Shields v. Government Employees Hosp. Ass'n., Inc.

Decision Date20 June 2007
Docket NumberNo. 05-2346.,05-2346.
Citation490 F.3d 511
PartiesStefanie SHIELDS, Plaintiff-Appellant, v. GOVERNMENT EMPLOYEES HOSPITAL ASSOCIATION, INC. and State Farm Mutual Automobile Insurance Company, Defendants-Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

ARGUED: Brent W. Boncher, Schenk, Boncher & Rypma, Grand Rapids, Michigan, for Appellant. Raymond J. Williams III, Hewson & Van Hellemont, Warren, Michigan, for Appellees. ON BRIEF: Brent W. Boncher, Frederick J. Boncher, Schenk, Boncher & Rypma, Grand Rapids, Michigan, for Appellant. Raymond J. Williams III, Michael M. Carey, Hewson & Van Hellemont, Warren, Michigan, for Appellees.

Before: SILER and GILMAN, Circuit

Judges; ZATKOFF, District Judge.*

OPINION

RONALD LEE GILMAN, Circuit Judge.

After suffering severe injuries in an automobile accident, Stefanie Shields brought a declaratory action against her two insurers, Government Employees Hospital Association, Inc. (GEHA) and State Farm Mutual Automobile Insurance Company (State Farm). GEHA initially paid significant sums for Shields's medical treatment, while State Farm paid nothing due to a benefits-coordination clause in its ;policy. Later, however, GEHA demanded reimbursement from the proceeds that Shields had received in a third-party tort settlement as a result of the accident. Shields subsequently brought this declaratory action to challenge the validity of GEHA's demand for reimbursement or, alternatively, to require State Farm to replace the amount that she would lose as a result of GEHA's reimbursement claim.

Shields's latter argument prevailed. The district court, however, awarded only a portion of the attorney fees and none of the "penalty interest" sought by Shields. Specifically, the court allowed fees only with respect to Shields's claim against State Farm, excluding her claim against GEHA. The court, moreover, declined to grant Shields any penalty interest because she had failed to establish precisely when State Farm's obligation to pay her became overdue. Shields's appeal is limited to the district court's attorney-fee and penalty-interest determinations. For the reasons set forth below, we AFFIRM the judgment of the district court.

I. BACKGROUND
A. Factual background

The underlying facts are undisputed, as this court noted in State Farm's earlier appeal in this matter. Shields v. Gov't Employees Hosp. Assoc., 450 F.3d 643, 645 (6th Cir.2006). Briefly summarized, Shields was severely injured in an automobile accident in February of 2003. Id. A 70-pound piece of steel fell from the back of a truck and crashed into her car, causing Shields "extensive medical injuries." Id. At the time of the accident, Shields was covered by both her mother's government-employee benefit plan with GEHA and by her mother's no-fault automobile insurance policy with State Farm. Id. The State Farm policy coverage for medical expenses and lost wages, however, was "coordinated." Id. This meant that, in exchange for a lesser premium, the policy benefits payable by State Farm were subject to reduction by any amount "paid or payable" to Shields under any other "individual, blanket or group accident or disability insurance." Id.

GEHA paid $162,074 in benefits to cover Shields's medical expenses. Because GEHA provides insurance for federal employees under the Federal Employees Health Benefits Act, it is authorized to seek reimbursement from funds paid to a claimant out of a related tort recovery. Id. at 648. Although seeking reimbursement from a claimant is contrary to the provisions of Michigan's No Fault Insurance Act (MNFIA), federal law preempts Michigan's statutory scheme. Id. Shields ultimately obtained a settlement pursuant to her tort claim against the trucking company involved in her accident. Id. at 645. Neither the amount nor the date of the settlement are set forth in the record. On April 30, 2003, GEHA filed notice of its lien against any settlement that Shields might obtain. Shields, in turn, sent a demand letter on May 15, 2003 seeking payment from State Farm for all of her medical expenses that GEHA had initially covered.

B. Procedural background

In June of 2003, Shields filed a lawsuit in federal district court against both GEHA and State Farm. Jurisdiction was based upon diversity of citizenship. This court, in ruling on State Farm's separate appeal from the district court's summary judgment order, described Shields's suit as simply seeking to "clarify all parties' obligations." Id. at 645. According to State Farm, however, Shields took the position that "GEHA was not entitled to reimbursement ... or alternatively ... that [GEHA] must seek payment directly from State Farm." Shields agrees that she took a position "questioning the legitimacy of GEHA's right to seek repayment." In the alternative, Shields sought "a decision that State Farm was ultimately liable for the same medical expenses [for which GEHA paid] and should have paid [her]." GEHA, State Farm, and Shields all filed motions for summary judgment.

The district court ultimately granted summary judgment in favor of GEHA, granted Shields's motion for summary judgment as against State Farm, and denied State Farm's motion. Essentially, the court held that GEHA had properly sought reimbursement out of Shields's third-party tort recovery, and that this reimbursement triggered State Farm's obligation to pay Shields under the latter's coordinated policy. The court explained that "State Farm may not subtract the amount initially paid by GEHA for [Shield's] medical expenses, and repaid by [Shields], from the ... insurance benefits it would otherwise be responsible for paying." Moreover, the district court's summary judgment order provided that Shields was entitled to recover attorney fees and 12% penalty interest on State Farm's "overdue" payment. State Farm appealed the merits of the district court's summary judgment order, but did not address fees or interest. Shields, 450 F.3d at 644. In June of 2006, this court issued an opinion affirming the district court's summary judgment disposition. Id. at 651.

During the pendency of State Farm's merits appeal, Shields filed a petition for the payment of $29,739 in itemized attorney fees and $36,343 in penalty interest. GEHA filed a motion opposing Shields's petition, but State Farm did not. The district court granted only the portion of Shields's itemized fees that it determined were attributable to her claims against State Farm alone, and awarded just half of the fees that were attributable to Shields's claims against GEHA and State Farm jointly. In total, the court awarded Shields $10,513 in attorney fees. Regarding penalty interest, the district court awarded nothing at all because, based on the information provided by Shields, "it [was] impossible for the court to determine when State Farm became liable, and therefore, when it became dilatory." Shields subsequently filed a motion for reconsideration, which the district court denied. The sole issues in the present appeal concern the district court's determinations regarding attorney fees and penalty interest.

II. ANALYSIS
A. Standard of review

Under both Michigan and federal law, a trial court's award of attorney fees is generally reviewed under the abuse-of-discretion standard. Big Yank Corp. v. Liberty Mut. Fire Ins. Co., 125 F.3d 308, 312 (6th Cir.1997); Shanafelt v. Allstate Ins. Co., 217 Mich.App. 625, 552 N.W.2d 671, 675 (1996). The district court's factual determinations, on the other hand, are reviewed under the clearly erroneous standard, and its legal interpretations are reviewed de novo. Blackard v. Memphis Area Med. Ctr. for Women, Inc., 262 F.3d 568, 572 (6th Cir.2001). The substantive issues in this diversity action are governed by Michigan law. See Hisrich v. Volvo Cars of N. Am., Inc., 226 F.3d 445, 449 (6th Cir.2000) (citing Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938)).

B. Entitlement to attorney fees under § 500.3148

Michigan law provides that a claimant's attorney fees "shall be a charge against the insurer in addition to the benefits recovered, if the court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment." Mich. Comp. Laws § 500.3148(1). The district court's initial order granting summary judgment in favor of Shields explained that

[i]n this case, the facts were not in question and there was no issue of constitutional law. Michigan's Supreme Court had constructed [sic] the relevant statutory provision in regard to federal benefits, which is the situation here. State Farm relied on a Court of Appeals decision addressing benefits paid by the insured's employe[r], and therefore, not applicable here. In light of the holdings in Sibley and Gunsell, the court finds that State Farm's refusal to reimburse Plaintiff was unreasonable. Accordingly, the court awards Plaintiff her reasonable attorney fees and costs incurred in bringing this action.

Although State Farm appealed the district court's grant of summary judgment, it did not raise the issue of attorney fees in that appeal. State Farm also failed to respond to Shields's petition for attorney fees and interest, even though GEHA objected separately. Shields accurately points out, moreover, that State Farm filed no cross-appeal from the district court's partial grant of attorney fees; only Shields presently appeals the partial fee award.

To the extent that State Farm seeks to argue for the first time on appeal—Shields's appeal, no less—for reversal of the fee award based on the reasonableness of its refusal to pay under § 500.3148, its argument is not well-taken. See Ford Motor Credit Co. v. Aetna Cas. and Sur. Co., 717 F.2d 959, 962 (6th Cir.1983) (quoting Massachusetts Mutual Life Insurance Co. v. Ludwig, 426 U.S. 479, 480, 96 S.Ct. 2158, 48 L.Ed.2d 784 (1976), for the proposition that, in the absence of...

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