ZMCC Props. LLC v. PrimeOne Ins. Co.

ZMCC PROPERTIES LLC, Plaintiff, v. PRIMEONE INSURANCE COMPANY, Defendant.

Case No. 19-12428

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

March 8, 2021

OPINION AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Plaintiff ZMCC Properties LLC brings this action for breach of contract and reformation. (ECF No. 28, PageID.736-47.) Defendant PrimeOne Insurance Co. refused to compensate Plaintiff for fire damage under a property insurance policy. (Id., PageID.736.) Plaintiff did not own the property at the time of the fire, (id., PageID.730-31), and Defendant asserts that the fire was intentionally set and fraudulent. Defendant declined to pay either the policyholder, Edition BC Owners, LLC ("Edition"), who occupied the property, or Plaintiff. (Id., PageID.735-36.)

Defendant has filed a motion for summary judgment, claiming the insurance policy is void due to fraud. (ECF No. 34.) Plaintiff has filed a motion for partial summary judgment. (ECF No. 32.) It argues that a policy endorsement modified the insurance contract in a way that could potentially expand Plaintiff's coverage. The motions have been thoroughly briefed. (ECF Nos. 37, 40, 44, 45.) The court has reviewed the record and does not find a hearing to be necessary. E.D. Mich. LR 7.1(f)(2). For the reasons provided below, Defendant's motion will be denied and Plaintiff's motion will be granted.

I. BACKGROUND

The following facts are taken from the record established by both parties, and each material fact is either agreed upon or lacks contradictory evidence.

Plaintiff is a Michigan corporation owned at least in part by Ziyad Zora. (ECF No. 34, PageID.1018; ECF No. 37, PageID.1259.) Zora is also the principal for ZMCC Inc., which previously operated an adult entertainment business at the covered property. (ECF No. 34, PageID.1018; ECF No. 37, PageID.1259) Plaintiff owned the covered property while ZMCC Inc. operated the business. (ECF No. 34-10, PageID.1115; ECF No. 34, PageID.1019.)

Zora's adult entertainment business had repeated instances of statutory and regulatory violations. On November 15, 2014, ZMCC Inc. was charged with twenty-two violations of state law and Detroit city code. (ECF No. 34-4, PageID.1047-55.) On April 1, 2015, an administrative law judge found that ZMCC Inc. had committed all twenty-two violations. (Id.) Among other offenses, ZMCC Inc. apparently permitted the sale of controlled substances on its business premises, employed illegal dancers, and employed workers engaging in indecent exposure. (Id.) ZMCC Inc. was fined and received a short license suspension. (Id., PageID.1055-56.)

On November 9, 2015, ZMCC Inc. and Zora were issued a Notice of Intent to Suspend/Revoke Business License. (ECF No. 34, PageID.1018; ECF No. 37, PageID.1259; ECF No. 34-5, PageID.1069.) A hearing was held before the City of Detroit, Buildings, Safety, Engineering and Environmental Department, and on February11, 2016, ZMCC Inc.'s business license was revoked for a period of three months. (ECF No. 34-6, PageID.1073.) Zora was permitted to reapply for a license after the suspension so long as he stipulated to restrictions on ZMCC Inc.'s business operations. (Id.; ECF No. 34, PageID.1018; ECF No. 37, PageID.1259.) The hearing officer noted significant evidence of illegal drug use, indecent exposure, and violations of nude dancing regulations. (ECF No. 34-6, PageID.1075.) ZMCC Inc. appealed the decision to Wayne County Circuit Court, which affirmed the license revocation on August 13, 2016. (ECF No. 34, PageID.1019; ECF No. 37, PageID.1260.) On August 24, 2016, Detroit Police confiscated ZMCC Inc.'s and Zora's business license and closed their operations. (ECF No. 34, PageID.1019; ECF No. 37, PageID.1260.)

Soon after the City of Detroit decided on February 11, 2016, to revoke the business license, Plaintiff and ZMCC Inc. entered into negotiations with third parties to sell the property and business. (ECF No. 34-10, PageID.1136-39.) On October 17, 2016, in a series of agreements, ZMCC Inc. closed the sale of its adult entertainment business to Edition and Plaintiff closed the sale of the property to Conant Property Management ("Conant"). (ECF No. 34, PageID.1019-20; ECF No. 37, PageID.1260.) Zora signed the land contract on behalf of Plaintiff, and Edition was named as a guarantor. (ECF No. 34-11, PageID.1143; ECF No. 32-4, PageID.880-81.)

Plaintiff's land contract required that it be "named as an additional insured on [an] insurance policy" for the property. (ECF No. 32-4, PageID.878; ECF No. 32, PageID.817-18; ECF No. 40, PageID.1400.) An insurance agent for Edition and Conant contacted Defendant to obtain a package property and commercial liability insurance policy. On October 10, 2016, the agent submitted forms to obtain a policy quote. (ECFNo. 34-13.) As part of the application for commercial liability protection, the form asked if "any crimes [have] occurred or been attempted on your premises within the last three (3) years." (Id., PageID.1167.) The answer provided was "no." (Id.) This initial set of forms was unsigned. (Id.) Defendant responded to the form on October 12, 2016, and a quote was issued. (ECF No. 32-7, PageID.902-04; ECF No. 32, PageID.819; ECF No. 40, PageID.1400.)

On October 13, 2016, Edition's insurance agent responded to the quote, accepted its prices, and provided Defendant additional signed forms. (ECF No. 32-7, PageID.902-10; ECF No. 32, PageID.819; ECF No. 40, PageID.1400.) The form listed Plaintiff as an "additional insured" and "loss payee." (ECF No. 32-7, PageID.908.) Defendant soon thereafter issued a policy naming Edition as the insured for the property and commercial liability insurance. (ECF No. 32-8, PageID.912.) Plaintiff was named as an "additional insured" for the commercial liability coverage and a "loss payee" for the property insurance. (Id., PageID.917-19.) The policy covered from October 13, 2016 to October 13, 2017. (Id., PageID.912.)

The criminal activity appears to have continued after Edition assumed ownership of the business. Detroit Police were summoned in at least ten incidents requiring police response on the insured property between October 2016 and October 2017. (ECF No. 34, PageID.1022; ECF No. 37, PageID.1263-64.) Reports include an arrest of a security guard for possessing an illegal firearm, club security trapping a woman in a room and taking her car keys and her concealed firearm, brandishing of firearms, a woman requiring medical assistance after "someone gave her some type of pill," and a "shootout" with assault rifles. (ECF No. 34-18, PageID.1188, 1227, 1211, 1225, 1215, 1206, 1200.)

On October 12, 2017, Edition applied to renew its policy with Defendant for another year. (ECF No. 37-6.) The application form presented by Defendant specifically asked Edition to list the "[n]umber of police calls within the past year" and "describe" them "in detail." (ECF No. 37-6, PageID.1340.) Edition provided no response. (Id.) The application also did not identify Plaintiff as an "additional insured" or "loss payee." (Id., PageID.1339.)

Defendant renewed the policy for October 13, 2017, to October 13, 2018. (ECF No. 32-11, PageID.943.) Unlike when the policy was first issued, Plaintiff was included for neither property nor commercial liability insurance. (ECF No. 32, PageID.820; ECF No. 40, PageID.1400.)

On March 7, 2018, the building was damaged in a fire. (ECF No. 32, PageID.820; ECF No. 40, PageID.1400.) A week after the fire, on March 15, 2018, an agent contacted Defendant and asked that Plaintiff be added as a "mortgagee" and "loss payee" (ECF No. 32, PageID.821; ECF No. 40, PageID.1400.) Defendant agreed and issued two endorsements. (ECF No. 32, PageID.821; ECF No. 40, PageID.1400.) Endorsement # 1 named Plaintiff as a mortgagee for the commercial liability insurance. (ECF No. 32-13, PageID.960-61.) Endorsement # 2 named Plaintiff as a loss payee for the property insurance. (Id., PageID.962-63.)

On March 15, 2019, Plaintiff and Defendant began to discuss Plaintiff's rights to payment under the insurance policy as a result of the March 7, 2018, fire. (ECF No. 32, PageID.821; ECF No. 40, PageID.1401.) On March 26, 2019, Defendant issuedEndorsement # 4.¹ (ECF No. 32, PageID.822; ECF No. 40, PageID.1401.) The endorsement retroactively named Plaintiff a "lender's loss payee" for the October 2017 to October 2018 policy. (ECF No. 32-17, PageID.976-77.) According to Plaintiff's complaint, this change was significant because "[u]nlike the 'Loss Payable' clause, under the 'Lender's Loss Payable' clause, the acts of the named insured, i.e.[,] EDITION, cannot preclude ZMCC's [Plaintiff's] right to receive loss payment for damage to the BUILDING caused by or resulting from a covered cause of loss, including fire." (ECF No. 28, PageID.734.) Stated differently, Plaintiff claims it would be entitled to payment as a lender's loss payee even if Edition's actions, i.e., arson, precluded Edition from receiving payment.

On June 12, 2019, Defendant issued two new endorsements that reversed the decision to name Plaintiff as a lender's loss payee. (ECF No. 32, PageID.822-23; ECF No. 40, 1401-02.) Endorsement # 5 stated "Endorsement # 4 is Flat Canceled; Coverage is Null and Void." (ECF No. 32-20, PageID.986.) Endorsement # 6 recategorized Plaintiff under a "Contract of Sale" provision for the property insurance; Plaintiff fell outside lender's loss payee coverage. (ECF No. 32-21, PageID.988-89.)

The next day, on June 13, 2019, Defendant denied coverage for Edition, asserting that Edition "set or procured the setting of the fire that damaged the insured property." (ECF No. 32-22, PageID.991.) On June 18, 2019, Plaintiff contacted Defendant and asserted that it was owed payment as a lender's loss payee. (ECF No. 32-23.) Defendant responded on June 25, 2019, stating Plaintiff was properly categorized under the "Contract of Sale" prov...