A federal judge from the Eastern District of Michigan has dismissed the claim of the Cleveland Indians Baseball Co., L.P., which had made a “silent fraud” claim against an insurance company in the aftermath of a fatal accident at a baseball game, and a subsequent legal action brought by the aggrieved family.
In so ruling, the court reasoned that the Indians should not have relied on the company’s Certificate of Insurance as evidence of unlimited liability coverage.
The incident that led to the litigation occurred on June 12, 2010, during one of the team’s scheduled Kids Fun Day events. Two Cleveland Indians spectators, Douglas Johnson and David Brown, were injured when an inflatable slide, which was provided by National Pastime Sports, LLC (NPS) for the event, collapsed. Johnson died on June 21, 2010, “presumably as a result of the injuries suffered while attending the Kids Fun Day,” according to the court. The Johnson Estate and David Brown filed a lawsuit against the Cleveland Indians and NPS.
Three months prior to Johnson’s death, the Indians executed a Production Agreement with NPS to produce certain elements of ten fan festivals, known as “Kids Fun Days,” at Cleveland Indians games, including an inflatable slide.
Pursuant to the agreement, NPS was also to “provide comprehensive general liability insurance coverage. . . covering any claims, demands, causes of action, liability or damages, including legal costs and attorney fees, arising out of obligations or performance by producer under [the] Agreement.” The agreement also provided that “insurance certificates will also name the following as an additional insured: ‘Cleveland Indians Baseball Company. . . .”
NPS contacted CSI Insurance Group to procure insurance coverage in accordance with NPS’s agreement with the Indians. On March 2, 2010, NPS submitted an Annual Events Application to CSI. On the application, an agent for NPS checked the “yes” box next to the qualification question: “Any event with bounce houses or inflatables? (If yes, certificates of insurance are required).”
NPS accepted the proposal, and on April 27, 2010, CSI issued a Certificate of Insurance to NPS and the Cleveland Indians. On June 12, 2010, during one of the scheduled Kids Fun Day events, two Cleveland Indians spectators, Douglas Johnson and David Brown, were injured when an inflatable slide, which was provided by NPS for the Kids Fun Day event, collapsed. Mr. Johnson died on June 21, 2010, presumably as a result of the injuries suffered while attending the Kids Fun Day. The Johnson Estate and David Brown filed a lawsuit against the Cleveland Indians and NPS.
On June 22, 2010, NPS contacted CSI and notified it of the Johnson/Brown suit. Two days later, the Indians tendered the Johnson/Brown suit to NPS for defense and indemnification. Despite the fact that NPS indicated on its Annual Events Application that the Kids Fun Days would include inflatables, the New Hampshire Insurance Co. (NHI) claims administrator wrote a letter to the Indians on August 11, 2010, notifying the team that the Johnson/Brown suit is not covered under the terms of the insurance policy. In the letter, NHI referenced the policy’s endorsement, which excluded coverage for bodily injury “[a]rising out of ownership, operation, maintenance or use of any ‘amusement device.’”
NHI subsequently filed a third-party complaint against the Indians and a counterclaim against NPS. The Cleveland Indians, in turn, filed a counterclaim against NHI for a declaratory judgment, and a fourth-party complaint against CSI.
On June 21, 2011, CSI moved for summary judgment.
In its complaint, the Indians sought a declaration “as to the rights and legal relations of the parties” under the insurance policy issued by NHI. The Indians also allege the following counts against CSI: (1) Count I – Negligence, (2) Count II – Innocent Misrepresentation, (3) Count III – Fraud Based on False Representation, (4) Count IV – Silent Fraud.
The Indians’ first count suggested that CSI “had a duty to provide coverage within a commercial general liability policy for bodily injury arising out of the use, maintenance, or operation of inflatables” and that CSI “breached that duty by failing to review and properly process the insurance application.”
CSI countered that it served only as the insurance agent for NPS, and therefore did not owe a duty to the Indians. “As a result, CSI insists” correctly, according to the court, “that the Indians cannot establish a prima facie case of negligence.”
“The only named insured on the insurance contract itself is NPS,” wrote the court. The Indians, “as a third party, must therefore show that CSI owed the Indians a duty that is distinct from CSI’s contractual obligations to NPS.”
The Indians’ second count alleged that it was “an intended, third-party beneficiary of the contract between NPS and CSI, and that CSI made material misrepresentations relating to the coverage with respect to claims arising out of the operation of an inflatable slide at the Kids Fun Day events.”
The fact that the Indians were “not privy to any contract with CSI” undercut this count, according to the court. The judge was also unmoved by the team’s argument that “an exception exists to the privity of contract requirement when a third-party beneficiary alleges fraud,” since the Indians “fail to cite any relevant authority for its position.”
Indians alleged a fraudulent misrepresentation claim in count III of its claim, arguing that, “via the Certificate of Insurance, CSI fraudulently misrepresented the fact that NPS’s insurance policy covered bodily injury arising out of the use of inflatables.”
CSI countered that “it never made any representations to the Indians, and therefore could not have made any fraudulent misrepresentations. The court agrees that the Certificate of Insurance does not make any positive, fraudulent representations. The certificate does not describe the insurance policy in any detail, and merely states that NHI has issued Commercial General Liability Insurance to NPS, which is an entirely accurate statement. None of the terms of the policy, except for the effective dates of the policy and the coverage limits, are represented on the face of the certificate.”
As for the fourth and final silent fraud claim, the Indians alleged that CSI “suppressed material facts, namely, that NPS was not covered for injuries resulting from the use of inflatables, and that the Indians relied upon the false impression made by CSI.
“The elements of a claim for silent fraud are: ‘(1) a material representation which is false; (2) known by defendant to be false, or made recklessly without knowledge of its truth or falsity; (3) that defendant intended plaintiff to rely upon the representation; (4) that, in fact, plaintiff acted in reliance upon it; and (5) thereby suffered injury[.]’ McMullen v. Joldersma, 174 Mich.App. 207, 213, 435 N.W.2d 428 (1988). ‘The false material representation needed to establish [silent] fraud may be satisfied by the failure to divulge a fact or facts the defendant has a duty to disclose.’ Clement-Rowe v. Mich. Health Care Corp., 212 Mich.App. 503, 508, 538 N.W.2d 20 (1995). ‘To establish a claim of silent fraud, a plaintiff must allege that the defendant intended to induce her to rely on a nondisclosure and that the defendant had an affirmative duty to disclose.’ Miller v. Wells Fargo Bank, N.A, 2010 Mich. App. LEXIS 506, 2010 WL 935645 at *3 (Mich.App. 2010) (emphasis added).
“The Indians’ silent fraud claim fails for reasons already discussed. First, as stated in Part I, above, CSI owed no duty to the Indians because CSI did not have a contractual or professional relationship with the Indians. Second, CSI owed no duty to the Indians because the Certificate of Insurance did not purport to make any representations as to the terms, benefits, or privileges promised under the policy. See West American Ins. Co. Mich.App. at 311.”
National Pastime Sports, LLC v. CSI Insurance Group et al.; E.D. Mich.; Case No.: 11-11378, 2011 U.S. Dist. LEXIS 132640; 11/17/11
Attorneys of Record: (for plaintiff) Howard W. Burdett, Jr., Boyle Burdett, Grosse Pointe Park, MI. (for CSI Insurance Group Defendant) David C. Anderson, Collins, Einhorn, Southfield, MI. (for New Hampshire Insurance Company defendant): Jeffrey C. Gerish, Plunkett & Cooney, Bloomfield Hills, MI; Nicole E. Wilinski, Plunkett Cooney, Bloomfield Hills, MI. (for CLEVELAND INDIANS Baseball Company, Inc. third party defendant) George M. DeGrood, III, Michelle A. Thomas, Thomas, DeGrood, Southfield, MI.
