An insured seeking underinsured motorist (UIM) benefits under his or her own insurance policy is not a “third party tort claimant,” said the Michigan Supreme Court in Nickola v. MIC General Insurance Company, No. 152535. The insurer’s untimely payment of those benefits is thus subject to penalty interest under the Uniform Trade Practices Act (UTPA).
In 2004, George and Thelma Nickola were injured in a car accident involving a driver whose no-fault insurance policy provided the minimum liability coverage allowed by law. Their son Joseph Nickola, acting as their attorney, wrote to MIC General Insurance Company (MIC) advising that the Nickolas were claiming UIM benefits under their auto insurance policy. MIC denied the claim, asserting that the Nickolas could not establish a threshold injury for noneconomic tort recovery. The Nickolas demanded arbitration of the UIM claim under the policy’s arbitration provision, but MIC refused to arbitrate. The Nickolas then filed suit, asking the trial court to refer the matter to arbitration, which it eventually did.
The panel awarded $80,000 for George’s injuries and $33,000 for Thelma’s injuries, which included interest as an element of damage from the date of injury to the date of suit, “but not inclusive of other interest, fees or costs that may otherwise be allowable by the Court.” Nickola then asked the trial court to assess 12% penalty interest under the UTPA. The trial court declined to award penalty interest, finding that it did not apply because the UIM claim was “reasonably in dispute” for purposes of MCL 500.2006(4). The Court of Appeals, which we blogged about here, affirmed, holding that the “reasonably in dispute” language applied because a UIM claim “essentially” places the insured in the shoes of a third-party claimant.
The Supreme Court disagreed. It began by interpreting MCL 500.2006, which provides for 12% penalty interest on certain claims not timely paid by an insurer. Subsection (1) requires insurance claims to be paid on a timely basis, or penalty interest will be imposed consistent with subsection (4), which divides insurance claimants into two distinct classes: those directly entitled to insurance benefits and third-party tort claimants. As to the second class, but not the first, the statute expressly states that claimants are not entitled to penalty interest if their claim is “reasonably in dispute.”
Against this backdrop, the Court rejected MIC’s argument that the Nickolas were not “directly entitled to benefits,” since they were parties to the insurance contract that provided for UIM protection. The Court took issue with the Court of Appeals’ focus on the nature of a UIM claim, stating that the plain language of MCL 500.2006(4) distinguishes only based on the identity of the claimant, not the nature of the claim. The UIM claim was thus of the first class of insurance claims, meaning it was not subject to the “reasonably in dispute” language. The Court accordingly reversed the Court of Appeals’ decision regarding the penalty-interest provision under UTPA and remanded the case to the trial court.
