Tyler v. Pacific Indemnity Company

Filing 39

OPINION AND ORDER REGARDING THE PARTIES' MOTIONS 22 FOR SUMMARY JUDGMENT. Signed by District Judge Gerald E. Rosen. (RGun)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

GEMALE TYLER,
Plaintiff,

No. 10-cv-13782
Hon. Gerald E. Rosen

vs.

PACIFIC INDEMNITY COMPANY,
Defendant.
___________________________________/
OPINION AND ORDER REGARDING THE PARTIES’
MOTIONS FOR SUMMARY JUDGMENT
I. INTRODUCTION
This case centers on a dispute over insurance coverage between Gemale Tyler
(“Tyler”) and his insurance company, Pacific Indemnity Company (“Pacific”). Pacific
has moved for partial summary judgment on two issues: (1) whether Tyler is entitled to
the first $260,000 of his insurance policy for the value of the home destroyed by fire; and
(2) whether Pacific may prorate its liability on the basis of other insurance covering the
same property. Tyler has also requested summary judgment in his favor as to the first
$260,000 in insurance proceeds, though without formally filing a motion. The Court will
nevertheless treat Tyler’s request -- included in his response brief -- as a motion for
partial summary judgment. Having reviewed the parties’ briefs and the record, the Court
finds that the pertinent allegations and legal arguments are sufficiently addressed in these
materials and that oral argument would not assist in the resolution of this motion.

Accordingly, the Court will decide Defendant’s motion “on the briefs.” See L.R.
7.1(f)(2). The Court’s opinion and order is set forth below.
II. FACTUAL BACKGROUND
On March 7, 2008, Tyler entered into a land contract with Cheyenne Usewick to
purchase a piece of property that Mrs. Usewick and her husband had obtained days
earlier for $162,000. The Usewicks bought the property “as is” because the house on the
property was in a deteriorated state as a result of prior fire and water damage. Despite the
property’s poor condition, Tyler contracted with Mrs. Usewick to purchase it for
$290,000.
In lieu of a $30,000 down payment, Tyler agreed to undertake the repairs needed
throughout the house. The contract gave Tyler ninety days to complete the necessary
repairs. If Tyler failed to do so, the contract allowed Mrs. Usewick to reclaim the
property, including the value of any repairs already completed. The contract specifically
provides that “[t]he purchaser has the first 90 days to complete repairs and agree[s] that if
repairs are not complete and monthly payment has not been made, the purchaser agrees to
give up the property and all rights to any money invested in the property . . . .” Tyler did
not complete the requisite repairs within the ninety-day window provided under the land
contract. Nevertheless, the Usewicks elected against exercising their power to reclaim
the property. The remaining balance on the contract -- $260,000 -- was established as a
single balloon payment due two years from the execution of the contract. In the interim,
Tyler would make interest-only payments.

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Prior to contracting with Tyler, Mrs. Usewick had obtained an insurance policy
covering her interest in the property. The land contract, however, also required Tyler to
insure the property against loss. Tyler procured an insurance policy in his name from
Pacific. In the event of a loss, the Tyler-Usewick land contract contained the following
provision allocating insurance proceeds between Tyler and Mrs. Usewick (“the allocation
clause”):
In case of loss or damage as a result of which insurance
proceeds in paragraph 2(d), above, are available, the
Purchaser may, within 60 days of said loss or damage, give to
the Seller written notice of Purchaser’s election to repair or
rebuild the damaged parts of the premises, in which event
said insurance proceeds shall be used for such purpose. The
balance of said proceeds, if any, which remains after
completion of said repairing or rebuilding, or all of said
insurance proceeds if the Purchaser elects not to repair or
rebuild, shall be applied first toward the satisfaction of any
existing defaults under the terms of this contract and then as a
prepayment upon the principal balance owing, and without
penalty, notwithstanding other terms of this contract to the
contrary. . . . Any surplus of said proceeds in excess of the
balance owing hereon shall be paid to the Purchaser.
A fire occurred at the house on November 5, 2008, severely damaging the premises.
After the fire, Tyler made no further repairs or payments, moved in with his fiancée at the
home of his fiancée’s mother, and elected to not rebuild the house. Davison Township
demolished the home, and Mrs. Usewick eventually served a forfeiture notice on Tyler in
early March 2009. On August 12, 2009, a consent judgment was entered forfeiting the
property to Mrs. Usewick unless Tyler timely cured his deficiency. Tyler made no
attempt to remit the amount owed, and Mrs. Usewick reclaimed the property.

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Tyler filed a claim with Pacific for the loss of the home and its contents. Pacific
denied Tyler’s claim in October 2010, citing concealment and misrepresentation
regarding Tyler’s claim, the land contract, payments made on the contract, and the TylerUsewick relationship. Pacific does not dispute that fire losses are ostensibly covered by
the policy; they instead rely on Tyler’s alleged concealment and misrepresentation to
void the insurance policy per its terms. The insurance policy states that “[t]his policy is
void if you or any covered person has intentionally concealed or misrepresented any
material fact relating to this policy before or after a loss.”
Tyler filed suit on August 16, 2010, alleging breach of contract and a violation of
the Michigan Uniform Trade Practices Act. The case was removed to this Court on
September 22, 2010. On October 8, 2010, Pacific answered Tyler’s complaint and
asserted a counterclaim for $20,000 that Pacific advanced to Tyler immediately following
the fire. The instant motion for partial summary judgment was filed on July 15, 2011.
Pacific and Tyler each seek summary judgment on Tyler’s entitlement to the first
$260,000 of coverage. Pacific also seeks summary judgment regarding its right to
prorate coverage under the terms of the insurance contract.
III. ANALYSIS
A.

Applicable Standard
Summary judgment is proper “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] party seeking summary judgment always bears the initial
responsibility of informing the [Court] of the basis for its motion, and identifying those
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portions of the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, which it believes demonstrate the absence of a
genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(quotation marks and citations omitted).
In deciding a motion brought under Rule 56, the Court views the evidence in the
light most favorable to the nonmoving party. Pack v. Damon Corp., 434 F.3d 810, 813
(6th Cir. 2006). Yet, “[a] party asserting that a fact cannot be or is genuinely disputed
must support the assertion by citing to particular parts of materials in the record” or
“showing that the materials cited do not establish the absence . . . of a genuine
dispute . . . .” Fed. R. Civ. P. 56(c)(1)(A)-(B). “If a party fails to properly support an
assertion of fact or fails to properly address another party’s assertion of fact” then the
Court may “consider the fact undisputed for purposes of the motion[.]” Fed. R. Civ. P.
56(e)(2). “Factual disputes that are irrelevant or unnecessary will not be counted.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
B.

Summary Judgment is Not Appropriate Regarding the First $260,000 of
Coverage Under the Insurance Contract.
Tyler and Pacific each seek summary judgment regarding Tyler’s entitlement to

the first $260,000 of insurance coverage. Tyler argues that he had an insurable interest in
the property the moment the land contract was executed. Having insured the property,
Tyler claims he is entitled to the indemnity for which he paid premiums. Pacific, on the
other hand, claims that any interest Tyler had dissipated when Mrs. Usewick reclaimed
the property by forfeiture, thereby extinguishing Tyler’s debt under the land contract. As
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explained below, summary judgment in either party’s favor is not appropriate because
critical questions regarding the propriety of Pacific’s denial of the claim remain
unanswered.
Contracts must be read as a whole, with meaning given to all terms. Singer v. Am.
States Ins., 631 N.W.2d 34, 37 (Mich. Ct. App. 2001) (citing Auto Owners Ins. Co. v.
Churchman, 489 N.W.2d 431 (Mich. 1992)). “The language of the contract is to be given
its ordinary, plain meaning and technical, constrained constructions should be avoided.”
Id. Accordingly, where the parties have agreed upon unambiguous terms, the Court will
enforce the agreement as written.
Here, both parties offer conflicting accounts of how the allocation clause in the
land contract operates. Tyler claims he is entitled to the $260,000 originally due under
the land contract, while Pacific claims that Tyler’s interest was extinguished after Tyler
elected against rebuilding and Mrs. Usewick reclaimed the property. Both arguments
miss the point, however, since the parties fail to appreciate the significance of the
allocation clause’s conditional language, which states “In case of loss or damage as a
result of which insurance proceeds in paragraph 2(d), above, are available . . . .” (Def.’s
Mot. for Partial Summ. J. Ex. 5 at 3) (emphasis added.)1 This language clearly limits the
application of the entire clause to situations where “insurance proceeds . . . are

1

Paragraph 2(d) is the land contract provision requiring Tyler to insure the property.
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available[.]” (Id.) Since Pacific denied Tyler’s claim, no insurance proceeds are
presently “available,”2 thereby precluding the operation of the allocation clause.
Pacific’s denial of Tyler’s claim forms the crux of this lawsuit. Whether the
denial was proper will shape what relief, if any, Tyler is entitled to. If Pacific was within
its rights when it denied Tyler’s claim, then no insurance proceeds will ever be available.
However, if Tyler prevails, then insurance proceeds will become available, and the
allocation clause may impact how those proceeds are distributed.3 Neither party
requested summary judgment on the propriety of Pacific denying Tyler’s claim, thus
neither party briefed the issue or presented evidence on point. As such, the Court will not
reach the issue of whether Pacific properly denied Tyler’s claim. Since the propriety of
the denial remains unresolved, the Court is unable to determine whether funds are
“available” and thus whether Tyler is entitled to the first $260,000 of insurance coverage
2

The Court notes that, as part of its interpretive task, the term “available” in the abovequoted language is reasonably capable of more than one meaning. “Available” could
refer to the actual, direct availability of funds -- i.e., funds in fact paid out by Pacific -- or
the term could refer to available funds in the sense of a covered loss -- i.e., funds are
available when the insurance policy covers the loss that occurred. The Court need not
determine which meaning to ascribe to the term, however, because the outcome is the
same regardless of which definition is used. Funds are not “available” in the first sense
because Pacific denied Tyler’s claim and thus has not paid out any money beyond the
$20,000 initially advanced in good faith. Funds are also not “available” in the second
sense because Pacific claims Tyler concealed or misrepresented material facts, thereby
voiding the insurance contract and rendering the fire a loss not covered by Pacific’s
policy.
3

Pacific’s claim denial and summary judgment brief intimate that the Tyler-Usewick
land contract may have been executed with the intent of furthering insurance fraud.
(Def.’s Mot. for Partial Summ. J. 11.) Such a scheme, if established, would impact the
validity of the entire contract. See Maids Intern., Inc. v. Saunders, Inc., 569 N.W.2d 857,
858 (Mich. Ct. App. 1997) (“contracts founded on acts prohibited by a statute, or
contracts in violation of public policy, are void”).
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as a matter of law. Fed. R. Civ. P. 56(a). Accordingly, the Court will deny summary
judgment.
C.

Pacific May Not Prorate Its Coverage of the Insured Property
In addition to seeking summary judgment regarding the first $260,000 in

coverage, Pacific also seeks summary judgment regarding its ability to prorate coverage
of the insured property. To support its position, Pacific relies on an “Other Insurance”
clause in the policy that provides as follows: “When other property insurance applies to a
covered loss, we will pay only the portion of the loss that our amount of coverage bears
to the total amount of insurance covering the loss[.]” (Def.’s Countercl., Ex. A at Y-4.)
Because Mrs. Usewick had her own insurance policy for the property Tyler was engaged
to buy, Pacific claims that any coverage should be prorated in proportion to the total
coverage available.
Other insurance provisions such as the one relied upon by Pacific are not unusual.
They are generally “inserted in insurance policies to vary or limit the insurer's liability
when additional insurance coverage can be established to cover the same loss.” St. Paul
Fire & Marine Ins. Co. v. Am. Home Assur. Co., 514 N.W.2d 113, 115 (Mich. 1994).
However, such clauses only operate in specific circumstances: they apply only when the
other insurance policies cover the same interest in the same property. J.D.’s Pub &
Grub, Inc. v. N. Pointe Ins. Co., 2006 WL 2271306, at *3 (Mich. Ct. App. 2006). Pacific
claims otherwise: that the other insurance clause applies whenever more than one policy
covers the same property. However, this argument has been explicitly rejected by
Michigan courts. See id. (“We also reject defendant’s assertion that the ‘other insurance
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clause’ applies here because both policies covered the same property.”). Accordingly,
the other insurance clause only allows prorated coverage if the applicable insurance
policies cover the same interests in the same property. See Lubetsky v. Standard Fire Ins.
Co., 187 N.W. 260, 260 (Mich. 1922) (holding that other insurance clauses only apply “to
cases where the insurance covers the same interests”); J.D.’s Pub & Grub, Inc. v. N.
Pointe Ins. Co., 2006 WL 2271306, at *3 (Mich. Ct. App. 2006).
Pacific does not dispute that Tyler and Mrs. Usewick have different interests in the
property, even if their insurance policies covered the same parcel of property.
Additionally, Michigan precedent clearly establishes that “[t]he vendor and the vendee,
respectively, in a land contract have separate and distinct insurable interests.” McCoy v.
Continental Ins. Co., 40 N.W.2d 146, 149 (Mich. 1949) (citations omitted) (quoted in
J.D.’s Pub & Grub, Inc. v. N. Pointe Ins. Co., 2006 WL 2271306, at *3 (Mich. Ct. App.
2006)). Here, as in McCoy, “the policies were on the same property and against the same
risks[,] but on different interests and payable to different parties[.]” Id. As such, the
other insurance clause does not apply, and Pacific is not entitled to prorate any liability it
is ultimately found to bear. While Tyler did not request summary judgment on point,
Rule 56 empowers the Court to grant summary judgment on grounds not raised by a
party. Fed. R. Civ. P. 56(f)(2). Further, as explained above, there are no disputes of fact,
and Tyler is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Therefore,
summary judgment against Pacific is appropriate regarding the proration of coverage.
IV. CONCLUSION

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For the reasons set forth in this opinion, the Court holds that neither party is
entitled to summary judgment regarding the first $260,000 in insurance coverage. The
Court also holds that Tyler is entitled to summary judgment regarding the proration of
coverage under Pacific’s insurance policy. Therefore,
IT IS HEREBY ORDERED that Plaintiff’s motion for partial summary judgment
[Dkt. # 22] is DENIED.

s/Gerald E. Rosen
Chief Judge, United States District Court
Dated: February 1, 2012

I hereby certify that a copy of the foregoing document was served upon counsel of record
on February 1, 2012, by electronic and/or ordinary mail.
s/Ruth A. Gunther
Case Manager

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