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Home-Owners Ins Co v AMCO Ins Co (COA – UNP 1/19/2023; RB #4529)


Michigan Court of Appeals; Docket #357273; Unpublished 
Judges Riordan, Markey, and Redford; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion

Not Applicable

Insurer Reimbursement – Other Scenarios [No-Fault Insurer Claims for Reimbursement]

In this unanimous, unpublished, per curiam decision, the Court of Appeals reversed the trial court’s denial of Defendant AMCO Insurance Company’s (“AMCO”) motion for summary disposition, in which AMCO sought reimbursement from Plaintiff Home-Owners Insurance Company (“Home-Owners”) for the amount it paid to settle the tort claim of Jerry Wineland.  The Court of Appeals held that a no-action clause in Home-Owners’ policy was not enforceable under the specific circumstances present in this case, and  that AMCO was not barred from proceeding with its action for reimbursement.  The Court did, however, remand for a determination of whether AMCO settled with Wineland in good faith, as well as a determination of whether the settlement amount was reasonable.

Jerry Wineland was injured in a motor vehicle accident after 16-year-old Benjamin Stewart blew through a stop sign in a rental car.  Benjamin’s father, Christopher Stewart, had rented the vehicle for Benjamin after Benjamin crashed his own vehicle a couple days prior.  At the time of the accident with Wineland, the Stewart family’s vehicles were insured through Home-Owners, and the rental vehicle Stewart was driving was insured through AMCO.  Wineland eventually filed an auto negligence action against Stewart, and Home-Owners both hired an attorney to defend Stewart, and sued AMCO, seeking a declaratory judgment that AMCO was responsible for providing liability coverage for the accident.  AMCO and Home-Owners both moved for summary disposition in Home-Owners’ declaratory action, and the trial court granted summary disposition in Home-Owners’ favor.  AMCO then sought leave to appeal the trial court’s ruling—which the Court of Appeals granted—all while the underlying tort case continued.

While AMCO’s interlocutory appeal was pending, AMCO  entered into settlement negotiations with Wineland  and also reached out to Home-Owners to see if Home-Owners would participate in, and potentially contribute to, a settlement.  Home-Owners declined the invitation (despite the possibility that the trial court’s ruling regarding priority would get reversed by the Court of Appeals) and AMCO ultimately settled with Wineland for $980,000.  Before doing so, however, AMCO warned Home-Owners that it would seek reimbursement if the Court of Appeals reversed the trial court’s ruling.

The Court of Appeals   did ultimately reversed the trial court’s ruling, and Home-Owners responded by filing a second declaratory action against AMCO, this time asserting that AMCO was barred from seeking reimbursement because of the no-action clause in Stewart’s policy. AMCO filed a counterclaim a few days later, alleging that Home-Owners abandoned Benjamin’s defense after the trial court’s original ruling, thereby waiving the no-action clause in its policy (In Elliott v Cas Ass’n of America, 254 Mich 282, 287-89 (1931), the Supreme Court held that no-action clauses are enforceable unless the insurer breaches its duty to defend, in which case the clauses are deemed waived).  Both insurers then moved for summary disposition, and the trial court denied both motions, finding questions of fact as to whether Home-Owners abandoned Stewart’s defense and thus waived the no-action clause.

The Court of Appeals reversed the trial court’s denial of AMCO’s motion for summary disposition, holding that the no-action clause in Home-Owners’ policy was not enforceable under the particular circumstances in this case (the issue of whether Home-Owners abandoned Stewart’s defense, therefore, was immaterial).  The Court noted that the purpose of a no-action clause is to prevent an insured from settling a claim without his or her insurer’s participation and consent.  In this case, at the time of AMCO’s settlement with Wineland, the trial court had already ruled that AMCO, not Home-Owners, was responsible for Stewart’s liability coverage.  It would have been “counterintuitive,” therefore, to prohibit AMCO and Wineland from engaging in settlement negotiations merely because a party (Home-Owners) with “no liability within the immediate context of the settlement” was not involved.  Moreover, it would “create[] tension between insurers that results in a detriment to the insured and the injured claimant, making settlement much less likely and creating an environment ripe for gamesmanship.”  The Court further explained that because it found that the no action clause was unenforceable under the particular circumstances in this case, the Court did not need to reach the issue of whether Home-Owners breached its duty to defend Benjamin.

“We conclude that the no-action clauses were not enforceable under the particular circumstances of this case; therefore, the question whether Home-Owners complied with its duty to defend need not be reached. But we do not leave Home-Owners unprotected and without recourse. As indicated earlier, no-action ‘[c]lauses prohibiting the insured from voluntarily settling a claim without the insurer’s consent give the insurer the opportunity to contest liability, to participate in settlement negotiations and to have input as to the value of the claim.’ Alyas, 180 Mich App at 160. With respect to the procedural posture of this case at the time of settlement, AMCO had been designated the primary insurer, was ordered to provide a defense to Benjamin, and had decided to settle the tort litigation for an amount that did not exceed its own $1 million garage policy. Under these specific circumstances, we question the need for Benjamin to obtain Home-Owners’ agreement for the settlement with the Winelands, which was to be fully funded by AMCO. The purposes of a no-action clause did not need to be served at the time. It is not as if Benjamin, in disregard of Home-Owners’ contractual rights, struck his own deal with counsel for the Winelands and then demanded payment by Home-Owners. In regard to the settlement negotiations between the Winelands and AMCO, a determination mandating Home-Owners’ involvement and agreement would seem counterintuitive considering that Home-Owners had no liability within the immediate context of the settlement. . . .

Looking at the specific language of the no-action clauses contained in the Home-Owners’ insurance policies, we believe they can be reasonably construed as absolutely requiring Home-Owners’ agreement to a settlement payment before AMCO would be entitled to file an action against Home-Owners under subrogation principles. Under the reasoning employed by Home-Owners, an action by AMCO seeking recovery in the form of reimbursement would only be viable under the no-action clauses if Home-Owners had approved the $980,000 settlement. In our view, this reasoning creates tension between insurers that results in a detriment to the insured and the injured claimant, making settlement much less likely and creating an environment ripe for gamesmanship. In this case, Home-Owners had no reason, for the most part, to agree to the settlement because if it had been victorious in the earlier appeal, it would have no liability, yet if it lost the earlier appeal, as occurred, it would still have no liability given that the subrogation action could not be maintained in light of the no-action clauses.”

The Court of Appeals remanded the case back to the trial court, but, rather than ordering that the trial court automatically award AMCO the $980,000 it paid to Wineland, it instructed the trial court to determine “the proper reimbursement amount, if any, under criteria measuring whether the $980,000 settlement was reasonable and made by AMCO in good faith.”

“Importantly, we acknowledge that our ruling does not honor the contractual no-action clauses in Home-Owners’ insurance policies, but we emphasize that a ruling in favor of Home-Owners and enforcing the no-action clauses results in AMCO’s incurring liability in direct contradiction to the plain language of its insurance policies as construed by the previous panel. Indeed, enforcement of the no-action clauses effectively circumvents or nullifies the earlier ruling by this Court. To afford some protection to Home-Owners, we conclude that the proper approach is to reverse the trial court’s ruling, declare that AMCO may be entitled to reimbursement, and remand for proceedings to determine the proper reimbursement amount, if any, under criteria measuring whether the $980,000 settlement was reasonable and made by AMCO in good faith. In this way, Home-Owners has the opportunity to attain some of the benefits associated with the no-action clauses.”

Michigan auto accident attorney Stephen Sinas is the lead editor of the appellate case summaries published on this site regarding the Michigan auto insurance law. To learn more about how Stephen Sinas and how the Sinas Dramis Law Firm can help you if you have been injured in a Michigan auto accident, visit

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