Stockdale v. Jamison

• Citation: 330 N.W.2d 389,416 Mich. 217
• Decision Date: 23 December 1982
• Docket Number: D,No. 2,Docket Nos. 66163-66165,2
• Parties: , 36 A.L.R.4th 911 Frank STOCKDALE, Dorothy Stockdale and Donald L. Corbett, Plaintiffs-Appellees, v. Wayne JAMISON, a/k/a Wayne Theodore Jameson, Principal Defendant, and Farm Bureau Insurance Group, Garnishee Defendant-Appellant. ec. Term 1981. Calendar
• Court: Supreme Court of Michigan

Page 389

330 N.W.2d 389

416 Mich. 217, 36 A.L.R.4th 911

Frank STOCKDALE, Dorothy Stockdale and Donald L. Corbett, Plaintiffs-Appellees, v. Wayne JAMISON, a/k/a Wayne Theodore Jameson, Principal Defendant, and Farm Bureau Insurance Group, Garnishee Defendant-Appellant.

Docket Nos. 66163-66165,

Dec. Term 1981.

Calendar No. 2.

Supreme Court of Michigan.

Argued Dec. 1, 1981.

Decided Dec. 23, 1982.

John F. Chambers, Ripple, Chambers & Steiner, P.C., Detroit, Isaac Schulz, Ford, Whitney & Schulz, Cleveland, Ohio, for plaintiffs-appellees.

Willingham, Cote, Hanslovsky, Griffith & Foresman, P.C., East Lansing, for garnishee defendant-appellant.

Eggenberger, Eggenberger, McKinney & Weber, P.C. by William D. Eggenberger, Detroit, for amicus curiae, State Farm Auto. Ins. Co. on behalf of Farm Bureau Ins. Group, garnishee defendant-appellant.

LEVIN, Justice.

The question presented is whether persons who suffered injuries as a result of an automobile accident and who obtained a default judgment against the driver of the other automobile and an assignment of his claim against his insurer for failing to defend the action may recover from the insurer the amount of the default judgment, albeit in excess of the policy limits.

The plaintiffs, as injured persons, have no right to recover in excess of the policy limits.

We conclude that as assignees of the insured, the plaintiffs can recover no more than he could have recovered from the insurer. The insured's damages are not necessarily the amount of the judgment against him but, in general, the amount of his assets not exempt from legal process. It appears that the insured in the instant case is uncollectible and suffered no damage and, therefore, the amount of the default judgment could not have been collected from his assets. He therefore had no damages collectible from the insurer, and the plaintiffs, as his assignees, have no damages collectible from the insurer.

I

This action arises out of an automobile accident involving plaintiffs, Frank and Dorothy Stockdale and Donald L. Corbett, and the garnishee defendant's insured, Wayne Jamison. On the date of the accident, November 9, 1969, Jamison was insured under an automobile liability policy for $20,000.

Farm Bureau Insurance Group, Jamison's insurer, was required under the terms of the policy "to defend any suit against the insured seeking damages on account of * * * bodily injury or property damage" arising out of the "ownership, maintenance or use" of the vehicle described in the policy or a vehicle which "replaces" that vehicle. On the basis of Jamison's accident report, Farm Bureau learned that he had been driving a vehicle different from the one described in his policy. Because it thought this vehicle was not a "replacement" within the terms of the policy, Farm Bureau denied coverage.

Plaintiffs filed separate negligence actions against Jamison. Shortly thereafter plaintiffs filed an action for declaratory judgments against defendant, Farm Bureau, and against their own insurance company, contending that Jamison was uninsured and that they were entitled to take advantage of their own uninsured motorist coverage.

Farm Bureau did not defend the negligence actions, and a default was taken in November of 1972. Plaintiffs subsequently reduced the default to judgment, and damages in excess of $160,000 were awarded. No appeal was taken.

The declaratory judgment action was decided adversely to Farm Bureau in the circuit court, and reversed by the Court of Appeals. ¹ This Court reversed the decision of the Court of Appeals and reinstated the circuit court judgment, holding that the vehicle Jamison was driving had "replaced" the vehicle named in the policy. ²

Plaintiffs obtained assignments from Jamison of all present or future claims against Farm Bureau, and instituted garnishment proceedings against Farm Bureau in the circuit court.

The garnishment action was tried before a jury. The trial judge instructed the jury that if Farm Bureau had denied coverage in good faith, it was not liable in excess of policy limits. The jury returned a verdict for Farm Bureau.

After judgment was entered in favor of Farm Bureau, plaintiffs moved for a judgment notwithstanding the verdict. The trial judge granted plaintiffs' motion, set aside the judgment on the jury verdict, and entered judgment in favor of plaintiffs for the full amount of the default judgments, plus attorney fees, costs, and interest. The judge reasoned that Farm Bureau had breached its duty to defend Jamison and was therefore responsible for the entire amount of the default judgment regardless of its good or bad faith. The Court of Appeals agreed with the trial judge that the question of good or bad faith was not to be considered, and affirmed his decision. ³ We agree with the Court of Appeals that good faith is not a defense to an action for an insurer's breach of its contractual duty to defend its insured, but reverse and remand for the reasons set forth in this opinion.

II

Farm Bureau contends that "absent a showing of bad faith, an insurer's liability for failure to tender a defense to its insured is limited to the face amount of the policy". ⁴ Plaintiffs respond that Farm Bureau's good or bad faith does not affect its liability for breach of its contractual obligation to defend Jamison, and that Farm Bureau owes the entire amount of the default judgments as damages for breach of that obligation.

While good faith may limit an insurer's liability to policy limits in actions for failure to settle, ⁵ it is not a defense to an action for breach of an insurer's obligation to defend its insured. The rule subjecting an insurer to liability to its insured in excess of policy limits for failure to act in good faith in settlement negotiations recognizes that where the insurer defends the action it has a substantial measure of control in the conduct of the lawsuit and is in a position to disregard the interests of the insured and expose him to the risk of a judgment in excess of policy limits. To protect the insured's interest, the courts have required that the insurer make reasonable efforts to settle within policy limits. ⁶

A failure on the part of the insurer to settle is not necessarily unreasonable or actionable. The law does not require the insurer to settle every case. If the insurer acts in good faith, it is protected. ⁷

The duty to defend, however, arises solely from the language of the insurance contract. A breach of that duty can be determined objectively, without reference to the good or bad faith of the insurer. If the insurer had an obligation to defend and failed to fulfill that obligation, then, like any other party who fails to perform its contractual obligations, it becomes liable for all foreseeable damages flowing from the breach. As this Court said in Kewin v. Massachusetts Mutual Life Ins. Co., 409 Mich. 401, 420, 295 N.W.2d 50 (1980), holding that an insured cannot recover exemplary damages or damages for mental distress for breach of an insurance contract:

"In the commercial contract situation, unlike the tort and marriage contract actions, the injury which arises upon a breach is a financial one, susceptible of accurate pecuniary estimation. The wrong suffered by the plaintiff is the same, whether the breaching party acts with a completely innocent motive or in bad faith." ⁸

Farm Bureau had a duty to defend Jamison. An insurer's duty to defend is independent of its duty to pay, and damages for breach of that duty are not limited to the face amount of the policy. When Farm Bureau breached its duty to defend, it became liable for any damages arising "naturally from the breach or * * * in the contemplation of the parties at the time the contract was made". ⁹

Defendant cites numerous authorities in support of the principle that, absent bad faith, an insurer's liability for failure to defend is limited to the face amount of the policy plus the costs of defending the lawsuit. ¹⁰ In many of these cases, the insured hired counsel who presumably represented the insured's interests and the courts saw no reason to hold the insurer liable for the failure of counsel selected by him to obtain a less unfavorable verdict.

In some of the cited cases, the insured did not hire counsel and the same rule was applied, but it does not appear from the report that the insured was unable to hire counsel. ¹¹ Some of the statements are dicta. Some cases state that an insurance contract is for the payment of a specific sum of money, ignoring the separate duty to defend.

In all events, we do not see any justification for a special rule limiting the amount of damages recoverable for an insurer's failure to defend or any reason why it should not be held to be responsible, just as any other party to a contract who fails to perform it, for all the loss arising naturally from the breach.

III

As Jamison's assignees, plaintiffs are entitled to recover the same amount that Jamison would have recovered had he brought an action to recover damages for Farm Bureau's breach.

Plaintiffs' theory is that the default judgment against Jamison was a foreseeable result of Farm Bureau's failure to defend. Thus plaintiffs argue that the entire amount of the default judgment is recoverable as damages for Farm Bureau's breach. ¹² We disagree.

When plaintiffs obtained an assignment from Jamison, they did not acquire the right to recover from Farm Bureau the amount of the default judgment. What they acquired was the right to recover from Farm Bureau the amount Farm Bureau owed Jamison as damages for the breach. That amount is fixed by measuring the actual loss suffered by Jamison as a result of the breach. ¹³ Thus plaintiffs are entitled to recover an amount of money equal to the actual cost to Jamison of Farm Bureau's failure to defend, principally the loss Jamison would have suffered had plaintiffs attempted to enforce their judgments against him. ¹⁴

Had plaintiffs sought...