Tooling, Manufacturing & Technologies Ass'n v. Hartford Fire Insurance

693 F.3d 665, 2012 WL 3931802, 2012 U.S. App. LEXIS 19023
CourtCourt of Appeals for the Sixth Circuit
DecidedSeptember 11, 2012
Docket10-2480
StatusPublished
Cited by17 cases

This text of 693 F.3d 665 (Tooling, Manufacturing & Technologies Ass'n v. Hartford Fire Insurance) is published on Counsel Stack Legal Research, covering Court of Appeals for the Sixth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Tooling, Manufacturing & Technologies Ass'n v. Hartford Fire Insurance, 693 F.3d 665, 2012 WL 3931802, 2012 U.S. App. LEXIS 19023 (6th Cir. 2012).

Opinions

BATCHELDER, C.J., delivered the opinion of the court in which NORRIS, J., joined, and STRANCH, J., joined in Sections I. and II.A. STRANCH, J. (pp. 678-81), delivered a separate opinion concurring in part and dissenting in part.

OPINION

ALICE M. BATCHELDER, Chief Judge.

At its core, an insurance policy is simply a contract between the insurer and the insured, with each entitled to the benefit of the bargain. This statement encapsulates two self-evident but fundamental tenets of contract law — that generally speaking: (1) the benefit of the bargain directly accrues only to the parties to the contract, unless the contract otherwise provides; and (2) the parties are entitled only to the benefit of their bargain, that is, the bargain represented in the written contract. These two tenets decide this appeal.

Here, the insured is Plaintiff-Appellant Tooling, Manufacturing & Technologies Association (TMTA) and the insurer is Defendant-Appellee Hartford Fire Insurance Company. The insurance policy at issue, known as the CrimeShield Policy (Policy), is a type of employee fidelity policy designed to transfer the risk of employee theft from the TMTA to Hartford. The TMTA’s decision to insure against employee theft was prescient — almost immediately after the parties signed the Policy a TMTA employee began diverting funds into his own accounts that would have otherwise, in the fullness of time, accrued to the TMTA.

The problem for us is that the pilfering employee, one Mark Tyler, diverted funds not from the TMTA but from the TMTA Insurance Agency (Agency) — a limited liability corporation controlled by the TMTA and from which the TMTA receives a significant portion of its income. And the Agency is not a named insured under the Policy. Hartford refuses to pay the policy because of its view that the Agency, not the TMTA, suffered the loss and the Agency is not a named insured. The TMTA appeals to us to enforce its interpretation of the Policy, arguing that the Agency is covered because the TMTA is covered, and that any loss to the Agency is actually a direct loss to the TMTA — direct losses being covered under the Policy’s express terms.

So is Hartford’s refusal to pay the TMTA’s claim on the Policy a breach of contract? The issues are twofold: (1) may we consider the Agency a party directly covered by the policy, and (2) regardless of the resolution to the first issue, does the Policy otherwise provide for the TMTA to recover funds that were diverted from the Agency? Because the answer to both questions is “no,” there is no breach, and we affirm the judgment of the district court.

[668]*668I.

The TMTA is a Michigan trade association whose members are engaged primarily in the manufacturing and tooling industry. The TMTA arranges the sale of insurance policies to its members as part of its normal activities, but because Michigan law does not permit the TMTA to collect commissions directly from insurance companies,1 the TMTA created the Agency as a licensed producer to facilitate receipt of the commissions. The district court noted:

[The Agency] is a Michigan limited liability company that brokers insurance policies for TMTA members. TMTA is the Agency’s sole member and TMTA’s entire revenue derives primarily from the Agency in the form of commissions from insurance companies paid directly to the Agency for brokering policies to TMTA members. The Agency has no employees and its property consists only of the commissions paid to it by insurance companies for sales of policies to TMTA members. TMTA accounts for all of the Agency’s income as part of its federal and state filings. Thus, each year, TMTA receives the entire benefit or loss from the Agency’s operations.

Tooling, Mfg. & Techs. Ass’n v. Hartford Fire Ins. Co. (Tooling I), No. 08-cv-11812, 2010 WL 3464329, at *2 (E.D.Mich. Aug. 30, 2010). The TMTA hired Tyler to be the Agency’s general manager “for the purpose of brokering life, health, disability, and accident insurance for TMTA members,” but Tyler was paid and employed by the TMTA, not the Agency. Id.

In September 2003, the TMTA— then known as the Michigan Tooling Association — procured the Policy from Hartford. The Policy covered employee theft (up to $300,000), depositor’s forgery, non-employee theft, disappearance and destruction, and computer and funds-transfer fraud. In addition to the TMTA, the Policy and its amendments listed six other named insureds2 — but not the Agency— and the Policy provided that “[a]n ‘employee’ of any Insured is considered to be an ‘employee’ of every Insured.” The employee theft provision of the Policy provided that: “We will pay for loss of or damage to ‘money’, ‘securities’ and ‘other property’ which results directly from ‘theft’ by an ‘employee’, whether or not identifiable, while acting alone or in collusion with other persons.” The parties now debate the meaning of the word “directly,”3 but do not dispute that Tyler met the definition of employee under the Policy or that there was a theft.4

[669]*669The Policy also contained a number of exclusions to coverage, including:

Loss that is an indirect result of any act or “occurrence” covered by this Policy including but not limited to loss resulting from
1. your inability to realize income that you would have realized had there been no loss of or damage to “money”, “securities” or “other property”.
2. payment or damages of any type for which you are legally liable. But we will pay compensatory damages arising directly from a loss covered under this policy.
3. payment of costs, fees or other expenses you incur in establishing either the existence of or the amount of loss under this policy.

The parties also dispute the applicability of this provision to the facts of the case. Finally, the Policy defines “theft” as “the unlawful taking of ‘money’, ‘securities’ or ‘other property’ to the deprivation of the insured,” and further that “this Policy is for your [the named insured’s] benefit alone and no other person has any rights or benefits.”

In early 2007, Tyler resigned from his position at the TMTA. Soon thereafter, the TMTA discovered that, using entities that he owned, Tyler had re-directed to himself commission payments that were due to the Agency, in effect stealing over $715,000 in commissions that would have eventually accrued to the TMTA. Tooling I, 2010 WL 3464329, at *2. The TMTA notified Hartford of the theft and filed a claim against the Policy. The TMTA and the Agency also filed a suit in state court against Tyler alleging misappropriation of commissions. Id.; Tooling, Mfg. & Techs. Ass’n v. Tyler (Tyler I), No. 07-081120-CZ, slip op. at 5-6 (Mich.Cir.Ct. Aug. 20, 2009). Although the TMTA and the Agency prevailed in the state court lawsuit against Tyler, Hartford refused to make a determination of coverage. See Tooling, Mfg. & Techs. Ass’n v. Tyler (Tyler II), No. 293987, 2010 WL 5383529, at *1 (Mich. Ct.App. Dec. 28, 2010); Tooling I, 2010 WL 3464329, at *2.

The TMTA brought this action in state court seeking a declaratory judgment and damages for breach of contract, and Hartford removed the case to federal district court on the basis of diversity jurisdiction.

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Cite This Page — Counsel Stack

Bluebook (online)
693 F.3d 665, 2012 WL 3931802, 2012 U.S. App. LEXIS 19023, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tooling-manufacturing-technologies-assn-v-hartford-fire-insurance-ca6-2012.