See Elliott v Cas Ass 'n of America, 254 Mich. 282, 287-289; 236 N.W. 782 (1931). This Court succinctly explained the policy behind no-action clauses and the rule that such clauses are waived when the insurer breaches its duty to defend an insured:

An insurer that "wrongfully refuse[s] to defend" the insured thereby "releas[es] the insured from its agreement not to settle suits without its consent." Elliott v. Casualty Ass'n of Am., 236 N.W. 782, 783 (Mich. 1931). And that's the case here.

The insurer may repudiate liability and refuse to defend, in which case the insurer must accept the risk that its determination of no coverage was incorrect; or the insurer may protect itself by providing a defense under a reservation of rights. Elliott v. Cas. Ass'n of Am., 254 Mich. 282, 286-87, 236 N.W. 782, 783 (1931); see also Kirschner v. Process Design Assocs., Inc., 459 Mich. 587, 593-94, 592 N.W.2d 707, 709 (1999) (stating that "once an insurance company has denied coverage to an insured and stated its defenses, the insurance company has waived or is estopped from raising new defenses"). Where an insurer breaches its duty to defend, the insured is released from its obligation to give the insurer an opportunity to contest liability and is free to settle the claim with the third party.Alyas v. Gillard, 180 Mich. App. 154, 160, 446 N.W.2d 610, 613 (1989) (per curiam).

Or, it can repudiate liability, refuse to defend, and take its chances. Elliot v. Casualty Ass'n of Am., 254 Mich. 282, 285, 236 N.W. 782, 783 (1931). If it chooses the latter option, then in the absence of fraud or collusion, Elliot holds that the insurer should be bound by the judgment.

The insured and the counsel whom it was forced to hire by the breach of the insurer's undertaking should have full liberty of determination whether to settle or to try. They should be able to take into consideration the likelihood of success or failure, the cost, uncertainty, delay, and inconvenience of trial as compared with the advantages of settlement. What is reasonable to do they should be permitted to do. Among the cases supporting this view are St. Louis Dressed Beef Provision Co. v. Maryland Cas. Co. 201 U.S. 173, 180-183, Traders Gen. Ins. Co. v. Rudco Oil Gas Co. 129 F.2d 621, 626 (10th Cir.), Theodore v. Zurich Gen. Acc. Liab. Ins. Co., Alaska, 364 P.2d 51, 55-56, Albert v. Maine Bonding Cas. Co. 144 Maine, 20, 24-25, Elliott v. Casualty Assn. of America, 254 Mich. 282, 287-288, Butler Bros. v. American Fid. Co. 120 Minn. 157, 167-170, Nixon v. Liberty Mut. Ins. Co. 255 N.C. 106, 110-113. Some of these cases and others, which had been referred to in the opinion of the Appellate Division, which we were reviewing, were cited in Marvel Heat Corp. v. Travelers Indem. Co. 325 Mass. 682, 685, where the result here reached was foreshadowed.

[ Alyas v Gillard, 180 Mich. App. 154, 160; 446 N.W.2d 610 (1989), citing with approval Detroit Edison Co, supra at 144.] See also Elliott v Casualty Ass'n of America, 254 Mich. 282, 287-288; 236 N.W. 782 (1931). In my opinion, to hold otherwise in the instant case would allow garnishee-defendant "to benefit by sitting idly by, knowing of the litigation, and watching its insured become prejudiced."

102 Mich. App. 136, 145; 301 N.W.2d 832 (1980). 254 Mich. 282, 285; 236 N.W. 782 (1931). "It can undertake the defense with notice to the insured that it is reserving the right to challenge its liability on the policy.

Detroit Edison Co v Michigan Mutual Ins Co, 102 Mich. App. 136; 301 N.W.2d 832 (1980). See also Elliott v Casualty Ass'n of America, 254 Mich. 282; 236 N.W. 782 (1931); Shepherd Marine Construction Co v Maryland Casualty Co, 73 Mich. App. 62; 250 N.W.2d 541 (1976). An insurer, impressed with a duty to defend, who doubts that a claim is within coverage afforded by the policy must necessarily, after assumption of defense, be afforded a reasonable opportunity to resolve the coverage question by declaratory relief without waiving any contractual rights.

To show waiver, an insured must show that the insurer both denied liability and refused to defend an action brought against the insured. Elliott v Casualty Ass'n of America, 254 Mich. 282; 236 N.W. 782 (1931); Stephens v Pennsylvania Casualty Co, 135 Mich. 189; 97 N.W. 686 (1903). The undisputed facts show that no lawsuit was ever brought against plaintiff.

14 Couch on Insurance 2d, § 51:54, p 552. In Elliott vCasualty Ass'n of America, 254 Mich. 282, 287; 236 N.W. 782 (1931), the Court quoted with approval the following language from a Minnesota case: "`Where the insurer has agreed to settle or defend an action brought to recover of the insured for an accident covered by the policy, and has wrongfully refused to so settle or defend the action, and the insured defends the same and in good faith makes a settlement thereof, he may recover the amount paid on such settlement, unless it is shown that there was in fact no liability, or that the amount paid was excessive.