843 N.W.2d 780
Mich. Ct. App.2013Background
- Plaintiff owned an insured modular home that burned in December 2007; a neighbor observed a car at the home shortly before the fire and an investigator opined the fire was intentionally set by an amateur.
- The homeowner’s policy excluded loss caused by an insured’s intentional act and provided that the entire policy is void if an insured engaged in fraud, misrepresentation, or false statements relating to the insurance.
- Insurer denied the claim, asserting arson by or at the direction of plaintiff and material misrepresentations during the claim investigation; plaintiff sued for breach of contract.
- At trial the court instructed the jury that defendant (insurer) bore the burden of proving its affirmative defenses (arson, fraud/misrepresentation, failure to mitigate) by clear and convincing evidence.
- Jury returned a verdict for plaintiff; insurer appealed arguing the trial court erred by imposing a clear-and-convincing burden on the insurer for its contract-based defenses.
- Court of Appeals reversed and remanded for a new trial, holding the proper evidentiary standard for the insurer’s affirmative defenses is preponderance of the evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the insurer must prove contract-based defenses (arson, fraud/exclusion, policy-voiding misrepresentations) by clear and convincing evidence | Trial court and plaintiff relied on fraud-related authority to require clear and convincing proof | Insurer argued preponderance standard applies to prove contract exclusions/forfeitures (including arson and fraud-related policy provisions) | Court held preponderance of the evidence is the appropriate standard; clear and convincing was erroneous |
| Whether the presence of "fraud" language in a contract exclusion transforms the burden to clear and convincing | Plaintiff contended Mina and other authority do not bind and that fraud language supports heightened standard | Insurer argued contract enforcement is an ordinary contract issue and fraud label does not change the standard | Court explained fraud as a tort issue is distinct; where an express written contract condition excludes coverage, ordinary preponderance standard applies |
| Whether allegations of criminal conduct (arson) by plaintiff require clear and convincing proof | Plaintiff/trial court treated intentional act allegations as requiring a higher standard | Insurer argued criminal-act allegations in support of a contractual exclusion are proven by preponderance | Court relied on precedent holding proof of criminal act for insurance defense requires only preponderance |
| Remedy for erroneous instruction | Plaintiff argued instruction was proper or harmless | Insurer argued instructional error warranted reversal and new trial | Court reversed and remanded for a new trial because the erroneous instruction could have affected the verdict |
Key Cases Cited
- Campbell v. Great Lakes Ins. Co., 228 Mich. 636 (addresses standard for proving insurance contract defenses)
- Mina v. Gen. Star Indem. Co., 218 Mich. App. 678 (applies preponderance standard to insurer’s arson/fraud defenses)
- Sacred Heart Aid Soc. v. Aetna Cas. & Sur. Co., 355 Mich. 480 (insurer need only prove criminal act by preponderance to invoke exclusion)
- Quality Prods. & Concepts Co. v. Nagel Precision, Inc., 469 Mich. 362 (discusses clear-and-convincing proof where applicable to contract modification/waiver)
- Jimkoski v. Shupe, 282 Mich. App. 1 (preservation of instructional-error objection rule)