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Court of Appeals Rules on "Criminal Acts" Exclusion as Applied to Corporate Representative

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Mark J. Colon
Foster Swift Property Insurance/Premises E-News
September 24, 2008

On September 16, 2008, the Michigan Court of Appeals in an unpublished opinion reversed the trial court and held that a "dishonest and criminal acts" exclusion in Secura's fire insurance policy was not inconsistent with MCL 500.2833 or former MCL 500.2832 when applied to a corporate insured where the alleged wrongdoer exercised enough control so that his conduct would be imputed to the corporation. DKE, Inc v Secura Ins Co, No. 278032 (Sept 16, 2008).

The issue arose in the context of a defense motion for partial summary disposition. Plaintiff argued that the company president and sole shareholder was an innocent co-insured, thus making the "criminal acts" exclusion inapplicable to him. The Court of Appeals distinguished the line of cases in which "dishonest and criminal acts exclusions" had been invalidated on the grounds that each of the cases involved multiple individual insureds, at least one of whom was innocent of wrongdoing while another was not.  In the case of DKE, Inc., the only insured was the corporation.  If the alleged wrongdoer exercised sufficient control over the corporation's affairs, any act of arson on his part could be imputed to the corporation. There would be no innocent co-insured, and defendant would be entitled to deny coverage.  The Court stated:

We are persuaded that defendant's policy could validly exclude “criminal acts,” i.e., arson, of an authorized representative or any person to whom the property was entrusted, so long as defendant establishes that the representative or person to whom the property was entrusted had complete dominion and control over the affairs of the corporation.

The Court of Appeals remanded the case to the trial court to determine whether defendant could establish that the son of the plaintiff's sole owner, who purportedly was involved in the arson of the property, was an authorized representative of plaintiff who had complete dominion and control over the affairs of the corporation.

The line of cases in which innocent individual co-insureds were protected from denial of coverage under a fire insurance policy over the wrongful acts of a co-insured does not protect a corporate shareholder from denial over the wrongful acts of an authorized representative of plaintiff who had dominion and control over the affairs of the corporation.