Clear & Unambiguous Exclusion Must be Enforced
I have spoken over the last 48 years, until I was blue in the face, that before a decision is made on a claim, before a suit is filed, the people involved must read the entire policy and be certain that all of the conditions of the policy have been met and the claim can be proved.
In Bakri v. Sentinel Ins. Co., Court of Appeals of Michigan, 2016 WL 3429678 (June 21, 2016) the Michigan Court of Appeals was asked to do what the parties and the trial court failed to do: read the entire policy.
After a motor vehicle accident between plaintiff and defendant Youssef Ftouni, in which plaintiff suffered injuries. Plaintiff filed a complaint against Ftouni and claimed that Ftouni’s negligence was the direct and proximate cause of the serious impairment of bodily function he sustained in the accident. He also named Sentinel as a defendant because it issued him an underinsured motorist (UIM) policy, under which it was obligated to pay the damages that exceed Ftouni’s own insurance policy limits.
The case was submitted to the Mediation Tribunal for case evaluation, and the panel recommended two awards in favor of plaintiff: $100,000 (Ftouni’s policy limit) against Ftouni, and $100,000 against Sentinel. On September 17, 2014, the Mediation Tribunal mailed a notification of case evaluation results, which indicated that plaintiff and Ftouni both accepted the award regarding plaintiff’s negligence claim. The notice also indicated that plaintiff and Sentinel rejected the award regarding plaintiff’s UIM claim.
After the notice of the evaluation results was issued, Sentinel advised plaintiff that his UIM claim was barred under a policy exclusion that precluded coverage for any claim settled without Sentinel’s consent. According to Sentinel, the exclusion was triggered when plaintiff accepted the case evaluation award against Ftouni without requesting or obtaining Sentinel’s consent. Had Ftouni or his counsel had read the entire policy before accepting the evaluation of the Mediation Tribunal he asked Sentinal to fund the agreement. Rather, Plaintiff filed a motion for declaratory relief and sought an order that indicated that his case evaluation acceptance did not impact his UIM claim. Alternatively, plaintiff requested that his case evaluation acceptance be set aside. The trial court denied plaintiff’s motion and, pursuant to MCR 2.403(M), entered judgment against Ftouni in accordance with the case evaluation award.
Sentinel argued that it was entitled to judgment as a matter of law because plaintiff’s claim was barred by the plain language of the UIM policy. On appeal, Sentinel argues that the trial court erred when it concluded that the exclusion in its policy did not preclude plaintiff’s claim.
A genuine issue of material fact exists (sufficient to defeat a motion for summary judgment) when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ. Further, the construction and interpretation of an insurance policy and whether the policy language is ambiguous are questions of law that the appellate court may review as if it was the trial court.
Insurance policies are contracts and, in the absence of an applicable statute, are subject to the same contract construction principles that apply to any other species of contract. Unlike personal protection insurance, UIM insurance is not required by statute in Michigan. Under traditional principles of contract interpretation, unless a contract provision violates law or one of the traditional defenses to the enforceability of a contract applies, a court must construe and apply unambiguous contract provisions as written. Although exclusionary clauses should be construed in the insured’s favor, an exclusion that is specific and clear must be enforced.
The policy provides: “This insurance does not apply to any of the following: ¶ 1. Any claim settled without our consent. However, this exclusion does not apply to a settlement made with the insurer of … [an] “uninsured motor vehicle,” in accordance with the procedures described in Paragraph A.2.b.”
Regardless of how the settlement was reached in this matter, there is little question that plaintiff has, in fact, settled his claim with Ftouni, the underinsured driver. Plaintiff and Ftouni both accepted case evaluation, and the trial court entered judgment against Ftouni in accordance with the case evaluation award. The parties do not dispute that plaintiff settled his claim with Ftouni without Sentinel’s consent. Therefore, under the clear language of the exclusion coverage does not exist.
Mutual case evaluation acceptance cannot reasonably be construed as a “tentative settlement.” In determining the common meaning of a word or phrase like the term “tentative” as “not fully worked out or developed” is a common dictionary definition. The purpose of case evaluation is to expedite and simplify the final settlement of cases. An accepted case evaluation serves as a final adjudication and is therefore binding on the parties similar to a consent judgment or settlement agreement. Thus, if case evaluation acceptance is akin to a consent judgment or settlement agreement and intended to facilitate final settlements, a settlement reached by way of case evaluation cannot reasonably be characterized as not fully worked out or developed.
Moreover, even if the Court accepted plaintiff’s argument that the settlement was “tentative” and that he was able to avail himself of the exception to avoid exclusion of his claim, the procedures outlined in that section were not satisfied in this case. The first requirement of the policy was fulfilled: Sentinel received written notice of the settlement by way of the Mediation Tribunal’s notification of results, as well as plaintiff’s correspondence. However, the second requirement remains unsatisfied because there is no dispute that Sentinel never advanced payment of the case evaluation award to plaintiff.
In sum, because Sentinel did not consent to plaintiff’s settlement with Ftouni, the trial court erred when it concluded that Sentinel was not entitled to judgment as a matter of law. An exclusion that is specific and clear must be enforced and the plain language of the policy excludes plaintiff’s claim for UIM benefits. Additionally, giving the benefit of reasonable doubt to plaintiff regarding the “tentative” nature of mutual case evaluation acceptance, there is no question that the requirement was not satisfied because Sentinel did not advance the settlement funds within 30 days of receiving notice of the settlement.
Mr. Ftouni could have obtained an extra $100,000 by telling his insurance company he would like to accept the recommendation of the Mediation, ask that they agree and fund the UIM portion of the recommendation and wait a few days for the response. Rather, by accepting without obtaining the permission and agreement of the UIM insurer, Ftouni defeated his UIM claim.
Barry Zalma, Esq., CFE, practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.
Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.
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