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Volume XXVIII, No. 21, July 1, 2016 

From the Law Offices of Garan Lucow Miller, P.C.

From the Editor: Sarah Nadeau

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UNDER-INSURED MOTORIST CLAIMS: CONSENT TO SETTLE AND SUBROGATION

By Frederick B. Plumb

It is Hornbook law in Michigan that insurance policies, in the absence of an applicable statute or other public policy argument, are private contracts and are subject to the same rules of construction that apply to any other type contract.  Michigan does not require uninsured or underinsured motorist coverage and that coverage is not part of the Michigan No-Fault scheme.  Therefore, an insurer is not obligated to offer uninsured or underinsured coverage and if they do, the provisions in the contract that pertain to that coverage are to be construed under traditional contract construction principles. 

In third party auto cases the alleged at fault driver is often named as co-defendant with the plaintiff’s UM/UIM carrier.  Whether the UIM carrier is a co-defendant or not, in representing the alleged at fault driver, counsel must keep in mind that if a settlement at limits is reached, that may expose the alleged at fault driver to subrogation should the UIM carrier pay from its policy thereafter.  Therefore defense counsel must obtain a waiver of that subrogation right.  At the same time plaintiff counsel must be careful not to accept a settlement of the limits from the at fault driver without obtaining the consent of the client’s underinsured motorist carrier.  Most underinsured motorists’ contracts require that the insured (read plaintiff) must obtain the insurer’s consent to resolve the underlying tort suit against the at fault driver prior to that settlement, if that settlement is at limits and if the insured is planning to pursue a UIM claim thereafter.

The reasoning behind this requirement is that the UIM insurer is entitled to subrogate against the at fault driver if they pay under-insured motorist benefits as a result of the driver’s negligence.

On June 21, 2016, the Michigan Court of Appeals, in an unpublished decision, reversed the Wayne County trial court and upheld the under-insured motorist carrier’s consent clause.  In Bakri v Sentinel Insurance Company and Ftouni, Judges Murphy, Saad and Borrello unanimously reversed Wayne County Circuit Court Judge John Gillis.  At the trial court level, defendant Ftouni’s counsel (the author) defended the case through case evaluation.  The case evaluation award was for the policy limits, $100,000.  The insurer for Ftouni believed that was probably an appropriate settlement amount given the alleged injuries and the negligence arguments.  Ftouni accepted the case evaluation award.  Plaintiff also accepted the case evaluation award against Ftouni.  Plaintiff did not obtain consent from his carrier, Sentinel, before filing his acceptance of the case evaluation. 

Pursuant to Michigan Court Rule MCR 2.403(M)(1), since both plaintiff and defendant on that claim accepted the award of $100,000, a judgment must be entered in accordance with the evaluation unless the amount of the award is paid within 28 days after notification of the acceptance.  Plaintiff refused to sign a release and a dismissal order in favor of the defendant, based upon the mutual acceptance, and therefore the defense made a request for entry of judgment consistent with the case evaluation mutual acceptance.  Plaintiff filed a motion asking the Court to declare that Plaintiff’s case evaluation acceptance was not binding. Judge Gillis denied Plaintiff’s motion and entered the judgment and the judgment was later satisfied.  Meanwhile Sentinel Insurance Company had never consented to this “settlement” and asserted that Bakri had breached his contract and thus was not entitled to any underinsured motorist benefits.  Judge Gillis refused to grant Sentinel’s motion for summary disposition asserting that the consent language was ambiguous.

As indicated the Court of Appeals reversed Judge Gillis’ finding as a matter of law, concluding that the policy language was not ambiguous and reasserting the following legal precepts:

  1. Insurance policies are contracts and in the absence of an applicable statute are subject to the same contract construction principles that apply to other species of contract.
  2. Unlike PIP benefits, uninsured motorist and under-insured motorist insurance is not required by statute or by state law and therefore the No Fault Act’s mandatory coverage and presumptions of coverage do not apply.
  3. The terms of the under-insured motorist policy itself will determine under what circumstances benefits are awarded.
  4. Under traditional principles of contract interpretation, unless a contract provision violates law or one of the traditional defenses to the enforceability of a contract, the court must construe and apply unambiguous contract provisions as written.
  5. Exclusions to coverage are construed in favor of the insured.
  6. If an exclusion is specific and clear it must be enforced as written. (Sentinel’s policy language was not ambiguous)
  7. A mutual case evaluation acceptance is a settlement, and not a tentative settlement or a conditional settlement.

CONCLUSION

As defense counsel, either for the tortfeasor or for the insurer, attention must be paid to the consent clause and the subrogation right that exists. This is true whether the plaintiff has named the UIM carrier in the case or not.   As counsel for the tortfeasor the main concern is exposing your client to subrogation if you settle for policy limits without a waiver of subrogation by the UIM carrier.  As counsel for the UIM carrier, you are entitled to notice from the insured’s lawyer (plaintiff attorney) of the potential of a settlement and your client has a right to consent to that settlement or to not consent to that settlement.  Consenting to the settlement will result in a waiver of your client’s subsequent subrogation rights against the at fault tortfeasor.

Obviously, as counsel for plaintiff, you have to protect your client’s underinsured motorist rights by obtaining the consent of the UIM carrier to receive the settlement offer from the at fault driver’s carrier if it is a policy limit offer.  If it is less than a policy limit offer, then UIM benefits will not be triggered under most policy language.

As indicated above, the author was counsel for Ftouni during this litigation.  When we filed the case evaluation acceptance we wondered whether plaintiff would also accept and whether they would obtain the consent of Sentinel prior to same. We considered whether as counsel for the alleged at fault party we had to obtain a waiver of subrogation from Sentinel prior to accepting the case evaluation award. Our conclusion was that we did not. We came to this conclusion as follows. 1. If plaintiff did not obtain the consent of Sentinel prior to the mutual acceptance then Plaintiff would no longer have a valid UIM claim and if thereafter Sentinel paid any UIM benefits they would be doing so as a volunteer and would have no subrogation rights since they would not have been paying benefits that were required by the terms of the policy. 2. If Plaintiff had asked and received the consent of Sentinel to accept the case evaluation award it was still our belief that we could protect the tort defendant from subrogation. Here is how.

Mutual acceptance of case evaluation allows for entry of judgment. The entry of judgment would be for the amount of the case evaluation. In this case it was $100,000, the liability policy limit. By the entry of judgment the plaintiff’s claim against the tort defendant was liquidated. The judgment was paid and a satisfaction of judgment filed with the court. There would be no preserving of the subrogation right.  It is our opinion that this process would have effectively eliminated any subrogation right of the UIM insurer.

For clarification, the above analysis does not apply to settlements that do not exhaust the primary tortfeasor’s limits. In that event no UIM benefits would be payable.

If anyone has any questions regarding this case or this issue they can contact the author as set forth above.

 

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