652 F. App'x 312
6th Cir.2016Background
- Preferred Automotive sold a used Mercedes to Charles Allen in 2005; Allen sued alleging fraud, consumer-protection violations, breach-related claims, and negligence after learning the car had prior damage.
- Preferred sought a defense from its insurer, Motorists Mutual, under an Auto Dealers Legal Defense Coverage endorsement; Motorists Mutual refused to defend.
- The endorsement promises to "defend any 'suit' brought against you by" a customer that "results from damage to 'your product' or 'work you performed,'" but defines "suit" as a civil proceeding claiming "damages because of 'bodily injury' or 'property damage.'"
- The policy further requires covered damages to be caused by an "accident" or "occurrence," and contains exclusions for dishonest/fraudulent acts and suits to enforce warranties.
- The district court granted summary judgment for Motorists Mutual on coverage and related claims; the Sixth Circuit affirmed, holding Allen's suit sought only intangible harms from misrepresentation and thus fell outside the endorsement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Motorists Mutual had a duty to defend under the Auto Dealers Legal Defense Coverage | Allen's claims involve "damage to the product" (the car) and thus trigger the endorsement's duty to defend | The endorsement's defined "suit" requires damages "because of bodily injury or property damage" (tangible harm) caused by an "accident," which Allen did not allege | No duty to defend: Allen alleged only intangible harms from misrepresentation, not tangible injury from an accident |
| Whether the policy's defined term "suit" should be read as the parties defined it or as the generic term "lawsuit" | Preferred urged the ordinary meaning "lawsuit," which would broaden coverage | Insurer pointed to the policy's explicit definition governing quoted terms and urged enforcement of the defined meaning | Court enforces the policy's definitions: "suit" means a proceeding claiming bodily injury or property damage |
| Whether Allen's claims were caused by an "accident" or "occurrence" for purposes of coverage | Preferred argued coverage should include defects discovered post-sale | Motorists Mutual relied on precedent holding a product defective at purchase is not an "occurrence" caused by an accident | Held: No occurrence/accident — the vehicle was defective when sold, so no accidental later event triggered coverage (Lenning and Kentucky authority) |
| Whether the endorsement is ambiguous (requiring extrinsic evidence and construction for Preferred) | Preferred argued ambiguity because endorsement is an add-on and uses some undefined phrases | Motorists Mutual argued the endorsement, read with defined terms and exclusions, is unambiguous | Court: Not ambiguous; no resort to extrinsic evidence; exclusions for fraud/warranty claims further bar coverage |
Key Cases Cited
- Lenning v. Commercial Union Ins. Co., 260 F.3d 574 (6th Cir. 2001) (defective product at time of sale does not constitute an "occurrence" or "accident" for coverage)
- Cincinnati Ins. Co. v. Motorists Mut. Ins. Co., 306 S.W.3d 69 (Ky. 2010) (Kentucky Supreme Court agreeing that latent defect at sale is not an "occurrence")
- SmithKline Beecham Corp. v. Rohm & Haas Co., 89 F.3d 154 (3d Cir. 1996) (defined contract terms are enforced as written)
- Amway Distribs. Benefits Ass'n v. Northfield Ins. Co., 323 F.3d 386 (6th Cir. 2003) (instructions to consult definition sections for quoted terms are enforceable)
- Bondex Int'l Inc. v. Hartford Accident & Indem. Co., 667 F.3d 669 (6th Cir. 2011) (party seeking remand based on sua sponte summary judgment must show prejudice)