United States District Court, W.D. Michigan, Southern Division
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 ...