Ab Petro Mart Inc v. Prime One Insurance , 317 Mich. App. 290 ( 2016 )

STATE OF MICHIGAN
COURT OF APPEALS
A. B. PETRO MART, INC. and AREF BAZZI, FOR PUBLICATION
September 15, 2016
Plaintiffs-Appellants, 9:05 a.m.
v No. 327481
Wayne Circuit Court
ALI T. BEYDOUN INSURANCE AGENCY, LC No. 14-012291-CK
INC. and ALI BEYDOUN,
Defendants,
and
PRIME ONE INSURANCE,
Defendant-Appellee.
Before: CAVANAGH, P.J., and SAAD and FORT HOOD, JJ.
SAAD, J.
In this insurance coverage dispute, plaintiffs, A. B. Petro Mart, Inc. (Petro Mart) and Aref
Bazzi, appeal the trial court’s order that granted summary disposition in favor of defendant
Prime One Insurance (Prime One).1 For the reasons provided below, we affirm in part, reverse
in part, and remand.
I. NATURE OF THE CASE
Plaintiffs filed this suit to recover insurance benefits related to the destruction of a gas
pump at a gas station Petro Mart operated. There is no question that Petro Mart did not own the
gas pumps—Bazzi did. Petro Mart instead operated the pumps in the course of selling gasoline
at the gas station. There also is no dispute that Petro Mart insured the gas pumps with Prime
One. The trial court granted summary disposition in favor of Prime One with respect to Petro
1
The other defendants, Ali T. Beydoun Insurance Agency and Ali Beydoun, were dismissed
earlier in the proceeding and are not part of this appeal.
-1-
Mart’s claim because it determined that Petro Mart did not possess an insurable interest in the
gas pumps.
Pursuant to Michigan law, an insurance contract to protect an insured from loss of
property is an aleatory indemnity contract. And in order to be entitled to indemnity under such
an insurance contract, the insured must have an insurable interest in the property. The question
posed by this appeal is whether the trial court correctly applied Michigan law to hold that the
insured must have a legal interest or must be financially responsible for any damages to the
insured property in order to constitute an insurable interest.
In Michigan, legal interest is not synonymous with insurable interest because an insured’s
pecuniary interest in the insured property is sufficient to constitute an insurable interest. And
because Petro Mart’s ability to operate its gas station is financially affected by the functioning or
non-functioning of the insured gas pumps, regardless of whether it was responsible to repair any
damage to the pumps, we hold that it had an insurable interest in the pumps, and the trial court
erred when it ruled otherwise.
II. BASIC FACTS
This dispute arises from an incident where an automobile ran into and caused the
destruction of one of the gas pumps located at the gas station at 3735 East Vernor in Detroit.
The crash started a fire and destroyed the pump. Bazzi was the sole shareholder and owner of
Petro Mart, and Petro Mart is the entity that operated the gas station. However, the gas pumps,
themselves, were owned by Bazzi. Petro Mart insured the gas pumps by purchasing an insurance
policy with Prime One, which provided, among other things, $30,000 in coverage for gas pumps.
After the accident, Petro Mart filed a claim with Prime One, which eventually declined coverage
because it asserted that Petro Mart did not have an insurable interest in the gas pumps, as
Bazzi—not Petro Mart—owned the pumps.
Plaintiffs sued Prime One for breach of contract because the gas pumps were expressly
named and covered under the policy. Plaintiffs moved for summary disposition and argued that
the clear and unmistakable language of the policy shows that the gas pumps were indeed covered
under the policy. Plaintiffs further maintained that the fact that the policy was in the name of
Petro Mart and the fact that Bazzi was the one who owned the pumps was not fatal because
Prime One was well aware that Bazzi was the sole owner of Petro Mart and acknowledged this in
its own claim file, where it referred to Bazzi as the “insured” many times. Thus, plaintiffs
asserted that Prime One should not be allowed to claim that there was no coverage for lack of an
insurable interest. Plaintiffs further argued that if there was no coverage due to a lack of an
insurable interest, then the policy would be illusory because, even though premiums were paid
for coverage for the gas pumps, no one could ever recover for any such loss. Plaintiffs also
contended that Bazzi was entitled to the claim proceeds because the he was a third-party
beneficiary under the insurance contract.
Prime One responded to the motion and argued that there was no genuine issue of
material fact that the policy holder, Petro Mart, did not have an insurable interest in the gas
pumps. Prime One noted that whether Petro Mart was a closely-held corporation with only
Bazzi as its owner does not change this outcome because Michigan law is clear that corporations
-2-
are separate entities from their owners or stockholders. Further, Prime One says it was not under
any obligation to investigate the interest of the applicant, Petro Mart, in the subject property.
Moreover, Prime One argued that Bazzi cannot be considered a third-party beneficiary to the
contract because there is nothing in the policy to demonstrate that Prime One directly promised
to give or do anything for Bazzi. Prime One also claimed that the contract was not illusory
because had Petro Mart actually owned the property, the policy would have provided coverage.
The trial court noted that there was no dispute that Bazzi owned the pumps and that Petro
Mart merely operated them without any leasehold agreement. The court agreed with Prime
One’s arguments and found that, with no legal ownership interest in the pumps and no obligation
to repair the pumps, Petro Mart did not suffer a pecuniary loss and therefore did not have an
insurable interest in the property, which precluded recovery. The court further ruled that Bazzi
cannot recover as a third-party beneficiary because nothing in the policy directly provides any
benefit for Bazzi. The trial court also held that the policy was not illusory because “[i]n the
event that Petro Mart had actually owned the property and/or had some insurable interest in the
property, the policy would have provided coverage for at least a portion of the loss.”
Consequently, the trial court denied plaintiffs’ motion and instead granted summary disposition
in favor of Petro Mart pursuant to MCR 2.116(I)(2).
III. STANDARD OF REVIEW
This Court reviews a trial court’s decision on a motion for summary disposition de novo.
Johnson v Recca, 492 Mich 169, 173; 821 NW2d 520 (2012). Prime One moved for summary
disposition under MCR 2.116(C)(10), which tests the factual sufficiency of a complaint and is
reviewed by considering the pleadings, admissions, and other evidence submitted by the parties
in the light most favorable to the nonmoving party. Joseph v Auto Club Ins Ass’n, 491 Mich
200, 206; 815 NW2d 412 (2012). “Summary disposition pursuant to MCR 2.116(C)(10) is
proper when there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law.” McCoig Materials, LLC v Galui Constr, Inc, 295 Mich App 684,
693; 818 NW2d 410 (2012). “ ‘Summary disposition is properly granted [under MCR
2.116(I)(2)] to the opposing party if it appears to the court that that party, rather than the moving
party, is entitled to judgment.’ ” Michelson v Voison, 254 Mich App 691, 698; 658 NW2d 188
(2003), quoting Sharper Image Corp v Dep’t of Treasury, 216 Mich App 698, 701; 550 NW2d
596 (1996).
Likewise, the interpretation of an insurance contract and whether one has an “insurable
interest” are questions of law that we review de novo. Citizens Ins Co v Pro-Seal Service Group,
Inc, 477 Mich 75, 80; 730 NW2d 682 (2007); Morrison v Secura Ins, 286 Mich App 569, 572;
781 NW2d 151 (2009).
IV. ANALYSIS
A. PLAINTIFF BAZZI
-3-
Under the clear language of the policy, the only named insured is Petro Mart. While
Bazzi signed the insurance application,2 he is not named anywhere in the policy itself. Indeed,
the policy provides that “A B Petro Mart, Inc.” is the sole named insured. Thus, without being a
party to the insurance contract, Bazzi cannot maintain a breach of contract claim against Prime
One. See Miller-Davis Co v Ahrens Const, Inc, 495 Mich 161, 178; 848 NW2d 95 (2014)
(stating that to succeed on a breach of contract claim, one of the things a plaintiff must prove is
that there was a contract between the parties).
Plaintiffs assert that Bazzi nonetheless can sustain a claim against Prime One because he
is a third-party beneficiary of the contract. We disagree. Michigan’s third-party beneficiary
statute states, in pertinent part, the following:
Any person for whose benefit a promise is made by way of contract, as
hereinafter defined, has the same right to enforce said promise that he would have
had if the said promise had been made directly to him as the promisee.
(1) A promise shall be construed to have been made for the benefit of a person
whenever the promisor of said promise has undertaken to give or to do or refrain
from doing something directly to or for said person. [MCL 600.1405.]
“[N]ot every person incidentally benefitted by a contractual promise has a right to sue for breach
of that promise . . . .” Brunsell v City of Zeeland, 467 Mich 293, 296; 651 NW2d 388 (2002).
“Thus, only intended, not incidental, third-party beneficiaries may sue for breach of a contractual
promise in their favor.” Schmalfeldt v North Pointe Ins Co, 469 Mich 422, 427; 670 NW2d 651
(2003). Accordingly, “[a] person is a third-party beneficiary of a contract only when that
contract establishes that a promisor has undertaken a promise directly to or for that person.” Id.
at 428. As already noted, the insurance contract simply does not refer to Bazzi. Hence, with no
reference to Bazzi in the contact, it is clear that the contract itself did not provide any basis to
conclude that Prime One (the promisor) undertook any promise directly to or for Bazzi.
Therefore, as a matter of law, Bazzi is not a third-party beneficiary.
Because Bazzi is neither a party to the contract nor a third-party beneficiary, he cannot
maintain his action for breach of contract against Prime One. Accordingly, the trial court
correctly granted summary disposition in favor of Prime One against Bazzi.
B. PLAINTIFF PETRO MART
2
Notably, in the area for “Name Insured” on the application, it only states “A B Petro Mart Inc.”
Moreover, the fact that Bazzi signed the application is not of great significance, as it is well
established that corporations can only act through their agents. Mossman v Millenbach Motor
Sales, 284 Mich 562, 568; 280 NW 50 (1938). We further note that the fact that Bazzi is the sole
owner of Petro Mart does not affect our analysis, as corporations are separate entities from their
shareholders, “even where one individual owns all the corporation’s stock.” Rymal v Baergen,
262 Mich App 274, 293; 686 NW2d 241 (2004).
-4-
Plaintiffs argue, and we agree, that the trial court erred when it ruled that Prime One had
no obligation to pay because the insured, Petro Mart, did not have an insurable interest in the gas
pumps.
“[U]nder Michigan law, an insured must have an ‘insurable interest’ to support the
existence of a valid . . . insurance policy.” Allstate Ins Co v State Farm Mut Auto Ins Co, 230
Mich App 434, 439; 584 NW2d 355 (1998). The reason for this requirement is based on public
policy concerns. “Specifically, it arises out of the venerable public policy against ‘wager
policies’; which, as eloquently explained by Justice COOLEY, are insurance policies in which the
insured has no interest, and they are held to be void because such policies present insureds with
unacceptable temptation to commit wrongful acts to obtain payment.” Morrison, 286 Mich App
at 572, citing O’Hara v Carpenter, 23 Mich 410, 416-417 (1871); see also Crossman v American
Ins Co of Newark, NJ, 198 Mich 304, 308; 164 NW 428 (1917). Therefore, “ ‘a policy issued
when there is no such interest is void, and it is immaterial that it is taken in good faith and with
full knowledge.’ ” Morrison, 286 Mich App at 572, quoting Agricultural Ins Co v Montague, 38
Mich 548, 551 (1878).
However, Michigan’s common law instructs that an “insurable interest” is not
synonymous with “ownership.” Instead, an insurable interest can arise from “any kind of benefit
from the thing so insured or any kind of loss that would be suffered by its damage or
destruction.” Morrison, 286 Mich App at 572-573 (emphasis added); see also VanReken v
Allstate Ins Co, 150 Mich App 212, 219; 388 NW2d 287 (1986); 3 Couch, Insurance, 3d, § 41:1
(“Insurable interest may be defined as any lawful and substantial economic interest in the safety
or preservation of the subject of the insurance free from loss, destruction, or pecuniary
damage.”). Our Supreme Court instructed a hundred years ago that “[an insurable] interest may
be derived by possession, enjoyment, or profits of the property, security or lien resting upon it, or
it may be other certain benefits growing out of or dependent upon it.” Crossman, 198 Mich at
308-309 (emphasis added).
In dismissing Petro Mart’s claim, the trial court principally relied upon the fact that Petro
Mart did not have either an ownership or leasehold interest in the gas pumps.3 While it is true
that Petro Mart had neither of these interests and was not responsible for the repair of the pumps,
these facts, standing alone, do not preclude a finding of an insurable interest. See id.; Morrison,
3
The trial court primarily relied on Secura Ins Co v Pioneer State Mut Ins Co, 188 Mich App
413; 470 NW2d 415 (1991). In Secura, there was a question regarding whether a person who
sells a home and still lives in the home after the closing had an insurable interest in the property.
The plaintiff insurance company argued that the sellers “had an insurable interest either as
tenants or as parties to the purchase agreement.” Id. at 414. Thus, due to the issues raised by the
parties, this Court analyzed the issue in the context of whether the sellers still maintained an
insurable interest based either on a leasehold theory or on a contractual theory. Id. at 415. But to
read Secura as standing for the proposition that these are the only avenues for any party to
maintain an insurable interest, as the trial court implied, is incorrect. Secura simply analyzed the
issues as presented and did not limit or alter the existing case law on insurable interest.
-5-
286 Mich App at 572-573. One of the aspects of Petro Mart’s business was selling gasoline at
the insured location. Therefore, it is incontrovertible that Petro Mart had more than an
incidental, pecuniary interest in the gas pumps. Petro Mart necessarily received income and
profits from the use of the gas pumps, including the one that was destroyed in the accident. As
already noted, an insurable interest can be found, absent any actual ownership interest, if one
merely obtains “profits of the property,” Crossman, 198 Mich at 308-309, or derives “any kind of
benefit from the thing so insured,” Morrison, 286 Mich App at 572-573 (emphasis added).
Indeed, the salient inquiries to ask and answer when determining whether an insurable
interest exists all revolve around whether the insured would suffer a direct, pecuniary loss from
the property’s destruction. If such answer is “yes,” then there is an insurable interest. See
Crossman, 198 Mich at 308-311 and cases cited therein. Given the circumstances here, we must
answer this question in the affirmative. Clearly, Petro Mart would gain some advantage by the
continuing existence of the gas pumps and, conversely, suffer some loss or disadvantage by the
destruction of the pumps. Importantly, this is not an instance where the loss Petro Mart suffered
was “indirect or sentimental”; instead, with Petro Mart generating income from the sale of
gasoline through the use of the pumps, the loss of one of those gas pumps results in a “direct and
actual” pecuniary loss. Id. at 309 (quotation marks and citation omitted). The fact that Petro
Mart was not financially responsible for repairing any damage to the pumps is not controlling—it
still had a pecuniary interest due to the commercial business it operated. We note that while any
lost business profits appear to not be recoverable under the insurance policy, this fact is
immaterial in determining whether Petro Mart had an insurable interest in the gas pumps,
themselves. Therefore, because Petro Mart had a clear, substantial, and direct pecuniary interest
in the pumps, we hold that it had an insurable interest in the damaged gas pump. Our finding of
an insurable interest is in keeping with the long-standing public policy underlying the insurable-
interest doctrine. Accordingly, the trial court erred in dismissing Petro Mart’s breach of contract
claim against Prime One.4
Plaintiffs also argue that Petro Mart is entitled to receive 12% penalty interest under
MCL 500.2006(1) of the Uniform Trade Practices Act, MCL 500.2001 et seq., for Prime One’s
alleged unreasonable delay in paying on the claim. But because the trial court never addressed
this issue, although may do so upon remand, we decline to address it here for the first time. See
Autodie, LLC v City of Grand Rapids, 305 Mich App 423, 431; 852 NW2d 650 (2014) (declining
to address unpreserved issue).
We affirm the grant of summary disposition in favor of Prime One as against plaintiff
Bazzi, but we reverse the grant of summary disposition in favor of Prime One as against plaintiff
Petro Mart because Petro Mart had an insurable interest in the gas pumps. We remand for
4
Because we hold that Petro Mart had an insurable interest in the gas pumps, plaintiffs’ alternate
contention that the insurance contract was illusory is rendered moot, and we need not address it.
See Ewing v Bolden, 194 Mich App 95, 104; 486 NW2d 96 (1992).
-6-
proceedings not inconsistent with this opinion. We do not retain jurisdiction. No costs are
taxable, as neither side prevailed in full. MCR 7.219.
/s/ Henry William Saad
/s/ Mark J. Cavanagh
/s/ Karen M. Fort Hood
-7-