Opinion
Docket No. 327481.
09-15-2016
A.B. PETRO MART, INC. v. ALI T. BEYDOUN INS. AGENCY, INC. Petro Mart v. Beydoun Ins.
Hammoud Dakhlallah & Associates, PLLC (by Kassem M. Dakhlallah, Dearborn), for plaintiffs. Gregory and Meyer, PC, Troy (by Kurt D. Meyer ), for defendant.
Hammoud Dakhlallah & Associates, PLLC (by Kassem M. Dakhlallah, Dearborn), for plaintiffs.
Gregory and Meyer, PC, Troy (by Kurt D. Meyer ), for defendant.
Before: CAVANAGH, P.J., and SAAD and FORT HOOD, JJ.
SAAD, J.In this insurance coverage dispute, plaintiffs, A.B. Petro Mart, Inc. (Petro Mart) and Aref Bazzi, appeal the trial court's order that granted summary disposition in favor of defendant Prime One Insurance (Prime One). For the reasons provided below, we affirm in part, reverse in part, and remand.
The other defendants, Ali T. Beydoun Insurance Agency, Inc., and Ali Beydoun, were dismissed earlier in the proceeding and are not part of this appeal.
I. NATURE OF THE CASE
Plaintiffs filed this suit to recover insurance benefits related to the destruction of a gas pump at a gas station Petro Mart operated. There is no question that Petro Mart did not own the gas pumps—Bazzi did. Petro Mart instead operated the pumps in the course of selling gasoline at the gas station. There also is no dispute that Petro Mart insured the gas pumps with Prime One. The trial court granted summary disposition in favor of Prime One with respect to Petro Mart's claim because it determined that Petro Mart did not possess an insurable interest in the gas pumps.Pursuant to Michigan law, an insurance contract to protect an insured from loss of property is an aleatory indemnity contract. See Kingston v. Markward & Karafilis, Inc., 134 Mich.App. 164, 174, 350 N.W.2d 842 (1984). And in order to be entitled to indemnity under such an insurance contract, the insured must have an insurable interest in the property. The question posed by this appeal is whether the trial court correctly applied Michigan law to hold that the insured must have a legal interest in or must be financially responsible for any damages to the insured property in order to have an insurable interest in the property.
In Michigan, legal interest is not synonymous with insurable interest because an insured's pecuniary interest in the insured property is sufficient to constitute an insurable interest. And because Petro Mart's ability to operate its gas station was financially affected by the functioning or nonfunctioning of the insured gas pumps, regardless of whether it was responsible for repairing any damage to the pumps, we hold that Petro Mart had an insurable interest in the pumps, and the trial court erred when it ruled otherwise.
II. BASIC FACTS
This dispute arises from an incident in which an automobile ran into and caused the destruction of one of the gas pumps located at the gas station at 3735 East Vernor in Detroit. The crash started a fire and destroyed the pump. Bazzi was the sole shareholder and owner of Petro Mart, and Petro Mart was the entity that operated the gas station. However, the gas pumps themselves were owned by Bazzi. Petro Mart insured the gas pumps by purchasing an insurance policy with Prime One, which provided, among other things, $30,000 in coverage for gas pumps. After the accident, Petro Mart filed a claim with Prime One. Prime One eventually declined coverage because it asserted that Petro Mart did not have an insurable interest in the gas pumps, as Bazzi—not Petro Mart—owned the pumps.
Plaintiffs sued Prime One for breach of contract because the gas pumps were expressly named and covered under the policy. Plaintiffs moved for summary disposition and argued that the clear and unmistakable language of the policy showed that the gas pumps were indeed covered under the policy. Plaintiffs further maintained that the fact that the policy was in the name of Petro Mart and the fact that Bazzi was the one who owned the pumps was not fatal because Prime One was well aware that Bazzi was the sole owner of Petro Mart and acknowledged this in its own claim file, where it referred to Bazzi as the "insured" many times. Thus, plaintiffs asserted that Prime One should not be allowed to claim that the insured party, Petro Mart, was not covered because it had no insurable interest in the pumps. Plaintiffs further argued that if there was no coverage due to the lack of an insurable interest, then the policy would be illusory because, even though premiums were paid for coverage on the gas pumps, no one could ever recover for any damage to the pumps. Plaintiffs also contended that Bazzi was entitled to the claim proceeds because he was a third-party beneficiary under the insurance contract.
Prime One responded to the motion and argued that there was no genuine issue of material fact that the policy holder, Petro Mart, did not have an insurable interest in the gas pumps. Prime One noted that even if Petro Mart was a closely held corporation with only Bazzi as its owner, the outcome would not change because Michigan law is clear that corporations are separate entities from their owners or stockholders. Further, Prime One asserted that it was not under any obligation to investigate the interest of the applicant, Petro Mart, in the subject property. Prime One argued that Bazzi cannot be considered a third-party beneficiary to the contract because there is nothing in the policy to demonstrate that Prime One directly promised to give or do anything for Bazzi. Prime One also claimed that the contract was not illusory because had Petro Mart actually owned the property, the policy would have provided coverage.
The trial court noted that there was no dispute that Bazzi owned the pumps and that Petro Mart merely operated them without any leasehold agreement. The court agreed with Prime One's arguments and ruled that Petro Mart had no legal ownership interest in the pumps and no obligation to repair the pumps. According to the court, recovery was precluded because Petro Mart did not suffer a pecuniary loss and therefore did not have an insurable interest in the property. The court further ruled that Bazzi could not recover as a third-party beneficiary because nothing in the policy directly provided any benefit for Bazzi. The trial court also held that the policy was not illusory because "[i]n the event that Petro Mart had actually owned the property and/or had some insurable interest in the property, the Policy would have provided coverage for at least a portion of the loss." Consequently, the trial court denied plaintiffs' motion and instead granted summary disposition in favor of Prime One pursuant to MCR 2.116(I)(2).
III. STANDARD OF REVIEW
This Court reviews a trial court's decision on a motion for summary disposition de novo. Johnson v.
Recca, 492 Mich. 169, 173, 821 N.W.2d 520 (2012). Prime One moved for summary disposition under MCR 2.116(C)(10), which tests the factual sufficiency of a complaint and is reviewed by considering the pleadings, admissions, and other evidence submitted by the parties in the light most favorable to the nonmoving party. Joseph v. Auto. Club. Ins. Ass'n, 491 Mich. 200, 206, 815 N.W.2d 412 (2012). "Summary disposition pursuant to MCR 2.116(C)(10) is proper when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." McCoig Materials, LLC v. Galui Constr., Inc., 295 Mich.App. 684, 693, 818 N.W.2d 410 (2012). " ‘Summary disposition is properly granted [under MCR 2.116(I)(2) ] to the opposing party if it appears to the court that that party, rather than the moving party, is entitled to judgment.’ " Michelson v. Voison, 254 Mich.App. 691, 697, 658 N.W.2d 188 (2003), quoting Sharper Image Corp. v. Dep't of Treasury, 216 Mich.App. 698, 701, 550 N.W.2d 596 (1996) (alteration in original).
Likewise, the interpretation of an insurance contract and whether the named insured has an "insurable interest" are questions of law that we review de novo. Citizens Ins. Co. v. Pro–Seal Service Group, Inc., 477 Mich. 75, 80, 730 N.W.2d 682 (2007) ; Morrison v. Secura Ins., 286 Mich.App. 569, 572, 781 N.W.2d 151 (2009).
IV. ANALYSIS
A. PLAINTIFF BAZZI
Under the clear language of the policy, the only named insured is Petro Mart. While Bazzi signed the insurance application, he is not named anywhere in the policy itself. Indeed, the policy provides that "A B Petro Mart, Inc." is the sole named insured. Therefore, because Bazzi is not a party to the insurance contract, he cannot maintain a breach of contract claim against Prime One. See Miller–Davis Co. v. Ahrens Const., Inc., 495 Mich. 161, 178, 848 N.W.2d 95 (2014) (stating that it is essential to establishing a breach of contract claim that a plaintiff prove that there was a contract between the parties).
Notably, in the area for "Name Insured" on the application, it only states "A B Petro Mart Inc." Moreover, the fact that Bazzi signed the application is not of great significance, as it is well established that corporations can only act through their agents. Mossman v. Millenbach Motor Sales, 284 Mich. 562, 568, 280 N.W. 50 (1938). We further note that the fact that Bazzi is the sole owner of Petro Mart does not affect our analysis, as corporations and their shareholders are separate entities, "even where one individual owns all the corporation's stock." Rymal v. Baergen, 262 Mich.App. 274, 293, 686 N.W.2d 241 (2004).
Plaintiffs assert that Bazzi nonetheless could have sustained a claim against Prime One because he is a third-party beneficiary of the contract. We disagree. Michigan's third-party beneficiary statute states, in pertinent part, the following:
Any person for whose benefit a promise is made by way of contract, as hereinafter defined, has the same right to enforce said promise that he would have had if the said promise had been made directly to him as the promisee.
(1) A promise shall be construed to have been made for the benefit of a person whenever the promisor of said promise has undertaken to give or to do or refrain from doing something directly to or for said person. [MCL 600.1405.]
"[N]ot every person incidentally benefitted by a contractual promise has a right to sue for breach of that promise...." Brunsell v. City of Zeeland, 467 Mich. 293, 296, 651 N.W.2d 388 (2002). "Thus, only intended, not incidental, third-party beneficiaries may sue for a breach of a contractual promise in their favor." Schmalfeldt v. North Pointe Ins. Co., 469 Mich. 422, 427, 670 N.W.2d 651 (2003). Accordingly, "[a] person is a third-party beneficiary of a contract only when that contract establishes that a promisor has undertaken a promise directly to or for that person." Id. at 428, 670 N.W.2d 651 (quotation marks omitted). As already noted, the insurance contract simply does not refer to Bazzi. Hence, with no reference to Bazzi in the contract, it is clear that the contract itself did not provide any basis to conclude that Prime One (the promisor) undertook any promise directly to or for Bazzi. Therefore, as a matter of law, Bazzi is not a third-party beneficiary.
Because Bazzi is neither a party to the contract nor a third-party beneficiary, he cannot maintain his action for breach of contract against Prime One. Accordingly, the trial court correctly granted summary disposition in favor of Prime One against Bazzi.
B. PLAINTIFF PETRO MART
Plaintiffs argue, and we agree, that the trial court erred when it ruled that Prime One had no obligation to pay because the insured, Petro Mart, did not have an insurable interest in the gas pumps.
"[U]nder Michigan law, an insured must have an ‘insurable interest’ to support the existence of a valid ... insurance policy." Allstate Ins. Co. v. State Farm Mut. Auto. Ins. Co., 230 Mich.App. 434, 439, 584 N.W.2d 355 (1998). The reason for this requirement is based on public policy concerns. "Specifically, it arises out of the venerable public policy against ‘wager policies'; which, as eloquently explained by Justice COOLEY, are insurance policies in which the insured has no interest, and they are held to be void because such policies present insureds with unacceptable temptation to commit wrongful acts to obtain payment." Morrison, 286 Mich.App. at 572, 781 N.W.2d 151, citing O'Hara v. Carpenter, 23 Mich. 410, 416–417 (1871) ; see also Crossman v. American Ins. Co. of Newark, NJ, 198 Mich. 304, 308, 164 N.W. 428 (1917). Therefore, " ‘a policy issued when there is no such interest is void, and it is immaterial that it is taken in good faith and with full knowledge.’ " Morrison, 286 Mich.App. at 572, 781 N.W.2d 151, quoting Agricultural Ins. Co. v. Montague, 38 Mich. 548, 551 (1878).
However, Michigan's common law instructs that an "insurable interest" is not synonymous with "ownership." Instead, an insurable interest can arise from "any kind of benefit from the thing so insured or any kind of loss that would be suffered by its damage or destruction." Morrison, 286 Mich.App. at 572–573, 781 N.W.2d 151 (emphasis added); see also VanReken v. Allstate Ins. Co., 150 Mich.App. 212, 219, 388 N.W.2d 287 (1986) ; 3 Couch, Insurance, 3d, § 41:1, p. 41–3 (" ‘An insurable interest’ may be defined as any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage."). Our Supreme Court instructed a hundred years ago that "[an insurable] interest may be derived by possession, enjoyment, or profits of the property, security or lien resting upon it, or it may be other certain benefits growing out of or dependent upon it." Crossman, 198 Mich. at 308–309, 164 N.W. 428 (emphasis added).
In dismissing Petro Mart's claim, the trial court principally relied on the fact that Petro Mart did not have either an ownership or leasehold interest in the gas pumps. While it is true that Petro Mart had neither of these interests and was not responsible for repairing the pumps, these facts, standing alone, do not preclude finding an insurable interest. See id.; Morrison, 286 Mich.App. at 572–573, 781 N.W.2d 151. One of the aspects of Petro Mart's business was selling gasoline at the insured's business location. Therefore, it is incontrovertible that Petro Mart had more than an incidental, pecuniary interest in the gas pumps. Petro Mart necessarily received income and profits from the use of the gas pumps, including the one that was destroyed in the accident. As already noted, an insurable interest can be found absent any actual ownership interest if one merely obtains "profits of the property," Crossman, 198 Mich. at 308–309, 164 N.W. 428, or derives "any kind of benefit from the thing so insured," Morrison, 286 Mich.App. at 572–573, 781 N.W.2d 151 (emphasis added).
The trial court primarily relied on Secura Ins. Co. v. Pioneer State Mut. Ins. Co., 188 Mich.App. 413, 470 N.W.2d 415 (1991). In Secura, there was a question regarding whether a person who sold a home but still lived in the home after the closing had an insurable interest in the property. The plaintiff insurance company insured the buyers and sought contribution from the seller's insurance company for the loss. The plaintiff argued that the sellers "had an insurable interest either as tenants or as parties to the purchase agreement." Id. at 414, 470 N.W.2d 415. Due to the issues raised by the parties, this Court analyzed the matter in the context of whether the sellers maintained an insurable interest in the property based either on a leasehold theory or on a contractual theory. Id. at 415, 470 N.W.2d 415. But to read Secura as standing for the proposition that these are the only avenues for any party to maintain an insurable interest, as the trial court implied, is incorrect. Secura simply analyzed the issues as presented and did not limit or alter the existing caselaw on insurable interests.
Indeed, the salient inquiry to answer when determining whether an insurable interest exists revolves around whether the insured would suffer a direct, pecuniary loss from the property's destruction. If the answer to the inquiry is "yes," then there is an insurable interest. See Crossman, 198 Mich. at 308–311, 164 N.W. 428, and cases cited therein. Given the circumstances here, we must answer this question in the affirmative. Clearly, Petro Mart would gain some advantage by the continuing existence of the gas pumps and, conversely, would suffer some loss or disadvantage by the destruction of the pumps. Importantly, this is not an instance where the loss Petro Mart suffered was "indirect or sentimental"; instead, because Petro Mart generated income from the sale of gasoline through the use of the pumps, the loss of one of those gas pumps resulted in a "direct and actual" pecuniary loss. Id. at 309, 164 N.W. 428 (quotation marks and citation omitted). The fact that Petro Mart was not financially responsible for repairing any damage to the pumps is not controlling—it still had a pecuniary interest because of the commercial business it operated. We note that while any lost business profits appear to not be recoverable under the insurance policy, this fact is immaterial in determining whether Petro Mart had an insurable interest in the gas pumps themselves. Therefore, because Petro Mart had a clear, substantial, and direct pecuniary interest in the pumps, we hold that it had an insurable interest in the damaged gas pump. Our finding is in keeping with the long-standing public policy underlying the insurable-interest doctrine. Accordingly, the trial court erred by dismissing Petro Mart's breach of contract claim against Prime One.
Because we hold that Petro Mart had an insurable interest in the gas pumps, plaintiffs' alternate contention that the insurance contract was illusory is rendered moot, and we need not address it. See B P 7 v. Bureau of State Lottery, 231 Mich.App. 356, 359, 586 N.W.2d 117 (1998).
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Plaintiffs also argue that Petro Mart is entitled to receive 12% penalty interest under MCL 500.2006(1) of the Uniform Trade Practices Act, MCL 500.2001 et seq. , for Prime One's alleged unreasonable delay in paying on the claim. But because the trial court never addressed this issue, although it may do so on remand, we decline to address it here for the first time. See Autodie, LLC v. Grand Rapids, 305 Mich.App. 423, 431, 852 N.W.2d 650 (2014) (declining to address an unpreserved issue).We affirm the grant of summary disposition in favor of Prime One against plaintiff Bazzi, but we reverse the grant of summary disposition in favor of Prime One against plaintiff Petro Mart because Petro Mart had an insurable interest in the gas pumps. We remand for proceedings not inconsistent with this opinion. We do not retain jurisdiction. No costs are taxable, as neither side prevailed in full. MCR 7.219.
CAVANAGH, P.J., and FORT HOOD, J., concurred with SAAD, J.