An injured motorist’s failure to join a tortfeasor in her lawsuit against her insurer for uninsured motorist (UM) benefits, in violation of the policy’s language, does not defeat her right to benefits where the insurer did not suffer actual prejudice from the lack of joinder, the Michigan Court of Appeals held.
Stephanie Marie Bradley was injured in a collision with William Bowen, an uninsured motorist, and obtained a default judgment against him for $50,000. Bradley sought UM benefits from her insurer, State Farm, for the policy limit of $25,000. When State Farm refused to settle, Bradley sued, alleging breach of contract. The trial court granted State Farm summary judgment on the ground that Bradley failed to join Bowen and the car’s owner, in violation of the policy’s language requiring joinder of all tortfeasors in a suit against the insurer.
On appeal, Bradley argued that the policy language reflects an attempt to protect the defendant’s subrogation rights and that her procurement of a default judgment—as opposed to a settlement agreement with a release—in an amount that exceeds the policy limit does not infringe on the defendant’s subrogation rights because it can still recover against Bowen.
Reversing, the appellate court cited case law holding that an insurer seeking to deny benefits on the ground that its insured failed to comply with a contractual notice provision must establish actual prejudice. The court here reasoned that although that case involved a notice provision, the joinder provision at issue serves a comparable purpose—giving the insurer an opportunity to protect its financial interests by investigatory, defense, and subrogation rights. Thus, the court concluded, State Farm must show actual prejudice.
Finding that the insurer failed to do so, the court noted that Bowen was not released from liability. If State Farm becomes obligated to pay benefits to Bradley, the court reasoned, it can subrogate to her right to enforce the $50,000 default judgment against Bowen—at least up to the $25,000 policy limit—and attempt to collect from him.
The court rejected the defendant’s argument that entry of the default judgment deprived it of an opportunity to challenge the underlying tort claim, which prevents it from challenging its liability under the policy. Because the policy provides that State Farm is not bound by any judgment obtained without its written consent or by any default judgment against another person, the court said, Bradley cannot rely on the default judgment to establish benefits. Rather, she must still prove the underlying elements of her tort claim. The court concluded that State Farm will not be deprived of its right to defend and will not be prejudiced by the lawsuit.
Citation: Bradley v. State Farm Mut. Auto. Ins. Co., 2010 WL 3766883 (Mich. App. Sept. 28, 2010).
Plaintiff counsel: Daniel Randazzo, Rochester Hills, Michigan.