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Insureds continue to lose in Michigan; Court apportions attorneys' fees for late-paid benefits

In Esterhal v. Farm Bureau, Michigan's insurance companies continued their incredible run of advocacy and success.  Esterhal had been awarded more than $120,000.00 in attorneys fees for wrongfully denying No Fault PIP benefits without reasonable cause.  The award was handed down in 2009 and Farm Bureau appealed it twice.  At the original Case Evaluation, the panel had recommended an award to plaintiff of $33,000.00.  Both sides rejected, making both vulnerable to an award of attorneys fees if they did not achieve an outcome at least ten percent better.

The jury returned a verdict of $22,873.82, which increased to more than $33,000.00 when fees and costs were included.  On that basis the attorney's fees were awarded.  On the first appeal, however, the higher court reduced the Plaintiff's fees and costs to a judgment of $26,000.00, making Esterhal no longer eligible for sanctions, and entitling the insurer to collect sanctions.  On remand to the lower court, however, the trial judge refused to award the insurer sanctions, finding such an outcome to be inconsistent with substantial justice.

On the second appeal, the Appellate panel overturned the trial judge and ordered that Case Evaluation sanctions be entered against the injured woman and in favor of the insurer.  It also ruled that the lower court should have apportioned the attorneys' fees awarded to the insured:  It held that the insurer owed fees only for that legal work of the attorneys which related to PIP medical benefits that the insurer had no possible excuse for failing to pay.

Meanwhile, Auto-Owners won another battle with its insureds, Battery Solutions, Inc., over whether it was obligated to defend an action against its insured under a commercial liability policy.  The higer court agreed with the trial judge's summary disposition, holding that an exclusion in the policy allowed Auto Owners to refuse to defend the company where the damages arise from a breach of contract.

The two partial victories for insureds in March included Schumitsch v. Pioneer State Mutual and Reese v. Auto Owners.  In Schumitsch, the high court upheld the summary disposition of the insureds' claim against Pioneer, their "farmowners" insurer, but reinstated their potential claim against their agent, the Sam Heron Insurance Company. The "farmowners" policy the family bought expressly excluded claims for damage to farming-related structures, a fact that the famliy didn't pick up on when they received the policy in the mail.

The Court held that the exclusion was binding on the family, with regard to their claim against Pioneer, but that they should be entitled to a hearing on their claim that the agent violated an express duty to the family given Mrs. Schumitsch's testimony that she made two separate inquiries to the agent to confirm that the barns were covered.  Although the Republican majority of Michigan's Supreme Court has held that insurance agents generally owe no duty to insureds, it has acknowleged that where an agent mis-states coverage or negligent fulfills an express request for coverage, a negligence claim can be maintained.

The other partial win for insureds, the Reese case, involved a wrist injury and a closed head injury suffered in a car accident.  The Grand Traverse Circuit Court judge granted Sara Reese summary disposition when she was forced to sue to collect her medical expenses from Auto Owners.  The insurer appealed, arguing that summary disposition was premature.  The Court rejected this claim as to all of Reese's medical expenses except the expense of counseling she received after the incident.  Even though the counseling was ordered and approved by her doctors, the court ruled that Auto Owners was entitled to argue to a jury that the head injury was not a "signficant contributing factor" in the need for counseling.

The Court also held the award of attorney fees in suspension, even though the insurer had possession of the related billings for nine months, took no action, and offered no explanation for its failure to investigate or pay. Incongruously, the Court expressly held that "defendant did not present sufficient evidence below to meet its burden of justifying delay in the payment of any benefits due," it still left the question of fees to be determined at a later date.

Thompson O’Neil, P.C.
309 East Front Street
Traverse City, Michigan 49684
Toll Free: 1-800-678-1307
Fax: 231-929-7262