In a case involving a claim on a fire insurance policy relating to damaged real estate, the U.S. Court of Appeals for the Sixth Circuit recently held that the insurance policy’s two-year limitations provision did not apply to a claim brought under section 500.2006(4) of Michigan Complied Laws because it was not a claim “under the policy,” and instead Michigan’s “catch-all” six-year period of limitations applied.

In addition, and contrary to two previous unpublished rulings, the Sixth Circuit determined that a private cause of action exists under section 500.2006(4)

Accordingly, the Sixth Circuit determined that the insured’s claim was timely, and reversed the trial court’s ruling granting summary judgment in favor of the insurance company.

A copy of the opinion is available at:  Link to Opinion.

The plaintiff property owner owned a vacant apartment complex (“property”), which was covered by a commercial fire insurance policy issued by the insurance carrier (“insurer”).

The property was burglarized and vandalized in February 2012, which losses were within the coverage of the policy.  The owner reported the loss to the insurer over a year and a half later, on Oct. 22, 2013.

On Nov. 27, 2013, the owner sent the insurer an itemized proof of loss, which the insurer did not object to as inadequate.

On June 16, 2014, the insurer submitted a payment of $150,000 to the owner, which was far less than the amount claimed.  Additionally, the payment was made well outside of the period permitted for a “timely” payment under section 500.2836(2) of Michigan Compiled Laws, which provides that “losses under any fire insurance policy shall be paid within 30 days after receipt of proof of the amount of loss.”

The owner requested and received an appraisal, which concluded that its actual-cash-value loss was $1,642,796.76.  Because the limit under the policy was $1 million, the insurer tendered two checks over a period of several months that paid the balance up to the policy limit.

The owner then requested penalty interest for late payment under section 500.2006(4) of Michigan Compiled Laws, which provides that “[i]f benefits are not paid on a timely basis, the benefits paid bear simple interest from a date 60 days after satisfactory proof of loss was received by the insurer at a rate of 12% per annum, if the claimant is the insured or a person directly entitled to benefits under the insured’s insurance contract,” which penalty interest “must be paid in addition to and at the time of payment of the loss.”

The insurer rejected this request, because “all payments were timely made once the amounts owed were determined.”

On March 24, 2016, the owner filed a lawsuit seeking penalty interest under section 500.2006(4).  The insurer moved for summary judgment, arguing that the owner’s claim was time barred under the policy, which provided that “[n]o one may bring a legal action against [the insurer] under this Coverage Part unless . . . [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred.”

The trial court agreed and granted summary judgment in favor of the insurer.  The owner appealed.

On appeal, the insurer argued that the owner’s claim was one arising “under the Policy,” and thus the policy’s two-year limitations provision applied.  The owner argued that because the claim was based on a Michigan statute, it did not arise “under the Policy,” meaning that the policy’s contractual limitations provision did not apply.  The Sixth Circuit noted that it was an issue of first impression, and therefore it was required to predict how the Michigan Supreme Court would decide the issue.

In determining that the owner’s claim did not arise “under the Policy,” the Sixth Circuit concluded that “[the owner’s] penalty-interest claim does not arise from any legal duty created by the Policy.  Rather, it arises from an obligation created by § 500.2006(4).”

The insurer argued that the language of section 500.2006(4) links the penalty-interest claim to the policy, because it references payment to a claimant who is an insured and entitled to benefits “under the insured’s insurance contract.”  However, the Sixth Circuit determined that “this language simply identifies who may recover penalty-interest; it does not identify the penalty-interest claim as one arising under the Policy.”

The insurer next argued that claims for penalty interest under section 500.2006(4) do not need to be pleaded in order for penalty interest to be recovered, and as a result such a claim cannot be an independent cause of action and must be a claim under the policy.  In support, the insurer relied on an unpublished and non-precedential Michigan appellate court case, and a trial court case relying on that unpublished case, both of which determined that there is no private cause of action under section 500.2006(4).

The Sixth Circuit disagreed, noting that “the clear weight of Michigan authority allows an insured to collect penalty interest under § 500.2006(4),” contrary to the holding of the unpublished decision relied on by the insurer.  Thus, the Court determined that a private cause of action exists under section 500.2006(4).

Having determined that the two-year limitation period in the policy did not apply, the Sixth Circuit next turned to the question of what limitations period applied.  The parties agreed that there was no statutory provision that specifically provides a limitations period for bringing a claim for penalty interest under section 500.2006(4).

The owner therefore argued that Michigan’s catch-all, six-year period of limitations set forth in section 600.5813 of Michigan Compiled Laws should apply.  Section 600.5813 provides: “All other personal actions shall be commenced within the period of 6 years after the claims accrue and not afterwards unless a different period is stated in the statutes.”

The insurer argued that the trial court properly concluded that section 600.5813 could not apply because a claim for penalty interest under section 500.2006(4) is not a “personal action.”  The Sixth Circuit noted that the trial court did not provide a definition for the term “personal action,” but instead simply reasoned that because “[t]here is no implied private cause of action in tort for violation of M.C.L. § 500.2006,” no “personal action” exists under that section.

The Sixth Circuit disagreed with the insurer and the trial court, determining that the language of section 600.5813 “is broad, covering ‘[a]ll other personal actions.’ And the Michigan legislature meant it to be a catch-all provision that applies regardless of the type of relief sought.”

Because the owner’s claim was brought within the six-year limitations period, the Sixth Circuit held that the owner’s claim was timely.