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Plaintiff appealed the trial court order granting summary disposition in defendant’s favor (no genuine issue of material fact) and the trial court order granting in part and denying in part defendant’s motion for costs and attorney fees. Defendant cross appealed the trial court order granting in part and denying in part its motion for costs and attorney fees.
In
Maple Manor Rehabilitation Center, LLC v. Evanston Insurance Company, No. 359147, Court of Appeals of Michigan (April 27, 2023) resolved the disputes.
FACTS
Dorothy Irvine, 88 years old, was admitted to plaintiff, Maple Manor Rehabilitation Center (“Maple Manor”), on November 25, 2014, after a hospital stay. On or about December 11, 2014, she was found lying on the floor at the rehabilitation center.
She passed away at the Hospital on December 16, 2014. Irvine’s death certificate, issued December 17, 2014, indicated that the cause of her death was atherosclerotic cardiovascular disease, and the manner of her death was natural.
On July 20, 2017, Irvine’s son, as personal representative of Irvine’s estate, filed a wrongful death lawsuit against Maple Manor, asserting negligence (“the Irvine lawsuit”). At the time the Irvine lawsuit was filed, Maple Manor had a professional insurance policy in place with Evanston Insurance Company (“defendant”). However, Maple Manor did not notify the defendant of the Irvine lawsuit when it was filed. Rather, Maple Manor defended the Irvine lawsuit itself.
On June 7, 2019, Maple Manor reported the Irvine lawsuit to it broker. On June 12, 2019, defendant denied the request, stating it was not notified of the claim in a timely manner as required by the insurance policy.
Maple Manor then filed a complaint against the defendant for breach of contract.
Defendant asserted the policy issued to Maple Manor contained language requiring that claims be made during the policy period, and reported to defendant “as soon as practicable,” including “immediately” forwarding to Evanston any legal process in order to qualify for coverage.
The trial court found that notice provided 18 months after the Irvine lawsuit had been filed was not “as soon as practicable” under the circumstances. The trial court further opined that defendant was prejudiced by the late notice because Maple Manor took away any flexibility on how defendant would have defended the case, who it would have selected as counsel, what strategies it would have employed, etc. The trial court entered an order granting summary disposition in defendant’s favor.
Defendant thereafter moved for attorney fees in the amount of $26,581.60 plus costs in the amount of $491.20, based primarily on its assertion that Maple Manor’s lawsuit was frivolous. The trial court granted defendant’s motion in part and denied it in part, awarding defendant $491.20 as prevailing party costs, as well as attorney fees incurred after the September 8, 2020 hearing on defendant’s first summary disposition motion in the amount of $13,708.80 for plaintiff’s failure to provide reasonable basis for its position.
SUMMARY DISPOSITION
For well over one hundred years, Michigan jurisprudence has without exception, assumed a working definition with a very specific legal understanding-that of being within a reasonable time under the circumstances.
The Irvine lawsuit was filed against Maple Manor on July 20, 2017 but only on June 7, 2019, almost two years after the lawsuit was filed, did Maple Manor notify defendant of the wrongful death lawsuit. Nearly two years is not a reasonable amount of time in any circumstance where Maple Manor fully participated in the lawsuit with the same attorneys it has now and has offered no justifiable excuse and identified no impediment to informing defendant of the Irvine lawsuit prior.
Maple Manor specifically requested cancellation of the policy with defendant on May 16, 2018. Maple Manor knew full well it had active insurance with defendant on July 20, 2017, the date the lawsuit was filed, and thereafter until it requested termination of the policy on May 16, 2018.
Maple Manor made a conscious, deliberate decision not to inform defendant of the Irvine lawsuit until June 7, 2019. It was not by accident, oversight, mistake, inadvertence, or belief that it did not have coverage.
Prejudice to the insurer is a material element in determining whether notice is reasonably given, and the burden is on the insurer to demonstrate prejudice. However, that principle developed in the context of “occurrence” insurance policies not a claims made policy.
The delay in giving notice here was approximately two years and delays of far less have been found to be prima facie failure to give notice as soon as practicable. Maple Manor made a deliberate choice to defend against the Irvine lawsuit on its own until a point when it determined it wanted defendant to be involved. This is contrary to the express terms of the insurance contract’s requirement of notice of a claim “as soon as practicable” and “immediate” service of summons or other process received by plaintiff, as well as the purpose of notice requirements in insurance contracts in general.
CONCLUSION
Maple Manor, a professional rehabilitation facility owned and run by doctor principals, was well aware it had professional business insurance coverage provided by defendant for the Irvine lawsuit initiated against it on July 20, 2017. Maple Manor chose not to notify defendant of the lawsuit it deemed frivolous or request defense against it from defendant until nearly two years later, when Maple Manor had already agreed to an arbitration with a minimum liability amount of $10,000. The Court of Appeals concluded that the trial court did not err in finding that there was no material questions of fact on these issues and that the defendant was thus entitled to summary disposition.
The purpose of imposing sanctions for asserting frivolous claims is to deter parties and attorneys from filing documents or asserting claims and defenses that have not been sufficiently investigated and researched or that are intended to serve an improper purpose.
Maple Manor had no reasonable basis to believe that the facts underlying its legal position in this matter were in fact true, nor did Maple Manor’s legal position have any arguable legal merit. The trial court thus abused its discretion in declining to award defendant all of its attorney fees in this frivolous matter.
The grant of summary disposition was affirmed. The trial court’s order awarding only part of defendant’s requested attorney fees was reversed and the case was remanded for entry of an order awarding defendant all of its requested attorney fees.
ZALMA OPINION
Maple Manor was its own worst enemy. It paid for insurance to cover the Irvine lawsuit but decided to retain its own lawyers to defend the suit without advising its insurer that the lawsuit existed. It then lied when trying, belatedly, to get coverage although its first report to the insurer was almost two years after the suit was served and almost a year after they cancelled the claims made policy. The report was not made during the effective dates of the policy, not as soon as reasonably practical, and the suit it filed was frivolous requiring it to pay the insurer’s legal fees.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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