Auto Club Group Insurance Company v. Timothy E Johnson, 330698

Background

On Aug. 9–10, 2013, Paul Sullivan (age 18) was injured diving from a dock at Timothy and Robin Johnson’s Lake Diane property after drinking alcohol; several guests (Nicholas Johnson, Alex Molloy) and the homeowners were present. Sullivan filed suit against Timothy and Robin (negligence and a "social host" claim under MCL 750.141a) and others.
Timothy and Robin had an Auto Club homeowner liability policy; Auto Club sought a declaratory judgment that the policy did not provide coverage or a duty to defend, invoking policy exclusions 10 (criminal acts) and 12 (negligent supervision).
The trial court granted Auto Club’s motion for summary disposition and dismissed the declaratory action; the homeowners and Sullivan appealed. The Court of Appeals consolidated the appeals.
Exclusion 10 bars coverage for bodily injury "resulting from a . . . criminal act or omission committed by anyone" (and criminal acts by insureds). Exclusion 12 bars bodily injury "arising out of negligent supervision by any insured person" of certain conduct.
Disputed facts: whether Timothy and Robin knowingly allowed Sullivan (a minor) to possess/consume alcohol in violation of MCL 750.141a; whether Sullivan’s injury "resulted from" such an alleged statutory violation or from a criminal act; and whether the homeowners had a supervisory duty such that exclusion 12 would apply.

Issues

Issue	Plaintiff's Argument (Auto Club)	Defendant's Argument (Timothy & Robin / Sullivan)	Held
Whether exclusion 10 (criminal-act exclusion) precludes coverage	Exclusion 10 is unambiguous and bars coverage because Sullivan alleges the homeowners violated MCL 750.141a (a misdemeanor) and his injury resulted from that criminal act	Exclusion 10 does not apply because (a) it is overbroad/illusory or ambiguous, and (b) disputed facts exist whether homeowners committed the statutory offense or whether the injury "resulted from" that offense	Reversed trial court: exclusion 10 is unambiguous and valid but there is a genuine issue of material fact whether the homeowners violated the statute and whether Sullivan’s injury resulted from any criminal act, so summary disposition on this ground was improper
Whether exclusion 12 (negligent-supervision exclusion) precludes coverage	Exclusion 12 bars coverage because Sullivan’s claim alleges a duty to control/ supervise minors and their alcohol consumption, which equates to negligent supervision	Exclusion 12 is ambiguous as to the scope and duty element of "negligent supervision"; factual disputes exist about knowledge and duty to supervise Sullivan	Reversed trial court: exclusion 12 is ambiguous and must be construed for the insureds; genuine factual disputes preclude summary disposition on this ground
Whether criminal-act exclusion violates public policy or is illusory	Exclusion is lawful and not illusory; exclusions that deter crime are valid	Exclusion is overbroad and could be illusory by excluding coverage for acts of third parties	Court: exclusion 10 does not violate public policy and is not illusory (binding precedent governs)
Whether any exclusion otherwise supports affirmance (alternative grounds)	Exclusion 4 (other exclusion not applied by trial court) supports no-coverage	Homeowners dispute applicability; trial court found factual questions	Court affirmed the trial court’s denial of summary disposition as to exclusion 4 (i.e., exclusion 4 properly left for factual development)

Key Cases Cited

Henderson v State Farm Fire & Cas. Co., 460 Mich 348 (principles for insurance-contract interpretation)
Auto Owners Ins. Co. v. Harrington, 455 Mich 377 (two-step analysis: coverage then exclusions)
Maiden v. Rozwood, 461 Mich 109 (summary-disposition standard for (C)(10))
Allstate Ins. Co. v. Fick, 226 Mich App 197 (criminal-act exclusion unambiguous)
Auto Club Group Ins. Co. v. Daniel, 254 Mich App 1 (criminal-act exclusion not illusory; public-policy analysis)
Auto Club Group Ins. Co. v. Booth, 289 Mich App 606 (upholding criminal-act exclusion against overbreadth/public-policy challenge)
Klapp v. United Ins. Group Agency, Inc., 468 Mich 459 (use of extrinsic evidence and construing ambiguities against drafter)
Auto-Owners Ins. Co. v. Churchman, 440 Mich 560 (enforce clear, specific exclusions; construe exclusions strictly in favor of insured)