Court Opinion

ID: 9495896
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:12:55.455925+00
Date Added: 2024-06-11T17:57:15.418738
License: Public Domain

KENNEDY, Circuit Judge,
dissenting.
While I agree with the majority that had the loss here occurred while the broader definition in the 1989 policy was in effect there would have been coverage, I do so because in “Coverage B” the policy provided that “[w]ith respect to any loss covered by the terms and conditions of this policy, but not covered as warranted by the ‘underlying insurance’ ... we will pay excess imposed on the insured under ‘advertising injury’ which occurs during the policy period.” The Northfield policy’s definition of “Advertising Injury” included infringement of copyright, the loss here. If Northfield failed to advise plaintiff that this provision was changed, and if Michigan’s “renewal rule” applies, and if none of its other defenses are meritorious, North-field may be liable.
However, there are a number of factors which cause me to question whether this policy is a renewal. First, Northfield was specifically solicited by the insured’s broker to provide an excess policy, whereas in previous years it had written both excess and umbrella coverage. The language of the policy on which plaintiff and the panel rely has printed on it “Umbrella Liability Coverage Form.” Plaintiff was not seeking umbrella coverage. Second, North-field required the insured to file a Commercial Excess Liability Application. It did, and represented that it did not have coverage in the underlying policy for advertising injury and that the insured had no expenditure for advertising. Mr. Reg-natta, an agent of Northfield, testified that he was not concerned about advertising injury in the underlying policy since the insured had no advertising expenditure. The requirement that the insured file a new application indicates a new policy, not merely a renewal. Third, the premium was negotiated between two brokers, one who represented the insured and the other who represented excess carriers. While the negotiated premium remained the same, it was for very different coverage. This is not the usual situation when the insurance company deals directly with its insured in order to renew an existing policy. Where brokers are involved in negotiating the terms of the policy, the rationale for a “renewal rule” such as Michigan’s is diminished, since there would be less need to protect unknowing insureds from the passive misrepresentations of their insurers. Fourth, the number of distributors who were additional insureds under the policy changed significantly and the basis on which distributors were covered changed as well. In prior years, all distributors were covered. With this policy only those who elected to do so and paid a separate fee were covered. This substantial change in coverage is not consistent with mere renewal of the previous year’s policy. Fifth, the name of the insured entity changed. Again, this type of change is not consistent with mere renewal.1 I *395would hold that a policy offered in response to a solicitation that differs so much from previous policies and no longer includes the umbrella coverage which prompted the initial coverage cannot be categorized as a renewal. At the very least, I believe there is an issue of fact.
Moreover, I am unable to agree with Part D of the opinion, in which the majority holds that Northfield should be held liable for Federal’s failure to notify the insureds of the change in the underlying insurance policy.
There is no authority for the proposition that an excess insurer is obligated to inform the insured of a change in the underlying insurance policy. Although it is true that, under Michigan law, a insurer has an affirmative obligation to notify the insured of any change in coverage in a renewal policy, the cases establishing this principle do not support imputing a primary insurer’s failure to fulfill its obligation to the excess insurer. In Koski v. Allstate Ins. Co., 213 Mich.App. 166, 539 N.W.2d 561, 563 (1995), rev’d on other grounds, 456 Mich. 439, 572 N.W.2d 636 (1998), the Michigan Court of Appeals held that “[w]here a renewal policy is issued without calling the insured’s attention to a reduction in coverage, the insurer is bound to the greater coverage in the earlier policy.” The Koski court’s decision rests primarily on another Michigan Court of Appeals case, Industro Motive Corp. v. Morris Agency, Inc., 76 Mich.App. 390, 256 N.W.2d 607 (1977). In Industro Motive, the court relies entirely on a modified theory of equitable estoppel to hold that an insurer is bound by the greater coverage in an earlier policy where the renewal contract is issued without calling to the insured’s attention a reduction in coverage. It was essential to the Industro Motive court that the insurers knew that the insured desired the greater coverage, and represented that such coverage was available. Id. at 609. Even if, as the insureds argue, these cases are based on a “contract reformation” rather than an equitable es-toppel theory, “contract reformation” requires a showing that the liable party have knowledge of the mistake that produced the inequity, and have taken some action to capitalize on or conceal that mistake. See, e.g., Retan v. Clark, 220 Mich. 493, 496, 190 N.W. 244 (1922) (holding that a contract may be reformed where negotiations were marked by “a mistake on the part of [one party] and knowledge of the mistake and concealment thereof on the part of the [other party].”).
These cases indicate that Michigan law would require some affirmative act creating culpability on the part of the insurer in order to hold it to the greater coverage in an earlier policy. At a minimum, they do not support the proposition that an excess insurer who “follows form” is responsible for the misdeeds of the underlying insurer.
The majority concludes that Northfield should be bound “because the ‘follow form’ linkage between an excess insurer and the primary insurer should logically apply to procedural as well as substantive obligations to their common insured. In effect, an excess insurer who lives by the sword must die by the sword.” This does not seem at all logical to me. When an *396excess insurer opts to “follow form,” it is agreeing to insure excess losses for precisely the scope of coverage provided by the underlying insurance-no more, no less. In no way does this imply that the excess insurer accepts responsibility for the underlying insurer’s failure to fulfill its legal obligations to their common insured. The insured is in the better position to know what he, she or it has been told about changes from earlier policies. Excess insurance is relatively inexpensive, which is a benefit to the insured. Placing the burden of examining the history of the relationship between the insured and the primary carrier on the excess insurer will require a significant increase in the cost of excess insurance with little benefit to the insureds, most of which are sophisticated businesses, not ordinary consumers.2

. While the insured’s broker "used the term ‘renewal’ in a letter accompanying the application,” stated in a letter accompanying the application that it was a renewal, his language is ambiguous. He says: "I am pleased to enclose a completed application for the above captioned account, which is a renewal to our office.” However, he later says, "I am *395approaching 'renewal carriers.’ ” Both statements are made by plaintiff's agent.
While defendant does not directly deny plaintiff's assertion that the later policies were renewals, it constantly asserts that "for the period 1990-91, the ADBA requested and Northfield issued a policy which provided follow form excess coverage over the Federal primary policy which the ADBA presented to it. Northfield literally 'prepare[d] a policy in accordance with the information and instructions furnished to the [insurer] by the insured.’ "

. Although I agree that if we ruled against Northfield, Northfield could bring an indemnity action against Federal for the amount it would owe to the insureds as a result of Federal's failure to notify, this does not seem to me a sufficient reason to impose upon Northfield an affirmative obligation to take responsibility for Federal’s misconduct.