Atlantic Casualty Insurance Company v. Gustafson
891 N.W.2d 499
Mich. Ct. App.2016Background
- Gustafson Excavating (insured by Atlantic Casualty) performed landscaping/drainage at a homeowner Aho’s residential pond; an employee’s brushhog threw debris that injured the homeowner.
- Homeowner sued Gustafson; Atlantic denied duty to defend/indemnify based on a policy exclusion titled “Exclusion of Injury to Employees, Contractors and Employees of Contractors.”
- The exclusion’s operative language defined “contractor” to include, among others, “any property owner” and “any and all persons providing services or materials of any kind for these persons or entities.”
- Atlantic filed a declaratory-judgment action; the trial court granted Atlantic’s summary disposition holding the homeowner fell within the “contractor” exclusion.
- The Court of Appeals reversed, holding the exclusion ambiguous and that “any property owner” should not be read to include a residential homeowner without a commercial interest in the project.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the homeowner is a “contractor” under the policy exclusion | The phrase “any property owner” includes the homeowner where work occurs, so the exclusion bars coverage | The exclusion’s list targets commercially involved parties; a residential homeowner lacks commercial interest and is not a “contractor” | Reversed: exclusion ambiguous; interpret against insurer — residential homeowner excluded from “contractor” |
| Proper canon of construction for the clause | Ejusdem generis/reading terms broadly to include persons found on construction sites | Use noscitur a sociis/associated-words: terms refer to commercially compensated parties or those with commercial interest | Court applied noscitur a sociis and read the list as referring to commercially involved entities |
| Whether the clause renders the policy illusory if read broadly | Broad reading reasonable (owner of the work site) | Broad literal reading (any property owner) would be absurd/illusory; but insurer admitted ambiguity | Court found literal broad reading absurd; clause ambiguous and must be construed against insurer |
| Applicability of "reasonable expectations" doctrine | Insurer rejects its applicability; contract language controls | Ambiguity permits invoking reasonable expectations/contra proferentem to favor insured | Court: Wilkie limits reasonable-expectations to ambiguous contracts; here ambiguity exists, so interpret against insurer |
Key Cases Cited
- Wilkie v. Auto-Owners Ins. Co., 469 Mich 41 (Mich. 2003) (rule of reasonable expectations applies only to ambiguous contracts and functions as contra proferentem)
- Archambo v. Lawyers Title Ins. Corp., 466 Mich 402 (Mich. 2002) (contract interpretation is a question of law reviewed de novo)
- Farm Bureau Mut. Ins. Co. v. Nikkel, 460 Mich 558 (Mich. 1999) (same standard for determining ambiguity in insurance contracts)
- Atlantic Casualty Ins. Co. v. Paszko Masonry, Inc., 718 F.3d 721 (7th Cir. 2013) (construed a similar exclusion narrowly; ambiguous language resolved in favor of insured)