The owner of a warehouse destroyed by a fire failed to show a genuine issue of material fact whether the defendants breached their duty as insurance agents to procure the requested policy, a Michigan Court of Appeals panel has ruled.
The plaintiff claimed he offered enough evidence to show that a “special relationship” between the parties was created such that the defendants had a “duty to advise” him about the adequacy of the coverage.
The panel disagreed, noting that the plaintiff admitted he knew each renewal was a policy for the actual cash value, which he described as “replacement cost minus depreciation.”
“Nowhere in the policy documents was there any representation that the actual cash value would be sufficient to rebuild to plaintiffs’ desired specifications,” the appeals court wrote. “Because plaintiffs failed to establish that a special relationship arose between the parties, the trial court did not err when it granted summary disposition in favor of defendants.”
The unpublished decision is Vining Industrial Park LLC v. J.L. Schwartz Ins. Agency Inc. (MiLW 08-106851, 6 pages). Judges Thomas C. Cameron, Kirsten Frank Kelly and Michael J. Kelly sat on the panel.
Background
Vining Industrial Park, a limited-liability company owned by Tom Owen, included a 300,000 square foot warehouse building in Greenville as one of its assets.
Owen sold 50% of his interest in the Vining Building to Vining Industrial Park-GA, a limited-liability company owned by Anthony Frank in 2009. J.L. Schwartz Insurance Agency, or JLS, owned by Jerrold Lee Schwartz, acted as Vining’s insurance agent.
The Vining Building was always insured under policies that set the limits at the “actual cash value” of the building, rather than a “replacement cost” policy.
A fire at the Vining Building destroyed much of the structure in December 2019. The insurance policy stated, in relevant part: “We will determine the value of Covered Property in the event of loss or damage as follows: A. At Actual Cash Value as of the time of loss or damage ….”
Owen acknowledged that he read the policy renewals from Auto-Owners Insurance Company. He also conceded that he knew the Vining Building policy was an “actual cash value” policy, which he described as “replacement cost minus depreciation ….”
Owen said he was “assured” by Schwartz “15 times” that the coverage would be adequate to replace 250,000 square feet of the Vining Building should it be declared a loss, regardless of the policy language.
Owen believed Schwartz got the information about the policy’s limit to rebuild 250,000 square feet from Auto-Owners.
Schwartz, however, denied that any such conversations happened about the adequacy of the coverage before the fire destroyed the Vining Building. Schwartz also said that neither he nor his agency “would have been capable of independently calculating the replacement cost of the Vining Building and, thus, would have been unable to provide such assurances.”
Describing it as a “monumental task,” Owen acknowledged that he never took any steps to determine how much it would cost to rebuild such a structure. Instead, Owen said he requested that there be enough insurance proceeds for “a modern style … pre-engineered steel building that we could rebuild 250,000 square feet which we could house the tenant,” a company called “LKQ.”
To rebuild the Vining Building to accommodate LKQ, Owen said it would have cost roughly $13,860,000, or about $55 per square foot. The payment from Auto-Owners was short more than $7 million.
LKQ refused a rent increase to cover the shortfall; Vining chose not rebuild.
The Vining plaintiffs filed a complaint against JLS and Schwartz in 2020, bringing two claims each — asserted against each defendant separately — of breach of contract and negligence.
While the plaintiffs acknowledged they “knew the Property was not insured for its full replacement cost value,” they weren’t likely to rebuild the structure “in the same way it had been constructed because the Property was old, the type of frame and construction was cost prohibitive, and its dimensions were not based on the current needs of Plaintiffs’ tenant.”
The defendants moved for summary disposition under MCR 2.116(C)(10). The plaintiffs, they argued, hadn’t shown any special relationship between the parties. As such, they had no duty to advise the plaintiffs about the adequacy of their coverage.
The Kent County Circuit Court granted the defendants’ motion.
Analysis
The plaintiffs argued that the trial court ignored conflicting testimony about how the policy limits were set. Schwartz, they claimed, gave conflicting versions of how the policy limits were determined. They also pointed to Owen’s testimony that he asked for, and was told he would get, a policy that would allow him to rebuild 250,000 square feet using pre-engineered steel using modern construction techniques.
The panel was unpersuaded.
“[A]ccording to Owen’s testimony, he asked Schwartz to obtain the requested policy, which Schwartz did, only Auto-Owners failed to determine the actual cash value of the Vining Building when it set the limits, even though it assured the parties that such limits would be sufficient for plaintiffs’ desired rebuild,” the panel pointed out. “The trial court accepted these facts as true, as it was required to do under MCR 2.116(C)(10), and nevertheless granted defendants’ motion in light of those facts. This was not error by the trial court.”
The plaintiffs’ next argument — that the trial court erred when it granted the defendants’ motion because they established a genuine issue of material fact whether the insurance company breached their duty as insurance agents to procure the requested policy — also was rejected.
“According to Owen, Schwartz purportedly obtained actual cash value policies, believing from Auto-Owners that the coverage amounts would be sufficient to rebuild 250,000 square feet,” the panel wrote. “It is immaterial whether Schwartz testified that he was never asked to obtain such a policy. It is also immaterial — for purposes of this argument — whether plaintiffs provided sufficient information to allow defendants to accomplish their task.”
Also, according to his own testimony, Owen asked for — and received — an actual cash value policy that both he and Schwartz believed, on the basis of representations from Auto-Owners, would be adequate to rebuild 250,000 square feet, the court added.
“Owen stated that each year, he received and read the policy renewals issued by Auto-Owners,” the judges wrote. “Accordingly, there was no breach of defendants’ duty to procure because, viewing the evidence in the light most favorable to plaintiffs, defendants did procure the policy but were misled by Auto-Owners regarding the sufficiency of the coverage.”
Finally, the panel rejected the plaintiffs’ final argument that they presented enough evidence to show that a “special relationship” between the parties was created such that the insurance company had a “duty to advise” about the adequacy of the coverage obtained.
The plaintiffs contend that the parties had a special relationship because the defendants were Owen’s insurance agent for approximately 30 years and obtained insurance for Owen personally and for his companies.
The plaintiffs also claimed a special relationship was created because Schwartz made decisions on behalf of the plaintiffs without their knowledge, including failing to share with the plaintiffs a report from Auto-Owners recommending that the policy limits be lowered.
The panel disagreed.
“The simple fact, undisputed by plaintiffs, is that each year Owen received the policy renewals from Auto-Owners. Upon receipt, Owen stated that he read them,” the panel said. “Owen also admitted, both in plaintiffs’ complaint and his own deposition, that he knew each renewal was a policy for the actual cash value of the Vining Building, which he described as ‘replacement cost minus depreciation.’ Nowhere in the policy documents was there any representation that the actual cash value would be sufficient to rebuild to plaintiffs’ desired specifications.”
