Clay v. American Continental Insurance

531 N.W.2d 829, 209 Mich. App. 644

• Court: Michigan Court of Appeals
• Decided: April 4, 1995
• Docket: Docket 171333
• Status: Published

Opinion

Per Curiam.

Plaintiff appeals as of right from the trial court’s grant of summary disposition for garnishee defendant American Continental Insurance Company pursuant to MCR 2.116(C)(10). The trial court found that the consent judgment executed by plaintiff and defendant Ferguson Clinic for Digestive Diseases, P.C., also known as Ferguson Clinic, P.C., constituted a covenant not to collect more than $200,000 from Ferguson Clinic, which in turn negated American Continental’s obligation, as Ferguson Clinic’s insurer, to satisfy the balance of the settlement amount. The trial court also denied plaintiffs motion for reconsideration, finding the decision in Alyas v Gillard, 180 Mich App 154; 446 NW2d 610 (1989), to be factually inapposite to the case at bar. Finding upon review de novo that genuine issues of material fact exist and that American Continental is not entitled to judgment as a matter of law, Allstate Ins Co v Elassal, 203 Mich App 548, 552; 512 NW2d 856 (1994), we reverse and remand.

In April 1992, plaintiff filed his medical malpractice action against Ferguson Clinic and Manuel Campos, M.D. Both Ferguson Clinic and Dr. Campos were insured under a professional liability insurance policy issued by Michigan Physicians Mutual Liability Company; the policy limits were $200,000. Ferguson Clinic and Dr. Campos subsequently offered to settle the case for the policy limits, and settlement discussions ensued in March 1993.

When plaintiff requested an attestation to the effect that no other insurance policies existed that would apply to plaintiff’s claim, Ferguson Clinic’s representative conducted an investigation and discovered American Continental’s insurance liability policy, which purportedly covered Ferguson Clinic. 1 2 This policy had a coverage limit of $1,000,000. The record is unclear regarding the date that Ferguson Clinic’s counsel notified American Continental about plaintiffs claim. Regardless, correspondence in April 1993 from American Continental’s parent corporation indicated that it was denying coverage, "based on the descriptive nature of the claim.”

In May 1993, the parties executed a consent judgment in plaintiffs favor for $1,200,000. The judgment also contained the following condition:

Plaintiff may only pursue enforcement of this Judgment by consent in excess of $200,000 from American Continental Insurance Co., its successor or assigns, and plaintiff may not seek to enforce this Judgment by consent against any other asset or income of defendant, whether individual or joint, tangible or intangible, past, present, or future. The terms of this Judgment may not be publicly disclosed without further order of this Court.[ 2 ]

Plaintiff subsequently filed a writ of garnishment based upon the consent judgment against American Continental. American Continental filed a motion for summary disposition asserting, among other coverage issues, that the covenant-not-to collect language contained in the consent judgment negated American Continental’s obligation to satisfy the balance of the judgment. In its bench opinion granting American Continental’s motion, the trial court found that because Ferguson Clinic and Dr. Campos were not liable with respect to the $1,000,000 balance of the consent judgment, American Continental was not obligated to pay that amount, even assuming that coverage existed under American Continental’s policy. The court reasoned that American Continental’s obligation to provide coverage, if any, was limited to the loss sustáined by its insured, i.e., $200,000. The trial court also rejected plaintiff’s motion for reconsideration, despite this Court’s decision in Alyas, supra. We reverse and remand.

We believe that the decision in Alyas is factually similar and legally controlling here. In Alyas, the plaintiffs filed dramshop actions against the defendant, the owner of Eddie’s Bar, alleging that the bar had served the drunk driver who injured the plaintiffs. Id. at 157. When the defendant’s primary insurer became insolvent, Michigan Property and Casualty Guarantee Association (mpcga) inherited, by statute, the duty to indemnify and defend, which it assigned to Citizens Insurance Company of America. Id. at 157-158. The defendant hired his own attorney to represent the bar, and this attorney gave notice of the claims against the bar to mpcga and Illinois Employers Insurance of Wausau, the bar’s excess liability carrier. De spite this notice, mpcga refused to defend. Id. at 158.

Consequently, counsel for the bar entered into a consent judgment with the plaintiffs settling each of the two cases against the bar for $150,000. Id. The consent judgments also provided that the judgments were to be satisfied solely from the proceeds of any liability insurance available to the bar. Further, the judgments relieved both the defendant and the bar "from any and all liability.” Id. at 161. The plaintiffs subsequently filed writs of garnishment against the bar’s insurers. Mpcga, Citizens, and Wausau responded by filing motions for summary disposition, which were raised and granted pursuant to MCR 2.116(0(10). Id. at 158.

In granting the motions, the trial court in Alyas determined that the consent judgment released the bar from personal liability, thereby releasing the insurers from liability, because the insurers’ duties to pay were contingent on the bar’s legal obligation to pay damages. Id. at 159. Thus, the trial court in Alyas concluded that the consent judgment released not only the bar but also its insurers from liability. Id. at 161.

In reversing the trial court’s grant of summary disposition, this Court in Alyas determined that the consent judgment did not release the insurers from liability:

There is no claim that the consent judgment is not valid or binding as to plaintiff, [sic] Alyas [sic] John Gillard and the bar. At the time the judgment was entered, the bar was involved in actual litigation and was facing liability. The language of the judgment does not release Gillard or the bar. It specifically provides that the bar is liable in the amount of $150,000. The agreement limits the assets that plaintiff may pursue. If the insurers are liable to their insured up to the amount agreed upon, then plaintiff has agreed to seek satisfaction from the insurers. [Id. at 161-162; emphasis added.]

We believe that the instant case is neither factually inapposite nor significantly distinguishable from Alyas. In this case and in Alyas, the insured party notified its insurer of a claim against the insured, and the insurer chose not to indemnify or defend. Id. at 157-158. In both cases, the insured persuaded the injured party to accept the risk of collecting all or most of the consent judgment damages from the notified insurer, despite the possibility that the collection action could fail. Id. at 161-162. Unlike the consent judgment in Alyas, however, the consent judgment in the present case did not relieve Ferguson Clinic from any and all liability; instead, the covenant not to collect only required that plaintiff pursue American Continental to collect the $1,000,000 balance of the judgment. Id. at 161.

When the parties entered into the consent judgment in this case, Ferguson Clinic was facing liability for medical malpractice. Nothing in the judgment released Ferguson Clinic; rather, the consent judgment specifically states that Ferguson Clinic is liable in the amount of $1,200,000. The consent judgment merely limits the assets that plaintiff may pursue. Id. at 162. Thus, assuming that American Continental is liable to Ferguson Clinic, then the covenant not to collect merely commits plaintiff to seek satisfaction of the balance of the judgment from American Continental. Id. The consent judgment does not, however, relieve American Continental from its obligations to indemnify Ferguson Clinic, assuming that American Continental is legally bound to provide coverage. We readily acknowledge that several genuine issues of material fact exist with respect to insurance coverage, which preclude summary disposition pursuant to MCR 2.116(0(10). Allstate Ins Co, supra. These issues are best addressed on remand.

Accordingly, in light of this Court’s opinion in Alyas, supra, we reverse the trial court’s grant of summary disposition for American Continental and remand for further proceedings to resolve the issues of fact including but not limited to American Continental’s duty to indemnify Ferguson Clinic. We do not retain jurisdiction.

1 The policy issued by American Continental listed Ferguson Hospital and Ferguson Clinic as named insureds, but a question of fact exists with respect to whether this policy actually insured Ferguson Clinic or whether an endorsement executed before the settlement date effectively deleted Ferguson Clinic from the policy.

2 Upon payment of the $200,000 in partial satisfaction of the consent judgment, plaintiff voluntarily dismissed Dr. Campos from this action; thus, we will only refer to Ferguson Clinic as the insured and remaining malpractice defendant for purposes of our discussion.