Rutter v. King

• Decision Date: 05 December 1974
• Docket Number: Docket No. 17881,No. 3,3
• Parties: Richard F. RUTTER and Pauline Rutter, Plaintiffs-Appellants, v. George Edward KING and Mary G. Allison, Defendants-Appellees. WOLVERINE INSURANCE COMPANY, Garnishee Defendant-Appellee, v. NATIONWIDE INSURANCE COMPANY, Cross-Garnishee Defendant-Appellee
• Court: Court of Appeal of Michigan — District of US

Page 79

226 N.W.2d 79

57 Mich.App. 152

Richard F. RUTTER and Pauline Rutter, Plaintiffs-Appellants, v. George Edward KING and Mary G. Allison, Defendants-Appellees.

WOLVERINE INSURANCE COMPANY, Garnishee Defendant-Appellee, v. NATIONWIDE INSURANCE COMPANY, Cross-Garnishee Defendant-Appellee.

Docket No. 17881.

Court of Appeals of Michigan, Division No. 3.

Dec. 5, 1974.

Released for Publication Feb. 20, 1975.

Oskar M. Hornbach, Lansing, for plaintiffs-appellants.

Schmidt, Heaney, Howlett & Van't Hof by Richard L. Spindle, Grand Rapids, for defendants-appellees.

Before ALLEN, P.J., and T. M. BURNS and SMITH,* JJ.

ALLEN, Presiding Judge.

This case raises the issue of first impression in Michigan of whether a successful judgment creditor plaintiff in a prior suit may proceed directly by garnishment against defendant's insurer for the excess amount of the judgment over and above the policy limits. The trial court held not, and plaintiffs appeal. Subordinate questions of first impression are also included.

In 1972, plaintiff Pauline Rutter received a $30,000 jury verdict for personal injuries sustained when an automobile driven by her husband, Richard Rutter, and in which she was riding as a passenger, was struck by an automobile driven by defendant King and owned by his daughter, defendant Allison. Allison was insured by Wolverine Insurance Company and King was insured by Nationwide Insurance Company. Following judgement, each company contributed $10,000 plus interest to the judgment, the $10,000 being the policy limits and partial satisfaction of judgment was entered.

On November 9, 1972, plaintiffs filed a writ of garnishment followed by a subsequent writ of garnishment against Wolverine, claiming that Wolverine owed Pauline Rutter sums over and above the $10,000 theretofore paid and which obligation existed because Wolverine, in bad faith, negligently, wrongfully and in violation of its contract refused to settle the primary case and refused to offer even one dollar towards settlement. Following the partial taking of depositions by plaintiff, Wolverine moved for a summary and/or accelerated judgment under GCR 1963, 117.2(1) and 116.1(3). July 27, 1973, the trial court in a written opinion granted the motion. ¹

Between the date of filing the writs of garnishment and the trial court's opinion, Mary Allison filed a petition in bankruptcy listing as her only creditor the judgment creditor Pauline Rutter. On August 1, 1973, Pauline Rutter appeared asking that the bankruptcy schedule of assets be amended to list as an asset the claim by the bankrupt against Wolverine Insurance Company and further asking that this claim be assigned by the bankruptcy court to Pauline Rutter. The bankrupt's attorney, the same attorney who represented Wolverine in the original action, resisted the petition, advancing as his reasons for objecting, substantially the same arguments made in the case now pending before us. March 28, 1974, the bankruptcy court entered an opinion and order assigning the cause of action to Pauline Rutter. ² This assignment became final August 8, 1973 but is subject to appeal.

We first consider the question asked by this Court on oral argument of whether the bankruptcy court's assignment to plaintiff Pauline Rutter rendered the case before this Court moot. ³ Mootness, if any, would come on the theory that the calim against Wolverine having been assigned to plaintiffs could be pressed in a separate forum--either the bankruptcy court or by a separate action filed directly against the insurer in circuit court.

For disparate reasons, the parties to this appeal contend the appeal before us should not be found moot. We agree. Where plaintiff has alternate remedies, which are not inconsistent, the mere commencing of an action in a separate forum or resorting to one remedy is not a bar to commencing a different form of action. In such case there is no election until one of them is pursued to judgment. Humiston, Keeling & Co. v. Bridgman, 195 Mich. 82, 86, 161 N.W. 852 (1917). Plaintiffs have exhibited no indication of following a separate remedy or abandoning this suit. The ruling of the bankruptcy court may be appealed and conceivably reversed since it runs contrary to Schueler v. Phoenix Assurance Co. of New York, 223 F.Supp. 643 (E.D.Mich.1963), a case cited by the circuit judge in support of his granting summary and/or accelerated judgment. Furthermore, no matter what the forum in which, or form of action by which plaintiff elects to proceed, the issues involved are of first impression in Michigan and the law in conflict in other states. Therefore, an abandonment by this Court of the present case could prejudice either party to this appeal.

I. THE LEGAL BACKGROUND

The law as to an insurer's liability to a judgment creditor of the insured for the insurer's alleged bad faith or negligence in refusing to settle a claim is a recent development and still in a state of change. Almost all jurisdictions allow recovery where suit is brought by the insured himself, providing of course that the insured will be able to sustain the burden of proof as to bad faith or negligence. City of Wakefield v. Globe Indemnity Co., 246 Mich. 645, 225 N.W. 643 (1929); Anno., Duty of Liability Insurer to Settle or Compromise, 40 A.L.R.2d 168; Riske v. Truck Insurance Exchange, 490 F.2d 1079, 1082 (CA 8, 1974). But where the action is brought by the injured third party alone, the courts are split. The majority hold the third party may not recover. This is the ruling, whether the form of action is by a direct third party suit ⁴ or by garnishment. ⁵ The reasons given by the courts subscribing to the majority position do not entirely agree but substantially rest on two theories. First, the insurer's liability is personal to its policyholder and should not be extended to a third party stranger having no relationship to the insurance contract. Second, the third party is not injured but in fact is benefited by the insuring company's refusal to settle withing the policy limits. The real party injured is the policyholder who because of the insurer's intrasigence is left with a judgment hanging over his head. See Keeton, Liability Insurance and Responsibility for Settlement, 67 Harv.L.Rev. 1136 (1954). Where suit is by garnishment the courts adhering to the majority rule give as additional reasons for dismissing the action the fact that (a) bad faith or negligence is inherently in tort which, under garnishment law in most states, is not subject to garnishment; (b) the claim is contingent and unliquidated and, accordingly, is not encompassed under garnishment law; (c) champerty is encouraged if a stranger to the insurance contract is permitted to pick up the insured's cause of action without the insured's express consent.

The minority rule in direct action cases is represented by Florida alone which adopts the rationale that automobile insurance is a third party beneficiary contract extending to the motoring public at large and, accordingly, any third-party injured person may sue without the policyholder's consent. Thompson v. Commercial Union Ins. Co. of New York, 250 So.2d 259 (Fla.1971). ⁶ In garnishment actions the minority position is represented by three states, each holding that the action rests in contract rather than tort and becomes a liquidated sum certain (the difference between the prior excess judgment and the policy limit) upon entry of judgment in the prior action. ⁷ The minority also contend that champerty suits will be reduced rather than increased if garnishment is allowed:

'The main public policy reason against the result we reach, as articulated by the trial court and Judges Wright and Montgomery of the Superior Court, is that it will foster fraud and collusion between the insured and the injured claimant. We disagree. As Judge Hoffman so ably reasoned in his dissenting opinion: 'The fears of the lower court are unwarranted. The possibility of collusion between a judgment holder and an insured is no way increased by an assignment. If the insured's liability on the judgment is not affected by the assignment, the interests of the parties are similarly unaffected. Whether the action whould be brought in the name of the policyholder or in the name of the assignee, the policyholder would be intent upon relieving himself of the excess judgment and the assignee would be seeking to secure the balance due him. If the insured's liability is terminated by the assignment, as in the present case, the possibility of collusion is more remote. Having been relieved of the judgment, the insured no longer has any pecuniary interest in the outcome of the litigation.' Gray v. Nationwide Mutual Ins. Co., 207 Pa.Super. (1,) at 10--11, 214 A.2d (634,) at 639 (1965) (Dissenting opinion by Hoffman, J. in which Ervin, P.J. and Watkins, J. joined.)' Gray v. Nationwide Mut. Ins. Co., 422 Pa. 500, 510--511, 511, 223 A.2d 8, 12--13 (1966).

A third and rapidly emerging line of cases is found in which the injured third party does not sue alone but sues both individually and as the assignee of the policyholder. In this situation the courts are again split, with a great majority of jurisdictions favoring recovery. Brown v. Guarantee Ins. Co., 155 Cal.App.2d 679, 319 P.2d 69 (1957); Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 328 P.2d 198 (1958); Gray v. Nationwide Mut. Ins. Co., 422 Pa. 500, 223 A.2d 8 (1966); 52 Cornell L.Q. 778 (1967); General Accident Fire & Life Assur. Corp. v. Little, 103 Ariz. 435, 443 P.2d 690 (1968); Terrell v. Western Casualty, 427 S.W.2d 825 (Ky.1968); Groce v. Fidelity General Ins. Co., 252 Or. 296, 448 P.2d 554 (1968); Liberty Mutual Ins. Co. v. Davis, 412 F.2d 475 (CA 5, 1969); McNulty v. Nationwide Mut. Ins. Co., 221 So.2d 208 (Fla.App.1969); Brown v. State Farm Mutual, 1 Ill.App.3d 47, 272 N.E.2d 261 (1971). In Smith v. Transit Casualty Co., 281 F.Supp. 661 (E.D.Tex.1968), a suit in garnishment, the...