Travelers Property Casualty Co. of America v. Peaker Services, Inc.
306 Mich. App. 178
| Mich. Ct. App. | 2014Background
- Feaker Services, a commercial power-generation servicer, contracted with the University of Michigan to install a ProTech 203 over-speed trip system and warranted products/services and agreed to restore any University property damaged during performance to an "as was" condition.
- After installation, a turbine ran at unsafe speed allegedly due to Feaker's improper calibration, causing substantial property damage; the Regents sued Feaker for breach of contract, implied UCC warranties, and failure to meet industry standards.
- Feaker sought defense and indemnity under a standard commercial general liability (CGL) policy issued by Travelers (plaintiff); Travelers participated in defense but reserved coverage rights and later sued for a declaratory judgment that it owed no duty to defend/indemnify.
- Travelers relied primarily on the CGL policy’s contractual-liability exclusion, which bars coverage for "bodily injury" or "property damage" the insured is obligated to pay "by reason of the assumption of liability in a contract or agreement." Travelers argued Feaker’s contractual promise to restore damage was an "assumption of liability."
- Feaker argued the exclusion applies only where the insured assumes a third party’s liability (e.g., indemnity/hold harmless), not where the insured merely undertakes its own contractual duties; trial court granted summary disposition for Feaker and denied Travelers’ motion.
- Court of Appeals affirmed, holding the exclusion is limited to contractual assumption of another’s liability and does not bar coverage for liabilities arising from the insured’s own breach of contract where the contract did not enlarge liability beyond general law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the CGL contractual-liability exclusion bars coverage for property damage arising from Feaker’s breach of its contract with the University | The exclusion covers any contractual assumption of liability, including Feaker’s promise to restore damaged property, so Travelers owes no duty to defend/indemnify | The exclusion targets assumption of a third party’s liability (indemnity/hold-harmless); Feaker did not assume another’s liability and only undertook duties that general law already imposes | The exclusion is limited to contracts assuming another’s liability; it does not apply where the insured’s contractual obligations do not enlarge liabilities beyond those imposed by general law, so coverage was not precluded |
Key Cases Cited
- Cohen v. Auto Club Ins. Ass'n, 463 Mich 525 (Michigan Supreme Court) (insurance-contract interpretation reviewed de novo)
- Frankenmuth Mut. Ins. Co. v. Masters, 460 Mich 105 (Michigan Supreme Court) (insurance policies enforced according to their terms)
- Auto-Owners Ins. Co. v. Harrington, 455 Mich 377 (Michigan Supreme Court) (two-step inquiry: coverage then exclusions)
- Hunt v. Drielick, 496 Mich 366 (Michigan Supreme Court) (insurer bears burden of proving absence of coverage; exclusions construed strictly)
- Fultz v. Union-Commerce Assoc., 470 Mich 460 (Michigan Supreme Court) (negligent performance can constitute both tort and breach of contract)
- Klapp v. United Ins. Group Agency, Inc., 468 Mich 459 (Michigan Supreme Court) (consult treatises when contract ambiguous)
- American Family Mut. Ins. Co. v. American Girl, Inc., 268 Wis 2d 16 (Wisconsin Supreme Court) (contractual-liability exclusion applies where insured assumes third-party liability)
- Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 SW3d 118 (Texas Supreme Court) (exclusion bars contractual assumptions of liability that enlarge liability beyond general law)
- Ewing Construction Co. v. Amerisure Ins. Co., 420 SW3d 30 (Texas Supreme Court) (clarifies Gilbert: exclusion applies only where contract increases liability beyond that at general law)