State Farm cannot enforce policy provision since it suffered no prejudice
Two judges of the Court of Appeals agreed that State Farm cannot dismiss an Uninsured Motorist (UM) Claim brought by Stephanie Bradley, simply because Bradley took a default judgment against the uninsured motorist instead of joining him in her claim under State Farm's UM policy. UM coverage is not mandatory in Michigan, so insurers are allowed to insert any language or any requirements they choose. One of the so-called Engler Majority's pro-insurance rulings last decade was the holding that these provisions will be enforced, regardless of reasonableness.The majority in Ms. Bradley's appeal held that State Farm's requirement that the uninsured driver be joined in the UM claim was meaningless in the present situation, where the at-fault car owner's insurance was voided, after the fact, because the vehicle was being driven by an "excluded" driver. Bradley had initially sued and ultimately entered a default judgment against the at-fault in the amount of $50,000.00.
While State Farm claimed its right to seek indemnity could be prejudiced by the default, and that it had lost the right to contest Bradley's damages, the Court noted that State Farm's policy expressly provided that State Farm was not bound by the judgment against the at-fault and could separately contest its Bradley's damages. The majority also noted that the right to indemnity from the uninsured motorist was fully protected here, where State Farm would have the benefit of a subrogated $50,000.00 judgment to cover a UM policy that would pay only $25,000.00 maximum.
Curiously, despite the logic and fairness of this holding, Judge Hoekstra dissented and would apply the arbitrary, unfair, and rather stilted holding in Rory v. Contintental Insurance. That is the Engler-era decision that protects the "sanctity" of contracts by enforcing all insurance policy language, regardless of reason, logic or fairness. This might make some sense if insureds actually understood and bargained for the applicable terms---rather than receiving a policy in the mail 60 days after paying the premium and buying "coverages" without explanation.