Michigan Court of Appeals; Docket No. 134748; Published
Judges Michael J. Kelly, Marilyn Kelly, and Connor; Unanimous; Opinion by Judge Connor
Official Michigan Reporter Citation: 218 Mich App 672; Link to Opinion
Private Contract (Meaning and Intent)
Release and Settlements
Underinsured Motorist Coverage: Exclusions from Underinsured Motorist Benefits
Underinsured Motorist Coverage: Notice and Statute of Limitations for Underinsured Motorist Coverage
Underinsured Motorist Coverage: Arbitration of Underinsured Motorist Claims
In this unanimous published Opinion by Judge Connor, the Court of Appeals interpreted the conditions contained in an underinsured motorist endorsement requiring that the insured notify the insurance company of any action against the defendant, and further, that the insured obtain the consent of Auto Owners prior to releasing the responsible other driver from any claims. The court held that the plaintiff failed to comply with these conditions, and therefore was precluded from bringing an action in a court of law against Auto Owners for underinsured benefits. However, the court further concluded that this did not prevent plaintiff from bringing an arbitration claim pursuant to the policy provisions.
Plaintiff was a passenger in an automobile involved in an accident and suffered serious injuries. The other driver had the statutory minimum liability insurance coverage of $20,000 at the time of the accident Plaintiff had underinsured motorist coverage with Auto Owners for up to $50,000. Plaintiff sued the driver and subsequently settled for $20,000. As part of the settlement, plaintiff signed a form which purported to release the other driver and "all other persons, firms, and corporations" from "any and all actions, claims and demands." The commencement of this action and the subsequent release and settlement were done without the knowledge or approval of Auto Owners, the provider of underinsured motorist coverage. Auto Owners refused to pay the $30,000 differential that would have been available under its underinsured motorist coverage on the grounds that Lee had executed a complete release which Auto Owners contended also released it from underinsured motorist liability. Additionally, Auto Owners contended that by suing, settling and releasing the other driver from future liability without Auto Owners' knowledge or approval, Lee failed to comply with conditions of the policy which precluded underinsured motorist benefits.
The Court of Appeals rejected Auto Owners contention that the release of the other driver would also operate as a release of Auto Owners from its obligation to pay underinsured motorist benefits. The only reasonable interpretation of the release language is that it was intended to release the other driver and the driver's insurance company from all claims, and not also plaintiffs own insurance company for underinsured motorist benefits.
However, with respect to the provisions of Auto Owners' policy requiring notice, approval and consent to such a settlement, the court held that these were conditions precedent to plaintiff being entitled to institute a legal action against Auto Owners in a court of law of underinsured motorist benefits. Plaintiff claimed these alleged breaches of conditions were "harmless." The Court of Appeals held that whether harmless or not, plaintiffs failure to satisfy these conditions precedent under the contract prevented plaintiff from being able to state a cause of action in the courts to collect the underinsured motorist benefits. However, the court stated that plaintiffs failure to abide by these conditions did not prevent him from recovering under the policy through arbitration proceedings. It only barred instituting a lawsuit.