Nickola v. Mic General Insurance Company
Docket No. 152535
Trial Lawyers’ Bottom Line: Requesting penalty interest under the UTPA for insurer’s delay to pay UIM benefits is not subject to “reasonably in dispute” standard.
In 2004, the George and Thelma Nickola were injured in a car accident by another driver, Roy Smith, whose insurance policy covered $20,000 per person and up to $40,000 per accident, which is the minimum liability coverage allowed by MCL 257.520(b)(2). The Nickolas’ injuries exceeded this amount.
As a result, the Nickolas’ son (acting as their attorney) wrote their insurer to seek Underinsured Motorist (UIM) benefits. The insurance company refused to pay, so the Nickolas demanded arbitration.
But the insurance company also refused arbitration, stating that the policy’s language—that “either party may make a written demand for arbitration”—required both parties to agree to arbitrate. The Nickolas then sued to force arbitration, which the court ordered. After years of procedural arbitration wrangling, the panel awarded $80,000 for George and $33,000 for Thelma. The award said the amounts were “inclusive of interest.”
The Nickolas then filed a motion for entry of judgment on the award and also asked for a 12% penalty interest under the Uniform Trade Practice Act (UTPA), MCL 500.2001 et seq. The UTPA provides 12% penalty interest on certain claims not timely paid by an insurer. MCL 500.2006(4) says the interest applies “if the claimant is the insured or an individual or entity directly entitled to benefits under the insured’s contract of insurance.” The subsection continues, however, “If the claimant is a third party tort claimant,” then the penalty applies “if the liability of the insurer for the claim is not reasonably in dispute, the insurer has refused payment in bad faith and the bad faith was determined by a court of law.”
The trial court affirmed the awards but held that the Nickolas were “third party tort claimants,” rather than “insured[s].” Because of this, the court applied the second sentence of 500.2006(4) and found that the claim was “not reasonably in dispute.” For this reason, the trial court denied the Nickolas request for penalty interest. The Court of Appeals affirmed.
Justice Zahra’s unanimous opinion said, “The Legislature cast a broad net when defining circumstances under which insurers would be subject to penalty interest.” The court applied the expressio unius canon in relation to the phrase “not reasonably in dispute,” which does not appear in the first sentence of the statute (for insured), but is included in the second sentence (for third party tort claimants).
The Court held that the Nickolas were insured—not third-party tort claimants—because they "were parties to the insurance contract." Therefore, the “reasonably in dispute” language did not apply to them. The lower courts had focused on “the nature” of an Underinsured Motorist claim, which is more like a third-party tort claim, but the Supreme Court said the focus should be on "the identity of the claimant.” “The proofs required for a UIM claim do not transform ‘the insured’ into a ‘third-party tort claimant.’”
The Court then took some time to clarify its UTPA caselaw in light of the lower courts’ attempt to “erroneously distinguish[]” it. Specifically, the Court discussed Yaldo v. North Pointe Insurance Company, 457 Mich. 341 (1998), which the Court said “made clear that the ‘reasonably in dispute’ language . . . applies only to a third-party tort claimant, not insureds claiming benefits under their insurance contract.” The Court conducted a similar analysis for Griswold Properties, LLC v. Lexington Insurance Company, 276 Mich. App. 551 (2007). Then the Court discussed the Court of Appeals’ decision in in Auto-Owners Insurance Company v. Ferwerda Enterprises, Inc. (On Remand), 287 Mich. App. 248 (2010). The Ferwerda decision “held that penalty interest did not apply to a claim that the insurer breached the contractual duty to defend its insured against a third-party tort claim because the underlying tort claim was ‘reasonably in dispute.’” The Court held that Ferwerda is overruled to the extent that it conflicts with this opinion.
Ultimately, the Court held that “the ‘reasonably in dispute’ language of MCL 500.2006(4) applies only to third-party tort claimants and not to an insured making a claim for UIM benefits.”
Full opinion here.