Opinion ID: 788945
Heading Depth: 1
Heading Rank: 5

Heading: transfer of rights of recovery against others to us

Text: 14 If any person or organization to or for whom we make payment under this Coverage Part has rights to recover damages from another, those rights are transferred to us to the extent of our payment. That person or organization must do everything necessary to secure our rights and must do nothing after loss to impair them. But you may waive your rights against another party in writing ... 15 2. After a loss to your Covered Property ... only if, at the time of loss, that party is one of the following: 16 a. Someone insured by this insurance; 17 b. A business firm: 18 (1) owned or controlled by you; or 19 (2) that owns or controls you; or 20 c. Your tenant. 21 J.A. at 62-63 (insurance policy) (emphases added). 22 Kalamazoo does not challenge the validity of this policy condition or the bar against legal action for failure to comply with it 8 ; nor does it suggest that the general release it entered into with Continental falls within one of the exceptions listed in section I(2) of the policy; nor, finally, does Kalamazoo suggest that it timely notified Westfield of the possibility of a release and of the total amount of the loss. 9 Instead, Kalamazoo asserts that it did nothing after loss to impair [Westfield's] rights and therefore fully complied with the policy. Brief of Appellee at 18-19. In support of this conclusion, Kalamazoo presents a flawed reading of Michigan's law of damages. Its argument proceeds as follows: First, Kalamazoo maintains that in an action for damages to commercial property caused by a builder or renovator's negligence, the proper amount of damages is the actual value of the property damaged. Brief of Appellee at 19. Second, Continental was therefore liable to Kalamazoo for no more than the actual value of the property damages. Accordingly, Kalamazoo submits, Kalamazoo's settlement with Continental in no way impaired Westfield's right of subrogation; by paying Kalamazoo the actual value of the loss, Continental had paid the maximum amount it owed under the law. Put another way, Kalamazoo's position is that if it had collected from Westfield instead of obtaining payment from Continental, Westfield's right of subrogation against Continental would be limited to the actual value of the property damages; the settlement and release, therefore, makes Westfield no worse off than it would have been. 23 The flaw in Kalamazoo's argument is its basic premise. In Michigan, the appropriate amount of damages in an action for negligent damage to property is clear: 24 It is the settled law of this state that the measure of damages to real property, if permanently irreparable, is the difference between its market value before and after the damage. However, if the injury is reparable, and the expense of repairs is less than the market value, the measure of damage is the cost of the repairs. 25 Strzelecki v. Blaser's Lakeside Indus., 133 Mich.App. 191, 348 N.W.2d 311, 312 (1984) ( per curiam ) (quoting Bayley Prods. Inc. v. American Plastic Prods. Co., 30 Mich.App. 590, 186 N.W.2d 813, 816 (1971)); see also Kratze v. Indep. Order of Oddfellows, 442 Mich. 136, 149, 500 N.W.2d 115 (1993) (If the injury is reparable ... the proper measure of damages is the cost of restoration of the property to its original condition, if less than the value of the property before the injury.) (citation omitted); Tillson v. Consumers' Power Co., 269 Mich. 53, 256 N.W. 801 (1934); 7 Mich. Civ. Jur. Damages § 50 (discussing the proper damages in actions for negligent injury to real property). 10 There is no contention in this case that the damage sustained by Kalamazoo's building rendered the property irreparable. To the contrary, not only was the property reparable, it was in fact repaired. 11 Accordingly, in an action for negligence against Continental, Kalamazoo would be entitled to the cost of the repairs, i.e., the complete $357,968. Strzelecki, 348 N.W.2d at 312; Kratze, 442 Mich. 136, 149, 500 N.W.2d 115. By settling with Continental for merely $208,188 and releasing it from all further claims, Kalamazoo extinguished Westfield's right of subrogation, by which Westfield could have secured the balance of the damages — the $149,780 now in dispute — from the tortfeasor, Continental, or its insurer, Amerisure. Consequently, because Kalamazoo deprived Westfield of its subrogation rights as to this balance, Kalamazoo is legally precluded from demanding that Westfield pay the balance. E.g., Stolaruk v. Cent. Nat'l Ins. Co. of Omaha, 522 N.W.2d 670, 673-74 (1994), appeal denied, 538 N.W.2d 679 (Mich.1995) (holding that an insured is barred from recovery under an insurance policy if it extinguishes the insurer's right of subrogation by releasing a tortfeasor); Poynter v. Aetna Cas. & Sur. Co., 13 Mich.App. 125, 163 N.W.2d 716, 718 (1968) (same); see also 16 Couch on Insurance § 224:136 (As a general rule, an insured who deprives an insurer, by settlement and release, of its right of subrogation against a wrongdoer, thereby provides the insurer with a complete defense to an action on the policy....). Kalamazoo does not contest this principle of insurance law, instead relying on the argument we have already rejected — namely, that it did not impair Westfield's right of subrogation in the first place. 26 Finally, Kalamazoo's argument that Westfield conceded its breach of contract defense is wholly without merit. Westfield cited Kalamazoo's failure to abide by the policy's subrogation condition in its claim denial letter of February 28, 2002 (J.A. at 288) and did not waive the subrogation issue during the pleadings. See J.A. at 16-27. Moreover, Westfield moved for summary judgment based on the same argument it makes here. See J.A. at 135-36. (Defendant's Motion for Summary Judgment). Yet Kalamazoo nonetheless maintains that the argument was conceded. Brief of Appellee at 16-17. Its basis for this assertion is the December 19, 2002 deposition testimony of a Westfield employee, claims adjuster Curtis Devries. 12 Devries stated that it was his understanding that Westfield's right of subrogation against a tortfeasor is limited to the extent of actual cash value. When asked if under these circumstances it would be fair to say that a release would not affect Westfield's subrogation rights, Devries responded in the affirmative. J.A. at 350 (Devries Depo.). In our view, Devries' testimony is at most evidence that a Westfield claims adjuster misunderstood Michigan's law of negligent damage to property. Westfield raised Kalamazoo's failure to comply with the policy condition in its answer and clearly presented the argument in its motion for summary judgment. Against this backdrop, Kalamazoo cannot suggest that a claims adjuster's deposition testimony — on a question of pure law — has the legal effect of a waiver. 13 27 In light of these legal conclusions, we hold that the district court should have granted Westfield's motion for summary judgment and denied Kalamazoo's.