Coburn v. Fox

• Decision Date: 08 July 1986
• Docket Number: Docket No. 74502
• Parties: David COBURN, administrator of the estate of Robert H. Coburn, and Roberta Wrona, administratrix of the estate of Jeanne M. Coburn, Plaintiffs-Appellees, v. Gordon James FOX, Defendant, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, Garnishee-Defendant-Appellant.
• Court: Michigan Supreme Court

Page 424

389 N.W.2d 424

425 Mich. 300

David COBURN, administrator of the estate of Robert H.

Coburn, and Roberta Wrona, administratrix of the estate of Jeanne M. Coburn, Plaintiffs-Appellees, v. Gordon James FOX, Defendant, v. PROGRESSIVE CASUALTY INSURANCE COMPANY, Garnishee-Defendant-Appellant.

Docket No. 74502.

Supreme Court of Michigan.

Argued Nov. 13, 1985.

Decided July 8, 1986.

Faintuck, Shwedel & Wolfram, by William G. Wolfram, Franklin, for garnishee-defendant-appellant.

Robert L. Coburn, P.C., by Robert L. Coburn, Mount Clemens, for plaintiffs-appellees.

CAVANAGH, Justice.

The issue in the present case is whether the enactment of the Michigan no-fault insurance act ¹ invalidates any provision in a no-fault contract relieving the insurer of liability should the insured fail to cooperate in defending a claim by an injured third party. Progressive Casualty Insurance Company argues that such clauses are valid in Michigan under Allen v. Cheatum, 351 Mich. 585, 88 N.W.2d 306 (1958). Plaintiffs argue that allowing insurers a defense of noncooperation leaves the injured third party without the protection mandated by the no-fault act.

Factual Background

The parties stipulated to the following facts:

"Robert H. Coburn and his wife, Jeanne, were killed in an automobile accident on October 14, 1973. Prior to Mr. and Mrs. Coburn's automobile running off the road and striking a tree, it had come into contact with an automobile being driven by Defendant, Gordon Fox. No one in the Coburn vehicle survived. Witnesses to the accident included Defendant, passengers in Mr. Fox's car, and another driver on the same roadway who was a short distance away from the scene of the accident. Notice of intention to make a claim was given to Mr. Fox's insurance carrier, Progressive Casualty Insurance Company, shortly after the accident. Settlement negotiations were carried on with the carrier thereafter.

"Suit was commenced in Macomb County Circuit Court on October 1, 1976, alleging that Mr. Fox was negligent in the accident which caused the deaths of Mr. and Mrs. Coburn. Service could not be made upon Mr. Fox at that time due to the fact that he was a member of the armed forces serving in a foreign country. The matter was placed upon the Macomb County Circuit Court military docket and substitute service on the Secretary of State was authorized by the Court pursuant to the General Court Rules.

"When Mr. Fox returned from service, he was served with the Summons and Complaint personally. His insurance company, Defendant-Appellee herein, employed counsel to represent him as required by his policy of insurance.

"One condition of the insurance policy required Mr. Fox's cooperation during the lawsuit. The condition, in part, provided: 'The insured shall cooperate with the company and, upon the company's request, assist in making settlements, in the conduct of suits ... and the insured shall attend hearings and trials and assist in securing and giving evidence and obtaining the attendance of witnesses.' Mr. Fox was notified from the beginning of the lawsuit that his cooperation was required. By letter dated April 4, 1979, Defendant-Appellee informed Mr. Fox that he was to 'notify us immediately in the event of a change in your address so we may reach you promptly at any time particularly since your full cooperation is a requirement of the policy.'

"The lawsuit proceeded in the usual fashion with counsel employed by the Defendant's insurance carrier, Progressive Casualty Insurance Company, representing Defendant. Said counsel took the deposition of David B. Coburn, Administrator of Plaintiff's estate. Mr. Fox's deposition was noticed twice, but he failed to appear both times. Mr. Fox was notified of the first deposition, scheduled for April 21, 1980, by a letter dated April 7, 1980, sent by certified mail, return receipt requested. The letter requested that Mr. Fox call his attorney to confirm his attendance at the deposition. Mr. Fox signed the return receipt, but failed to contact his attorney at any time and also failed to appear at the deposition. As a result, the deposition was cancelled and re-scheduled for June 3, 1980. Again, Mr. Fox was notified of the deposition by certified mail, return receipt requested, sent April 24, 1980. The letter was returned to Mr. Fox's attorney and Mr. Fox again failed to appear at his deposition. Due to the failure of Mr. Fox to appear, Plaintiffs brought an action under the Court Rules to limit his testimony at the time of trial. An Order was entered on June 16, 1980, denying any direct examination testimony by Mr. Fox at trial. The Order stated that 'The Defendant, Gordon James Fox, has refused and failed to cooperate with his counsel and submit him to Plaintiff's attorney for deposition upon oral examination.' After this Order was entered Defendant's insurance carrier sent a certified letter, return receipt requested, to Mr. Fox, advising him of the ramifications of his failure to cooperate.

"The carrier then proceeded to send its investigator to the insured's residence. The investigator spoke with Mr. Fox's brother and advised him that it was imperative that Mr. Fox contact the insurer or coverage may be dropped. The investigator left his card with both the insurer's phone number and Mr. Fox's attorney's phone number on it. Mr. Fox never contacted either party. A second visit was made by the carrier on October 22, 1980, and again, Mr. Fox's brother indicated that Mr. Fox was not home.

"In the meantime, a February 4, 1981 trial date was set by the Court. Attempts were made to procure Mr. Fox's attendance at trial. Mr. Fox was sent a letter by certified mail, return receipt requested, on January 5, 1981, wherein Mr. Fox was informed of the February 4, 1981 trial date. Mr. Fox never contacted his attorney in response to the letter. A subpoena was also issued, ordering Mr. Fox to appear on February 4, 1981, for trial. The Proof of Service indicating that the process server was unable to serve Mr. Fox, was filed with the Macomb County Circuit Court.

"On the scheduled trial date of February 4, 1981, Plaintiffs moved to strike Defendant's Answer and Special Affirmative Defenses. The motion was granted. The Court's Order also granted Summary Judgment as to liability, only, against Mr. Fox. The Court thereafter adjourned the trial date until March 16, 1981.

"Attempts were made to procure Mr. Fox's attendance at the March 16, 1981 trial date. A certified letter was sent to Mr. Fox on March 11, 1981, and went unanswered. The matter thereafter proceeded to trial on the question of damages, only, on the aforesaid March 16, 1981 date. Plaintiffs waived a jury and proofs regarding damages were presented to the Court. The Court entered Judgment in favor of Plaintiff-decedent, Robert H. Coburn's estate in the amount of $20,000.00 and in favor of Plaintiff-decedent, Jeanne Coburn's estate in the amount of $20,000.00, plus costs, mediation sanctions, and interest.[ ²

"Written Judgment in the above amounts was entered with the Court on the record on March 19, 1981.

"Counsel employed by the Garnishee Defendant insurance carrier appeared at all hearings and represented Defendant, Fox. Up until this time, no notice of denial of coverage under the policy or the imposition of policy defenses to deny payment was ever given by said defendant insurance carrier to Plaintiffs.

"After Judgment had been entered, Plaintiffs' counsel called upon the insurance carrier to pay same. The carrier refused payment, relying upon the failure of their insured to cooperate in the defense of the case. Plaintiffs thereupon served the Defendant carrier with a Garnishment for the Judgment amount, including interest and costs, in the amount of $56,227.00. A Return of Garnishment was made showing no liability, based upon the lack of cooperation of insured Fox, said lack of cooperation constituting a breach of the insurance policy. Plaintiffs procured an Order commanding that the Garnishee Defendant appear for purposes of discovery on June 22, 1981. After testimony on July 29, 1981, the deposition of Thomas Upchurch, Progressive's Branch Manager, was taken. On August 20, 1981, the deposition of Thomas Reband, Claims Representative for Progressive, was also taken. Plaintiffs procured an Order commanding the Garnishee Defendant appear and show cause why it should not be ordered to pay the full amount of the Judgment, plus costs, interest and fees.

"Upon hearing on the Order to Show Cause, held September 21, 1981, the Court ordered that each party submit Briefs with respect to their positions and thereafter the Court rendered an Opinion dismissing the said Order to Show Cause. The Court found, in its Opinion, that Fox's actions conclusively constituted a breach of the Progressive insurance policy cooperation condition, and that such breach was prejudicial to Progressive....

"Thereafter, an Order Denying the Order to Show Cause was entered on February 25, 1982." (Emphasis added.)

The trial court found that Fox's failure to cooperate resulted in a default summary judgment as to liability in plaintiffs' favor despite evidence that decedents may have been at fault. It held that Fox's acts constituted a breach of his insurance policy and were prejudicial to defendant-insurer. The showing by defendant-insurer of due diligence in attempting to secure Fox's cooperation and the actual prejudice resulting from Fox's noncooperation was found to constitute a valid defense under Allen v. Cheatum, supra.

The Court of Appeals did not question the determination by the trial court that Fox had violated this clause in his contract. Nor did the Court discuss whether or not the insurer had used due diligence in attempting to secure Fox's cooperation or whether the default judgment constituted actual prejudice to the insurer under Allen v. Cheatum. Rather, it held that the enactment of Michigan's no-fault law in 1972 made Allen...