900 F.3d 818
6th Cir.2018Background
- KVG, a commercial landlord, leased premises later used by tenants to grow marijuana; federal agents raided the units and tenants were evicted.
- Tenants had extensively altered the property (removed walls, cut roof holes, damaged ductwork and HVAC), producing ~ $500,000 in repair costs.
- KVG submitted a claim under Westfield’s Building and Personal Property Coverage Form, which covers "direct physical loss" from any "Risk[] Of Direct Physical Loss."
- Westfield denied coverage relying principally on the policy’s Dishonest or Criminal Acts Exclusion (bars loss caused by criminal acts by specified persons or by anyone to whom insured entrusts property).
- KVG sued for breach of contract; the district court granted summary judgment to Westfield. The Sixth Circuit affirmed, concluding the exclusion applied because the tenants committed criminal acts and KVG produced no evidence they complied with Michigan law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy’s insuring agreement covers the physical damage | KVG: Damage is "direct physical loss" so insuring agreement applies | Westfield: Insuring agreement applies but exclusions may bar recovery | Covered by the insuring agreement (court assumed coverage) |
| Whether the Dishonest or Criminal Acts Exclusion bars coverage because tenants committed a "criminal act" | KVG: Tenants may have complied with Michigan law (MMMA); exclusion shouldn’t apply absent proof tenants violated law | Westfield: Tenants committed criminal acts (federal raid, KVG’s eviction pleadings) and exclusion thus applies | Exclusion applies; tenants committed criminal acts and KVG offered no evidence of lawful compliance |
| Whether insurer must show a criminal conviction before invoking the exclusion | KVG: Exclusion should require a conviction | Westfield: No conviction requirement; policy refers to "criminal act," not conviction | No conviction required; exclusion applies absent state authority imposing such a requirement |
Key Cases Cited
- Stryker Corp. v. XL Ins. America, 735 F.3d 349 (6th Cir. 2012) (de novo review of insurance‑contract interpretation)
- Auto-Owners Ins. Co. v. Harrington, 565 N.W.2d 839 (Mich. 1997) (two‑step Michigan coverage analysis: coverage then exclusions)
- Hunt v. Drielick, 852 N.W.2d 562 (Mich. 2014) (any applicable exclusion defeats coverage)
- Cockrel v. Shelby Cty. Sch. Dist., 270 F.3d 1036 (6th Cir. 2001) (summary judgment for party bearing burden when no reasonable jury could find otherwise)
- Maben v. Thelen, 887 F.3d 252 (6th Cir. 2018) (non‑movant must show genuine factual dispute to avoid summary judgment)
- Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (summary judgment standard; more than a scintilla required)
- Barnes v. Owens-Corning Fiberglas Corp., 201 F.3d 815 (6th Cir. 2000) (pleadings admissible as party admissions)