In their opinions: We know it’s a double dip but that’s the law

This is a case in which plaintiff chose not to purchase any automobile insurance and, yet, remarkably, the majority rules that plaintiff properly has and will continue to make a profit every time he is treated by a doctor.

– Court of Appeals Judge Henry Saad, dissenting, in Lee v. Farmers Ins. Exchange (unpublished per curiam).

In 1978, Antoine Lee was a passenger in a car. A traffic accident left him seriously injured. He had no insurance and there was no other no-fault coverage available to him. Farmers Insurance Exchange got Lee’s case from the Assigned Claims Facility and paid no-fault PIP benefits.

But Lee also received Medicare coverage to pay of his medical expenses. These dual payments apparently were made for almost 30 years before Farmers balked at paying expenses already covered by Medicare.

Lee sued. Farmers took the position that Lee was double-dipping from both the assigned claims facility and Medicare. Lee argued that the medical expenses were allowable no-fault expenses that Farmers was obligated to pay, even though Medicare had already paid them.

The trial court found for Lee but stayed execution of the $155,000 judgment until Farmers was through with its appeal.

The COA affirmed on a 2-1 vote. The majority opinion noted that a combination of circumstances required judgment for Lee:

  • [T]he Legislature has … specifically permitted recipients of assigned-claims no-fault benefits to receive duplicative compensation from Medicare by making the assigned-claims payment structure partially uncoordinated as to Medicare. Whether or not that is a wise policy choice, the trial court correctly ruled that defendant may not set off the Medicare payments.
  • Because plaintiff’s accident occurred in 1978, it preceded the congressional enactment of the Medicare Secondary Payer provision of the Omnibus Budget Reconciliation Act of 1980, 42 USC 1395y(b)(2)(a), which prevents Medicare from acting as the primary payer for auto accident injuries. The statute only applies to accidents that occurred after December 5, 1980. …
  • We need not address whether any offset would be appropriate under MCL 500.3109(1), however, because that statute, and the case law addressing that statute, contemplates a payee receiving benefits pursuant to some kind of purchased no-fault insurance policy. …
  • [I]t is impossible for MCL 500.3109a to have any bearing: no insurer could have offered plaintiff a coordinated policy because plaintiff had no insurance at all. …
  • MCL 500.3172(2) states that PIP benefits paid by the assigned claims facility “shall be reduced to the extent that benefits covering the same loss are available from other sources,” but further states that Medicare is not one of those “benefit sources.”

The majority acknowledged Saad’s and Farmers’ frustration with the outcome, but explained that “[h]owever anomalous the situation might seem, our Supreme Court has repeatedly instructed that our Court must enforce legislation as written rather than weigh its wisdom.”

The case is Lee v. Farmers Insurance Exchange. (majority opinion) (dissent)

Advertisements

Bad-faith attorney fee rule: Bad news for insurance plaintiff

When fire destroyed Sherrill Travier’s Lincoln Park home, she filed a timely proof of loss with Auto Club, her homeowners’ insurer.

But shortly after the fire, the police visited the scene, took a whiff and thought they smelled arson. Unsurprisingly, the months crept by with no check from Auto Club.

Insurance investigations take time.

Travier lost patience and hired a lawyer, who sent Auto Club a demand letter.

Auto Club stonewalled. Travier sued. But before serving the complaint, seven months after the blaze, Travier’s attorney made several more unsuccessful payment demands.

“Remarkably,” said the Michigan Court of Appeals in Travier v. Auto Club Group Ins. Co., “Auto Club neither admitted nor denied Travier’s breach of contract averments ‘for lack of sufficient knowledge or information and [left] plaintiff to her proofs.'” That’s an interesting but valid way to deny the allegations under MCR 2.111(C)(3).

About a month later, Travier beefed up her claim that Auto Club was acting in bad faith. She alleged that Auto Club told her she would never see a dime unless she dropped her suit.

Three months later, Auto Club did an about-face, issued full payment for the actual cash value of Travier’s home and threw in the penalty interest.

Auto Club sought dismissal of Travier’s breach-of-contract and bad-faith claims. From the COA’s opinion:

Travier responded with a cross-motion for summary disposition contending that Auto Club had breached the insurance contract by failing to pay her claim within 30 days after its receipt of her proof of loss, and “that a nationally-accepted exception to the ‘American Rule’ authorizes attorney fees when a defendant, including an insurer, acts with bad faith before or during litigation.”

The trial court let the contract claim go forward and the parties settled their differences. But the trial court booted the attorney-fee claim.

The trial court had to, ruled the COA.

Michigan does not recognize an independent tort for bad faith in the handling of an insurance claim. Roberts v Auto-Owners Ins Co, 422 Mich 594, 608; 374 NW2d 905 (1985). On this basis, we must reject Travier’s argument that Auto Club’s allegedly dilatory handling of her claim entitles her to attorney fees.

Hey, wait, Travier argued on appeal, take a look at West Virginia. There, policyholders who have to sue insurance companies to get what they paid for — coverage for a loss — can collect attorney fees.

How true and how aggravating that it’s not that way in Michigan, said the COA.

While we sympathize with Travier’s frustration that adjustment of her claim consumed almost a full year, this Court has unequivocally rejected her attorney fee argument. In Burnside v State Farm Fire & Cas Co, 208 Mich App 422, 424; 528 NW2d 749 (1995), we specifically held that “the American rule precludes the recovery of attorney fees incurred as the result of an insurer’s bad-faith refusal to pay a claim.” …

Travier’s public policy arguments in favor of an exception to the American rule “have already been addressed by the Legislature by the enactment of the [Uniform Trade Practices Act, MCL 500.2001 et seq].”

Michigan’s Legislature is often accused of enacting solutions to problems that not everyone agrees actually exist.

Travier’s case illustrates a real problem. Anyone willing to bet on a legislative solution?

UPDATE (3/1/12): AAA’s attorney, James Gross, responded to this blog post with the following:

I represented the Auto Club on appeal in the Travier case, which was the subject of your recent blog, \Bad-faith attorney fee rule: Bad news for insurance plaintiff\.  I am writing in order to correct some egregious factual inaccuracies and omissions in the opinion and, therefore, in your blog account.

In more than 30 years of practice, this is not the first factually skewed opinion I’ve seen from the Court of Appeals.  I view such opinions as unfortunate, but probably unavoidable.  However, in light of your republication of the Travier factual account to your readership, I feel compelled to set the record straight.

First, the assertion that \the months crept by with no check from Auto Club\ is false.  In fact, on September 24, 2009 — one month after Plaintiff submitted her proof of loss — Auto Club issued a check for more than $13,000 for Plaintiff’s living accommodations.  Between then and the end of November, Auto Club paid an additional $54,000 on the claim.

Second, Plaintiff did not hire her attorney because she \lost patience\.  Although the record does not reflect the exact date she actually retained her attorney, it does show that she had him as of August 7, 2009, two weeks before she submitted her claim, while she was still being interviewed by the police in connection with the fire.

Third, ACIA did not tell Plaintiff \she would never see a dime unless she dropped her suit\.  Actually, by the time Plaintiff amended her Complaint to allege bad faith, Auto Club had already paid more than 670,000 dimes.

Fourth, although it triggered the amendment of the Complaint, the basis for the bad faith claim was not the attempt to have the suit dismissed.  Rather, it was the absence of a response from an attorney in Auto Club’s Legal Department — who was not adjusting the claim (which was not formally in suit) and who had, in fact, directed that it be paid — to the demand letters from Plaintiff’s attorney.  At no time did Plaintiff’s attorney attempt to contact the claims representative who was adjusting the claim, either personally or through Plaintiff’s public adjuster (who was in frequent contact with the claims representative).  Consequently, no sense of urgency or even impatience for payment was ever communicated to the claims representative prior to the suit being served.  Even so, Auto Club paid several thousand dollars in penalty interest for the delay.

Finally, your conclusion that this case \illustrates a real problem\ is accurate but misdirected.  As demonstrated by the foregoing — which is fully supported by the record  — the Court of Appeals’ opinion is long on attitude but woefully short on factual accuracy.  You cannot be faulted too severely for relying on the opinion to accurately reflect the case.  However, let this episode be a cautionary tale.  Before republishing an opinion’s factual account in the context of advocating \reforms\, you should pick up the phone and do a modicum of fact checking with the attorneys.

Thank you for your attention to this matter.

The (unpublished) premise of ‘premises’: A building on the property

Michael Izenbaard hosted a bachelor party for Nathan Kadau. The two decided to take Michael’s ATV out for a spin with two other partygoers. Michael drove. Nathan stood in the vehicle’s bed.

All was going well until Izenbaard turned onto a dirt path owned by Consumers Energy. The ATV flipped. Kadau was injured.

Kadau sued Izenbaard and his wife. Izenbaard contacted his homeowners insurer, Fremont. Fremont named the Izenbaards and Kadau as defendants in a declaratory judgment action.

The policy provision at issue, in a nutshell, provided that an “insured location” is the insured’s “residence premises,” and also is “any premises used by you in connection with” the residence premises.

Fremont thought it was in good shape in the trial court. The accident occurred about 1,000 feet away from Izenbaard’s house on property owned by someone else. And the property can’t be a “premises” because there are no buildings on it.

The trial court said that coverage must be provided if the accident occurred on a “premises” used in connection with Izenbaard’s residence.

The trial court seized on the word “premises” and observed that courts and dictionaries have defined the word in various ways, and the policy didn’t define the word at all.

The court concluded that the term “premises” was ambiguous and must be construed against Fremont and in favor of coverage for Kadau’s accident.

Fremont fared better in the Court of Appeals.

We’ve got an issue of first impression, said the COA. There is no published Michigan case addressing the matter, the COA observed.

And, the unpublished Court of Appeals opinions and authority from other jurisdictions that the parties cited didn’t “specifically address the meaning of the term ‘premises,'” the COA explained in Fremont Ins. Co. v. Izenbaard, et al., an unpublished per curiam opinion.

The COA consulting several dictionaries. Definitions of “premises” contemplate buildings on land. A “structure” can be a building but it can also be other things, like the power lines and towers that ran along the dirt trail on which Kadau was injured.

Because “premises” is defined in terms of buildings and land, not structures and land, the dirt trail was not a premises even though there were structures on it, the COA concluded.

So, the COA ruled, Fremont is off the hook.

The decision is a decent exercise in construing a contract, but it left a loose end.

If there’s no published authority in Michigan, and nothing on point from other jurisdictions (in other words, no binding precedent) why continue to add to a growing body of persuasive authority on the issue?

Why not issue the decision for publication?

Attorney fees awarded in TheraMatrix lawsuit against Blues

There’s been another development in Pontiac-based TheraMatrix winning a $4.5 million lawsuit against Blue Cross Blue Shield of Michigan for breach of contract and tortious interference with economic and business relationships (“Their (Blue) Cross to bear,” Aug. 23, 2010).

Oakland County Circuit Court Judge Edward Avadenka awarded case evaluation sanctions, including attorney fees, against Blue Cross on Nov. 15.

But the way he came up the $625-per-hour rate is interesting.

According to Sara K. MacWilliams and Rodger D. Young, counsel for TheraMatrix:

[Avadenka] explained that the case was “most contentious” and that trial “was like a fencing match — thrust and parry by both sides, endlessly,” and therefore, substantial attorney hours were properly included in the fee award.

But, they continued:

Judge Avadenka’s opinion is of special note, because it examined what the proper source of evidence is to determine attorney fees in a Southeastern Michigan commercial litigation. Courts determining fee awards sometimes rely on the 2007 State Bar Survey of attorney rates.

However, as Michigan Lawyers Weekly recently reported, the survey is actually poor evidence of fees, both because it is now outdated, and because the survey has a very low response rate. Judge Avadenka recognized this, writing that the 2007 State Bar Survey is not “indicative of the true hourly rate in Southeastern Michigan for the attorneys who actually tried this case. There are over 35,000 attorneys in the State of Michigan, and the 2007 State Bar Survey reflects a questionnaire return rate of only 20-30 percent.”

Judge Avadenka, through his research, determined a more reasonable alternative, writing, “A truer representation of a reasonably hourly rate for the attorneys involved in the instant case is set forth in the National Law Survey (2008), which lists various rates by firm.”

Judge Avadenka also relied on “the Michigan Benchmark” as another source of evidence for determining fee awards. Using this evidence, Judge Avadenka set a reasonable billing rate of plaintiff’s lead counsel, Rodger Young, at $625 per hour during the applicable period, and adjusted at least one attorney’s billing rate up.

Judge Avadenka’s Nov. 15, 2010, Order and Opinion, which carefully sets forth the Smith v. Khouri guidelines for setting attorney fee awards, may prove to offer useful guidance for attorneys involved in fee award disputes, including fees owed under MCR 2.403.

As we wrote last week, a USA Today story that also appears in the Detroit Free Press (both papers are owned by Gannett) also covered the TheraMatrix case. The Freep also published a story that talks about a recently filed U.S. Justice Department lawsuit against the Blues.

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine

Michigan Blues lawsuit gets national attention

Three months ago, we reported on Pontiac-based TheraMatrix winning a $4.5 million lawsuit against Blue Cross Blue Shield of Michigan for breach of contract and tortious interference with economic and business relationships (“Their (Blue) Cross to bear,” Aug. 23, 2010).

Now, this matter is getting national attention, thanks to a USA Today story that also appears in the Detroit Free Press (both papers are owned by Gannett). The Freep also published a story that talks about a recently filed U.S. Justice Department lawsuit against the Blues.

Here’s an excerpt:

As health care costs soared nationally, a small Michigan firm gave Ford Motor Co. a proposal to cut its physical therapy costs. The automaker signed up for an in-state pilot program, which was so successful Ford expanded it last year to cover about 390,000 employees, retirees and their families nationwide.

Yet the cost-saving program created by Pontiac-based TheraMatrix has come under attack from Blue Cross Blue Shield of Michigan.

Court records allege Blue Cross used its position as the state’s dominant insurer to try to crush TheraMatrix as it worked to also sign up Chrysler and General Motors.

A USA Todayreview of hundreds of pages of e-mails and internal documents that are part of a lawsuit TheraMatrix filed against Blue Cross indicates that TheraMatrix’s efforts to carve out a niche market in managing outpatient physical therapy costs was seen as a threat by officials at Blue Cross and by some Michigan hospitals. …

The dispute provides a window into some of the factors that make overhauling the nation’s health care system so difficult. The aggressive tactics employed against TheraMatrix raise questions about whether relationships between hospitals and insurers are inflating medical prices and stifling competition needed to control costs.

Court records depict Blue Cross — a nonprofit created under Michigan law to provide affordable health care — as working with a major hospital to stop expansion of TheraMatrix’s program. They also reveal that Blue Cross barred TheraMatrix from the insurer’s medical provider network, which covers most Michigan patients.

A Detroit-area jury awarded TheraMatrix $4.5 million in July, finding that Blue Cross breached an agreement with TheraMatrix to process claims for its Ford program, then wrongfully interfered with TheraMatrix’s efforts to launch a Chrysler program. Blue Cross has appealed.

Last month, the U.S. Justice Department sued Michigan’s Blue Cross, accusing the insurer of a different kind of anticompetitive behavior: paying hospitals higher prices for medical care in exchange for a promise they would charge competing insurers as much as 40% more than they charge Blue Cross. Blue Cross says the suit is without merit. …

Effective antitrust regulation is critical to lowering health care costs, Christine Varney, the assistant attorney general who heads the Justice Department’s antitrust division, told lawyers at a health care conference in May. “The goals of health care reform cannot be achieved,” she said, “if dominant insurers use exclusionary practices to blockade entry or expansion by alternative insurers.”

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine

State knew of felony conviction, but granted insurance agent license

LANSING – Can the state, after granting an insurance agent’s license to a man convicted of a felony, revoke it several years later on the basis that the state Insurance Code barred the state from granting the license in the first place? That is the question the Michigan Supreme Court will consider in a case it will hear on October 19 in Adrian as part of the “Court Community Connections” program.

The plaintiff in King v State of Michigan applied for a state license to act as a resident insurance producer, or insurance agent, in 2004. At the time, he disclosed his felony conviction in 2000 for operating a vehicle under the influence of liquor, third offense.

The state Office of Financial and Insurance Services granted the license, but in 2008, OFIS sought to revoke it, contending that the staff who reviewed the plaintiff’s license application used outdated standards. OFIS stated that, under the clear terms of the Michigan Insurance Code at the time of the 2004 application, the license should never have been granted to a person convicted of a felony. But the circuit court and Court of Appeals both ruled in favor of the insurance agent, with the Court of Appeals stating that “principles of equity” prevented OFIS from revoking the license on the basis of a claimed mistake.

The Supreme Court, which normally hears oral arguments at the Michigan Hall of Justice in Lansing, will hear oral argument in King v State of Michigan at Siena Heights University as part of “Court Community Connections,” a Supreme Court program aimed principally at high school students. Students from Lenawee County high schools, Siena Heights University, Adrian College, and Jackson Community College will attend the 12:45 p.m. court session in the university’s Francoeur Theater. Students and teachers will study the case in advance with the help of local judges and attorneys. Following the argument, the students will meet with the attorneys in the case for a debriefing.

Chief Justice Marilyn Kelly explained, “The goal of Court Community Connections is to introduce the Supreme Court to students and communities throughout Michigan. About twice each year, the Court holds oral argument in locations outside Lansing.”

Kelly added, “The communities that have hosted us for these programs have been unfailingly gracious and supportive, and Lenawee County is no exception. The Court thanks Siena Heights University, Lenawee County judges, court staff, and area attorneys, the Lenawee and Monroe Intermediate School Districts, Adrian College, Jackson Community College, and community educators and students for making this event possible. My fellow justices and I are grateful for their efforts.”

Lenawee County 39th Judicial Circuit Judge Margaret M. S. Noe said, “Most citizens have some understanding of what goes on in a trial court; fewer understand the appellate courts. By inviting the Michigan Supreme Court to Lenawee County, we hope students, teachers, parents, and community alike will have a better grasp of the courts and justice system in everyday life.”

Source: Michigan Supreme Court

In their opinions

Instead of carving out an exception to this exclusion, this theory of interpretation would create a virtual, if not complete, exclusion of the exclusion.

6th U.S. Circuit Court of Appeals Judge Jeffrey S. Sutton’s response in TMW Enterprises, Inc. v. Federal Insurance Co. to an insurance claimant’s argument that coverage was due for water damage, which was not an excluded peril, caused by faulty workmanship, for which coverage was excluded.

TMW bought a condominium building. As later discovered by TMW’s renovators, it needed some work, $3.9 million worth, to fix structural problems caused when the original builder “improperly constructed exterior walls, leaving them vulnerable to water infiltration.”

No problem, said TMW as it filed an insurance claim against its $10 million policy with Federal.

Problem, Federal replied. The policy excludes damages for faulty workmanship.

No problem, said TMW. It wasn’t the workmanship that caused the damage, it was the water that came into the building due to the faulty workmanship. And, we notice, water damage is not an excluded peril, so please pay up.

Problem, said Sutton.

As an “all-risk” policy, this insurance policy basically covers everything unless specifically excluded. That means the number of possibilities for last-in-time “but for” causes of damage are limited only by the imagination of the reader.

What if a roof contains a flawed design (think Frank Lloyd Wright, see Essex Ins. Co. v. Fidelity & Guar. Ins. Underwriters, Inc., 282 F. App’x 406, 409 (6th Cir. 2008)), and it leaks water into the house, which ruins one of the floors? But for the water, no damage to the floor would have occurred. Yet the contract does not exclude damages caused by “water.” Coverage?

What if faulty construction allows humid summer air to enter the building, which rusts metal fixtures? But for the exposure to the summer air, no damage to the fixtures would have occurred. Yet the contract does not exclude damages caused by “air.” Coverage?

What if a poorly constructed ceiling beam falls, smashing the floor below? But for the force of gravity, no damage to the floor would have occurred. Yet the contract does not exclude damages caused by “gravity.” Coverage?

As in each of these examples, so too here: The very risk raised by the flawed construction of a building came to pass.

To say that the risk was not covered because other elements or natural forces were the last causative agents of the damage, though to be sure utterly foreseeable causes of the damages, is to eliminate the exclusion.
It is exceedingly strange to “think that a single phenomenon that is clearly an excluded risk under the policy was meant to become compensable because in a philosophical sense it can also be classified as water damage.” Aetna Cas. & Sur. Co. v. Yates, 344 F.2d 939, 941 (5th Cir. 1965) (Friendly, J., sitting by designation).

But all is not lost for TMW, said Sutton.

As the district court viewed the dispute, the identification of the faulty workmanship exclusion, together with undisputed factual evidence that there was a “but for” causal relationship between the damages and this exclusion, meant that summary judgment for Federal was in order.

In view of the reality that the “ensuing loss” clause, under either way of looking at it, does not permit Federal to deny coverage for losses not proximately caused by faulty workmanship, and in view of the fact that TMW did not appear to have an opportunity to seek coverage for such losses, we think TMW should be given an opportunity to do so on remand.