Palmer v. Pacific Indem. Co., Docket Nos. 24212

• Decision Date: 28 March 1977
• Docket Number: 24213,Docket Nos. 24212
• Citation: 254 N.W.2d 52,74 Mich.App. 259
• Parties: Benjamin E. PALMER, D. O., Plaintiff-Appellant, v. PACIFIC INDEMNITY CO., a California Corporation, Defendant-Appellee, and Nettleship Company, a California Corporation, Defendant. Benjamin E. PALMER, D. O., Plaintiff-Appellee-Cross Appellant, v. PACIFIC INDEMNITY COMPANY, a California Corporation, Defendant-Cross Appellant, and Nettleship Company, a California Corporation, Defendant-Appellant. 74 Mich.App. 259, 254 N.W.2d 52
• Court: Court of Appeal of Michigan — District of US

Page 52

254 N.W.2d 52

Benjamin E. PALMER, D. O., Plaintiff-Appellant, v. PACIFIC INDEMNITY CO., a California Corporation,

Defendant-Appellee,

and

Nettleship Company, a California Corporation, Defendant.

Benjamin E. PALMER, D. O., Plaintiff-Appellee-Cross Appellant, v. PACIFIC INDEMNITY COMPANY, a California Corporation, Defendant-Cross Appellant, and Nettleship Company, a California Corporation,

Defendant-Appellant.

Docket Nos. 24212, 24213.

74 Mich.App. 259, 254 N.W.2d 52

Court of Appeals of Michigan.

March 28, 1977.

Rehearing Denied April 27, 1977.

Released for Publication May 31, 1977.

[74 MICHAPP 261] Neal L. Grossman, Southfield, for Benjamin E. Palmer, D. O.

Martin, Bohall, Joselyn, Halsey, Rowe & Jamieson, P. C., by William A. Joselyn, Detroit, for Pac. Indem. Co.

Denenberg, Tuffley & Thorpe by James A. Thorpe, III, Southfield, for Nettleship Co.

Before V. J. BRENNAN, P. J., and KAUFMAN and ROBERT H. CAMPBELL, ^* JJ.

CAMPBELL, Judge.

These cases are consolidated appeals of right from judgments entered in Oakland County Circuit Court in which the jury returned a verdict in favor of the plaintiff against defendant Nettleship Company in the amount of $75,000 and a verdict in favor of defendant Pacific Indemnity Company of no cause of action. Plaintiff's motions for additur, judgment n. o. v. or a new trial were all denied by the trial court as well as defendant Nettleship Company's motion for judgment n. o. v. and for a new trial. Plaintiff appeals form the judgment of no cause of action entered on behalf of Pacific Indemnity Company and files a cross-appeal against defendant Nettleship Company claiming that the trial court erred in instructing the jury on damages. Defendant Nettleship appeals from the $75,000 judgment entered against it.

This case arises out of a malpractice suit [74 MICHAPP 262] brought against the plaintiff by a third party which resulted in an $82,000 judgment against plaintiff in August 1972. The plaintiff had malpractice insurance coverage of $10,000 with defendant Pacific Indemnity Company which he had purchased through defendant Nettleship Company, an insurance agency which specializes in professional malpractice insurance and was the sponsored insurance representative of the National Osteopathic Association. Proofs indicated that the plaintiff had been a client of defendant Nettleship Company for approximately 30 years. Plaintiff claimed that he never received any advice from defendants Nettleship Company or Pacific Indemnity Company indicating that his coverage was inadequate or that he should have more coverage. He submitted through the testimony of an insurance agent that $10,000 coverage was inadequate and that it was customary for insurance agents to advise and bring to the attention of their clients both the availability of additional insurance and the adequacy of insurance coverage. Thus, plaintiff claims that the defendants should pay for the excess judgment over his insurance coverage of $10,000.

The plaintiff also claimed that the attorney for defendant Pacific Indemnity Company promised him that they would appeal the jury verdict but they did not do so and, therefore, he had to hire an attorney to file a delayed claim of appeal which was denied by both the Michigan Court of Appeals and the Michigan Supreme Court. He sought damages in the amount of $12,000 to cover his attorney fees and costs in attempting to secure an appeal of this matter.

The insurance policy issued by Pacific Indemnity contained a clause which provided that it would [74 MICHAPP 263] defend any suit brought against the insured. The trial court, based upon the defendant insurance company's interpretation of the policy that there were no reasonable grounds to appeal, instructed the jury that they were not to consider as items of damages the cost of an appeal, attorney fees or mental distress. The first issue is whether the trial court erred in concluding that the promise to defend provision of the insurance policy did not include the duty to appeal from an adverse decision, where the verdict exceeds the limit of the policy and the insurer believes that there are no reasonable grounds upon which to base an appeal.

We have found no Michigan cases on this point but the issue has been considered in other jurisdictions. In Kaste v. Hartford Accident & Indemnity Company, 5 A.D.2d 203, 170 N.Y.S.2d 614 (1958), the court stated that it would follow the rule that the duty to defend was broader than the duty to pay. The covenant to defend would include the duty to prosecute an appeal where there were reasonable grounds for appeal. Judge Jerome Frank concurred in the result but noted his disagreement with the majority view that reasonable grounds had to justify the appeal. He noted that nothing in the insurance contract conditioned the obligation of the insurer upon such factor or limited its obligation only to supplying a defense up to the time of trial. As Judge Frank noted:

"By the terms of its policy, the defendant assumed the absolute duty to defend, for there are no words qualifying or limiting the pertinent paragraph in the insurance contract issued by it. Such a contract under established rules must, in case of doubt or ambiguity, be strictly construed against the insurer, which is responsible for the language used in the policy.

"It has frequently been stated that the duty to defend [74 MICHAPP 264] is broader than the duty to pay (Goldberg v. Lumber Mutual Casualty Ins. Co. of New York, 297 N.Y. 148, 77 N.E.2d 131). Moreover, the duty to defend is indivisible and it requires the carrier to conduct the whole defense and, if necessary to vindicate the rights of the insured, to prosecute an appeal (Mannheimer Bros. v. Kansas Casualty & Surety Co. 149 Minn. 482, 184 N.W. 189).

"Where the insurance company, as here, assumes a single obligation to defend its assured, I see no reason to draw a distinction between defense prior to or on appeal, in the absence of language in the contract expressing such an intention. Nor can I find justification for implying conditions as to the prosecution of an appeal not expressed within the ambit of the policy."

See also, Reichert v. Continental Insurance Co., 290 So.2d 730, 733-734 (La.App.1974).

In Michigan, it has been the law that the duty to defend a suit is independent of the limits of the policy coverage. City Poultry & Egg Co. v. Hawkeye Casualty Co., 297 Mich. 509, 298 N.W. 114 (1941). The defendant, Pacific Indemnity, asserts that the "duty to defend" on appeal should be conditioned upon whether the insurer reasonably believes that there are grounds for an appeal. The primary problem with this approach is that only if the insurance company declines to appeal, the insured seeks its own counsel and appeals alone, and wins, will it be absolutely determined that the insurance company erred and that reasonable grounds existed. This places a harsh burden upon the insured, particularly in a case such as this, where the limits of the policy are substantially below the amount of the judgment. Moreover, the mere fact that one appeals and loses does not necessarily imply that the grounds for appeal were not reasonable.

[74 MICHAPP 265] Generally, ambiguous language in insurance contracts must be construed against the insurance company and most favorably to the premium-paying insured. Zurich Insurance Co. v. Rombough 384 Mich. 228, 180 N.W.2d 775 (1970). The insurance company did not limit its duty to defend, as it could, and the insured could reasonably expect the company to take an appeal from an adverse judgment. Thus, we hold that an insurance company will be expected to proceed with an appeal, if requested by an insured, if it writes a broad "duty to defend" clause into its insurance contracts. To hold otherwise could mean that if plaintiff appealed in a malpractice suit in which judgment was in excess of the policy limits, the insurance company could pay into court the limits of its policy and the insured would be left without any assistance from the insurance company. The insured is entitled to be defended by the insurer at both the trial level as well as the appellate level unless otherwise specifically set forth in the contract of insurance. The trial court erred and thus, the judgment of no cause of action on behalf of Pacific...