Kleit v. Saad

• Decision Date: 05 November 1986
• Docket Number: Docket No. 82286
• Citation: 153 Mich.App. 52,395 N.W.2d 8
• Parties: Naji H. KLEIT and Jouheina Kleit, Plaintiffs-Appellees, v. Adel H. SAAD, Defendant, and Automobile Club Insurance Association, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 8

395 N.W.2d 8

153 Mich.App. 52

Naji H. KLEIT and Jouheina Kleit, Plaintiffs-Appellees, v. Adel H. SAAD, Defendant and Automobile Club Insurance Association, Defendant-Appellant.

Docket No. 82286.

Court of Appeals of Michigan.

Submitted Nov. 14, 1985.

Decided Dec. 20, 1985.

Released for Publication Nov. 5, 1986.

Gittleman, Paskel, Tashman & Blumberg, P.C. by Gary R. Blumberg, Southfield, for plaintiffs.

Dickinson, Brandt, Hanlon, Becker & Lanctot by Clifford Schiesel, and Gromek, Bendure & Thomas by Nancy L. Bosh, of counsel, Detroit, for Auto. Club Ins. Ass'n.

Before BEASLEY, P.J., and V.J. BRENNAN and CYNAR, JJ.

PER CURIAM.

On December 3, 1981, plaintiffs, Naji H. Kleit and Jouheina Kleit, filed suit against the principal defendant, Adel H. Saad, seeking recovery of noneconomic losses under the Michigan no-fault act. ¹ On June 16, 1982, plaintiffs obtained a circuit court default judgment against the principal defendant in the amount of $15,000. On July 14, 1982, plaintiffs served a writ of garnishment on the garnishee defendant, Automobile Club Insurance Association, the principal defendant's no-fault insurer at the time of the accident, in an effort to collect the $15,000 judgment. The garnishee defendant denied liability for the $15,000. On November 9, 1984, the circuit court granted plaintiffs' motion for summary judgment on the garnishment under GCR 1963, 117.2(2), finding that the garnishee defendant had failed to state a valid defense. The garnishee defendant appeals as of right.

The parties have stipulated to the facts surrounding the sole issue raised on appeal. In an automobile accident on March 10, 1981, plaintiff, Naji H. Kleit, was a passenger in an automobile driven by the principal defendant, Adel Saad. After the accident, plaintiff obtained the default judgment described above against Saad. Thereafter, on July 20, 1982, plaintiffs served a writ of garnishment on the garnishee defendant, that being the first notification received by the garnishee defendant concerning plaintiffs' suit against defendant Saad. On July 28, 1982, the garnishee defendant filed a "disclosure of garnishee defendant denying liability" based on Saad's failure to comply with his insurance contract obligation to notify the garnishee defendant of plaintiffs' suit. Garnishee defendant alleged that this failure to give notice prejudiced it in possibly defending or settling plaintiffs' claim.

Garnishee defendant did admit that its insured, Saad, had notified it of the accident on March 12, 1981. Also, at the time of entry of the default judgment in the principal case, the garnishee defendant was in the process of defending a suit filed against it by the principal defendant on May 7, 1982. This suit was also filed under the no-fault act and also involved the March 10, 1981 accident.

The trial court, in hearing plaintiffs' motion for summary judgment on the garnishment, noted this Court's recent decision in Coburn v. Fox, ² where we held that where insurance was mandatory under the no-fault act, M.C.L. § 500.3101; M.S.A. § 24.13101, an insured's failure to comply with an insurance contract clause requiring cooperation in defending the suit did not provide the insurer with a valid defense against an injured plaintiff. The trial court held that the Coburn decision dictated the result in this case and granted plaintiffs' motion for summary judgment under GCR 1963, 117.2(2).

On appeal, garnishee defendant argues that the Coburn case is clearly distinguishable from the within case. Garnishee defendant does acknowledge that the residual liability insurance, covering claims under M.C.L. § 500.3135; M.S.A. § 24.13135, that it provided for the principal defendant was mandatory under M.C.L. § 500.3101(1); M.S.A. § 24.13101(1). However, garnishee defendant notes that Coburn involved only the failure of an insured to cooperate in an insurer's defense of a claim. The within case involves an insured's total failure to notify the insurer of the existence of a suit. The garnishee defendant goes on to assert that this factual distinction is significant in light of the provisions of the no-fault act. We agree with garnishee defendant's argument.

The no-fault residual liability coverage provision applicable to plaintiffs' claim against the principal defendant in this case, M.C.L. § 500.3131(1); M.S.A. § 24.13131(1) states:

"Residual liability insurance shall cover bodily injury and property damage which occurs within the United States, its territories and possessions, or in Canada. This insurance shall afford coverage equivalent to that required as evidence of automobile liability insurance under the financial responsibility laws of the place in which the injury or damage occurs. In this state this insurance shall afford coverage for automobile liability retained by section 3135." (Emphasis added.)

The scope of residual liability insurance is determined by the financial responsibility laws of the place where the injury occurs. The within injury occurred in Michigan and, therefore, the Michigan financial responsibility act, M.C.L. § 257.501 et seq.; M.S.A. § 9.2201 et seq., determines the scope of the residual liability insurance coverage. ³

The pertinent section of the financial responsibility act applicable to this case, M.C.L. § 257.520(f)(1); M.S.A. § 9.2220(f)(1) states:

"Every motor vehicle liability policy shall be subject to the following provisions which need not be contained therein:

"(1) The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute whenever injury or damage covered by said motor vehicle liability policy occurs; said policy may not be cancelled or annulled as to such liability by any agreement between the insurance carrier and the insured after the occurrence of the injury or damage; no statement made by the insured or on his behalf and no violation of said policy shall defeat or void said policy, and except as hereinafter provided, no fraud, misrepresentation, assumption of liability or other act of the insured in obtaining or retaining such policy, or in adjusting a claim under such policy, and no failure of the insured to give any notice, forward any paper or otherwise cooperate with the insurance carrier, shall constitute a defense as against such judgment creditor." (Emphasis added.)

M.C.L. § 257.520(f)(6); M.S.A. § 9.2220(f)(6) goes on to address the liability of an insurer in an action by a judgment creditor and provides:

"The insurance carrier shall not be liable on any judgment if it has not had prompt notice of and reasonable opportunity to appear in and defend the action in which such judgment was rendered, or if the judgment has been obtained through collusion between the judgment creditor and the insured."

Thus, the failure of the insured (principal defendant Saad) to notify the insurer (garnishee defendant Automobile Club) of the suit relieves the garnishee defendant from liability to plaintiffs. We note that the factual situation presented in Coburn (an insured's failure to cooperate in the insurer's defense of a...