In most states, including Michigan, the duty to defend is not limited to the four corners of the complaint and the insurer must look behind the allegations asserted against the insured to determine whether there is a potential for coverage. See, e.g., American Bumper and Mfg. Co. v. Hartford Fire Ins. Co., 452 Mich. 440, 550 N.W.2d 475, 481 (Mich. 1996). As a result of the application of this principle, it may be difficult to obtain summary judgment on the duty to defend. A recent decision from the Eastern District of Michigan takes a more restrictive view, which may prove helpful to insurers. Certified Restoration Drycleaning Network, LLC v. Federal Ins., 2013 WL 1629291 (April 16, 2013, E.D. Mich.).
The Certified Restoration case involved a franchisor/franchisee dispute and a general liability policy issued to the franchisor which excluded claims “based upon, or arising from, or in any consequence of” any breach of contract. The underlying complaint included causes of action for breach of the franchise agreement and breach of the duty of good faith and fair dealing, but also included two paragraphs alleging that the franchisor made misrepresentations. After the insurer initially denied coverage, the franchisor and franchisee executed a settlement agreement specifically averring pre-contract misrepresentations. The pre-contract misrepresentations were also discussed in a deposition.
Reasoning that the duty to defend depends only on the allegations of the complaint, and that the complaint alleged only breach of contract, the District Court ruled that the settlement agreement and deposition testimony were “immaterial” to the duty to defend. Id. at *6. The District Court also analyzed the alleged facts and concluded that there was “no doubt” that the basis of the alleged injuries arose from the alleged breach of the franchise agreement, and not the alleged misrepresentations. Id.