Michigan Milk Producers v. COMMERCIAL U. INS. CO.

• Decision Date: 06 June 1980
• Docket Number: No. G76-138 CA1.,G76-138 CA1.
• Citation: 493 F. Supp. 66
• Parties: MICHIGAN MILK PRODUCERS ASSOCIATION, a Michigan Corporation, Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY, a Massachusetts Corporation, Defendant.
• Court: U.S. District Court — Western District of Michigan

493 F. Supp. 66

MICHIGAN MILK PRODUCERS ASSOCIATION, a Michigan Corporation, Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY, a Massachusetts Corporation, Defendant.

No. G76-138 CA1.

United States District Court, W. D. Michigan, S. D.

June 6, 1980.

Philip T. Carter, Foster, Swift & Collins, P. C., Lansing, Mich., for plaintiff.

Neill T. Peters, Fitzgerald, Young, Peters, Dakmak & Bruno, Detroit, Mich., for defendant.

OPINION AND ORDER

DOUGLAS W. HILLMAN, District Judge.

Plaintiff Michigan Milk Producers Association (hereinafter "MMPA") brought this diversity action against defendant Commercial Union Insurance Company (hereinafter "CU") alleging that under Michigan law, excess insurance carriers are liable for a pro-rata share of pre-judgment interest. Jurisdiction is maintained under 28 U.S.C. § 1332. Both sides have moved for summary judgment. For the reasons that follow, I deny the parties' motions.

FACTS

Prior to April 6, 1960, an insurance contract with a maximum liability of $50,000.00 was entered into between the plaintiff, MMPA, and the defendant, CU. Under the terms of this agreement, CU agreed to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . ." accident.

Supplemental provisions of the contract obligated CU to defend MMPA against any suit seeking damages payable under the policy, and to pay, in addition to the applicable limits of liability, "all costs taxed against the insured in any such suit or arbitration proceeding and all interest on the entire amount of any judgment and before the company has paid or tendered or deposited in court that amount of the judgment which does not exceed the limits of the company's liability thereon."

Under a separate condition of the policy, the contract became null and void where other insurance was available to the insured. In such a case, however, the defendant's policy acted as "excess insurance only". This condition reads as follows:

"14. Other Insurance. If other valid and collectible insurance exists protecting the insured against a loss covered by this policy, this policy shall be null and void with respect to said loss whether the insured is specifically named in such other policy of insurance or not; provided, however, that if the applicable limit of liability of such other valid and collectible insurance is not sufficient to protect the insured against such loss, this policy shall apply, but only as excess insurance over such other valid and collectible insurance in an amount equal to the applicable limit of liability of this policy and not as contributing insurance."

On April 6, 1960, near Millington, Michigan, a truck driven by Reuben Bush collided with a train owned by the New York Central Railroad Company. Reuben's truck, which was owned by Elmer Meyers, was insured by the Wolverine Insurance Company for $10,000.00. The plaintiff, however, was an entity legally responsible for the use of the vehicle.

Thereafter, on June 3, 1960, New York Central Railroad filed suit against both Meyers and the MMPA. Wolverine settled the case as to Meyers on the date of trial and paid $9,500.00 to the railroad. Nevertheless, Wolverine continued to defend the action on behalf of MMPA.

The case lingered in state court for many years, including an appeal and two trials. Meanwhile, the Michigan legislature, in 1963, enacted M.C.L.A. § 600.6013. That section obligates payment to successful litigants for interest on judgments dating back to the filing of complaints. Section 600.6013 reads as follows:

"Sec. 6013. Interest shall be allowed on any money judgment recovered in a civil action, such interest to be calculated from the date of filing the complaint at the rate of 6% per year unless the judgment is rendered on a written instrument having a higher rate of interest in which case interest shall be computed at the rate specified in the instrument if such rate was legal at the time the instrument was executed. In no case shall the rate exceed 7% per year after the date judgment is entered.

In the discretion of the judge, if a bona fide written offer of settlement in a civil action based on tort is made by the party against whom the judgment is subsequently rendered and the offer of settlement is substantially identical or substantially more favorable to the prevailing party than the judgment, then no interest shall be allowed beyond the date the written offer of settlement is made."

Judgment was entered on behalf of the New York Central Railroad on July 30, 1974, in the amount of $97,618.77. Interest on this judgment, which dated back to the filing of the original complaint on June 3, 1960, amounted to $82,381.23. The judgment plus interest was settled for $170,000.00 and a satisfaction was filed on October 16, 1974.

CU, with insurance limits of $50,000.00, paid $47,618.77 to the railroad on July 18, 1974, and the remaining amount of its maximum liability, $2,381.23, was paid on November 26, 1974. Thereafter, MMPA sued Wolverine Insurance for $500.00, the amount of its substantive liability under its contract which had not been paid. MMPA included in this complaint a demand for interest on the entire judgment. The case was discontinued, however, because MMPA concluded that under its reading of state court decisions, Wolverine could be held liable only for interest on $500.00, the unpaid amount of its primary liability, rather than interest on the entire judgment.

In March, 1976, MMPA commenced this action against CU for $42,468.50. This figure represents a pro-rata share of the pre-judgment interest based upon the amount of CU's maximum liability. Both parties have moved for summary judgment. MMPA argues that under Michigan law, and for reasons of public policy, an insurance company is liable for a pro-rata share of pre-judgment interest, even though that amount extends an insurance company's liability past its maximum. CU, on the other hand, contends that an excess carrier, where that carrier had no control of the underlying litigation, cannot be held to pay more than the maximum amount of its liability. For the reasons that follow, I hold that the party controlling the underlying litigation thereafter is obliged to pay the interest on the judgment. Because a question of material fact exists concerning which insurance company controlled the MMPA-New York Central Railroad litigation, I deny the parties' motions for summary judgment.

DISCUSSION

I.

Under M.C.L.A. § 600.6013, defendants are obliged to pay to successful plaintiffs interest on judgments dating back to the filing of the original complaints (pre-judgment interest). The effect of this provision upon insurance carriers' obligations has been litigated on several occasions, with mixed and often contradictory results.¹ However, a recent decision by the Michigan Supreme Court, Denham v. Bedford, 407 Mich. 517, 287 N.W.2d 168 (1980), makes it clear that, pursuant to Section 6013, insurance carriers in fact are liable for pre-judgment interest even though the underlying insurance contract denies liability for such interest, and even though the additional interest increases a carrier's liability past its maximum.² In reaching this conclusion, the court said at 535-536, 287 N.W.2d at 174:

"The Michigan Legislature has dictated that interest should accrue from the date of filing the complaint. If the legislative purpose was to compensate the prevailing party for the delay in payment of money damages and to cover the costs of litigation, then this legislative purpose can only be effectuated by the allowance of pre-judgment interest, even if this interest exceeds the policy limits of an insurance contract.

* * * * * *

The result we reach today is fully supported by considerations of public policy. If we were to rule in favor of the insurer, the following would take place: the insured, not the insurer, would be responsible for the payment of the prejudgment interest in excess of the policy limits and, presumptively, interest on the entire judgment as well. Such a result would appear unconscionable."

Moreover, the Michigan court, at 528-532, 287 N.W.2d 168, expressly upheld the constitutionality of Section 6013 as applied to contracts written prior to 1965, the year Section 6013 was enacted. Consequently, even though a carrier contracted with the defendant prior to 1965, that carrier is now held to pay pre-judgment interest on judgments issued after the statute became effective.³ See also, Cosby v. Pool, 36 Mich. App. 571, 194 N.W.2d 142 (1971), lv. den. 386 Mich. 782, 783 (1972).

In the present case, there is no dispute that the Wolverine Insurance Company was the primary insurer of the plaintiff MMPA, and that the defendant acted solely in the capacity of an excess insurer under Condition 14, as set out above.⁴ It is clear, therefore, that pursuant to the rule set out in Denham v. Bedford, supra, Wolverine Insurance was liable to MMPA for at least some portion of the pre-judgment interest MMPA paid to the New York Central Railroad.

At issue in the present case is CU's liability to MMPA, if any, due to its position as an excess insurer.

MMPA contends that in several previous state court cases, insurers have been found liable for pre-judgment interest on amounts equal to their policies' maximum liabilities. For example, in Cosby v. Pool, supra, a Michigan Court of Appeals panel said at pages 578-579, 194 N.W.2d at page 146:

"An insurer can limit the risk it assumes. Cottrill v. Michigan Hospital Service (1960), 359 Mich. 472, 102 N.W.2d 179. It follows that the insurer should be liable only for the interest that accrues on the amount of risk it has assumed. Otherwise, it would be paying interest on a risk it did not assume and for which it did not charge premiums. In this case, the judgment was for $200,000, while the insurer's liability was limited to $100,000.

Therefore, the case is remanded and the plaintiffs are granted

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