Court Opinion

ID: 9533402
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:31:30.95932+00
Date Added: 2024-06-11T13:29:02.625874
License: Public Domain

Kelly, J.
I concur in the result reached by the majority. However I write separately to express my view concerning future actions. I would hold that, in future cases where an insurer defends under a reservation of rights, it must promptly notify both the court and the other parties of its intention. Also, I would favor the imposition of a court rule to that effect, in accordance with the procedures outlined in MCR 1.201.
The rationale behind the requirement is twofold: First, notification to the court is a simple courtesy and would promote efficient use of judicial resources and more fully inform the court of issues possibly emerging at trial. Having knowledge that an insurer is defending under a reservation of rights, the trial court *600may better assess the likelihood of pretrial settlement and plan accordingly. This Court should adopt a rule of notification in the interest of docket management.
Second, although the adjudication of the underlying claim is of consequence to a plaintiff, the practical effects of an insurer’s reservation of rights are also significant. With the rising cost of litigation, a major factor in a plaintiff’s decision to pursue a claim is the actual ability to recover for injury. It would seem in the interests of all parties, then, to fully disclose an insurer’s potential liability in the eventuality that a jury finds for the plaintiff.
Failure to timely disclose a disclaimer of liability should subject an insurer to possible estoppel. I note that other jurisdictions have held that prejudice resulting to a plaintiff is a relevant consideration in deciding whether an insurer is estopped from disclaiming coverage. Appell v Liberty Mut Ins Co, 22 AD2d 906; 255 NYS2d 545 (1964); Mundry v Great American Ins Co, 369 F2d 678, 681 (CA 2, 1966).1 As *601aptly stated in Fellows v Mauser:2
[T]he court should determine to what extent the plaintiff will be prejudiced in deciding whether to give effect to a reservation of rights. The prejudice referred to in Mundry relates to the fact that an insurance company by defending a suit “(holds) itself out to the injured party as willing to pay the judgment.” Shelby Mut Cos Co v Richmond, 185 F2d 803, 806 (CA 2, 1950). Thus, if a plaintiff brings suit against a judgment proof motor vehicle operator and goes to trial on that suit relying on the fact that an insurance company has taken over the defense, the plaintiff would be severely prejudiced if he learned after trial that there was a reservation of rights and the insurer will not pay the judgment. [302 F Supp 937.]
I would adopt this reasoning.
As Michigan law historically has not required notification of a reservation of rights, I agree with the majority that defendant should not be estopped from asserting its defense here. However, a different rule should adhere in future cases. In addition to notifying its insured that it is acting under a reservation of rights, I would require the insurer to timely notify the court and the other parties. A court should be empowered to refuse to give effect to a reservation of rights when it determines that the insured’s failure to give timely notice prejudiced the plaintiff.
Cavanagh, J., concurred with Kelly, J.

 The majority characterizes this case as speaking of the insurer’s duty to notify its insured that it is proceeding under a reservation of rights. However, Mundry also discusses the ramifications to injured plaintiffs. It states that, where plaintiffs are prejudiced by an insurer’s actions, that fact should be taken into account in deciding whether to give effect to a reservation of rights:
Despite the Insurance Company’s argument to the contrary, prejudice resulting to plaintiff is a relevant consideration under New York law in deciding whether an insurer is estopped from asserting its disclaimer. Appell v Liberty Mutual Insurance Co, 22 AD2d 906; 255 NYS2d 545 (1964); Allstate Insurance Co v Manger, 30 Misc 2d 326, 331-333; 213 NYS2d 901, 907-909 (1961). Connecticut law is not in conflict, for although the Connecticut statute permitting suit directly against the insurer states that the plaintiffs “shall be subrogated to all rights” of the insured, we believe it is highly unlikely that the Connecticut Legislature intended to exclude any consideration of prejudice resulting to the plaintiffs from the insurer’s conduct. Thus in Goergen v Manufacturers Casualty Ins Co, 117 Conn 89; 166 A 757 (1933), the insurer was taken by surprise when its insureds failed to appear at trial, but failed to ask for a continuance or to reserve its rights. In the subsequent action directly against the insurer under the Connecticut statute, *601the Supreme Court of Errors of that state held that insurer had waived and was estopped from asserting its disclaimer made after the verdict. The ratio decidendi for this, as Judge A. N. Hand stated in Shelby Mutual Casualty Co v Richmond, 185 F2d 803, 806-807 (CA 2, 1950), was that “by its conduct, (the insurer) had held itself out to the injured party as willing to pay the judgment, and because as a result of those representations the injured party had continued his suit against the insured.” [Mundry, supra, 369 F2d 681-682.]

 302 F Supp 929 (D Vt, 1969).