Case Name: HENDERSON v. BIRON
Court: Michigan Court of Appeals
Jurisdiction: Michigan
Decision Date: 1984-11-05
Citations: 138 Mich. App. 503
Docket Number: Docket No. 67102
Parties: HENDERSON v BIRON
Judges: Before: Bronson, P.J., and R. B. Burns and R. L. Borsos, JJ.
Reporter: Michigan appeals reports; cases decided in the Michigan Court of Appeals.
Volume: 138
Pages: 503–509

Head Matter:
HENDERSON v BIRON
Docket No. 67102.
Submitted February 21, 1984, at Lansing.
Decided November 5, 1984.
Leave to appeal applied for.
Thomas A. Henderson was seriously injured in an automobile accident. He filed suit against Randy Biron, Judy Biron, the owner of the car Randy Biron was driving at the time of the accident, and Back Seat Saloon Country Cousin, Inc., in Oakland Circuit Court, alleging that Back Seat Saloon had unlawfully served liquor to Randy Biron and that the automobile accident resulted from Randy Biron’s consumption of the liquor. Defendants failed to respond to the allegations and a default judgment was entered against them, William J. Beer, J. Eight months later, plaintiff, having learned that Back Seat Saloon was insured against dramshop liability by Stonewall Insurance Company, commenced a garnishment action against Stonewall in Oakland Circuit Court seeking to recover insurance proceeds to satisfy the default judgment entered against Back Seat Saloon. Stonewall argued that it first became aware of the litigation growing out of the accident when it received notice of the garnishment action, that the 2-1/2 year lapse between the accident and the receipt of the garnishment notice prevented it from investigating plaintiff’s claim, and that, since it was denied an opportunity in the earlier proceedings to protect its interests, it should not be required to pay the insurance proceeds. The court, Robert C. Anderson, J., dismissed the garnishment action, finding that Stonewall had been materially prejudiced by the 2-1/2 year delay. Plaintiff appeals. Held:
1. Stonewall’s lack of notice of the original litigation may be used as a defense to the garnishment action. The two-year limitation period provision contained in the dramshop act applies to plaintiffs action against Stonewall.
References for Points in Headnotes
43 Am Jur 2d, Insurance § 717.
45 Am Jur 2d, Intoxicating Liquors § 593 et seq.
Coverage of policy insuring against liability under dramshop acts.
14 ALR3d 858.
5 Am Jur 2d, Appeal and Error § 839.
2. The trial court’s finding of prejudice was not clearly erroneous and will not be set aside.
Affirmed.
R. L. Borsos, J., dissented. He would hold that a lack-of-notice defense should not be applied in a case where the plaintiff seeks to recover insurance proceeds from a dramshopliability insurer. He would reverse.
Opinion of the Court
1. Insurance — Dramshop Liability — Garnishment — Defenses — Notice.
A dramshop-liability insurer which can show it was prejudiced by the insured’s failure to notify it of a lawsuit may use the lack of notice as a defense to a garnishment action seeking recovery of insurance proceeds to satisfy a default judgment.
2. Appeal — Findings of Fact — Prejudice.
A trial court’s finding of prejudice is a finding of fact and will not be set aside unless clearly erroneous; a finding of fact is clearly erroneous where, although there is evidence to support it, the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed.
Dissent by R. L. Borsos, J.
3. Insurance — Dramshop Liability — Garnishment — Defenses — Notice.
The rule that a casualty-liability insurer may assert a lack-of-notice defense in a garnishment action should not be applied in a case where the plaintiff seeks to recover insurance proceeds from a dramshop-liability insurer.
Otis M. Underwood, Jr., for plaintiff.
Kaufman, Payton & Kallas (by Constantine N. Kallas), for defendant.
Before: Bronson, P.J., and R. B. Burns and R. L. Borsos, JJ.
Circuit judge, sitting on the Court of Appeals by assignment.

Opinion:
R. B. Burns, J.
Plaintiff commenced a garnish ment action against Stonewall Insurance Company (Stonewall) on April 2, 1980, seeking to recover insurance proceeds to satisfy a default judgment entered against Back Seat Saloon Country Cousin, Inc. The circuit judge ruled as follows:
"This court finds that the garnishee defendant has been materially prejudiced by the delay of the 2-1/2 years following the incident and makes a finding of no liability in favor of garnishee defendant."
Plaintiff appeals from the order dismissing the garnishment action and we affirm.
In his November 30, 1978, complaint against Back Seat Saloon, plaintiff alleged that the bar had unlawfully served defendant Randy Biron liquor on November 30, 1977. As a result of his liquor consumption, Randy Biron was involved in an automobile accident. The accident seriously injured plaintiff. Judy Biron, the owner of the car driven by Randy Biron, was also named as a defendant. Because defendants failed to reply to plaintiff's allegations, the circuit court entered a default judgment on August 2, 1979. Stonewall became involved in the litigation after plaintiff discovered in March, 1980, that Back Seat Saloon was insured by Stonewall against dramshop liability.
Stonewall argued that the 2-1/2 year lapse between plaintiff's accident and the garnishment notice prevented Stonewall from investigating plaintiff's claim and that, since Stonewall was denied an opportunity to protect its interests, it should not be required to pay the insurance proceeds. Plaintiffs attorney agreed that Stonewall first became aware of the litigation when it received the garnishment notice. However, plaintiffs attorney argued that the purpose behind requiring a liquor retailer to have insurance is to protect innocent parties and that such purpose would not be served by allowing Stonewall to escape liability, despite the fact that the Back Seat Saloon's failure to notify Stonewall prejudiced Stonewall.
If a casualty-liability insurer can show it was prejudiced by the insured's failure to notify the insurer of a lawsuit, the insurer may use the lack of notice as a defense to a garnishment action seeking recovery of insurance proceeds to satisfy a default judgment. Wendel v Swanberg, 384 Mich 468; 185 NW2d 348 (1971). Whether a similar rule applies to dramshop-liability insurers is a question of first impression in Michigan.
Michigan's dramshop act requires that a liquor retailer obtain a bond or insurance. MCL 436.22, 436.22a; MSA 18.993, 18.993(1). This requirement provides a person injured by the unlawful sale of liquor with a source of recovery. Browder v International Fidelity Ins Co, 413 Mich 603, 611-612; 321 NW2d 668 (1982). In order to further insure a stable source of recovery, an insurance company issuing a dramshop-liability policy cannot include any provision relieving it from liability for the payment of any claim for which the insured may be held legally liable under § 22 of the dramshop act. MCL 436.22f; MSA 18.993(6). However, we do not believe that the prohibition contained in § 22f precludes a dramshop-liability insurer from asserting a lack-of-notice defense.
Section 22 of the dramshop act, creating a cause of action against a liquor retailer and his or her bondsman, provides a two-year limitation period. This limitation period protects the person who did not commit the tort from stale claims which might be difficult to investigate. Browder v International Fidelity Ins Co, supra, p 614. Similarly, notice provisions in casualty insurance policies are en forced by the courts because these provisions allow an insurer to make a timely investigation in order to evaluate claims and to defend against fraudulent, invalid or excessive claims. Kermans v Pendleton, 62 Mich App 576; 233 NW2d 658 (1975). We can think of no reason why a dramshop-liability insurer should not be accorded the same protection from stale claims given dramshop bondsmen and casualty-liability insurers. Nor is such a protection unfair to plaintiff, since the insurance company still would have the burden of proving it was prejudiced by the insured's failure to notify it of the lawsuit. Burgess v American Fidelity Fire Ins Co, 107 Mich App 625; 310 NW2d 23 (1981).
Next, we must decide whether the trial court erroneously concluded that Stonewall was prejudiced by Back Seat Saloon's failure to inform Stonewall of plaintiff's lawsuit. The finding of prejudice is a finding of fact, which will not be set aside unless it is clearly erroneous. A trial court's finding is clearly erroneous where, although there is evidence to support it, the reviewing court on the entire evidence is left with a definite and firm conviction that a mistake has been committed. Burgess v American Fidelity Fire Ins Co, supra, p 630.
Stonewall supported its claim of prejudice by arguing that it was prevented from investigating plaintiff's accident by the 2-1/2 year lapse between the accident and plaintiff's garnishment notice.
As there is no evidence that Stonewall had knowledge of plaintiff's accident prior to its receipt of the garnishment notice, we cannot conclude that the trial court's finding of prejudice is clearly erroneous.
Affirmed.
Bronson, P.J., concurred.