Mays v. Insurance Co. of North America

• Decision Date: 09 October 1979
• Docket Number: Docket No. 62219
• Citation: 407 Mich. 165,284 N.W.2d 256
• Parties: John A. MAYS, Plaintiff-Appellant, v. INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellee.
• Court: Michigan Supreme Court

Page 256

284 N.W.2d 256

407 Mich. 165

John A. MAYS, Plaintiff-Appellant, v.INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellee.

Docket No. 62219.

Supreme Court of Michigan.

Oct. 9, 1979.

Ford, Kriekard, Staton, Allen & Decker, P. C., Kalamazoo, for plaintiff-appellant.

WILLIAMS, Justice(to reverse).

This case involves construction of the following language in a private disability insurance contract:

"The Weekly Benefit Amount shall be reduced by the weekly pro-rata portion of any benefits payable under the Workmen's Compensation Act and the primary disability monthly benefit payable under the Federal Social Security Act regardless of actual receipt of such benefit due to the Insured's failure to apply therefor (primary disability monthly benefit means the benefit relating to the Insured only and not including any additional benefit which might be payable because of the presence of dependents)."

Issues present for our review are: (i) whether this provision mandates a disabled employee's application for the mentioned benefits; (ii) whether reapplication, appeal or suit for such benefits is required if they are initially denied; and (iii) whether costs for pursuit of such benefits must be borne by the disabled employee or by the insurance company.

I

The Three Rivers Rubber Company, a purchaser of an employees' group disability insurance policy from defendantInsurance Company of North America ("INA"), employed plaintiff Johns Mays as an engineer.Plaintiff became permanently disabled on December 10, 1970.Pursuant to its disability insurance policy, INA paid weekly benefits to plaintiff from March 20, 1971(90 days after the date of disability) until December, 1973, amounting to 60% Of plaintiff's base salary.The INA policy permitted the weekly benefit amount to be reduced by payable workers' compensation and Federal social security benefits; INA did not, however, assert its contractual right to these reductions.

Plaintiff promptly filed for both workers' compensation and social security disability benefits.The former claim was paid for 13 weeks, until those benefits were cut off because the carrier asserted nonliability.The social security claim was initially denied; as a result of a second application, filed at INA's request, disability benefits were awarded from June, 1973.

In August, 1974, plaintiff instituted suit to compel INA's payment of weekly benefits.Plaintiff simultaneously filed a petition for workers' compensation.A hearing referee found plaintiff to be disabled as of December, 1970, but awarded compensation as of August, 1973, pursuant to the one-year back rule.¹

Prior to jury trial on May 24, 1977, the trial court was asked to rule on the extent to which INA could offset social security disability and workers' compensation benefits from the benefit of 60% Of the base weekly salary paid to plaintiff, in accordance with the provision quoted above.Based on this Court's decision in Bonney v. Citizens' Mutual Automobile Ins. Co., 333 Mich. 435, 53 N.W.2d 321(1952), ²the trial court ruled that the insurance policy's inclusion of the term "payable" was unambiguous as a matter of law.The court therefore concluded that INA was entitled to offset retroactively awarded and received social security disability benefits against the weekly benefits paid to plaintiff.The trial court also held that INA could offset workers' compensation benefits from the date INA became obligated under the policy, despite the fact that the workers' compensation award was from August, 1973.With minor modification, the Court of Appeals affirmed.³We reverse the Court of Appeals and remand the case to the trial court for a redetermination of permissible setoff.

II

The facts presented provoke the following questions:

(1) Was the employee under any contractual obligation to make any application for either workers' compensation or social security disability benefits?

(2) Did the employee's original application for workers' compensation, and receipt of benefits for 13 weeks, satisfy any contractual obligation the employee might have had "to apply" for compensation?

(3) When compensation benefits were subsequently terminated, was the employee required to reapply or appeal?

(4) Did the initial application for, and denial of, social security disability benefits satisfy any contractual obligation the employee might have had "to apply" for benefits?

(5) Was it incumbent upon the employee to reapply for, or appeal the denial of, disability benefits?

(6) If reapplication or appeal is mandatory for either workers' compensation or social security disability benefits, must the employee retain an attorney and bear the attendant expenses?

A partial answer to these queries can be found in the language of the contested contractual provision which states:

"The Weekly Benefit Amount shall be reduced by the weekly pro-rata portion of any benefits payable under the Workmen's Compensation Act and the primary disability monthly benefit payable under the Federal Social Security Act regardless of actual receipt of such benefit due to the Insured's failure to apply therefor (primary disability monthly benefit means the benefit relating to the Insured only and not including any additional benefit which might be payable because of the presence of dependents)."

At the outset, it is significant that there is absolutely no specific language that obligates an employee to apply for either workers' compensation or social security disability benefits.The only mention of "application" is found in the statement that "regardless of actual receipt of such Benefit due to the Insured's failure to apply therefor"(emphasis added), the "Weekly Benefit Amount shall be reduced".

Three reasons suggest that the "failure to apply" language relates only to the social security disability benefit and not to workers' compensation: (1) the "failure to apply" clause immediately succeeds the social security disability benefit reference; (2) directly following the "failure to apply" reference is the parenthetical clause, which applies only to the social security disability benefit; (3) wherever the provision speaks of social security disability, it uses the singular, Benefit, whereas the workers' compensation reference is to Benefits, plural.

While this analysis may seem super-refined, it is exact.Such analysis is appropriate when applied to often hypertechnical insurance contracts.

Moreover, since there is more efficacious notice to the employer, hence the Insurer, under one system than the other, there may very well be a rational ground for utilizing the "failure to apply" standard only in the case of social security disability, and not workers' compensation.

We are not required, however, to resolve these speculations, because it is hornbook law that insurance contract ambiguity is construed against the drafter,...