Neal v. Neal

557 N.W.2d 133 (1996) 219 Mich. App. 490

Cynthia NEAL, Plaintiff-Appellee,
v.
Charles NEAL, Defendant, and
Farm Bureau Mutual Insurance Company of Michigan, Intervening Defendant-Appellant.

Docket No. 173858.

Court of Appeals of Michigan.

Submitted July 1, 1996, at Lansing. Decided October 15, 1996, at 9:25 a.m. Released for Publication December 23, 1996.

Gray, Sowle & Iacco, P.C. by Loren E. Gray, Mt. Pleasant, for Cynthia Neal.

Willingham & Cote, P.C. by John A. Yeager and Curtis R. Hadley, East Lansing, for Farm Bureau Mutual Insurance Company of Michigan.

Before MURPHY, P.J., and O'CONNELL and M.J. MATUZAK,^[*] JJ.

MURPHY, Presiding Judge.

Farm Bureau Mutual Insurance Company of Michigan appeals by leave granted from a March 8, 1994, order of the Isabella Circuit Court denying its motion to intervene. Farm Bureau claims that it is entitled to intervene for the purpose of enforcing a mediation sanctions order entered against plaintiff in this negligence action against her husband, Farm Bureau's insured. We agree and reverse and remand the case to the trial court.

Plaintiff sued her husband, Charles Neal, for negligence arising out of a one-car automobile accident. The case went to mediation. Farm Bureau, on behalf of Mr. Neal, accepted the award of $35,000 in favor of plaintiff, but she rejected the award. At trial, Farm Bureau provided a defense to Mr. Neal. After the jury returned a verdict of no cause of action, defense counsel moved for an order taxing costs and mediation sanctions. Plaintiff was ordered to pay costs and mediation sanctions in the amount of $4,752.34.

When defense counsel wrote to plaintiff's counsel seeking payment, plaintiff's counsel responded that plaintiff had informed him that her husband wished to waive the imposition of any costs or sanctions. Recognizing a conflict of interest for defense counsel it hired to represent Mr. Neal, Farm Bureau hired separate counsel to pursue the matter. That attorney sent a letter to Mr. Neal asking whether he intended to interfere with Farm Bureau's right to collect the costs and mediation sanctions and noting the subrogation provision of his insurance policy with Farm Bureau. The letter asked Mr. Neal to disavow any intent to interfere with the collection of costs and mediation sanctions. Mr. Neal responded, stating that he had not intended to violate the policy, he did not wish to pursue any claim for costs against his wife, and he would prefer that Farm Bureau not attempt to collect costs. He also stated that he did not understand the policy language quoted in counsel's letter because no payment was made to his wife.

Farm Bureau then filed a motion for intervention and substitution, claiming that it fulfilled its contractual obligation to Mr. Neal by defending him in the action and that it was the real party in interest with regard to the recovery of mediation sanctions. The trial court denied the motion, finding that it was not timely filed.

The decision whether to grant a motion to intervene is within the trial court's discretion. The rule for intervention should be liberally construed to allow intervention where the applicant's interests may be inadequately represented. Black v. Dep't. of Social Services, 212 Mich.App. 203, 204, 537 N.W.2d 456 (1995). However, "intervention may not be proper where it will have the effect of delaying the action or producing a multifariousness of parties and causes of action." Precision Pipe & Supply, Inc. v. Meram Construction, Inc., 195 Mich.App. 153, 157, 489 N.W.2d 166 (1992).

We believe the trial court abused its discretion in denying Farm Bureau's motion to intervene. Farm Bureau argues that the purpose of the mediation sanctions rule requires that it be allowed to intervene in this case. A party who rejects a mediation evaluation is subject to sanctions if the party fails to improve its position at trial. MCR 2.403(0). The purpose of the mediation rule is to expedite and simplify final settlement of cases. The sanction provision of the rule places the burden of litigation costs on the party who insists on trial by rejecting a proposed mediation award, the reasonableness of which is measured by the outcome of the trial. See Meagher v. McNeely & Lincoln, Inc., 212 Mich.App. 154, 157, 536 N.W.2d 851 (1995); Smith v. Elenges, 156 Mich.App. 260, 263, 401 N.W.2d 342 (1986).

Farm Bureau relies on Pinto v. Buckeye Union Ins. Co., 193 Mich.App. 304, 484 N.W.2d 9 (1992), for the proposition that it is appropriate to look past nominal parties when considering mediation sanctions. In Pinto, this Court found that the insurer rather than the insured would be responsible for mediation sanctions if the insurer controlled the litigation and rejected the mediation award. Id. at 310-311, 484 N.W.2d 9. Farm Bureau argues that implicit in this holding is a determination that the purpose of mediation sanctions would be thwarted if a party could evade paying mediation sanctions by the technicality that the insurer is not a named party. We agree.

Farm Bureau contends that it has a right to collect mediation sanctions by contract. Farm Bureau was obligated by its insurance policy to defend Mr. Neal in the negligence action brought by plaintiff. The subrogation provision of the policy, relating to liability and physical damage, provides in part:

In the event of any payment under this policy, the company shall be subrogated to all the insured's rights of recovery therefor, against any person or organization and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights.

Farm Bureau claims that the mediation sanctions represent a partial reimbursement for its payment of defense costs in connection with defending Mr. Neal. Plaintiff argues that the subrogation provision applies to the payment of a claim under the policy and has nothing to do with the costs of defense.

We find Farm Bureau's argument persuasive. In Michigan Educational Employees Mutual Ins. Co. v. Transamerica Ins. Corp. of America, 204 Mich.App. 440, 516 N.W.2d 93 (1994), rev'd on other grounds 450 Mich. 429, 537 N.W.2d 879 (1995), the primary insurance policy provided that the insurer assumed all of the insured's rights to recover from any other person in the event of any payment under the policy, and the primary insurer assumed the insured's defense and sought to pay the limits of its policy and be excused from the defense. Because the insured would have a right to bring an action against the excess insurer for failing to defend him or share in the defense costs, this Court found that the primary insurer had a right to sue the excess insurer for reimbursement of defense costs. Id. at 443, 516 N.W.2d 93. Similarly, the insurance policy in this case provides that Farm Bureau shall be subrogated to the insured's rights of recovery in the event of any payment under the policy, and Farm Bureau provided for Mr. Neal's defense. Mr. Neal has a right to collect costs and mediation sanctions because plaintiff rejected the mediation award and failed to prevail at trial. As in Michigan Educational Employees Mutual, the defense costs incurred by Farm Bureau may be considered as payments under its policy. Therefore, Farm Bureau should be entitled to recover such costs in the form of mediation sanctions under a contract subrogation theory.^[1]

Farm Bureau also argues that it has a right to collect mediation sanctions by equitable subrogation. Because a contract cannot be implied in law while an express contract covering the same subject matter is in force between the parties, Scholz v. Montgomery Ward & Co., Inc., 437 Mich. 83, 93, 468 N.W.2d 845 (1991); Wallace v. Recorder's Court, 207 Mich.App. 443, 447, 525 N.W.2d 481 (1994); Cascade Electric Co. v. Rice, 70 Mich.App. 420, 426, 245 N.W.2d 774 (1976), we consider this issue in the alternative and conclude that Farm Bureau would be entitled to collect the costs and mediation sanctions under the doctrine of equitable subrogation.

Equitable subrogation is a legal fiction through which a person who pays a debt for which another is primarily responsible is substituted or subrogated to all the rights and remedies of the other. Commercial Union Ins. Co. v. Medical Protective Co., 426 Mich. 109, 117, 393 N.W.2d 479 (1986). It is a "flexible and elastic equitable doctrine, and hence ``the mere fact that the doctrine of subrogation has not been previously invoked in a particular situation is not a prima facie bar to its applicability.'" Atlanta Int'l Ins. Co. v. Bell, 438 Mich. 512, 521, 475 N.W.2d 294 (1991), quoting 73 AmJur2d, Subrogation, § 1, p 602. However, subrogation is not available to a "mere volunteer." Auto Club Ins. Ass'n v. New York Life Ins. Co., 440 Mich. 126, 132, 485 N.W.2d 695 (1992).

In Atlanta Int'l Ins. Co., supra, the Supreme Court considered whether defense counsel retained by an insurer to defend its insured can be held answerable to the insurer for professional malpractice. In determining that the doctrine of equitable subrogation permits the insurer to sue counsel for malpractice, the Court made findings that may be analogized to the present case. Noting that counsel's immunity from suit by the insurer would place the loss for the attorney's misconduct on the insurer and "[t]he only winner ... would be the malpracticing attorney," the Court found that "[e]quity cries out for application [of the doctrine of equitable subrogation] under such circumstances." 438 Mich. at 522, 475 N.W.2d 294. In this case, plaintiff's immunity from collection of mediation sanctions by Farm Bureau would place the loss for defense costs on the insurer and plaintiff would be "the winner" even though she rejected the mediation award and failed to prevail at trial. As a result, plaintiff would suffer no real risk in rejecting the mediation award. We believe that equity should be applied under these circumstances because Farm Bureau would have been responsible for mediation sanctions had it rejected the mediation award and lost at trial. See Pinto, supra at 310-311, 484 N.W.2d 9.

In Atlanta Int'l Ins. Co., supra, the Supreme Court also found that the insured has no real incentive to pursue a malpractice action against the defense attorney because the insurer, rather than the insured, is required to satisfy a judgment arising from the attorney's malpractice. Similarly, in the present case, the insured has no incentive to pursue collection of costs and mediation sanctions because he will not receive the money. In fact, where the insured is married to the opposing party who rejected the mediation award, there may be an incentive not to collect the costs because they may come out of the marital estate.

Finally, the Supreme Court noted that allowing the insurer to stand in the shoes of the insured under the doctrine of equitable subrogation best serves the public policy underlying the attorney-client relationship and properly imposes the social costs of malpractice where they belong. 438 Mich. at 521, 475 N.W.2d 294. Likewise, allowing the insurer to stand in the shoes of the insured to collect mediation sanctions to cover defense costs best serves the public policy underlying the sanctions rule to expedite and simplify final settlement of cases by placing the burden of litigation costs on the party who insists on trial by rejecting the mediation evaluation.

With regard to the trial court's finding that the motion to intervene was untimely, Farm Bureau filed the motion less than one month after it was advised of Mr. Neal's position. Farm Bureau sought intervention for the limited purpose of enforcing the trial court's order regarding costs and mediation sanctions to cover defense costs incurred in successfully defending Mr. Neal, and it did not attempt to address the merits of the case after judgment had been entered as in the cases relied on by the trial court. See Ferndale School Dist. v. Royal Oak Twp School Dist. No. 8, 293 Mich. 1, 291 N.W. 199 (1940); Hettche v. Oakland Circuit Judge, 290 Mich. 453, 287 N.W. 877 (1939). Considering that the sanctions order remained unsatisfied at the time the motion to intervene was filed, the fact that it was not filed until ten months after the judgment of no cause of action was entered and nine months after the sanctions order was entered is not determinative.

Reversed and remanded to the trial court for further proceedings consistent with this opinion. We do not retain jurisdiction.

M.J. MATUZAK, J., concurred.

O'CONNELL, Judge (concurring).

I concur with the majority's conclusion that the subrogation provision of the insurance contract in issue allows intervening defendant insurer to enforce the mediation sanctions awarded below. However, I would find it unnecessary to address the issue of equitable subrogation in light of the fact that the express language of the contract provides that the insurer "shall be subrogated to all the insured's rights of recovery...." Generally, a contract cannot be implied in law while an express contract covering the same matter is in force between the parties. See Scholz v. Montgomery Ward & Co., Inc., 437 Mich. 83, 93, 468 N.W.2d 845 (1991); Wallace v. Recorder's Court, 207 Mich.App. 443, 447, 525 N.W.2d 481 (1994); Cascade Electric Co. v. Rice, 70 Mich.App. 420, 245 N.W.2d 774 (1976).

NOTES

[*] Circuit judge, sitting on the Court of Appeals by assignment.

[1] In reversing this Court's decision in Michigan Educational Employees Mutual, the Supreme Court held that the primary insurer should have defended the insured and paid the defense costs up to its policy limit and the excess insurer was liable for the defense costs incurred only after the primary insurer was excused under the terms of its policy. 450 Mich. at 439, 537 N.W.2d 879. This holding does not affect our analysis.