Griswold Properties v. Lexington Ins. Co.

• Decision Date: 06 September 2007
• Docket Number: Docket No. 263197.,Docket No. 268335.,Docket No. 265278.
• Citation: 276 Mich. App. 551,741 N.W.2d 549
• Parties: GRISWOLD PROPERTIES, L.L.C., Plaintiff-Appellee v. LEXINGTON INSURANCE COMPANY, Defendant-Appellant. Gainors Meat Packing, Inc., Plaintiff-Appellant, v. Home-Owners Insurance Company, Defendant-Appellee. Samuel C. Gardner and Cynthia A. Gardner, Plaintiff-Appellant, v. Harleysville Lake States Insurance Company, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

741 N.W.2d 549

276 Mich. App. 551

GRISWOLD PROPERTIES, L.L.C., Plaintiff-Appellee v. LEXINGTON INSURANCE COMPANY, Defendant-Appellant.

Gainors Meat Packing, Inc., Plaintiff-Appellant, v. Home-Owners Insurance Company, Defendant-Appellee.

Samuel C. Gardner and Cynthia A. Gardner, Plaintiff-Appellant, v. Harleysville Lake States Insurance Company, Defendant-Appellee.

Docket No. 263197.

Docket No. 265278.

Docket No. 268335.

Court of Appeals of Michigan.

Submitted August 1, 2007, at Lansing.

Decided September 6, 2007, at 9:00 a.m.

Released for Publication November 27, 2007.

Donald M. Fulkerson, Westland and Fabian, Sklar & King, P.C. (by Michael H. Fabian and Stuart A. Sklar), Farmington Hills, for Griswold Properties, L.L.C., Gainors Meat Packing, Inc., and Samuel C. and Cynthia A. Gardner.

Grotefeld & Denenberg, L.L.C. (by Todd B. Denenberg, Jeffrey R. Learned, and Gary R. Chopp), Bingham Farms, for Lexington Insurance Company.

Secrest Wardle (by Janet Callahan Barnes) Farmington Hills, for Home-Owners Insurance Company.

Braun Kendrick Finkbeiner P.L.C. (by William J. Ewald and Frederick C. Overdier), Saginaw, for Harleysville Lake States Insurance Company.

Before: DONOFRIO, P.J., and FITZGERALD, BANDSTRA, ZAHRA, METER, BORRELLO, and DAVIS, JJ.

DONOFRIO, P.J.

Pursuant to MCR 7.215(J), this Court convened a special panel to resolve the conflict between the opinion in the three consolidated cases in Griswold Properties, LLC v. Lexington Ins. Co., 275 Mich.App. 543, 740 N.W.2d 659 (2007), and Arco Industries Corp v. American Motorists Ins Co. (On Second Remand, On Rehearing), 233 Mich.App. 143, 594 N.W.2d 74 (1998). After convening the special panel, we adopt the position advocated by the Griswold Court regarding the payment of penalty interest to first-party insureds under MCL 500.2006(4). Thus, part I of the Griswold opinion, vacated by an earlier order of this Court, that addresses whether a first-party insured is entitled to 12 percent interest under MCL 500.2006(4) when the insurer fails to pay a claim on a timely basis irrespective of whether the amount of the claim was reasonably in dispute, is replaced with the following opinion concluding that a first-party insured is entitled to 12 percent penalty interest if a claim is not timely paid, irrespective of whether the claim is reasonably in dispute. MCL 500.2006(4). This matter is being decided without oral argument pursuant to MCR 7.215(J)(5).

I

The conflict created by the cases at issue concerns whether a first-party insured is entitled to penalty interest under MCL 500.2006(4) when the insurer fails to pay the claim within the applicable statutory period, regardless of whether the amount of the claim was reasonably in dispute.

A. Applicable Law: MCL 500.2006, Yaldo, and Arco

Pursuant to the Uniform Trade Practices Act (UTPA), MCL 500.2001 et seq., when an insurer fails to pay a claim on a timely basis, a claimant may seek penalty interest. MCL 500.2006 provides for imposition of penalty interest for the late payment of a claim and states in pertinent part:

(1) A person must pay on a timely basis to its insured, an individual or entity directly entitled to benefits under its insured's contract of insurance, or a third party tort claimant the benefits provided under the terms of its policy, or, in the alternative, the person must pay to its insured, an individual or entity directly entitled to benefits under its insured's contract of insurance, or a third party tort claimant 12% interest, as provided in subsection (4), on claims not paid on a timely basis. Failure to pay claims on a timely basis or to pay interest on claims as provided in subsection (4) is an unfair trade practice unless the claim is reasonably in dispute.

(2) A person shall not be found to have committed an unfair trade practice under this section if the person is found liable for a claim pursuant to a judgment rendered by a court of law, and the person pays to its insured, individual or entity directly entitled to benefits under its insured's contract of insurance, or third party tort claimant interest as provided in subsection (4).

(3) An insurer shall specify in writing the materials that constitute a satisfactory proof of loss not later than 30 days after receipt of a claim unless the claim is settled within the 30 days. If proof of loss is not supplied as to the entire claim, the amount supported by proof of loss shall be considered paid on a timely basis if paid within 60 days after receipt of proof of loss by the insurer. Any part of the remainder of the claim that is later supported by proof of loss shall be considered paid on a timely basis if paid within 60 days after receipt of the proof of loss by the insurer. If the proof of loss provided by the claimant contains facts that clearly indicate the need for additional medical information by the insurer in order to determine its liability under a policy of life insurance, the claim shall be considered paid on a timely basis if paid within 60 days after receipt of necessary medical information by the insurer....

(4) If benefits are not paid on a timely basis the benefits paid shall bear simple interest from a date 60 days after satisfactory proof of loss was received by the insurer at the rate of 12% per annum, if the claimant is the insured or an individual or entity directly entitled to benefits under the insured's contract of insurance. If the claimant is a third party tort claimant, then the benefits paid shall bear interest from a date 60 days after satisfactory proof of loss was received by the insurer at the rate of 12% per annum if the liability of the insurer for the claim is not reasonably in dispute the insurer has refused payment in bad faith and the bad faith was determined by a court of law. The interest shall be paid in addition to and at the time of payment of the loss. If the loss exceeds the limits of insurance coverage available, interest shall be payable based upon the limits of insurance coverage rather than the amount of the loss. If payment is offered by the insurer but is rejected by the claimant, and the claimant does not subsequently recover an amount in excess of the amount offered, interest is not due. Interest paid pursuant to this section shall be offset by any award of interest that is payable by the insurer pursuant to the award. [MCL 500.2006.]

In Yaldo v. North Pointe Ins. Co., 457 Mich. 341, 578 N.W.2d 274 (1998), the plaintiff filed suit against the defendant insurer when the defendant refused to pay benefits under a lender's loss payable clause after a land contract vendee defaulted on a land contract and the plaintiff's property was damaged by fire. The trial court found in the plaintiff's favor, and awarded the plaintiff judgment interest under MCL 600.6013(5). This Court affirmed the trial court's decision and our Supreme Court affirmed this Court's decision. Id. at 344-347, 578 N.W.2d 274. The Yaldo Court noted that this Court held in the alternative that the trial court could have awarded the plaintiff 12 percent interest as a penalty for the defendant's untimely payment under MCL 500.2006(4). Id. at 348-349, 578 N.W.2d 274. The Yaldo Court rejected the defendant's argument that imposition of interest under MCL 500.2006(4) would have been improper because the plaintiff's claim was reasonably in dispute. The Yaldo Court stated specifically:

Defendant's claim that our holding would negate the "reasonably in dispute" language of MCL 500.2006(4); MSA 24.12006(4) is based on a misreading of the statute. Its express terms indicate that the language applies only to third-party tort claimants. Where the action is based solely on contract, the insurance company can be penalized with twelve percent interest, even if the claim is reasonably in dispute. [Yaldo, supra at 348 n. 4, 578 N.W.2d 274.]

The Yaldo Court went on to state:

We find that defendant misreads the Uniform Trade Practices Act. Clearly, plaintiff could have filed a claim under MCL 500.2006(4); MSA 24.12006(4). With respect to collection of twelve percent interest, reasonable dispute is applicable only when the claimant is a third-party tort claimant. Here, plaintiff is not such a claimant. Rather, he is seeking reimbursement for the loss of his business due to a fire. Therefore, plaintiff could have recovered interest at the rate of twelve percent per annum under the Uniform Trade Practices Act. [Id. at 349, 578 N.W.2d 274.]

In Arco, after prolonged litigation both in this Court and in our Supreme Court, this Court held that the defendant had a duty to defend the plaintiff in a suit filed by the Department of Natural Resources, and then determined that the trial court correctly refused to award the plaintiff penalty interest under MCL 500.2006(4) because the liability of the defendant was reasonably in dispute. The Arco Court rejected the argument that, in accordance with Yaldo, the plaintiff was entitled to collect 12 percent penalty interest under MCL 500.2006(4), stating:

Upon further review, we conclude that the Yaldo majority's interpretation of MCL 500.2006(4); MSA 24.12006(4) was dictum. At issue in Yaldo was the interpretation and application of the judgment interest statute, MCL 600.6013; MSA 27A.6013, and not the penalty interest statute. It is a well-settled rule that statements concerning a principle of law not essential to determination of the case are obiter dictum and lack the force of an adjudication. Roberts v. Auto-Owners Ins. Co., 422 Mich. 594, 597-598, 374 N.W.2d 905 (1985); Auto-Owners Ins. Co. v. Stenberg Bros., Inc., 227 Mich.App. 45, 51-52, 575 N.W.2d 79 (1997). The portion of the Yaldo majority opinion discussing MCL 500.2006(4); MSA 24.12006(4) was not necessary to its decision of the issue before the Court and must therefore be regarded as merely dictum that is not binding on this Court. Compare Auto Club Ins. Ass'n v. State Farm Ins. Cos., 221 Mich.App. 154, 170, n. 5, 561 N.W.2d...