JOHN ANGOTT V CHUBB GROUP OF INSURANCE COMPANIES
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STATE OF MICHIGAN
COURT OF APPEALS
JOHN ANGOTT,
Plaintiff/Appellant-Cross-Appellee,
v
FOR PUBLICATION
April 4, 2006
9:00 a.m.
No. 258026
Emmet Circuit Court
LC No. 01-006860-CK
CHUBB GROUP OF INSURANCE
COMPANIES,
Defendant,
Official Reported Version
and
GREAT NORTHERN INSURANCE COMPANY,
Defendant/Appellee-CrossAppellant.
Before: Murphy, P.J., and White and Meter, JJ.
MURPHY, P.J.
Plaintiff1 appeals as of right and defendant2 cross-appeals a final order entered by the trial
court that addressed issues of appraisal modification, penalty interest, prejudgment interest, and
costs. We hold that defendant waived any claim that plaintiff was not entitled to some of the
requested insurance benefits for lack of coverage when it conceded coverage in the pleadings
and demanded and pursued an appraisal, thereby also waiving any coverage-based challenge of
1
We use the term "plaintiff" to refer either to plaintiff or the personal representative of plaintiff 's
estate as is appropriate in context.
2
The trial court dismissed with prejudice Chubb Group of Insurance Companies pursuant to the
parties' stipulation. Thus, we use the term "defendant" to refer simply to defendant Great
Northern Insurance Company.
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the appraisal award. Further, we hold that plaintiff may be entitled to penalty interest, MCL
500.2006, and is entitled to prejudgment interest, MCL 600.6013. Finally, we hold that plaintiff
is entitled to costs as the prevailing party. We reverse and remand.
Plaintiff purchased an insurance policy from defendant that included "Deluxe House
Coverage" and "extended replacement cost." Plaintiff 's home has approximately 8,500 square
feet and was built on a hill that inclines toward Lake Michigan. In December 2000, plaintiff
returned from a vacation to find that water pipes had burst and the escaping water had collected
under the lowest floor of the house. Plaintiff mailed defendant a sworn statement in proof of loss
concerning the damage, which defendant rejected. On December 14, 2001, plaintiff, having
received no payment under the policy, filed a complaint against defendant seeking insurance
benefits to cover the claimed damage. In April 2002, the land on the western side of plaintiff 's
property collapsed and subsided downhill toward Lake Michigan. On May 21, 2002, defendant
filed an answer to plaintiff 's complaint and demanded that the matter be submitted to an
appraisal panel pursuant to MCL 500.2833(1)(m). Before an appraisal panel was convened,
defendant finally made an initial payment of benefits to plaintiff in the amount of $300,000.
Pursuant to the parties' stipulation, they convened an appraisal panel and the parties' attorneys
coauthored a letter informing the panel that it was only to consider the loss and damage caused
by the December 2000 broken water pipes. The appraisal panel awarded plaintiff $1,058,750 in
damages.
Within 60 days of the appraisal award, defendant paid plaintiff $242,795, which
represented the amount of the appraisal award minus the amount of the advance payment and
disputed portions of the appraisal award. Defendant subsequently filed a motion to modify the
appraisal award, arguing that the award included amounts for property damage that was not
covered by the insurance policy. Plaintiff filed a motion to enter judgment in the amount of the
appraisal award and requested pre- and postjudgment interest. The court issued a final order
granting defendant's motion to modify the appraisal award; granting defendant's motion for
summary disposition with respect to plaintiff 's request for statutory penalty interest pursuant to
the Uniform Trade Practices Act (UTPA), MCL 500.2001 et seq.; denying plaintiff 's request for
statutory prejudgment interest pursuant to MCL 600.6013; entering judgment in favor of plaintiff
for the amount of the modified appraisal award; and allowing plaintiff taxable costs.
The Appraisal Award
Plaintiff 's first argument on appeal is that the court erred by modifying the appraisal
award. Specifically, plaintiff argues that defendant should have been precluded from disputing
coverage because defendant waived the argument or was estopped from making the argument,
that the court did not have authority to review the appraisal award, that the court misinterpreted
the insurance policy, and that plaintiff should have been awarded consequential and incidental
damages arising from the breach of contract claim equal to the full appraisal award even if
coverage was limited. We hold that defendant waived any claim that plaintiff was not entitled to
some of the requested insurance benefits for lack of coverage when it conceded coverage in the
pleadings and demanded and pursued an appraisal, thereby also waiving any coverage-based
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challenge of the appraisal award. Therefore, on remand, the trial court is to enter a money
judgment in favor of plaintiff consistent with the appraisal award.
"[T]he question of what constitutes a waiver is a question of law." MacInnes v
MacInnes, 260 Mich App 280, 283; 677 NW2d 889 (2004). The issue is thus reviewed de novo
by this Court. Id. "In order for defendant to waive its rights against plaintiff, it must have
intentionally and knowingly relinquished those rights." South Macomb Disposal Auth v
Michigan Muni Risk Mgt Auth, 207 Mich App 475, 476; 526 NW2d 3 (1994). "It necessarily
follows that conduct that does not express any intent to relinquish a known right is not a waiver,
and a waiver cannot be inferred by mere silence." Moore v First Security Cas Co, 224 Mich App
370, 376; 568 NW2d 841 (1997). Waiver may be shown by proof of express language of
agreement or inferably established by such declaration, act, and conduct of the party against
whom it is claimed. H J Tucker & Assoc, Inc v Allied Chucker & Engineering Co, 234 Mich
App 550, 564; 595 NW2d 176 (1999). In the context of the court rules, "[a] defense not asserted
in the responsive pleading or by motion [before filing a responsive pleading] . . . is waived . . . ."
MCR 2.111(F)(2). Moreover, a party is bound by its pleadings. Joy Oil Co v Fruehauf Trailer
Co, 319 Mich 277, 280; 29 NW2d 691 (1947); Emerson v Atwater, 12 Mich 314, 316 (1864)
("Pleadings would avail little or nothing if parties were not bound by them.").
Defendant argues that land stabilization costs, except for ten percent of those costs, and
landscape replacement costs were included in the appraisal award, but those items were not
covered under the insurance policy and should not have been included in the award. In the
sworn statement in proof of loss, the amount claimed by plaintiff was $1,368,518, which
arguably included costs defined as land stabilization costs, along with landscape replacement
costs. The claim was rejected, ostensibly because more detailed information and documentation
was needed from plaintiff and further investigation was necessary to determine coverage under
the policy. The rejection letter also provided that defendant reserved all rights and defenses
under the policy. Thus, at this time, there was no waiver regarding coverage issues and defenses.
Subsequently, however, plaintiff filed the complaint, and two of the paragraphs in it provided:
10. That this action for declaratory relief is brought pursuant to the
statutes and court rules provided for the court to make a determination of the
rights and remedies of the parties.
* * *
27. That this court has the authority and is requested to declare the rights
and remedies of the parties to said insurance contract.
In defendant's answer, it responded to these allegations as follows:
10. This cause of action is moot for the reason that a coverage decision
has been made by Great Northern Insurance Company affording coverage for the
property damage caused by the pipe break in December 2000.
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* * *
27. Denies for the reason that the coverage issue is moot. Coverage has
been afforded; only damages are at issue which are subject to the appraisal
provisions of MCLA 500.2833.
Moreover, as part of its affirmative defenses, defendant stated:
6. That the only issue remaining concerns the amount of damages; that
any dispute between the insured and the insurer are subject to the appraisal
provisions of the policy and MCLA 500.2833; that the jurisdiction of this Court is
limited to appointment of an Umpire if the appraisers selected by the parties
cannot agree on an Umpire.
7. That Defendant hereby demands appraisal pursuant to the policy and
MCLA 500.2833 . . . .
The only reasonable interpretation of defendant's answer and affirmative defenses is that
coverage matters were not, or were no longer, at issue. There is no limiting language with
respect to defendant's statements in the responsive pleadings that it was affording coverage. To
the contrary, defendant's response in its answer to paragraph 10 of plaintiff 's complaint expressly
indicated that it was "affording coverage for the property damage caused by the pipe break in
December 2000." Defendant conceded coverage and was bound by the position taken in its
pleadings. When reading defendant's responses to paragraphs 10 and 27 of the complaint, which
paragraphs requested that the court render a determination of the parties' rights and remedies,
defendant makes clear that court intervention, or the exercise of the court's jurisdiction, was
unnecessary and was indeed improper, except possibly in regard to issues concerning the
selection of an umpire in the appraisal process. Defendant did not want the trial court to settle
the dispute, but, rather, the appraisers, and defendant, in response to paragraph 27, clearly and
unambiguously stated that only damages were at issue and that issue was subject to the appraisal
process. That being said, defendant acknowledges, accepts, and vehemently argues that
coverage issues are solely within the purview of the trial court, not the appraisers. Therefore, by
indicating that the court should not be involved with the case and that the appraisal process was
the only appropriate avenue for relief, defendant was necessarily conceding that there were no
coverage issues to be judicially resolved. The issue of coverage under the policy was waived.
Only after the appraisal and dissatisfaction with the appraisal award did defendant appear to
recognize that there may be coverage issues, and belatedly, nearly 16 months into the litigation,
defendant made coverage an issue. While defendant's answer to plaintiff 's amended complaint
finally asserted that coverage issues were not entirely moot because there was a dispute
regarding whether some of the items of loss were covered under the policy, this argument came
after the breach of contract claim had been submitted for appraisal, after an appraisal award had
been issued, and after plaintiff had incurred costs and made construction decisions relative to
repairs. Defendant's untimely assertion of coverage issues rendered its argument irrelevant at
that point.
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Judicial review of an appraisal award is limited to instances of "bad faith, fraud,
misconduct, or manifest mistake." Auto-Owners Ins Co v Kwaiser, 190 Mich App 482, 486; 476
NW2d 467 (1991). The Kwaiser panel found that the issue of an insurance policy's coverage is
for the court to decide, not the appraisers. Id. at 487. Additionally, "[w]here the parties cannot
agree on coverage, a court is to determine coverage in a declaratory action before an appraisal of
the damage to the property." Id.3
In October 2002, the parties stipulated that the breach of contract claim would be
submitted for appraisal under MCL 500.2833(1)(m). By demanding an appraisal and failing to
seek court intervention to determine coverage issues before the appraisal, and considering
defendant's concessions in the answer and affirmative defenses cited above, defendant became
bound by the appraisal award absent bad faith, fraud, misconduct, or manifest mistake, and it
waived a coverage-based challenge of the appraisal award. There was no claim of bad faith or
fraud, and, to the extent that defendant maintains misconduct or mistake on the part of the
appraisers by the alleged inclusion of damages or amounts related to the April 2002 land
collapse, the umpire and the plaintiff 's appraiser averred and testified that their calculations were
based on the damage caused by the burst water pipes, not the events of April 2002.4 MCL
500.2833(1)(m) makes clear that the appraisers shall set the amount of the loss to be paid, and
that was accomplished here by way of defendant's appraisal demand and agreement. The award
must be enforced without consideration of coverage claims in light of defendant's position as
reflected in the answer, affirmative defenses, and its course of conduct leading up to the
appraisal process. Accordingly, on remand, the trial court is directed to enter a money judgment
in favor of plaintiff consistent with the appraisal award.
3
In Kwaiser, supra at 487, this Court remanded the action for a determination of the policy's
coverage by the trial court, thus suggesting that coverage issues could still be subject to a court
ruling even after the appraisal. However, there is no indication in Kwaiser that Auto-Owners
conceded coverage or waived a coverage defense.
4
We note that a March 17, 2003, letter sent to the appraisers and signed by counsel for both
parties advised the appraisers "that both parties agree that only the loss and damages caused by
the December 2000 broken water pipes are the subject of the appraisal proceedings." Not only
does this letter direct the appraisers to limit the scope of any award by not including the 2002
event, it reiterates defendant's position that damage caused by the broken water pipes was to be
determined by the appraiser without any indication that the determination should be limited on
the basis of policy language or exclusions. Defendant's chosen appraiser asserted that he
considered coverage issues in setting a value, but there is no indication in his deposition
testimony or affidavit that he or the other appraisers were ever directed by the parties to consider
coverage issues. The umpire testified that he understood that it was not the appraisers' duty to
interpret the policy and make coverage determinations; rather, the appraisers were simply to
determine costs and damage regardless of the policy.
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Uniform Trade Practices Act, MCL 500.2006
Plaintiff next contends that the court erred by granting defendant's motion for summary
disposition of his claim for statutory penalty interest pursuant to MCL 500.2006. This Court
reviews de novo the grant or denial of a motion for summary disposition. Devillers v Auto Club
Ins Ass'n, 473 Mich 562, 567; 702 NW2d 539 (2005). Questions of statutory interpretation are
also reviewed de novo. Roberts v Mecosta Co Gen Hosp, 466 Mich 57, 62; 642 NW2d 663
(2002). A motion for summary disposition pursuant to MCR 2.116(C)(10) tests the factual
sufficiency of the complaint. Corley v Detroit Bd of Ed, 470 Mich 274, 278; 681 NW2d 342
(2004), citing Maiden v Rozwood, 461 Mich 109, 120; 597 NW2d 817 (1999). When deciding a
motion for summary disposition pursuant to MCR 2.116(C)(10), a court must consider the
pleadings, affidavits, depositions, admissions, and other evidence submitted in the light most
favorable to the nonmoving party. SPECT Imaging, Inc v Allstate Ins Co, 246 Mich App 568,
573-574; 633 NW2d 461 (2001), citing Maiden, supra at 120.
The question before the trial court was whether plaintiff was entitled to penalty interest
pursuant to MCL 500.2006. The primary goal of judicial interpretation of statutes is to ascertain
and give effect to the intent of the Legislature. Neal v Wilkes, 470 Mich 661, 665; 685 NW2d
648 (2004). "Statutory language should be construed reasonably, keeping in mind the purpose of
the act." People v Spann, 250 Mich App 527, 530; 655 NW2d 251 (2002), aff 'd 469 Mich 904
(2003). "If the statutory language is clear and unambiguous, judicial construction is neither
required nor permitted, and courts must apply the statute as written." USAA Ins Co v Houston
Gen Ins Co, 220 Mich App 386, 389; 559 NW2d 98 (1996). Nothing will be read into a clear
statute that is not within the manifest intent of the Legislature as derived from the language of
the statute itself. Roberts, supra at 63.
MCL 500.2006 provides, in relevant part:
(1) A person must pay on a timely basis to its insured . . . the benefits
provided under the terms of its policy, or, in the alternative, the person must pay
to its insured . . . 12% interest, as provided in subsection (4), on claims not paid
on a timely basis. Failure to pay claims on a timely basis or to pay interest on
claims as provided in subsection (4) is an unfair trade practice unless the claim is
reasonably in dispute.
* * *
(3) An insurer shall specify in writing the materials that constitute a
satisfactory proof of loss not later than 30 days after receipt of a claim unless the
claim is settled within the 30 days. If proof of loss is not supplied as to the entire
claim, the amount supported by proof of loss shall be considered paid on a timely
basis if paid within 60 days after receipt of proof of loss by the insurer. . . .
(4) If benefits are not paid on a timely basis the benefits paid shall bear
simple interest from a date 60 days after satisfactory proof of loss was received by
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the insurer at the rate of 12% per annum, if the claimant is the insured or an
individual or entity directly entitled to benefits under the insured's contract of
insurance. If the claimant is a third party tort claimant, then the benefits paid
shall bear interest from a date 60 days after satisfactory proof of loss was received
by the insurer at the rate of 12% per annum 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.
As stated above, plaintiff sent defendant a sworn statement in proof of loss, which
included an explanation of the event that caused the loss and various estimates to fix the damage
and which included detailed itemized lists of costs. In response, defendant rejected plaintiff 's
sworn statement in proof of loss because defendant found it unsatisfactory and because
defendant needed additional time to investigate and review in order "to determine the extent, if
any, of coverage and the applicability of any policy terms, limitations or exclusions." Defendant
explained that the "whole loss and damage" and "amount claimed" were not set forth with
finality, and it required more detailed figures.5 Therefore, at the time of these communications,
there was no agreement regarding the amount of damage or coverage. There is no indication in
the record that the parties ever agreed on the total amount of loss before sending the issue to the
appraisal panel; however, as reflected in our ruling concerning waiver of coverage arguments,
there was no dispute, reasonable or otherwise, with respect to coverage when defendant filed its
answer and affirmative defenses.
From the various figures submitted before and during the appraisal process, it is obvious
that there was disagreement about the amount of damage. For example, plaintiff 's statement of
loss claimed $1,368,518, plaintiff 's appraiser appraised the loss at $1,270,500, defendant's
appraiser set the value of the claim at $474,760,6 and the actual appraisal award was for
$1,058,750. Therefore, there was clearly a dispute among the parties involved about the amount
of damage. Those amounts, however, that included land stabilization and landscape replacement
costs were not in reasonable dispute beginning with the date that defendant filed its initial
pleadings, but limited to the extent that these amounts were based solely on the coverage issue
and not the particular dollar costs attributed to the repairs and replacement items. Costs and
amounts claimed, other than those related purely to the coverage issues, may have been in
reasonable dispute to some extent, although clearly not all these amounts were subject to
reasonable dispute. Defendant never contended that nothing was owed under the policy. We do
conclude that there was a reasonable dispute regarding the costs associated with land
stabilization and landscape replacement for the period before the filing of the answer and
5
The rejection letter states, "You have not specified all of the damages you claim nor are the
damages supported by detailed estimates, bills, receipts etc." The letter proceeds to state that
defendant "will need to reinspect the property once we have received all detailed damages
estimates to review costs and scope of proposed repairs."
6
This valuation was influenced by coverage issues.
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affirmative defenses, even assuming that plaintiff submitted a satisfactory proof of loss. For
reasons expressed later in this opinion, the fact that a portion of an insurance claim is reasonably
in dispute does not mean that an award of penalty interest is altogether precluded.
Plaintiff argues that this Court should adhere to the Michigan Supreme Court's reasoning
in Yaldo v North Pointe Ins Co, 457 Mich 341; 578 NW2d 274 (1998). The issue before the
Court in Yaldo was whether MCL 600.6013(5) or (6) applied "on a judgment for plaintiff
because of defendant's failure to pay plaintiff 's claim under an insurance contract." Yaldo, supra
at 343. After concluding that an insurance policy is a written instrument, and therefore MCL
600.6013(5) was the subsection relevant to the issue before the Court, the Court responded to the
defendant's argument that "including insurance policies under the definition of 'written
instrument' would nullify MCL 500.2006(4) . . . ." Id. at 345-347. In a footnote, the Court
stated:
Defendant's claim that our holding would negate the "reasonably in
dispute" language of MCL 500.2006(4); MSA 24.12006(4) is based on a
misreading of the statute. Its express terms indicate that the language applies only
to third-party tort claimants. Where the action is based solely on contract, the
insurance company can be penalized with twelve percent interest, even if the
claim is reasonably in dispute. [Id. at 348 n 4.]
Accordingly, plaintiff argues that, pursuant to Yaldo, this Court should hold that plaintiff is
entitled to penalty interest even if the claim was reasonably in dispute.
In Arco Industries Corp v American Motorists Ins Co (On Second Remand, On
Rehearing), 233 Mich App 143, 147-148; 594 NW2d 74 (1998), aff 'd by equal division 462
Mich 896 (2000), this Court stated:
Upon further review, we conclude that the Yaldo majority's interpretation
of MCL 500.2006(4); MSA 24.12006(4) was dictum. At issue in Yaldo was the
interpretation and application of the judgment interest statute, MCL 600.6013;
MSA 27A.6013, and not the penalty interest statute. It is a well-settled rule that
statements concerning a principle of law not essential to determination of the case
are obiter dictum and lack the force of an adjudication. The portion of the Yaldo
majority opinion discussing MCL 500.2006(4); MSA 24.12006(4) was not
necessary to its decision of the issue before the Court and must therefore be
regarded as merely dictum that is not binding on this Court. Accordingly, Yaldo
did not establish a rule of law with regard to the interpretation of MCL
500.2006(4); MSA 24.12006(4). [Citations omitted.]
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This Court further noted, "The purpose of the penalty interest statute is to penalize
insurers for dilatory practices in settling meritorious claims, not to compensate a plaintiff for
delay in recovering benefits to which the plaintiff is ultimately determined to be entitled." Id. at
148.7 The Court ruled that penalty interest under MCL 500.2006 is not available if there existed
a reasonable dispute regarding the claim. Id. at 148-149. Accordingly, we follow the rule of law
established in Arco rather than the dicta in Yaldo.8
Having found that at least a portion of plaintiff 's claimed costs or damage, but not all,
were reasonably in dispute, we conclude that plaintiff might nonetheless be entitled to some
penalty interest despite the fact that certain aspects of the claim were in reasonable dispute. As
mentioned above, it is abundantly clear from the record that defendant knew that some level of
benefits were due under the insurance policy. In October 2002, 14 months after the sworn
statement in proof of loss was submitted and ten months after the complaint was filed, defendant
paid plaintiff $300,000 under the policy, even though the appraisal award had not yet been
issued. Further, defendant's appraiser set the value of the claim at $474,760. Defendant
recognized that a substantial sum of money was owing under the policy. So while there may
have been a reasonable dispute over whether the full $1,058,750 was owed to plaintiff under the
policy, there was no reasonable dispute that a substantial sum was owed to plaintiff, thereby
allowing for the possibility of penalty interest. To rule otherwise would allow an insurer to
withhold all payment without penalty, even if only a fraction of the claim was in reasonable
dispute. For example, if an insured presented a proper claim for $100,000 under a policy and the
insurer reasonably disputed only $100 of the amount requested, the insurer could refuse to make
any payment whatsoever without fear of being subject to penalty interest pursuant to MCL
500.2006. Our ruling is consistent with the language of the statute, which speaks of a "claim"
being reasonably in dispute. MCL 500.2006(1). This language indicates that the entire claim
must be in reasonable dispute before an insurer can escape without paying any penalty interest,
and not just portions of the claim. The statute does not provide that penalty interest is to be
imposed "unless the extent or amount of the claim is reasonably in dispute." In other words, if
the insurer reasonably argues that no payment is due under a policy, then no penalty interest can
7
Other courts have similarly followed Arco's reasoning. See Marketos v American Employers
Ins Co, 240 Mich App 684, 697; 612 NW2d 848 (2000) (citing Arco and holding that the
plaintiffs were not entitled to penalty interest because the matter was reasonably in dispute),
rev'd in part on other grounds 465 Mich 407 (2001); Michigan Twp Participating Plan v Fed Ins
Co, 233 Mich App 422, 436-437; 592 NW2d 760 (1999) (following Arco for the proposition that
interest is not available if an insurer fails to pay a claim that is reasonably in dispute); Sloan v
Finsilver Assoc, Inc, 208 F Supp 2d 744, 748 (ED Mich, 2002) (citing Arco for the proposition
that the "penalty interest statute does not apply in situations where the insurer's obligation is
reasonably in dispute").
8
This Court is bound to "follow the rule of law established by a prior published decision of the
Court of Appeals issued on or after November 1, 1990, that has not been reversed or modified by
the Supreme Court, or by a special panel of the Court of Appeals . . . ." MCR 7.215(J)(1).
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be imposed after resolution of the dispute by a court or through appraisal, but if some portions of
the claim, properly presented, are beyond reasonable dispute, timely payment must be made to
that extent to avoid penalty interest, leaving the reasonably disputed portions subject to later
resolution without application of penalty interest.
In the Arco case, the insurer refused entirely to defend or indemnify the insured with
respect to an underlying lawsuit brought against the insured, alleging that the insurance contract
did not cover the pollution and contamination matters at issue. See Arco Industries Corp v
American Motorists Ins Co, 448 Mich 395, 399-401; 531 NW2d 168 (1995).9 The Arco panel
ruled that the trial court properly found that the insurer disputed its defense obligation in good
faith and that legitimate issues were contested; therefore, the insured was not entitled to penalty
interest under MCL 500.2006. Arco, supra, 233 Mich App at 148-149. In Marketos v American
Employers Ins Co, 240 Mich App 684, 686; 612 NW2d 848 (2000), rev'd in part on other
grounds 465 Mich 407 (2001), the insurer denied, in its entirety, an insurance claim that arose
out of a fire, arguing that the fire was an arson, which fire was alleged to have been set by the
insured or at the insured's direction. The Marketos panel held that the trial court properly
refused to award penalty interest because the arson defense was reasonable. Id. at 697-698. In
Siller v Employers Ins of Wausau, 123 Mich App 140, 144; 333 NW2d 197 (1983), which was
cited by this Court in Arco, the insurer refused to pay a claim, citing a coordination of benefits
clause, and this Court held that the insured's claim for benefits was not reasonably in dispute
because the contract clause relied on by the insurer was legally invalid. Thus, the trial court
properly awarded penalty interest under MCL 500.2006. Id. In Norgan v American Way Life
Ins Co, 188 Mich App 158, 159; 469 NW2d 23 (1991), another case relied on by the Arco panel,
the insurer refused entirely to pay a claim where "the decedent did not meet the eligibility
requirements of the policy because he retired for medical reasons." Again, there was a complete
denial of coverage, and this Court held that the "plaintiff 's claim was not reasonably in dispute
and the trial court did not err in awarding interest under § 2006 of the Uniform Trade Practices
Act." Norgan, supra at 165.
This brings us to O J Enterprises, Inc v Ins Co of North America, 96 Mich App 271; 292
NW2d 207 (1980), in which the parties engaged in the appraisal process, and the insured was
denied penalty interest under MCL 500.2006. This Court concluded that
when the amount of the loss is reasonably disputed by the insurer and the insured
and the matter is submitted to a court-appointed appraiser, MCL 500.2006(4);
MSA 24.12006(4) should be read in conjunction with MCL 500.2832; MSA
24.12832.[10] . . . Therefore, insurers will be allowed up to 60 days from the date
9
In Arco, supra, 233 Mich App 143, this Court did not recite the factual background of the case;
however, the facts were discussed in the Supreme Court's prior ruling in the action.
10
MCL 500.2832 was repealed by 305 PA 1990, but MCL 500.2833(2) revives and incorporates
by reference the "former section 2832," except as otherwise provided in the act. MCL 500.2833
(continued…)
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of the appraiser's award to pay awarded benefits to policy holders. [Id. at 274
(emphasis added).]
Because the defendant paid within 60 days of the appraisal award, "the 12 per cent interest
penalty was never triggered." Id. at 275.
In O J Enterprises, the insurer made an initial payment of $26,000 to the insured, before
litigation commenced, on the insured's claimed proof of loss of $200,000. The appraisal award
was for $88,796, and the insurer paid the balance, $62,796, within 60 days. Although the
opinion does not make it clear, it appears that the insured was seeking penalty interest on
$62,796, not the entire $88,796 award. It also appears that this Court proceeded on the basis that
there was a reasonable dispute over $62,796, which represented the difference between the
appraisal award and the initial payment made to the insured. We cannot determine from the
language of the opinion whether the panel would have barred penalty interest on the initial
$26,000 payment had it found that the payment was untimely and not in reasonable dispute. We
read O J Enterprises as merely indicating that reasonably disputed amounts sent to appraisal
need not be paid, without threat of penalty interest, until after an appraisal award is issued, and
not as indicating that, because there exists a reasonable dispute on a portion of the amount
claimed, the undisputed portion need not be paid, free of penalty interest, until after an appraisal
award is issued. Therefore, we conclude that O J Enterprises does not conflict with our ruling
that, despite the use of the appraisal process to resolve a dispute regarding the full extent of the
amount recoverable, an insurer can be liable for penalty interest under MCL 500.2006 for
portions of the claim that were not reasonably disputed.
The concept of "reasonable dispute" must be viewed with respect to the "difference"
between the amount claimed by the insured and the amount, limited by the ultimate appraisal
award, that an insurer does not legitimately dispute is owed under the policy. If an insured
claims $200,000 under a policy, the insurer's position is that only $60,000 is owed, and an
appraisal results in a $140,000 award, the focus must be on the $80,000 over which the parties
differed, as limited by the award, and whether there was a reasonable dispute concerning that
amount. The insurer cannot be allowed to withhold all payment until the appraisal is complete
and skirt, without penalty, earlier and timely payment of the $60,000 for which there was no
reasonable dispute.
(…continued)
sets forth the requirements of fire insurance policies issued or delivered in this state. MCL
500.2833(1)(m) requires that the policy include an appraisal provision for when "the insured and
insurer fail to agree on the actual cash value or amount of the loss[.]" While the loss in the case
at bar was not the result of a fire, the parties stipulated that an appraisal would be pursued under
the terms of MCL 500.2833; therefore, we shall address O J Enterprises and the statute and their
effect on this case. We note that the insurance policy itself includes a general appraisal
provision, but it is short, vague, open-ended, and does not include the language of MCL
500.2833(1)(m).
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MCL 500.2833(1)(m), which is the statutory provision made applicable by the parties'
stipulation for purposes of appraisal, does reflect that an insurer has time after the appraisal
award to make payment on the award. However, once again, an appraisal under MCL
500.2833(1)(m), or any appraisal for that matter when the parties disagree on the amount of the
claim, necessarily focuses on the amount in dispute, and the award settles the disputed
differences. The appraisers are not calculating a dollar amount below that which the insurer is
willing to pay on the policy. Thus, the appraisers are issuing an award that is equal to or greater
than that agreed to by the insurer, and the award is actually reflective of that difference, if any,
despite the fact that the award will be stated in terms of the entire amount owing under the
policy. To read MCL 500.2833(1)(m) any differently, when viewing it in the context of MCL
500.2006, would render MCL 500.2006 meaningless when appraisals are involved.11
This does not end the analysis, however, because penalty interest does not begin to
accrue under MCL 500.2006(4) until 60 days after a satisfactory proof of loss. On remand, the
trial court is to first determine whether plaintiff supplied defendant with a satisfactory proof of
loss with respect to any amount claimed in the sworn statement in proof of loss so that the 60day period began to run. If there was a failure to supply a satisfactory proof of loss with regard
to a portion of the claim, the court may still award penalty interest if there was a satisfactory
proof of loss with respect to a separate portion of the claim. See MCL 500.2006(3).
Additionally, as part of this analysis, the court must take into consideration whether defendant
properly rejected the proof of loss by specifying "in writing the materials that constitute a
satisfactory proof of loss[.]" MCL 500.2006(3). If defendant did not comply with this
provision, plaintiff was excused from submitting a proof of loss and the matter shall proceed as if
a satisfactory proof of loss were submitted. Medley v Canady, 126 Mich App 739, 745; 337
NW2d 909 (1983) ("Further, reading MCL 500.2006[3] and 500.2006[4] together, we conclude
that failure to specify in writing the materials which constitute satisfactory proof of loss excuses
the requirement of said proof of loss in MCL 500.2006[4].").
If the trial court determines that plaintiff supplied a satisfactory proof of loss, or that it
was excused, the court must then determine, with input from the parties, that amount of the claim
that was not reasonably in dispute, as governed and guided by our directions above on the
matter, which assessment can be viewed at the 60-day mark following submission of the proof of
loss or anytime thereafter before payment. After determinations regarding the issues of
11
Our ruling will not interfere with or disrupt the appraisal process, nor will it result in any
unfairness to insurers utilizing the appraisal process. By way of example, if an insured makes a
claim for $100,000 under a policy and the insurer reasonably maintains that the proper amount is
$75,000, the dispute can go to appraisal to resolve the $25,000 difference in the parties'
positions, yet the insurer can also timely pay the $75,000, which it does not dispute, without
waiting until the appraisal process is completed before making the payment toward the claim.
There is no reason that an insured should have to wait until the appraisal is completed before
receiving payment on that portion of the claim that is not in dispute.
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satisfactory proof of loss and whether portions of the claim were reasonably in dispute,
applicable penalty interest, if any, is to be calculated.
MCL 600.6013
Plaintiff next contends that the trial court erred in declining to award him prejudgment
interest pursuant to MCL 600.6013. This issue encompasses an argument raised by defendant on
cross-appeal in which defendant maintains that the court erred by entering a judgment in favor of
plaintiff for the amount of the modified appraisal award, considering that there was no need to do
so after defendant had paid the full balance due.
An award of interest pursuant to MCL 600.6013 is reviewed de novo. Beach v State
Farm Mut Automobile Ins Co, 216 Mich App 612, 623-624; 550 NW2d 580 (1996). Questions
of statutory interpretation are also reviewed de novo. Roberts, supra at 62.
MCL 600.6013(1) provides, "Interest is allowed on a money judgment recovered in a
civil action, as provided in this section." "For the purpose of the judgment interest statute, a
money judgment is one that orders the payment of a sum of money, as distinguished from an
order directing an act to be done or property to be restored or transferred." In re Forfeiture of
$176,598, 465 Mich 382, 386; 633 NW2d 367 (2001).
There can be no reasonable dispute that the trial court entered a money judgment
ordering defendant to make payment of a sum of money under the policy and that the judgment
controlled defendant's financial obligations and plaintiff 's financial entitlements under the
policy. Furthermore, our ruling that plaintiff is entitled to the full amount of the appraisal award,
$1,058,750, similarly requires the entry of a "money" judgment on remand. Under the clear and
unambiguous language of MCL 600.6013, plaintiff is entitled to prejudgment interest. See
Morales v Auto-Owners Ins Co (After Remand), 469 Mich 487, 491-492; 672 NW2d 849 (2003)
(MCL 600.6013 must be enforced as written, and disallowing interest accrual for periods of
delay that are neither party's fault or for periods of appellate delay is not permitted by the
statute).12
In Linford Lounge, Inc v Michigan Basic Prop Ins Ass'n, 77 Mich App 710; 259 NW2d
201 (1977), the parties sought an appraisal after a fire occurred at the insured's building, and the
insured filed a civil action when the parties could not agree on the appraisers. The complaint
resulted in the appointment of an umpire, who found that the amount of the loss exceeded the
policy limit of $47,000. The trial court refused to set aside the appraisal award on the insurer's
12
For purposes of clarity and direction to the trial court on remand, any interest awarded under
MCL 500.2006 "shall be offset by any award of interest that is payable by the insurer pursuant to
the award." MCL 500.2006(4); McCahill v Commercial Union Ins Co, 179 Mich App 761, 779780; 446 NW2d 579 (1989).
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motion, and it entered judgment for $47,000 as determined by the umpire, plus interest from the
date the complaint was filed. Id. at 711-712. This Court held that it was proper to award the
insured prejudgment interest under MCL 600.6013 because the statute "controls an award of
interest on a money judgment in a civil action[.]" Id. at 714. Likewise here, plaintiff was and is
entitled to prejudgment interest pursuant to MCL 600.6013.13
Prevailing Party—Costs
Defendant next contends that the court erred in finding plaintiff to be the prevailing party
and allowing plaintiff to tax costs. Of course, we must now take into consideration our ruling
and the increase in the judgment to $1,058,750. As such, our focus is not on the trial court's
order and award. "The determination whether a party is a 'prevailing party' under MCR 2.625 is a
question of law." Klinke v Mitsubishi Motors Corp, 219 Mich App 500, 521; 556 NW2d 528
(1996), aff 'd 458 Mich 582 (1998).
MCR 2.625(A)(1) provides:
Costs will be allowed to the prevailing party in an action, unless
prohibited by statute or by these rules or unless the court directs otherwise, for
reasons stated in writing and filed in the action.
MCR 2.625(B)(2) provides:
In an action involving several issues or counts that state different causes of
action or different defenses, the party prevailing on each issue or count may be
allowed costs for that issue or count. If there is a single cause of action alleged,
the party who prevails on the entire record is deemed the prevailing party.
In Forest City Enterprises, Inc v Leemon Oil Co, 228 Mich App 57, 81; 577 NW2d 150
(1998), this Court, in determining whether a party was a prevailing party under MCR 2.625,
stated:
The fact that [a party] recovered less than the full amount of damages
sought is not dispositive of whether it was the prevailing party. On the other
13
O J Enterprises, a case in which prejudgment interest on a judgment predicated on an
appraisal award was not allowed, is distinguishable because there this Court noted that the
insurer had not contested the amount of the loss determined by the appraiser; therefore, there was
no need for judicial intervention to settle the award. O J Enterprises, supra at 275. Here,
defendant requested judicial intervention, and a ruling by the trial court, and ultimately this
Court, settled the award. Moreover, regardless of the need for judicial intervention, which is not
mentioned anywhere in MCL 600.6013, all that is necessary is that a court enter a money
judgment.
-14-
hand, mere recovery of some damages is not enough; in order to be considered a
prevailing party, that party must show, at the very least, that its position was
improved by the litigation. [Citation omitted.]
Pursuant to our holding, plaintiff is awarded roughly 77 percent of the original claim, an
extremely substantial amount, and defendant had paid plaintiff nothing at the time the complaint
was filed. Moreover, plaintiff may be entitled on remand to some penalty interest under MCL
500.2006 relative to his UTPA claim. As such, we find that plaintiff 's position was improved by
the litigation, that plaintiff is the prevailing party, and that plaintiff is entitled to costs.
Reversed and remanded for proceedings consistent with this opinion. We do not retain
jurisdiction.
/s/ William B. Murphy
/s/ Helene N. White
/s/ Patrick M. Meter
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