Fail to Read the Policy at Your Peril

Post 4747

Never Assume You Are Covered

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Five Waters Properties, LLC, appealed the trial court order granting defendants, Mark Bone and Bailey Agency Inc, summary disposition.

In Five Waters Properties, LLC, doing business as Saginaw Carbon v.  Mark C. Bone and Bailey Agency Inc., No. 366075, Court of Appeals of Michigan (February 22, 2024) the Court of Appeals resolved the dispute.


The failure of the Edenville Dam and subsequent failure of the Sanford Dam in May 2020, which resulted in a devastating flood that caused substantial damage to homes and businesses in Midland County, Michigan. Five Waters was one of the businesses affected by the flooding.

Matt Reineke on behalf of Five Waters worked with defendant Mark Bone, an independent insurance agent employed by Bailey Agency Inc, to procure a commercial insurance policy for Five Waters. Bone testified that Matt Reineke requested insurance for his business. He did not recall the specific language of the request. In order to determine adequate coverage amounts, he visited Five Waters’ facility and walked through it with Matt Reineke. According to Matt Reineke, he determined the value of the equipment and provided that information to Bone. The coverage limits were determined using replacement value. Like Bone, Matt Reineke did not testify as to any specific language that he used when requesting insurance for Five Waters. Following the on-site meeting, Bone procured a commercial insurance policy for Five Waters that had replacement coverage for Five Waters’ equipment in the amounts determined by Matt Reineke.

Shortly after the policy was purchased in 2017, the Midland area experienced flooding. Bone sent a letter to the Reinekes, advising them that, in light of the recent flooding, it was “important that we review your policy with you.” The letter added that some customers had been unaware of their coverage for water back-up and noted that it would be the “perfect time” to review to ensure “the appropriate amount of coverage.” The Reinekes were advised to contact defendants to schedule a review. Although Julie Reineke was aware of the flooding, Matt Reineke did not recall receiving the letter from defendants in 2017. Ultimately, the Reinekes did not contact defendants to review Five Waters’ policy.

Five Waters’ commercial insurance policy was renewed in 2018, 2019, and 2020. Each year they received correspondence inviting them to schedule a review of Five Waters’ policy with defendants. They did not do so. Moreover, they did not fully read the policy procured for Five Waters by Bailey Agency.

After the 2020 flooding, Matt Reineke contacted Bone. It was at that time that he learned from Bone that Five Waters did not have flood insurance. He stated that he was “completely shocked” because he thought that the business was covered. He later read his policy, however, and it clearly provided that damages caused by flooding, including flooding damage occurring as the result of a dam failure, was expressly excluded from the policy. Five Waters filed a claim with their insurance company, but, because the damage caused by the flood was excluded from its coverage, the claim was denied.


To establish a prima facie case of negligence, a plaintiff must prove four elements:

  1. a duty owed by the defendant to the plaintiff,
  2. a breach of that duty,
  3. causation, and
  4. damage.

Generally, an insurance agent owes a duty to procure insurance coverage requested by an insured. Further, an insurance agent does not generally owe a duty to advise an insured as to the adequacy of its insurance coverage.

In this case, Five Waters contends that the no-duty-to-advise rule applies only to captive insurance agents, not to independent insurance agents. The Court, however, has rejected that proposition in multiple unpublished opinions.

The Plaintiffs asked the Court of Appeal to eliminate the general no-duty-to-advise rule and replace it with a rule that would impose a duty to advise in cases such as the Five Waters case which, to be perfectly clear, would apparently be all cases concerning the purchase of insurance.

The Court of Appeals declined to do so in light of the public policy established by the Legislature’s active role in this area and the previously noted compelling reasons that militate against the imposition of such a duty.

Five Waters asserts that a duty to advise arose because Bone assumed an additional duty by either express agreement with or promise to Five Waters. In support, Five Waters points out that Bone performed an on-site inspection to assess the risk to Five Waters and that Bone had direct knowledge that the area had previously flooded. Five Waters argued that, as a result, Matt Reineke was “left with the impression and confidence that his business was fully covered.” Yet, there is no record evidence suggesting that Bone expressly agreed to assume an additional duty to advise or that he expressly promised Five Waters that he assumed such an additional duty. The fact that Matt Reineke had the impression that he was fully covered does not create a special relationship.

Because there is no special relationship between defendants and Five Waters, the Court of Appeal concluded that defendants did not have a duty to advise Five Waters as to the adequacy of its coverage.

In this case, Five Waters never requested flood insurance. And, as indicated above, defendants did not have a duty to advise Five Waters that its coverage might be inadequate as the result of not obtaining flood insurance.

Five Waters’ expert testified that Bone’s community involvement elevated his knowledge of the flooding issues in the area. He opined that, as a result of that elevated knowledge, Bone “probably” had a higher standard of care than other insurance agents.

In sum, the trial court properly determined that no genuine issue of material fact precluded granting summary disposition for defendants. The trial court correctly determined that defendants did not owe Five Waters a duty to assess and ensure the adequacy of the business insurance coverage and Five Waters failed to establish a special relationship that gave rise to a duty to do so.

When insureds suffer a loss that is not covered by the policy they purchased they seem intent on suing the insurance producer who failed to force the insured to purchase a policy that would cover the loss different from the policy they purchased. They sue the insurance producer and find that case law in almost every state only requires the producer to place the insurance required. Although the producer asked the Plaintiff to review their coverages because of potential flood risks they did not until their property was damaged by a flood. Too little too late.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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