AMI Stamping LLC v. ACE American Insurance Company et al

Filing 67

ORDER (1) Granting Defendant's 54 Motion for Summary Judgment, (2) Granting Plaintiff's 64 and 66 Motions for Leave to File Supplemental Briefs, (3) Denying Plaintiff's 55 Motion for Partial Summary Judgment, and (4) Terminating Plaintiff's 56 Motion to Exclude Defendant's Experts as Moot. Signed by District Judge Matthew F. Leitman. (HMon)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
AMI STAMPING, LLC,
Plaintiff,

Case No. 14-cv-10176
Hon. Matthew F. Leitman

v.
ACE AMERICAN INSURANCE
COMPANY et al.,
Defendants.
_________________________________/
ORDER (1) GRANTING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT (ECF #54), (2) GRANTING PLAINTIFF’S MOTIONS FOR
LEAVE TO FILE SUPPLEMENTAL BRIEFS (ECF ## 64, 66), (3)
DENYING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY
JUDGMENT (ECF #55), AND (4) TERMINATING PLAINTIFF’S MOTION
TO EXCLUDE DEFENDANT’S EXPERTS (ECF #56) AS MOOT
In February 2010, Plaintiff AMI Stamping, LLC (“AMI”) asked its
insurance agent to purchase coverage for certain equipment in which it had
acquired a security interest. AMI had several appraisals valuing the equipment at
roughly $400,000, but it told its insurance agent that the equipment was valued at
only $138,100. AMI’s agent then communicated that valuation to Defendant ACE
American Insurance Company (“ACE”). In reliance on that valuation, ACE agreed
to insure the equipment and set the premium for that coverage.
The equipment was stolen less than two years later, and AMI filed an
insurance claim with ACE to recover for the loss of the equipment. Even though
1

AMI had valued the equipment at $138,100 less than twenty-four months earlier,
AMI’s claim to ACE valued the equipment at $1.9 million and sought payment of
that amount. ACE investigated AMI’s claim but did not pay it. Instead, ACE
rescinded coverage on the ground that, among other things, AMI materially
misrepresented the true value of the equipment when AMI applied for coverage.
In this action, AMI contends that ACE breached its obligation to provide
coverage for the loss of the equipment, and ACE seeks a declaration that it
properly rescinded coverage for the equipment. The Court concludes that ACE’s
rescission was lawful. Accordingly, the Court GRANTS summary judgment in
favor of ACE and DENIES AMI’s motion for summary judgment.
I
A
AMI is a limited liability company. Its chairman is George Hofmeister
(“Hofmeister”). AMI has no employees. (Examination Under Oath (“EUO”) of
Hofmeister at 4-5, 22-23, ECF #54-4 at 3, 8, Pg. ID 1001, 1006.) It transacts
business through Hofmeister or through employees of Revstone Industries, LLC
(“Revstone”), an affiliated company owned by the Hofmeister Family Trust. (See
id.)
Since at least 2006, Revstone has been a “client” of an independent
insurance agency, Todd Associates. (Deposition of Spankie Carolanne at 24, ECF
2

#54-7 at 8, Pg. ID 1095.) Revstone works with Todd Associates to purchase
insurance for itself and its affiliated entities, including AMI. (See id. at 25-26, ECF
#54-7 at 9, Pg. ID 1096.)

Todd Associates’ employees Todd Fitzpatrick

(“Fitzpatrick”) and Spankie Carolanne (“Carolanne”) service the Revstone
account. Fitzpatrick is a “producer.” (Id. at 40, ECF #54-7 at 12, Pg. ID 1099.) In
that role, he “goes out and finds businesses that need insurance and brings them to
Todd Associates and works to write their insurance.” (Id.) He is “considered
[Revstone’s] insurance agent.” (Id.) Carolanne is an “account manager.” (Id. at 25,
ECF #54-7 at 9, Pg. ID 1096.) In that role, she
[o]btain[s] insurance based on the risk characteristics that
[her clients] have and the exposures that they have,
whether it’s by line of business for fire or general
liability, auto, Workers’ Compensation, foreign liability.
I market it to various companies, each renewal. I prepare
applications. I handle general correspondence and all
incoming telephone calls from the client regarding their
insurance program. I produce proposals for insurance,
applications for insurance. I counsel the insured when
they have questions about insurance.
(Id. at 26, ECF #54-7 at 9, Pg. ID 1096.) Carolanne became Revstone’s “account
manager” in 2009. (See id. at 24-25, ECF #54-7 at 8-9, Pg. ID 1095-96.)
In 2009, Carolanne marketed the insurance account for Revstone (and
Revstone’s affiliated entities like AMI) to at least seven different insurance
companies. (See id. at 109-110, ECF #54-7 at 30, Pg. ID 1117.) Revstone chose to

3

purchase its insurance from ACE. (See id.) ACE thereafter issued an insurance
policy to Revstone (the “Policy”). (See ECF ## 54-1, 54-2.)
B
In late 2009 or early 2010, AMI obtained a security interest in real property
and equipment located at 4300 Cabot Street in Detroit, Michigan. (See ECF #54-14
at 3, Pg. ID 1339; see also Hofmeister EUO at 34, ECF #54-4 at 11, Pg. ID 1009.)
AMI, through Revstone, then sought to insure the equipment (the “Cabot Street
Equipment”). On February 11, 2010, Revstone’s assistant general counsel, Kiel
Smith (“Smith”), asked Carolanne to add coverage for the Cabot Street Equipment
to the Policy. (See ECF #54-14 at 3, Pg. ID 1339.) Carolanne told Smith that in
order to obtain that coverage, he would need to provide the value of the equipment.
(See id. at 2, Pg. ID 1338.) Carolanne required that information so that she could
“determine the proper insurance values to report to [ACE].” (Carolanne Dep. at 51,
ECF #54-7 at 15, Pg. ID 1102.)
In response to Carolanne’s request, Smith sent her a document that he called
an “[a]ppraisal of the equipment.” (ECF #54-14 at 2, Pg. ID 1338.) Smith’s
“appraisal” identified and listed a value for each piece of the Cabot Street
Equipment. (See ECF #54-15.) Smith listed the total value of the Cabot Street
Equipment as $138,100. (See id. at 3, Pg. ID 1343.) Notably, at the time Smith
provided Carolanne with the $138,100 valuation for the Cabot Street Equipment,
4

AMI had in its files appraisals from 2006 that valued the equipment at between
$385,450 and $462,800 (the “2006 Equipment Appraisals”). (See Hofmeister EUO
at 34-35, 52-53, ECF #54-4 at 11, 15, Pg. ID 1009, 1013; ECF ## 54-13 at ¶ 17,
Pg. ID 1334.)1
Once Carolanne received the $138,100 valuation, she contacted ACE
underwriter Vito Maniaci (“Maniaci”). (See ECF #54-17 at 3, Pg. ID 1348.) She
told Maniaci that based on the information she received from Smith, “the value of
the [Cabot Street Equipment] is $138,100 (per appraisal).” (Id.) Maniaci “rel[ied]
on [the] information from Carolanne” in order to determine what premium to
charge and on what other terms ACE would agree to insure the Cabot Street
Equipment. (Maniaci Dep. at 68, ECF #54-8 at 19, Pg. ID 1137.) ACE thereafter
agreed to add to the Policy an endorsement for the Cabot Street Equipment (the
“Equipment Endorsement”). (See ECF #54-1 at 37, Pg. ID 902.) ACE charged an
additional premium of $1,357.00 for the Equipment Endorsement. (See id.)

1

At his EUO, Hofmeister testified that in 2006, he had a national appraisal firm,
Koster Brothers, “do an appraisal” of the Cabot Street Equipment. (Hofmeister
EUO at 34-35, ECF #54-4 at 11, Pg. ID 1009.) Additionally, in its discovery
responses in this action, AMI acknowledged that when it purchased insurance for
the Cabot Street Equipment in February 2010, it was aware of two prior appraisals
of the equipment: the Koster Brothers appraisal and a second appraisal it obtained
from the previous owner of the equipment. (See ECF #54-13 at ¶ 17, Pg. ID 1334.)
These appraisals – which include values for the Cabot Street Equipment and other
property at the Cabot Street location which was not stolen – are in the record at
ECF ## 54-19 and 54-20.
5

In early 2012, the Cabot Street Equipment was stolen. AMI (again, through
Smith) then submitted an insurance claim to ACE to recover the value of the
equipment. (See Smith Dep. at 116, ECF #54-5 at 32, Pg. ID 1054.)

In

communications with ACE related to the claim, AMI acknowledged that its
previous representation of the equipment’s value – $138,100 – was inaccurate. (See
ACE Counterclaim at ¶ 20, ECF #2 at 27, Pg. ID 49 and AMI Ans. to
Counterclaim at ¶ 20, ECF #11 at 5, Pg. ID 369.)2 AMI asserted that the value of
the equipment was actually $1.9 million – nearly 14-times more than the $138,100
value it reported when it applied for coverage – and AMI’s claim to ACE sought

2

In paragraph 20 of its Counterclaim, ACE alleged that “[o]n February 21, 2013
AMI advised ACE that the $138,100.00 valuation of the property stolen from the
4300 Cabot Street location was incorrect and that it would provide a revised
appraisal of the value of the stolen property.” (ACE Counterclaim at ¶ 20, ECF #2
at 27, Pg. ID 49.) AMI answered this allegation as follows: “In response to
Paragraph 20, Plaintiff/Counter-Defendants [sic] admit that it provided additional
information to ACE regarding the value of the property that had been stolen from
the Cabbott [sic] Street address.” (AMI Ans. to Counterclaim at ¶ 20, ECF #11 at
5, Pg. ID 369.) AMI did not deny the allegation that it “advised” ACE that the
$138,100 valuation of the Cabot Street Equipment was “incorrect.” Therefore, that
allegation is deemed admitted. See Fed R. Civ. P. 8(b)(6) (“An allegation … is
admitted if a responsive pleading is required and the allegation is not denied.”). See
also United States v. Vehicle 2007 Mack Dump Truck, 680 F. Supp. 2d 816, 826
(E.D. Mich. 2010) (deeming allegations in amended complaint as admitted because
claimants’ answers failed to comply with Rule 8(b)(6)). Thus, AMI has admitted
saying that its $138,100 valuation was inaccurate, and that concession is highly
relevant, is admissible against AMI as substantive evidence, and may be
considered by the Court in resolving the pending motions. See Fed. Rules Evid.
401, 402, 801(d)(2)(A).
6

compensation in that amount. (See Appraisal, ECF #55-6; see also Smith Dep. at
145-147, ECF #54-5 at 39-40, Pg. ID 1061-62.)
On November 13, 2013, ACE formally denied AMI’s insurance claim by
written letter. (See ECF #54-18.)

Through that correspondence, ACE also

informed AMI that it was rescinding the Equipment Endorsement and would be
returning AMI’s premiums for that endorsement. (See id.) ACE told AMI that it
was rescinding the Equipment Endorsement because, among other things, AMI
misrepresented the value of the Cabot Street Equipment when it applied for
coverage:
As a result of AMI’s misrepresentations to ACE
regarding … the value of the machinery and equipment at
the 4300 Cabot Street, Detroit, Michigan, location ACE
rescinds the coverage it provided for the 4300 Cabot
Street location. …. The premium charged for that
coverage totaled $2,856.00. Confirming the rescission of
coverage for the 4300 Cabot Street location, ACE is
sending AMI Stamping, LLC a check in that amount
under separate cover.
(Id. at 5, Pg. ID 1353.)
II
On December 20, 2013, AMI filed this action against ACE in Wayne
County Circuit Court. (See ECF #1-2.) Among other things, AMI alleges that
ACE breached the Equipment Endorsement when it denied AMI’s insurance claim.
(See id.) ACE thereafter removed AMI’s Complaint to this Court. (See ECF #1.)
7

ACE also filed a Counterclaim in which it seeks a declaratory judgment that it
properly rescinded the Equipment Endorsement based, in part, on AMI’s alleged
misrepresentations about the value of the Cabot Street Equipment. (See ECF #2.)
AMI filed an Answer to the Counterclaim on February 18, 2014. (See ECF #11.)
Both parties have now moved for summary judgment. (See ECF ## 54, 55.) The
Court held a hearing on the motions on July 20, 2016.
III
A movant is entitled to summary judgment when it “shows that there is no
genuine dispute as to any material fact . . . .” SEC v. Sierra Brokerage Servs., Inc.,
712 F.3d 321, 326-27 (6th Cir. 2013) (citing Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 251-52 (1986)) (quotations omitted). When reviewing the record, “the
court must view the evidence in the light most favorable to the non-moving party
and draw all reasonable inferences in its favor.” Id. “The mere existence of a
scintilla of evidence in support of the [non-moving party’s] position will be
insufficient; there must be evidence on which the jury could reasonably find for
[that party].” Anderson, 477 U.S. at 252. Summary judgment is not appropriate
when “the evidence presents a sufficient disagreement to require submission to a
jury.” Id. at 251-52. Indeed, “[c]redibility determinations, the weighing of the
evidence and the drafting of legitimate inferences from the facts are jury functions,
not those of a judge . . . .” Id. at 255.
8

IV
ACE argues that it had the right to rescind the Equipment Endorsement
because AMI misrepresented the value of the Cabot Street Equipment. The Court
agrees.
It is “well-settled” under Michigan law that “where an insured makes a
material misrepresentation in the application for insurance … the insurer is entitled
to rescind the policy and declare it void ab initio.” Lake States Ins. Co. v. Wilson,
586 N.W.2d 113, 115 (Mich. App. 1998). See also Campbell v. Liberty Mut. Grp.,
10-14179, 2011 WL 2447506, at *3-4 (E.D. Mich. June 14, 2011) (holding that
insurance company “properly rescinded [p]laintiff’s policy of insurance” based on
misrepresentations plaintiff made in application process). An insurer is entitled to
rescind coverage even where the misrepresentation was unintentional. Indeed,
“[r]escission is justified without regard to the intentional nature of the
misrepresentation as long as it relied upon by the insurer.” Lake States, 586
N.W.2d at 115. In this action, then, ACE is entitled to “a declaration that [its]
rescission was proper” if it can establish “(i) that [AMI] made a misrepresentation
on [its] insurance application, (ii) that the misrepresentation was material, and (iii)
that [ACE] relied on the misrepresentation.” Zayour v. Liberty Mt. Ins. Co., 1211926, 2014 WL 3611766, at *5 (E.D. Mich. July 22, 2014.)

9

All of these elements are satisfied here. First, AMI misrepresented the value
of the Cabot Street Equipment when it applied for insurance coverage.

As

described above, AMI has admitted that the $138,100 valuation it provided to ACE
was inaccurate. (See ACE Counterclaim at ¶ 20, ECF #2 at 27, Pg. ID 49 and AMI
Ans. to Counterclaim at ¶ 20, ECF #11 at 5, Pg. ID 369.) AMI’s admission makes
perfect sense because by any measure, AMI’s $138,100 stated valuation was
erroneous. Indeed, AMI has appraisals showing that as of 2006 the liquidation and
fair market values of the Cabot Street Equipment were at least $385,450, and as
much as $462,800. (See Hofmeister EUO at 34-35, 52-53, ECF #54-4 at 11, 15, Pg.
ID 1009, 1013; ECF # 54-13 at ¶ 17, Pg. ID 1334; see also ECF ## 54-19, 54-20.)
And AMI’s most recent appraisal of the Cabot Street Equipment reflects a
replacement cost value of $1.9 million. (See Appraisal, ECF #55-6.) Thus, AMI’s
stated valuation of $138,100 was far less than the value of the Cabot Street
Equipment as determined under three widely-accepted valuation methods.
Second, AMI’s misrepresentation of the value of the Cabot Street Equipment
was material. “A misrepresentation on an insurance application is material if,
given the correct, information, the insurer would have rejected the risk or changed
an increased premium.” Hatcher v. Nationwide Prop. & Cas. Ins. Co., 34 F. Supp.
3d 704, 708 (E.D. Mich. 2014) (quoting Montgomery v. Fid. & Guar. Life. Ins.
Co., 713 N.W.2d 801, 804 (Mich. Ct. App. 2005)).
10

That is true here.

As

Carolanne explained, the premium for the type of coverage purchased by AMI “is
based on a rate times the value of the property.” (Carolanne Dep. at 53, ECF #54-7
at 16, Pg. ID 1103.) And Maniaci confirmed that the premium is based on the
“value[]” of the property being insured. (Maniaci Dep. at 37, ECF #54-8 at 11, Pg.
ID 1129.)

Simply put, ACE would have charged a higher premium for the

Equipment Endorsement if AMI had provided ACE the accurate value of the Cabot
Street Equipment. Thus, AMI’s false statement that the value of the equipment
was $138,100 was material.
Finally, ACE relied upon AMI’s misrepresentation. As Maniaci explained,
he “relied on [the] information from Carolanne” – i.e., the valuation of the Cabot
Street Equipment that she received from Smith – when he underwrote the
Equipment Endorsement. (Maniaci Dep. at 68, ECF #54-8 at 19, Pg. ID 1137; see
also id. at 13, 46, ECF #54-8 at 5, 14, Pg. ID 1123, 1132.) Therefore, ACE was
entitled to rescind the Equipment Endorsement.
V
AMI offers several arguments as to why ACE had no right to rescind the
Equipment Endorsement. None are persuasive.
A
AMI first argues that ACE was not entitled to rescind the Equipment
Endorsement because ACE knew that the represented value of $138,100 was
11

inaccurate and thus could not have, and did not, rely on that erroneous valuation.3
This argument rests on three premises: (1) Carolanne was ACE’s agent, not AMI’s
agent, when AMI applied for the Equipment Endorsement, (2) at that time,
Carolanne had, or was aware of, the 2006 Equipment Appraisals that valued the
Cabot Street Equipment at roughly $400,000, and (3) Carolanne’s knowledge of
the higher appraisals can be imputed to ACE. All three premises are wrong.
1
Carolanne was AMI’s agent, not ACE’s agent, when AMI applied for the
Equipment Endorsement. Michigan law is clear: “when an insurance policy is
facilitated by an independent insurance agent or broker … the independent
insurance agent is considered an agent of an insured rather than an agent of the
insurer.” Stone v. Auto-Owners Ins. Co., 858 N.W.2d 765, 772 (Mich. Ct. App.
2014). An insurance agent is “independent” if the agent has “the power to place
insurance with various insurance companies.” Harwood v. Auto-Owners Ins. Co.,
535 N.W.2d 207, 209 (Mich. Ct. App. 1995); see also Mate v. Wolverine Mut. Ins.
Co., 592 N.W.2d 379, 382 (Mich. Ct. App. 1998) (testimony that insurance agency
had the “power to place insurance with various insurance companies” is “usually
3

AMI primarily makes this argument in a section of its briefing that relates to
other knowledge ACE may have had about the Cabot Street location. (See AMI
Mot. at 14-23, ECF #55 at 16-24, Pg. ID 1427-35; see also AMI Resp. Br. at 7-8,
ECF #58 at 10-11, Pg. ID 1746-47.) Viewing the briefing in the light most
favorable to AMI, it also appears that AMI intended to make this argument with
respect to the representation that the Cabot Street Equipment had a $138,100 value.
12

sufficient to establish that an independent insurance agent is the agent of the
insured, not the insurer.”).
Here, the undisputed evidence establishes that Carolanne had the power to
place Revstone’s coverage – which included coverage for Revstone’s affiliated
entities like AMI – “with various insurance companies.” In unrebutted testimony,
she explained that she marketed Revstone’s “insurance program” to at least seven
different insurance companies, including ACE. (Carolanne Dep. at 109-110, ECF
#54-7 at 30, Pg. ID 1117.) She also testified that she performed the functions of an
“independent agent.”4 (Id. at 88, ECF #54-7 at 24, Pg. ID 1111.) Carolanne was
thus an “independent agent,” and, as such, served as AMI’s agent, not ACE’s
agent, in connection with AMI’s application for coverage.
Other evidence confirms that Carolanne and the agency that employed her,
Todd Associates, were not ACE’s agent. For instance, Carolanne identified her coworker, Fitzpatrick, as Revstone’s “insurance agent.” (Id. at 40, ECF #54-7 at 12,
1099.) She also testified that Revstone was a “client” of Todd Associates. (Id. at

4

In this same portion of her deposition, Carolanne testified that she was an
“authorized representative of any insurance company that [Todd Associates] has a
contract with,” including ACE. (Carolanne Dep. at 87, ECF #54-7 at 24, Pg. ID
1111.) But this testimony does not create a material factual dispute with respect to
whether, under Michigan law, Carolanne was ACE’s agent. Indeed, her testimony
makes clear that she places insurance with multiple different insurance companies,
which is the definition of an “independent insurance agent” under the Michigan
law quoted in text above.
13

24, ECF #54-7 at 8, Pg. ID 1095.) And AMI’s Answer to ACE’s Counterclaim
even referred to Carolanne as “its agent.” (See AMI Ans. to Counterclaim at ¶ 25,
ECF #11 at 6, Pg. ID 370.) These points underscore that Carolanne and Todd
Associates were agents of AMI, not ACE.
AMI counters that Carolanne was ACE’s agent because Todd Associates
entered into a “Producer Agreement” with ACE in which Todd Associates
acknowledged that it was ACE’s “agent.” (Producer Agmt. at § 1, ¶ A, ECF #61-1
at 2, Pg. ID 1858; emphasis in original). But the Producer Agreement did not
become effective until June 1, 2010 (id. at § VII, ECF #61-1 at 8, Pg. ID 1864),
and thus it says nothing about whether Todd Associates was ACE’s agent in
February 2010 when AMI applied for the Equipment Endorsement. Moreover, the
Producer Agreement does not cover Todd Associates’ efforts to obtain property
insurance like the Equipment Endorsement. It applies only to Todd Associates’
“accident and health” line of business.5 Thus, the Producer Agreement did not
transform Carolanne into ACE’s agent.
Finally, in a supplemental brief that AMI sought to file on the eve of the
summary judgment hearing, AMI argued that Carolanne should be deemed ACE’s
5

The Producer Agreement provides that Todd Associates was authorized “to act on
[ACE’s] behalf only as set forth in Addendum A – Underwriting Authority.”
(Producer Agmt. at § 1, ¶ C, ECF #61-1 at 2, Pg. ID 1858; emphasis in original.)
That addendum authorized Todd Associates to act as ACE’s agent with respect to
the “accident and health” line of business only. (ECF #40-1 at 8, Pg. ID 737.)
14

agent by operation of Ohio law. (See Mot. for Leave to File Supp. Br., ECF #64.6)
AMI’s invocation of Ohio law stands in sharp contrast to its earlier invocation of
Michigan law and its earlier suggestion that the Court should analyze Carolanne’s
agency status under Michigan law. (See AMI Mot. at 16, 22-23, ECF #55 at 18,
24-25, Pg. ID 1429, 1435-36; AMI Resp. Br. at 3-4, ECF #58 at 6-7, Pg. ID 174243.) Moreover, AMI’s supplemental brief does not contain any choice of law
analysis.

AMI simply asserts that the Court should apply Ohio law because

Carolanne is licensed in Ohio – a fact AMI knew when it earlier urged the Court to
apply Michigan law.7 But AMI cites no authority for the proposition that the law of
the state in which an insurance agent is licensed governs the question of who the
agent represents in a particular transaction. Simply put, AMI has failed to show
that questions concerning Carolanne’s agency should be governed by Ohio law.
2
There is no evidence that at the time Carolanne helped AMI apply for the
Equipment Endorsement, she knew that AMI’s $138,100 valuation of the Cabot
Street Equipment was incorrect. AMI counters that she must have known of the
inaccuracy because she had, or was aware of, the 2006 Equipment Appraisals

6
7

The Court GRANTS AMI leave to file this supplemental brief.

During her deposition, which took place before the parties submitted their
motions and briefs to the Court, Carolanne testified that she was licensed in Ohio.
(See Carolanne Dep. at 28-29, ECF #54-7 at 9-10, Pg. ID 1098-99.)
15

showing the much higher values. (See AMI Resp. Br. at 15, ECF #58 at 18, Pg. ID
1754.) But AMI cites no evidence to support its claim that Carolanne had the
earlier appraisals (id.), and the Court has found none. Thus, there is no support for
AMI’s assertion that Carolanne knew that the $138,100 valuation was wrong at the
time ACE issued the Equipment Endorsement.
3
In any event, AMI lacks authority for its argument that Carolanne’s
knowledge can be imputed to ACE. AMI insists that a series of Michigan Supreme
Court decisions – Gordon v. St. Paul Fire & Marine Ins. Co., 163 N.W. 956 (Mich.
1917), Jacobs v. Queen Ins. Co., 150 N.W. 147 (Mich. 1914), and Hawkeye
Casualty Co. v. Holcomb, 5 N.W.2d 477 (Mich. 1942) – compel the conclusion
that ACE should be deemed to have Carolanne’s knowledge. (See AMI Mot. at 16,
ECF #55 at 18, Pg. ID 1429; AMI Resp. Br. at 7-8, ECF #58 at 10-11, Pg. ID
1746-47.) But those decisions are inapposite. They do not address whether an
insurance carrier is deemed to have knowledge of facts known by an independent
agent like Carolanne. Instead, they address whether facts known to a “general
local agent” should be imputed to an insurance carrier. See, e.g., Jacobs, 150 N.W.
at 151; Hawkeye Cas. Co., 5 N.W.2d at 482. In Jacobs, the Michigan Supreme
Court defined such an agent as “one who has the power to solicit insurance, to
receive applications, to fix premiums, to accept risks, and to issue, countersign, and
16

renew policies in a particular locality.” Jacobs, 150 N.W. at 151.8 Here, there is no
evidence that ACE granted such power to Carolanne or anybody else at Todd
Associates.

On the contrary, it is undisputed that Maniaci, not Carolanne,

underwrote AMI’s application to cover the Cabot Street Equipment, determined
whether to approve coverage, and fixed the premium. (See, e.g., Maniaci Dep. at
68, ECF #54-8 at 19, Pg. ID 1137.) Simply put, Carolanne and Todd Associates
were not the type of “general local agents” involved in Jacobs, Hawkeye Cas. Co.,
and Gordon, and thus, contrary to AMI’s argument, those decisions do not compel
the conclusion that Carolanne’s knowledge should be imputed to ACE.9
B
AMI next argues that ACE had no authority to rescind the Equipment
Endorsement because any misrepresentation concerning the value of the Cabot
Street Equipment was unintentional. In support, AMI relies upon two provisions
of the Policy.

8

See also Hawkeye Cas. Co., 5 N.W.2d at 481-82 (recognizing rule that
knowledge of insurance agent is imputed to insurance carrier where the carrier has
authorized the agent “to issue policies simply by signing his name as an agent, to
collect premiums, and to cancel policies without consulting the home office….”)
9

To be clear, the Court has concluded that there is no evidence that Carolanne
knew the $138,100 valuation was inaccurate. (See Section V.A.2. above.) The
discussion above is intended to underscore AMI’s failure to establish that if she did
know, that knowledge would be imputed to ACE.
17

First, AMI directs the Court to the “Unintentional Errors and Omissions
Endorsement.” It provides:
It is hereby understood and agreed that the failure of the
Insured to disclose all hazards existing as of the inception
date of the Policy shall not prejudice the Insureds with
respect to the coverage afforded by this Policy, provided
such failure or any omission is not intentional. When
discovered, the unintentional error or omission shall be
reported to the Company as soon as practicable.
(ECF #61-3 at 2, Pg. ID 1869.) AMI maintains that because any misrepresentation
concerning the value of the Cabot Street Equipment was not intentional, it should
not “prejudice” AMI’s right to continued coverage. (See AMI Reply Br. at 2-4,
ECF #61 at 2-4, Pg. ID 1850-52.)

But this endorsement does not apply to

misrepresentations concerning the value of property to be insured. It is strictly
limited to an insured’s failure to disclose “hazards.” This endorsement is thus no
help to AMI.
Second, AMI argues that the “Commercial Property Conditions” provision
of the Policy precludes ACE from rescinding coverage based upon unintentional
misrepresentations. (See id.) That provision provides:
A.

Concealment, Misrepresentation or Fraud
This Coverage Part is void in any case of fraud by
you as it related to this Coverage Part at any time.
It is also void if you or any other insured, at any
time, intentionally conceal or misrepresent a
material fact concerning:
18

1.
2.
3.
4.

This Coverage Part;
The Covered Property;
Your interest in the Covered Property;
or
A claim under this Coverage Part.

(ECF #61-4 at 2, Pg. ID 1871.) AMI in effect argues that when ACE agreed to this
provision authorizing rescission for intentional misrepresentations, it waived its
right under Michigan common law (discussed above at Section IV) to rescind
coverage based on unintentional misrepresentations.
Another judge of this court considered and rejected such an argument in
Seneca Specialty Ins. Co. v. West Chicago Property Co., 08-12335, 2010 WL
431734 (E.D. Mich. Feb. 2, 2010.) In Seneca Specialty, the plaintiff purchased an
insurance policy from the defendant insurer. During the application process, the
plaintiff represented that that there had been no claims or losses with respect to the
building being insured within the previous five years. See id. at *1.

That

representation was not accurate. See id. After the plaintiff made an insurance
claim under the policy, the defendant-insurer rescinded the policy based on the
alleged “material misrepresentations that were made in the policy’s application.”
Id. At the summary judgment stage, the plaintiff-insured “contend[ed] that the
inaccuracies [in the application] [were] not misrepresentations justifying rescission
because they were not made intentionally.” Id. at *2. The insured contended that
because there was “language in the insurance contract” allowing rescission based
19

upon an intentional misrepresentation, the insurer had no right to rescind based on
an innocent misrepresentation. Id. at *2. The court rejected that argument:
This argument fails because [the insurer’s] right to void
the contract ab initio in cases of unintentional
misrepresentations exists completely separate from the
terms of the contract itself. Furthermore, [the insured]
has pointed to no caselaw indicating that this right is
waived by contract language such as that present in this
case.
In addition, nothing in the language of this contract
forfeits [the insurer’s] right to void ab initio in cases like
this. The contract’s statement that [the insurer] can void
the contract at any time in cases of intentional
misrepresentation is merely an additional right of
rescission that is being granted to [the insurer].
Accordingly, the Court will follow Michigan law and
find that whether the misrepresentation was intentional is
irrelevant to [the insurer’s] right to void the contract ab
initio.
Id. (emphasis added; internal citation omitted).
AMI has provided no persuasive reason to depart from the reasoning and
conclusion in Seneca Specialty. Moreover, Seneca Specialty appears consistent
with Michigan law. For instance, in Hansman v. Imlay City State Bank, 328
N.W.2d 653, 655-56 (Mich. Ct. App. 1983), the Michigan Court of Appeals held
that a bank did not waive its common law right of setoff by entering into a security
agreement that provided, in part, that the bank “expressly waiv[ed] all other
security” for a loan. The court declined to find a waiver of the common law right
because the agreement was “executed under normal business practices,” and the
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court saw no evidence that the bank intended to waive its common law setoff right
by entering into a standard agreement. Id.

Although Hansman is factually

distinguishable, it does lend support to the Seneca Specialty court’s refusal to find
a waiver of common law rescission rights in a standard policy provision
concerning rescission.10

Finally, “a waiver is a voluntary and intentional

abandonment of a known right,” Quality Products & Concepts Co. v. Nagel
Precision, Inc., 666 N.W.2d 251, 259 (Mich. 2003), and there is no clear evidence
that ACE intended to waive its common-law right to rescind the Policy based on
innocent misrepresentations.11

Because AMI has not shown any error in the

Seneca Specialty court’s analysis, this Court follows that decision and holds that
ACE has not waived its common right to rescind coverage based upon innocent
misrepresentations.
C
Finally, AMI faults ACE for not confirming during the underwriting process
that AMI’s $138,100 valuation (supplied through Carolanne) represented the
replacement cost value of the Cabot Street Equipment. AMI stresses that the
10

See also Mayes v. Matthews IV, 2011 WL 5964615, at *3 (Mich. Ct. App. Nov.
29, 2011) (explaining that “the fact that [a] contract includes a provision that
specifically mentions [one remedy] does not mean that [a party] intended to limit
his remedy [to the specifically mentioned remedy].”)
11

Notably, AMI did not submit an affidavit or other evidence indicating that when
it purchased the Policy, it believed that ACE had waived its common law right to
rescind based upon innocent misrepresentations during the application.
21

Policy provided replacement cost coverage for the equipment; that given the
“nature” of the equipment, it should have been clear to Maniaci that the $138,100
valuation could not represent its replacement cost; that it was unreasonable for
Maniaci to “assume” that the $138,100 value represented replacement cost; and
that Maniaci’s unreasonableness precludes ACE from rescinding coverage on the
ground that the $138,100 valuation was inaccurate. (See Supp. Br., ECF #66.12)
However, AMI has not cited any legal authority to support its assertions that
(1) Maniaci had an obligation to confirm that the values provided by AMI (through
Carolanne, which she received from Smith) represented the replacement cost of the
equipment and/or (2) Maniaci’s failure to confirm negates ACE’s right to rescind.
Moreover, given the course of dealings between Maniaci and Carolanne, it
was not unreasonable for Maniaci to believe that the $138,100 valuation provided
by Carolanne represented the replacement cost for the equipment. Maniaci had
previously “discuss[ed]” with Carolanne that when dealing with replacement cost
policies, the relevant “value[s] should be at replacement cost.” (Maniaci Dep. at
128, ECF #54-8 at 34, Pg. ID 1152; see also id. at 134-35, ECF #54-8 at 36, Pg. ID
1154.) Likewise, Carolanne understood that ACE “typically reqest[ed] values for
property to be reported on a replacement cost [] basis.” (Carolanne Dep. at 60, ECF
#54-7 at 17, Pg. ID 1104.) And AMI has not presented any evidence that at the
12

AMI has moved for leave to file the supplemental brief cited in text above. (See
ECF #66.) The Court GRANTS AMI leave to file this supplemental brief.
22

time Maniaci underwrote the Equipment Endorsement he had any reason to believe
that the $138,100 valuation was anything other than at replacement cost.13 Under
these circumstances, it was not unreasonable for Maniaci to believe that the
$138,100 valuation was a replacement cost valuation.
VI
Because the Court has concluded that ACE was entitled to rescind the
Equipment Endorsement, it need not rule on ACE’s alternative grounds for
summary judgment nor AMI’s responses to those grounds. In addition, because
ACE was entitled to rescind the Equipment Endorsement, AMI was not entitled to
coverage under that endorsement. Thus, the Court will deny AMI’s summary
judgment motion. (ECF #55.) Finally, the Court will terminate AMI’s motion to
exclude ACE’s expert witnesses (ECF #56) as moot.
VII
ACE properly rescinded the Equipment Endorsement and is entitled to
judgment as a matter of law. Accordingly, for the reasons stated above, IT IS
HEREBY ORDERED that:
 ACE’s motion for summary judgment (ECF #54) is GRANTED;

13

AMI seems to suggest that given the “nature of the equipment,” Maniaci had to
know that the $138,100 valuation was far too low to represent its true replacement
cost value. (See AMI Supp. Br. at 2, ECF #66 at 4, Pg. ID 1916.) But AMI has not
identified any evidence in the record to support that assertion.
23

 AMI’s motions for leave to file supplemental briefs (ECF ## 64, 66) are
GRANTED;
 AMI’s motion for partial summary judgment (ECF #55) is DENIED; and
 AMI’s motion to exclude Defendant’s expert witnesses is TERMINATED
AS MOOT.

Dated: August 26, 2016

s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE

I hereby certify that a copy of the foregoing document was served upon the
parties and/or counsel of record on August 26, 2016, by electronic means and/or
ordinary mail.
s/Holly A. Monda
Case Manager
[phone]

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