Opinion ID: 866153
Heading Depth: 2
Heading Rank: 2

Heading: defense and expense of claims and suits

Text: 1. The defense of claims or Suits to which this policy applies is the obligation of the Insured. -7- No. 12-2201 City of Warren, Michigan, et al. v. Int’l Ins. Co. of Hannover, Ltd. ... SECTION V – DEFINITIONS S. Ultimate Net Loss means all sums actually paid, or which the Insured is legally obligated to pay, as damages and Claims Expense in satisfaction of claims or Suits for which Insurance is afforded under this policy, after deduction of all collectible recoveries or salvage. Michigan courts have not recognized the “pay on behalf of” language as imposing a duty to advance defense costs. Moreover, language from the policy indicates that Hannover’s duty to pay costs is not strictly a duty to advance defense costs. Section I.A.1 requires Hannover to pay the Ultimate Net Loss in excess of the Retained Amount, and Section V.S defines the Ultimate Net Loss to include “all sums actually paid, or which the Insured is legally obligated to pay, as damages and Claims Expense” covered by the policy. If the policy meant to impose on Hannover a duty to advance defense costs, the Ultimate Net Loss would not mention sums actually paid and would only refer to sums that the Insured is legally obligated to pay. An insurance policy should be viewed as a whole and read to give meaning to all its terms, Fresard v. Michigan Millers Mut. Ins. Co., 414 Mich. 686, 694 (1982), and a policy must be construed to give effect to every word or phrase as far as practicable. Hunter v. Pearl Assurance Co., 292 Mich. 543, 545 (1940). Reading the policy as a whole and giving meaning and effect to all of its terms and phrases, the City’s policy with Hannover contemplates both a duty to advance defense costs and a duty to indemnify. -8- No. 12-2201 City of Warren, Michigan, et al. v. Int’l Ins. Co. of Hannover, Ltd. The City argues in the alternative that the language is ambiguous and should be interpreted in its favor as requiring Hannover to advance defense costs. The City goes on to argue that the scope of Hannover’s duty to advance defense costs is equivalent to that of the duty to defend, not the duty to indemnify. The significance of the City’s argument lies in the fact that the duty to defend is broader than the duty to indemnify. Am. Bumper and Mfg. Co. v. Hartford Fire Ins. Co., 452 Mich. 440, 450-51 (1996). The duty to indemnify arises only with respect to insurance afforded by the policy, whereas the duty to defend arises if a third party’s allegations against the insured arguably come within policy coverage. Id. at 451. If the City is correct, and the scope of Hannover’s duty to advance costs matches that of the duty to defend, then Hannover should have advanced defense costs, exceeding the Retained Amount, that related to all claims arguably coming within policy coverage. Even if this Court were to accept the City’s argument that the policy language is ambiguous and that one should interpret it as imposing a duty to advance defense costs, the policy language shows that the scope of the duty is equivalent to the scope of a duty to indemnify. First, Section I.B.1 explicitly provides that Hannover did not have a duty to defend, which relieved Hannover of the duty to pay defense costs associated with potentially covered claims. Requiring Hannover to advance costs associated with potentially covered claims, by holding that the scope of Hannover’s duty to advance costs is the same as the scope of the duty to defend, would nullify much of the benefit that Hannover received from Section I.B.1. Second, the policy language about Hannover’s duty to pay costs explicitly provides that the duty only attached to costs associated with claims that the policy covered. In particular, Sections I.A.1 and V.S state that Hannover’s duty to pay costs -9- No. 12-2201 City of Warren, Michigan, et al. v. Int’l Ins. Co. of Hannover, Ltd. extended to claims “to which this insurance applies” and “for which insurance is provided by this policy.” This Court holds that, viewing the policy as a whole and giving meaning and effect to every word and phrase, the policy language indicates that the scope of Hannover’s duty to advance defense costs mirrored that of the duty to indemnify and only extended to costs actually covered by the policy. To summarize, even if we accept that Hannover had a duty to advance defense costs, the terms of the policy mandate holding that the duty-to-indemnify standard applied and that Hannover’s duty pertained only to covered claims. Given that we have already determined that the insurance policy did not provide coverage for any of Rizzo’s claims against the City, Hannover did not breach any duty to advance defense costs that it possibly owed to the City; therefore, any error on the part of the district court in holding that Hannover owed a duty to indemnify was harmless.