Alyas v. Gillard

• Decision Date: 26 October 1989
• Docket Number: 110052,Docket Nos. 108575
• Citation: 180 Mich.App. 154,446 N.W.2d 610
• Parties: Hala ALYAS, Personal Representative of the Estate of Manhal J. Alyas, Deceased, Plaintiff-Appellant, v. John GILLARD, Jr. d/b/a Eddie's Bar, Defendant, and Citizens Insurance Company of America, as assignee of Union Indemnity Insurance Company of New York, via Michigan Property & Casualty Guaranty Association, and Illinois Employers Insurance of Wausau, Garnishee Defendants-Appellees. Assam SALMO, a/k/a Assam B. Najim, Plaintiff-Appellant, and Wisam Salmo, Plaintiff, v. Arnold Dean SMITH, Muslih Habbo. Masoud Habbo and John Gillard, Jr., d/b/a Eddie's Bar, Defendants, and Citizens Insurance Company of America, as Assignee of Union Indemnity Insurance Company of New York, Union Indemnity, c/o Michigan Property & Casualty Guaranty Association, Wausau Insurance Company, and Illinois Employers Insurance of Wausau, Garnishee Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 610

446 N.W.2d 610

180 Mich.App. 154

Hala ALYAS, Personal Representative of the Estate of Manhal

J. Alyas, Deceased, Plaintiff-Appellant, v. John GILLARD, Jr. d/b/a Eddie's Bar, Defendant, and Citizens Insurance Company of America, as assignee of Union

Indemnity Insurance Company of New York, via Michigan

Property & Casualty Guaranty Association, and Illinois

Employers Insurance of Wausau, Garnishee Defendants-Appellees.

Assam SALMO, a/k/a Assam B. Najim, Plaintiff-Appellant, and Wisam Salmo, Plaintiff, v. Arnold Dean SMITH, Muslih Habbo. Masoud Habbo and John

Gillard, Jr., d/b/a Eddie's Bar, Defendants,

and

Citizens Insurance Company of America, as Assignee of Union

Indemnity Insurance Company of New York, Union Indemnity,

c/o Michigan Property & Casualty Guaranty Association,

Wausau Insurance Company, and Illinois Employers Insurance

of Wausau, Garnishee Defendants-Appellees.

Docket Nos. 108575, 110052.

Court of Appeals of Michigan.

Submitted Aug. 2, 1989.

Decided Sept. 6, 1989.

Released for Publication Oct. 26, 1989.

Frank R. Langton & Associates, P.C. by Jerry L. Watson, Sterling Heights, for Assam Salmo.

John J. Grech & Associates, P.C. by Kenneth A. Skuzenski, Sterling Heights, for Hala Alyas.

Kallas, Lower, Henk & Treado, P.C. by Howard C. Treado, Bloomfield Hills, for Citizens Ins. Co. of America and Michigan Property & Cas. Guaranty Ass'n.

Harvey, Kruse, Westen & Milan, P.C. by Michael F. Schmidt and Maurice A. Borden, Detroit, for Illinois Employers Ins. of Wausau.

Before: HOOD, P.J., and CAVANAGH and FITZGERALD, ^* JJ.

PER CURIAM.

Plaintiffs appeal as of right from various opinions and orders of Oakland Circuit Court Judges Robert L. Templin and David F. Breck which granted summary disposition in favor of the appellees. We reverse.

These cases have been consolidated on appeal. They arose out of a car accident in which plaintiff Assam Salmo was injured and plaintiff Alyas's decedent, Manhal Alyas was killed. Both plaintiffs brought dramshop actions against Eddie's Bar, which allegedly had served the driver of the other car involved in the accident.

At the time of the accident, defendant John Gillard, doing business as Eddie's Bar, was insured under two separate policies of insurance. His primary insurer was defendant Union Indemnity Insurance Company of New York. That policy provided a coverage limit of $25,000. His excess liability policy, with a limit of $275,000, was with defendant Illinois Employers Insurance of Wausau. After the complaints were filed, Union Indemnity went into receivership. Union Indemnity came within the provisions of M.C.L. § 500.7901 et seq.; M.S.A. § 24.17901 et seq., and, therefore, defendant Michigan Property and Casualty Guarantee Association (MPCGA) inherited the duty to defend the insured. Under the statute, MPCGA handles claims against insolvent insurers. Pursuant to the statute, MPCGA designated defendant Citizens Insurance Company of America as the servicing facility to handle all claims made against the insureds of Union Indemnity. ¹

Apparently in response to a default judgment filed by plaintiff Salmo against Eddie's Bar, John Gillard retained an attorney to represent the bar. According to an affidavit filed below by that attorney, notice of the claims was given to Wausau, Union Indemnity and MPCGA. Union Indemnity and MPCGA refused to defend despite this notice. Counsel then entered into settlement negotiations with plaintiffs and a consent judgment was entered against the bar in each case in the amount of $150,000. Plaintiffs then filed writs of garnishment against the insurers. Wausau, Citizens Insurance and MPCGA subsequently filed motions for summary disposition which were granted by the trial courts.

Apparently all the motions for summary disposition were brought and granted under MCR 2.116(C)(10). Under this rule, the court must be satisfied that it is impossible for plaintiffs to support their claims because of some deficiency in the record which cannot be overcome. The reviewing court should be liberal in finding that a genuine issue of material fact exists. W.B. Cenac Medical Service, P.C. v. Michigan Physicians Mutual Liability Co., 174 Mich.App. 676, 681, 436 N.W.2d 430 (1989).

The parties have raised a number of issues on appeal. We have limited this review, however, to those issues actually decided by the trial courts in granting summary disposition. Michigan Mutual Ins. Co. v. American Community Mutual Ins. Co., 165 Mich.App. 269, 277, 418 N.W.2d 455 (1987).

We begin by reviewing the issues raised in the Alyas case. In this case before Judge Templin, summary disposition was granted as to MPCGA for two reasons: (1) plaintiff had not complied with a policy provision requiring that the insured consent to any settlement agreement, and (2) the consent judgment released the bar from personal liability and therefore the insurer could not be liable. As to Citizens, the court ruled that the release of the bar also relieved Citizens of liability. The claim against Wausau was dismissed for the same two reasons applied for MPCGA. The court also mentioned a provision in Wausau's policy requiring that any action against Wausau be brought within twelve months of the commencement of the insured's obligation to pay. While the opinion does not specifically rely on this provision, Wausau has argued its applicability on appeal.

As an initial consideration, we note that MPCGA is involved because of the insolvency of the bar's insurer. The MPCGA protects insureds and persons with claims against insureds from potential catastrophic loss in the event of an insurer's insolvency. Young v. Shull, 149 Mich.App. 367, 373, 385 N.W.2d 789 (1986). Generally, MPCGA has the same rights, obligations and liabilities as the insolvent insurer with regard to claims made by an injured party. M.C.L. § 500.7931(2); M.S.A. § 24.17931(2); Felsner v. McDonald Rent-A-Car, Inc., 173 Mich.App. 518, 521, 434 N.W.2d 178 (1988). For purposes of this appeal, MPCGA's duties and responsibilities are the same as those that would have been imposed under Union Indemnity's policy.

Both Union Indemnity's and Wausau's policies contained similar "no action" clauses. These provide in relevant part that the insured may not bring an action against the insurer unless the insurer's obligation to pay has been finally determined by a written agreement of the insured, the claimant and the insurance company. MPCGA and Wausau argue that under this provision, since they did not consent to the settlement agreement, they cannot be bound by it.

Clauses prohibiting the insured from voluntarily settling a claim without the insurer's consent give the insurer the opportunity to contest liability, to participate in settlement negotiations and to have input as to the value of the claim. Coil Anodizers, Inc. v. Wolverine Ins. Co., 120 Mich.App. 118, 123-124, 327 N.W.2d 416 (1982); Giffels v. The Home Ins. Co., 19 Mich.App. 146, 151-153, 172 N.W.2d 540 (1969). When an insurer breaches its own policy of insurance by refusing to fulfil its duty to defend the insured, the insurer is bound by any reasonable settlement entered into in good faith between the insured and the third party. The Detroit Edison Co. v. Michigan Mutual Ins. Co., 102 Mich.App. 136, 144, 301 N.W.2d 832 (1980). An insured is released from any agreement not to settle without the insurer's consent where the insurer has denied liability and wrongfully refused to defend. Giffels, supra, 19 Mich.App. p. 153, 172 N.W.2d 540. Upon notice, there is some burden on the insurer to act to protect its interests or those of its insured. The insurance carrier will not be permitted to benefit by sitting idly by, knowing of the litigation, and watching its insured become prejudiced. Burgess v. American Fidelity Fire Ins. Co., 107 Mich.App. 625, 630, 310 N.W.2d 23 (1981).

At the time of the motion, there were indications that both MPCGA and Wausau had been informed of the claims against the insured and that they refused to take any part in the proceedings. This is not a case like Coil Anodizers, supra, or MacDonald v. State Farm Mutual Automobile Ins. Co., 14 Mich.App. 408, 165 N.W.2d 665 (1968), where the settlement could be construed as a voluntary action on the part of the insured. Here, suits had been filed against the insured and a default judgment had been requested in at least one case. Negotiations were...