National Continental Insurance Co. v. Aiazbekov

          OPINION GRANTING PLAINTIFF/COUNTER-DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT/COUNTER-PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

          GORDON J. QUIST, UNITED STATES DISTRICT JUDGE.

         Plaintiff/Counter-Defendant, National Continental Insurance Company, filed a Complaint for Declaratory Judgment on June 29, 2018. (ECF No. 1.) In response, Defendant/Counter-Plaintiff, Zef Ljajcaj, filed an answer to the complaint and a counter-claim against National. (ECF No. 7.) The parties filed cross-motions for summary judgment. (ECF Nos. 19, 21.) Having considered the parties' arguments, the Court will grant National Continental's Motion for Summary Judgment (ECF No. 19) and deny Ljajcaj's Motion for Summary Judgment (ECF No. 21).

         I. Background

         In the early morning hours of October 19, 2016, Nurbek Aiazbekov was driving a semi-truck and trailer combination, carrying a load of watermelons on behalf of his employer, Road Carriers, Inc., when the truck got into an accident with a vehicle driven by Ljajcaj. Ljajcaj alleges that he was seriously and permanently injured in the accident.

         Ljajcaj sued Aiazbekov and Road Carriers in Berrien County Circuit Court for commercial trucking negligence. Ljajcaj alleged that Road Carriers was vicariously liable for Ljajcaj's injuries. As the liability insurer for Road Carriers, National Continental hired separate counsel to defend Road Carriers and Aiazbekov. Before a settlement agreement was reached between Road Carriers and Ljajcaj, counsel for Aiazbekov moved for and was granted withdrawal as counsel because Aiazbekov had discontinued communication with counsel despite several attempts to contact Aiazbekov, including the use of a private investigation firm. Ljajcaj and Road Carriers eventually negotiated a settlement of all claims against Road Carriers for a payment of $500, 000.

         After the state court granted withdrawal of Aiazbekov's counsel and after Road Carriers reached the settlement agreement with Ljajcaj, the Michigan Circuit Court granted Ljajcaj's unopposed motion for partial summary disposition, finding Aiazbekov negligent as a matter of law. On July 16, 2018, Ljajcaj moved for default and final judgment against Aiazbekov, requesting a default judgment in the amount of $4, 500, 000. The motion received no response. After hearing Ljajcaj on his motion, the state court entered a final default judgment against Aiazbekov for $2, 642, 408.06.

         National Continental filed the instant action, seeking a declaration that National Continental has no duty to defend or indemnify Aiazbekov in connection with Ljajcaj's claims. Ljajcaj, on the other hand, requests the Court to enter a judgment against National Continental for the amount of the judgment owed to Ljajcaj by Aiazbekov, as well as interest, attorneys' fees, and costs.

         II. Analysis

         There is no question that Aiazbekov was considered an “insured” under Road Carriers' policy with National Continental. (Policy, ECF No. 1-2 at PageID.64 (including in coverage “[a]nyone else while using with [Road Carriers'] permission a covered ‘auto'”)). As such, under the policy, National Continental had an obligation to defend and/or settle suits for damages against Aiazbekov. (Id. at PageID.87.) However, National Continental's policy included a cooperation clause, which stated that Road Carriers “and any other involved ‘insured'” had a duty to cooperate with National Continental “in the investigation or settlement of the claim or defense against the ‘suit'.” (Id. at PageID.70.) Thus, the parties' claims hinge on the applicability of the cooperation clause and availability of a non-cooperation defense.

         To begin, the Court must decide what substantive law to apply to the parties' claims- Illinois or Michigan law. “A federal court exercising diversity jurisdiction applies the choice of law rules of the state in which it sits.” Standard Fire Ins. Co. v. Ford Motor Co., 723 F.3d 690, 692-93 (6th Cir. 2013). In employing Michigan's choice-of-law framework, the Court first has to determine whether the instant case is a contract action, a tort action, or a hybrid of the two. Farm Bureau Ins. Co. v. Abalos, 277 Mich.App. 41, 44, 742 N.W.2d 624, 626 (2007). In this case, the parties do not seek a declaration regarding tort liability (as the state court case already determined that Aiazbekov was negligent), but rather a declaration concerning National Continental's “contractual obligation to pay insurance benefits.” Id. Therefore, this case is properly characterized as a contract action. Id.

         Michigan courts have rejected the “rigid ‘law of the place of contracting' approach” to resolving choice-of-law questions in contract disputes. Chrysler Corp. v. Skyline Indus. Servs., Inc., 448 Mich. 113, 124, 528 N.W.2d 698, 703 (1995). Instead, Michigan courts employ the approach outlined in Restatement (Second) of Conflicts §§ 187 and 188. Id.

         Section 188 of the Restatement (Second) of Conflicts states that, absent an effective choice of law by the parties, courts should consider: “(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties.” In this case, Illinois was the place of contracting and negotiation. The policy is an Illinois policy with Illinois-specific endorsements. The place of performance would principally cover Illinois, but would include other states to which Road Carriers' vehicles traveled, such as Michigan. The location of the subject matter of the contract is primarily Illinois, which is the state that houses Road Carriers' business and fleet. Road Carriers is an Illinois company, Aiazbekov appeared to reside in Pennsylvania at the time of the accident, and Ljajcaj is from Michigan.

         The factors point to Illinois as the state having the greatest interest in the contract (policy). While the accident and the subsequent litigation took place in Michigan, that is not enough for Michigan to claim an interest in an action seeking payment of insurance benefits under an Illinois contract. See Abalos, 277 Mich.App. at 44-45, 742 N.W.2d at 626-27 (finding that Michigan law applied to a claim for insurance benefits under a Michigan contract even though the accident occurred in Ohio and injured Ohio residents). Thus, Illinois law applies.

         Under Illinois law, to establish a breach of a cooperation clause, “the insurer must show that it exercised a reasonable degree of diligence in seeking the insured's participation and that the insured's absence was due to a refusal to cooperate.” Founders Ins. Co. v. Shaikh, 405 Ill.App.3d 367, 374, 937 N.E.2d 1186, 1193 (2010). The court in Founders compared cases to determine what constituted a reasonable degree of diligence. The court noted that cases in which the insurer's only attempt to contact the absent client was through letters that did not elicit a response was not enough to show that the client was refusing to cooperate. In contrast, sending letters, calling the client's employer and family members, and hiring a private investigator who could only determine the client was likely in San Francisco or Los Angeles did constitute reasonable diligence in seeking participation. However, simply hiring a private investigator was not enough if the investigator failed to pursue several leads and failed to contact sources that were likely to have information about the absent client. Id. at 375-78, 937 N.E.2d at 1193-95. After reviewing cases, the court in Founders determined that Founders had diligently pursued the cooperation of the absent client by contacting sources that were likely to disclose the client's whereabouts; generating leads and ...