*1 v Jamison v JAMISON STOCKDALE (Calendar 2). Argued December No. 66163-66165. Docket Nos. 23, 1982. December Decided Stockdale, Stockdale, Dorothy and Donald L. Corbett Frank Montmorency brought separate Circuit Court actions in the damages resulting Wayne against for from an automo- Jamison Wayne plaintiffs filed an action in the also bile accident. Group, against Insurance Jami- the Farm Bureau Circuit Court insurers, insurer, declaratory judg- and their own for a son’s provide determining insurer was liabil- which ment ity coverage. nor Bureau defended the Neither Jamison Farm actions, Court, Montmorency injury personal and the Circuit Glennie, J., judgments against Philip Jami- entered default J. much in excess of the limits. The son for an amount Wayne that Farm Bureau was re- Circuit Court determined Thereafter, liability coverage. quired provide present assignments of all or future claims which each obtained gar- might against brought have Farm Bureau and proceedings Farm Bureau in the Montmo- nishment rency jury Court. A returned a in favor of Farm Circuit verdict Bureau, court, Glennie, J., Philip granted and the plaintiffs’ judgment notwithstanding the verdict in motion for a fees, judgments plus attorney the full amount of the default costs, P.J., Appeals, Cynar, and D. F. and interest. The Court of (Docket Bebeau, JJ., Walsh and affirmed Nos. 78-4398—78- 4400). appeals. Levin, opinion by joined In an Justice Chief Justice Williams, Coleman, Fitzgerald Kavanagh, and Justices Supreme Court held: person injuries A who suffered as a result of an automobile judgment against accident and who obtained a default assignment driver of the other automobile and of his claim insurer failure to defend the action recover no more than the insured have from the could recovered insurer. duty 1. The of an insurer to defend an insured arises Reference Points in Headnotes 2d, 7 Am Jur Automobile [1-6] Insurance 389. § Mich duty contract. A will render the insurer liable for damages flowing all foreseeable from the breach. The independent up defend is of the insurer’s pay limits, for breach are not limited to the *2 policy. face part value of the Good or bad faith on the of the determining damages. insurer is irrelevant the amount of in case, Jamison, assignees plaintiffs 2. In this as of are entitled to recover from Farm Bureau the same amount that prevailed Jamison would be entitled to recover if he in an against plaintiffs acquired action Farm Bureau for breach. The right to recover from Farm Bureau the amount Farm damages Bureau owed Jamison as for its breach. That amount by measuring is fixed Jamison’s actual loss as a result of the breach, principally the loss Jamison would have suffered had plaintiffs attempted judgments against to enforce their him. recovery Their would have been limited the amount of exempt legal process up Jamison’s assets not from to the if, judgment. appears, amount of the it But Jamison had no assets, nothing him, could have recovered nothing because he would have lost as a result of the breach. Ryan, concurring part Justice dissenting part, in and agreed that should be reversed and the case remanded, apply because the trial court failed to the contract principles causation, mitigation damages, law of of and mea- damages surement of to the facts of the case. 1. Good faith or company bad faith of the insurance irrelevant in an action based on duty breach of the contractual duty to defend. The contractually to defend is often broader than, separate from, company’s liability the insurance case of and the naturally to recover arising logically from its breach contractually is neither nor limited to the limits. Appeals 2. The trial court and failing Court of erred in apply requirement legal causation, holding of that because responsible had a it was for the judgment. may only The recover those prove which he proximately can arise from the breach of contemplation contract or parties were in the of the when the contract was made. 3. failing The lower courts also erred in to consider the duty mitigate damages. insured’s The insurer can establish a prima facie mitigate by case of showing failure to given ample insured was opportunity to obtain substitute coun- sel, and that he showing failed to do so. That can be rebutted if the insured establishes that he was unable to hire or otherwise counsel, represent himself was unable to ade- obtain quately. ripe is not of measurement 4. The issue finding legally appellate there is a sustainable review until However, opinion of the insurer is liable. the defendant it, opin- from that anomalous results flow Court discusses ion. and remanded.
Reversed (1980) App reversed. 297 NW2d Court Assignment Duty — — — Defend 1. Insurance Automobiles Claims. person injury automobile accident as a result of an A who suffers the driver a default and who obtains assignment his claim other automobile and the action recover no more failure to defend insurer for the insured could have recovered. from the insurer than — — Duty— Good Faith. 2. Insurance to Defend Breach solely the insured arises out of of an insurer to defend contract, *3 language the insurance and a breach of of objectively, duty reference to the can be determined without insurer; good good faith does not limit an or bad faith of liability to as it does insurer’s to the insured for failure for failure to settle. Duty Damages. — —
3. to Defend Insurance contract, by duty The of an insurer to defend an insured arises duty the insurer liable for all and a breach of the will render breach; damages flowing duty to foreseeable from the independent damages up duty pay defend is of the insurer’s limit, to the and for breach are not limited policy. the face value of the Duty Damages Assignment — — — 4. Insurance to Defend Claims. The amount of an insurer is liable for failure which by measuring to defend the insured’s actual an insured is fixed breach, loss a creditor of the result of the and a rights against assignment insured an insured’s who takes acquires the insurer to recover that amount. Duty Damages. — — 5. Insurance to Defend by insurer’s insured’s loss caused principally would have defend would be the loss the insured Mich Opinion of the Court him, judgment against of the suffered enforcement which would be limited the amount of the insured’s assets not exempt legal process, from has where insured no assets nothing. his loss as a result of breach would be Opinion Concurring Dissenting by Ryan, in Part and Part Duty Damages. — — 6. Insurance to Defend The amount of for which an insurer is liable for failure proximately arising to defend the amount contemplation the insurer’s breach which in the made, parties when the contract was but the insured has a mitigate damages; prima facie case failure to mitigate may by showing given be made that the insured was ample opportunity to obtain substitute counsel and failed to do so, showing may by establishing and that be rebutted that the repre- insured was unable obtain counsel was unable to adequately. sent himself Ripple, Steiner, & Chambers P.C. John F. (by Chambers), Whitney Ford, & Schulz (by Isaac Schulz) plaintiffs.
Willingham, Hanslovsky, Coté, Griffith & Fores- man, P.C. L. John Coté and Frederick M. (by Jr.), Baker, for Farm Bureau Group. Insurance Amici Curiae: Harvey, Kruse, Milan, Westen & P.C. Paul (by Hynes),
B. for Farmers Insurance Group. Eggenberger, Eggenberger, McKinney Weber, & Eggenberger), P.C. (by William D. for State Farm Automobile Insurance Company. J. The question presented
Levin, is whether *4 persons who suffered as injuries a result of an automobile accident and who obtained default judgment against the driver of the other automo- bile assignment of his claim against his insurer failing the defend action may re- v Jamison Stockdale Opinion of the Court default amount of the insurer from the cover limits. policy in excess of the albeit have no persons, injured as plaintiffs, limits. policy in to recover insured, assignees of that ás conclude We than he could no more can recover the insurer. The insured’s from recovered have of the the amount necessarily are not damages but, amount general, him It legal process. exempt of his assets case is in the instant appears and, there- damage no uncollectible and suffered could not fore, of the default the amount from his assets. He therefore have been collected insurer, collectible from the had no no assignees, have plaintiffs, insurer. collectible from the
I out of an automobile accident This action arises Dorothy Frank and involving plaintiffs, Corbett, garnishee and the defen- and Donald L. insured, of the Jamison. On the date Wayne dant’s 9, 1969, accident, Jamison was insured November $20,000. liability policy under an automobile in- Jamison’s Group, Farm Bureau Insurance surer, under the terms seeking any "to defend suit * ** injury or bodily on account "ownership, damage” arising out of the property maintenance or use” of the vehicle described "replaces” vehi- a vehicle which report, cle. of Jamison’s accident On basis driving a that he had been Farm Bureau learned in his vehicle different from the one described not a thought Because it this vehicle was policy. *5 Mich of Court "replacement” within the terms of policy, coverage. Farm Bureau denied separate Plaintiffs filed negligence actions against Jamison. thereafter Shortly plaintiffs filed judgments action for declaratory against defen- dant, Bureau, against Farm and their own insur- contending ance company, that Jamison was unin- sured and that they were entitled to take advan- tage of their own coverage. uninsured motorist did not defend negligence actions, and default was taken in November of 1972. Plaintiffs subsequently reduced the default to judgment, and in $160,000 were appeal awarded. No was taken.
The declaratory judgment action was decided adversely court, to Farm in Bureau the circuit reversed Appeals.1 Court This Court reversed the decision of the Appeals Court of reinstated circuit court holding that the vehicle Jamison driving "replaced” had the vehicle named in the policy.2
Plaintiffs obtained assignments from Jamison of all present or future Bureau, claims Farm garnishment instituted proceedings Farm Bureau the circuit court. garnishment
The
action was tried before a jury.
The trial
judge instructed
if
jury that
Farm
Bureau had
coverage
faith,
denied
in good
it was
liable in excess of policy
limits.
jury
returned a verdict for Farm Bureau._
Co,
Corbett v Allstate Ins
(1975).
App 557;
62 Mich
After was entered in favor Farm Bureau, plaintiffs moved for a judgment notwith- trial standing judge granted plain- verdict. The motion, tiffs’ set aside on the jury verdict, and entered favor of plaintiffs the full judgments, amount the default plus *6 fees, costs, attorney and interest. The judge rea- soned Farm that Bureau had breached its to defend and was responsible therefore the entire amount the default regard- less of its or faith. good bad The Court of Appeals agreed with the trial judge question that considered, or good bad faith was not to be agree affirmed his decision.3 We with the Court of that faith Appeals good is not a to defense action for an insurer’s breach of its contractual insured, duty to defend its but reverse and remand for the forth reasons set in this opinion.
II that contends "absent a showing faith, of bad an insurer’s for failure liability to tender a defense to its insured is limited to the face amount of the Plaintiffs policy”.4 respond that Farm good Bureau’s faith bad does not affect its liability for its obligation contractual to Jamison, defend Farm that Bureau owes the entire amount of the default judgments dam- ages for obligation. breach of that good
While
faith may limit an
liability
insurer’s
Jamison,
(1980).
App
Stockdale v
not a defense obligation The rule to defend its insured. er’s subjecting liability to its insured
an insurer good to act in limits failure recognizes negotiations in settlement faith it has insurer defends the action where the control in the conduct of measure of substantial position disregard the and is in a the lawsuit expose him to the risk interests of protect To of a in excess of limits. interest, the insured’s the courts have make reasonable efforts to settle the insurer policy limits.6 within part
A failure on of the insurer to settle is necessarily unreasonable or actionable. require every law does not the insurer to settle good pro- faith, case. If the it is insurer acts tected.7 *7 solely duty defend, however, arises language A breach of the insurance contract. duty objectively,
of that out can with- be determined good faith of the reference to the or bad obligation insurer. If the had an to defend insurer obligation, any then, like and failed to fulfill that perform party other who fails to its contractual obligations, it becomes liable for all foreseeable damages flowing As this Court from the breach. Co, said in Kewin v Mutual Life Ins Massachusetts (1980), holding 401, 420; 409 295 50 Mich NW2d exemplary that an insured cannot recover dam- 5 Co, 645, 651; City Indemnity v Wakefield Globe 225 (1929). NW 643 6 Keeton, Law, 7.8(a), p See Insurance 508. § 7 Id., 7.8(b), p 510. § 225 v op the Court ages or mental distress breach of an insurance contract: situation, "In the commercial contract tort unlike the actions, marriage injury
and upon contract which arises one, susceptible a breach is a financial of accurate pecuniary tiff is the wrong estimation. The plain- suffered same, breaching party whether the acts with completely innocent motive or in bad faith.”8
Farm Bureau had a
duty
defend Jamison. An
independent
insurer’s
to defend is
of its duty
and damages
for breach
pay,
of that
are
not limited to the face amount of the policy. When
breached its duty to
it be-
came liable for any
arising "naturally
* * *
from the
contemplation
at
parties
the time the contract was made”.9
Defendant cites numerous authorities
in support
that,
principle
faith,
absent bad
an insurer’s
liability for failure to defend is limited to the face
amount of
plus
costs of defending
cases,
the lawsuit.10 In many of these
8
(CA
Skaggs,
State Farm Mutual Automobile Ins Co v
251 F2d 356
10, 1957),
by plaintiffs, mistakenly analogizes
cited
a failure to settle
and a failure to defend.
9Kewin,
(citing
Baxendale,
Hadley
341;
hired counsel saw no reason the courts interests and insured’s of counsel the failure liable for the insurer hold ver- a less unfavorable him to obtain selected dict. cases, insured did not the cited
In some of
applied,
it
rule was
but
the same
hire counsel and
report
appear
the insured
from the
does not
the state
Some of
to hire counsel.
was unable
insur
state that an
dicta. Some cases
ments are
ance contract
of
specific
payment
sum
of a
is for the
separate duty
ignoring
money,
to defend.
justification
any
events,
not see
we do
In all
limiting
special
the amount
a
rule
insurer’s failure to defend
for an
recoverable
any
respon-
why
held to be
it should not be
reason
party
any
just
to a contract who
sible,
other
arising naturally
perform it, for all the loss
fails to
breach.
Ill
assignees, plaintiffs are entitled to
As Jamison’s
(1968),
Kelly,
277;
F2d 528
Ins Co v
Plaintiffs’ is that the default against Jamison a foreseeable result of Farm Bureau’s failure to Thus plaintiffs argue defend. the entire amount of the default judgment as recoverable for Farm Bureau’s disagree. breach.12 We plaintiffs
When obtained an assignment from Jamison, did they to acquire right recover from Farm Bureau the amount of the default judgment. they acquired What was the to recover from Farm Bureau the amount Farm Bu- reau owed Jamison as for the breach. That amount is fixed by measuring the actual loss suffered as result of the breach.13 Thus plaintiffs are to entitled recover an amount equal to money the actual cost to Jamison of Farm Bureau’s failure principally to loss Jamison would have suffered had attempted enforce their judgments him.14 plaintiffs sought
Had
to enforce their judgments
Jamison,
their
recovery would have been
limited
amount
of Jamison’s
assets not
exempt
legal
If
process.
Jamison had been a
12If,
parties appear
uncollectible,
agree,
as the
Jamison is
then
damaged by
unpaid judgment,
he has not been
it is
unneces
sary
question
to consider the
of causation.
13See,
McCormick,
e.g.,
Corbin, Contracts,
Damages,
p 560; 5
§
992, pp
§
5-7.
14Plaintiffs,
assignees
as Jamison’s
as well as his
credi
tors,
defended,
are
paradoxical position
arguing
are
had
lower,
they
the excess
have
but that
would
been
entitled
nonetheless
to recover from Farm
the full
Bureau
judgment.
amount of that excess
wealthy might he have pay been if, entire amount judgment. But case, appears be the Jamison is judgment-proof, plaintiffs would have nothing recovered and Jami- son would nothing have lost as a result of the breach.
We hold that ordinarily an insurer’s liability for breach of its contractual defend its insured is limited to an amount equal to the insured’s *10 not exempt legal assets process.15
IV
The parties
appear
agree
that
is
so,
impecunious.
If
he was not
dam-
monetarily
aged by
him,
the judgment
entered
since
he would not have
been
that
pay
judgment.16
If
wish to show that Jamison
had assets from which they could have recovered
15
suggested
appropriate
Professor Keeton has
is an
this
mea
Keeton,
sure of
for an insurer’s breach of its
to settle.
supra,
7.8(f),
out,
p
points
fn 7
516. As
§
Professor Keeton
this
approach
advantage
parties
eliminating
has the
to both
of
the need
(and consequently,
plaintiff)
for the insured
to suffer the costs of a
bankruptcy proceeding in order to establish the actual amount of loss.
Co,
627,
See also Harris v Standard Accident & Ins
297 F2d
632-636
(CA 2, 1961),
(1962)
875;
cert den 369 US
82 S Ct
Fitzgerald, Kavanagh, Coleman, JJ., Levin, concurred with
Ryan, J. (concurring part, dissenting part). presents simple This case deceptively issue of law. What are recoverable when in- company surance breaches the contractual its defend insured? complexity of this issue apparent becomes
only upon careful consideration con- legal causation, cepts legal mitigation of damages, of damages applied measurement in various factual settings. Because the trial court failed to important law, these apply principles of contract I agree that the judgment should be reversed and this case remanded for proceedings. further
I agree with my
good
brother
faith or bad
faith
part
on the
of the insurance
company is
*11
irrelevant
in an action based on
of
the
contractual
to
In claiming
"good
defend.
that
faith” is an absolute defense to
in
liability
excess
limits,
the policy
the defendant Farm Bureau is
confusing this case
alleging
with cases
a bad faith
refusal
to settle. See City of Wakefield v Globe
Co,
Indemnity
645,
246 Mich
651; 225
643
NW
(1929). The duty to
is
defend
often contractually
than,
broader
separate
from,
the insurance
company’s liability in case of judgment. Zurich Ins
Co
v Rombough, 384 Mich
228;
The trial Appeals panel court and the Court of in failing requirement legal erred apply case, causation to this a holding "[hjaving that had responsible for Jamison, judgment”. (1980). 534, App 540; 297 NW2d While immediate cause of the default was the judgment defense, provide insurer’s failure to a it cannot be proof assumed that the insurance had without company provided a defense the result would have been a ex- cess of the limits.1 have at least some We reason to the default believe the amount of it entered was not excessive because 1963, only hearing after GCR 520.2(2), at which the court heard evidence facts; finding predicated specific example, Such a must be on raised, that a meritorious statute of limitations defense was not generalized speculation competent counsel rather might than defense speculate equally easy to have obtained a better result. It is defense, that, plaintiffs company provided had the insurance a jury would and obtained an even have exercised their a trial record, larger suffering. pain see verdict this we fail to On any support finding or a facts which would a that a lesser verdict liability had the insurance verdict of no would have been obtained However, provided light company parties court, defense. of the failure adequately the trial frame this issue for consideration appropriate to amend the most result is to allow complaint allegations. GCR 118.1. their to include such *12 231 v Ryan, <J. damages,
negligence,
entered
causation
plaintiffs totalling
judgments for the three
default
$360,000
$160,000 rather than the
total
plaintiffs’ original complaints.
requested in the
only
recover
those
prove
proximately
he can
arise
which
contemplation
contract
were in the
parties
when the
was
Kewin
contract
made.
v
Co,
401,
Massachusetts Mutual Life Ins
409 Mich
(1980), citing Hadley
414;
The lower
also
courts
erred
to consider
mitigate damages,
is,
the insured’s
to
every
power
use
reasonable effort within his
damages. Edgecomb
City
minimize
v Traverse
(1954);
Dist,
School
341 Mich
115;
Given the relative company state, this the insurance can establish a prima mitigate damages by facie case of failure to (a) showing given ample the insured (b) opportunity counsel, obtain substitute he showing failed to do so. The insured can rebut that if he establishes that he was unable hire or counsel, otherwise obtain and was to ade- unable quately represent himself. If we do not enforce a *13 Mich by Opinion Ryan, J. requiring strict rule the insured mitigate dam- counsel, ages by obtaining substitute every will have incentive to default rather than if defend the lawsuit is for an amount considerably in excess of both the policy limits and the in- sured’s assets.2
This rule of mitigation does not encourage the insurance company defend, to breach its duty to since, in refusing to the gives company up counsel, its right select to contest the fact and amount of liability tortfeasor, to the to approve settlement, any reasonable and other benefits. Of course, the insurer retains the litigate issues not decided in necessarily original tort action, such as whether the duty to defend was breached, whether the duty breached, to pay was damages what are properly recoverable for that breach. The gains insurer nothing financially, since it is liable for the cost of defense whether that cost is paid by the insurer or initially remand, insured. Upon the defendant should be allowed to amend its answer to include allega- tion of the failure to mitigate damages. GCR 118.1.
Recognizing cases, that almost all including this one, will probably be decided upon application of the principles of legal causation and mitigation, I 2If the insured insolvency, cannot afford to obtain counsel due to appears case, to be the unlikely situation in this then is it any insured ment prevented consequences will suffer adverse judg from the default against him, proper entered even if a defense would have Ante, judgment. p However, 228 and fn 16. if the lottery, inheritance, insured wins the state obtains an or otherwise becomes collectible after enters but before the statute of limitations 27A.5809(3), 600.5809(3); runs on that see MCL MSA damaged by he will be paid either the amount under the resulting from the need to declare bankruptcy. difficulty, impossibility, accurately if not measuring strong argument such requiring is a insured to obtain substitute counsel. Ryan, unnecessary would find it to discuss the measure- my ment of issue which the basis opinion. simply ripe brother’s issue is That appellate presented review until we are with a legally finding sustainable the defendant in- Having said, surer is constrained, liable. so I am point following nevertheless, to out the anomalous flowing my colleague’s opin- advisory results damages. ion on the measurement of opinion my ignores First, brother’s the fact that Wayne insured, Jamison, $160,000 settled the judgment against by giving assignment him *14 rights against all insurer, his his defendant Farm Group. time, Bureau Insurance At this it is no Wayne moment whatever whether is a pauper; plain- liability millionaire or a his to these completely discharged. tiffs has been He did not pay any money and cannot be forced to to the plaintiffs, bankruptcy by nor was he forced into judgment.3 $160,000 the Since the was not insured damaged by plaintiffs $160,000 assigned rights who have been his under the greater rights; liability have no therefore, plaintiffs defendant Farm Bureau to is these lim- ited to the limits.
Secondly, my opinion brother’s fails consider 600.5809(3); 27A.5809(3), the effect of MCL MSA provides judgment which that a of a court of years record be enforced for ten it after was judgment may rendered, and that be renewed. Had the insured not obtained a favorable settle- discharging liability, ment court trial plaintiffs insured, might they Had the not settled with the have judicial assignment plus rights judgment obtained a unsatisfied advantageous settlement, a for the portion judgment. Having given their the insured an plaintiffs hypotheti cannot then collect might cal by they been have suffered had the insured not settled. Mich Ryan, impossible task of faced with the almost would be the fair market value of a ascertaining plaintiff, insolvent with the currently attempting predict garnishable finder of fact the re- the insured over assets to be accrued other alternative only mainder of his life. until open to hold the case would be settled, supplemen- requiring dies and his estate is to the payments company tal from the insurance money whenever obtained procedure obviously the insured. That is it only and lacks is the finality, yet cumbersome way protect an insured who becomes suddenly him long solvent after proposed entered. difficulties with the mea- Other surement of are to arise differ- likely settings. ent factual stated, I agree
For the reasons the decision Appeals of the Court of should be reversed and the proceedings. case remanded for further J., no Riley, part took the decision of this case.