Michigan Construction Insurance Coverage Update: Contractor Denied Coverage for Stolen Loader
In the September 2012 case of Merlo Construction Co., Inc. v Citizens Ins. Co. of America, et. al. the contractor obtained an insurance policy that covered specified equipment listed on the policy’s equipment schedule. On that schedule was a 2000 Caterpillar 950g wheel loader. The contractor traded in for a newer model, the 2002 Caterpillar 950g wheel loader, but did not update or modify the equipment schedule to signify this change at the next renewal period.
Shortly thereafter, the 2002 Caterpillar 950g wheel loader was stolen and the insurance company denied the contractor’s claim on the basis that the 2002 loader was not listed on the policy. In particular, the serial number of the loader had not been updated on the schedule.
The contractor sued for insurance coverage arguing that there was a mutual mistake, that both parties had understood the loader to be covered and that the technical error of not updating the serial number should be overlooked. The contractor asked the court to reform the contract under equitable principles as if the proper serial number had been listed and find coverage for the loss.
While the trial court agreed with the contractor, the Court of Appeals did not. The Court of Appeals held that there was not a mutual mistake, but rather a unilateral mistake because there was no reason for the insurance company to know that the wrong loader was listed on the policy. As such, the claim was denied and the contractor will have to bear the loss of this loader.
An insurance agency was also named as a party, but this decision did not address any claims that may have been brought against the agency.
The lesson here for both contractors and insurance agents who work with contractors is to carefully review all equipment at every policy renewal and be sure to add the new equipment to any policy equipment schedule when required. Diligence in this area will help to ensure coverage in the event of an unfortunate or unanticipated loss to construction equipment.