Smith v. MEEMIC Ins. Co.
Decided September 10, 2009 Michigan Court of Appeals Docket No. 286140.
Plaintiff was injured in an auto accident with an uninsured driver, Gonzales. Plaintiff claimed uninsured motorist benefits from defendant. Plaintiff informed defendant that she was proceeding to obtain a default judgment against Gonzales and that she would be interested in settling her uninsured motorist claim. Subsequently, plaintiff obtained a default judgment against Gonzales for $50,000. Because plaintiff did not receive a response from defendant about settlement or arbitration of her uninsured motorist claim, she filed suit. Defendant moved for summary disposition arguing that the “no settlement/no judgment” clause of the policy excluded uninsured motorist coverage because plaintiff had obtained a default judgment against Gonzales without defendant’s consent. The default judgment against Gonzales was subsequently set aside. The trial court held that the moment plaintiff obtained the default judgment, she was in breach of contract and because the breach of contract included no remedial provision for retroactively undoing the violation, plaintiff’s breach was fixed at the time it was committed.
The Court of Appeals held that once the default judgment was set aside, it was as if no judgment had ever been rendered. The Court held that where an insurance policy contains an exclusionary provision that is triggered upon settlement or judgment without the knowledge or consent of the insurer, if the default judgment or settlement is set aside such that an insurer retains its right of subrogation, the exclusion does not apply.[su_box title=”Kallas & Henk Note”] A different panel of the Court of Appeals could have easily affirmed the trial court’s granting of summary disposition. This panel applied a no harm/no foul analysis. In a footnote, they were “trouble” by the insurer’s willingness to remain silent while plaintiff was prejudicing her position. [/su_box]
Acorn Investment Co. v. Michigan Basic Property Ins. Assoc.
Unpublished. Decided September 15, 2009 Michigan Court of Appeals Docket No. 284234.
Defendant insured a rental property owned by plaintiff. After plaintiff’s tenants moved out, the property was damaged by apparent thieves. Plaintiff sought coverage under a section of the policy that provided coverage for losses resulting from vandalism. Defendant denied plaintiff’s claim and plaintiff filed this action. The trial court granted defendant’s motion for summary disposition.
The named perils policy provided coverage for direct physical loss caused by vandalism. The Court of Appeals held that the vandalism peril applied to the loss caused by the removal of copper pipes, water meter, and other fixtures in the basement of the property. However, the policy excluded coverage for earth movement including earth sinking, rising, shifting, expanding, or contracting. The Court, relying on an unrebutted affidavit of an engineer who examined the property, rejected plaintiff’s argument that the exclusion did not apply to damage to the basement walls. The Court found that the exclusion applied regardless of whether the loss was also caused by vandalism because the policy contains broad language applying it to a loss “regardless of other causes or events that contribute or aggravate the loss, whether such causes or events act to produce the loss before, at the same time as, or after the excluded causes or events.” The Court remanded because the trial court erred in determining that there was no coverage for vandalism and therefore, factual development was necessary to determine the amount of loss, if any, recoverable for vandalism that was not subject to the exclusion.[su_box title=”Kallas & Henk Note”] The Court of Appeals found that subsequent damage caused by vandalism (water damage) is within the covered peril of vandalism. Because of the earth movement exclusion, however, the court found that property damage that falls within this exclusion is not covered, even if it is the ultimate result of the vandalism. This is a correct legal analysis. The real controversy shown by this case, however, is what constitutes vandalism when that term is not defined in the policy and what damage can be properly attributable to earth movement. [/su_box]
Triad Mechanical, Inc. v. Hastings Mut. Ins. Co.
Unpublished. Decided September 17, 2009 Michigan Court of Appeals Docket No. 287129.
In this worker’s compensation dispute, an attorney retained by defendant to defend a claim against plaintiff, settled the claim without plaintiff’s consent. On June 24, 2002, plaintiff sent a letter to the attorney defending the claim, objecting to the settlement. The attorney scheduled a redemption hearing on July 24, 2002. On July 2, 2002, the attorney sent a notice of the redemption hearing to plaintiff and informed plaintiff how to exercise its right to object to the settlement. A typographical error in the letter listed the redemption hearing date as June 24, 2002, rather than July 24, 2002. Plaintiff never exercised its right to object to the settlement and the magistrate approved the agreement. The trial court held that defendant was not obligated, under its duty to defend, to obtain plaintiff’s consent before it settled the worker’s compensation claim.
The Court of Appeals affirmed. Although there was no express contractual provision requiring consent prior to settlement, there was a statutory provision, MCL 418.836, which provided that a redemption agreement shall only be approved by a worker’s compensation magistrate if the magistrate finds that the redemption agreement is voluntarily agreed to by all parties. “If an employer does not object in writing or in person to the proposed redemption agreement, the employer shall be considered to have agreed to the proposed agreement.” The Court noted that plaintiff failed to satisfy the requirements of the statute by not objecting in writing or in person to the proposed redemption agreement and is therefore, considered to have agreed to it. The Court also noted that without an express contract or statutory provision providing otherwise, an insurance company in Michigan can settle a claim within the policy limits without the consent of the insured. The Court found that bad faith was required for an insurer to be liable when it settles within the policy limits against the known wishes of the insured. The Court held that because plaintiff had a statutory avenue in which it could object to settlement, defendant did not act arbitrary, reckless, indifferent, or with an intentional disregard to plaintiff’s interest by settling the claim and did not breach its duty to defend.[su_box title=”Kallas & Henk Note”] This case reflects the common circumstance of an insurance carriers settling without specific permission of its insured. Less frequent is the settlement contrary to the wishes of the insured. A little-known provision enacted in the Michigan tort reforms in 1986 requires notice any settlement be given by an insurer prior to settlement. The provision (MCL § 500.2204) reads as follows: “prior to trial, an insurer shall not settle an action brought by a third-party against a person insured under a commercial liability insurance policy issued by the insurer, unless the insurer gives the insured notice of the settlement at least 10 days prior to the settlement. As used in this section,’ commercial liability insurance’ means insurance which provides indemnification for commercial, industrial, professional or business liabilities.”
The Court made no reference to this provision in its opinion. This requirement contained in the insurance code is routinely ignored. One probable reason is that there is no remedy for violation. [/su_box]
Auto-Owners Ins. Co. v. Lloyds London England/Certain Interested Underwriters
Unpublished. Decided September 17, 2009 Michigan Court of Appeals Docket No. 287396.
On October 7, 1997, Kelly was driving a car owned by her parents when she struck and injured Urezzio. On November 14, 1997, Urezzio’s attorney sent plaintiff a proposed settlement letter. Urezzio’s attorney sent a second letter on November 25, 1997, threatening to commence suit and asserting that plaintiff’s bad faith in handling the claim had the potential to subject the named insureds to a multi-million dollar verdict. On July 21, 1998, after Urezzio filed suit, Urezzio filed a proposal for settlement and offer of judgment which was rejected. Subsequently, a jury verdict was rendered in excess of the bodily injury liability limits. In August of 2004, the insureds filed suit against plaintiff alleging in part that plaintiff’s bad faith, negligence, and breach of contract resulted in a judgment in excess of the policy limits. Plaintiff settled that action and sought coverage for the amount of that settlement under a claims made errors and omissions policy issued by defendant. The trial court held that the policy requires that a “claim” consist of a single writing, containing both a written demand for relief and an allegation of a wrongful act by plaintiff, be made within the policy period and in this case it was not.
The policy provides insurance coverage to plaintiff for “any written demand for relief alleging any actual or alleged act, error, omission, misstatement, misleading statement, neglect or breach of duty by plaintiff in the performance or failure to perform insurance services pursuant to an agreement between a customer or client and plaintiff, first made between May 21, 1998 and May 21, 2001.” Plaintiff argued that the correspondence from Urezzio’s counsel in November of 1997, together with the July 21, 1998 offer of judgment, establishes that a claim was first made against plaintiff as of July 21, 1998. The Court of Appeals disagreed. The Court noted that the policy provides coverage only for loss resulting from a claim “first made during the policy period” and held that the claim was not made during the policy period.[su_box title=”Kallas & Henk Note”] The issue addressed in this case is a common problem associated with claims made errors and omissions policies issued to insurance companies. Literal application of the definition of claim in these policies makes it difficult for the insured to know when notice of a potential problem should be given. Additionally, depending on when and how the claim against the insured is made, the literal application of the terms of these policies might eliminate coverage under all consecutive policies. [/su_box]