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The underlying suit, upon which this matter is based, began as a wrongful death action arising from a truck-bicycle accident in which fifteen-year-old Eric John Bosco was killed. Primary defendant Chris Bauermeister was driving the truck, which was owned by primary defendant Kenneth Cook. At the time of the accident, Bauermeister was acting in the course of his employment with Flint Canvas Company and Flint Tent & Awning, Inc. The case was tried before a jury, which found in favor of the Bosco estate and the eight persons entitled to recover for the death of the decedent. Damages of $1,044,903.25 were assessed in favor of the Bosco estate, with setoffs of $556,000 from no-fault funeral benefits and two prior settlements. The net verdict was $613,569.08.
This appeal involves five insurance policies covering the various defendants in this matter: (1) Continental Insurance Company issued an automobile policy to Kenneth Cook, the owner of the truck, with a $500,000 limit; (2) USAA Casualty Company, Inc., issued an automobile policy to Chris Bauermeister's father, which covered his son, with a $100,000 limit; (3) USAA also issued a $1,000,000 personal umbrella policy to Chris Bauermeister's father that covered his son; (4) Frankenmuth Mutual Insurance Company, Inc., issued an automobile policy to Flint Canvas with a $250,000 limit; and (5) Auto-Owners Insurance Company, Inc., issued a $1,000,000 executive umbrella policy to Kenneth Cook.
The Continental policy was previously determined to be primary by this Court in Frankenmuth Mut Ins Co, Inc v Continental Ins Co, 450 Mich 429; 537 NW2d 879 (1995), and is not directly involved in the present controversy. Frankenmuth filed that declaratory action to determine which insurance company was primary and, thus, responsible for the primary defendants' defense. Continental already paid plaintiff the $500,000 policy limit before trial, which was approved by the trial court. Frankenmuth settled with plaintiff for $55,000 of the $250,000 policy limit and, in exchange, plaintiff executed a covenant not to enforce judgment, which extinguished Frankenmuth's potential liability for the remaining $195,000. This settlement was also approved by the trial court. In this covenant, it was stated that no representations were made regarding the insurance coverages of the various companies involved and that the layers of coverages were undetermined at that time.
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After judgment was entered, plaintiff filed affidavits and writs of garnishment against Auto-Owners and USAA. USAA voluntarily paid the $100,000 primary policy limit, and plaintiff's garnishment action continued with regard to Auto- Owners' and USAA's liability under their umbrella policies.
USAA asserted that it was entitled to a credit against the judgment of $195,000 under its umbrella policy, that portion being Frankenmuth's unpaid policy limit. USAA paid one-half of the amount owing on the judgment in excess of $195,000 under its umbrella policy, having filed a disclosure admitting liability in part and denying liability in part. Auto-Owners initially asserted that it was not responsible for any portion of the judgment because of the bad-faith failure of the underlying insurance carriers to settle plaintiff's claims within the limits of their policies and because of contractual limitations in its policy. All parties to the garnishment action filed motions for summary disposition.
The trial court granted plaintiff's motion for summary disposition and USAA's counter motion for summary disposition, holding that there were three layers of coverage in this case: (1) the primary coverage provided by Continental ($500,000), (2) the excess "other insurance" coverage provided by USAA ($100,000) and Frankenmuth ($250,000), and (3) the "true" excess or umbrella coverage provided by Auto-Owners and USAA, each $1,000,000. Thus, there was $850,000 of coverage available before the umbrella policies were required to contribute. The trial court also held that plaintiff was not entitled to recover the $195,000 because he did not exhaust the limits of the Frankenmuth policy. Thus, the trial court's decision required that the first two layers of insurance coverage be exhausted before the umbrella policies would be required to contribute to the loss. The trial court then prorated liability between USAA and Auto-Owners under their umbrella policies for the portion of the judgment that exceeded the three other policy limits. The Court of Appeals reversed the decision of the trial court and denied USAA's motion for rehearing.
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