Koski v. Allstate Ins. Co.

• Decision Date: 03 February 1998
• Docket Number: No. 13,Docket Nos. 104968,104969,13
• Citation: 572 N.W.2d 636,456 Mich. 439
• Parties: Thomas KOSKI, Plaintiff-Appellee, v. ALLSTATE INSURANCE COMPANY, a foreign insurance corporation, Defendant-Appellant. Calendar
• Court: Michigan Supreme Court

Page 636

572 N.W.2d 636

456 Mich. 439

Thomas KOSKI, Plaintiff-Appellee, v. ALLSTATE INSURANCE COMPANY, a foreign insurance corporation Defendant-Appellant.

Docket Nos. 104968, 104969.

Calendar No. 13.

Supreme Court of Michigan.

Argued Oct. 8, 1997.

Decided Feb. 3, 1998.

Law Offices of Frank and Forster by Michael J. Forster, Saginaw, for Plaintiff-Appellee.

Kohl, Secrest, Wardle, Lynch, Clark & Hampton by Michael L. Updike, Farmington Hills, and Robert Kamenec, Detroit, for Defendant-Appellant.

Willingham & Cote, P.C. by John A. Yeager, East Lansing, amicus curiae, for Michigan Association of Insurance Companies.

Opinion

BRICKLEY, Justice.

The principal issue of law in this case is whether defendant-appellant Allstate may disclaim liability as a result of plaintiff-appellee's failure to comply with a notice-of-suit provision in his homeowners policy. The Court of Appeals affirmed the circuit court's finding that Allstate was not prejudiced by any defect in plaintiff's compliance with that notice provision. For the reasons that follow, however, we reverse the decision of the Court of Appeals and remand to the trial court for entry of final judgment in favor of defendant-appellant Allstate.

I

This appeal arises from an underlying intrafamily tort suit brought as a result of a personal injury accident that occurred on plaintiff Thomas Koski's property in Saginaw County on October 31, 1984. At that time, plaintiff's minor daughter, Nikki Koski, suffered serious injuries when her foot was caught under the wheels of a garden tractor owned and operated by plaintiff.

In 1976, plaintiff purchased a homeowners insurance policy designated "U9002" from defendant-appellant Allstate. Plaintiff continued to renew and maintain the coverage in succeeding years by paying the annual premiums billed by Allstate. In 1982, Allstate sent plaintiff a new policy designated "AU421," which, unlike the earlier policy, excluded intrafamily suits.

Both the U9002 and AU421 policies contained provisions detailing plaintiff's duties in the event of an accident, claim, or suit. Among those provisions was a requirement that plaintiff forward to Allstate any legal papers he received concerning any accident or claim. ¹ The policies make satisfaction of those requirements a condition precedent to Allstate's liability on the policy.

When Nikki's father filed a claim shortly after the accident, Allstate advised him that the AU421's household exclusion precluded coverage. ² While the record does not reveal what transpired between the parties during the ensuing two years, Nikki's attorney contacted Allstate in 1986 in an effort to reach a settlement on Nikki's injury. Allstate again responded that there was no coverage.

In 1987, Nikki, through her mother, filed a tort suit against plaintiff, her father, for money damages in Saginaw Circuit Court. Plaintiff did not notify Allstate of the suit, nor did he defend the action, and on February 5, 1990, a default judgment was entered against plaintiff in the amount of $60,957.39. ³ It was not until May 3, 1990, that plaintiff's counsel informed Allstate of the default judgment and demanded payment. On October 26, 1990, plaintiff filed the instant declaratory action in Saginaw Circuit Court against Allstate for indemnification of the judgment. Plaintiff's complaint asserted that because Allstate did not sufficiently alert him to the AU421's reduction in coverage, the earlier policy without the household exclusion applied.

The matter went to trial in November 1991, and the jury, by special verdict, found that Allstate did not sufficiently call to plaintiff's attention the reduction in coverage. Thereafter, the court denied Allstate's motion for summary disposition, ruling that because the jury found that the notice was insufficient, the earlier policy remained in effect. In addition, the circuit court summarily ruled that Allstate was not prejudiced by any defect in plaintiff's compliance with the notice provision of the policy.

The Court of Appeals affirmed, 213 Mich.App. 166, 539 N.W.2d 561 (1995), concluding that, although it was error to submit the issue of the sufficiency of notice to the jury, the error was harmless because Allstate's notice of the household exclusion was not sufficiently emphasized and was therefore inadequate as a matter of law. The Court of Appeals also ruled that Allstate was not prejudiced by plaintiff's failure to formally notify Allstate of the suit because it received prompt notice of Nikki's accident, "as well as inquiries from [Nikki's] attorney suggesting an impending suit and notice of a default judgment...." Id. at 175, 539 N.W.2d 561. We granted leave to appeal on both issues. 454 Mich. 877, 562 N.W.2d 198 (1997).

II

The controlling issue presented in this appeal is whether plaintiff's failure to comply with the notice-of-suit provision under either policy effectively discharged Allstate from any liability for Nikki's injury. ⁴ It is uncontroverted that plaintiff complied with the notice-of-claim requirement when he contacted Allstate after Nikki's accident. However, it is also undisputed that plaintiff did not forward any suit papers to Allstate until three months after the entry of default judgment.

In this case, plaintiff's duty to immediately forward any legal papers relating to a claim is a condition precedent to Allstate's liability under either policy. Ordinarily, one who sues for performance of a contractual obligation must prove that all contractual conditions prerequisite to performance have been satisfied. However, it is a well-established principle that an insurer who seeks to cut off responsibility on the ground that its insured did not comply with a contract provision requiring notice immediately or within a reasonable time must establish actual prejudice to its position. Weller v. Cummins, 330 Mich. 286, 47 N.W.2d 612 (1951); Wendel v. Swanberg, 384 Mich. 468, 185 N.W.2d 348 (1971). See also 1 Windt, Insurance Claims & Disputes (3d ed.), § 3.05, p. 123.

The purposes served by notice provisions have previously been the subject of judicial discussion by this Court. As we explained in Weller:

One of the purposes of the provision requiring notice of accident is to give the insurance company knowledge of the accident so that it can make a timely investigation in order to protect its interests. It is also true that the provisions in the insurance policy requiring the insured to "immediately forward to the company every demand, notice, summons, or other process received by him" is to give the insurance company knowledge and information that an action has been instituted against the insured party. It follows that if the insurance company received adequate and timely information of the accident or the institution of an action for the recovery of damages it is not prejudiced, regardless of the source of its information. [Id. at 293, 47 N.W.2d 612.]

The evidence in the instant case established that Allstate received no notification of the suit brought against plaintiff until three months after the entry of the default judgment. Moreover, nothing in the record indicates that Allstate would have refused to defend the suit, if asked, under a reservation of rights. ⁵ Consequently, Allstate was deprived of any opportunity to engage in discovery, cross-examine witnesses at trial, or present its own evidence relative to liability and damages.

Plaintiff asserts that our previous rulings in Weller and Wendel, supra, support the proposition that, even if an insured fails to forward suit papers, there is prima facie evidence of no prejudice once an insurer rejects a claim. We are unpersuaded by plaintiff's interpretation because, as we explained in Weller, notice-of-claim and notice-of-suit provisions exist independently of each other and serve different purposes.

We also believe that plaintiff misstates our precedent, which, properly understood does not support a conclusion that plaintiff was excused from the notice provisions at issue here. The insurers in both Weller and Wendel not only conducted full investigations of their insured's claims, but also knew of the litigation against them. ⁶ The critical difference between those cases and the instant one is that here it is undisputed that Allstate never received any information...