Romeo's Party Store, Inc. v. Capitol Indemnity Corporation

Filing 26

OPINION AND ORDER GRANTING 19 Defendant's Motion for Summary Judgment. Signed by District Judge Terrence G. Berg. (AChu)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
ROMEO’S PARTY STORE, INC.,
Plaintiff,
Case No. 15-11835
Hon. Terrence G. Berg

v.
CAPITOL INDEMNITY
CORPORATION,
Defendant.

OPINION AND ORDER GRANTING DEFENDANT’S
MOTION FOR SUMMARY JUDGMENT (DKT. 19)
I.

INTRODUCTION
Plaintiff, unsatisfied with the money recovered for property losses under an

insurance policy with Defendant, sued for more. As the lawsuit progressed,
Defendant learned that Plaintiff was not the owner of the insured property despite
having represented on the application for insurance that it was. Defendant now
moves for summary judgment on both Plaintiff’s claims and its own counterclaim.
For the reasons stated below, Defendant’s motion is GRANTED.
II. BACKGROUND
On June 12, 2014, Plaintiff was operating a party store in Unit 2 of a multi-unit
building located at 70951 Van Dyke Road in Romeo, Michigan when the unit was
damaged by fire. Dkt. 19, Pg. ID 106. At that time, Plaintiff had an insurance policy
with Defendant. Dkt. 19, Pg. IDs 106, 109.

After the fire, Plaintiff submitted an insurance claim, and Defendant paid
Plaintiff $175,088.81 for business personal property loss and business income loss.
Dkt. 19, Pg. ID 106. Plaintiff was not satisfied with its recovery, however, and filed
this lawsuit seeking to recover an additional $99,894.18 for improvements and
betterments including acoustical treatment, electrical work, heating and cooling
work, and other things. Dkt. 19, Pg. ID 106.
During discovery, Defendant learned that Plaintiff did not own Unit 2. On the
application for insurance, however, Plaintiff had marked the box for “owner.”

Dkt. 19, Ex. 10, p. 10. In fact, Plaintiff, the corporate entity Romeo’s Party Store, Inc.,
had never owned Unit 2; Vinisia Bahoura, who owned Plaintiff, had herself purchased
Unit 2 on a land contract in 2010 but lost the property to Fifth Third Bank.
Indeed, Fifth Third became the owner of Unit 2 more than two years before Plaintiff
applied for insurance. Dkt. 19, Pg. ID 110. Fifth Third’s ownership came to pass as
follows:
Prior to 2010: George Adams owned all units at 70951 Van Dyke Rd.,
but had loans with Fifth Third
2010: Vinisia Bahoura, owner of Plaintiff, purchased Unit 2 from Adams
via land contract
2011: Adams defaulted on loans with Fifth Third, and a foreclosure
receiver was appointed
2011: Foreclosure receiver notified Bahoura of Adams’s default, and
requested that land contract payments be made to Fifth Third. Bahoura
did not make the payments.
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November, 2011: Foreclosure receiver filed lawsuit against Bahoura
for possession after land contract forfeiture.
February, 2012: Fifth Third became owner of 70951 Van Dyke Rd.,
Units 2-7, via Sheriff’s Deed.
April, 2012: Judgment of forfeiture entered against Bahoura.
June, 2012: Redemption period expired without Bahoura redeeming
Dkt. 19, Pg. IDs 110-111.
After learning these facts, Defendant filed a counterclaim to recover the difference
between what it paid Plaintiff under the policy and the premiums Plaintiff paid for
the policy: $172,176.81. Defendant now seeks summary judgment on both its
counterclaim and Plaintiff’s claims. Dkt. 19.
III. ANALYSIS
A. Standard of Review
“Summary judgment is appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with any affidavits, show that there
is no genuine issue as to any material fact such that the movant is entitled to a
judgment as a matter of law.” Villegas v. Metro. Gov't of Nashville, 709 F.3d 563, 568
(6th Cir. 2013); see also Fed. R. Civ. P. 56(a). A fact is material only if it might affect
the outcome of the case under the governing law. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249 (1986). On a motion for summary judgment, the Court must view
the evidence, and any reasonable inferences drawn from the evidence, in the light
most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (citations omitted); Redding v. St. Edward,
241 F.3d 530, 531 (6th Cir. 2001).
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“As the moving parties, the defendants have the initial burden to show that there
is an absence of evidence to support [plaintiff’s] case.” Selhv v. Caruso, 734 F.3d 554
(6th Cir. 2013); see also Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the
moving party has met its burden, the non-moving party “may not rest upon its mere
allegations or denials of the adverse party’s pleadings, but rather must set forth
specific facts showing that there is a genuine issue for trial.” Ellington v. City of E.
Cleveland, 689 F.3d 549, 552 (6th Cir. 2012) (citing Moldowan v. City of Warren,
578 F.3d 351, 374 (6th Cir. 2009)).
B. Discussion
Defendant asserts one argument in support of summary judgment on both
Plaintiff’s claims and its counterclaim: Defendant may rescind the policy because
Plaintiff made a material misrepresentation in the application by stating that it
owned Unit 2 when it did not. Dkt. 19, Pg. IDs 112-113. And Defendant asserts two
additional arguments in support of summary judgment on Plaintiff’s claims: (1) that
Plaintiff is not entitled to compensation for its lost use-value of the improvements
and betterments and alternatively (2) that Plaintiff had no insurable interest in the
property at the time it applied for insurance. Dkt. 19, Pg. IDs 113, 117. Because the
Court finds that Plaintiff’s misrepresentation as to its ownership of Unit 2 allows
Defendant to rescind the policy, the Court will not reach the latter two arguments.
1. Defendant may rescind the policy
misrepresented who owned Unit 2

because

Plaintiff

In Michigan, “[i]t is the well-settled law . . . that where an insured makes a
material misrepresentation in the application for insurance . . . the insurer is entitled
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to rescind the policy and declare it void ab initio” (void from the outset). Lake States
Ins. Co. v. Wilson, 231 Mich. App. 327, 331 (1998) (citing Lash v Allstate Ins. Co.,
210 Mich. App. 98, 101 (1995)). When the misrepresentation is innocent rather than
intentional, the insurer may still rescind the policy so long as the insurer relied on
the misrepresentation when issuing the policy. Lash, 210 Mich. App. at 103.
A misrepresentation is material when, as a result of the representation, the insurer
issued the policy when it otherwise would not have done so. See Springborn v. Allstate
Ins. Co., 2010 Mich. App. LEXIS 1893, at *14-15 (Mich. Ct. App. 2010).
Here, Defendant offers evidence that it would not have issued the policy had it
known

that

Plaintiff

did

not

own

Unit 2.

Dkt.

19,

Pg.

IDs

112-113.

Specifically, Defendant submits a declaration from Susan Duhr, a Regional
Underwriting Manager of Defendant. Dkt. 19, Ex. 18. Ms. Duhr states that she
reviewed Plaintiff’s policy application and that Defendant would not have issued the
policy had it known that Plaintiff did not own Unit 2. Id.
Unfortunately, Plaintiff’s response to Defendant’s argument consists of only the
following two sentences:

Dkt. 20, Pg. ID 445. This is confusing because, in citing “Exhibit 7,” Plaintiff does not
specify whether it is referring to Defendant’s Exhibit 7 or to Plaintiff’s own Exhibit 7.
Plaintiff’s Exhibit 7 (Dkt. 20-4) is a copy of Plaintiff’s policy application. If this is the
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Exhibit 7 Plaintiff intends to reference, it is difficult to understand why it is “in
contradiction to the allegations of Defendant including Exhibit 10” because
Defendant’s Exhibit 10 is also a copy of the policy application. Dkt. 19-11. Both of
these applications incorrectly list Plaintiff as the owner of the property, so there is no
contradiction that the Court can see.
If Plaintiff is referring to Defendant’s Exhibit 7, that exhibit is a copy of Plaintiff’s
answers to Defendant’s request for admissions. Dkt. 19-8. In answer to Defendant’s
request to admit that Plaintiff did not own Unit 2 at the time of the policy application,
Plaintiff responds that “there had been legal proceedings” and that it had not yet been
evicted when it applied for insurance. If Plaintiff is referring to this Exhibit 7, it is
still difficult to understand how Plaintiff’s answer creates an issue of fact when
compared to the policy application. If Plaintiff’s answer was intended to suggest that
because it had not yet been evicted, it had some sort of ownership interest in Unit 2,
this would be consistent with checking “owner” on the application—it would not be a
contradiction that creates an issue of credibility. Such an answer would also be flawed
because lack of eviction does not confer ownership. Plaintiff’s perception that legal
proceedings were pending that concerned its possible eviction creates neither an issue
of credibility nor an issue of fact. Even an innocent misrepresentation can support
rescission where the insurance company relied on the misrepresentation. Lash, 210
Mich. App. at 103. Plaintiff’s response creates no issue of fact upon which Plaintiff
can rely to survive Defendant’s motion.

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Through record evidence including the policy application, court documents from
the foreclosure proceedings, and Ms. Duhr’s declaration, Dkt 19, Exs. 10, 13-15, 17,
and 18, Defendant has established that:


Plaintiff represented in its policy application that it owned Unit 2;



At the time of the application, Plaintiff did not own Unit 2; and



Had Plaintiff represented in its application that it did not own Unit 2,
Defendant would not have issued the policy

Plaintiff adduces nothing to contest these facts. Defendant’s showing is enough under
Michigan law to allow it to rescind the policy, which defeats Plaintiff’s claims and
means Defendant is entitled to recover the money it paid Plaintiff under the policy,
minus the premiums Plaintiff paid for the policy.
Before concluding, the Court notes that Ms. Duhr’s declaration suffers from an
unfortunate lack of detail.

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To be sure, a short declaration is not necessarily troublesome; too often lawyers
take 20 pages to say what could be said in 10—or even in 3. But here, Ms. Duhr, with
the benefit of hindsight, was in a position to state with clarity why Defendant would
not have issued the policy if Plaintiff had correctly stated that it was operating a
party store out of Unit 2 without an ownership interest in the property, with no
formal lease agreement, and with no informal relationship with Fifth Third Bank
that would have created a legally protectable interest in the property.
Does Defendant have internal guidelines or rules that prevent it from issuing the
type of policy provided here to entities or individuals with no ownership interest and
no formal or informal landlord-tenant relationship with the owner? If Defendant does
issue such policies, would the premiums be higher? Are there aspects of the insurance
business that would make it inappropriate for an insurer to issue a policy such as the
one Defendant issued to Plaintiff when another entity owns the property? Would the
insurer’s risk be higher? Although Ms. Duhr’s declaration says Defendant would not
have issued the policy if the true facts were disclosed, the declaration does not include
a concrete explanation of why that is so. However, in the absence of some reason to
conclude that Defendant would have issued the policy even had it known that
Plaintiff did not own Unit 2, the declaration provides unrebutted proof that Plaintiff’s
misstatement caused Defendant to issue a policy that it otherwise would not have
issued—evidence sufficient to prove a material misrepresentation allowing
rescission.

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The Court finds that there are no issues of material fact, and that the facts would
require a reasonable jury to find for Defendant both on Plaintiff’s claims and on
Defendant’s counterclaim.
IV. CONCLUSION
For the reasons outlined above, Defendant’s Motion for Summary Judgment, both
with respect to Plaintiff’s claims against Defendant and Defendant’s counterclaim
against Plaintiff, is GRANTED.

SO ORDERED.

Dated: December 29, 2016

s/Terrence G. Berg
TERRENCE G. BERG
UNITED STATES DISTRICT JUDGE

Certificate of Service
I hereby certify that this Order was electronically submitted on December 29,
2016, using the CM/ECF system, which will send notification to all parties.
s/A. Chubb
Case Manager

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