Insurer avoids paying for damage caused by insured's employee

BFC Management owns an adult establishment named Cheetah's.  It was induced by Jani-King of Michigan to change janitorial services, allegedly in part because Jani-King claimed that it stood behind and insured all employees.  The Jani-King sales department assigned the contract to a local franchisee who couldn't do the work because of his regular full-time job.  The franchisee then hired a friend of a relative to clean the club. 

After being implicated in a theft, the guy whom the Jani-King franchisee hired to do BFC's cleaning after hours apparently set fire to the building, causing nearly a million dollars in damages.  BFC sued Jani-King, claiming that it had fraudulently induced BFC to change janitorial services based on false promises of insurance coverage.  It also claimed that Jani-King was negligent in screening and training the local franchise's employees.  The trial judge refused to allow BFC to place before the jury it's claims that false insurance representations were made.   The jury ultimately ruled against BFC on both theories, and the trial judge awarded Jani-King more than $115,000.00 in fees and expenses based on the Jani-King contract.

On appeal, the Court ruled that it was error for the Court to exclude BFC's evidence relating to insurance coverage, but ultimately deemed that error to be "harmless."  It also considered the remarks made by Defense Counsel during Closing Argument to have been inappropriate, but not grounds for reversal.  On that basis, it upheld the jury verdict.  We've described before the appellate courts' reluctance to disturb a jury verdict, absent gross errors.

    The appellate court did throw out the court's decision to award fees and costs, however.  It noted that the indemnity provision in Jani-King's contract awarded costs only where suit is brought to enforce a provision of the contract.  The claims made by BFC arose out of the common law and the lawsuit wasn't based on the contractual rights of the parties.  Therefore, under the strict language of the agreement, BFC was not required to indemnify Jani-King (and its insurers) for the cost of its defense.

We wonder if the outcome would have been the same here if BFC ran a different kind of business?