Hamilton was a passenger in a car that had been stolen. The car was involved in an accident and Hamilton was severely injured. The Henry Ford Health System provided medical services to Hamilton and then sued Esurance Insurance Company to recover its expenses as a no-fault benefit. Esurance denied liability. The trial court found in favor of Esurance and Ford Health appealed. This case is Henry Ford Health System v. Esurance Insurance Company, 2010 WL 2292084 (Mich.App.).

The evidence in this case showed that Hamilton 's girlfriend, Profic, borrowed a Jeep from an acquaintance, knowing that it had been stolen earlier from its owner. There is no claim that Hamilton participated in directly taking the vehicle from its owner; he was simply picked up by Profic and drove around with her as a passenger. Under the Michigan no-fault act, a person is not entitled to be paid personal protection insurance benefits for accidental bodily injury if, at the time of the accident, the person using the vehicle had taken it unlawfully. Esurance argued that this clause barred Hamilton from recovering any no-fault benefits. The Ford Health System countered that Hamilton never engaged in the act of “taking” the Jeep from anyone; rather, it had already been taken by the time he rode along as a passenger.

The appeals court noted that the word “take” means to get something into one's hands or possession through a voluntary action. Based on the facts here, Hamilton never engaged or participated in an act through which he took possession or gained control of the Jeep; he never took the vehicle from anyone. There was no doubt that a case could be made that Hamilton was using the Jeep, but the court pointed out that the state legislature did not write the statute to reflect that PIP benefits are not recoverable by a person who was using a motor vehicle unlawfully, only that such benefits are not recoverable by a person who had unlawfully taken the vehicle. Stating that a person had taken a vehicle is not synonymous with saying that a person had used the vehicle; the terms have different meanings.

The court found that Hamilton 's mere use of the Jeep as a passenger did not establish that he had taken the vehicle, which is a prerequisite for imposition of the coverage exception. The vehicle must be one that the injured person was using and one which the person had taken. In this instance, there was use, not a taking. Therefore, the judgment of the trial court was reversed and the case was remanded for entry of judgment in favor of the Ford Health System.

Editor's Note: The Michigan Court of Appeals, in this case, offers an analysis of that state's no-fault statute, and presents a thorough discussion of receiving PIP benefits under differing scenarios. While this judgment is applicable only to Michigan , the analysis and presentation by the court offers useful information pertaining to no-fault coverage.

Meaning of “Theft” within Vandalism Coverage

The insureds, who owned a building, brought a lawsuit against their commercial property insurer, seeking to recover the amount they alleged was owed under the policy. The issue was whether a theft had occurred which, if it did, would exclude coverage for the claim. This case is Nautilus Insurance Company v. Steinberg, 2010 WL 2636141 (Tex.App.—Dallas ).

Steinberg and Rudberg owned a building in Dallas and insured it through a policy issued by Nautilus Insurance Company. The policy covered vandalism but the vandalism provision contained a theft exclusion that stated: we will not pay for loss or damage caused by or resulting from theft, except for building damage caused by the breaking in or exiting of burglars.

In March of 2007, Leonard Heard climbed onto the roof of the building, opened up the air conditioning units located there and removed copper pipes and electrical wiring. While he was still on the roof, the police arrested him. The arresting officer listed theft as the offense, but Heard was indicted and convicted of felony criminal mischief. The insureds notified the insurer of the damage done to their property and sought reimbursement. The insurer denied coverage due to the theft exclusion. The insureds sued and the trial court found in favor of the insureds. The court said that Nautilus failed to show that the exclusion applied since Heard had never removed the property from the roof of the building. The insurer appealed.

Nautilus contended that the trial court erred in concluding that the theft exclusion did not bar coverage. The appeals court noted that the policy did not define “theft”, but state law did. According to the Texas Penal Code, a person commits theft when he unlawfully appropriates property with the intent to deprive the owner of said property; to appropriate property, a person must acquire or exercise control over property other than real property. Therefore, for the exclusion in the policy to apply, the court said that the insurer must show by a preponderance of the evidence that Heard exercised control over the insureds' property with the intention of depriving them of the property's possession, enjoyment, or use.

The undisputed evidence in this case showed that Heard removed copper pipes from the air conditioning units located on the roof of the building. The evidence also showed that both Heard and the pipes were still on the roof when he was arrested. The trial court determined that for a theft to occur, it required that the property be removed from the premises. The appeals court said that this construction of the term “theft” did not comport with Texas law. The appeals court said that, to show theft under Texas law, it is not necessary to establish that the property was removed or carried away from the premises. Any removal of property, no matter how slight, from its customary location is sufficient to show control over the property for purposes of theft. The evidence here showed that Heard removed the copper pipes from the units and this act was sufficient to show control over the property for purposes of theft. Therefore, to the extent that the trial court concluded the policy's theft exclusion did not apply because Heard did not exercise control over the property, its conclusion was wrong.

The appeals court also addressed the trial court's finding that the copper pipes were not personal property because they were originally affixed to the building. The court said this conclusion was also wrong. Once the pipes were separated from the building, they became property that could be stolen; the facts that the pipes were originally part of a fixture does not prevent them from being subject to theft as personal property.

It was clear to the appeals court that Heard exercised control over another's personal property. However, this was not sufficient to convince the court that a theft occurred. In order for a theft to occur and have the exclusion apply, the insurer had to show that Heard had the intent to deprive the building owners of the property. This point cannot be implied; intent is a question of fact to be determined by the trier of fact from all of the surrounding circumstances. Intent was a point not addressed by the trial court but the appeals court found it to be the ultimate issue; coverage in this case depended on the determination of Heard's intent. If Heard intended to deprive the insureds of their property, then a theft occurred and the exclusion would prevent any coverage. But, since this issue was not addressed, the ruling of the trial court was reversed and remanded.

Editor's Note: This is a curious decision in that the appeals court seemed to be heading toward an outright ruling that a theft had occurred according to its interpretation of Texas law. But then, the key point became the issue of intent. The criminal in this case had control over personal property, and that brought things close to a “theft” according to state law, but the intent of the criminal was not proven by the insurer, and this had to happen in order for a theft to occur and the exclusion to apply.

This case is presented to not only describe the elements of a theft (albeit under Texas law), but also to make the point that, if an insurance policy does not define its important terms, a court will do it. This is especially true when exclusions are involved.

The Federal Insurance Office

By Prof. William H. Byrnes and Robert Bloink, Esq.

The following is an article published in AdvisorFX, a National Underwriter product that focuses on estate planning, investments, life insurance, retirement planning, wealth management, and annuities.

Although regulation of insurance generally has been left to the states, the Wall Street Reform Act may foreshadow future federal oversight of the industry. The Act creates the Federal Insurance Office (FIO) within the Treasury, which will monitor all components of the insurance industry—excluding the health, crop, and long-term care sectors. The FIO is not a regulatory or supervisory body but will serve the following functions:

(1) Gathering information about the insurance industry, conducting studies on the industry, and generating reports for Congress and Executive Branch

(2) Locating regulatory gaps and other issues in the insurance industry that may contribute to systemic risk

(3) Administering the Terrorism Risk Insurance Program

(4) Monitoring minority and other underserved communities' access to affordable insurance

(5) Making recommendations to the Financial Stability Oversight Committee (also created by the Act) that particular insurers be supervised as a nonbank financial company by the Federal Reserve

(6) Coordinating the federal response to international insurance related matters, and

(7) Negotiating international trade agreements that preempt inconsistent state regulations.

The FIO is granted the power to consult with state regulators in carrying out these functions.

Mandated Studies

The Act requires the newly formed FIO to conduct a series of comprehensive studies of the insurance industry and provide Congress with recommendations on how to modernize insurance regulation in the United States . Among other topics, the studies will weigh the costs, benefits, and feasibility of Federal regulation of the insurance industry.

Information Gathering

The FIO will have the power to require insurers and their affiliates to submit data to it as needed for the FIO to carry out the functions mandated by the Act. However, the Office's information gathering power will not extend to small insurers. The FIO's information gathering power includes the power to subpoena information from insurers. Before the FIO is permitted to gather data directly from insurers or subpoena them for information, it is required by the Act to determine whether the information is available from other sources, such as federal agencies, state regulators, or other public sources. In conducting its information-gathering function, the FIO is empowered to enter into information-sharing agreements with state regulators.

Future Federal Regulation of Insurance?

Although the FIO is not given regulatory authority by the Wall Street Reform Act, the studies mandated by the Act are telling. By studying the industry as a whole and the practicability of federal regulation of insurance, the feds are signaling their increased interest. And given the role of insurance companies like AIG in the financial crisis, it would be naïve to think that the FIO studies will find that federal regulation of insurance companies is absolutely unnecessary. Although comprehensive federal regulation of insurance may not be coming anytime soon, more federal involvement in the insurance industry is inevitable.

The authors invite your questions and comments by posting them in the AdvisorFX blog AdvisorFYI, or by calling the Panel of Experts.