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### STATE OF MICHIGAN

COURT OF APPEALS

ATLANTIC CASUALTY INSURANCE COMPANY,

Plaintiff-Appellee, FOR PUBLICATION May 26, 2016 9:15 a.m.

v No. 325739 Ontonagon Circuit Court GARY GUSTAFSON, LC No. 2014-000055-CK

Defendant-Appellant, and

ANDREW AHO,

Defendant.

Before: G LEICHER , P.J., and S AWYER and M. J. K ELLY , JJ.

S AWYER , J.

In this declaratory judgment action, the parties filed cross-m otions for summary disposition, with the trial court granting plaintiff’s motion a nd denying defendant’s motion. Defendant Gustafson now appeals and we reverse and remand.

The facts are not in dispute. D efendant Gustafson (hereinafte r “defendant”) operates a business known as Gustafson Excavating and Septic Systems. He was hired by defendant Aho (hereinafter “the homeowner”) to perform landscaping and draina ge work around a pond on the homeowner’s residential property. Defendant was insured under a commercial general liability policy issued by plaintiff.

The homeowner was watching defe ndant’s employee clearing brush near the pond with a brushhog. A piece of debris flew from the brushhog, striking t he homeowner in the eye, causing injury. The homeowner brought suit against defendant. Defenda nt contacted his insurance agent, who assured defendant that this type of incident was cov ered by the insurance policy. But, upon review by plaintiff, plaintiff determined that they h ad no duty to defend or indemnify because the loss came within a policy exclusion. Plaintiff the n brought this action seeking declaratory relief.-2- The exclusion at issue is entitled “Exclusion of Injury to Emp loyees, Contractors and Employees of Contractors” and provides as follows:

This insurance does not apply to:

* * *

(ii) “bodily injury” to any “cont ractor” for which any insured may become liable in any capacity:

* * *

As used in this endorsement, “contractor” shall include but is not limited to any independent contractor or subcontractor of any insured, any general contractor, any developer, any property owner, any independent contractor or subcontractor of any general c ontractor, any independent contra ctor or subcontractor of any general de veloper, any independent contrac tor or subcontractor of any property ow ner and any and all persons pro viding services or materials of any kind for these pers ons or entities mentioned h erein.

In short, plaintiff takes the position that, because the homeow ner is “any property owner,” he comes within the definition of “contractor” and, therefore, com es within the exclusion clause for contractors. The trial court agreed, but we do not.

First, the relevant standard of review was summarized by our S upreme Court in Wilkie v Auto-Owners Ins Co : 1

The proper interpretation of a contract is a question of law, which this Court reviews de novo. Archambo v Lawyers Title Ins Corp , 466 Mich 402, 408; 646 NW2d 170 (2002). The same standard applies to the question of whether an ambiguity exists in an insurance contract. Farm Bureau Mut Ins Co v Nikkel , 460 Mich 558, 563; 596 NW2d 915 (1999) . Accordingly, we examine th e language in the contract, giving it its ordinary and plain meaning if such would be apparent to a reader of the instrument.

The interpretation of this part icular insurance contract claus e appears to be a question of first impression in this state, though it has been addressed el sewhere. Defendant relies on two cases from other jurisdictions. The first, an unpublished deci sion of the Connecticut Superior Court, Turano v Pellaton

, 2 is the closer of the two factually. In that case, the plainti ff had hired one of the defendants to do work in his basement. The plaintif f was injured when he fell going down the basement stairs because of a step that had been remove d and not replaced, nor was he warned about the missing step. Our plaintiff in this case, Atl antic Casualty, also insured one of

1 469 Mich 41, 47; 664 NW2d 776 (2003).

2 2014 Conn Super Lexis 146.-3- the subcontractors in the Turano case. Atlantic Casualty denied coverage on the same basis tha t it is doing so in the case at bar: that because Turano was “an y property owner,” he came within the definition of “contractor” and, therefore, the same policy exclusion at issue here applied to exclude coverage in that case. The Connecticut court disagreed , concluding that the heading of “Exclusion of Injury to Employees, Contractors and Employees of Contractors” limited the language which follows to situatio ns where the insured has empl oyed a third party to provide services to the insured, not t o customers/property owners. 3 Specifically, it noted that “this heading seems to envision situations involving employment or, m ore specifically, where the insured hires or employs a third party to perform services that assist the insured to perform jobs.” 4

The other case is a published d ecision of the Seventh Circuit authored by Judge Posner, Atlantic Casualty Ins Co v Paszko Masonry, Inc

. 5 The facts in Paszko are somewhat different than in our case and, while plaintiff relied upon the same excl usionary clause in that case, a different portion of the exclusi on was at issue. In the underl ying lawsuit, the injured party, Robert Rybaltowski, brought an act ion against four companies, o nly one of whom, Paszko, was insured by plaintiff. The other three defendants argued that t hey were covered as well as additional insureds. 6 The various defendants worked on a construction project invol ving the construction of an apartment building. Rybaltowski worked for a waterproofing company, Raincoat Solutions, that had submitted a bid to the general con tractor, Prince Contractors (one of the defendants claiming to be an additional insured), to perfor m caulking work. Prince accepted the bid, subject to its advance approval of the color of the ca ulk and of the competency of the caulker. Thus, Rybaltowski was sent by Raincoat to the job sit e to demonstrate his skill by caulking a few windows; Raincoat was not expected to be paid fo r this work. After completing the demonstrating, but while still at the job site, a beam fell and struck Rybaltowski. It was only afterwards that a contract was s igned between Prince and Rainco at. 7

Plaintiff denied coverage, relying upon the same exclusion at issue in our case, though the focus in Paszko is on the later reference to “providing services . . . of any kind” to Prince. 8 In

3 Slip op at 10-11.

4 Id. at 10.

5 718 F3d 721 (CA 7, 2013). We not e that plaintiff relies on an earlier, unreported case from the Northern District of Illinois, Atlantic Casualty Ins Co v Alanis Development Corp (No. 09 C 6657, filed January 25, 2011). While the fact situation in the district court case is closer to those in the case at bar, we place greater reliance on the more recen t published decision of the Seventh Circuit.

6 Paszko , 718 F3d at 722. The issue of whether they were additional in sureds was unresolved in the trial court and was not an issue on appeal, though the cour t noted that it could be an issue on remand. Id.

7 Id. at 722.

8 Id. at 723.-4- his opinion, Judge Posner was very critical of the language use d in the contract: “The exclusion is poorly drafted. The term ‘contractor’ is exemplified rather than clearly defined.” 9 The court also noted how broad and unusual th e exclusionary clause was: 10

We don’t understand the attracti on of an insurance policy such as Atlantic’s that contains such a broad exclusion; a Google searc h suggests that the exclusion is rare, and maybe it is confined to policies issued by Atlantic. Still, broad as it is, the exclusion does not render coverage illusory . Nor can we say that it can’t be as broad as Atlantic believes because then no one would buy the policy. But we still must decide how broad it is. And resolving ambiguity as we must against the insurer, we conc lude that it is not broad enou gh to embrace the accident to Rybaltowski.

This reference to whether the portion of the clause at issue in Paszko rendered the policy illusory is interesting. The court had a few paragraphs earlier rejecte d such a conclusion because, even under plaintiff’s broad reading, it would be inapplicable to pa ssersby and others “who might be injured at a construction site without being involved in the co nstruction.” 11 In our case, such a conclusion could not be so easily reached. While the Paszko court could easily note any number of persons who would not fall in to the category of persons who supply services or materials, and would be a “contractor” under pl aintiff’s argument for a broad definition in that case, it is not so easy in this case with the term “any property owner.” If viewe d on its own, that term would include virtually everyone in the world; even the poorest perso n at least owns the clothes on his back, thus making him a “property owner” and, therefore, presum ably a “contractor” under a broad reading of the statute. Ind eed, the trial court was able to reject the argument that the clause renders the policy illusory only after adopting plaintiff’s mor e limited interpretation of “any property owner” as meaning the owner of the property upon which the work is being performed.

Perhaps this is why plaintiff rejects the argument that “any p roperty owner” means literally that. Plaintiff admits that this would be an absurd interpretation. Plaintiff suggests that the only “reasonable” interpreta tion of the phrase would be tha t it means the owner of the real property upon which the insured is performing work. While we a gree that to interpret the phrase “any property owner” to mean anyone who owns any type of proper ty, thus encompassing virtually the entire world (excep t perhaps for a newborn baby) and rendering the policy illusory, we fail to see how it leads us to plaintiff’s more specific int erpretation. But more critical at this

9 Id.

10 Id. at 725.

11 Id. at 724. But the court does sugge st that if an interpretation of an exclusion is so broad that it would render it implausible that anyone would purchase the poli cy, that is reason to doubt the interpretation. Id

.-5- juncture, plaintiff’s argument e stablishes an admission that th e term is ambiguous and, therefore, in need of interpretation; but w e reject plaintiff’s proposed i nterpretation. 12

In reaching its conclusion that t he definition of “contractor” and its inclusion of the phrase “any property owner” covers the injured party in this ca se, the trial court relied upon the principle of ejusdem generis and that the common connection be tween the terms in the contrac t is that they cover “p ersons or entities ge nerally and reasonabl y found on a constructio n site . . . .” (Tr Ct opinion, p 10.) There are problems, however, with this analysis. First, the principle of ejusdem generis does not apply here because we are not called upon to interpre t the meaning of a general term that falls at the end of a list of specific terms. As explained in Reading Law: The Interpretation of Legal Texts, 13 the general term must follow the specific terms (of which ther e must be two or more). Thus, this rule of interpretation would only apply in this context to interpreting the last clause of the exclusion, the one which re ads “any and all persons providing services or materials of any ki nd for these persons or entities mentioned herein.” While that is the clause which was at issue in Paszko , it is not at issue in this case.

The appropriate interpretative canon to employ here would be t he associated-words

canon, or noscitur a sociis . This principle says that when several words “are associated in a context suggesting that the words have something in common, the y should be assigned a permissible meaning that makes them similar. The canon especia lly holds that ‘words grouped in a list should be given related meanings.’ “ 14 Undoubtedly, were the trial court to apply this rule of interpretation, it would have reached the same conclusi on that the “related meanings” are those individuals or entities that are likely to be found on a construction site. We disagree. Rather, we would conclude that the relationship between the cat egories listed in the exclusion are those who are being compensated, or who otherwise have a commer cial interest, 15 for being on the job site. Or, as the Connecticut court put it in Turano , the “language employed in the heading is not broad enough to enc ompass the situation of a cus tomer/property owner. Accordingly, it should follow that everything that falls under this heading should reflect the employment situation.” 16 That is to say, the contractor , any subcontractors, or any ve ndors supplying materials or services, or who otherwise are involved from a commercial standpoint. This would lead to a very reas onable conclusion about the meani ng and purpose of the clause: to avoid the prospect that a commercial entity, that would (or at least should) have its own

12 It should be noted that we are not suggesting that plaintiff c ould not write an exclusionary clause that excludes the property owner upon whose real propert y the insured is performing work. Rather, we merely concl ude that plaint iff has not done s o with the clause before us.

13 Scalia and Garner, Reading Law: The Interpretation of Legal Texts (Thomson/West, 2012), pp 202-205,

14 Scalia, id. at 195, quoting Third Nat’l Bank in Nashville v Impact Ltd , 432 US 312, 322 (1977).

15 Such as the developer of a commercial project.

16 Turano, slip op at 10-11.-6- commercial liability policy from tagging onto the one issued by plaintiff to a particular commercial customer. Indeed, Judge Posner addresses this very issue in Paszko

. 17 Ultimately, it led to the court’s conclusion that the “interpretation that ser vices are not provided until the contractor . . . begins to do compensated work on the project” was as plausible as the interpretation that a “contractor” is anyone in the constructio n business regardless whether he was rendering a service at the time of injury. 18

Similarly, we think an interpretation that “any property owner ” refers to someone, or some entity, who is commercially involved in the work being don e is at least as plausible, indeed more so, as the interpretation that a residential homeowner fal ls within the category of “contractor” merely because work is being done on the owner’s p roperty. Of course, this interpretation necessitates being able to identify potential me mbers of the category of “any property owner,” and which falls within the more general catego ry of persons or entities that have a commercial involvement in the project that gives rise to the injury, in order to give that phrase meaning. But that is e asily enough done. As defendant suggests, it could easily refer to owners of equipment used in the project. For example, if in th is case the brushhog were rented rather than owned by defendant, then the injured party might ha ve sued the rental company as well and the exclusion would operate to prevent the rental comp any from seeking coverage under the policy that plaintiff issued to defendant. Rather, the ren tal company could reasonably be expected to have its own commercial liability policy to provide a defense and indemnification in such a situation. Similarly, a “d eveloper,” who is also listed in the definition of “contractor” (and who may or may not also be the owner of the property upon which the work is being performed) would be expected to carry his own commercial liabil ity insurance (and, for that matter, workers’ compensation in surance for any employees).

Plaintiff suggests that defendant’s argument amounts to asking this Court to interpret the policy based upon defendant’s “reas onable expectations,” a rule of interpretation that plaintiff argues our Supreme Court rejected in Wilkie v Auto-Owners Ins Co

. 19 But plaintiff overreaches in its reliance on Wilkie . While it is true that Wilkie did hold “that the rule of reasonable expectations has no application in Michigan,” 20 to merely stop at that point tells only half the story. Rather, Wilkie 21 drew a distinction between ambiguous and unambiguous contracts

, holding that the rule has no a pplication to interpreting unambiguous contracts:

The rule of reasonable expectati ons clearly has no application to unambiguous contracts. That is, one’s alleged “reasonable expe ctations” cannot supersede the clear language of a contract. Therefore, if this rule has any

17 See Paszko , 718 F3d at 724.

18 Id. at 725.

19 469 Mich 41, 60-63; 664 NW2d 776 (2003).

20 Id. at 63.

21 Id. at 60.-7- meaning, it can only be that, if there is more than one way to reasonably interpret a contract, i.e., the contract is ambiguous, and one of these i nterpretations is in accord with the reasonable expectations of the insured, this in terpretation should prevail. However, this is saying no more than that, if a contr act is ambiguous and the parties’ intent cannot be di scerned from extrinsic evidence , the contract should be interpreted against the insur er. In other words, when its a pplication is limited to ambiguous contracts, the rule of reasonable expectations is just a surrogate for the rule of construing ag ainst the drafter.

That is, in the context of inter preting ambiguous contracts, it is merely a different name for the contra proferentem doctrine. 22 Thus, Wilkie really is saying only that the rule of reasonable expectations serves no purpose. An unambiguous contract has no need of interpretation and, with ambiguous contracts, it is merely a different name for the contra proferentem doctrine. Having already concluded that the provision at issue here is am biguous, this doctrine, under whichever name, leads us to conclude that it must be interprete d against plaintiff. That is, we believe that the better interpret ation of “any property owner,” given that it is included in a list that otherwise only includes thos e that have a commercial inter est (or their employees), is that it does not include those without a commercial interest in the pro ject, namely, in this case, the residential homeowner. Or, as Judge Posner ultimately reasoned in Paszko , when faced with two plausible interpretations, we must select the one that favors t he insured and, therefore, the interpretation that excludes a residential homeowner from the d efinition of “contractor” “thus rules the case.” 23

Reversed and remanded to the tri al court for entry of summary disposition in favor of defendant. We do not retain juri sdiction. Defendant may tax c osts.

/s/ David H. Sawyer /s/ Elizabeth L. Gleicher /s/ Michael J. Kelly

22 Id. at 61.

23 Paszko , 718 F3d at 725.