Court Opinion

ID: 9734550
Source: CourtListenerOpinion
Date Created: 2023-08-26 17:37:42.918068+00
Date Added: 2024-06-11T18:26:49.147543
License: Public Domain

Ryan, J.
(concurring in part, dissenting in part). This case presents a deceptively simple issue of law. What damages are recoverable when an insurance company breaches the contractual duty to defend its insured?
The complexity of this issue becomes apparent only upon careful consideration of the legal concepts of legal causation, mitigation of damages, and measurement of damages as applied in various factual settings. Because the trial court failed to apply these important principles of contract law, I agree that the judgment should be reversed and this case remanded for further proceedings.
I agree with my brother that good faith or bad faith on the part of the insurance company is irrelevant in an action based on breach of the contractual duty to defend. In claiming that "good faith” is an absolute defense to liability in excess of the policy limits, the defendant Farm Bureau is confusing this case with cases alleging a bad faith refusal to settle. See City of Wakefield v Globe Indemnity Co, 246 Mich 645, 651; 225 NW 643 (1929). The duty to defend is often contractually broader than, and separate from, the insurance company’s liability in case of judgment. Zurich Ins Co v Rombough, 384 Mich 228; 180 NW2d 775 (1970). The right of the insured to recover all damages naturally arising from the insurance company’s breach of its contractual duty to defend *230is neither logically nor contractually limited to the policy limits. Cf. Miholevich v Midwest Mutual Auto Ins Co, 261 Mich 495; 246 NW 202 (1933); see also City Poultry & Egg Co v Hawkeye Casualty Co, 297 Mich 509; 298 NW 114 (1941), allowing recovery for the costs of the defense that ought to have been provided by the insurance company. Had the defense in City Poultry been unsuccessful and judgment been rendered in the amount of the policy limits, it is clear that the insurer would have been liable in excess of the policy limits; that is, the policy limits plus the cost of defense.
The trial court and the Court of Appeals panel erred in failing to apply the requirement of legal causation to this case, holding that "[hjaving had a duty to defend, Farm Bureau is responsible for the excess judgment”. Stockdale v Jamison, 99 Mich App 534, 540; 297 NW2d 708 (1980). While the immediate cause of the default judgment was the insurer’s failure to provide a defense, it cannot be assumed without proof that had the insurance company provided a defense the result would not have been a judgment against the insured in excess of the policy limits.1 We have at least some reason to believe that the amount of the default judgment was not excessive because it was entered only after the hearing required by GCR 1963, 520.2(2), at which the court heard evidence of *231negligence, causation and damages, and entered default judgments for the three plaintiffs totalling $160,000 rather than the $360,000 total judgment requested in the plaintiffs’ original complaints. The insured may only recover those damages which he can prove arise proximately from the breach of contract or were in the contemplation of the parties when the contract was made. Kewin v Massachusetts Mutual Life Ins Co, 409 Mich 401, 414; 295 NW2d 50 (1980), citing Hadley v Baxen-dale, 9 Exch 341; 156 Eng Rep 145 (1854), and 5 Corbin, Contracts, § 1007.
The lower courts also erred in failing to consider the insured’s duty to mitigate damages, that is, to use every reasonable effort within his power to minimize damages. Edgecomb v Traverse City School Dist, 341 Mich 106, 115; 67 NW2d 87 (1954); Rich v Daily Creamery Co, 296 Mich 270, 282; 296 NW 253 (1941); Shiffer v Gibraltar School Dist Bd of Ed, 393 Mich 190; 224 NW2d 255 (1974). In the usual case, the insured is obligated to mitigate his damages by hiring substitute counsel to present his defense. If the insured hires counsel, I see "no reason to hold the insurer liable for the failure of counsel selected by him to obtain a less unfavorable verdict”. Ante, p 226. Liability would then be limited to the policy limits plus the costs of the defense. Ante, fns 10 and 11.
Given the relative availability of attorneys in this state, the insurance company can establish a prima facie case of failure to mitigate damages by showing that (a) the insured was given ample opportunity to obtain substitute counsel, and (b) he failed to do so. The insured can rebut that showing if he establishes that he was unable to hire or otherwise obtain counsel, and was unable to adequately represent himself. If we do not enforce a *232strict rule requiring the insured to mitigate damages by obtaining substitute counsel, the insured will have every incentive to default rather than defend if the lawsuit is for an amount considerably in excess of both the policy limits and the insured’s assets.2
This rule of mitigation does not encourage the insurance company to breach its duty to defend, since, in refusing to defend, the company gives up its right to select counsel, to contest the fact and amount of liability to the tortfeasor, to approve any reasonable settlement, and other benefits. Of course, the insurer retains the right to litigate issues not necessarily decided in the original tort action, such as whether the duty to defend was breached, whether the duty to pay was breached, and what damages are properly recoverable for that breach. The insurer gains nothing financially, since it is liable for the cost of defense whether that cost is initially paid by the insurer or the insured. Upon remand, the defendant should be allowed to amend its answer to include the allegation of the failure to mitigate damages. GCR 1963, 118.1.
Recognizing that almost all cases, including this one, will probably be decided upon application of the principles of legal causation and mitigation, I *233would find it unnecessary to discuss the measurement of damages issue which is the basis of my brother’s opinion. That issue is simply not ripe for appellate review until we are presented with a legally sustainable finding that the defendant insurer is liable. Having so said, I am constrained, nevertheless, to point out the following anomalous results flowing from my colleague’s advisory opinion on the measurement of damages.
First, my brother’s opinion ignores the fact that the insured, Wayne Jamison, settled the $160,000 judgment against him by giving an assignment of all his rights against his insurer, defendant Farm Bureau Insurance Group. At this time, it is of no moment whatever whether Wayne Jamison is a millionaire or a pauper; his liability to these plaintiffs has been completely discharged. He did not and cannot be forced to pay any money to the plaintiffs, nor was he forced into bankruptcy by the $160,000 judgment.3 Since the insured was not damaged by the $160,000 judgment, the plaintiffs who have been assigned his rights under the policy have no greater rights; therefore, the liability of defendant Farm Bureau to these plaintiffs is limited to the policy limits.
Secondly, my brother’s opinion fails to consider the effect of MCL 600.5809(3); MSA 27A.5809(3), which provides that a judgment of a court of record may be enforced for ten years after it was rendered, and that the judgment may be renewed. Had the insured not obtained a favorable settlement discharging his liability, the trial court *234would be faced with the almost impossible task of ascertaining the fair market value of a judgment against a currently insolvent plaintiff, with the finder of fact attempting to predict the garnishable assets to be accrued by the insured over the remainder of his life. The only other alternative would be to hold the case open until the insured dies and his estate is settled, requiring supplemental payments from the insurance company to the insured whenever the plaintiffs obtained money from the insured. That procedure is obviously cumbersome and lacks finality, yet it is the only way to protect an insured who suddenly becomes solvent long after the judgment against him is entered. Other difficulties with the proposed measurement of damages are likely to arise in different factual settings.
For the reasons stated, I agree that the decision of the Court of Appeals should be reversed and the case remanded for further proceedings.
Riley, J., took no part in the decision of this case.

 Such a finding must be predicated on specific facts; for example, that a meritorious statute of limitations defense was not raised, rather than generalized speculation that competent defense counsel might have obtained a better result. It is equally easy to speculate that, had the insurance company provided a defense, the plaintiffs would have exercised their right to a jury trial and obtained an even larger verdict for pain and suffering. On this record, we fail to see any facts which would support a finding that a lesser verdict or a verdict of no liability would have been obtained had the insurance company provided a defense. However, in light of the failure of the parties to adequately frame this issue for consideration by the trial court, the most appropriate result is to allow the plaintiffs to amend their complaint to include such allegations. GCR 1963, 118.1.

 If the insured cannot afford to obtain counsel due to insolvency, as appears to be the situation in this case, then it is unlikely that the insured will suffer any adverse consequences from the default judgment entered against him, even if a proper defense would have prevented the judgment. Ante, p 228 and fn 16. However, if the insured wins the state lottery, obtains an inheritance, or otherwise becomes collectible after judgment enters but before the statute of limitations runs on that judgment, see MCL 600.5809(3); MSA 27A.5809(3), he will be damaged either by the amount paid under the judgment or by the damages resulting from the need to declare bankruptcy. The difficulty, if not the impossibility, of accurately measuring such damages is a strong argument for requiring the insured to obtain substitute counsel.

 Had the plaintiffs not settled with the insured, they might have obtained a judicial assignment of rights plus a judgment for the unsatisfied portion of their judgment. Having given the insured an advantageous settlement, the plaintiffs cannot then collect hypothetical damages that might have been suffered by the insured had they not settled.