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Insurance coverage for acts that are "criminal in nature"

The last five years have seen a continuing assault on the breadth of homeowner’s insurance coverage in Michigan.  Unlike No Fault automobile insurance, where the insurer's obligation is coextensive with the driver/owner's liability, homeowner's insurance companies are free to define the circumstances under which they will provide coverage.  The conservative majority of the Michigan Supreme Court has, in the last few years, granted insurers even greater latitude by holding that insurance policy terms are not limited by any "reasonableness" standard and by denying the Court's long-assumed jurisdiction to refuse to enforce terms which a reasonable insured would not expect--but which are placed in the carrier's fine print.


Several Michigan insurers have taken advantage of this handful of decisions to eviscerate the normal homeowner liability coverage that most citizens take for granted.  Acting on a handful of unusual and not well-considered appellate decisions, insurers such as Farm Bureau have begun to aggressively interpret and enforce insurance exclusions from coverage for acts that are "intentional" or "in the nature of a criminal act".


As a result of this aggressive approach to denying coverage, the insurers are not only denying coverage for assaults, bar-fights and shootings, as one might expect.  Those exclusions had been recognized and enforced for decades.  Rather, the fight for coverage is now over indemnification for "negligent" criminal acts.    In research we conducted for a 2004 case, we could find no other state that consistently allows homeowner's insurers to deny coverage for negligent criminal acts.  According to Farm Bureau and others, Michigan does.  This means that when someone "negligently endangers a child", "fails to disable the door of a discarded refrigerator", "negligently discharges a firearm [INCLUDING A BB-GUN, AS IN OUR CASE], or commits any one of thousands of other misdemeanors that don't require intent, the homeowner's liability coverage is at risk.


For example, we currently represent two clients who have cases on appeal to determine insurance coverage.  One case involves an off-duty fireman who was accidentally shot by an off-duty policeman while they were deer hunting. The other case involves a ten-year old who lost an eye in a BB-gun accident.  Ten years ago, coverage for both of these incidents would have been assured.  Today, neither the victim nor the purchaser of the coverage will derive the benefit of the coverage purchased, if the insurer is successful on appeal.  There are literally dozens of similar cases pending in Michigan, involving all types of "negligent' acts that have resulted in injury.


Sadly, purchasers of homeowner's coverage in Michigan have no idea how "bare" they may be in the event of a family member's mistake.  Virtually any act that can cause injury--particularly to a child--has been criminalized in some form.  If the carrier can argue that the insured's mistake was "in the nature of a criminal act", regardless of intent, liability coverage provides only illusory protection for the homeowners' assets (and victim).  In a 2005 case, Justice Taylor, no "raving liberal", recognized that ordinary people purchase coverage to protect the victim (and the purchaser's family's assets) in the event that someone does something "stupid":  in a continuing assault on consumer rights, however, insurers in our state have been allowed to reject that fundamental truth underlying insurance coverage.

Thompson O’Neil, P.C.
309 East Front Street
Traverse City, Michigan 49684
Toll Free: 1-800-678-1307
Fax: 231-929-7262