Michigan Court of Appeals; Docket No. 194913; Published
Judges O'Connell, Sawyer, and Markman; Unanimous; Opinion by Judge O’Connell
Official Michigan Reporter Citation: 224 Mich App 494; Link to Opinion 
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Underinsured Motorist Coverage
Private Contract (Meaning and Intent)
CASE SUMMARY:
In this unanimous published Opinion by Judge O'Connell, the Court of Appeals issued an important ruling regarding underinsured motorist clauses. The issue in this case was whether plaintiff forfeited his right to underinsured motorist coverage because, contrary to a provision in his underinsured motorist endorsement, he settled his tort claim without the written consent of the underinsured carrier. The court ruled that because plaintiff violated the consent requirement of the policy, he had indeed forfeited his coverage.
In reaching this conclusion, the court reviewed the Lee v Auto-Owners Insurance Company trilogy of cases [Item Nos. 1638,1759 and 1878], as well as the arbitration language contained in underinsured motorist policies. The court concluded that arbitration agreements set forth in underinsured motorist policies are fairly standard, "and are of two varieties—one broad, one narrow." The arbitration clause involved in the case at bar was viewed by the court to be "of the narrow variety, " providing that either party may make a written demand for arbitration with regard to two issues--the liability of the alleged tortfeasor and the extent of damages of the insured. In contrast, the "broad variety " of arbitration clauses essentially provide that any issue may be arbitrated, including any dispute pertaining to coverage. Because the present case involves a "narrow variety " arbitration clause, the question of whether the "failure to obtain consent exclusion" applies to this case, is a question that must be decided by a court and not by arbitration. Had the arbitration provision been of the "broad variety," disputes pertaining to coverage, including whether exclusions apply, would properly be left for arbitration.
The court then examined the consent exclusion and ruled that it was enforceable. The court further refused to impose a "reasonableness " standard as to whether the defendant properly withheld consent. Furthermore, citing the Lee cases, the court refused to impose a prejudice standard in order to determine whether the consent exclusion was enforceable. The court rejected these limitations on the insurer's right to grant consent because the court was persuaded that the insurer's right to subrogation against the tortfeasor must be protected.
In this regard, the court stated,
"We decline to impute a 'reasonableness' requirement in the policy provision mandating that the insured first obtain the consent of his or her insurer before settling a claim against an alleged tortfeasor. As explained by defendant in its brief on appeal, defendant has a legitimate interest in protecting its subrogation interest. ...In Lee III, supra, this court was faced with a similar issue in which the insured claimed that unless an insurer was 'prejudiced' by the act of its insured in settling a claim, the insurer could not enforce the policy exclusion requiring the consent of the insured.... This court refused to recognize the insured's claim, holding that clear and specific policy exclusions were to be given effect 'without incorporating a condition of prejudice.' Similarly we continue to give the clear and specific policy exclusion in issue effect without incorporating a condition of reasonableness. To the extent that the concepts of 'prejudice' and 'reasonableness' differ in the instant context, we believe the plaintiff's argument in the present case to be weaker even than the insured's position in the Lee decisions."
However, it was at this point in the opinion that the Court of Appeals fashioned an important solution for plaintiffs faced with a "consent exclusion" in an underinsured motorist policy. The court held that if the defendant insurance company withholds consent, the plaintiff can simply initiate arbitration of plaintiff s underinsured motorist claim. If the plaintiff obtains an arbitration award, the defendant's subrogation interests are protected and defendant would then be free to pursue the tortfeasor for reimbursement. If the defendant refused to pay the arbitration award, plaintiff could then file a lawsuit in a court of law to enforce the award. This remedy was explained by the court in the following language:
"In the instant case, defendant could have gained no advantage over plaintiff and plaintiff could have suffered no loss with respect to his claim against the [tortfeasor] due to defendant's refusal to consent for this very reason: plaintiff could easily have initiated arbitration proceedings. It is plaintiff's impatience that reduced his relationship with his insurer to a zero-sum game, in which plaintiff's gain was necessarily his insurer's loss. This outcome could have been avoided had plaintiff submitted the matter to arbitration, at which point plaintiff's opportunity to recover against the [tortfeasor] would have been subrogated to defendant. Assuming plaintiff prevailed before the arbitration panel, defendant would then have been obligated to abide by the arbitration award or face suit by plaintiff in a court of law to enforce the award In short, we do not find to be persuasive plaintiff's contention that the policy exclusion should not be enforced as written.... This is especially true in light of the fact that plaintiff could have submitted the matter to arbitration, without defendant's consent, at any point prior to settling the case. "
Therefore, based upon this case, the appropriate procedure in underinsured motorist cases where a claimant's underinsured motorist carrier refuses to grant consent to settle with a tortfeasor, is to initiate arbitration, arbitrate the claim and seek enforcement of the arbitration in court if the insurer fails to pay. The insurer may then pursue the tortfeasor in a separate action for reimbursement.
