The Sixth Circuit Court of Appeals recently affirmed summary judgment in favor of an insurance carrier regarding a coverage dispute over the replacement cost of a building.
In Platt Lake Bible Conference Association v. Church Mutual Insurance Co., Platt Lake operated and owned approximately 18 buildings on 3,500 acres of property in Michigan. For the 18 buildings, Platt Lake had a policy with Church Mutual providing blanket “replacement cost” coverage of approximately $3.7 million per occurrence. Significantly, the policy also had a sublimit of $100,000 for code compliance costs.
In March 2020, one of the buildings (named the “Miracle Building”) collapsed due to snow and ice. The Miracle Building was built in 1973 and lacked many new features required for modern code compliance such as heating, ramps, an elevator, fire-suppression systems, and updated septic infrastructure.
Church Mutual accepted the claim and determined the replacement value to be about $2.3 million, which it paid. Platt Lake also contracted for a redesigned, code-compliant rebuild of the Miracle Building, estimated to cost $3.7 million. Platt Lake estimated that $1.4 million of the $3.7 million project consisted of code compliance costs. As such, Church Mutual paid the policy’s $100,000 sublimit for code compliance costs and denied coverage for the $1.4 million remainder.
Platt Lake sued Catholic Mutual in Michigan state court in 2023, asserting tort claims including fraudulent inducement, intentional misrepresentation, promissory estoppel, silent fraud, negligent misrepresentation, and innocent misrepresentation. It argued that Church Mutual’s statements and conduct, such as marketing materials promising "on-site risk and insurance needs analysis," agent discussions in 2014 and 2019 assuring "full coverage" or "replacement cost," and a site visit, led it to believe all rebuilding costs, including unlimited code upgrades, would be covered. Specifically, those three interactions were:
- A brochure from Church Mutual stating that the carrier provided on-site risk and insurance need analysis;
- A 2014 phone conversation and e-mail exchange between a Platt Lake board member and an agent from Church Mutual to discuss the “replacement cost” coverage and whether the policy would cover all 18 buildings; and
- A 2019 meeting with the Platt Lake board president and another agent of Church Mutual for a review of the policy and on-site inspection, during which Platt Lake specifically inquired as to whether it would be fully covered for the replacement coverage for each building.
Church Mutual removed the case to federal court and filed for summary judgment. The district court granted summary judgment in Church Mutual’s favor, finding that Platt Lake failed to show both duty and reliance, both of which were required elements for its fraud and estoppel claims. Platt Lake then appealed to the Sixth Circuit.
In affirming the district court, the Sixth Circuit examined the elements Platt Lake needed to show in order to sustain an independent tortious conduct claim against Church Mutual under Michigan law. In Michigan, an insured can bring an action against its insurer for independent tortious conduct, but only if there is a “duty separate and distinct from the underlying contractual obligation.” Further, there has to be a “special relationship” between the insurer and insured for there to be common law duty to advise a potential insured about any coverage.
The Sixth Circuit found Platt Lake failed to show that Church Mutual owed a separate and distinct duty to advise before the policy was issued. The court examined the three key interactions raised by Platt Lake and found none created such a special relationship. The court determined there were no ambiguous requests requiring clarification, no inaccurate advice given by Church Mutual, and no assumed extra duty. The court emphasized, for example, that discussions between the agents and board members focused on the blanket policy's overall limits across multiple buildings, not code upgrades specifically, and that vague "fully covered" comments did not trigger liability. However, Platt Lake failed to produce any evidence that it had reviewed the aforementioned brochure.
In addition, the Sixth Circuit found Platt Lake failed to show it reasonably relied on any of the alleged misrepresentations by Church Mutual. In its analysis, the court noted it would be unreasonable for a party to rely on representations that were contrary to unambiguous contract terms. Here, the insurance contract stated explicitly that its coverage was for the replacement cost of a building (i.e., the cost to replace the Miracle Building, not to upgrade it to meet new code standards) and that there was a specific sublimit for code compliance costs.
Finally, the Sixth Circuit found Platt Lake failed to show actual reliance on any purported misrepresentations. The court found there was no evidence that the brochure was actually received or reviewed and board members' own testimony showed they understood statements by Church Mutual as allowing replacement of the original (non-code-compliant) building, not full modern upgrades.
As Platt Lake could not show Church Mutual had a separate and distinct duty to advise, or that it reasonably relied on any alleged misrepresentations by Church Mutual, Platt Lake was unable to prove its tort claims against Church Mutual and the Sixth Circuit therefore affirmed summary judgment.
