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Docket Number

Docket No. 81025.

Attorney(S)

Allen Letzring (by Stephen L. Simons), for plaintiff. Linsey, Strain Worsfold, P.C. (by Dale M. Strain), for United Security Insurance Company.

Judges

BEASLEY, P.J.

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Smart Summary

Summary of Opinion: BENT v. BOSTWICK, Michigan Court of Appeals, Docket No. 81025 (Dec. 6, 1986)

Factual and Procedural Background

On April 14, 1982, a jury returned a verdict against defendant Keith George Bostwick in the amount of $146,520 for injuries sustained by plaintiff Maurice H. Bent in an automobile accident. United Security Insurance Company (the garnishee defendant) was Bostwick's automobile liability insurer with a policy limit of $25,000. Plaintiff sought prejudgment interest under MCL 600.6013; MSA 27A.6013 on the full $146,520 judgment and moved for summary judgment on that issue. Garnishee defendant denied liability for interest on any portion of the judgment exceeding the $25,000 policy limit and also moved for summary judgment.

The stipulated facts show that on March 7, 1980, garnishee defendant offered $25,000 (the policy limit) to settle Bostwick's liability and that offer remained open throughout the litigation. On March 24, 1980 plaintiff's counsel indicated willingness to settle for $25,000 but chose to delay acceptance to await settlement or resolution with two other potential defendants (Kalamazoo County Board of Road Commissioners and Consumers Power Company), because under Michigan law at that time settling early could forfeit a percentage share of any recovery attributable to Bostwick. Plaintiff later sued those parties and Bostwick on March 31, 1980. The jury found no cause of action as to Kalamazoo County and Consumers Power but awarded plaintiff $146,520 against Bostwick. Garnishee defendant paid plaintiff $25,000 plus $6,336.70 interest from the date suit was filed.

The trial court granted garnishee defendant's motion for summary judgment, holding the insurer liable for prejudgment interest only on the policy limit amount of $25,000. Plaintiff appealed from that order.

Legal Issues Presented

Whether an automobile liability insurer is liable for prejudgment interest under MCL 600.6013; MSA 27A.6013 on the portion of a judgment that exceeds the insurer's liability policy limit when the insurer had offered to settle for the policy limit and the plaintiff delayed acceptance.
Whether policy considerations that would expose an insurer to interest on the full judgment to discourage insurer delay/control of litigation apply when the insurer made a prompt offer to settle for policy limits and the plaintiff elected to delay acceptance.

Arguments of the Parties

Appellant's (Plaintiff's) Arguments

Plaintiff contended that garnishee defendant owed prejudgment interest under MCL 600.6013; MSA 27A.6013 on the full amount of the judgment ($146,520), not limited to the $25,000 policy limit.

Appellee's (Garnishee Defendant's) Arguments

Garnishee defendant asserted it was liable only for interest on the policy limit of $25,000 and denied liability for interest on any amount exceeding that limit.
Garnishee defendant pointed to its prompt offer to settle for the policy limit, which remained open throughout the litigation, and argued plaintiff chose to delay acceptance and thus the insurer should not be liable for interest on amounts beyond the policy limit.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Matich v. Modern Research Corp., 146 Mich. App. 813, 381 N.W.2d 834 (1985)	Cited as one of three recent Michigan Court of Appeals decisions refusing to hold an insurer liable for prejudgment interest on judgment amounts exceeding the policy limit.	The court relied on the line of Michigan Court of Appeals decisions, including Matich, to support the conclusion that an insurer is not liable for prejudgment interest beyond the policy limits under the circumstances presented.
Sederholm v. Michigan Mutual Ins. Co., 142 Mich. App. 372, 370 N.W.2d 357 (1985)	Cited as one of the recent decisions refusing to impose liability on insurers for prejudgment interest beyond policy limits.	The court treated Sederholm as part of controlling appellate authority that rejects extending prejudgment interest liability beyond policy limits.
Celina Mutual Ins. Co. v. Citizens Ins. Co. of America, 133 Mich. App. 655, 349 N.W.2d 547 (1984)	Cited both as part of the appellate decisions declining to impose interest liability beyond limits and as authority discussing insurer "control" of litigation and delaying tactics.	The court cited Celina for the proposition—adopted by this Court in subsequent cases—that an insurer's exposure for prejudgment interest beyond policy limits depends in part on whether the insurer was in control of the litigation or used delaying tactics. The court found those circumstances absent here.
Michigan Milk Producers Ass'n v. Commercial Union Ins. Co., 493 F. Supp. 66 (W.D. Mich. 1980)	A federal district court decision that purported to apply Michigan law to hold an insurer liable for prejudgment interest on amounts exceeding the policy limit, reasoning that exposing insurer to interest on entire judgment would deter insurer control/delay.	The Michigan Court of Appeals expressly rejected the reasoning of Michigan Milk Producers as applied under Michigan appellate authority. The court also stated that even accepting Michigan Milk Producers' policy rationale, the facts here (an insurer's prompt settlement offer and plaintiff's election to delay) would not support imposing interest liability beyond the policy limit.

Court's Reasoning and Analysis

The court proceeded through the following analysis, based solely on the record and authorities cited in the opinion:

The court first recited the undisputed facts: a $146,520 verdict against Bostwick; an insurer policy limit of $25,000; garnishee's March 7, 1980 offer to pay the $25,000 policy limit which remained open throughout the litigation; plaintiff's tactical decision to delay acceptance of that offer in order to preserve potential joint recoveries against other defendants; and garnishee's payment after judgment of $25,000 plus interest from the date suit was filed.
The court noted that plaintiff sought prejudgment interest on the entire judgment under MCL 600.6013; MSA 27A.6013, but that recent decisions of this Court had refused to impose liability on insurers for prejudgment interest on amounts in excess of policy limits. The court identified Matich, Sederholm, and Celina as such decisions.
The opinion addressed the contrary federal district court decision in Michigan Milk Producers, which had held an insurer liable for interest beyond policy limits to deter insurer control of litigation and delaying tactics. The Court of Appeals rejected that reasoning as inconsistent with the recent Michigan Court of Appeals authorities cited.
The court then analyzed the factual posture of this particular case under the relevant policy considerations. It reasoned that the deterrent policy applied in Michigan Milk Producers (i.e., exposing insurers to interest on entire judgments to discourage insurer delay when insurers control litigation) did not justify imposing additional liability here because garnishee defendant was not in control of the litigation or employing delaying tactics. Instead, garnishee had promptly offered to settle for the policy limits and plaintiff chose to delay acceptance for tactical reasons. Therefore, plaintiff was the party who caused the delay and bore the risk of that decision.
The court concluded that where an insurer relieves itself of exposure by making a prompt offer to settle for policy limits, a plaintiff cannot later recover prejudgment interest on amounts in excess of those limits that result from the plaintiff's decision to delay acceptance and pursue a larger judgment.
Based on these legal principles and the stipulated facts, the court held that the trial judge properly granted garnishee defendant's motion for summary judgment under GCR 1963, 117.2(3) (now MCR 2.116[C][10]).

Holding and Implications

Holding: The Court affirmed the trial court's order granting summary judgment to the garnishee defendant. In particular, the court held that garnishee defendant is liable for prejudgment interest only on the $25,000 policy limit amount, and not on the portion of the judgment that exceeds the liability policy limit.

Implications:

Direct effect on the parties: Plaintiff may recover prejudgment interest only on the $25,000 amount covered by the insurer's policy; the insurer was correctly granted summary judgment on interest claims beyond that limit.
Policy and doctrinal observation in this opinion: the court relied on a line of Michigan Court of Appeals decisions declining to extend prejudgment interest liability beyond policy limits and rejected the federal district court's contrary policy rationale where the insurer promptly offered to settle and was not in control of litigation delays. The court emphasized that a plaintiff who delays acceptance of a timely policy-limit offer cannot later shift to the insurer the economic consequences (prejudgment interest) of that tactical choice.

Disposition: Affirmed.

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BENT v BOSTWICK

BEASLEY, P.J.

Plaintiff-appellant, Maurice H. Bent, appeals as of right from an order awarding summary judgment in favor of garnishee defendant-appellee, United Security Insurance Company.

The facts giving rise to this appeal indicate that on April 14, 1982, plaintiff was awarded a judgment in the sum of $146,520 against defendant Keith George Bostwick for injuries sustained in an automobile accident involving plaintiff and defendant. The garnishee defendant was the automobile liability insurer for defendant under a policy with a recovery policy limit of $25,000. Plaintiff claimed that garnishee defendant owed him prejudgment interest under MCL 600.6013; MSA 27A.6013 on the full amount of the judgment against defendant and moved for summary judgment under GCR 1963, 117.2(3), now MCR 2.116(C)(10), on this issue. Garnishee defendant denied it owed plaintiff interest on any part of the judgment exceeding the liability policy limit of $25,000 and also moved for summary judgment on this issue. On September 27, 1984, the trial judge granted garnishee defendant's motion for summary judgment, finding that garnishee defendant was liable to plaintiff for interest only on the policy limits, i.e., $25,000 of the judgment.

On appeal, the parties filed a stipulated statement of facts on this issue. The statement of facts reveals that on March 7, 1980, garnishee defendant offered to pay plaintiff $25,000 (the policy limit) to settle defendant's liability. On March 24, 1980, plaintiff's counsel indicated that they would settle with defendant for $25,000, but they wanted to wait until settlement was also reached with two other parties, the Kalamazoo County Board of Road Commissioners and Consumers Power Company. Plaintiff wanted to wait before accepting the settlement from garnishee defendant in order not to lose the percentage of any judgment obtained against all three possible defendants attributable to defendant Bostwick. Plaintiff's concern over losing the percentage of a judgment attributable to defendant Bostwick if he settled with Bostwick prior to winning an award from the other two potential defendants was valid under Michigan case law at the time of the settlement negotiations.

Plaintiff failed to reach a settlement with Kalamazoo County and Consumers Power and, on March 31, 1980, filed suit against these parties and defendant Bostwick. Garnishee defendant's offer to settle as to defendant Bostwick remained open throughout the subsequent litigation. On April 14, 1982, a jury returned a verdict of no cause of action in favor of defendants Kalamazoo County and Consumers Power. As previously indicated, the jury also returned a verdict against defendant Bostwick for $146,520. Garnishee defendant promptly paid plaintiff $25,000, plus $6,336.70 interest thereon from the date plaintiff had filed suit.

Plaintiff, at trial and on appeal, claims that garnishee defendant is also liable for interest on the portion of the judgment against defendant which exceeds the $25,000 liability limit. Plaintiff's claim is without merit.

In three recent decisions, this Court has refused to hold an insurer liable for prejudgment interest on judgment amounts which exceed the liability policy limit in the insurance policy. All three decisions rejected the reasoning used by a federal district court in Michigan Milk Producers Ass'n v Commercial Union Ins Co, which purported to apply Michigan law to hold an insurer liable for prejudgment interest on amounts exceeding the liability limit in the policy. In making its decision, the federal district court relied on the policy of not allowing insurers who are in control of litigation to use delaying tactics. The court felt that exposing the insurer to the risk of liability for interest on the entire judgment during the delay period would provide a substantial incentive to settle meritorious claims.

Matich v Modern Research Corp, 146 Mich. App. 813; 381 N.W.2d 834 (1985); Sederholm v Michigan Mutual Ins Co, 142 Mich. App. 372; 370 N.W.2d 357 (1985); Celina Mutual Ins Co v Citizens Ins Co of America, 133 Mich. App. 655; 349 N.W.2d 547 (1984).

493 F. Supp. 66 (WD Mich, 1980).

See Celina Mutual Ins Co, supra, p 659.

Even if the policy considerations noted in Michigan Milk Producers Ass'n, supra, constituted Michigan law on this issue, application of these policy considerations to this case would not change the result. In the case at bar, garnishee defendant was not "in control" of the litigation or using delaying tactics to avoid settling a meritorious claim. Plaintiff was in control, since garnishee defendant had, with reasonable promptness, offered to settle the claim for the policy limit amount throughout the litigation process. To recover, plaintiff merely had to accept garnishee defendant's offer.

We refuse to allow a plaintiff to cause a delay by gambling on a possible judgment in excess of the insurer's liability limits offered as a settlement, and then turn around and claim the insurer owes interest on the full judgment amount for the delay period. In such a case there is no need to provide a substantial incentive to an insurer to settle the claim. Therefore, the competing policy interest noted in Michigan Milk Producers Ass'n, of allowing an insurer the right to limit its risks, prevails in this instance. Garnishee defendant in this case relieved itself of exposure to liability for interest on the judgment amount in excess of the $25,000 liability limit by offering to pay that amount in settlement to plaintiff even prior to the filing of the suit.

Both the recent clear statements of this Court on this issue and the policy considerations surrounding this issue lead us to the conclusion that garnishee defendant is liable for prejudgment interest only on the $25,000 policy limit amount. Consequently, the trial judge properly granted garnishee defendant's motion for summary judgment under GCR 1963, 117.2(3).

Affirmed.

BENT v. BOSTWICK