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Insurer Must Show Actual Prejudice To Enforce Joinder Requirement in Uninsured Motorist Policy

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Joseph E. Kozely, Jr.
Foster Swift No-Fault E-News
October 13, 2010

On September 28, 2010, the Michigan Court of Appeals extended the "Koski" rule to hold that an insurer must show actual prejudice from an insured's failure to join uninsured parties in her suit against the insurer for uninsured motorist (UM) benefits in order to enforce the policy provision requiring such joinder. Bradley v State Farm Mutual Automobile Insurance Company, __ Mich App __; __ NW2d __ (2010) (No. 292716); 2010 WL 3766883.

Plaintiff was injured on March 8, 2007, when her vehicle was struck by a vehicle driven by William Bowen. She sued William Bowen as the driver and Sandra Kay Bowen as the owner. William Bowen turned out to be specifically excluded from coverage and to have been driving without permission. Sandra Bowen was dismissed from the suit, and a default was entered against William Bowen for $50,000.  Plaintiff then sued State Farm under the terms of her UM policy. State Farm moved for and obtained a dismissal because Plaintiff did not join William Bowen and Sandra Bowen as required under the terms of the auto policy.

Plaintiff appealed, and the Court of Appeals reversed and remanded without hearing oral argument.  The Court held in a 2-1 decision that the rule in Koski v Allstate Ins Co, 456 Mich 439, 444; 572 NW2d 636 (1998), should be extended:

In Koski [citation omitted], our Supreme Court indicated that, generally speaking, one who files suit for performance of a contractual obligation must prove that all contractual conditions prerequisite to performance have been satisfied. However, the Court continued by stating that “it is a well-established principle that an insurer who seeks to cut off responsibility on the ground that its insured did not comply with a contract provision requiring notice immediately or within a reasonable time must establish actual prejudice to its position.”
Slip Opinion at p. 2.

The "Koski" rule applied to notice, but the Court of Appeals held that it should be extended to apply to joinder. 

The dissent by Judge Hoekstra would have applied Rory v Continental Ins Co, 473 Mich 457; 703 NW2d 23 (2005):

The rules of contract construction provide that an unambiguous contract provision is to be enforced as written unless the provision violates law or public policy or one of the traditional contract defenses apply.
Slip Opinion at p. 3

This case is important because it extends a 1998 "narrow exception" to the rules for interpreting a contract despite the re-statement of those rules in Rory

It is unknown at this time whether an Application will be submitted to the Michigan Supreme Court for Leave to Appeal.