Minges Creek LLC v. Royal Ins Co ( 2006 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 06a0126p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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Plaintiff-Appellee, -
MINGES CREEK, L.L.C.,
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No. 05-1313
v.
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ROYAL INSURANCE COMPANY OF AMERICA, -
Defendant-Appellant. -
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 03-72763—Julian A. Cook, Jr., District Judge.
Argued: March 16, 2006
Decided and Filed: April 6, 2006
Before: DAUGHTREY and GILMAN, Circuit Judges; RUSSELL, District Judge.*
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COUNSEL
ARGUED: James N. McNally, SOMMERS SCHWARTZ, Southfield, Michigan, for Appellant.
Rick J. Patterson, POTTER, DeAGOSTINO, O’DEA & PATTERSON, Auburn Hills, Michigan,
for Appellee. ON BRIEF: James N. McNally, Leonard B. Schwartz, SOMMERS SCHWARTZ,
Southfield, Michigan, for Appellant. Rick J. Patterson, Steven M. Potter, POTTER, DeAGOSTINO,
O’DEA & PATTERSON, Auburn Hills, Michigan, for Appellee.
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OPINION
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RONALD LEE GILMAN, Circuit Judge. A customer slipped and fell on an icy sidewalk
upon exiting a card store in the Minges Brook Mall, a shopping center owned by Minges
Creek, L.L.C. Chubb Insurance Company, the insurer of the mall’s common areas, paid the
settlement cost and the associated litigation expenses resulting from the customer’s lawsuit. Minges
Creek then sued Royal Insurance Company of America, the insurer of the card store, for
indemnification on the basis that Minges Creek was named as an additional insured under the card
store’s liability policy with Royal. Summary judgment was granted in favor of Minges Creek. For
the reasons set forth below, we REVERSE the judgment of the district court and REMAND the
case with instructions for the district court to dismiss the complaint with prejudice.
*
The Honorable Thomas B. Russell, United States District Judge for the Western District of Kentucky, sitting
by designation.
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No. 05-1313 Minges Creek v. Royal Ins. Co. of America Page 2
I. BACKGROUND
Minges Creek is the owner of the Minges Brook Mall located in Battle Creek, Michigan.
In December of 1989, Minges Creek leased a portion of its property to the “1/2 Off Card Shop”
(Card Shop). The “leased premises” were defined in the lease as the 6,796 square feet shown on the
site plan, which clearly indicated that the leased premises were limited to the interior of the store
and did not include the exterior walls, the roof, or the surrounding land. (Lease § 1.01) Common
areas, including the parking lots, roadways, and pedestrian sidewalks, were provided by Minges
Creek “for the convenience and use of the tenants of the Shopping Center, and their respective
subtenants, agents, employees, customers, invitees, and any other licensees of Landlord.” (Lease
§ 7.03)
The lease also set forth the Card Shop’s insurance obligations as a tenant:
Tenant shall, during the entire term hereof, keep in full force and effect a policy of
public liability and property damage insurance with respect to the leased premises,
and the business operated by Tenant and any subtenants of Tenant in the leased
premises . . . . The policy shall name Landlord, any other parties in interest
designated by Landlord, and Tenant as insured . . . .
(Lease § 10.01) (Emphasis added.)
Pursuant to the Card Shop’s lease obligation, Royal issued a general liability policy to the
Card Shop to cover its Minges Brook Mall store and several other Card Shop locations. An
addendum to Royal’s policy with the Card Shop defined additional insureds as follows:
The following is added to SECTION II- WHO IS AN INSURED:
5. a. Any person or organization you are required by a written contract,
agreement or permit to name as an insured is an insured but only with
respect to liability arising out of:
...
2. Premises owned or used by you.
(Royal Ins. Policy “Enhancement Endorsement” § 12).
The Card Shop, along with all of the other tenants of the Minges Brook Mall, was also
required by the lease to pay a proportionate share of Minges Creek’s cost of maintaining and
insuring the common areas of the mall. Minges Creek’s insurance policy covering the common
areas was issued by Chubb.
The underlying accident that gave rise to the insurance dispute in this case occurred in
March of 1999 when Peggy Lampert, a customer of the Card Shop, slipped and fell on ice while
walking to her car from the store. Lampert sued Minges Creek, the Card Shop, and a snow removal
contractor in Michigan state court. Her complaint alleged as follows:
The accident occurred when Plaintiff Peggy Lampert, as a customer of the ½ Off
Card Shop, Inc., began walking toward her car which was located in Defendant
Minges Creek LLC’s parking lot, and while in the process of leaving the store,
slipped and fell on ice, causing her to sustain very serious personal injuries and
damages.
No. 05-1313 Minges Creek v. Royal Ins. Co. of America Page 3
The state trial court dismissed the Card Shop from Lampert’s suit because the Card Shop
did not “legally possess[] the sidewalk area where the fall occurred.” Minges Creek was found to
have “exclusive dominion and control over maintaining the entire parking area including the
sidewalks in front of the ½ Off Card Shop.” Following the Card Shop’s dismissal, Minges Creek
settled the lawsuit with Lampert for $210,000. Chubb, as Minges Creek’s insurer, covered this cost
as well as the expense of defending against Lampert’s claim.
Minges Creek then filed suit against Royal, the Card Shop’s insurer. The suit was removed
to federal court based on diversity of citizenship. Alleging that it was an additional insured under
the Card Shop’s policy, Minges Creek sought reimbursement for the $210,000 settlement cost and
approximately $26,700 in expenses that were incurred in defending against Lampert’s claims.
Royal’s insurance contract promised to pay all insureds “those sums that the insured becomes legally
obligated to pay . . . [and] defend the insured against any ‘suit’ seeking [bodily injury or property]
damages.”
After both parties moved for summary judgment, the district court granted judgment in
favor of Minges Creek. It held that Minges Creek was an additional insured under the Card Shop’s
insurance policy issued by Royal and that the accident occurred on premises used by the Card Shop.
Thus, even though the Card Shop did not control the common area where the accident occurred, and
even though it was dismissed from Lampert’s lawsuit, the Card Shop’s insurance policy was deemed
to cover the claim. According to the district court, this obligated Royal to defend and indemnify
Minges Creek. The district court therefore ordered Royal to reimburse Minges Creek for the
settlement cost and the litigation expenses for the underlying litigation with Lampert. Royal now
appeals.
II. ANALYSIS
A. Standard of review
The district court’s grant of summary judgment is reviewed de novo. Int’l Union v.
Cummins, Inc., 434 F.3d 478, 483 (6th Cir. 2006). Summary judgment is proper where there exists
no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(c). 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.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The central issue is
“whether the evidence presents a sufficient disagreement to require submission to a jury or whether
it is so one-sided that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 251-52 (1986).
B. Applicable law
Both parties agree that because Michigan is the forum state and the place where Royal’s
insurance policy was written, Michigan law governs the interpretation of the insurance policy. See
Himmel v. Ford Motor Co., 342 F.3d 593, 598 (6th Cir. 2003) (applying the law of the forum state
in diversity cases). The interpretation of an insurance policy is a question of law that is reviewed
de novo. Schmalfeldt v. N. Pointe Ins. Co., 670 N.W.2d 651, 653 (Mich. 2003).
An insurance policy is interpreted in accordance with its terms. Twichel v. MIC Gen. Ins.
Corp., 676 N.W.2d 616, 622 (Mich. 2004) (holding that, based on the clear language of the policy
at issue, a driver was not covered by his grandfather’s insurance). Moreover, a party’s “reasonable
expectations cannot super[c]ede the clear language of a contract.” Wilkie v. Auto-Owners Ins. Co.,
664 N.W.2d 776, 786 (Mich. 2003) (quotation marks omitted).
No. 05-1313 Minges Creek v. Royal Ins. Co. of America Page 4
Insurance policies must be read as a whole, giving meaning to all of their terms. Auto-
Owners Ins. Co. v. Harrington, 565 N.W.2d 839, 841 (Mich. 1997). If a term is not defined in an
insurance policy, the term is “accorded its commonly understood meaning.” Twichel, 676 N.W.2d
at 622. The Michigan Supreme Court employs dictionary definitions to interpret nontechnical terms,
but uses specialized dictionaries and caselaw to interpret legal terms of art. See id. (referencing
dictionary definitions to interpret the term “owner”); Henderson v. State Farm Fire & Cas. Co., 596
N.W.2d 190, 194 (Mich. 1999) (distinguishing between legal terms of art, like “equitable remedy,”
which should be interpreted in accordance with their common law understandings, and
colloquialisms, which should be given their ordinary meaning). If language in an insurance policy
can reasonably be interpreted in more than one way, the policy will be interpreted against the
insurer. Wilkie, 664 N.W.2d at 786-87. Courts, however, should not “create ambiguity in an
insurance policy where the terms of the contract are clear and precise.” Henderson, 596 N.W.2d at
193. Unambiguous terms “must be enforced as written,” and insurers are not liable for risks that
they do not assume. Id.
In the present case, the district court held Royal liable for both the expense of litigating
Lampert’s suit and the ultimate settlement cost. It thus held that Royal had both a duty to defend
and a duty to indemnify Minges Creek, a named insured under Royal’s policy with the Card Shop.
According to the Michigan Supreme Court, “the duty to defend is broader than the duty to indemnify
and is properly invoked when claims are even arguably within coverage.” Polkow v. Citizens Ins.
Co., 476 N.W.2d 382, 384 (Mich. 1991) (quotation marks omitted). Although all doubts regarding
whether the duty to defend applies are resolved in favor of the insured, id., “if coverage is not
possible, then the insurer is not obliged to provide a defense.” Marlo Beauty Supply, Inc. v. Farmers
Ins. Group, 575 N.W.2d 324, 327 (Mich. 1998) (construing an ambiguous policy against the
insurer). We must therefore first determine whether Lampert’s suit against Minges Creek was
covered by Royal’s insurance policy.
C. The insurance contract
1. Was Minges Creek a named insured?
Because the lease agreement between Minges Creek and the Card Shop required the Card
Shop to name Minges Creek as an additional insured, the district court held that Royal was obligated
to defend and indemnify Minges Creek. Royal contends, however, that Minges Creek was an
additional insured under the Card Shop’s policy only with respect to incidents occurring inside of
the Card Shop. This is because the “written contract, agreement or permit” requiring the Card Shop
to name Minges Creek as an additional insured, as stated in Royal’s Insurance Policy “Enhancement
Endorsement” § 12, obligated the Card Shop to insure only the “leased premises.” ( Lease § 10.01)
Royal issued a certificate of liability insurance to Minges Creek, stating that “the certificate
holder is listed as an additional insured-Landlord with respect to the property located at [Minges
Brook Mall].” Minges Creek therefore qualified as an additional insured under Royal’s policy. The
scope of Royal’s liability to Minges Creek as a named insured, however, must be determined by the
“premises owned or used” language in Royal’s policy.
2. Did the accident occur on premises “owned or used by” the Card Shop?
In order for Royal to be obligated to defend and indemnify Minges Creek, Lampert’s
accident had to have occurred on “[p]remises owned or used by” the Card Shop. The parties dispute
the proper definitions of both the term “premises” and the term “used.” Royal first argues that the
term premises refers only to the inside of the Card Shop, whereas Minges Creek asserts that the term
premises means the Card Shop plus the common areas surrounding the store.
No. 05-1313 Minges Creek v. Royal Ins. Co. of America Page 5
The district court, in following Michigan precedent that instructs courts to generally apply
the commonly understood meaning of terms, see Twichel, 676 N.W.2d at 622, referenced the
dictionary definition of the term premises. Premises is defined by Merriam Webster’s Collegiate
Dictionary 920 (10th ed. 1997), as “a tract of land with the buildings thereon.” If the term premises
is more appropriately classified as a “term of art,” however, reference to a specialized dictionary is
appropriate. Black’s Law Dictionary 1180-81 (6th ed. 1997), is such a specialized dictionary, and
it defines premises as follows:
Land with its appurtenances and structures thereon. Premises is an elastic and
inclusive term, and it does not have one definite and fixed meaning; its meaning
is to be determined by its context and is dependent upon circumstances in which
used, and may mean a room, shop, building, or any definite area.
Black’s Law Dictionary thus recognizes that the term premises has an elastic and context-
specific definition. The district court focused on the first sentence of the definition and concluded
that Black’s supports Minges Creek’s claim that the accident is covered by Royal’s policy. But the
court failed to consider the definition beyond the first sentence, specifically the part stating that the
meaning of the term premises “is to be determined by its context and is dependent upon
circumstances in which used . . . .” Id.
Royal persuasively argues that, throughout the insurance policy, “an intent is clearly shown
to rely on the written contract [i.e. the lease] to define the obligation to add the landlord as a named
insured, and to define the scope of the obligation owed to that party.” It contends that the term
premises in the insurance policy is unambiguous because the lease’s definition of the term “leased
premises” should be deemed to control the meaning of the term premises as used in the policy. A
term in a contract is unambiguous if there is only one way to reasonably interpret the term. See
Wilkie, 664 N.W.2d at 786-87 (defining an ambiguous term in a contract as one where there is more
than one reasonable interpretation). Royal argues that because its policy specifically refers to the
“written contract, agreement or permit” in its “additional insured” section, the only reasonable
interpretation of the term premises is one based on the lease.
We agree that the lease and Royal’s policy are inextricably intertwined and should be
interpreted in context with each other. Although Minges Creek argues against referring to the lease
in order to define the term premises in the policy, Minges Creek’s conclusion that the Card Shop
used the area where Lampert fell is based on the provision of the lease (Lease § 7.03) designating
the common areas for use by all of the tenants of the shopping center. Minges Creek cannot have
it both ways. The plain language of Royal’s policy links it to the lease, and therefore the only
reasonable interpretation of “[p]remises owned or used by” the Card Shop is one that is informed
by the lease.
Given the lease’s provision obligating the Card Shop to insure only the inside of its store,
we conclude that the only reasonable interpretation of the term premises comports with the lease’s
definition of the term “leased premises.” The lease defines the leased premises as the 6,796 square
feet inside the Card Shop, and does not include the sidewalk where Lampert fell. And the lease
obligated the Card Shop to name Minges Creek as an insured only with respect to the “leased
premises.” Defining the term premises in the insurance policy to include the common areas that the
Card Shop was not required to insure strikes us as unreasonable.
The case of Zurich Insurance Co. v. CCR & Co., 576 N.W.2d 392 (Mich. 1997), supports
the proposition that terms that might be ambiguous in some contexts can have highly specific and
unambiguous meanings in others. Zurich posits an example where A contracts with B to pay $X for
eagles. Id. at 397 n.4. Depending on the context, eagles can unambiguously mean coins if the
parties are numismatists, birds if the parties are animal dealers, or scores in an athletic competition
No. 05-1313 Minges Creek v. Royal Ins. Co. of America Page 6
if the parties are golfers. Id. In the present case, the context that defines the otherwise ambiguous
term premises is not extrinsic evidence, but the plain language of the lease, which is specifically
referenced in Royal’s insurance policy. This context requires that the definition of premises in the
policy be coextensive with the Card Shop’s obligation to name Minges Creek as an additional
insured.
Because we conclude that the term premises is restricted to the inside of the Card Shop,
Lampert’s accident outside of the Card Shop is not covered by Royal’s policy. We therefore do not
have to analyze the definition of the term “used,” but wish to reiterate that even Minges Creek
looked to the lease to define that term. Moreover, we note that an absurd result would occur if the
terms “premises” and “used” were both interpreted according to Minges Creek’s definition of
premises (the Card Shop and the sidewalk around it) and its expansive definition of used (in which
all tenants use the common areas). Under its interpretation, Minges Creek could seek indemnity
under Royal’s policy even if a patron of another store fell on the common sidewalk. In fact, it could
presumably seek coverage as the named insured from every tenant in the shopping center whose
policy contained language similar to Royal’s. This interpretation is all the more unreasonable in
light of Minges Creek having procured a separate insurance policy through Chubb that explicitly
covered the common areas. Minges Creek has clearly not advanced a reasonable interpretation of
“[p]remises owned or used” by the Card Shop.
For the reasons stated above, we also hold that Royal had no duty to defend against
Lampert’s claims. Even accepting all of Lampert’s allegations as true, Royal’s policy does not cover
her accident. Royal therefore was not required to defend Minges Creek against the lawsuit by
Lampert. See Marlo Beauty Supply, 575 N.W.2d 324 at 327 (holding that “if coverage is not
possible, then the insurer is not obliged to provide a defense”).
At bottom, this case appears to involve an effort by one insurance company (Chubb, the
insurer of the common areas) to obtain reimbursement from another insurance company (Royal, the
insurer of the Card Shop’s leased premises). The only reasonable reading of the documents
controlling the relationship between the parties, however, convinces us that Chubb was the proper
insurance company to defend and indemnify Minges Creek for Lampert’s accident that occurred in
the common areas.
III. CONCLUSION
For all of the reasons set forth above, we REVERSE the judgment of the district court and
REMAND the case with instructions to dismiss the complaint with prejudice.