LaMothe v. Auto Club Ins. Ass'n, Docket No. 171729

CourtCourt of Appeal of Michigan (US)
Citation543 N.W.2d 42,214 Mich.App. 577
Docket NumberDocket No. 171729
PartiesGeorge LaMOTHE, Plaintiff-Appellant, v. AUTO CLUB INSURANCE ASSOCIATION, Defendant-Appellee.
Decision Date15 December 1995

Fowler, Tuttle, Clark & Coleman by Larry D. Fowler, Lansing, for plaintiff.

Willingham & Cote, P.C. by Steven A. Mitchell and Marianne E. Samper, East Lansing, for defendant.

Before TAYLOR, P.J., and McDONALD and COLLINS, * JJ.

TAYLOR, Presiding Judge.

Plaintiff appeals as of right the trial court's order granting summary disposition for defendant. We affirm.

Plaintiff was injured in an automobile accident. Defendant was plaintiff's automobile no-fault insurer and, pursuant to the insurance policy, was responsible for the payment of "reasonable charges incurred" for plaintiff's medical services. 1 Defendant paid its portion of plaintiff's expenses until 1992, when it instituted a company-wide system of medical bill audits to determine what constituted a reasonable charge for a medical service. Through the audit process, defendant determined that some of plaintiff's expenses were not reasonable, and, therefore, refused to pay that portion of the health care expenses it determined to be unreasonable, including payments for home care services to Diane LaMothe, plaintiff's daughter.

Plaintiff filed suit, claiming that defendant's failure to pay all medical bills in full constituted a breach of the insurance contract and fraudulent conduct. In particular, plaintiff asserts that the audits were motivated by a fraudulent intent to establish a "test case for AAA for the purpose of diminishing benefits to the plaintiff."

The trial court granted summary disposition pursuant to MCR 2.116(C)(10), holding that plaintiff did not provide adequate proof of damages to create a genuine issue of material fact for trial. In the alternative, the trial court found that plaintiff did not state a claim for breach of contract and granted summary disposition pursuant to MCR 2.116(C)(8). The court further found that the allegations of fraud were mere speculation unsupported by specific facts as required by MCR 2.116(G)(4).

By way of overview, after the circuit court issued its opinion in this case, this Court addressed in a different case most of the issues raised by plaintiff and disposed of them utilizing reasoning similar to that employed by the circuit court. See McGill v Automobile Ass'n of Michigan, 207 Mich.App. 402, 526 N.W.2d 12 (1994). In McGill, a case with facts similar to this case, several persons injured in automobile accidents sued their insurers for the insurers' failure to pay the plaintiffs' medical expenses in full. Rather than pay the amount billed in full, the insurers, in reliance on the policy language, the automobile no-fault insurance statute, and an interpretive statement of the Commissioner of Insurance, paid only the charges they determined were necessary and reasonable. Id. at 404, 526 N.W.2d 12. As a protection to the insureds, the insurers agreed to defend and indemnify their insureds in the event that the medical providers filed suit against the insureds. The insurers also promised to attempt to protect the insureds' credit ratings from the adverse effect of the nonpayment of the providers' bills. On the basis of these facts, the McGill Court concluded that the insureds had suffered no damages resulting from the insurers' partial payment of medical bills. Id. at 407, 526 N.W.2d 12. The same situation pertains here and McGill is dispositive.

While acknowledging the applicability of McGill, plaintiff argues McGill was wrongly decided and that the trial court in this case erred in granting defendant's motion for summary disposition and dismissing his suit. We disagree with plaintiff and will supplement in this opinion those matters that were earlier discussed in McGill.

In this case, the trial court held, and we concur, that plaintiff's complaint failed to state an actionable claim for breach of contract. MCR 2.116(C)(8). There has been no breach of the contract. Plaintiff alleged that "defendant, AAA, has failed, refused and neglected to pay health care benefits as provided in M.C.L. § 500.3109a; M.S.A. § 24.13109(1)." 2 This statement is simply incorrect. Defendant has not refused to pay health care benefits due plaintiff. To the contrary, defendant has paid and continues to pay those charges reasonably incurred for reasonably necessary products, services, and accommodations for plaintiff's care. The mere fact that those amounts are not the same as the amounts charged by the health care provider does not, as plaintiff would have it, constitute a breach of the contract. Indeed, contrary to plaintiff's contention, if the insurance company paid the bills regardless of their reasonability, that action would, in fact, be in violation of the insurance contract. 3

Plaintiff also has failed to state a cause of action because even if a contract breach could be established, he has suffered no damages as a matter of law. Plaintiff's complaint claims that as a result of defendant's alleged breach of contract, he has suffered outstanding bills, a blemished credit rating, emotional stress and anxiety, and attorney fees. Plaintiff concedes that the only damage he has suffered as a result of the outstanding bills and blemished credit rating is the threat of receiving annoying or harassing telephone calls from creditors. Plaintiff's attorney stated at the summary disposition hearing, "I think spoiled dinner certainly is the right analysis" for damages that plaintiff suffered as a result of the outstanding bills and blemished credit rating. However, applying the doctrines springing from the venerable Hadley v. Baxendale, 9 Exch. 341, 156 Eng.Rep. 145 (1854), these are not cognizable damages in a contract action. Damages for emotional distress and anxiety, as well as damages for annoying telephone calls during dinner, are not recoverable in a breach of contract action absent allegations and proof of tortious conduct existing independently of the breach of contract. Kewin v. Massachusetts Mutual Life Ins. Co., 409 Mich. 401, 419- 421, 295 N.W.2d 50 (1980); Isagholian v. Transamerica Ins. Corp., 208 Mich.App. 9, 17, 527 N.W.2d 13 (1994); Taylor v. Blue Cross & Blue Shield of Michigan, 205 Mich.App. 644, 657, 517 N.W.2d 864 (1994); Tennant v. State Farm Mutual Automobile Ins. Co., 143 Mich.App. 419, 425, 372 N.W.2d 582 (1985). Accordingly, because plaintiff in this case has failed to plead and prove tortious conduct independent of the breach of contract claim, damages for emotional distress and anxiety are not recoverable. Furthermore, plaintiff cannot recover his actual attorney fees because he has failed to state a cause of action for breach of contract.

Notwithstanding the fact that refusing to pay unreasonable medical expenses is allowed under the insurance contract, in an effort to hold the insured harmless should the health care provider sue the insured, the insurer has agreed to fully defend and indemnify the insured from liability for necessary services priced in excess of what the insurer considers to be reasonable and customary. 4 This removes the insured from jeopardy, yet the dissent here contends that in both McGill and in this case the insurers' promises to defend and indemnify the plaintiffs are not enforceable and, echoing the claim of plaintiff, are "nothing more than unenforceable promises to do the right thing." Post at 48. We respectfully believe this position is incorrect and is premised upon faulty legal analysis.

Defendant's promise to defend and indemnify plaintiff must be analyzed in terms of judicial and promissory estoppel.

With regard to judicial estoppel, like the insurers in McGill, the insurer in this case made representations to the courts that it would defend and indemnify plaintiff. Because these representations were relied upon by courts to grant the relief sought by the insurer, the doctrine of judicial estoppel would be invoked to preclude the insurer from successfully declining to defend and indemnify. Paschke v. Retool Ind., 445 Mich. 502, 509, 519 N.W.2d 441 (1994).

Regarding promissory estoppel, assuming the matter was not disposed of by utilization of judicial estoppel, a test of the enforceability of the promise would inevitably arise in a circumstance in which a health care services provider filed suit against an insured for outstanding medical bills and the insurer refused to defend and indemnify the insured. Surely, the insured would invoke promissory estoppel and the court would undoubtedly acknowledge the efficacy of the doctrine to preclude the insurer from denying coverage. See Huhtala v. Travelers Ins. Co., 401 Mich. 118, 257 N.W.2d 640 (1977); Nygard v. Nygard, 156 Mich.App. 94, 99-100, 401 N.W.2d 323 (1986).

In short, regardless of the likelihood for success, what is clear is that once a health care services provider sues an insured for any outstanding balance, the insurer would be estopped to renege on its promise to defend and indemnify the insured, which is simply to say that the promise is enforceable. 5

Moreover, the probability of a health care services provider suing an insured for an amount in excess of what is reasonable seems remote. The reason is that such a suit, freighted with the burden of seeking the unreasonable, would in all probability be unsuccessful. As our Supreme Court said in dicta concerning this situation:

We question, in any event, the Court of Appeals apparent conclusion that if the insurer is not made liable for even unreasonable and unnecessary expenses it will inevitably fall to plaintiff to pay those expenses. To the extent that plaintiff has any liability for these expenses in the event his insurance does not pay, it is presumably contractual. It seems unlikely that plaintiff would have an express agreement with [the...

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