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.

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Medical provider owes no fee to plaintiff attorney, MSC says

In May, the Michigan Court of Appeals decision in Miller v. Citizens Insurance allowed a first-party plaintiff’s attorney to collect a fee from a medical provider who received payment from an insurer because of the first-party action.

The court reasoned that without the first-party action, the provider might have only received payment from Medicaid, which would have been much less than the amount it received.

On Friday, November 4, the Michigan Supreme Court reversed the decision in an order:

Plaintiff’s reliance on MCL 500.3112 is unavailing because that provision, which permits equitable apportionment of personal protection insurance benefits among payees, does not encompass an award of attorney fees to an insured’s counsel.  However, the Court of Appeals’ reliance on the common-fund exception to the American rule was erroneous because no common fund was created.

Of concern to this Court is that the circuit court’s order, and the Court of Appeals’ affirmance, could be mistakenly interpreted as extinguishing the DMC’s contractual right to payment for its services.  We wish to make clear that this is not the case.  No-fault benefits are “payable to or for the benefit of an injured person . . . .”  MCL 500.3112.  In this case, through settlement, the benefits were paid to plaintiff, and her attorney asserted an attorney’s charging lien over the settlement proceeds.  Thus, the effect of this was only to settle claims as between  the insurer, plaintiff, and her attorney.  The circuit court’s order of dismissal pursuant to the settlement agreement did not have the effect of extinguishing the DMC’s right to collect the remainder of its bill from plaintiff.  Such a result could not have been achieved without an explicit waiver, or at least unequivocal acquiescence, by the DMC, which was not obtained.

COA: Appeal of post-judgment order must be filed separately if cross-appeal already filed

In Mossing v Demlow, the defendant prevailed via summary disposition in the trial court in an accord and satisfaction case, but considered separate of that order the issue of costs and fees to the prevailing party. The plaintiff appealed the summary disposition order, and the defendant cross-appealed.

After the cross-appeal was filed, the trial court denied the defendant’s motion for costs and fees. Defendant then raised the issue of costs and fees as part of its cross appeal.

The Court of Appeals upheld the summary disposition order, but said that the issue of costs and fees must be appealed separately because it arose from a separate order:

Because we need not decide in this case whether a post-judgment order granting or denying an award of attorney fees and costs that is entered before a claim of cross appeal is filed in this Court must nevertheless be separately appealed, we decline to do so. Rather, we only hold in this case that a separate appeal from such a post-judgment order must be filed when that order is entered in the trial court after the claim of cross appeal is filed in this Court.

The court acknowledged that its decision left the defendant with no remedy for an issue on which it “very likely” would have prevailed.

We recognize that failing to address the merits of this issue does a certain injustice in this case because defendants would very likely prevail on the merits given the mandatory, rather than discretionary, nature of the award of attorney fees and costs under MCL 600.2961(6) and that the trial court most likely erred in denying an award as to the claim raised under that statute.
Nonetheless, we believe that we have no choice but to conclude that this Court’s jurisdiction has not been properly invoked to allow us to review that order. Defendants had to have filed a claim of appeal from the order denying the award of fees and costs or, having failed to do that in a timely manner, filed an application for leave to appeal from that order.