Appeals court: MML should pay Kalkaska claim in employee insurance case

Jordan Travis, The Record-Eagle, Traverse City, Mich.
·3 min read

Sep. 10—KALKASKA — Michigan Municipal League will have to pay Kalkaska's liability insurance claim after all, according to the state Court of Appeals.

Judges Michael F. Gadola, Allie Greenleaf Maldonado and Christopher M. Murray recently ruled there's no ambiguity in the liability insurance contract between the nonprofit and village.

That reverses a decision by 46th Circuit Court Judge Colin Hunter that a jury should decide whether exclusions in the insurance policy applied to Kalkaska's situation, and whether the village terminating those benefits should be considered administering the benefits program.

The nine-year saga stems from the village's decision in 2014 to end lifetime health benefits for retired village employees and their spouses. A trust fund covering those benefits ran out of money in 2011, and in 2014 village leaders opted to stop paying into it out of Kalkaska's general fund.

Village employees and spouses Penny and Mel Hill, Lila and Richard Ramsey, and Helen Chew-Artress and Glenn Artress sued the village after the cuts, claiming breach of contract, and in 2018 the village settled one suit by agreeing to pay $1.63 million after losing an earlier one.

Michigan Municipal League denied the village's claim later that year that the settlement and lawsuit judgment should be covered losses under the liability insurance policy between the two. Kalkaska, in turn, sued MML in 2020, accusing the nonprofit of wrongfully denying the claim.

Attorneys for MML argued that the insurance policy doesn't cover an intentional breach of contract, while Kalkaska's attorneys claimed the village was administering its benefits program when it ended lifetime health care for retirees. Damages caused by a wrongful act committed while administering an employee benefits program should be covered by the liability insurance policy.

Appeals court judges agreed, ruling that the policy insured Kalkaska against damages caused by its own wrongful acts, whether intentional or mistaken.

The judges were unmoved by MML's argument that Kalkaska was trying to shift its obligation from village to insurer to pay for retirees' health benefits.

The village did agree to pay those benefits in a 1996 contract, the appeals court agreed. While MML argued that pre-existing obligation didn't become the insurer's after Kalkaska broke that agreement, the three judges countered that damages arising from the breach of such a contract are exactly what the insurance policy covers.

"To conclude that plaintiff's obligation to pay its employees arose from its contractual obligation and not from its breach of its contractual obligation hints at sophistry," the judges wrote. "The obligation to pay damages under a contract only ever arises from breach of the contract; without a breach of the contract there are no damages and therefore no obligation to pay the damages. Moreover, that reasoning likely would preclude any claim anticipated under the policy."

Gadola, Maldonado and Murray sent the case back to 46th Circuit Court so a judgment in Kalkaska's favor could be entered, although MML could appeal to the state Supreme Court.

Thomas Daniels, an attorney for MML, said it's likely the nonprofit will ask the high court to reconsider, although a final decision hasn't been made yet.

"We're very disappointed and we don't believe that it's a correct decision," he said. "This is the first time in the country that a court has made such a ruling regarding an employee benefits liability coverage."

Jonathan Moothart, an attorney for Kalkaska, said he was pleased with the outcome and grateful for appeals court judges' "thoughtful and thorough analysis."

"I know that the folks in Kalkaska that are in charge here and I intend to continue to vigorously pursue their insurance claims, which we believe to be meritorious," he said.