In Nickola v. MIC General Insurance Co.
, No. 322565, the Michigan Court of Appeals affirmed the trial court’s order denying plaintiff’s request for penalty interest under MCL 500.2006, the Michigan Uniform Trade Practices Act (UTPA).
Plaintiff was the personal representative of the estate of George and Thelma Nickola, who were injured in an automobile accident and died while the litigation was pending. At the time of the accident, the Nickolas were insured by the defendant. They turned to defendant and sought underinsured motorist (UIM) benefits, which defendant denied. In response, the Nickolas sent defendant a written demand for arbitration of their UIM claim, consistent with their auto policy. Despite the fact that the policy stated that either
party could demand arbitration, defendant again denied the demand, stating that it never agreed to arbitrate and that both
parties had to agree to arbitration under the policy. The Nickolas filed a claim for declaratory relief asking the trial court to compel arbitration, which the trial court ultimately did. The Nickolas then moved the trial court for penalty interest under MCL 500.2006, the Michigan Uniform Trade Practices Act (UTPA) for defendant’s failure to promptly pay UIM benefits. The trial court denied the motion.
In affirming the trial court’s denial of penalty interest, the Court of Appeals focused on the distinction made between a first-party claimant and a third-party tort claimant by the penalty interest provision of the UTPA. Under that provision, a first-party insured is entitled to penalty interest irrespective of whether the claim is “reasonably in dispute,” as opposed to a third-party tort claimant, who is entitled to penalty interest only if the claim is not reasonably in dispute. The court found that is the Nickolas were more akin to third-party tort claimants than first-party insureds. It reasoned that, although the Nickolas sought UIM benefits owed directly to an insured under the policy, in order for them to succeed on their UIM claim, they had to essentially allege a third-party tort claim against their own insurer, who stands in the shoes of the alleged tortfeasor. Therefore, the Court of Appeals found that the “reasonably in dispute” language is applicable and that the claim, in this case, was reasonably in dispute.