreed to by the Insured
Claimant;
(b)
not known to [Transnation], not recorded in the Public
Records at Date of Policy, but Known to the Insured Claimant
and not disclosed in writing to [Transnation] by the Insured
Claimant prior to the date the Insured Claimant became an
Insured under this policy . . .
(d)

attaching or created subsequent to Date of Policy[.]

The Policy defines, “Knowledge” or “Known” as, “Actual knowledge, not constructive
knowledge or notice that may be imputed to an Insured by reason of the Public Records
or any other records that impart constructive notice of matters affecting the Title.” (Compl.,
Ex. A, The Policy.)
c. The Policy covers the liens but there is a genuine issue of
material fact whether an exclusion precludes coverage for Lower
Town Project
There are three Policy exclusions at issue. The first exclusion relates to the date of
the Policy. Lawyers Title argues that the liens did not attach prior to the date of the policy.
Lower Town Project disagrees. The second two exclusions relate to whether Lower Town
Project “created, suffered, assumed, or agreed to” or had actual knowledge of the liens at
the time of Policy.
In addition to the Policy exclusions, both Lawyers Title and Lower Town Project argue
that the other did not act timely under the Policy’s terms. And finally, Lawyers Title argues
that the known loss doctrine and equitable estoppel should prevent Lower Town Project
from recovering under the Policy.

16

i. The Policy covers the liens
Lawyers Title first argues that the Policy does not cover the construction liens
because the liens were not liens “as of the Date of Policy,” as required by the Policy.
(Def.’s Mot. for Summ. J. at 8.) Lawyers Title maintains that Lower Town Project is not
entitled to coverage because the Policy only insures against title defects that arise before
the date of the Policy–here, December 19, 2007. (Def.’s Mot. for Summ. J. at 18.)
Lawyers Title relies upon Pullum Window Corp. v. Randy M. Deprez Custom Builder, Inc.,
No. 294335, 2010 WL 5175404 (Mich.Ct.App. Dec. 21, 2010) to support its position that
the liens are not defects in title as of the date of the Policy. The Court does not find Pullum
persuasive. The liens are within the confines of the Policy.
In Pullum, Fidelity Bank attempted to recover under a title insurance policy from
Chicago Title Insurance Company after it settled a lien issue with Pullum Window. Pullum,
2010 WL 51575404, at *1. Chicago Title denied coverage after it found that Pullum
Window first provided coverage and services post-policy and that the lien therefore was
excluded from coverage. Id. The policy insured against loss for: “[l]ack of priority of the
lien of the insured mortgage over any statutory lien for services, labor or material: (a)
arising from an improvement or work related to the land which is contracted for or
commenced prior to the Date of Policy[.]” Id. The date of the policy was December 6,
2005. Id. at *3. The court addressed whether the policy covered Pullum Window’s
construction lien on the covered property that was recorded on August 15, 2007, and noted
that Pullum Window first provided labor or materials on May 31, 2007. Id. at *2. The court
held that the liens were not covered. Id. at *5. The liens were not covered because the

17

insurance contract stated that Chicago Title would not provide coverage for liens after the
date of the policy. Id. And these liens and the work done on the property started after the
policy. Id.
The court rejected Fidelity Bank’s argument that it could use the Construction Lien
Act’s relation back principle to escape the contract’s unambiguous language. Id. (stating
that “we decline to overlay the relation back principle of the Construction Lien Act on the
parties’ insurance contract”). (Pullum Window was attempting to use the relation back
principle to show that a third-party had begun construction on the property before the date
of the policy. But nothing in the record showed that Pullum Window had actually done that
work. And in fact, Pullum Window’s notice of lien explicitly stated that it first provided work
after the Policy was issued.) Because the contract was clear and the liens fell explicitly
within an exclusion, Fidelity Bank was not entitled to coverage.
Lawyers Title’s reads Pullum too broadly. Here, the notices of liens state that Clark,
Conestoga, and H&M first provided work before the date of the Policy–unlike the lien filed
in Pullum. That case therefore is not helpful to Lawyers Title’s cause.
Lower Town Project argues that, under Michigan law, the liens attached prior to the
date of the Policy and that the Policy expressly includes coverage for such liens.
The Court agrees with Lower Town Project. The Policy excludes coverage for liens
that attach or are created after the date of the policy. (Compl., Ex. A, the Policy, Exclusions
from Coverage, 3(d).) Under Michigan law, a construction lien attaches on the date of the
“first actual physical improvement.” Michigan Pipe & Valve-Lansing, Inc. v. Hebeler Enter.,

18

Inc., —N.W.2d—, 2011 WL 1004660, at *2 (Mich.Ct.App. Mar. 22, 2011) (citation omitted).
Michigan’s Construction Lien Act defines “first actual improvement” as
the actual physical change in, or alteration of, real property as a result of
labor provided, pursuant to a contract, by a contractor, subcontractor, or
laborer which is readily visible and of a kind that would alert a person upon
reasonable inspection of the existence of an improvement. Actual physical
improvement does not include that labor which is provided in preparation for
that change or alteration, such as surveying, soil boring and testing,
architectural or engineering planning, or the preparation of other plans or
drawings of any kind of nature. Actual physical improvement does not
include supplies delivered to or stored at the real property.
Id. (citing Mich. Comp. Law § 570.1103(1)).
Here, Clark first provided labor on April 15, 2004. (Def.’s Mot. for Summ. J., Ex. Q,
Clark Claim of Lien.) Conestoga first provided labor on April 7, 2004.

(Def.’s Mot. for

Summ. J., Ex. R, Conestoga Claim of Lien.) These liens attached before the date of the
Policy, December 19, 2007, and therefore fall within the Policy’s terms.
ii. There is a material issue of fact whether the remaining two
exclusions apply
Since the Policy covers the liens, the Court moves on to the next inquiry–whether the
liens fall within the remaining two Policy exclusions, thereby allowing Lawyers Title to
escape coverage for the settlement amount. Both of these exclusions turn on whether
Lower Town Project had actual knowledge of the liens. The Court will therefore present
the exclusions and arguments under the two exclusions first and then address how the
exclusions relate to the facts.
a.

The “created, suffered, assumed, or agreed to” the
liens exclusion

19

The Policy excludes coverage for “[d]efects, liens, encumbrances, adverse claims,
or other matters (a) created, suffered, assumed, or agreed to by the Insured Claimant.” The
Sixth Circuit has interpreted this very provision of this contract.
The term “created” has generally been construed to require a conscious,
deliberate and sometimes affirmative act intended to bring about the
conflicting claim, in contrast to mere inadvertence of negligence. Similarly,
the term “suffered” has been interpreted to mean consent with the intent that
“what is done is to be done,” and has been deemed synonymous with
“permit,” which implies the power to prohibit or prevent the claim from arising.
Further, an insured does not assume an assessment against property
“merely because he agreed to take the property ‘subject to’ any
assessments.” “Assume,” under this definition requires knowledge of the
specific title defect assumed. And “agreed to” carries connotations of
“contracted,” requiring full knowledge by the insured of the extent and
amount of the claim against the insured’s title. As with other terms, this
definition implies some degree of intent.
Am. Sav. and Loan Ass’n v. Lawyers Title Ins. Co., 793 F.2d 780, 784 (6th Cir. 1986) (all
citations omitted). The Sixth Circuit has approved the following summary:
The cases discussing the applicability of the “created or suffered” exclusion
generally have stated that the insurer can escape liability only if it is
established that the defect, lien or encumbrance resulted from some
intentional misconduct or inequitable dealings by the insured or the insured
either expressly or impliedly assumed or agreed to the defects or
encumbrances in the course of purchasing the property involved. The courts
have not permitted the insurer to avoid liability if the insured was innocent of
any conduct causing the loss or was simply negligent in bringing about the
loss.
Id. (citation omitted). The Sixth Circuit has held that “the application of exclusionary
clauses such as the one at issue here often turns on notions of equity. To the extent that
an insured has breached an obligation or would derive a windfall profit from recovery

20

against its insurer, courts are more inclined to find that the insured created, suffered,
assumed or agreed to the defect, lien or encumbrance.” Id. (citation omitted).
Lower Town Project first argues that it could not have “created, suffered, assumed, or
agreed to” the lien because Terra assigned the Clark contract to Lower Town Project; and
in that assignment, Terra and Clark warranted to Lower Town Project that there was no
outstanding default under the contract. (Pl.’s Mot. for Summ. J. at 8.) Lower Town Project
argues, therefore, that had Lawyers Title seen the assignment and the representations that
the parties made, it would not have claimed that Lower Town Project “created, suffered,
assumed, or agreed to” the lien. (Id. at 8-9.)
Lower Town Project then argues that “there is no basis from which Lawyers Title could
argue that [Lower Town Project]” “created, suffered, assumed, or agreed to” the Conestoga
lien. It argues this because Terra did not assign its contract with Conestoga to Lower Town
Project. (Pl.’s Mot. for Summ. J. at 8.) Without the assignment, then, Lower Town Project
could not have created, suffered, assumed or agreed to the Conestoga lien.
Lawyers Title argues that, if the liens are covered by the Policy, since the Conestoga,
Clark, and H&M liens had attached well before the Policy, Lower Town Project “must be
deemed” to have “suffered, assumed or agreed to” the liens. And the Court must therefore
deem Lower Town Project to have had actual knowledge of the construction liens because
Lower Town Project took title subject to the liens. (Def.’s Mot. for Summ. J. at 20.)

21

b.

The actual knowledge exclusion

The Policy also excludes coverage for “[d]efects, liens, encumbrances, adverse claims,
or other matters: not known to [Transnation], not recorded in the Public Records at Date of
Policy, but Known to the Insured Claimant and not disclosed in writing to [Transnation] by
the Insured Claimant prior to the date the Insured Claimant became an Insured under this
policy[.]”
The Policy defines, “Knowledge” or “Known” as, “Actual knowledge, not constructive
knowledge or notice that may be imputed to an Insured by reason of the Public Records or
any other records that impart constructive notice of matters affecting the Title.” (Compl., Ex.
A, The Policy.)
One court in this district has analyzed the “knowledge” or “known” provision of the
Policy. Lawyers Title Ins. Corp. v. First Fed. Savings & Bank, 744 F.Supp. 778, 784
(E.D.Mich. 1990) (Cohn, J.). That court analyzed “what the parameters of such knowledge
[were]” and what actions and knowledge constituted “actual knowledge.” Id. The court
determined that “[k]nowledge is what a person actually perceives[.]” The court used the
following illustration:
If A, while dealing with respect to a piece of property, deliberately and
intentionally refrains from making inquiries concerning outstanding
encumbrances or claims for the very purpose of avoiding any information, he
is charged with notice of the encumbrances and claims which are actually
outstanding; but he certainly does not acquire, and cannot possibly have
knowledge of such prior charges or interests.
Id. (citation omitted).

22

iii. There is a material issue of fact whether Lower Town
Project had actual knowledge of the construction liens on
the date of the Policy
What Lower Town Project knew–had actual knowledge of–about the construction
liens is key in this case. But the knowledge issue is not straightforward. The strongest
argument, and the reason why the Court will deny Lower Town Project and Lawyers Title’s
cross motions, is that Chappelle had actual knowledge of the liens at the time he signed
the affidavit.6 There are material issues of fact, though, whether Chappelle was an agent
of Lower Town Project and what he knew about the construction liens. There are also
issues of fact whether Chappelle’s status with Strathmore, Lower Town Project, and Terra
renders those entities agents as well. If Chappelle had actual knowledge of the liens and
he was an agent of Lower Town Project, then Lower Town Project had actual knowledge
and a policy exclusion would apply.
a.

An agent’s actual knowledge is the
corporation’s knowledge

“Under Michigan law, the knowledge of a corporate agent can be imputed to the entire
corporation:”
A corporation can only act through its employees and . . . the acts of its
employees, within the scope of their employment, constitute the acts of the
corporation. Likewise, knowledge acquired by employees within the scope
of their employment is imputed to the corporation. In consequence, a
corporation cannot plead innocence by asserting that the information
obtained by several employees was not acquired by any one individual
employee who then would have comprehended its full import. Rather, the

6

This section applies to Strathmore, Lower Town Development, and Terra, as Chappelle
is connected to and president/manager of those entities.
23

corporation is considered to have acquired the collective knowledge of its
employees and is held responsible for their failure to act accordingly.
In re NM Holdings Co., LLC, 622 F.3d 613, 620 (6th Cir. 2010) (citation omitted).
When a person representing a corporation is doing a thing which is in
connection with and pertinent to that part of the corporation business which
he is employed, or authorized or selected to do, then that which is learned or
done by that person pursuant thereto is in the knowledge of the corporation.
The knowledge possessed by a corporation about a particular thing is the
sum total of all the knowledge which its officers and agents ,who are
authorized and charged with the doing of the particular thing[,] [acquire] while
acting under and within the scope of their authority.
New Prop., Inc. v. George D. Newpower, JR, Inc., 762 N.W.2d 178, 187-88 (Mich.Ct.App.
2009) (alterations in original). This doctrine is known as the doctrine of imputed knowledge.
Id. See also Elsebaei v. JP Morgan Chase Bank, N.C., 289796, 2010 WL 1979434, at *
1(Mich.Ct.App. May 18, 2010) (stating, “a corporation [] could only have knowledge if one
of its agents or employees had knowledge.”).
b.

There is an issue of fact whether Chappelle
was Lower Town Project’s agent

There is a genuine issue of material fact about what Chappelle knew and what of that
knowledge can be considered to be the knowledge of Lower Town Project.
Chappelle states that he does not remember whether any people or entities were
owed money for Broadway Village. (Def.’s Mot. for Summ. J., Ex. K, Chappelle Dep. at
36.) Although he acknowledges that Clark became involved with Broadway Village at some
point, he states that he does not exactly remember when, but that Clark would have been
involved because Broadway Village needed a large contractor. (Id. at 40.)

24

Chappelle states that he did not know what Clark did; rather, Chappelle says his job
was to oversee the different aspects of Broadway Village’s redevelopment–but not work
closely with the architects, engineers, cost estimators, etc. (Id. at 41.) He states he would
only have become aware of an issue if the issue needed his attention; which he states was
not that often. (Id.) Chappelle states that he did not directly supervise Conestoga either.
(Id. at 43.)
Chappelle states that he would not have signed the affidavit, had he thought that it
was not true. (Id. at 48-49.)
Kenneth Lawless was deposed on Clark’s behalf. Lawless was, and is, Clark’s
executive vice president. (Def.’s Mot. for Summ. J., Ex. L, Lawless Dep. at 6.) Lawless
states

that

Chappelle

called

him

to

get

involved

in

Broadway

Village’s

preconstruction–which involved providing budget information in terms of what the total cost
of the protect might be. (Id. at 8.) Lawless states that Clark dealt with Chappelle
throughout Clark’s involvement with Broadway Village. (Id. at 18, 20.)
On October 31, 2007, Clark and Terra assigned the Clark-Terra contract to Lower
Town Project. (Id. at 22; Pl.’s Mot. for Summ. J., Ex. H, Assignment.) At the time of the
assignment, Lawless states that Clark was owed money from Terra (Id. at 36.) As to the
assignment, Lawless states that there was a substantial amount of work that it still had to
do and for which it still needed to be paid. (Id. at 44.)
And Lawless adds that Clark called Chappelle on “a repeated basis to get paid and
the answer generally was, [“]in a couple of weeks[.”]” (Id. at 52.)

25

The Court finds that this conflicting testimony creates a material issue of fact.
Lawless states that Chappelle was involved with Clark throughout Clark’s work on
Broadway Village–involvement that began before the date of the Policy and continued after.
If Chappelle was involved as Lawless states, and was receiving calls from Lawless on a
repeated basis, then the Court is inclined to find a question of fact exists whether Chappelle
knew about the construction liens on Broadway Village.
c.

The Court is not persuaded by Lower Town Project’s
arguments

Lower Town Project argues that it did not have actual knowledge of the construction
liens. Lower Town Project first relies on a statement made by Ms. Turney, Lawyers Title’s
witness, during her deposition when Lower Town Project asked about actual knowledge:
I haven’t seen the actual knowledge, but - - I don’t personally know if there
was actual knowledge. I haven’t seen anything that there wasn’t any actual
knowledge, but certainly the knowledge of Strathmore [] and [] Terra [] as
agents of Lower Town Project gave it that knowledge.
(Pl.’s Mot. for Summ. J. at 9-10, citing Turney Dep. at 29-30.) Lower Town Project argues
that this statement is proof that no actual knowledge could have existed. The Court
disagrees. As the Court has reviewed Michigan case-law above, an agent’s knowledge is
his company’s knowledge. Ms. Turney’s testimony is in line with that tenet.
Lower Town Project then points to an endorsement included in the Policy:
Notwithstanding paragraphs 3(a) and 3(b) of the Exclusions from Coverage
of the policy, [Transnation] assures [Lower Town Project] that, in the event
of loss or damage insured against under this policy, [Transnation] will not
deny liability under this policy to the insured on the ground that [Lower Town
Project] had knowledge of any matter or matters solely by reason of notice

26

thereof imputed to [Lower Town Project] by operation of law (as opposed to
actual knowledge) from Lower Town Development [].
(Compl.)
Lower Town Project contends that, under this provision, “even if imputed knowledge
were good enough to demonstrate knowledge under paragraph 3(b), such knowledge
cannot be imputed from the seller, [Lower Town Development].” (Pl.’s Mot. for Summ. J.
at 10.) Here again, Lower Town Project misses the point. The argument here is that
Chappelle and his entities were agents of Lower Town Project. The argument is about their
actual knowledge, not Lower Town Project’s notice from Lower Town Development. The
Court views a difference under the arguments–notice and actual knowledge are two
different concepts under the law. Here, knowledge is at issue and the Court finds that the
above quoted endorsement does not apply.
Lower Town Project maintains that Lawyers Title cannot use an agency theory–that
Strathmore or Terra’s actual knowledge can constitute Lower Town Project’s actual
knowledge–to not provide coverage under the Policy.
Lower Town Project states that Lawyers Title bases its agency theory on the property
agreement between Strathmore and Lower Town, LLC. (Id. at 10-11.) The knowledge
requirement, Lower Town Project argues, would have to be imputed from Strathmore to
Lower Town, LLC to Lower Town Project, what Lower Town Project calls a “double
imputation” and states is impermissible under the endorsement policy. (Id. at 11.)
Lower Town Project next argues that since Strathmore is the manager of Lower Town
Development and the endorsement prohibits Lawyers Title from imputing the knowledge
27

of Lower Town Development to Lower Town Project, that Lower Town Project could not
have the requisite knowledge to be liable. (Id.) Lower Town Project then states that
Strathmore executed the property management agreement twice, first as Lower Town,
LLC’s manager, and then as the property manager. Lower Town Project alleges that the
endorsement prohibits the imputation of knowledge from Strathmore to Lower Town
Project. (Id.)
Lower Town Project also argues that Strathmore cannot be an agent of Lower Town,
LLC because the Strathmore-Lower Town, LLC agreement expressly states that
Strathmore was an independent contractor and not an agent of Lower Town, LLC. Id. But
Lower Town Project is incorrect. “As a matter of legal custom and tradition, moreover,
nothing about the title independent contractor invariably precludes someone from being an
agent under appropriate circumstances.” U.S. v. Hudson, 491 F.3d 590, 595 (6th Cir.
2007) (quoting “[a]n independent contractor . . . may or may not be an agent;” and “a
person may be both an independent contractor and an agent.”) (citations omitted). See
also Hill v. Sears Roebuck & Co., No. 295071, 2011 WL 2023012, at *4 (Mich.Ct.App. May
24, 2011) (quoting, “the existence and scope of an agency relationship are questions of fact
for the jury” and stating that “while [a contractor stating that a party is an independent
contractor] favors a finding of an independent contractor relationship, it does not definitively
settle the issue.”) (citation omitted).

28

The Court has already addressed Lower Town Project’s arguments above. But the
Court further stresses that Lawyers Title has made a sufficient showing that the lines
distinguishing the entities have been blurred by the entities themselves.7
2. Known loss and equitable estoppel
Lawyers Title also argues that the known loss doctrine should prevent Lower Town
Project from receiving the Policy’s benefits and that Lower Town Project is equitably
estopped from receiving the Policy’s benefits.
a. Known loss
“The known loss doctrine is a common law concept that derives from the fundamental
requirement of fortuity in insurance law. Its basic premise is that insurance policies are
intended to protect insureds against risks of loss; not losses that have already taken place
or are substantially certain to occur. Accordingly, the doctrine is properly invoked when the
insured ‘knows’ about the claimed loss before the policy is purchased.” Aetna Cas. & Sur.
Co. v. Dow Chem. Co., 10 F.Supp.2d 771, 789 (E.D.Mich. 1998) (Edmunds, J.) (citations
and quotation marks omitted).

7

Lawless’s testimony further supports Chappelle’s involvement in Broadway Village.
Lawless: Scott asked us to execute a document that changed the name for what the owner
of [Broadway Village] would be.
Q:
Did you understand that [Chappelle or Chappelle’s] entity . . . [Chappelle] directly
or indirectly, would continue to be an owner of the project?
A:
He would still be the controlling person of the project.
Q:
And throughout this time, meaning before [the assignment was executed and after
it was executed], for you Scott Chappelle was the owner; would that be fair to say?
A:
Yes.
Q:
And that never changed?
A:
Never changed.
(Lawless Dep. at 27.)
29

Courts have held that the known loss doctrine must be “judged using a subjective
standard” because requiring this “knowledge element best serves the overall principle of
insurance.” Id. (citation omitted). The crucial analysis, then, is whether the insured “was
aware, at a minimum, of an immediate threat of [the risk of loss] for which it was ultimately
held responsible and for which it now seeks coverage.” Id.
Here, because there is an issue whether Chappelle, his entities, and Lower Town
Project actually knew about the Clark, Conestoga, and H&M liens against Broadway
Village, the Court finds that the known loss doctrine is a viable defense to Lower Town
Project’s claim and will allow it survive.
b. Equitable estoppel
“The principle of estoppel is an equitable defense that prevents one party to a contract
from enforcing a specific provision contained in the contract.” City of Grosse Pointe Park
v. Michigan Mun. Liab. and Prop. Pool, 702 N.W.2d 106, 116 (Mich. 2005). “Equitable
estoppel may arise where (1) a party, by representations, admissions, or silence
intentionally or negligently induces another party to believe facts, (2) the other party
justifiably relies and acts on that belief, and (3) the other party is prejudiced if the first party
is allowed to deny the existence of those facts.” Conagra, Inc. v. Farmers State Bank, 602
N.W.2d 390, 405 (Mich.Ct.App. 1999) (citation omitted). “Silence or inaction may form the
basis for an equitable estoppel only where the silent party had a duty or obligation to speak
or take action.” Id. at 405-06.

30

The Court will allow this defense to survive past summary judgment, based upon the
reliance discussion below–there is a sufficient indication that Lawyers Title would not have
issued the Policy had it not received the affidavit.
3. Timeliness
Both Lawyers Title and Lower Town Project argue that the other did not timely act as
required by the Policy.
Lawyers Title argues that the Policy required Lower Town Project to “promptly” notify
it in writing if any litigation arose that might cause Lawyers Title to be liable under the
Policy. Lawyers Title alleges that Lower Town Project did not promptly notify it in writing,
and that Lower Town Project instead waited nine months before it contacted Lawyers Title.
(Def.’s Mot. for Summ. J. at 23-24.) Lawyers Title asserts that in this nine month period,
discovery closed, dispositive motions were pending, and settlement discussions were
taking place. (Id.)
Lower Town Project argues that it contacted Lawyers Title about the litigation on July
30, 2009, after Lower Town Project “obtained discovery and determined that” the liens
should have been covered by the Policy. (Pl.’s Mot. for Summ. J. at 15.) Lower Town
Project maintains that Lawyers Title had three and one-half months to investigate the
litigation/claims before Lower Town Project settled; and that amount of time is not an
“unreasonable” amount of time “to expect [Lawyers Title] to make at least a decision on
whether to defend the claim.” (Id. at 16.)
The policy provides:

31

3. NOTICE OF CLAIM TO BE GIVEN BY INSURED CLAIMANT
The Insured shall notify the Company promptly in writing (I) in case of any
litigation as set forth in Section 5(a) of these Conditions, (ii) in case
Knowledge shall come to an Insured hereunder of any claim of title or interest
that is adverse to the Title, as insured, and that might cause loss or damage
for which the [Transnation] may be liable by virtue of this policy, or (iii) if the
Title, as insured, is rejected as Unmarketable Title. If [Transnation] is
prejudiced by the failure of the Insured Claimant under the policy shall be
reduced to the extent of the prejudice.
5. DEFENSE AND PROSECUTION OF ACTIONS
(a) Upon written request by the Insured, and subject to the options contained
in Section 7 of these Conditions, [Transnation,] at its own cost and without
unreasonable delay, shall provide for the defense of an Insured in litigation
in which any third party asserts a claim covered by this policy adverse to the
Insured. This obligation is limited to only those stated causes of action
alleging matters insured against by this policy. The Company shall have the
right to select counsel of its choice (subject to the right of the insured to
object for reasonable cause) to represent the Insured as to those stated
causes of action. It shall not be liable for and will not pay the fees of any
other counsel. [Transnation] will not pay any fees, costs, or expenses
incurred by the Insured in the defense of those causes of action that allege
matters not insured against by this policy.
(b) [Transnation] shall have the right, in addition to the options contained in
Section 7 of these Conditions, at its own cost, to institute and prosecute any
action or proceeding or to do any other act that in its opinion may be
necessary or desirable to establish the Title, as insured, or to prevent or
reduce loss or damage to the insured. [Transnation] may take any
appropriate action under the terms of this policy, whether or not it shall be
liable to the Insured. The exercise of these rights shall not be an admission
of liability or waiver of any provision of this policy. If [Transnation] exercises
its rights under this section, it must do so diligently.
(c) Whenever [Transnation] brings an action or asserts a defense as
required or permitted by this policy, [Transnation] may pursue the litigation
to a final determination by a court of competent jurisdiction, and it expressly
reserves the right, in its sole discretion, to appeal any adverse judgment or
order.
9. LIMITATION OF LIABILITY

32

(c) [Transnation] shall not be liable for loss or damage to the Insured for
liability voluntarily assumed by the insured in settling any claim or suit without
the prior written consent of [Transnation.]
(Compl., Ex. A, The Policy.)
“The purpose of provisions in insurance contracts requiring the insured to give the
insurer prompt notice of accident or suit is to allow the insurer to make a timely
investigation of the accident in order to evaluate claims and to defend against fraudulent,
invalid or excessive claims." Kermans v. Pendleton, 233 N.W.2d 658, 661 (Mich.Ct.App.
1975) (citations omitted). “Mere delay in giving the required notice does not result in a
forfeiture since such provisions have been interpreted to require notice within a reasonable
time.” Id. (citations omitted). “Prejudice to the insurer is a material element to be
considered in determining whether notice is reasonably given.” Id. (citations omitted.)
“[T]he insurer has the burden to demonstrate such prejudice.” Id. (citations omitted). “The
question of whether the notice was reasonably given is a question for the factfinder. State
Farm Fire & Cas. v. Wylie, No. 189703, 1997 WL 33345899, at *2 (Mich.Ct.App. 1997)
(citations omitted). “However, where the facts are undisputed and only one conclusion is
reasonably possible, the issue of prejudice is one of law.” Id. (citation omitted).
Prejudice “will be found to exist where the delay ‘materially’ impairs an insurer’s ability
to contest its liability to [] an insured or third party.” ABO Petroleum, Inc. v. Colony Ins. Co.,
No. 04-72090, 2005 WL 1050220, at *13 (E.D.Mich. Apr. 19, 2005) (Cleland, J.) (citation
omitted). “In determining whether an insurer’s position has actually been prejudiced by the
insured’s untimely notice, courts consider whether the delay has materially impaired the
insurer’s ability: (1) to investigate liability and damage issues so as to protect its interests;
33

(2) to evaluate, negotiate, defend, or settle a claim or suit; (3) to pursue claims against third
parties; (4) to contest the liability of the insured to a third party; and ([5]) to contest its
liability to its insured.” Id. (citation omitted). “Michigan courts generally leave the question
of prejudice to the trier of fact, but where the facts permit only one reasonable conclusion[,]
the question is one of law.” Id. (citation omitted).
Here, although Lower Town Project may have waited nine months to inform Lawyers
Title of its claim, Lawyers Title has not shown that it was materially prejudiced by the delay.
Lawyers Title informed Lower Town Project that it may take up to six months to investigate
the claim; here, Lawyers Title had three and a half months before Lower Town Project
settled the prior litigation. Lawyers Title has not offered any reason why it could not have
finished its investigation or participated in the settlement agreements in that amount of
time. The Court therefore does not find, as a matter of law, that either party is entitled to
summary judgment based upon the Policy’s time requirements.
B. Lawyers Title’s misrepresentation claims against Chappelle,
Strathmore, Lower Town Development, Terra, and Clark
1. Misrepresentation
Lawyers Title alleges misrepresentation claims against the third-party defendants.
Against them, then, Lawyers Title has to prove that: (1) the third-party defendant made a
material misrepresentation, (2) that was false; (3) that when it made the misrepresentation
it knew that it was false, or made it recklessly, without any knowledge of its truth, and as
a positive assertion; (4) that it made it with the intention that it should be acted upon by
Lawyers Title; (5) that Lawyers Title acted in reliance upon it; and (6) that Lawyers Title
34

thereby suffered injury. Hi-Way Motor Co. v. Int'l Harvester Co., 247 N.W.2d 813, 816
(Mich. 1976) (quoting Chandler v. Heigho, 175 N.W. 141, 143 (Mich. 1919)). "[T]he
absence of any one of [these elements] is fatal to a recovery." Id.
2. Third-party misrepresentation
Here, Lawyers Title has alleged third-party fraud against the third-party defendants.
Lawyers Title therefore has to show that, although the third-party defendants did not
directly make a misrepresentation to Lawyers Title, they did make a misrepresentation on
which they knew a third party was going to rely.
While some connection, direct or indirect, between a party charged with
making false representations and a party relying thereon must be shown, it
is not essential, in support of a cause of action for damages resulting from
false representations, that the false representations be shown to have been
made directly to the party claiming to have relied upon them. It has been
repeatedly held that where a party makes false representations to another
with the intent or knowledge that they be exhibited or repeated to a third party
for the purpose of deceiving him, the third party, if so deceived to his injury,
can maintain an action in tort against the party making the false statements
for the damages resulting from the fraud.
Oppenhuizen v. Wennersten, 139 N.W.2d 765, 768 (Mich.Ct.App. 1966) (emphasis
removed). “Where the defendant has not made the representation directly to the plaintiff,
the injury suffered by the plaintiff must be directly traceable to the defendant’s
misrepresentation.” Martell v. Turcheck, No. 07-14068, 2008 WL 2714210, at *4 (E.D.Mich.
July 7, 2008) (Edmunds, J.) (emphasis removed) (citations omitted).8

8

Lawyers Title suggests that Williams v. Polgar, 215 N.W.2d 149 (Mich. 1974) stands
for the proposition that it can hold Clark liable because “a representation need not be made
directly to the party injured by it to be actionable; it is enough that the injured party be a
member of a class of persons who might foreseeably rely on representation.” The Polgar
court held that “this [negligent misrepresentation] arising from breach of the abstracter’s
35

Oppenhuizen illustrates the type of misrepresentation and connection needed for
third-party fraud. There, Oppenhuizen purchased a car from Wennersten. 139 N.W.2d at
767. Wennersten had previously purchased the car from Veneklasen, who sold the car,
knowing that it was a stolen vehicle, and did not reveal the car’s stolen character to
Wennersten. Id.
The court held that “Veneklasen set the whole sequence of events in operation.” Id.
The court further reasoned that “it was foreseeable that someone beyond Wennersten
would be hurt if the true facts were discovered concerning [the car.]” Id.
On appeal, Veneklasen argued that the plaintiff could not sustain a fraud action
against him because he did not make a representation to the plaintiff. Id. at 768. The court
disagreed. The court held that “defendant Veneklasen knew that the forged title would be
used by Wennersten in [reselling the car] and that his sale was based mainly upon such
an event happening.” Id. at 769. The court then reasoned that Veneklasen could not have

contractual duty runs to those persons an abstracter could reasonably foresee as relying
on the accuracy of the abstract put into motion. The particular expert-client relationship
accruing to a professional contract to certify the condition of the record of title reposes a
peculiar trust in an abstracter which runs not only to the original contracting party. There
is a clearly foreseeable class of potential injured persons which would obviously include
grantees where his or her grantor or any predecessor in title of the grantor has initiated the
contract for abstracting services with the abstracter.” Polgar, 215 N.W.2d at 157. Neither
party has brought a case applying the Polgar foreseeability analysis in an intentional
misrepresentation context and the Court has not found one on its own. Polgar therefore
does not apply to this case. Lawyers Title has not pleaded a negligent misrepresentation
claim, and therefore it must attempt to withstand summary judgment on its intentional
misrepresentation claim. See Tucker v. Union of Needletraders, Indus., and Textile Emp.,
407 F.3d 784, 788 (6th Cir. 2005) (citing authority and quoting, “[a] non-moving party
plaintiff may not raise a new legal claim for the first time in response to the opposing party’s
summary judgment motion. At the summary judgment stage, the proper procedure for
plaintiffs to assert a new claim is to amend the complaint in accordance with Rule 15(a).”)
36

intended that Wennersten would not have represented a valid title to a prospective
purchaser. Id. And the court therefore stated that “[s]uch a conclusion validates the
connection or relationship between the parties necessary to hold [Veneklasen] responsible
to plaintiff for his damages suffered by reason of the fraud.” Id.
a. Misrepresentation based upon the affidavit
Chappelle, Strathmore, and Lower Town Development have moved for summary
judgment on Lawyers Title’s misrepresentation claims against them based upon the
affidavit.9 Chappelle, Strathmore, and Lower Town Development argue that “[Lawyers
Title] has produced no more than conclusory allegations to supports its claim for intentional
misrepresentation,” and therefore requests that the Court deny Lawyers Title’s motion for
summary judgment. (Chappelle Mot. for Summ. J. at 11.) Lawyers Title’s argument tracks
Oppenhuizen. It argues that Chappelle, Strathmore, and Lower Town Development made
material misrepresentations in the November 14, 2007 affidavit–that no liens or
encumbrances existed on Broadway Village at the time of the property’s transfer to Lower
Town Project. (Third-Party Compl. ¶ 32.) Lawyers Title then argues that Chappelle,
Strathmore, and Lower Town Development intended that third-parties such as Lawyers
9

Chappelle, Strathmore, and Lower Town Development argue Lawyers Title is precluded
from filing suit against Chappelle and Strathmore based upon certain language in the
affidavit. The affidavit contains the following clause: “In the event that any of the
representations made herein prove to be incorrect, for any reason, and a claim is made by
a third party with respect to these matters, Affiant agrees to indemnify and hold harmless
Transnation Title Insurance Company from all claims and damages, including litigation
costs and attorney fees arising as the result of such claim.” (Emphasis added.) (Chappelle’s
Mot. for Summ. J., Ex. 5, Affidavit.) Lower Town Development is the Affiant. (Id.) But
here, the claim is by Lawyers Title/Transnation against Chappelle, Strathmore, and Lower
Town Development. The claim is not by a third party, it is by a party to the affidavit. The
Court therefore finds that this language does not preclude Lawyers Title’s suit.
37

Title would rely on this affidavit and that it relied on it, and possibly, depending upon Lower
Town Project’s claim against Lawyers Title, to its injury.
The Court agrees with Lawyers Title. Lawyers Title has created an issue of material
fact whether a misrepresentation was made, it has shown that it relied on the alleged
misrepresentation, and it has alleged an injury: Lower Town Project’s claim against it.
Chappelle, Strathmore, and Lower Town Development argue that Lawyers Title
cannot show that it relied upon the affidavit in issuing its policy. But in Michigan, in an
insurance contract context, an insurance company can prove a material misrepresentation
and reliance upon that misrepresentation if “the misrepresentation affects the insurer’s risk
or relates to the insurer’s underwriting guidelines.” Kitterman v. Mich. Educ. Emp. Mut. Ins.,
247428, 2004 WL 1459523, at *3 (Mich.Ct.App. June 29, 2004) (citing Katinsky v. Auto
Club Ins. Ass’n, 505 N.W.2d 895, 896 (Mich.Ct.App. 1993).10
Here, then, Lawyers Title has made a sufficient showing to withstand Chappelle,
Strathmore, and Lower Town Development’s motion for summary judgment. As shown
above, Lawyers Title has created an issue of fact about a misrepresentation–with
10

See Lash v. Allstate Ins. Co., 532 N.W.2d 869, 872 (Mich.Ct.App. 1995) (finding, in the
car insurance context, that rescission is justified in cases of innocent misrepresentation,
because the insurance company “would not have issued the policy had it known about [the]
plaintiff’s [violation] because [the] plaintiff would have been ineligible under its guidelines.”
And further finding: “[The] [p]laintiff should not be unjustly enriched at [the insurance
company’s] expense because of his misrepresentation, even accepting that it was
innocent.”) See also Tudor Ins. Co. v. Associated Land Title, LLC, 08-11831, 2010 WL
716309, at *4 (E.D.Mich. Feb. 23, 2010) (Duggan, J.) (citing Lake States Ins. Co. v. Wilson,
586 N.W.2d 113, 115 (Mich. 1998) (stating, “[the insurance company] must establish that
the [insured] made a ‘material misrepresentation in its application for insurance[,]” and “[a]
material misrepresentation is one that is relied on by the insurance company in the sense
that it ‘related to the insurer’s guidelines for determining eligibility for coverage.’”). Id.
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Chappelle and Lawless’s conflicting statements, that show that there is a dispute that Clark
was still owed money at the time of Broadway Village’s transfer. Lawyers Title has also
made a sufficient showing of reliance–for the affidavit/alleged misrepresentation “affects
the insurer’s risk or relates to the insurer’s underwriting guidelines.” (Id.) Lawyers Title
would not have issued the title insurance had it known that Clark and the other companies
were going to file liens on Broadway Village.
These facts, then, track Oppenhuizen. Chappelle, Strathmore, and Lower Town
Development, like Veneklasen, allegedly knew that money was owed to several companies
for their work on Broadway Village.

Despite this alleged knowledge, Chappelle,

Strathmore, and Lower Town Development executed the affidavit stating that there were
no liens or encumbrances on Broadway Village’s title. As in Oppenhuizen with Veneklasen,
Chappelle, Strathmore, and Lower Town Development made this representation to Lower
Town Project. Chappelle, Strathmore, and Lower Town Development, therefore, “set the
whole sequence of events [relating to the lack of defects on Broadway Village’s title] in
operation,” and “it was foreseeable that someone beyond [Lower Town Project] would be
hurt if the true facts were discovered concerning [the title.]” Oppenhuizen, 139 N.W.2d at
767.
Lawyers Title therefore has created a genuine issue of material fact as to its
misrepresentation claims against Chappelle, Strathmore, and Lower Town Development.

39

The Court therefore denies Chappelle, Strathmore, and Lower Town Development’s motion
for summary judgment against Lawyers Title.11
b. Misrepresentation based upon the Clark-Terra-Lower Town Project
assignment
Lawyers Title alleges that Terra and Clark are liable for misrepresentation based upon
the assignment they executed. In the assignment, Clark represented that “there is no
outstanding default under the [Terra-Clark contract] and that Clark’s interest in the [TerraClark contract] is not subject to any claim, set-off, lien or encumbrance of any nature.”
(Clark’s Mot. for Summ. J., Ex 1, Assignment.) As it turns out, Clark has stated that there
was, in fact, money owed under the contract, and that Chappelle, and therefore Terra,
knew about these claims.
i. Terra’s argument
Terra has moved for summary judgment on the misrepresentation claim. Terra
argues that Lawyers Title cannot sustain a misrepresentation claim because Lawyers Title
cannot show that Terra made any representation with the intent that Lawyers Title rely on
the misrepresentation and that there is no evidence that Lawyers Title actually relied on any
alleged misrepresentation. (Chappelle Mot. for Summ. J. at 6.) Terra argues that it never

11

Although Lawyers Title has requested summary judgment against Chappelle,
Strathmore, and Lower Town Development, because there are issues of fact about the
misrepresentations, and Lawyers Title's misrepresentation claim is dependent upon the
Lower Town Project-Lawyers Title claim, the Court also denies its motion. The Court
further notes, as Chappelle, Strathmore, and Lower Town Development point out in their
brief, Lawyers Title does not do much to support its argument for its own motion.
(Chappelle’s Resp. to Lawyers Title’s Mot. for Summ. J. at 2.) But Lawyers Title has done
enough to withstand summary judgment against it.
40

made any promises to Transnation in the assignment. (Id. at 8.) The only representations
made, Terra argues, were to Lower Town Project. (Id. at 9.)
ii. Clark’s argument
Clark argues that Lawyers Title has not and cannot satisfy the elements necessary
to sustain a misrepresentation claim. Clark argues that it did not make a representation to
Lawyers Title and that Lawyers Title has not shown reliance upon Clark’s contract with
Lower Town Project. Without these two elements, Clark maintains that Lawyers Title
cannot sustain a misrepresentation against it.
iii. There is sufficient evidence to let the misrepresentation claims to go
forward
The Court disagrees with Terra and Clark’s arguments.
Terra made a representation to Lower Town Project in the assignment. Terra,
through Chappelle as its president, represented and warranted that Terra’s “interest under
the [assignment] is not subject to any claim, setoff, lien or encumbrance of any nature[.]”
(Clark’s Mot. for Summ. J., Ex. 1, Assignment.) Lawless, on behalf of Clark, made a similar
representation that “there is no outstanding default under the [Terra-Clark contract] and that
Clark’s interest in the [Terra-Clark contract] is not subject to any claim, set-off, lien or
encumbrance of any nature.” (Clark’s Mot. for Summ. J., Ex 1, Assignment.) As it turned
out, Clark has indicated that that statement may have been false:
Q: Now, at the time of the assignment . . . was Clark [] owed money for
services that it provided?
Lawless: Yes.

41

(Lawless Dep. at 36.) And, as discussed above, Clark had repeatedly called Chappelle
about payment–there is evidence therefore that Terra knew the representation may have
been false.
As to evidence that someone would rely on the representations, that evidence also
exists.
Q: Did Clark understand that people would rely upon the representations
and warrant[ies] made within that assignment?
Lawless: I didn’t consider that at that time. I signed it on my behalf. On the
company[‘s] behalf.
(Lawless Dep. at 32.)
Q: Would it be fair to say that in 2007, you knew that when somebody
represents and warrants something, that that’s for the purpose of someone
else relying upon it?
***
Lawless: Yes.
(Id. at 33-34.) Lawless clarified, stating that he “figured [Chappelle] would rely on [the
assignment]” because “[t]hat’s who [he] was dealing with.” (Id. at 34.) And finally, Lawless
was questioned:
Q: Was it your understanding and intention, at the time of this assignment,
that whatever the new ownership entity of this project was, that they would
be bound by your original contract for the project?
A: Yes.
Q: Was it your understanding and intention that whoever it was that was now
going to own the project, that would –would succeed all the obligations under
that contract?
A: Yes
Q: And all the rights under that contract?
A: Yes.
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(Id.)
The Court recognizes that Lawyers Title’s misrepresentation claim based upon the
assignment is less strong than its claim based upon the affidavit, but the Court still must
let the claim go forward and deny the motions for summary judgment. Here, Lawyers Title
relied on the statement that there were no defects on Broadway Village’s title. That
statement turned out to be false when Clark and the other companies filed liens on the
property.
Following Oppenhuizen then, there is enough evidence to allow these claims to go
forward. There is evidence that both Terra and Clark made a false statement about
amounts owing under their contract. As to Clark, Lawless has stated that he knew some
other party, including Chappelle, would rely on that representation. As to Terra, because
Chappelle signed as president of Terra, and then he also executed the affidavit to Lawyers
Title, there is a significant indication that Terra knew that a third party would rely on the
representation in the assignment.
The Court concludes then that these claims must proceed to trial. Lawyers Title has
brought forth sufficient evidence that, if it is found liable to Lower Town Project, it may have
actionable misrepresentation claims against the third-party defendants.
d. Fred Perlini’s testimony
The third-party defendants all rely on Fred Perlini, Lawyers Title’s Rule 30(b)(6)
deposition witness, to support their claim that they are entitled to summary judgment on
Lawyers Title’s misrepresentation claims. Perlini’s testimony, they argue, conclusively
shows that Lawyers Title did not rely on the assignment or affidavit. The Court disagrees
43

with the third-party defendants. Although Perlini’s testimony appears to support the thirdparty defendants’ arguments, here, the assignment and affidavit themselves show that
there are material issues as to the misrepresentation and reliance thereon.
Perlini states that he reviewed some documentation about this case, but that he was
not familiar with the transaction. (Chappelle’s Mot. for Summ, J., Ex. C, Perlini Dep. at 8.)
He was and is not an employee of Transnation or Lawyers Title.12 (Id. at 9-10.) The Court
highlights the testimony on which Clark relies:
Q: Do you have any knowledge of any reliance by Transnation on any
representation by [Clark?]
A: Firsthand personal knowledge?
Q: Yes.
A: No, sir, I don’t.
(Id. at 13.)
Q: Do you have any knowledge of what representation was made by Clark?
A: I believe that there was a document that I had seen, and forgive me, I
don’t know the exact title of it, but I believe it was with regards to an
assignment of a contract where a couple of parties had made representations
that at the time the document was being or the contract was being assigned,
that there were no defaults or outstanding matters under the contract, or
something to that effect.

12

Perlini states that he works for Chicago Title of Michigan and that Chicago Title is a
sister company of Lawyers Title. (Perlini Dep. at 10.) The Court is at an utter loss why
Lawyers Title offered Mr. Perlini to testify, save for the following explanation:
Q: Can you tell us why you were selected to represent Lawyers Title at this deposition?
A: I honestly don’t know other than the fact that I don’t believe anybody from Transnation
was available.
(Perlini Dep. at 32.)
44

(Id. at 13-14.)
Q: Is it fair to say, then, that you don’t know whether the representations
were true or false?
A: That would be accurate, yes.
(Id. at 14.)
Talking about the assignment of the Clark-Terra contract to Lower Town Project:
Q: All right.
document?

Do you know if anybody at Transnation ever saw this

A: I have no idea.
Q: And it’s fair to say if you look at the assignment, Transnation’s not
mentioned in it, is it?
A: Did not recall seeing their name anywhere. No, their name does not
appear in the document.
(Id. at 16.)
Q: So then it’s fair to say that you don’t know if Transnation ever relied upon
the assignment that’s attached to the third-party complaint?
A: I would not be able to make that representation.
(Id. at 17.)
Q: Do you know if anybody at Transnation ever saw the Clark [] contract at
the time of the transaction or before?
A: I honestly don’t know.
(Id. at 30.)
Lawyers Title has also asserted a misrepresentation claim against Chappelle,
Strathmore, Lower Town Development, and Terra. Their counsel questioned Perlini about
the same issues as Clark’s counsel did:
45

Q: Do you have any personal knowledge of how the representations were
false?
A: No, sir, I don’t.
(Id. at 39.)
Q: Do you know anyone at Lawyers Title who might have knowledge of how
the representations were false?
A: No, sir, I don’t.
Q:
Do you have any personal knowledge that Terra knew [the]
representations were false?
A: No, sir, I do not.
Q:
Do you have any personal knowledge that Terra made the
representations recklessly?
A: I do not.
Q: Do you know if the representations were made to Transnation?
A: And we’re again, referring back to the assignment of contract. I don’t
know that, no.
(Id. at 40.) See also id. at 41-43 for a similar colloquy with Perlini relating to the Chappelle,
Strathmore, and Lower Town Development claims.
Despite Perlini’s testimony, the Court finds that the testimony does not destroy
Lawyers Title’s misrepresentation claims. As stated above, there is sufficient evidence,
with the relevant documents and testimony, to allow these claims to proceed to trial.
C.

Lawyers Title indemnification claims against Clark, Chappelle, Strathmore,
Lower Town Development, and Terra
The Court must reserve a finding on Lawyers Title’s indemnification claims; these

claims are dependent upon factual findings relating to the cross-motions for summary
judgment concerning the Policy.

46

“The right to common-law indemnification is based on the equitable theory that where
the wrongful act of one party results in another party’s being held liable, the latter party is
entitled to restitution for any losses. The right exists independently of statute, and whether
or not contractual relations exi[s]t between the parties and whether or not the negligent
person owed the other a special or particular legal duty not to be negligent. Common-law
indemnity is intended only to make whole again a party held vicariously liable to another
through no fault of his own. This has been referred to as ‘passive’ rather than ‘causal’ or
‘active’ negligence. It has long been held in Michigan that the party seeking indemnity must
plead and prove freedom from personal fault. This has been frequently interpreted to mean
that the party seeking indemnity must be free from active or causal negligence. Therefore,
a common-law indemnification action cannot lie where the plaintiff was even .01 percent
actively at fault.” Botsford Continuing Care Corp. v. Intelistaf Healthcare, Inc., No. 294780,
—N.W.2d—, 2011 WL 1002872 (Mich.Ct.App. Mar. 22, 2011) (quotations marks, citations,
and alterations omitted).
“In general, whether a party is ‘passively’ (vicariously) liable or ‘actively’ liable for
purposes of determining the availability of common-law indemnity is to be determined from
the primary plaintiff’s complaint.

If the primary plaintiff’s complaint contained any

allegations of active negligence, rather than merely allegations of passive negligence,
common-law indemnification is not available.”

Id. (quotation marks, citations, and

alterations omitted).
“It has long been held in Michigan that the party seeking indemnity must plead and
prove freedom from personal fault. This has been frequently interpreted to mean that the

47

party seeking indemnity must be free from active or causal negligence. If a party breaches
a direct duty owed to another and this breach is the proximate cause of the other party’s
injury, that is active negligence. Where the active negligence is attributable solely to
another and the liability arises by operation of law, that is passive negligence.” Feaster v.
Hous, 359 N.W.2d 219, 222 (Mich.Ct.App. 1984) (quotation marks and citations omitted).
“To determine whether the indemnitee was actively or passively negligent, the court
examines the primary plaintiff’s complaint. If the complaint alleges active negligence, as
opposed to derivative liability, the defendant is not entitled to common-law indemnity.” Id.
(quotation marks, citations, and alterations omitted).
Here, looking at Lower Town Project’s complaint, the Court cannot say that Lawyers
Title is with or without fault. Lower Town Project has alleged that Lawyers Title did not
participate in the state court controversy. And there are issues of fact whether Lawyers
Title should have. If Lawyers Title should have participated in the settlement negotiations
and did not, the Court cannot say that Lawyers Title was not, at least in part, at fault. The
Court must therefore reserve the resolution of this claim.
IV.

Conclusion
For the above stated reasons, the Court DENIES Lower Town Project’s motion for

summary judgment as to liability against Lawyers Title; DENIES Lawyers Title’s motion for
summary judgment against Lower Town Project; DENIES Lawyers Title’s motion for
summary judgment against Chappelle, Strathmore, Lower Town Development, and Terra;
DENIES Chappelle, Strathmore, Lower Town Development, and Terra’s motion for
summary judgment on Lawyers Title’s misrepresentation claims; DENIES Clark’s motion
48

for summary judgment on Lawyers Title’s misrepresentation claims; and DENIES AS
PREMATURE Lawyers Title’s indemnification claims against Chappelle, Strathmore, Lower
Town Development, Terra, and Clark.
SO ORDERED.
s/Nancy G. Edmunds
Nancy G. Edmunds
United States District Judge
Dated: August 1, 2011
I hereby certify that a copy of the foregoing document was served upon counsel of record
on August 1, 2011, by electronic and/or ordinary mail.
s/Carol A. Hemeyer
Case Manager

49