Summary
In Koski v. Allstate Ins. Co., 213 Mich.App. 166, 539 N.W.2d 561, 563 (1995), rev'd on other grounds, 456 Mich. 439, 572 N.W.2d 636 (1998), the Michigan Court of Appeals held that "[w]here a renewal policy is issued without calling the insured's attention to a reduction in coverage, the insurer is bound to the greater coverage in the earlier policy."
Summary of this case from Amway Distributors Benefits v. Northfield Ins. Co.Opinion
Docket Nos. 155428, 158853.
Submitted April 19, 1995, at Detroit.
Decided September 1, 1995, at 9:10 A.M. Leave to appeal sought.
Professional Offices of Frank Forster (by Michael J. Forster), for the plaintiff.
Kohl, Secrest, Wardle, Lynch, Clark Hampton (by Michael L. Updike), for the defendant.
Plaintiff, Thomas Koski, brings this action to recover indemnification from defendant under his homeowner's policy. Plaintiff began buying homeowner's coverage from defendant in 1976 and continued to renew and maintain the coverage in succeeding years by paying the annual premiums billed by defendant. The original policy contained provisions relating to notice of claim in the event of accident, as well as homeowner's and liability protection. These coverages were varied and shrunken in later years.
Defendant, Allstate Insurance Company, mailed to plaintiff in 1982, a package containing a cover letter, a brochure describing changes in coverage, and a copy of a revised insurance policy that was to be effective upon receipt of plaintiff's 1982 premium payment. The cover letter invited the reader to "take a few minutes to read your new policy [and] the enclosed booklet," and set forth several features of the new policy without mentioning any exclusions from coverage. The enclosed brochure contained the language, "An exclusion has been added stating that we will not provide liability protection when members of the same household are engaged in a liability suit against each other."
This policy also contained notice provisions comparable to those in the earlier policy. Plaintiff renewed the coverage with payment of his premium.
On October 31, 1984, plaintiff's daughter, Nikki Koski, was seriously injured in an accident involving machinery being operated by the plaintiff. Plaintiff reported the accident to defendant and was informed that he did not have liability coverage for the accident. Plaintiff sought legal advice.
In May of 1986, defendant received a letter from an attorney indicating that he had been retained by Nikki Koski's mother, Marsha M. Koski, to pursue an action against plaintiff in connection with Nikki's accident. In responding to the defendant's report of the attorney's letter, defendant's agent expressed a belief to plaintiff that any suit brought against the plaintiff by Nikki or Marsha Koski, both of whom lived with plaintiff, would not be covered under plaintiff's liability policy because they were "insured persons" for purposes of the policy. Thereafter, Nikki and Marsha Koski brought a negligence action against plaintiff. It is undisputed that the action against plaintiff would have invoked liability coverage under the original policy and annual renewals thereof until 1982.
A default judgment in the underlying suit was entered against plaintiff on February 5, 1990. Upon being notified of the judgment in May of 1990, defendant declined to make payment. An amended default judgment was entered in the underlying suit on January 3, 1991. The plaintiff initiated this action for breach of contract on October 26, 1990, and defendant claimed in its defense not only that coverage was excluded, but that plaintiff had forfeited any coverage by failure to notify defendant of the underlying suit as required by the policy.
In November of 1991, trial was held in the circuit court and limited issues were submitted to the jury. The jury found that the material received by the plaintiff and sent by the defendant to him in 1982 did not "call to the policyholder's attention a reduction in coverage."
Following delivery of the jury's special verdict, both parties filed motions for summary disposition. In denying defendant's motion, the court held "that whether the notice given to Mr. Koski that his policy had changed was sufficient to alert him to the elimination of liability for [sic] coverage between family members was a question of fact for the jury," and the jury resolved that question in favor of the plaintiff.
The court, finding that plaintiff had effectively complied with the notice requirements of the policy, entered an opinion and order granting plaintiff's motion for summary disposition on June 25, 1992. Defendant appeals as of right from that opinion.
A defense motion for reconsideration was denied on July 24, 1992, and judgment was entered for the plaintiff on November 16, 1992, which defendant also appeals from as of right.
We are asked to determine if the trial court erred in allowing a jury to assess the sufficiency of notice to an insured of a change in coverage. This raises a question subject to review de novo by this Court. Westchester Fire Ins Co v Safeco Ins Co, 203 Mich. App. 663, 667; 513 N.W.2d 212 (1994). We find that the circuit court erred in submitting to the jury the question of the adequacy of the notice of the exclusion because this was a question of law for the court. However, the error was harmless because the notice provided by defendant was inadequate as a matter of law.
An insured is obligated to read the insurance policy and to raise questions concerning coverage within a reasonable time after issuance of the policy. Transamerica Ins Corp v Buckley, 169 Mich. App. 540, 546; 426 N.W.2d 696 (1988); Parmet Homes, Inc v Republic Ins Co, 111 Mich. App. 140, 145; 314 N.W.2d 453 (1981). However, an exception to this rule exists "where a policy is renewed without actual notice to the insured that the policy has been altered." Id. at 145. Where a renewal policy is issued without calling the insured's attention to a reduction in coverage, the insurer is bound to the greater coverage in the earlier policy. Id.; Industro Motive Corp v Morris Agency, Inc, 76 Mich. App. 390, 396-397; 256 N.W.2d 607 (1977). The rule that attention must be called to the reduction in coverage, and not merely to the fact that a policy has been revised, is consistent with Giles v St Paul Fire Marine Ins Co, 405 F. Supp. 719, 724 (ND Ala, 1975), in which it was held that an "insurer should be able to enforce only those changes in coverage as to which the insured has been reasonably informed."
In Himes v City of Flint, 38 Mich. App. 308, 314; 196 N.W.2d 321 (1972), this Court held in a noninsurance setting that the issue whether notice complied with a controlling ordinance and procedural due process was one of law. Relying in part on the authority of Himes, federal and other state courts have held that in the absence of a dispute concerning some predicate fact, the adequacy of written notice of a reduction in an insurance policy's coverage is a question of law for the court. Adams v Greenwood, 10 F.3d 568, 571 (CA 8, 1993), Benton v Mutual of Omaha Ins Co, 500 N.W.2d 158, 160 (Minn App, 1993), and cases cited therein. Therefore, the circuit court erred in submitting this question to the jury. However, as stated above, any error was harmless because the jury's finding that the notice provided by defendant did not call plaintiff's attention to the new exclusion from coverage was correct as a matter of law.
In this case, the notice to plaintiff of the new exclusion consisted of a single unemphasized reference in a twelve-page booklet. It is not clear that unambiguous language in a brochure must necessarily provide greater notice than equally unambiguous language in a policy. In arguing that the issue is whether the language in the brochure was ambiguous, defendant has entirely failed to recognize that it had an affirmative obligation to call its insured's attention to a reduction in coverage.
Defendant ignores this obligation in suggesting that Parmet Homes and Industro Motive are inapplicable to the facts of the instant case because the cover letter sent by defendant along with its 1982 policy suggested that plaintiff "take a few minutes to read [his] new policy." The more significant fact about the cover letter is that it specifically noted several policy amendments favorable to the insured, but failed to mention any exclusion. The conclusion that defendant did not wish for plaintiff's attention to be drawn to the new exclusion is inescapable.
The conclusion that defendant did not provide plaintiff with adequate notice of the new coverage exclusion is supported by foreign authorities. Campbell v Ins Service Agency, 424 N.W.2d 785, 790 (Minn App, 1988).
In Mundy v Lumberman's Mutual Casualty Co, 783 F.2d 21 (CA 1, 1986), the Court found that the insurer had provided adequate notice of the coverage restriction, because "even `a casual reading of the mailed material' would have given the plaintiffs adequate notice." Defendant has cited no case from any jurisdiction in which notice such as that provided in this case was found to be adequate to call an insured's attention to a reduction in coverage.
Defendant also asks us to consider and decide the question whether the failure of the plaintiff to read the new policy and the booklet excuses defendant's insufficiency of notice. Again, this raises a legal question subject to independent review by this Court. Westchester Fire, supra at 667. Defendant relies on authorities indicating when proof of proximate cause is sufficient to allow recovery in a negligence cause of action. However, defendant has entirely failed to demonstrate that these principles are applicable to the instant case. According to Parmet Homes, supra, and Industro Motive, supra, an insurer's failure to call an insured's attention to a reduction in coverage in a renewal policy binds the insurer to an earlier policy's more extensive coverage.
Defendant also asks us to decide if the trial court erred in summarily deciding that an insured has complied with the notice provisions of an insurance policy. In ruling on a motion for summary disposition filed under MCR 2.116(C)(10), the court must consider the affidavits, pleadings, depositions, admissions, and documentary evidence submitted or filed in the action. The court's task is to review the record evidence, and all reasonable inferences therefrom, and decide whether a genuine issue of any material fact exists to warrant a trial. Skinner v Square D Co, 445 Mich. 153, 161; 516 N.W.2d 475 (1994).
The circuit court properly found as a matter of law that defendant had not been prejudiced by any defect in plaintiff's compliance with the notice provisions of his insurance policy.
In Waller v Cummins, 330 Mich. 286; 47 N.W.2d 612 (1951), an insurer was informed of an accident by its insured, and received, from another source, notice of a resulting property damage lawsuit. The Supreme Court reasoned that "if the insurance company received adequate and timely information of the accident or the institution of an action for the recovery of damages it is not prejudiced, regardless of the source of its information." Id. at 293.
In Wendel v Swanberg, 384 Mich. 468; 185 N.W.2d 348 (1971), the insured was obligated by contract to provide the insurer with timely written notice of any "occurrence," and was additionally obligated, in the event that a suit was brought against her, to immediately forward every demand, notice, summons, or other process received. Id. at 472-473. After an accident covered by the policy, the insurer was informed of the accident, made an investigation and offered a settlement. When suit was brought against the insured, the insurer was not notified and a default judgment was entered. Id. at 473. The insured, a defendant in a subsequent garnishment action, appealed an adverse judgment, and the Supreme Court held that the insurer was not entitled to a directed verdict because a jury could find there was no prejudice to the insurer from the insured's failure to advise of the suit.
In Burgess v American Fidelity Fire Ins Co, 107 Mich. App. 625; 310 N.W.2d 23 (1981), an insurer received no formal notice of an action against its insured until after entry of a default judgment. The trial court reasoned that, assuming the insurer was prejudiced by lack of an opportunity to defend, such prejudice does not become material where the insurer, upon notice, does not act or properly act to protect its interest or that of its policyholder. Id. at 630. The finding that the insurer had not been prejudiced was affirmed by this Court. Id. at 630-631; see also Kleit v Saad, 153 Mich. App. 52, 58; 395 N.W.2d 8 (1985) (notice of an action given after entry of a default judgment was "prompt, reasonable notice").
The cited authorities oppose defendant's arguments that an insured is excused from compliance with notice requirements only after formal denial of a claim, that notice preventing prejudice to an insurer can be conveyed only by an insured and not by the person injured by the insured, and that an absence of notice of an action until after entry of a default judgment conclusively establishes prejudice. Because defendant received prompt notice of plaintiff's daughter's accident, as well as inquiries from the daughter's attorney suggesting an impending suit and notice of a default judgment, in response to all of which defendant took no action to protect its interests, defendant was not prejudiced by plaintiff's failure to provide timely notice of the suit against him. When the facts are undisputed and only one conclusion is reasonably possible, the question of compliance with notice requirements in an insurance policy is one of law. Wehner v Foster, 331 Mich. 113, 120; 49 N.W.2d 87 (1951).
In finding that the question whether the material sent to plaintiff along with his 1982 insurance policy called his attention to the coverage exclusion at issue was one of fact for the jury, the circuit court erred. However, the error was harmless because the notice provided by defendant was inadequate as a matter of law. The circuit court properly found that defendant had not been prejudiced by any defect in plaintiff's compliance with the notice provisions of the insurance policy.
Affirmed.