Home-Owners Insurance Company v. Steven Fourment
327751
Mich. Ct. App.Feb 21, 2017Background
- On July 24–25, 2013 a customer (Ball) was bitten by the Fourments’ personal dog while the Fourments were demonstrating a product at a pet store; Home-Owners was notified the next day.
- Home-Owners’ adjuster took Kimberly Fourment’s statement on August 5, 2013, learning the dog was personal property and was taken to the store for work-related reasons.
- Ball sued the Fourments (and others) on September 26, 2013. Home-Owners provided a defense counsel to the Fourments from September 2013 through July 2014 and offered $1,000 medical payments to Ball, but did not issue a reservation-of-rights letter to the Fourments during that period.
- A case evaluation in mid-2014 produced an award against the Fourments; shortly after that award, on July 16, 2014, Home-Owners sent a “coverage position” letter denying coverage and then filed a declaratory-judgment action.
- The trial court granted Home-Owners’ summary-disposition motion; the Court of Appeals reversed, holding Home-Owners failed to give timely reservation-of-rights notice to its insureds and is estopped from denying coverage (duty to defend and indemnify was declared).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer’s delayed reservation of rights estops insurer from denying coverage | Home-Owners: its late notice was timely and did not prejudice insureds | Fourments/Ball: Home-Owners knew facts showing potential coverage conflict early and waited ~1 year to reserve rights, causing prejudice | Reversed: insurer’s nearly year delay was untimely; presumption of prejudice arises and was unrebutted; estoppel applies |
| Whether an underlying tort claimant (Ball) may invoke estoppel against insurer | Home-Owners: tort claimant cannot use insurer’s failure to notify claimant to expand coverage | Ball: as judgment creditor of insured, she may assert estoppel to same extent as insured | Held: Ball may assert estoppel to the same extent as the insured; relief available to judgment creditor mirrors insured’s rights |
| Whether insurer’s conduct could have affected case-evaluation/settlement dynamics | Home-Owners: no sufficient prejudice shown; case evaluation result stands | Defendants: insurer’s failure to reserve rights before evaluation deprived insureds of bargaining leverage and ability to seek independent settlement | Held: earlier notice likely would have affected evaluation and settlement; prejudice presumed (or shown) — supports estoppel |
| Whether insurer’s provision of defense counsel raises ethical/representation concerns | Home-Owners: counsel provided as courtesy; no disqualifying conflict | Defendants: insurer-funded counsel continued after insurer disclaimed coverage, creating conflict of loyalty | Held: court noted ethical concerns about counsel’s loyalty and that insurer’s “courtesy” justification was specious (but primary holding focused on estoppel) |
Key Cases Cited
- Kirschner v. Process Design Assoc., Inc., 459 Mich 587 (Michigan Supreme Court) (insurer who defends without timely reservation of rights may be estopped from denying coverage)
- Meirthew v. Last, 376 Mich 33 (Michigan Supreme Court) (late reservation of rights that deprives insured of timely opportunity to contest coverage creates presumptive prejudice)
- Cannon Township v. Rockford Pub. Sch., 311 Mich App 403 (Michigan Court of Appeals) (standard of review for MCR 2.116(C)(10))
- Smit v. State Farm Mut. Auto. Ins. Co., 207 Mich App 674 (Michigan Court of Appeals) (presumption of prejudice arises from untimely reservation of rights)
- Multi-States Transp., Inc. v. Michigan Mut. Ins. Co., 154 Mich App 549 (Michigan Court of Appeals) (insurer defended 2½ years without disclosing coverage defense; estoppel applied)
- Fire Ins. Exch. v. Fox, 167 Mich App 710 (Michigan Court of Appeals) (four-month delay in issuing reservation of rights was reasonable as a matter of law)
- Cozzens v. Bazzani Bldg. Co., 456 F. Supp. 192 (E.D. Mich.) (two-step test for timeliness: when insurer should have known conflict and time between awareness and notice)
- Vermilya v. Carter Crompton Site Dev. Contractors, Inc., 201 Mich App 467 (Michigan Court of Appeals) (case-evaluation panels may consider insurance policy limits)