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State Farm loses fee dispute arising out of unreasonable failure to pay PIP benefits

Under Michigan law, most commercial insurers owe no obligation to pay an insured's attorney fees if insurance benefits are not properly paid.  In fact, the Michigan courts have held that a wrongful denial of insurance benefits cannot be compensated by punitive damages in most cases, and that the company normally cannot be forced to pay for the emotional distress resulting from a wrongful failure to pay  benefits.  There is a limited exception to this rule, however, in the No Fault law:  if a no fault insurer "unreasonably" fails to pay Personal Injury Protection [PIP] benefits on a timely basis, it must pay the insured's attorney fee related to securing payment. 

Helena Sojecka was hurt in a wreck and had to sue State Farm to recover for certain rehabilitation benefits.  Two doctors disagreed about the extent of rehabilitation benefits she needed.  The jury ultimately agreed with State Farm's doctor with regard to the majority of Sojecka's  PIP claim, but did hold that it had unreasonably denied about $1,000.00 worth of benefits.  Because Sojecka's ultimate recovery was much smaller than what she asked for, the trial court awarded her only $1500.00 in attorney's fees.   She appealed that award and State Farm also appealed, arguing that her claims were so excessive that she had forfeited her right to fees and that it was entitled to fees.

The unanimous Court of Appeals panel ruled in Sojecka's favor on both issues.  It pointed out that the Court had failed to properly evaluate the fee issue and had considered only one factor  (the size of the award) in assessing fees.  By law, the judge was required to consider the so-called Wood factors when a statutory fee request is pending, including the skill, time and labor involved, the standing and experience of the attorney, the amount in question and the result achieved, the difficulty of the case, the expenses incurred, and the nature and length of the professional relationship between client and attorney.  The trial court was ordered to re-evaluate the fee request taking into account the Supreme Court's prior relevant holdings.

The Court of Appeals panel rejected State Farm's claim that it should be protected from any fee award---and should be entitled to collect fees-- because it prevailed with regard to the majority of Sojecka's claim.  The Court noted that the jury had expressly ruled that State Farm had unreasonably delayed or denied certain PIP benefits, thereby entitling Sojecka to recover the fees related to collection of those benefits.  It also pointed out that the statutory provision cited by State Farm to justify collecting fees only applied where there was a finding that some aspect of the insured's claim was fraudulent or "so excessive as to have no reasonable foundation."  Not only was there no pertinent finding of fraud or excess in this case, State Farm had not even asked the jury to address that issue.

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