Court Opinion

ID: 4209449
Source: CourtListenerOpinion
Date Created: 2017-10-05 16:00:55.548415+00
Date Added: 2024-06-11T14:41:06.906443
License: Public Domain

NOT RECOMMENDED FOR PUBLICATION
                               File Name: 17a0557n.06

                                          No. 16-2341

                         UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT                                 FILED
                                                                                Oct 05, 2017
                                                                           DEBORAH S. HUNT, Clerk
AMI STAMPING, LLC,                                      )
                                                        )
       Plaintiff-Appellant,                             )
                                                        )
                                                               ON APPEAL FROM THE
              v.                                        )
                                                               UNITED STATES DISTRICT
                                                        )
                                                               COURT FOR THE EASTERN
ACE AMERICAN INSURANCE COMPANY,                         )
                                                               DISTRICT OF MICHIGAN
                                                        )
       Defendant-Appellee.                              )
                                                        )

BEFORE: COLE, Chief Judge; ROGERS and GRIFFIN, Circuit Judges.

       GRIFFIN, Circuit Judge.

       In this insurance contract dispute, the district court ruled that defendant ACE American

Insurance Company was entitled to rescind plaintiff AMI Stamping, LLC’s insurance policy

because AMI made a material misrepresentation regarding property value at the time it applied

for coverage. The district court granted summary judgment in favor of ACE. We affirm.

                                               I.

       AMI is a Michigan limited liability company. Because it has no employees, it transacts

business through its chairman or the employees of affiliated company Revstone Industries, LLC.

Revstone purchases insurance for itself and its affiliated entities through insurance agency Todd

Associates, Inc. Spankie Carolanne, who is licensed to sell property and casualty insurance

“with the State of Ohio,” manages the Revstone account at Todd Associates. In that capacity,
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

she “obtain[s] insurance based on the risk characteristics . . . and the exposures that [her clients]

have[.]” She also handles client calls and correspondence, produces insurance proposals and

applications, “counsel[s] the insured when they have questions about insurance[,]” and

“market[s] [insurance accounts] to various companies” when the policies come up for renewal.

       In 2009, Revstone purchased a commercial properties policy from ACE issued by ACE’s

managing general agent Starr Technical Risks Agency, Inc.1 The policy provided replacement

cost coverage. The policy contained a Commercial Property Conditions provision that voided

coverage if the insured “intentionally conceal[ed] or misrepresent[ed] a material fact concerning”

the covered property. It also contained an Unintentional Errors and Omissions Endorsement

providing that “[the] failure of the Insured to disclose all hazards existing as of the inception date

of the Policy shall not prejudice the Insured with respect to the coverage afforded by this Policy”

if the omission was unintentional. The policy was originally valid for a one-year term, but was

renewed through January 18, 2012.

       In early 2010, AMI acquired a security interest in a Detroit, Michigan building and in the

equipment and machinery stored there.         Revstone’s assistant general counsel, Kiel Smith,

contacted Carolanne to add AMI and its new assets to the existing Revstone policy. Carolanne

asked Smith to provide, among other information, an “[a]ppraisal of the buildings and personal

business property” in order “[t]o determine the proper insurance values to report to [ACE].”

       In response, Smith sent Carolanne a document he described as an “[a]ppraisal of the

equipment” that identified each piece, listed its value, and reported a total valuation of $138,100.

Smith did not share any of the earlier appraisals done for AMI that placed significantly higher

       1
         Starr was a named defendant in this action, but the parties stipulated to dismiss all claims
against it on March 4, 2014.
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No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

values on the equipment in question.2       Carolanne then reached out to Vito Maniaci, an

underwriter for Starr, and asked him to add the property to Revstone’s policy. She told Maniaci

the building was valued at $1,920,000 and “the value of the personal property (per appraisal) is

$138,100, which consists entirely of machinery and equipment.”

       ACE endorsed the Revstone policy effective February 11, 2010, adding AMI as an

Additional Insured and the property to the schedule of insured locations for a pro-rata premium

of $1,357. ACE renewed coverage for a premium of $1,499. At his deposition, Maniaci

confirmed that he “relied on information from Carolanne,” including information regarding asset

values, in preparing the Revstone policy. He clarified that the premium “depend[ed] on the

value[]” of the property being insured. At her deposition, Carolanne similarly stated that the

premium “is based on a rate times the value of the property.”

       In early 2012, AMI discovered the equipment had been stolen. Smith reported the loss to

Carolanne. A claims adjuster later contacted Smith on behalf of ACE to “finalize the claim” and

confirm that “the exact amount you are claiming” was indeed $138,100. Smith responded that it

was not and, because the policy provided for payment of the equipment’s replacement cost, he

would be submitting a replacement cost valuation.

       AMI commissioned an appraisal of the equipment’s replacement cost value, which the

appraiser concluded was $1,907,000. AMI then submitted a proof of loss for that amount. ACE

declined to pay the claim, rescinded coverage, and refunded AMI its $2,856 in premiums paid.

ACE did so on the grounds that AMI misrepresented at the time of application that: (1) the

       2
         AMI was “aware” of these two 2006 appraisals when it purchased insurance for the
equipment in 2010. Although these appraisals include values for equipment and other property
not at issue here, there is no dispute that they valued the relevant equipment at $385,450 (forced
liquidation value), $415,300 (fair market value), and $462,800 (orderly liquidation value).
                                               -3-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

building had the required protective safeguards against fire and theft; and (2) the equipment was

valued at $138,100.

       AMI filed suit in Michigan state court, alleging that ACE breached the insurance contract

by rescinding it. ACE removed, invoking diversity jurisdiction. The parties filed cross motions

for summary judgment, and the district court ultimately granted judgment in favor of ACE. AMI

timely appeals that ruling.

                                                II.

       We review de novo a district court’s decision to grant summary judgment. Rogers v.

O’Donnell, 737 F.3d 1026, 1030 (6th Cir. 2013). Summary judgment is proper only when “the

movant shows that there is no genuine dispute as to any material fact and the movant is entitled

to judgment as a matter of law.” Fed. R. Civ. P. 56(a). Although we view the evidence in a light

most favorable to the opposing party, Rogers, 737 F.3d at 1030, that party “has an affirmative

duty [under Federal Rule of Civil Procedure 56(c)] to direct the court’s attention to those specific

portions of the record upon which it seeks to rely to create a genuine issue of material fact.”

Chicago Title Ins. Corp. v. Magnuson, 487 F.3d 985, 995 (6th Cir. 2007) (quoting In re Morris,

260 F.3d 654, 665 (6th Cir. 2001)).

                                                III.

       ACE argues it was entitled to rescind because AMI misrepresented the equipment’s value

during the insurance application process. Because this is a diversity case, we apply Michigan

substantive law, Kepley v. Lanz, 715 F.3d 969, 972 (6th Cir. 2013), meaning we “follow the

decisions of the state’s highest court when that court has addressed the relevant issue.” Savedoff

v. Access Grp., Inc., 524 F.3d 754, 762 (6th Cir. 2008) (internal quotation marks omitted).

Michigan courts have long recognized that “[a] false representation in an application for

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No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

insurance which materially affects the acceptance of risk entitles the insurer to cancellation as a

matter of law.” Gen. Am. Life Ins. Co. v Wojciechowski, 22 N.W.2d 371, 374 (Mich. 1946); see

also Wiedmayer v. Midland Mut. Ins., 324 N.W.2d 752, 754–55 (Mich. 1982) (following

Wojciechowski). “A misrepresentation on an insurance application is material if, given the

correct information, the insurer would have rejected the risk or charged an increased premium.”

Montgomery v. Fid. & Guar. Life Ins. Co., 713 N.W.2d 801, 803 (Mich. Ct. App. 2005).

       Important here, “[r]ecission is justified without regard to the intentional nature of the

[material] misrepresentation, as long as it is relied upon by the insurer.” Lakes State Ins. Co. v.

Wilson, 586 N.W.2d 113, 115 (Mich. Ct. App. 1998) (emphasis added). This is so even in cases

of innocent misrepresentation “because otherwise the party responsible for the misstatement

would be unjustly enriched if he were not held accountable for his misrepresentation.” Lash v.

Allstate, 532 N.W.2d 869, 872 (Mich. Ct. App. 1995); see also 21st Century Premiere Ins. Co. v.

Zufelt, 889 N.W.2d 759, 764 (Mich. Ct. App. 2016). The rationale for Michigan’s rule is

obvious: the insurer, in making underwriting decisions and in setting premiums, has the right to

rely on the information the insured provides as true and accurate. See 12A Appleman on

Insurance Law & Practice § 7292 (2011).

                                                A.

       We have little difficulty concluding these requirements are met here. Although AMI

asserts it made no misrepresentation because Carolanne asked for an “appraisal” of the

equipment’s value and that is exactly what AMI provided, this argument ignores the importance

of accurate valuations to an insurer’s risk assessment and premium calculations.            When

Carolanne asked for an appraisal of the business personal property, she did so because ACE

needed “the proper insurance values” to endorse the Revstone policy.           Smith attached an

                                                -5-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

“[a]ppraisal of the equipment” to his response that reported a valuation of $138,100. That

document does not specify what type of valuation the $138,100 figure represents, but as the

district court aptly stated, it was a grossly inaccurate description of the equipment’s value “by

any measure.”

       Indeed, AMI admitted before the district court that its initial valuation was inaccurate,

and concedes on appeal that Smith “made an honest mistake about the value of the property.”

ACE alleged in its counterclaim that AMI advised it on February 21, 2013, “that the $138,100

valuation . . . was incorrect.” AMI did not deny this allegation in its answer, admitting “that it

provided additional information to ACE regarding the value of the property.” Pursuant to

Federal Rule of Civil Procedure 8(b)(6), “[a]n allegation—other than one relating to the amount

of damages—is admitted if a responsive pleading is required and the allegation is not denied.”

The district court did not clearly err in deeming this allegation admitted. See Himes v. United

States, 645 F.3d 771, 776 (6th Cir. 2011) (reviewing factual findings for clear error).

       AMI’s admission makes sense. When it applied for coverage in 2010, AMI had two

other appraisals from 2006 in its records showing much higher orderly liquidation ($462,800),

forced liquidation ($385,450), and fair market ($415,300) values for the equipment. After an

adjuster informed AMI that ACE was “ready to finalize the claim” and sought to confirm

$138,100 as the loss amount, AMI commissioned yet another appraisal rather than settle its claim

based on the original valuation. AMI then submitted proof of loss based on that latest appraisal’s

replacement-cost-value determination of $1.9 million––an amount nearly fourteen times the

valuation AMI submitted only three years earlier and upon which its premium was based. The

$138,100 value was significantly lower than those calculated under the four valuation methods

the three other appraisals used.

                                                -6-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

       The significant disparity between the coverage amount AMI bargained for and the loss

amount it submitted lends further support to the conclusion that the $138,100 figure inaccurately

represented the equipment’s value “by any measure.” AMI argues defendant never specified that

the appraisal should reflect a replacement cost value, but it applied for coverage under an

existing replacement cost policy.      Moreover, AMI presents no evidence that Maniaci or

Carolanne were aware of the 2006 appraisals or had any other reason to suspect that $138,100

did not reflect the equipment’s replacement cost or was otherwise an inaccurate valuation.3

Defendant rightfully expected AMI to provide an accurate valuation of its own property. That

AMI’s misrepresentation of that value may have been an innocent one made by “a young

attorney [who] was unaware that different types of valuation existed” is of no consequence under

Michigan law. See Lakes State Ins. Co., 586 N.W.2d at 115.

       Maniaci’s and Carolanne’s unrebutted deposition testimony establishes both the

materiality of AMI’s misrepresentation and defendant’s reliance on it in calculating the

appropriate premium to charge. As to ACE’s reliance, Maniaci expressly stated he relied on the

property value information Carolanne gave him when he prepared the Revstone policy. These

values, Maniaci emphasized, “are supplied by the insured through the broker.” Their accuracy is

crucial because, as both Maniaci and Carolanne explained, the premium for the type of coverage

AMI bought is based on the value of the property to be insured. Thus, as to materiality, had

ACE known from the outset that AMI valued the equipment at approximately $1.9 million, or at

       3
         Maniaci’s and Carolanne’s testimony on this point is unrebutted. Because the Revstone
policy was a replacement cost policy, and in light of his prior discussions with Carolanne about
this type of policy, Maniaci testified at his deposition that he assumed the asset value information
she provided him reflected its replacement cost. For her part, Carolanne testified she knew ACE
typically requested replacement cost values for property to be insured.
                                                -7-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

any of the values from either 2006 appraisal, it would have charged AMI more than $1,499 a

year to insure the property. AMI identifies no record evidence suggesting otherwise.

                                                B.

       AMI raises two counterarguments instead. Neither persuades.

       Carolanne’s agency status. First, AMI asserts no misrepresentation can be attributed to it

because Carolanne was not acting as its agent when she communicated the valuation to ACE—

she was ACE’s agent. AMI’s position conflicts with that taken in its answer to defendant’s

counterclaim, where it referred to Carolanne as “its agent” and “insurance broker.” That aside,

under Michigan law, she was AMI’s agent at all relevant times.

       In her deposition, Carolanne described herself as an “independent agent” and Revstone as

a “client.” In Michigan, “when an insurance policy is facilitated by an independent insurance

agent or broker, [that individual] is considered an agent of the insured rather than an agent of the

insurer.” Stone v. Auto-Owners Ins. Co., 858 N.W.2d 765, 772 (Mich. Ct. App. 2014) (internal

quotation marks omitted). An insurance agent is “independent” if she has “the power to place

insurance with various insurance companies.” Harwood v. Auto-Owners Ins. Co., 535 N.W.2d
207, 209 (Mich. Ct. App. 1995).

       Carolanne’s unrebutted deposition testimony makes clear that she shopped her client’s

insurance policies to “various companies” at renewal as part of her duties, and that she shopped

the Revstone account specifically to at least seven insurers. “Testimony that an agency deals

with numerous insurance companies is generally sufficient to prove that the independent agent is

an agent of the insured and not of the insurer.” Estate of Morse ex rel. Morse v. Titan Ins. Co.,

                                                -8-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

Docket No. 309837, 2014 WL 3971438, at *4 (Mich. Ct. App. 2014). Michigan law provides no

support for AMI’s contention that Carolanne was ACE’s agent.4

         To avoid this unfavorable result, AMI posits that Ohio law should govern the question of

Carolanne’s agency status instead because she is licensed in Ohio and her office is located there.

The district court rejected that argument, a determination we review de novo. Wahl v. Gen. Elec.

Co., 786 F.3d 491, 493 (6th Cir. 2015); see also Salve Regina Coll. v. Russell, 499 U.S. 225, 231

(1991). We find that the district court did not reversibly err.

         As a threshold matter, the parties do not dispute that Michigan law governs the policy.

Moreover, AMI cites no authority for its proposition that, under the facts of this case, Ohio law

governs the issue of who Carolanne represented in that transaction. Nor does AMI engage in any

meaningful choice-of-law analysis. Because this is a diversity action, Michigan’s choice-of-law

rules apply, Stone Surgical, LLC v. Stryker Corp., 858 F.3d 383, 389 (6th Cir. 2017), and

Michigan courts generally look to the Restatement (Second) of Conflict of Laws in resolving

such questions. See Chrysler Corp. v. Skyline Indus. Servs., Inc., 528 N.W.2d 698, 703 (Mich.

1995).

         The Second Restatement explains that “the local law of the state which, with respect to

the particular issue, has the most significant relationship to the parties and the transaction”

determines “[t]he rights and duties of a principal and agent toward each other.” Restatement

         4
        Carolanne also testified she was the “authorized representative” of ACE. AMI takes this
to mean that she was ACE’s agent. But this authorization did not include the authority to bind
ACE to a contract. See In re Estate of Capuzzi, 684 N.W.2d 677, 679 (Mich. 2004)
(“longstanding legal principle that a duly authorized agent has the power to act and bind the
principal to the same extent as if the principal acted.”). Moreover, Carolanne explained that “an
independent agent” was “an authorized representative” of every insurer he or she placed
insurance with. As an independent agent who could place insurance with various companies, she
was AMI’s agent under Michigan law.
                                                 -9-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

(Second) Conflict of Laws § 291 (1971). The Second Restatement directs us to consider five

“contacts” in deciding which state has such a relationship “in the absence of an effective choice

of law by the parties.” Id. § 188(2). These contacts include: “(a) the place of contracting, (b)

the place of negotiation of the contract, (c) the place of performance, (d) the location of the

subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation

and place of business of the parties.” Id.

       Of these contacts, only the “place of negotiation of the contract” arguably points to Ohio.

The parties to the transaction, of which Carolanne was not one, are domiciled in Pennsylvania

(ACE) and Michigan (AMI). Starr is a New York corporation, and Maniaci executed the policy

endorsement in Illinois. The building and equipment AMI insured was located in Michigan,

where the theft occurred. Although Smith initially reported the loss to Carolanne, she was not

involved in the claims process. The property adjuster who did administer AMI’s claim was

located in Michigan, while Starr’s general adjuster was located in Texas.

       Carolanne was licensed and worked in Ohio, but her relationship to the parties and the

transaction was simply to facilitate the deal––she had no ongoing involvement in its

performance. That said, “the particular issue” at hand is whether she was AMI’s or ACE’s agent

while performing her duties in Ohio, not which state’s law should govern a court’s interpretation

of the policy. See Restatement (Second) Conflict of Laws § 291 (1971). But even if Ohio law

should govern the issue, AMI does not explain why the question of Carolanne’s agency status is

relevant here given that AMI was the source of the misrepresentation and AMI identifies no

evidence that Carolanne knew or should have known that the valuation Smith provided was

inaccurate. AMI cites no authority, and we find none, for the proposition that because it

                                               -10-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

communicated an inaccurate property value to its insurer indirectly, AMI cannot be held to

account for that misrepresentation.

       Finally, AMI’s reliance on a producer agreement between Todd Associates and ACE as

evidence of Carolanne’s status as ACE’s agent is misplaced. That agreement did not become

effective until June 1, 2010, several months after AMI applied for insurance in February 2010.

Furthermore, the agreement applies to accident and health insurance only, not property

insurance. AMI counters that regardless of the agreement’s effective date or scope, Carolanne

was ACE’s agent because she “behaved” like ACE’s agent. However, AMI does not articulate

how nor provide specific examples of this “behav[ior].” At bottom, the district court did not

reversibly err in holding AMI to account for the misrepresentation it made to ACE through

Carolanne.

       Policy provisions. AMI also relies on two policy provisions for relief, arguing they bar

defendant from rescinding the policy. Under Michigan law, “[a]n insurance policy is much the

same as any other contract. It is an agreement between the parties in which a court will

determine what the agreement was and effectuate the intent of the parties.” Auto-Owners Ins.

Co. v. Churchman, 489 N.W.2d 431, 433 (Mich. 1992). “[T]he construction and interpretation

of an insurance contract is a question of law for a court to determine[.]” Henderson v. State

Farm Fire & Cas. Co., 596 N.W.2d 190, 193 (Mich. 1999).

       AMI first notes how the Unintentional Errors and Omissions Endorsement provides that

the insured will not be “prejudice[d] . . . with respect to [coverage]” if it unintentionally fails to

“disclose all hazards existing as of the inception date.” Yet this endorsement does not forgive an

innocent misrepresentation of property value, but rather an innocent failure to disclose a hazard.

On its face, this endorsement has no applicability here.

                                                -11-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

       Next, AMI points to the policy’s Commercial Property Conditions provision.             That

provision voids coverage if the insured intentionally “conceal[s] or misrepresent[s] a material

fact concerning . . . The Covered Property[.]” According to AMI, this provision necessarily

operates as a waiver of defendant’s common law right to rescind coverage for unintentional

misrepresentations. On appeal, AMI takes issue with the district court’s reliance on Seneca

Specialty Ins. Co. v. W. Chicago Prop. Co., LLC, No. 08-12335, 2010 WL 431734 (E.D. Mich.

Feb. 2, 2010) in rejecting that argument.

       We find no flaw in the district court’s analysis. In Seneca Specialty, the district court

applied Michigan law and rejected the same argument AMI makes here “because [the insurer’s]

right to void the contract ab initio in cases of unintentional misrepresentations exists completely

separate from the terms of the contract itself.” Id. at *2. The district court in this case agreed,

correctly noting that Michigan law requires a waiver of a known right to be voluntary and

intentional. See Sweebe v. Sweebe, 712 N.W.2d 708, 712 (Mich. 2006); see also Quality Prods.

& Concepts Co. v. Nagel Precision, Inc., 666 N.W.2d 251, 258 (Mich. 2003). AMI specifies no

evidence that ACE intended to waive its right under Michigan common law to rescind coverage

based on an innocent, material misrepresentation––and a “waiver cannot be inferred by mere

silence.” Moore v. First Sec. Cas. Co., 568 N.W.2d 841, 844 (Mich. Ct. App. 1997).

       AMI’s only argument is that Seneca Specialty does not apply because AMI never made

any misrepresentation in the first instance, innocent or otherwise. But AMI concedes that if it

“had made an unintentional [mis]representation, Seneca Specialty would support the District

Court’s contention that contract provisions regarding misrepresentations do not operate as a

waiver of common law rights regarding rescission.” We agree and conclude that AMI has not

established a genuine dispute of material fact that it made a material misrepresentation in

                                               -12-
No. 16-2341
AMI Stamping LLC v. ACE American Ins. Co.

applying for insurance coverage upon which defendant relied. Accordingly, ACE was entitled to

rescind the policy as a matter of law regardless of whether AMI’s misrepresentation was

innocent or intentional.

                                               IV.

       For these reasons, we affirm the district court’s judgment.

                                              -13-