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No Action and No Voluntary Payment Clauses Strengthened No action and no voluntary payment clauses are contained in most liability insurance policies and are designed to prevent an insured from voluntarily making a payment or settling with another party without the consent of the insurer or an adjudication of the claim in court thereby reducing the chances of a collusive payment. Two unpublished Michigan Court of Appeals decisions relying on earlier published Court of Appeals decisions have given new life to and have strengthened these clauses. In Durakon Industries v Columbia Casualty Company, 2006 WL 2061498 (7/25/06 Mich App), the court refused to require a liability insurer to pay a settlement made between the insured, Durakon Industries, a truck bed liner manufacturer, and Nissan Motor Company. Durakon and Nissan had both been sued in a wrongful death action and both settled with the Plaintiff. Durakon’s insurer had consented to Durakon’s settlement with the Plaintiff and paid that settlement. However, Nissan then sought indemnification from Durakon and the Defendants, Durakon’s primary and excess insurers denied coverage. Durakon nevertheless settled with Nissan and brought suit to recover the settlement amount from the Defendant insurers. Durakon argued that it was legally liable to indemnify Nissan based upon Texas law. The court granted the insurer summary disposition upholding the no-action and no-voluntary payment provisions of the policies and followed a previous published Michigan Court of Appeals decision of Coil Andoizers, Inc v Wolverine Insurance Company, 120 Mich App 118 (1982). Of significance in this case is that the court upheld those provisions and ruled that they were not waived as a result of the denial of coverage by the insurers and further ruled that there was no obligation for the insurers to prove prejudice before relying on those policy conditions. Following the Coil, supra decision, the court held that the insurer will be obligated to pay only where there has been a judgment against the insured, a settlement with the consent of insurer or where the insurer not only denies coverage, but refuses to defend after actual litigation has been initiated. Also, in Dupuis v Utica Mutual Insurance Company, 2006 WL 1084336 (4/25/06, Mich App) (unpublished), the Court of Appeals refused to require a showing of prejudice to invoke the voluntary payment clause. Also cited was the previous published Michigan Court of Appeals decision in Levy v Auto Owner’s Insurance Company, 218 Mich App 672 (1996) where the court held that a settlement with a tort feasor which prevented the insurer from exercising its subrogation rights, thereby violating the subrogation clause of the policy, did not require proof of prejudice. Some prior case law, while generally enforcing the contract provisions, required the insurer to prove actual prejudice. See Aetna Casualty & Surety Company v Dow Chemical Company, 10 F Supp 2d 800, 831-833 (E.D. Mich, 1998). These Michigan Court of Appeals decisions confirms a general trend in the Michigan appellate courts of enforcing policy provisions literally. Even though these two recent decisions are unpublished decisions and, therefore, do not formally have precedential weight, we believe that trial courts will follow their reasoning, and the reasoning of the published decisions that they rely on, and strictly enforce voluntary payment and no action clauses. Provizer & Phillips, P.C., can assist you with handling insurance coverage opinions and litigation from general liability to complex environmental and construction defect claims. If you need any assistance, please do not hesitate to contact Randall E. Phillips at (248) 642-0444; rphillips@p-ppc.com. August 2, 2006 |
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