Celina Mut. Ins. Co. v. Citizens Ins. Co. of America

• Decision Date: 07 June 1984
• Docket Number: Docket No. 64617
• Citation: 349 N.W.2d 547,133 Mich.App. 655
• Parties: CELINA MUTUAL INSURANCE COMPANY, an Ohio corporation, Plaintiff-Appellant-Cross Appellee, v. CITIZENS INSURANCE COMPANY OF AMERICA, a Michigan corporation, Defendant-Appellee-Cross Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 547

349 N.W.2d 547

133 Mich.App. 655

CELINA MUTUAL INSURANCE COMPANY, an Ohio corporation Plaintiff-Appellant-Cross Appellee, v. CITIZENS INSURANCE COMPANY OF AMERICA, a Michigan corporation, Defendant-Appellee-Cross Appellant.

Docket No. 64617.

Court of Appeals of Michigan.

Submitted June 28, 1983.

Decided April 16, 1984.

Released for Publication June 7, 1984.

Landman, Luyendyk, Latimer, Clink & Robb by Robert L. DeJong and Craig A. Bernthal, Grand Rapids, for plaintiff-appellant-cross appellee.

Baxter & Hammond by Robert N. Alt, Jr., Grand Rapids, for defendant-appellee-cross appellant.

Before WALSH, P.J., and MAHER and ROUMELL ^*, JJ.

ROUMELL, Judge.

This action arises out of an accident on October 11, 1977, in which an automobile driven by Kathleen Flaherty collided with a truck driven by Nelson Verbeek. Both drivers were killed. Citizens Insurance Company of America was Verbeek's primary insurer under a policy with a liability limit of $100,000. Celina Mutual Insurance Company was Verbeek's insurer under a policy which made Celina responsible for liability in excess of that covered by Citizens's policy up to a limit of $1,000,000. The parties settled for $265,000, including costs and interest, in an action brought by the estate of Flaherty against the estate of Verbeek. In this action, Celina sought to recover from Citizens the interest included in the settlement of the other action attributable to Citizens's $100,000 liability. Citizens sought by counterclaim to recover from Celina the interest on its $100,000 accruing after an offer of judgment it made and a portion of its costs and actual attorney fees incurred in the defense of the action. After a nonjury trial on stipulated facts, the circuit court denied recovery to either party. Celina appeals by right, and Citizens cross-appeals.

In Denham v. Bedford, 407 Mich. 517, 287 N.W.2d 168 (1980), the Court held that an insurer was liable for prejudgment interest in excess of contractual limits on its liability. Here, the circuit court pointed out that the judgment entered in Denham specified separately the amount of prejudgment interest. See 407 Mich. 524, 287 N.W.2d 168. The circuit court held that the parties had waived any claims against each other concerning prejudgment interest because the settlement entered here failed to specify separately the amount of such interest.

In Commercial Union Ins. Co. v. Shelby Mutual Ins. Co., 563 F.Supp. 803 (ED Mich.1983), the Court, applying Michigan law, addressed a similar claim by an excess carrier that the primary carrier was liable for an amount representing prejudgment interest on its share of the settlement. Like the circuit court here, the federal court distinguished Denham and held that the excess carrier was not entitled to recover. However, the settlement at issue in the federal case, unlike the settlement at issue here, did not specify that it was for an amount including interest. The federal court also noted that the settlement before it was based on a stipulation to dismiss rather than on a consent judgment and that a plaintiff would be entitled to prejudgment interest in the latter but not the former case. The settlement at issue here was based on a consent judgment.

The language of a stipulation may not be construed to effect the waiver of a right not plainly intended to be relinquished. In re Cole Estate, 120 Mich.App. 539, 544, 328 N.W.2d 76 (1982). Here, in contrast to Commercial Union Ins. Co. v. Shelby Mutual Ins. Co., it is clear that the parties intended the settlement to include prejudgment interest. While the amount of interest was unspecified, it could be determined by simple arithmetic. The settlement therefore does not demonstrate a plain intent on the part of the parties to relinquish their rights concerning interest.

In Michigan Milk Producers Ass'n v. Commercial Union Ins. Co., 493 F.Supp. 66 (WD Mich.1980), the Court, applying Michigan law, considered the relative liabilities of a primary carrier and an excess carrier for prejudgment interest. The Court noted that in Denham, supra, 407 Mich. pp. 533-534, 287 N.W.2d 168, the possibility that the insurer would be required to pay all of the interest on the judgment rather than merely a pro rata share was mentioned but not resolved. The Court concluded that, if faced with the issue, Michigan courts would hold that the insurer which controls the litigation is liable for all of the prejudgment interest. The Court noted that actual control rather than the right to control is dispositive, that joint control of the litigation would lead to an equal division of the liability for prejudgment interest rather than pro rata apportionment, and that the existence of actual control was a question of fact. Michigan Milk Producers, supra, p. 72. The federal court's decision was apparently in accord with the results reached in the majority of other jurisdictions; see Anno: Liability insurer's liability for interest and costs on excess of judgment over policy limit, 76 A.L.R.2d 983, and the cases discussed therein.

We do not agree with the result in Michigan Milk Producers. It is contrary to earlier Michigan cases such as Cates v. Moyses, 394 Mich. 762, 228 N.W.2d 380 (1975), modifying 57 Mich.App. 405, 226 N.W.2d 106 (1975), and Cosby v. Pool, 36 Mich.App. 571, 578-579, 194 N.W.2d 142 (1971). We believe that pro rata apportionment of liability for prejudgment interest is the better result, because otherwise insurers will be required to pay interest on risks they have not assumed and because a good faith vigorous defense of an action is in the interests of all potentially liable parties. We conclude that Citizens is liable for prejudgment interest on its $100,000.

Citizens argues that Celina should be liable for the prejudgment interest accruing after its offer of judgment was made. However, the offer of judgment by Citizens provided:

"NOW COME the defendants, by their attorneys, Hillman, Baxter & Hammond, and pursuant to the terms of Rule 519.1 of the Michigan General Court Rules of 1963 offer to allow judgment to be taken against them in favor of the plaintiff, Daniel Flaherty, Executor of the Estate of Kathleen Mary Flaherty, Deceased, in this matter for the sum of One Hundred Thousand and 00/100 ($100,000.00) Dollars, including interest and costs accrued to the date of this offer." (Emphasis added.)

A subsequent letter sent by Citizens to the counsel for the estate of Flaherty provided:

"By your letter of December 19, you indicate that you would have your client accept the $100,000.00 payment by Citizens in advance of trial, but allow absolutely no consideration for that, including the waiving of interest or costs on that portion. In light of that position, together with the continued insistence by Celina on Citizens providing a defense, there is absolutely no reason for Citizens to pay you $100,000.00." (Emphasis added.)

The...