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Auto-Owners subsidiary over-reaches; court rejects its insurance policy defense

Craft Recreation Company was forced to sue it's insurer, Home-Owners Insurance Company, after its bowling alley was destroyed by fire.  The owners had purchased business insurance that would cover reconstruction, however, the fire damage was so extensive it exceeded the policy limits.  Home-Owners argued that if the owners didn't re-build the alley (with inferior construction), it was not obligated to pay the policy limits that the owners had purchased.  The owners argued that under the plain language of the statutory coverage, since the damage exceeded their coverage limits, the insurer was obligated to pay the limits regardless of whether the owners re-built.

The trial court reviewed the statute and the terms of coverage, along with the cost of re-building, and concluded that the owners were entitled to summary disposition.  The judge ruled that under the statutory language, the obligation to re-build prior to payment did not apply if the structure could not be re-built with comparable materials to a similar "condition and appearance." Similarly, the policy required the company to re-build with "comparable material and quality." 

The insurer appealed and its arguments were summarily rejected by a unanimous panel of the Court of Appeals.  The appellate judges agreed with the trial court that since Home-Owners admitted that the cost of re-building a "comparable" structure exceeded the policy limits, the owners were free to "cut their losses" and simply pocket the insurance limits without re-building an inferior structure.  The judges noted that if there was any ambiguity in the insurer's policy obligation, it must be interpreted against the insurer who drafted the policy.

As clear as this case seems, we'll see if it withstands scrutiny by the Republican insurance-oriented Michigan Supreme Court five-judge majority.  They pretty much give the insurance industry anything it wants, and I'm sure that insurers would prefer to be able to walk away from insureds in this situation.

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