Griswold Properties v. Lexington Ins. Co.

• Decision Date: 17 May 2007
• Docket Number: Docket No. 268335.,Docket No. 263197.,Docket No. 265278.
• 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, Plaintiffs-Appellants/Cross-Appellees, v. Harleysville Lake States Insurance Company, Defendant-Appellee/Cross-Appellant.
• Court: Court of Appeal of Michigan — District of US

740 N.W.2d 659

275 Mich. App. 543

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, Plaintiffs-Appellants/Cross-Appellees, v. Harleysville Lake States Insurance Company, Defendant-Appellee/Cross-Appellant.

Docket No. 263197.

Docket No. 265278.

Docket No. 268335.

Court of Appeals of Michigan.

Submitted April 18, 2007, at Detroit.

Decided May 17, 2007, at 9:00 a.m.

Released for Publication September 28, 2007.

Donald M. Fulkerson and Fabian, Sklar & King, P.C. (by Michael H. Fabian), Westland, 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: WHITBECK, C.J., and MURPHY and COOPER, JJ.

ORDER ENTERED JUNE 8, 2007

Griswold Properties, L.L.C. v. Lexington Insurance Company, Docket No. 263197, Gainors Meat Packing, Inc. v. Home-Owners Insurance Company, Docket No. 265278, Gardner v. Harleysville Lake States Insurance Company, Docket No. 268335.

The Court orders that a special panel shall be convened pursuant to MCR 7.215(J) to resolve the conflict between these consolidated cases and Arco Industries Corp. v. American Motorists Ins. Co. 233 Mich.App. 143; 594 N.W.2d 74 (1998), aff'd 462 Mich. 896, 617 N.W.2d 330 (2000).

The Court further order that part I of the opinion in these consolidated cases, which 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 vacated. MCR 7.215(J).

Appellants may file supplemental briefs within 21 days of the Clerk's certification of this order. Appellees may file supplemental brief within 21 days of the service of appellant's briefs. Nine copies must be filed with the Clerk of the Court.

PER CURIAM.

These three consolidated cases involve claims brought by first-party insureds against their insurers. In each case, the insurer delayed payment of the claim while disputing the amount of damages or requiring additional proof of loss documentation. Although the facts and some issues vary between these cases, in each case, the plaintiff has claimed eligibility for statutory penalty interest under MCL 500.2006(4), so we address that issue first and then turn to each case separately for consideration of its remaining issues.

[Editor's note: The following portion of the opinion has been vacated by the order entered June 8, 2007.]

I. Common Issue in These Consolidated Cases

The common issue that links these consolidated cases is whether a first-party insured is entitled to statutory penalty interest on an insurance claim when the insurer fails to pay the claim within the statutory period, irrespective of whether the amount of the claim was reasonably in dispute. Were we not bound to follow this Court's published opinion in Arco Industries Corp. v. American Motorists Ins. Co., 233 Mich.App. 143, 594 N.W.2d 74 (1998), aff'd 462 Mich. 896, 617 N.W.2d 330 (2000), we would find that the plain language of MCL 500.2006(4) entitles a first-party insured to 12 percent interest on claims not timely paid after satisfactory proof of loss was received by the insurer, even if the claim is reasonably in dispute. The express terms of MCL 500.2006(4) indicate that the "reasonably in dispute"¹ provision applies only to third-party tort claimants.

Were we not bound by Arco, we would follow the reasoning of Yaldo v. North Pointe Ins. Co., 457 Mich. 341, 348 n. 4, 578 N.W.2d 274 (1998):

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.

However, this Court in Arco declared that portion of Yaldo to be dictum, and we are bound to follow Arco.

We declare a conflict under MCR 7.215(J)(2), so that the inconsistency between the reasoning in Yaldo and the holding in Arco, and the plain language of the statute, may be considered more fully.

A private party may seek penalty interest under the Unfair Trade Practices Act (UTPA), MCL 500.2001 et seq., when an insurer fails to timely pay a claim. MCL 500.2006(4). The purpose of imposing penalty interest is to punish insurers who employ "dilatory practices in settling meritorious claims. . . ." Angott v. Chubb Group of Ins. Cos., 270 Mich.App. 465, 479, 717 N.W.2d 341 (2006), lv. den. sub. nom. Kilby v. Chubb Group of Ins. Cos., 477 Mich. 941, 723 N.W.2d 825 (2006); Arco, supra at 148, 594 N.W.2d 74. The UTPA provides for the payment of an insurance claim within 30 days of "receipt of proof of amount of loss." MCL 500.2833(1)(p); MCL 500.2836(2).

MCL 500.2006 provides for the imposition of penalty interest for the late payment of an insurance claim, in relevant part, as follows:

(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. . . .

(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.

Relying on the plain language of MCL 500.2006(4), the Michigan Supreme Court, in Yaldo, supra at 347-349, 578 N.W.2d 274, found that a first-party insured is entitled to 12 percent interest regardless of whether the claim is reasonably in dispute. We agree that the plain language of MCL 500.2006(4) leads to that conclusion.

Had the Legislature intended to require a first-party insured to establish that its claim was not reasonably in dispute, as defendants insist, it would have included that language in the first sentence of MCL 500.2006(4). The Legislature imposed that requirement only on third-party tort claimants in the second sentence of subsection 4. This Court must assume that the omission of the requirement in the first sentence was intentional. Farrington v. Total Petroleum, Inc., 442 Mich. 201, 209-210, 501 N.W.2d 76 (1993) (finding that if the Legislature had intended the standard of review under subsections 2 and 3 of MCL 418.861a be dependent on when the claim was initially filed, it would have expressly stated so as it did in other sections of the Worker's Disability Compensation Act).

However, as noted above, in Arco, supra at 147-148, 594 N.W.2d 74, this Court found that the Yaldo analysis of MCL 500.2006(4) was nonbinding dictum:

At issue in Yaldo was the interpretation and application of the judgment interest statute, MCL 600.6013 . . . , and not the penalty interest statute. It is a well-settled rule that...