Summary
In Stine, the majority noted Lehr v Professional Underwriters, 296 Mich. 693; 296 N.W. 843 (1941), in which the Michigan Supreme Court held that a "claims made" insurance contract was enforceable and not against public policy.
Summary of this case from Daiie v. Leonard UnderwritersOpinion
Docket No. 53186.
Decided January 5, 1982. Leave to appeal applied for.
Boltz, Roth, Silver Friedman, for plaintiff.
Plunkett, Cooney, Rutt, Watters, Stanczyk Pedersen, P.C. (by D.J. Watters and Christine D. Oldani), for defendant.
Defendant appeals as of right the trial court's order granting plaintiff's motion for summary judgment.
Plaintiff, a licensed architect, entered into a contract with the Maple Hill Apartment Company (Maple Hill) to provide architectural services for an apartment project. Mortgage insurance for the project was provided through the Federal Housing Administration (FHA). In order to comply with the requirement of the FHA, plaintiff was required to obtain professional liability insurance for his services on the project.
On February 28, 1972, defendant issued a professional liability insurance policy to plaintiff. Plaintiff had never obtained professional liability insurance before and has not sought such insurance since the completion of the FHA-supported project.
The original policy issued to plaintiff by defendant expired on February 28, 1973, but was renewed on the same day. Thereafter, on January 16, 1974, defendant notified plaintiff that the policy would be cancelled on January 26, 1974, due to non-payment of installment premiums. Plaintiff did not pay the premiums, and, thus, his coverage was cancelled on January 26, 1974. Plaintiff testified that he stopped paying for the insurance when the FHA informed him that the project was completed.
On November 26, 1976, Maple Hill commenced an action against plaintiff alleging professional malpractice by plaintiff regarding the apartment project. This was the first notice that plaintiff had that Maple Hill was asserting a claim against him.
On December 13, 1976, plaintiff informed defendant of the suit and requested that defendant defend him. On February 3, 1977, defendant notified plaintiff that it would not defend him. Further notice was given to defendant on January 9, 1978, but, on January 20, 1978, defendant again informed plaintiff that it would not defend the action since no claim was asserted against defendant until after plaintiff's insurance policy had expired, and it was, therefore, under no obligation to enter a defense on plaintiff's behalf. In support of this contention, defendant relied upon the following provision of plaintiff's insurance policy:
"(b) Time
"The insurance afforded by this policy applies to errors, omissions or negligent acts which occur on or after the date stated on item 6 of the declarations (the effective date of the first policy issued and continuously renewed by the Company) provided that claim therefor is first made against the insured during this policy period and reported in writing to the Company during this policy period or within 60 days after the expiration of this policy period."
It is undisputed that the action brought against plaintiff involved acts of alleged professional negligence occurring at least in part during the period that plaintiff was insured by defendant.
On October 30, 1978, plaintiff instituted this action for a declaration of rights under the insurance policy. Both plaintiff and defendant brought motions for summary judgment.
The trial court granted plaintiff's motion and denied defendant's, finding that defendant was obligated to defend plaintiff in the Maple Hill suit. The trial court cited as authority the case of Honner v Continental Casualty Co (Docket No. 773553, decided June 22, 1978 [unreported]), lv den 403 Mich. 849 (1978). We affirm the trial court even though we may not rely on Honner.
Defendant contends that it has a valid defense to plaintiff's claim because Maple Hill did not assert a claim against plaintiff, and defendant was not notified, within 60 days after the expiration of the policy as required by the time provision of the policy. Defendant relies on Lehr v Professional Underwriters, 296 Mich. 693; 296 N.W. 843 (1941).
In Lehr, the Court upheld the validity of a similar provision of an insurance policy. Plaintiff, a chiropractor, had purchased an insurance policy from defendant protecting him against liability for errors or mistakes committed by him in his practice and resulting in bodily injuries or death. The policy limited the insurer's liability to "cause[s] of action arising and accruing within the time included in this policy and presented or prosecuted within two months after the expiration [thereof]". Lehr, supra, 695. Plaintiff was sued for acts of malpractice that occurred within the period of coverage, but the suits were not commenced until after his coverage had expired. Plaintiff notified defendant that the suits had been instituted, whereupon defendant denied liability and refused defense. The trial court found for the defendant. On appeal, the Court found no ambiguity in the terms of the policy, and that the limiting provision contained in the policy was not violative of public policy:
"The present provision limiting liability is not against public policy. It is not against public policy for a casualty company, in unambiguous terms, to limit its liability only to claims or suits brought within a time certain, and thus enable the company to make an early investigation, secure proofs, and possibly prevent fraud or collusion * * *.
"The liability was limited in the policy. To hold otherwise would be to write a new contract for the parties. This we have no right to do." Lehr, supra, 696-697. (Citations omitted.)
We find Lehr inapplicable to the instant case. Here, the defendant issued a casualty insurance policy to plaintiff.
Insurance contracts are subject to statutory regulations, and the mandatory provisions of the Insurance Code must be read into the contract. Wendel v Swanberg, 384 Mich. 468; 185 N.W.2d 348 (1971), Galkin v Lincoln Mutual Casualty Co, 279 Mich. 327; 272 N.W. 694 (1937), State Automobile Mutual Ins Co v Babcock, 54 Mich. App. 194; 220 N.W.2d 717 (1974).
Chapter 30 of the Insurance Code of 1956 governs casualty insurance, and MCL 500.3008; MSA 24.13008, a provision of the Code, states:
"In such liability insurance policies there shall be a provision that notice given by or on behalf of the insured to any authorized agent of the insurer within this state, with particulars sufficient to identify the insured shall be deemed to be notice to the insurer; and also a provision that failure to give any notice required to be given by such policy within the time specified therein shall not invalidate any claim made by the insured if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible." (Emphasis added.)
This language was in 1929 CL 12460 and became incorporated in the 1956 Insurance Code, and therefore was in effect at the time of the Lehr decision but was apparently not considered by the Lehr Court even though we think it is both applicable and controlling in the instant case, since insurance contracts are subject to statutory regulations. Its provisions must be read into the insurance policy. Therefore, plaintiff's claim is valid if notice was not given to the defendant within the time prescribed in the policy, but notice was given as soon as was reasonably possible.
On November 26, 1976, Maple Hill commenced an action against plaintiff for alleged acts of professional malpractice which had occurred during the time the policy was in effect. This was the first notice that plaintiff had of a claim against him. Plaintiff notified defendant on December 3, 1976, only seven days after the plaintiff had received notice. We find that plaintiff gave notice of the claim to defendant as soon as was reasonably possible. Thus, the trial court did not err in granting plaintiff's motion for summary judgment finding defendant obligated to defend plaintiff in the Maple Hill suit.
Affirmed.
E.E. BORRADAILE, J., concurred.
I respectfully dissent.
I believe the majority misconstrues the impact of MCL 500.3008; MSA 24.13008 upon this insurance policy. The statutory section precludes "notice" provisions that invalidate claims that are otherwise within the effective coverage of a policy. The policy in question here was a "discovery" policy which only covered claims discovered and actually brought against the insured during the policy period, regardless of when the acts or omissions causing liability took place. Presumably, such a policy is less expensive than an equivalent "occurrence" policy, which would provide coverage if the act or omission took place during the policy period, regardless of the discovery date. To provide true protection, a discovery policy must be continued until the insured otherwise feels safe from the threat of liability or obtains delayed recording or extended discovery coverage.
See 2 Long, The Law of Liability Insurance, § 12.02, p 12-4.
An insured might conclude that coverage is no longer necessary after the running of the six-year abrogation period of MCL 600.5839; MSA 27A.5839. See Bouser v City of Lincoln Park, 83 Mich. App. 167; 268 N.W.2d 332 (1978).
Here, coverage was denied not because the insured delayed notice to the insurer but because he allowed the policy to lapse prior to the discovery of the liability claim. Therefore, MCL 500.3008; MSA 24.13008 has no impact on this case.
Like the majority, I am not particularly enamored by this type of insurance policy. However, the Supreme Court has considered similar policy limitations and has determined that when set forth in unambiguous terms they do not violate public policy. Lehr v Professional Underwriters, 296 Mich. 693; 296 N.W. 843 (1941).
I would reverse the trial court's entry of summary judgment in favor of plaintiff and remand for entry of judgment in favor of defendant.