Liquidation Requirement for Garnishment: Bad-Faith Refusal to Settle Claims Cannot Be Garnisheed

Introduction

Hairston v. LKU, 166473 (Mich. 2025), presents a dispute over whether an unresolved claim of an insurer’s bad-faith refusal to settle may be pursued by post-judgment garnishment. Plaintiff Darnell Hairston was catastrophically injured operating soybean-processing machinery at a facility owned by Zeeland Farm Soya, Inc. (“ZFS”). After a jury awarded him over $13 million against Specialty Industries, Inc.—the contractor that designed and maintained the machine—Specialty assigned to Hairston its rights against its insurers, Burlington Insurance Co. (primary policy, $1 million limit) and Evanston Insurance Co. (excess policy, $8 million limit). Hairston served writs of garnishment on those insurers for the unpaid portion of the judgment. The lower courts split on whether a garnishment proceeding may reach a contingent, unliquidated bad-faith refusal-to-settle claim.

Summary of the Judgment

In a unanimous opinion by Justice Bolden, the Michigan Supreme Court held that:

MCR 3.101(G)(1) enumerates the only categories of assets subject to post-judgment garnishment—and does not include an unresolved bad-faith refusal-to-settle claim.
A debt must be “wholly due and without contingency” (i.e., sufficiently liquidated) before garnishment may attach. An unadjudicated bad-faith claim is contingent and not liquidated.
The earlier Court of Appeals decision in Rutter v. King (1974) was wrongly decided to the extent it allowed garnishment of a bad-faith refusal‐to‐settle claim without regard to the modern court rules.
The trial court properly quashed the writs of garnishment against Burlington and Evanston; plaintiff must pursue his claim in a separate forum.

Analysis

Precedents Cited

Rutter v. King, 57 Mich App 152 (1974): Held that an excess-judgment bad-faith claim was “sufficiently liquidated” for garnishment under the old rules. Overruled to the extent inconsistent with MCR 3.101(G)(1).
Detroit Post & Tribune Co. v. Reilly, 46 Mich 459 (1881): Garnishment requires a final judgment; no debt exists until the verdict is entered as judgment.
MCL 600.4011: Statute authorizing garnishment “only in accordance with the Michigan court rules.”
MCR 3.101(G)(1): Lists the only categories of property or debt subject to post-judgment garnishment: tangible/intangible property, debts owed, and existing judgments.
Commercial Union Ins. Co. v. Liberty Mut. Ins. Co., 426 Mich 127 (1986): Identified 12 factors for jury instructions in a bad-faith refusal-to-settle claim, underscoring the complexity of proving such claims.
Frankenmuth Mut. Ins. Co. v. Keeley, 436 Mich 372 (1990): Adopted an “excess-judgment” measure of damages for insurer bad-faith refusal to settle, limiting insurer liability to amounts actually recoverable from the insured.

Legal Reasoning

1. Statutory and Court‐Rule Authority MCL 600.4011(2) directs that garnishment jurisdiction is exercised “only in accordance with the Michigan court rules.” Under MCR 3.101(G)(1), a garnishee is liable only for:

(a) Property in the garnishee’s possession that belongs to the judgment debtor.
(d) Debts owed by the garnishee to the judgment debtor.
(g) Judgments already entered in favor of the judgment debtor against the garnishee.

None of these categories covers an unadjudicated claim for bad faith: – There is no property or un‐paid proceeds in the insurers’ possession. – There is no debt that is “wholly due and without contingency.” – There is no judgment against the insurers on the bad-faith claim.

2. Strict Construction Michigan garnishment statutes must be strictly construed. To allow garnishment of a contingent claim would circumvent the requirement of a liquidated debt and ignore the rule that garnishment is intended for debts already fixed and due.

3. Overruling Rutter Rutter was decided under the old General Court Rules, before MCR 3.101(G)(1) was adopted in 1985. The Supreme Court concluded that Rutter’s broad approach to garnishing bad-faith claims conflicts with the clear language of the current court rule and is thus wrongly decided to the extent it departs from MCR 3.101(G)(1).

Impact

This decision clarifies that parties holding an unadjudicated claim of insurer bad-faith refusal to settle cannot resort to post-judgment garnishment to reach an insurer’s assets. Instead, they must file a separate action—either a bad-faith tort suit or a declaratory judgment action—so that all procedural protections and fact-finding safeguards are in place. Insurers are protected against premature garnishment efforts and unintended deprivation of procedural rights.

Complex Concepts Simplified

Garnishment – A court process by which a creditor can seize property or funds owed to a debtor that are held by a third party (the garnishee).
Liquidated Debt – A debt that is fixed, certain in amount, and not contingent on future events.
Bad-Faith Refusal to Settle – A tort claim against an insurer that improperly refuses a reasonable settlement demand within policy limits, resulting in an excess judgment against the insured.
Excess-Judgment Rule – The rule that an insurer who acts in bad faith must pay the amount by which a judgment exceeds policy limits, subject to certain limitations.
Case Evaluation – A Michigan alternative dispute resolution procedure where neutral evaluators recommend a settlement award; rejection can lead to sanctions.
Assignment – A transfer of rights from one party (Specialty Industries) to another (Hairston) to pursue claims or collect a judgment.

Conclusion

Hairston v. LKU establishes that garnishment proceedings may not be used to litigate or collect on an unresolved bad-faith refusal-to-settle claim. Under MCR 3.101(G)(1), only debts or property that are fixed, due, and undisputed may be garnisheed. An insurer’s potential bad-faith liability must first be adjudicated in a full lawsuit. By strictly enforcing the liquidation requirement, the Michigan Supreme Court protects insurers’ procedural rights and ensures that complex bad-faith claims receive the full civil-trial process they warrant.