MICHIGAN EDUCATIONAL EMPLOYEES MUTUAL INSURANCE COMPANY v TRANSAMERICA INSURANCE CORPORATION OF AMERICA
Docket No. 144945
Michigan Court of Appeals
April 4, 1994
204 Mich App 440
Submitted December 8, 1993, at Grand Rapids. Decided April 4, 1994, at 9:40 A.M. Leave to appeal sought.
The Court of Appeals held:
1. The trial court erred in ruling that Transamerica had no duty to defend Perry. By the time this action for a declaratory judgment was filed, it was clear that the claimed damages in the negligence aсtion would exceed the MEEMIC policy limits, bring the action within the coverage of the Transamerica policy, and give rise to a duty by Transamerica to defend Perry.
2. The trial court erred in declaring that Transamerica had no duty to reimburse MEEMIC for the costs of Perry’s defense. MEEMIC, as subrogee оf Perry’s rights under the Transamerica policy, may seek recovery for Transamerica’s breach of the duty to defend Perry. MEEMIC may recover from Transamerica all costs of defending Perry during periods when only Transamerica had the duty to defend Perry, as well as a pro-rata share оf the costs when both insurers had the duty to defend.
Reversed.
References
Am Jur 2d, Insurance §§ 1405-1413, 1781, 1782, 1792.
Allocation of defense costs between primary and excess insurance carriers. 19 ALR4th 107.
1. INSURANCE — INSURER’S DUTY TO DEFEND.
An insurer’s duty to defend its insured against an action arises as soon as the pleadings or other facts known by the insurer bring the action within the policy coverage.
2. INSURANCE — PRIMARY AND EXCESS LIABILITY INSURERS — COSTS OF DEFENSE.
Where an insured is covered by a primary liability policy and an excess liability policy, the costs of dеfending the insured against an action must be borne by the primary insurer when that insurer alone has the duty to defend, by the excess insurer when that insurer alone hаs the duty to defend, and by both insurers in pro-rata shares when both insurers have the duty to defend.
Nelson & Kreuger (by Jon J. Schrotenboer), for the plaintiff.
Dilley, Dewey, & Damon, P.C. (by Jonathan S. Damon), for the defendant.
Before: MICHAEL J. KELLY, P.J., and CONNOR and A. A. MONTON,* JJ.
CONNOR, J. Plaintiff Michigan Educational Employees Mutual Insurance Comрany (MEEMIC) appeals as of right the declaratory judgment entered by the trial court that defendant Transamerica Insurance Corporatiоn had no duty to defend Jack Perry or to reimburse MEEMIC for any portion of the costs of his defense. We reverse.
Trevor Chalfant was seriously injured when an automobile in which he was riding left the road. Either Michael Hinkle or Jack Perry was driving the car; each claims the other was driving. MEEMIC had issued an insurancе policy to the car’s owner
* Circuit judge, sitting on the Court of Appeals by assignment.
The Chalfants brought an action against the Hinkles and Perry. MEEMIC hired separate attorneys to defend the Hinkles and Perry. It then brought this action, seeking, in pertinent part, a declaration that Transamerica had a duty to defend Perry and sо had a duty to share with MEEMIC the costs of Perry’s defense. The trial court declared that, as long as MEEMIC had a duty to defend Perry, Transamerica had no duty tо defend him and that Transamerica had no duty to share in the costs of Perry’s defense.
On appeal, MEEMIC contends that the trial court erred in ruling that Trаnsamerica had no duty to defend Perry. We agree.
Under the terms of MEEMIC’s policy, it is clear that MEEMIC had a duty to defend Perry:
MEEMIC will defend any suit with lawyers of its chоice or settle any claim for these damages as thought appropriate by MEEMIC.
However, Transamerica’s policy states:
1. As respects such insurance as is afforded by the other tеrms of this Policy . . . [Transamerica] shall:
A. Defend in his name and behalf any suit against the Insured arising from any alleged claim for bodily injury . . . .
Such a duty to defend arises as soon as the pleadings or other facts known by the insurer bring the action within the policy coverage. See Celina Mutual Ins Co v Citizens Ins Co, 133 Mich App 655, 662; 349 NW2d 547 (1984).
Next, MEEMIC argues that the trial court also erred in declaring that Transamerica had no duty to reimburse MEEMIC for the cost of Perry’s defense. Again, we agree.
Transamerica had a contractual duty to defend Perry. Transamerica could have fulfilled its obligation by hiring an attorney to work alongside MEEMIC’s, or Transamerica could have contracted with MEEMIC to share in the сosts of Perry’s defense. However, because Transamerica failed to take any action to fulfill its obligation, it breached its duty to defend Pеrry.
As a third-party beneficiary, Perry would have a right to bring an action against Transamerica for this breach of contract. See
The question remains, what is the appropriatе measure of damages? Transamerica would certainly be liable to pay for costs MEEMIC incurred while providing Perry’s defense when Transamerica was the only insurer with a duty to defend Perry. In addition, we believe that Transamerica is
Reversed.1
A. A. MONTON, J., concurred.
MICHAEL J. KELLY, P.J. (concurring). I concur in the result only.
The cases that have discussed the resolution of differences between primary and excess liability insurers with respect to the same risk have generally done so without resort to subrogation rights. Although there are clearly two schools of thought, I am not convinced that subrogation is the appropriate analytical framework. However, the parties have not framed such an analysis as critical, and I therefore concur in the result.