Mcneel v. Farm Bureau Gen. Ins. Co. of Mich..

• Decision Date: 29 June 2010
• Docket Number: Docket No. 285008.
• Citation: 289 Mich.App. 76,795 N.W.2d 205
• Parties: McNEELv.FARM BUREAU GENERAL INSURANCE COMPANY OF MICHIGAN.
• Court: Court of Appeal of Michigan — District of US

289 Mich.App. 76

795 N.W.2d 205

McNEEL

v.FARM BUREAU GENERAL INSURANCE COMPANY OF MICHIGAN.

Docket No. 285008.

Court of Appeals of Michigan.

Submitted Sept. 9, 2009, at Grand Rapids.Decided June 29, 2010, at 9:05 a.m.

Fabian, Sklar & King, P.C., (by Douglas G. McCray, Farmington Hills) (Donald M. Fulkerson, Westland, of counsel), for plaintiffs.Hopkins, Yeager & Smith, P.C., (by Scott E. Pederson and E. Frederick Davison), Ada, for defendant.Before: M.J. KELLY, P.J., and K.F. KELLY and SHAPIRO, JJ.SHAPIRO, J.

This insurance-coverage dispute stems from a fire on March 18, 2003, that completely destroyed a farmhouse owned by the Kathleen McNeel Revocable Living Trust (the Trust). Defendant appeals as of right the trial court's order granting plaintiffs the $69,500 jury award, interest of $37,259.78 pursuant to MCL 500.2006, and case-evaluation sanctions of $19,818.34, and plaintiffs cross-appeal. We affirm the part of the judgment based on the jury's verdict, but reverse the part of the judgment regarding attorney fees and remand for entry of an order consistent with this opinion.

I. BACKGROUND AND PROCEEDINGS

The property at issue, located at 10981 W. River Road, Remus, Michigan (the Bundy farmhouse), was purchased by Kathleen McNeel in the 1970s and transferred to the Trust in 1993. Defendant issued an insurance policy to Kathleen McNeel, with the Trust as an additional insured, covering three dwellings and their contents, including the Bundy farmhouse, which policy was in effect when the Bundy farmhouse was destroyed by arson ¹ on March 18, 2003. Defendant investigated the loss and determined that the loss was not covered under the policy because “nobody had lived in the house as a domicile since November 2001.” Under the “Increase in Hazard” provision, the policy provided that defendant was not liable for losses occurring “[w]hile a described building, whether intended for occupancy by owner or tenant, is vacant beyond a period of sixty consecutive days or is unoccupied beyond a period of six consecutive months.”

In April 2003, plaintiffs hired Stewart Shipper, a public adjuster, to help them with their claim. In an April 17, 2003, letter, Kathy Macdonald, defendant's adjuster, stated that she had spoken with members of the McNeel family and they had indicated that no one had resided in the dwelling for approximately 18 months and that there was no furniture in the dwelling. The letter concluded, “[d]ue to the above we are denying coverage for this claim.” Shipper responded with a May 12, 2003, letter stating that members of the family disputed Macdonald's statements regarding residency, and he included a list of personal property that was in the home at the time of the fire. He concluded by stating that “your denial of the claim is wrongful” and asking her to “reconsider your denial and contact me for discussion of an adjustment and payment by Farm Bureau Insurance.” In a separate letter of the same date, Shipper also sent in calculations of actual cash value. On May 13, 2003, Shipper submitted a “Sworn Statement in Proof of Loss” signed by Wakelin McNeel, trustee of the Kathleen McNeel Revocable Living Trust.

In a letter dated May 22, 2003, Macdonald stated: “In response to your letter of May 12, 2003 we are continuing our investigation into this matter. As soon as we have completed this investigation we will be in contact with you to discuss your client's claim further.” On the same date, Macdonald sent another letter, noting that the sworn proof of loss was incomplete and that the insured had to remedy this error within 15 days. The letter stated in bold print, “This is not a denial of your claim but rather a rejection of the Proof of Loss which was incorrectly completed.” Shipper timely resubmitted the information.

On June 16, 2003, Shipper wrote to Macdonald stating:

I am following up on the telephone messages that I left you on June 9th, June 13th and most recently, this morning. In your correspondence of May 12, 2003, you indicated that you are continuing your investigation into this matter. Please advise when you will be ready to speak with us to adjust the claim.

On June 26, 2003, Macdonald wrote to Shipper and stated, “After careful review of this matter along with additional investigation, we feel that we are justified in our denial of the above claim.” The letter stated that it was “Farm Bureau's position” that the dwelling had been unoccupied for 18 months, as substantiated by relatives of the insured and a neighbor.

The following day, June 27, 2003, Shipper wrote to Jason Babka, Macdonald's claims supervisor. The letter confirmed that Shipper had “contact[ed Babka] to try to correct a wrongful denial of the Insured's claim” and that Shipper had “agreed to provide certain information which reflects on the meaning of vacancy and unoccupancy.” The letter enclosed excerpts from two insurance texts and concluded, “Please review and advise.”

On June 30, 2003, Babka wrote back to Shipper. The letter quoted from the definitions of unoccupied in a third source, Fire, Casualty and Surety Bulletins (FC & S), and concluded, “Based on the definitions provided, our investigation, and the policy language under the increase in hazard, we must again respectfully deny the claim for fire damage to 10981 W. River Rd. in Remus, Michigan of March 18, 2003.”

On July 21, 2003, Shipper faxed a letter to Babka requesting page citations for the cited text and stating that “[y]ou have denied the Insured's claim based on an FC & S reference.” On the same date, Babka sent a response stating that the claim was not denied on the basis of an FC & S definition and that “[t]he claim was denied based on the facts of the loss and our investigation, as well as the applicable policy language.”

On September 24, 2003, Shipper wrote another letter to Babka, which stated:

I have reviewed Farm Bureau's claim denial with the Insured. I am writing to ask for an appointment with you to discuss Farm Bureau's refusal to respond to the claim. The attorneys that I have spoken to state that the controlling issue will likely be a determination as to whether the house was abandoned. You may or may not decide to continue to deny the claim, but you should understand the reasons the Insured believes that the house was occupied. We can meet at your office or another agreeable location. I would like to arrange the meeting as soon as possible because, in the face of your denial, I must soon recommend an attorney for the future handling of this matter.

The record does not contain a response, but on October 10, 2003, Shipper and Babka did meet. According to an affidavit signed by Shipper, at the meeting Babka

requested that I obtain and send him utility bills for the subject property (which would indicate that the power had been on, contrary to what one would expect in a vacant/abandoned property) and evidence of payment of property tax bills (which again would illustrate that the property was not vacant/abandoned).... Mr. Babka indicated he would consider the claim in light of the requested documents, once submitted, and would only make a decision as to whether or not the claim would be denied after he had done so. [Underlining in original; paragraph structure altered.]

Defendant filed a responsive affidavit signed by Babka. It stated, “Farm Bureau never contradicted its initial denial of Plaintiff's [sic] claim, that Farm Bureau's position never changed from the initial denial and that I never conveyed to Mr. Shipper otherwise.”

Following up from the meeting, Shipper sent a letter and facsimile on October 14, 2003, attaching utility bills and property tax receipts that he asserted, along with the contractor's remodeling estimates, “are indicative of an intent to continue to operate and occupy the property.” Babka responded with a letter of the same date stating:

I have carefully reviewed the additional documents you have submitted regarding this claim. Our findings still indicate that the house was both vacant and unoccupied, as we have previously outlined in our correspondence of June 30, 2003 and June 26, 2003. Based on this, we must respectfully continue to deny your client's claim.

Plaintiffs filed their complaint against defendant in the Mecosta Circuit Court ² on October 5, 2004. In April 2005, defendant moved for summary disposition for failure to file within one year of the date the claim was formally denied. MCL 500.2833(1)(q).³ Plaintiffs opposed the motion. At a hearing on June 17, 2005, the trial court denied the motion, noting that there was a factual dispute about when the formal denial occurred and specifically referring to Shipper's and Babka's affidavits.

At trial, defendant abandoned the issue of when the formal denial occurred; defendant presented no evidence on the issue and did not request that the jury make a determination. The jury returned a verdict for plaintiffs, concluding that the farmhouse had not been vacant at least 60 consecutive days before the loss and that it “was occupied at least six consecutive months prior to the loss date....” It awarded $3,000 for furnishings, $7,000 for other personal property, and $15,000 for lost rents. The trial court issued a judgment on the verdict for $69,500, reflecting the $50,000 policy limit on the building, the $10,000 policy limit on lost rents, $3,000 for landlord furnishings, the $2,500 policy limits for other personal property, and $4,000 for the stipulated debris removal.

Plaintiffs moved for case-evaluation sanctions, interest, and costs. With regard to the interest claim, defendant acknowledged this Court's decision in Griswold Props., LLC v. Lexington Ins. Co., 276 Mich.App. 551, 554, 741 N.W.2d 549 (2007), but objected to the interest claim on the basis of the prior caselaw in Arco Indus. Corp. v. American Motorists Ins. Co. (On Second Remand, On Rehearing), 233 Mich.App. 143, 594 N.W.2d 74 (1998). The trial court concluded that defendant's...