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Palmer Park Square, LLC v. Scottsdale Insurance Co.

United States District Court, E.D. Michigan, Southern Division

January 19, 2017

PALMER PARK SQUARE, LLC, Plaintiff,
v.
SCOTTSDALE INSURANCE COMPANY, Defendant.

          OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [8]

          Nancy G. Edmunds United States District Judge

         On or around February 2, 2012, Plaintiff's vacant apartment complex was nearly gutted, resulting in over $1 million in direct physical loss. Plaintiff submitted a claim with its insurer-Defendant Scottsdale Insurance-and, after a protracted review and appraisal process, was reimbursed up to the policy limit. Over four years after the loss was first reported, Plaintiff filed this action seeking penalty interest under Michigan law. The success of Plaintiff's claim boils down to two issues: first, whether penalty interest is considered a claim "on the policy" and, if so, whether Michigan's tolling provision applies to surplus line insurers like Defendant.

         Currently before the Court is Defendant's motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. For the reasons stated more thoroughly below, the Court GRANTS Defendant's motion. [8]

         I. BACKGROUND

         The parties principally agree on the material facts giving rise to this dispute. Plaintiff Palmer Park Square ("Palmer") was the owner of a vacant apartment complex at 843 Whitmore Street in Detroit, Michigan (the "Property"). At all times relevant to this action, the Property was insured under a policy (the "Policy") issued by Defendant Scottsdale Insurance ("Scottsdale"). (Def.'s Mot. Ex. B, Commercial Policy). Between February 2-3, 2012, the Property was broken into and vandalized. (Id. Ex. C, Police Report). Approximately 18 months later, Palmer submitted a property loss notice to Scottsdale. (Id. Ex. D, Property Loss Notice). The following month, on November 18, 2013, Scottsdale acknowledged its receipt of the notice and wrote to Palmer highlighting a number of coverage restrictions under the Policy. (Id. Ex. F, Nov. 18, 2013 Letter). Significantly, Scottsdale noted that, under section D of the "commercial property conditions", Palmer was prohibited from instituting a legal action unless "there has been full compliance with all of the terms of [the Policy] . . . and [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred." (Id. at 5).

         After some amount of back and forth, Palmer invoked its right to an appraisal for a damages assessment. At the conclusion of that process, the parties' representatives agreed that the total "building ACV loss" was $1, 642, 796. (Def.'s Mot. Ex. I, Appraisal Award). In the end, Scottsdale conceded that Palmer was entitled to the Policy limit, and issued three separate payments totaling $1 million. (Id. at Ex. K, July 14, 2015 Letter).

         Shortly after receiving Scottsdale's final payment, Palmer raised-seemingly for the first time-the concept of "penalty interest." (Id.). Specifically, Palmer demanded $125, 754 in penalty interest stemming from Scottsdale's purported failure to satisfy the claim in a timely manner. See Id. ("[s]tatutory interest is to be paid by an insurer at the time of issuing any late payment."). Perhaps not surprisingly, Scottsdale denied Palmer's request, maintaining that "all payments were timely made once the amounts owed were determined, [and thus] no penalty interest is due . . . ." (Plf.'s Resp. Ex. 3, Oct. 26, 2015 Letter).

         In March 2016, Palmer initiated this litigation. According to the complaint, because Scottsdale failed to remit payment within 60 days of receiving the notice of loss, Palmer is entitled to 12% interest. The success of this claim hinges on the applicable limitations period, which Scottsdale asserts has long passed.

         II. LEGAL STANDARD

         It is well established that summary judgment under Federal Rule of Civil Procedure 56 is proper when the movant “shows that there is no genuine dispute as to any material fact, and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); S.E.C. v. Sierra Brokerage Servs., Inc., 712 F.3d 321, 326-27 (6th Cir.2013) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)) (quotations omitted). When reviewing the record, “the court must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor.” Id. Furthermore, the “substantive law will identify which facts are material, and summary judgment will not lie if the dispute about a material fact is ‘genuine, ' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. When considering the material facts on the record, a court must bear in mind that “[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff.” Anderson, 477 U.S. at 252, 106 S.Ct. 2505.

         III. ANALYSIS

         At its core, Scottsdale's motion raises two distinct issues. First, the Court must consider whether penalty interest under Mich. Comp. Laws § 500.2006 is considered a "claim on the policy" or an entirely separate cause of action. The answer to this question determines the applicable statute of limitations, and thus the viability of Palmer's claim. Assuming the Policy does control, and Palmer's claim is presumptively time-barred, the Court must then determine whether it is saved by Michigan's mandatory tolling provision. See Mich. Comp. Laws § 500.2833(1).

         A. Limitations Period

         Under the Michigan Insurance Code, "if 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 the rate of 12% per annum, . . . ." Mich. Comp. Laws § 500.2006(4). The application of the penalty provision is fairly mechanical; absent a few limited exceptions, "a first-party insured is entitled to interest if benefits are not paid within 60 days after satisfactory proof of loss is provided", regardless of whether the claim is "reasonably in dispute." Griswold Properties, L.L.C. v. Lexington Ins. Co., 741 N.W.2d 549, 557 (Mich. Ct. App. 2007). Here, although the question of Scottsdale's timeliness is not before the Court, there is seemingly no dispute that Palmer's claim was not paid within the 60-day window under the statute. Nevertheless, the parties' dispute hinges on the applicable limitations period. According to Scottsdale, the Policy is clear: "[n]o one may bring a legal action . . . unless [t]here has been full compliance with all of the terms of the Coverage Part; and [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred." (Def.'s Mot. Ex. B, Policy No. CPS1462253). While there is no question that this action was filed more than two years ...


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