Acorn Inv. Co. v. Mich. Basic Prop. Ins. Ass'n, Docket No. 146452.

• Decision Date: 20 May 2014
• Docket Number: Docket No. 146452.
• Parties: ACORN INVESTMENT CO. v. MICHIGAN BASIC PROPERTY INSURANCE ASSOCIATION.
• Court: Michigan Supreme Court

495 Mich. 338

852 N.W.2d 22

ACORN INVESTMENT CO.

v.MICHIGAN BASIC PROPERTY INSURANCE ASSOCIATION.

Docket No. 146452.

Supreme Court of Michigan.

Argued Dec. 11, 2013.

Decided May 20, 2014.

James C. Klemanski, Troy, for Acorn Investment Company.

Patrick, Johnson & Mott, PC, Southfield (by John D. Honeyman), for Michigan Basic Property Insurance Association.

ZAHRA, J.

The issue in this case is whether plaintiff, Acorn Investment Co. (Acorn), may be awarded case evaluation costs under MCR 2.403(O)(1). Acorn had purchased property insurance from defendant Michigan Basic Property Insurance Association (Michigan Basic). When the insured property burned down, Acorn filed an insurance claim with Michigan Basic, which Michigan Basic disputed and did not pay. Acorn brought suit in the Wayne Circuit Court to recover under the insurance policy. The court submitted the case to case evaluation pursuant to MCR 2.403(A)(1), and the case evaluation panel rendered an award in Acorn's favor in the amount of $11,000. Acorn accepted the proposed award, but Michigan Basic rejected it. Because the parties failed to agree on the loss, Acorn demanded, pursuant to the terms of the insurance policy,¹ that the loss be set by appraisal. The appraisal panel determined that Acorn's claim was worth $20,877. Acorn filed a motion in the circuit court for entry of judgment and assessment of Uniform Trade Practices Act (UTPA) interest,² actual costs under MCR 2.403(O)(1) based on Michigan Basic's rejection of the case evaluation award, and debris-removal expenses pursuant to the insurance policy. The court granted the motion for entry of judgment, awarded Acorn $8,391.96 in interest, and ordered Michigan Basic to pay Acorn $6.86 per day until it satisfied the judgment. The court refused Acorn's requests for actual costs and for debris-removal expenses. Acorn appealed, and the Court of Appeals affirmed.³ We ordered and heard oral argument on whether to grant Acorn's application for leave to appeal or take other peremptory action.⁴

We hold that the circuit court may award actual costs to Acorn. ⁵MCR 2.403(O)(1) requires a court to award actual costs when an opposing party rejects a case evaluation, the action proceeds to verdict, and the verdict is less favorable to the rejecting party than the case evaluation. The parties agree that Michigan Basic rejected the initial case evaluation and that the appraisal panel's award was less favorable to Michigan Basic than the initial case evaluation. We hold that the remaining requirement, that the action “proceed to verdict,” was also satisfied. Under MCR 2.403(O)(2)(c), the definition of “verdict” includes “a judgment entered as a result of a ruling on a motion after rejection of the case evaluation.” In this case, the action proceeded to a judgment entered as a result of a ruling on a motion when the circuit court granted Acorn's motion for entry of judgment and interest.

Though we did not request that the parties address whether Acorn should have been awarded debris-removal expenses under the insurance policy,⁶ we vacate the decision of the Court of Appeals in that regard and remand that issue to the circuit court. It is undisputed that Acorn's insurance policy included the right to recover for debris-removal expenses. But there is a dispute about whether the appraisal panel awarded them as part of its award, left them for the circuit court to determine, or whether Acorn waived its right to claim them. Acorn makes a colorable argument that the appraisal panel could not have determined the cost of debris removal because debris removal did not constitute “damages.” Furthermore, debris removal costs could not logically be determined by using the formula ordered by the circuit court in its decision in limine—replacement cost less depreciation.

Accordingly, we reverse the decision of the Court of Appeals with regard to actual (case evaluation) costs and remand this case to the circuit court for further proceedings consistent with this opinion—including a determination whether Acorn is entitled to debris-removal expenses.

I. FACTS AND PROCEEDINGS

Acorn owned the property located at 12826 Marlowe in the City of Detroit (the Property). On April 10, 2007, Acorn applied to Michigan Basic for fire insurance for the Property. Michigan Basic issued Acorn Policy No. 4587875 (the Policy), which provided fire insurance for the Property for the period April 11, 2007, to April 11, 2008. On May 27, 2007, a fire occurred at the Property, causing significant damage. Acorn filed a claim with Michigan Basic, which was formally denied on the basis that the Policy was not in force at the time of the loss because it had been cancelled as of May 16, 2007.

Acorn filed suit against Michigan Basic. On June 27, 2008, Acorn filed a motion for summary disposition, seeking a declaration that Michigan Basic was required to provide coverage based on the Installment Payment Notice that Acorn received from Michigan Basic on May 11, 2007. Michigan Basic filed a cross-motion for summary disposition, which stated that Acorn was not covered because Michigan Basic had sent two cancellation notices (on April 16, 2007, and May 16, 2007) to Acorn, both stating that coverage would be cancelled on May 16, 2007, because of the Property's ineligibility for coverage. The circuit court denied the motions for summary disposition, concluding that genuine issues of material fact precluded the entry of judgment.

Pursuant to MCR 2.403(A)(1), a case evaluation was performed on November 4, 2008, which resulted in an award for Acorn in the amount of $11,000. Acorn accepted the award, but Michigan Basic rejected it.

On April 23, 2009, Acorn filed a motion for summary disposition with regard to Michigan Basic's cancellation defense on the basis that Michigan Basic's notice of cancellation did not conform to the statutory requirement that the cancellation notice contain language advising the insured that any unused premium would be refunded on demand.⁷ The circuit court granted Acorn's motion on July 14, 2009.

While Acorn's motion for summary disposition was pending, Acorn made a motion in limine that the fire damage value be determined by replacement cost less depreciation. The circuit court granted the motion. On November 19, 2009, Acorn made a motion to strike Michigan Basic's affirmative defense of misrepresentation. The circuit court granted the motion, concluding that Acorn was under no duty to advise Michigan Basic of changes in the occupancy of the rental dwelling.

Given that Michigan Basic's liability had already been determined, Acorn filed a motion to refer the issue of damages to a three-person appraisal panel and to appoint a presiding umpire for the panel, as permitted by the insurance policy and the enabling statute, MCL 500.2833(1)(m). Acorn also filed a motion asking the circuit court to require the appraisers to consider only replacement cost less depreciation when determining damages. The court granted both motions.

The appraisal panel issued the appraisal award on September 17, 2010, in the amount of $20,877. Michigan Basic did not pay the award and filed no pleadings with respect to the award. Upon Acorn's receipt of the award, Acorn wrote to the umpire of the appraisal panel, complaining that the award was too low because the panel did not award debris-removal costs, which were permitted by the insurance policy.

On November 17, 2010, Acorn filed a motion for entry of judgment in the appraisal amount, together with interest under the UTPA. Acorn also sought an award of case evaluation costs and for additional proceeds under the policy for the cost of debris removal services. Michigan Basic responded to the motion for entry of judgment, indicating that it did not contest Acorn's request for entry of judgment in the amount of the appraisal award or Acorn's claim to UTPA interest. Michigan Basic did object, however, to Acorn's request for case evaluation costs and for debris-removal expenses under the insurance policy, which Michigan Basic claimed could have been, but were not, part of the appraisal award. The circuit court entered a judgment in the amount of $20,877, together with UTPA interest in the amount of $8,391.96, plus future interest in the amount of $6.86 a day until Michigan Basic satisfied the judgment. The court denied Acorn's claims for case evaluation costs and debris-removal costs. The court denied Acorn's motion for reconsideration. Michigan Basic paid the judgment.

Acorn appealed in the Court of Appeals, seeking review of the circuit court's denial of case evaluation costs and debris-removal costs. The Court affirmed the court's decision in a published opinion per curiam.⁸

With regard to case evaluation costs, the Court of Appeals reasoned that “[t]he underlying purpose of case evaluation is to encourage settlement and deter protracted litigation by placing the burden of litigation costs on the party that rejected case evaluation and required the case to proceed to trial.” ⁹ The Court noted that the statutory appraisal process under MCL 500.2833(1)(m) is “a substitute for the judicial determination of disputes” and “a simple and inexpensive method for the prompt adjustment and settlement of claims [that] effectively constitutes arbitration.” ¹⁰ Furthermore, the Court stated that it had “previously rejected the notion that an order or judgment entered following arbitration or settlement constitutes a ‘verdict’ within the meaning of MCR 2.403(O).” ¹¹ To support this proposition,¹² the Court cited Jerico Constr., Inc. v. Quadrants, Inc.;¹³Saint George Greek Orthodox Church of Southgate, Mich. v. Laupmanis Assoc., PC;¹⁴ and Smith v. Elenges.¹⁵ The Court of Appeals wrote: “[T]he appraisal process was effectively an arbitration, and an order or judgment entered pursuant to an arbitration or settlement is not a ‘verdict’ within the meaning of MCR 2.403(O)(2)(c) ... [T]he trial court properly denied plaintiff's...