Home Owners Insurance Company v. Moffitt et al

Filing 245

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

HOME OWNERS INSURANCE COMPANY,
Plaintiff,
File No. 1:11-CV-517
v.
HON. ROBERT HOLMES BELL
RONALD MOFFITT, et al.,
Defendants,
v.
MARVIN OKUN AGENCY, INC., et al.,
Third-Party Defendants.
/
OPINION
This matter is before the Court on three motions for summary judgment: (1) thirdparty defendant Marvin Okun’s motion against third-party plaintiffs Ronald and Cathleen
Moffitt (the “Moffitts”), and A & P Enterprises of Michigan, LLC (Dkt. No. 159); (2)
Plaintiff Home Owners Insurance Co.’s motion against all defendants on the first amended
complaint (Dkt. No. 175); and (3) Plaintiff Home Owners’ motion against the Moffitts and
A & P on the amended counterclaim (Dkt. No. 180). For the reasons that follow, Okun’s
motion will be granted, Home Owners’ motion on the complaint will be denied, and Home
Owners’ motion on the amended counterclaim will be granted in part.

I.
In March 2007, the Moffitts met with Troy Seaver, an employee of the Marvin Okun
Agency (the “Agency”), to fill out a Homeowners Application for insurance for the property
located at 68298 52nd Street, Lawrence, MI. (Dkt. No. 19, First. Am. Compl. ¶¶ 7-8.)
Following the submission of this application, an insurance policy was issued by Home
Owners Insurance. In subsequent years, properties located at 68490 52 nd Street and 68241
52nd Street were added to the policy. (Id. ¶ 9.) On December 20, 2010, a fire occurred at the
initially insured property, 68298 52nd Street, causing substantial damage. (Id. ¶ 10.)
The Moffitts submitted an insurance claim to Home Owners and in return received
$200,120.50. (Id. ¶¶ 16-17.) Additional claim payment checks in the amount of $116,000
and $7,360 were evidently tendered to the Moffitts but refused. (Id. ¶ 18.) Last, $7,860 was
paid to Lawrence Township Escrow by Home Owners on behalf of the Moffitts. (Id. ¶ 19.)
Home Owners alleges that, contrary to the application for insurance, the Moffitts do
not own the property where the fire occurred. (Id. ¶ 13.) This property is evidently owned
by A & P, an LLC at least partially managed by the Moffitts although not owned by them.
(Id. ¶¶ 6, 13.)
II.
The Federal Rules of Civil Procedure require the Court to 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). In evaluating a motion for

2

summary judgment the Court must look beyond the pleadings and assess the proof to
determine whether there is a genuine need for trial. Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986).
In considering a motion for summary judgment, “the district court must construe the
evidence and draw all reasonable inferences in favor of the nonmoving party.” Martin v.
Cincinnati Gas and Elec. Co., 561 F.3d 439, 443 (6th Cir. 2009) (citing Jones v. Potter, 488
F.3d 397, 403 (6th Cir. 2007)). Nevertheless, the mere existence of a scintilla of evidence
in support of a non-movant’s position is not sufficient to create a genuine issue of material
fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). The proper inquiry is
whether the evidence is such that a reasonable jury could return a verdict for the non-moving
party. Id.; see generally Street v. J.C. Bradford & Co., 886 F.2d 1472, 1476-80 (6th Cir.
1989).
III.
A. Claims at Issue
1. Plaintiff’s First Amended Complaint
Plaintiff’s first amended complaint seeks contract rescission (Count I) on account of
the fact that the Moffitts falsely represented that there was no business located at the insured
location, that they owned the property in question, and that they had an insurable interest in
the property. Plaintiff also brings a claim for unjust enrichment (Count II) on account of the
Moffitts accepting $200,120.50 from Home Owners despite having no right to receive

3

payment. Last, in the event the insurance policy is not rescinded, Plaintiff seeks interpleader
(Count III) to ascertain to whom it owes money. The United States and State of Michigan
are included as interpleader defendants because both filed tax liens against the Moffitts prior
to the fire and have threatened action against Home Owners for the insurance proceeds.
Since then, the parties have stipulated to, and the Court has granted, the dismissal of the State
of Michigan because it was determined that the debt owed is actually a debt owed by Ronald
Moffitt’s son, Ronald Bruce Moffitt. (Dkt. Nos. 152-53.)
2. Defendants’ Amended Counterclaim/Third-Party Complaint
The Moffitts and A & P have filed a counterclaim and third-party complaint. (Dkt.
No. 61.) First, they seek reformation of the insurance contract (Count I) on account of their
contention that Home Owners was aware that A & P was the owner of the property in
question when it issued the insurance policy. They allege that the “insured” listed on the
insurance contract should have read “A & P Enterprises of Michigan, LLC” instead of “Ron
and Kathleen [sic] Moffitt” and that this was a mutual mistake of fact.
The Moffitts and A & P also allege breach of contract (Count II) by Home Owners.
They allege that Home Owners has failed to pay the full value of the loss. They also allege
that the insurance contract does not allow Home Owners to offset any payments by paying
any amount to a third party or withholding payments.
Last, they allege negligence (Count III) against Home Owners and third-party
defendants the Agency, Okun, and Seaver.

4

B. Analysis
1. Okun’s motion
Marvin Okun seeks summary judgment on the negligence claim in the third-party
complaint. The Moffitts have testified that the insurance policy in question was procured for
them by Troy Seaver of the Marvin Okun Agency and that they never talked to Okun himself.
(Dkt. No. 159, Exs. A-B, R. & C. Moffitt Deps.) Consequently, as an uninvolved corporate
officer and shareholder, Okun argues that he is immune for the alleged negligent acts of
Seaver and/or the Agency. “Michigan courts typically consider corporations legally distinct
from their shareholders, even if a single shareholder owns all the stock.” Dep’t of Consumer
Indus. Servs. v. Shah, 600 N.W.2d 406, 411 (Mich. Ct. App. 1999) (citing Bourne v.
Muskegon Circuit Judge, 41 N.W.2d 515, 522 (Mich. 1950)); accord Elliott v. Smith, 209
N.W.2d 425, 427 (Mich. Ct. App. 1996). Thus, Okun is correct that he is distinct from the
Agency, and the Moffitts and A & P have not presented any evidence to support piercing the
corporate veil.
However, the Moffitts and A & P argue that this motion is moot because the thirdparty complaint alleges only negligent supervision/training as a theory of liability against
Okun, and not piercing the corporate veil. The motion is not moot. The third-party
complaint is entirely ambiguous as to the theory of liability as to Okun. It only mentions
“failure to supervise” in regard to Home Owners and the Agency. (Dkt. No. 61, ¶¶ 36-37.)
Moreover, neither hiring or training is mentioned in regard to any third-party defendant, and

5

no particular wrongdoing of Okun is identified.
Even if the third-party complaint did adequately plead negligent supervision by Okun,
Okun is still entitled to summary judgment. “[E]mployers [are] subject to liability for their
negligence in hiring, training, and supervising their employees.” Zsigo v. Hurley Med. Ctr.,
716 N.W.2d 220, 226 (Mich. 2006). However, the theory of Okun’s liability presented to the
Court in the Moffitts and A & P’s briefs is essentially one of res ipsa loquitur negligence
rather than supervisory negligence. Essentially, the Moffitts and A & P claim that because
an employee (Seaver) was negligent it must somehow be the fault of the employer, whether
through negligent training or supervision. However, the Moffitts and A & P have failed to
identify any training or supervisory negligence on Okun’s part.
The Moffitts and A & P point to Okun’s deposition testimony to attempt to show
wrongdoing. However, this testimony torpedoes their claim because it shows that Okun did
not have a duty to train or supervise Seaver and did not breach any such duty. First, the
Moffitts and A & P point to Okun’s alleged testimony that no one provided training on how
to fill out an application. (Dkt. No. 174, PageID# 1890.) However, the testimony pointed
to only indicates that insurance companies which come in and make presentations to the
Agency’s employees do not provide training on how to fill out an insurance application.
(Dkt. No. 174, Ex. 1, at 8.)1 Thus, this does not establish a duty or breach on Okun’s part.

1

In fact, Okun testified that only employees who have been previously licensed and
trained are hired, meaning the Agency only conducts limited training. (Dkt. No. 174, Ex. 1,
Okun Dep. 6-7.)
6

Next, the third-party plaintiffs point to testimony that Okun did not train Seaver. (Dkt. No.
174, PageID# 1890.) But the fact that Okun did not personally provide any training to Seaver
does not establish that he had a duty to provide training or that he breached that duty. Next,
the third-party plaintiffs point to Okun’s testimony about the procedures in place for when
additional properties are added to an insurance policy: namely, the completion of an
additional form. (Id.) They then jump to the conclusion that Okun must have negligently
trained and supervised Seaver because properties were added to the Moffitts’ insurance yet
that form has not been produced. However, Seaver’s alleged negligence (or the negligence
of “someone” regarding that form) is not evidence that Okun was negligent.
Last, the third-party plaintiffs present proposed expert testimony from John Kyes that
Okun was negligent in the supervision and training of Seaver. (Dkt. No. 174, Ex. 2.)
However, the proposed expert report fails to identify any wrongdoing of Okun himself other
than the conclusory statement that “[i]t is with a reasonable degree of certainty that Okun and
Okun Agency were negligent in their training and supervision of agency producer Troy
Seaver.” (Dkt. No. 174, Ex. 2, ¶ 11.) In Kyes deposition, he testified that he was unaware
of any personal responsibility on the part of Okun as to the hiring, training, or supervising
responsibilities of Seaver. (Dkt. No. 174, Ex. 4, Kyes Dep. 72-73.) He further testified that
he did not know whether or not Okun acting differently in some manner would have made
any difference in what happened. (Id. at 73.)
In conclusion, the third-party plaintiffs’ complaint contains no allegation that Okun

7

had a duty to supervise or train Seaver at all, let alone in regard to the circumstances of this
case. Moreover, it contains no allegations of wrongdoing on the part of Okun that are
separate from the alleged wrongdoing of the Agency and Seaver.2 Nor have the third-party
plaintiffs presented any evidence of wrongdoing by Okun. Last, the Court has been
presented with Okun’s uncontradicted testimony that (a) he was not personally responsible
for training or supervising Seaver (Dkt. No. 174, Ex. 1, Okun Dep. 6-7, 11), and (b) he did
not in fact train or supervise Seaver at all, let alone negligently (Id. at 47). Thus, there is no
genuine dispute as to a material fact, and Okun is entitled to summary judgment on the
negligence claim.
2. Home Owners’ motion regarding the complaint
Home Owners seeks summary judgment on its claims against the Moffitts and A & P
for contract rescission and unjust enrichment.
“It is the well-settled law of this state that where an insured makes a material
misrepresentation in the application for insurance, including no-fault 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. Ct. App. 1998) (citing Lash v. Allstate Ins. Co., 532 N.W.2d
869 (1995)). “[A] fact or representation in an application is ‘material’ where communication
of it would have had the effect of ‘substantially increasing the chances of loss insured against

2

Most of the paragraphs refer to the wrongdoing of “Third Party Defendants” as a group.
These paragraphs regard representations and omissions made to Ronald Moffitt. However, Okun
never had any discussions with Ron Moffitt and was not involved in the insurance policies in
question.
8

so as to bring about a rejection of the risk or the charging of an increased premium.’” Oade
v. Jackson Nat. Life Ins. Co. of Mich., 632 N.W.2d 126, 131 (Mich. 2001) (quoting Keys v.
Pace, 99 N.W.2d 547, 551 (Mich. 1959)). “Rescission is justified in cases of innocent
misrepresentation if a party relies upon the misstatement, because otherwise the party
responsible for the misstatement would be unjustly enriched if he were not held accountable
for his misrepresentation.” Lash, 532 N.W.2d at 872. “[A]n insurer has no duty to
investigate or verify the representations of a potential insured.” Titan Ins. Co. v. Hyten, 817
N.W.2d 562, 576 (Mich. 2012).
Home Owners alleges that there is no genuine issue of fact that the following material
misrepresentations were made: (1) that the Moffitts were retired; (2) that the Moffitts owned
the property in question; (3) that they had not had any insurance policies canceled; and (4)
that no business was conducted on the premises.

The “Homeowners Application”

unambiguously makes these representations, and at the end of the application, Ron Moffitt
signed his name directly underneath the statement “[t]he facts stated on this application are
true to the best of my knowledge and are to be relied upon by the Company for the purposes
of issuing the insurance I have requested, and any renewals of insurance.” (Dkt. No. 176,
Ex. A.) However, contrary to Home Owners’ allegations, there is a genuine issue of material
fact as to whether any of these representations were material or relied upon.
Home Owners has not alleged or offered evidence that it would not have issued the
insurance policy if it had known that the Moffitts were not retired. Thus, there is a genuine

9

issue of material fact as to whether any such misrepresentation was material or relied upon.
As for ownership, Home Owners points to the affidavit of its proposed expert, Ken
Armbrustmacher, which states that if Home Owners had known that the property was owned
by an LLC and not the Moffitts, the underwriting guidelines of Home Owners would not
have allowed the issuance of the homeowners policy. (Dkt. No. 176, Ex. E, ¶ 6.) However,
the Moffitts correctly point out that these “underwriting guidelines” have never been
produced. Moreover, according to an email from Christopher Massey sent after Home
Owners discovered the LLC’s ownership interest, “[e]ven though an LLC we would have
still written the policy so rescinding the policy for this would not be plausible.” (Dkt. No.
234, Ex. 22.) Last, Ronald Moffitt has testified that he told Seaver that the LLC owned the
property but he owned the house. (Dkt. No. 233, Ex. 16, R. Moffitt Dep. 57-58.) Thus, more
factual development is needed to determine whether a misrepresentation was made and, if
so, whether it was material and/or relied upon.
There is also a genuine issue of material fact regarding the application’s indication
that Ron Moffitt had not had any previous insurance policies cancelled. Home Owners
argues that this misrepresentation is material because of Armbrustmacher’s testimony that
“if Ronald Moffitt had answered truthfully . . . the underwriting practices of Home Owners
Insurance Company would disqualify the Moffitts from insurance coverage.” (Dkt. No. 176,
Ex. E, ¶ 7.)

As stated, these “underwriting guidelines” have never been produced.

Moreover, the Moffitts contend that their history with Home Owners contradicts

10

Armbrustmacher’s testimony. They have put forth evidence that the Moffitts missed
payments to Home Owners a handful of times, resulting in cancellation of multiple prior
insurance policies, but Home Owners always issued new policies. (See Dkt. No, 235, Exs.
27-28.) Thus, more factual development is needed.
Last, the application indicated that no business was conducted on the property.
However, there is a genuine issue as to whether this was even a misrepresentation. Ron
Moffitt testified that “[m]y business is not done in the that home. . . . I don’t conduct the
business in my home.” (Dkt. No. 234, Ex. 23, R. Moffitt Dep. at 45-47.) Moreover,
Cathleen Moffitt has testified that she did not move her business into the home until three
years after the issuance of the policy. (Dkt. No. 176, Ex. B, C. Moffitt Dep. 8.) According
to Massey’s email, “[t]here is no exclusion for business use under Coverage A. . . . I think
we would have handled things differently if the business had been in the home at the time
of the application.” (Dkt. No. 234, Ex. 22 (emphasis added).)
In conclusion, the record does not establish that Home Owners is entitled to judgment
as a matter of law on its contract rescission claim. Because the unjust enrichment claim
depends on Home Owners succeeding on its contract rescission claim, the Court will also
deny summary judgment on that claim.3

3

Following their arguments in the response brief, the Moffitts briefly contend that they are
entitled to summary judgment on the complaint based on the same arguments addressed above.
However, as discussed, there are genuine issues of material fact, and no party is entitled to
summary judgment at this time.
11

3. Home Owners’ motion on the counterclaim
Last, Home Owners has moved for summary judgment on the first amended
counterclaim.
a) Reformation
“Courts will reform an instrument to reflect the parties’ actual intent where there is
clear evidence that both parties reached an agreement, but as the result of mutual mistake,
or mistake on one side and fraud on the other, the instrument does not express the true intent
of the parties.” Mate v. Wolverine Mut. Ins., 592 N.W.2d 379, 384 (Mich. Ct. App. 1998).
The Moffitts’ theory is that both parties were aware that A & P owned the house and
there was a mutual mistake which resulted in the Moffitts being listed as the “insured” on the
application instead of A & P as intended. (Dkt. No. 236, PageID# 3206.) This is entirely
contradicted by the record. In his deposition testimony, Ron Moffitt claimed he told Seaver
that A & P owned the property, but the Moffitts owned the house. (Dkt. No. 233, Ex. 17, R.
Moffitt Dep. 132.) Moreover, Home Owners sent all renewal policies and premium notices
to the Moffitts, all listing the Moffitts as the insured, and it was the Moffitts who paid on
these notices. Both parties acted as if the Moffitts were the insured party, which would not
have happened if one or both were aware that A & P was supposed to be the insured party.
Moreover, according to the Moffitts’ proposed expert, Ron and Cathleen believed they
owned the home. (Dkt. No. 174, Ex. 2, ¶¶ 8, 18.) Nor has any evidence been introduced
showing that Seaver was aware A & P owned the house at the time of the insurance

12

application.4 All the evidence points to both Seaver and the Moffitts believing that the
Moffitts owned the house and were the proper party to be insured.
Consequently, there is no mutual mistake in the contract as to the true intent of the
parties; the contract says exactly what the parties wanted it to. While in that case there is a
mutual mistake as to the owner of the house, that type of mistake is not a justification for
reformation because the contract accurately reflects the meeting of the minds. The parties
never intended to insure A & P and so the substitution of A & P’s name is unwarranted.
Because there is no genuine dispute of material fact as to the intentions of the contracting
parties, Home Owners is entitled to summary judgment on the contract reformation claim in
the amended counterclaim.5
b) Breach of contract
Home Owners argues that the Moffitts’ claim for breach of contract6 must fail because

4

The application states “Legal description attached,” which the Moffitts take as evidence
that the deed showing A & P as the owner was included with the application. However, there is a
place for a check mark next to this phrase and there is no mark. (See Dkt. No. 176, Ex. A.)
Additionally, Okun has testified that the Agency never attaches the deed. (Dkt. No. 174, Ex. 1,
Okun Dep. 42-43.)
5

The Moffitts request for other relief if the Court finds reformation inapplicable – the
response brief states the Court should “consider whether it can fashion any other sort of
appropriate relief for the Moffitts” (Dkt. No. 230, at 16) – will be denied. Such a claim was not
pleaded, and it is not the province of the Court to make claims and arguments for the parties.
6

The Court notes that Home Owners disputes paragraphs 27 and 28 of the counterclaim
which state that Home Owners cannot bring a claim until “[a]fter making payment under the
policy.” (Dkt. No. 61.) Home Owners is correct that it has not breached any duty to pay before
bringing suit because the contractual language referred to in these paragraphs preserved Home
Owners’ right to bring a claim to recover payments if they were paid out wrongfully rather than
(continued...)
13

there is no valid contract on account of the policy covering a dwelling owned by the Moffitts
and the Moffitts not actually owning the house that burned. The record is unclear as to
whether ownership is a prerequisite to a valid insurance contract in this case. The policy
defines “Residence premises” as “the one or two family dwelling where you reside . . . .”
(Dkt. No. 184, Ex. I.) “Coverage A – Dwelling” states that the insurance covers “your
dwelling located at the residence premises . . . .” (Id.) Home Owners argues that these two
definitions taken in conjunction establish that the dwelling must be owned by the insured.
However, these definitions never say that ownership is required. While it uses the adjective
“your,” that could just as easily refer to the insured having to live in the dwelling as it could
to the insured having to own the dwelling. This is not a basis for finding the contract invalid
on summary judgment.
Home Owners also asserts the contract is invalid because the dwelling was not “owner
occupied.” Its expert, Armbrustmacher, alleges that this was an underwriting condition.
(Dkt. No. 176, Ex. E.) Similarly, the Moffitts’ expert testified that owner-occupied was a
condition of insurance. (Dkt. No. 174, Ex. 2.) However, the foundation for this conclusion
by the experts is unclear at this point. Such a requirement does not appear in the insurance
policy, and thus there is nothing outside of this proposed expert testimony to suggest that the
contract is invalid because the dwelling was not owner occupied.

6

(...continued)
foreclosing a suit brought prior to full payment. (See Dkt. No. 184, Ex. I, PageID# 2223.) Thus,
Home Owners is entitled to bring this suit.
14

Third, Home Owners asserts that the Moffitts’ misrepresentations of material fact in
the claim process voids the coverage. According to the policy:
This entire policy is void if, whether before, during or after a loss, any insured
has:
a. Intentionally concealed or misrepresented any material fact or
circumstances;
b. Engaged in fraudulent conduct; or
c. Made false statements;
Relating to this insurance.
(Dkt. No. 184, Ex. I.) While a material misrepresentation would be grounds for voiding the
contract, as discussed more fully in the “rescission” analysis above, there is a genuine dispute
as to material facts regarding the four alleged misrepresentations on the application.
Because there is a genuine dispute as to issues of material fact, Home Owners is not
entitled to summary judgment on the breach of contract claim.
c) Negligence
Last, Home Owners seeks summary judgment on Count III of the amended
counterclaim because it is not vicariously liable for the negligence of the Agency, Okun, or
Seaver, who are not agents of Home Owners. “An independent insurance agent, or insurance
broker, is ordinarily the agent of the insured, not the insurer . . . .” Mayer v. Auto-Owners
Ins. Co., 338 N.W.2d 407, 409 (Mich. Ct. App. 1983); accord Harwood v. Auto-Owners Ins.
Co., 535 N.W.2d 207, 209 (Mich. Ct. App. 1993). Here, Okun testified that the Agency has
always been an independent insurance agency that is authorized to write insurance for a
15

number of companies. (Dkt. No. 186, Ex. U, Okun Dep. 58-59.) There is no argument to
the contrary and no evidence of any special relationship between Home Owners and the
Agency. Thus, the Agency and its employees were agents of the insured and not Home
Owners, and Home Owners cannot be held vicariously liable for their negligence.7 There is
no genuine dispute as to a material fact for this claim, and thus Home Owners is entitled to
summary judgment.
IV.
Consequently, Okun’s motion for summary judgment will be granted, Home Owners’
motion for summary judgment on the complaint will be denied, and Home Owners’ motion
for summary judgment on the counterclaim will be granted in part.
An order consistent with this opinion will be entered.

Dated: March 22, 2013

/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE

7

The Moffitts vaguely argue that under the Producer Licensing Model Act, those licensed
to sell insurance are now required to be appointed as an agent of the insurer. While this is true,
Mich. Comp. Laws § 500.1208a, such an appointment does not establish a principal-agent
relationship for liability purposes. Instead, all it does is allow an insurance producer to sell
insurance policies for the insurer once the insurer certifies that the producer is properly licensed.
Thus, any appointment of the Agency or Seaver as an insurance agent of Home Owners would
not create a principal-agency relationship.
16