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A Better Partnership
May 31, 2016

COA holds that insurance policy exclusion related to contractors does not include homeowners

A commercial general liability insurance policy’s exclusion that bars coverage related to bodily injury to “contractors,” defined as among other things “any property owner,” is limited to entities and persons commercially involved in the work being done, held the Court of Appeals in Atlantic Casualty Insurance Company v. Gary Gustafson, 325739.  Thus, residential homeowners for whom the contractor is doing work and who are not commercially involved in a given project do not fall within the bounds of such exclusions.
A homeowner was injured while watching the defendant’s employee clear brush near a pond on the homeowner’s property. Plaintiff insurance company denied coverage because the loss was excluded under its policy’s exclusion of, “bodily injury to any contractor for which any insured may become liable in any capacity.” The phrase, “any property owner” was included within the policy’s definition of “contractor.” The entire clause rested under a heading titled: “Exclusion of Injury to Employees, Contractors and Employees of Contractors.”  Plaintiff brought suit seeking declaratory judgment, arguing that because the homeowner is “any property owner,” his injuries were rightfully excluded from the policy. The trial court ruled in Plaintiff’s favor.
The Court of Appeals reversed and remanded the trial court decision.  It found persuasive a decision from the Connecticut Superior Court in Turano v. Pellaton. Turano featured the same plaintiff, Atlantic Casualty Insurance Company, and asked the court to interpret the same exclusionary clause. The Connecticut Court held that the heading of the clause limited its purview to situations involving the insured and persons the insured has hired to assist in its labor.
The Court agreed with the Connecticut Superior Court.  The phrase “any property owner” as proposed by Plaintiff would be seemingly limitless., While the trial court and plaintiff interpreted the phrase as the owner of the property involved in the project, the Court of Appeals instead interpreted “any property owner” in light of the various classifications included in the “contractor” definition, all of which are commercial in nature. Thus, the Court of Appeals held that “any property owner” refers to, “someone, or some entity who is commercially involved in the work being done,” for instance, owners of commercial equipment used on the site, or developers.
Lastly, the Court of Appeals addressed Plaintiff’s assertion that interpreting the exclusion in this way  amounted to an interpretation based on Defendants’ “reasonable expectations,” which Plaintiff contended was rejected by the Michigan Supreme Court in Wilkie v Auto-Owners Ins Co, 469 Mich 41, 60-63; 664 NW2d 776 (2003). The Court of Appeals held that Wilkie made a distinction between unambiguous and ambiguous contracts.  Whereas here there is ambiguity and one interpretation aligns with the reasonable expectations of the insured, that interpretation should prevail. Thus, looking to reasonable expectations is equivalent to the canon of interpretation against the draftsmen.

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