Court Opinion

ID: 9850767
Source: CourtListenerOpinion
Date Created: 2023-09-24 05:02:47.156313+00
Date Added: 2024-06-11T09:20:43.077264
License: Public Domain

Weaver, J.
The issue presented in these consolidated cases is the allocation of defense costs among multiple no-fault insurers, each of whom to some degree may be liable for a loss arising out of a single automobile accident. Although the dissent’s pro-rata rule is alluring for its simplicity, as applied, it fails to adequately give meaning to the intent of the policy language and will serve only to further agitate a sufficiently litigious area of the law.1 We take this opportunity to clarify who should bear defense costs where seemingly overlapping duties to defend multiple insureds arise.
The duty to defend is defined by policy language,2 and, logically, the burden of the cost of defense should follow the duty to defend. The approach outlined herein in no way seeks to erode an insurer’s duty to defend its insured and should not be applied to leave the insured without the coverage due. Rather, this approach attempts to give meaning to frequently obtuse policy language, while establishing a consistent analytical framework. For the following reasons, we affirm the decision of the Court of Appeals in Frankenmuth and reverse the Court of Appeals decision in MEEMIC.
i
A. FRANKENMUTH MUTUAL v CONTINENTAL
Eric Bosco was killed when he was hit by a truck driven by Chris Bauermeister, an employee *434of Flint Tent and Awning. The truck was owned by Kenneth Cook, president of Flint Tent and Awning, and Bauermeister was a permissive user. Continental Insurance provided $500,000 coverage for the truck, Cook as its owner, and Bauermeister as a permissive user. Flint Tent and Awning carried a $250,000 policy with Frankenmuth. In addition to his no-fault coverage with Continental, Cook carried a $1 million umbrella policy with Auto-Owners Insurance Company. Bauermeister carried his own no-fault and umbrella insurance with USAA Casualty Insurance Company for $100,000 and $1 million respectively. However, the question before us affects only the liabilities of Continental and Frankenmuth.
The Bosco family filed suit, and Frankenmuth immediately provided a defense for Flint Tent and Awning. Continental refused to participate in the defense, but subsequently acknowledged that it was the primary insurer. Frankenmuth brought this action against Continental seeking a declaratory. judgment that Continental, as primary insurer, was obligated to provide a defense up to its policy limits and that Continental should reimburse Frankenmuth for defense costs incurred before settlement. The trial court agreed with Frankenmuth and ordered Continental to reimburse Frankenmuth. The Court of Appeals affirmed, and Continental appealed.
B. MEEMIC v CHALFANT
Trevor Chalfant was seriously injured in a one-car accident. Either Jack Perry or Michael Hinkle was driving the car, but neither will admit doing so. The car was owned by Hinkle’s father who carried a $100,000 insurance policy with Michigan Educational Employees Mutual Insurance Com*435pany (meemic). Perry’s father carried a $250,000 policy with Transamerica that covered his son’s permissive use of vehicles not owned by the Perry family.
Meemic, as the insurer of the vehicle, assumed the defense on behalf of the Hinkles and Perry. Meemic then filed an action seeking to pay the limits of its policy and be excused from the defense. Meemic named Transamerica as a defendant and sought reimbursement for the cost of defending Perry before meemic’s offer of settlement. The circuit court held that it was meemic’s responsibility to defend the Hinkles and Perry until meemic had paid its policy limit and that Transamerica would be obligated only after that time. Meemic appealed, and the Court of Appeals reversed, holding that Transamerica was obligated to share in Perry’s defense costs incurred before meemic paid its policy limit. Transamerica appealed.
n
To determine how defense costs should be allocated, it is first necessary to determine the nature of each insurer’s duty to defend its insured in the circumstances at issue. It is not disputed that Continental and meemic, as insurers of the vehicles involved in single vehicle accidents, are the primary insurers in these cases.3 Nor do these cases involve "true” excess insurers.4 "True” excess insurance is analogous to umbrella insurance *436in that a single insured by specific design layers coverage.5 The logical rule that we adopt in "true” excess insurance cases is that the "true” excess insurer is liable for defense costs only after the primary insurer is excused under the terms of its policy.6
In both cases before us, the additional insurers are not "true” excess insurers; rather, their duty to defend and thus their responsibility for defense costs is triggered by their insureds’ coincidental involvement in the underlying accidents. The issue we must resolve is the allocation of defense costs between these additional insurers where there is a clearly designated primary insurer.
In Frankenmuth, Continental argues that Frankenmuth is a primary coinsurer and thus should be liable pro rata for the costs of the defense before Continental paid its policy limit. Likewise in meemic, meemic argues that Transamerica should be liable on a pro-rata basis for the costs of the defense. Continental and meemic cite Celina Mut Ins Co v Citizens Ins Co of America, 133 Mich App 655; 349 NW2d 547 (1984), for the proposition that when it is clear that a settlement will exceed the limits of the primary insurer’s policy, the "excess” insurer should be forced to *437participate in the costs of the defense from the beginning. We disagree.
One difficulty with the pro-rata approach is determining how the insurers’ interests align so that defense costs can be fairly apportioned. In cases where it is clear that a primary insurer’s policy limits will be exceeded, the primary’s goal will likely be to avoid liability altogether, while the excess insurer’s goal will be to reduce the plaintiff’s damages. The resolution of this issue will no doubt generate additional litigation, contrary to the goal of Michigan’s no-fault insurance system.7 Further, requiring an excess insurer to participate pro rata on notice that the claim might exceed the primary insurer’s limits effectively forces the excess insurer to be a coinsurer despite the language of its policy. Such a result is contrary to the excess insurer’s reasonable expectations.8 Finally, a pro-rata approach ignores the language of insurance policies that typically anticipate the involvement of other insurance.
in
Once it is clear that the additional insurers are not "true” excess insurers, our inquiry must proceed to the terms and conditions of the policies involved. Where the status of the primary insurer is clear, as in these single car accident cases, the primary insurer is liable for the defense and its costs until its limit is paid. Additional insurers who by the terms of their policies also cover some loss arising from the single car accident are coincidental excess insurers. The duty of these coinci*438dental excess insurers may vary depending on the terms of their policies.
In circumstances not presented today, it may be difficult to clearly designate a primary insurer. In such circumstances, the next inquiry should be whether the terms of the policies at issue cover the same loss, the same risk, and the same subject matter. If there is exactly concurring coverage, it might be appropriate to prorate the costs of defense. However, where there is a policy more specifically tailored to the circumstances of the claim, it would be appropriate to designate that policy as the primary insurer and for that insurer to defend to the limits of its policy and be responsible for the accompanying defense costs.
This Court has held that where there are competing other insurance clauses, we will endeavor to reconcile them.9 Similarly, where there are disputes regarding the potentially conflicting duties to defend and to bear defense costs between multiple insurers for multiple insureds, we hold that the policies at issue should be honored to the greatest extent possible.
In Frankenmuth, Cook’s truck appears to be a "temporary substitute automobile” as defined in the Frankenmuth policy.10 Therefore, under the *439"other insurance” clause of the Frankenmuth policy, Frankenmuth is an excess insurer under the facts of this case. Given this policy language, we hold that Frankenmuth’s duty to defend is analogous to a "true” excess insurer and, therefore, Frankenmuth should not be liable for defense costs until Continental is excused under the terms of its policy.
In meemic, Perry bought the insurance policy from Transamerica with terms to cover the situation in which a family member is involved in an accident while driving a nonowned automobile. 11 The Transamerica policy makes clear that when the "Other Automobile” provision of its policy was triggered, Transamerica would be the excess insurer. Therefore, it is again appropriate to apply the rule for "true” excess insurers. The proper outcome in meemic is for meemic to have defended and paid the defense costs until it paid its limit. Thus, Transamerica is liable for the defense and costs incurred only after meemic is excused under the terms of its policy.
iv
A single rule applied pro forma cannot address the multiple variations of policies that we may *440face. On the facts of these cases, we affirm Frankenmuth, but reverse meemic and reinstate the circuit court decision.
Brickley, C.J., and Boyle and Riley, JJ., concurred with Weaver, J.

 We have acknowledged that it is a priority to give meaning to policy language. See, e.g., St Paul Fire & Marine Ins Co v American Home Assurance Co, 444 Mich 560; 514 NW2d 113 (1994).

 Stockdale v Jamison, 416 Mich 217, 224; 330 NW2d 389 (1982).

 Turner v Auto Club Ins Ass’n, 448 Mich 22, 34; 528 NW2d 681 (1995).

 "True” excess coverage occurs where a single insured has two policies covering the same loss, but one policy is written with the expectation that "the primary will conduct all of the investigation, negotiation and defense of claims until its limits are exhausted . . . .” 7C Appleman, Insurance Law & Practice, § 4682, p 28. See also Hartford Accident & Indemnity Co v Continental Nat’l American Ins *436Co, 861 F2d 1184, 1187 (CA 9, 1989). Further, the rates of a "true” excess insurer are ascertained only after the excess insurer has given due consideration to the terms of the underlying primary policies. 46 CJS, Insurance, § 1138, p 542.

 Texas Employers Ins Ass’n v Underwriting Members of Lloyds, 836 F Supp 398, 407 (SD Tex, 1993). See also German & Gallagher, Allocation of the duties of defense between carriers providing coverage to the same insured, 47 Ins Counsel J 224-261 (1980).

 Although there is no contractual relationship between a primary and a "true” excess insurer, it is commonly understood that the primary insurer owes the "true” excess insurer the same standard of care it owes to the insured. This duty has been grounded in both the doctrine of equitable subrogation and tort law. See Jerry, Understanding Insurance Law, pp 622-623.

 See, e.g., Shavers v Attorney General, 402 Mich 554, 578-579; 267 NW2d 72 (1978).

 See 46 CJS, Insurance, § 1152, pp 569-570. See also Signal Cos v Harbor Ins Co, 27 Cal 3d 359, 370-371; 165 Cal Rptr 799; 612 P2d 889 (1980).

 St Paul Ins Co v American Home Assurance Co, n 1 supra at 562.

 The Frankenmuth policy carried by Flint Tent and Awning states:
"[T]emporary substitute automobile” means any automobile, truck or trailer, not owned by the named Insured [Flint Tent and Awning], while temporarily used with the permission of the owner [Cook] as a substitute for the owned automobile ....
If the Insured [Flint Tent and Awning] has other insurance against a loss . . . the Company shall not be liable under this policy for a greater proportion of such loss than the applicable limit of liability, stated in the Declarations bears to the total *439applicable limit of liability of all valid and collectible insurance against such loss; provided, however, the insurance with respect to temporary substitute automobile or non-owned automobile shall be excess insurance over any other valid and collectible insurance. [Emphasis added.]

 The Transamerica policy at v(a) defines other automobiles as those used by "residents of the same household [Perry’s son] as the Named Insured [Perry]” with permission of the owner. The policy then states:
[T]he insurance with respect to . . . other automobiles under (a) of Insuring Agreement v or under part (a) of Insuring Agreement vi shall be excess insurance over any other valid and collectible insurance.