Court of Appeals sets aside insurer's default; creates double-standard for insurers

In the recent case of Shawl v. Spence Brothers, two Republican judges on the Court of Appeals refused to uphold a default entered against the Defendant after the Defendant's insurer "negligently" failed to answer within the required time limits.  The Spence Brothers' Answer had been due within 28 days, and the attorney for the injured plaintiff had granted the insurer an additional 30 days within which to file. Twenty years of decisions by the Michigan Supreme Court had established that Michigan's public policy was in favor of enforcing these time limits absent "good cause".    Applying this principle and the existing caselaw to the insurer's negligence, the trial court had held that the insurer's lack of "good cause" and its negligence must be "imputed" to the Defendant, precluding the court from setting aside the default.

The majority on appeal read the same cases and concluded that Spence Brothers would not be bound by its insurance agents' negligence, despite several cases suggesting the opposite outcome.  As a result, an insured in Michigan now has additional protection against procedural errors, apparently, that other parties to litigation do not enjoy.  Where most people are bound by their agents' mistakes, insurance company mistakes will be overlooked. 

We see absolutely no basis for treating the mistakes of an insurer any differently than the mistakes of any other litigant-party or its agents.  If anything, a litigant represented by an insurer is the beneficiary of dual protection--both through an attorney and through a sophisticated litigant (the insurance company) whose entire existence is predicated on predicting, underwriting, managing and resolving litigation.  If it errs in responding to a procedural requirement, it should be held to the same standard that the litigants are held.  If an insurer's mistake causes damage to an innocent party litigant, the litigant knows where to look for redress: the negligent insurer.

Judge O'Connell, who has historically been a moderating influence on the Court, but who has recently sided more and more often with the Chamber of Commerce activists, wrote a separate opinion in which he concurred only with the result of the majority and not with their reasoning.  He pointed to a genuine concern about the lack of civility and the gamesmanship which inhere in the practice of law and on that basis, he refused to vote to uphold the default.  Sadly, most of the decisions emanating from the activist Justices of the Michigan Supreme Court in the past five years have had the effect of promoting gamesmanship on the part of insurers and their attorneys, and this decision is not likely to help.