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Palmer Park Square, LLC v. Scottsdale Insurance Co.

United States Court of Appeals, Sixth Circuit

December 22, 2017

Palmer Park Square, LLC, Plaintiff-Appellant,
v.
Scottsdale Insurance Company, Defendant-Appellee.

          Argued: November 29, 2017

         Appeal from the United States District Court for the Eastern District of Michigan at Detroit. No. 2:16-cv-11536-Nancy G. Edmunds, District Judge.

         ARGUED:

          Donald M. Fulkerson, Westland, Michigan, for Appellant.

          Hans H.J. Pijls, DINSMORE & SHOHL, LLP, Ann Arbor, Michigan, for Appellee.

         ON BRIEF:

          Donald M. Fulkerson, Westland, Michigan, for Appellant.

          Hans H.J. Pijls, Julia T. Stuebing, DINSMORE & SHOHL, LLP, Ann Arbor, Michigan, for Appellee.

          Before: GILMAN, SUTTON, and STRANCH, Circuit Judges.

          OPINION

          RONALD LEE GILMAN, Circuit Judge.

          Over four years after Palmer Park Square, LLC incurred an insured loss, it brought a claim against Scottsdale Insurance Company for "penalty interest" allegedly due on the untimely payment of the loss by Scottsdale. The district court held that the penalty-interest claim arose "under the policy" and was thus barred by the policy's two-year limitations provision. It further held that a statutory provision providing for the tolling of limitations provisions in insurance contracts did not apply to policies issued by surplus-lines insurers like Scottsdale. As a result, summary judgment was granted in Scottsdale's favor. For the reasons set forth below, we REVERSE the judgment of the district court and REMAND the case for further proceedings consistent with this opinion.

         I. BACKGROUND

         Palmer owned a vacant apartment complex located at 843 Whitmore in Detroit, Michigan (the Property). Scottsdale issued a commercial fire insurance policy to Palmer covering the Property for fire and other specified losses from November 8, 2011 through November 8, 2012 (the Policy).

         The Property was burglarized and vandalized in February 2012, such losses being within the coverage of Scottsdale's fire insurance policy. Palmer reported the loss to Scottsdale over a year and a half later, on October 22, 2013. Scottsdale wrote to Palmer several weeks thereafter acknowledging that the purported loss occurred during the coverage period, explaining that it was investigating the claim, and reserving the right to assert defenses to coverage under the Policy. The letter went on to explicitly state that Scottsdale was not denying Palmer's claim.

         On November 27, 2013, Palmer sent Scottsdale an itemized Proof of Loss. Scottsdale did not object to Palmer's Proof of Loss as inadequate. Instead, it submitted a payment of $150, 000 to Palmer on or about June 16, 2014, almost seven months after Palmer submitted its Proof of Loss. This payment was made well outside of the period permitted for a "timely" payment under § 500.2836(2) of the Michigan Compiled Laws, which provides that "losses under any fire insurance policy shall be paid within 30 days after receipt of proof of the amount of loss."

         Because the $150, 000 payment was far less than the amount claimed, Palmer requested an appraisal under the Policy. Scottsdale agreed to the appraisal and noted that the claim was still under investigation.

         The appraisers concluded that Palmer's actual-cash-value loss was $1, 642, 796.76. Because coverage under the Policy was limited to $1, 000, 000, Scottsdale tendered two checks over a period of several months that paid the balance of the appraisal award up to the Policy limit. Palmer then requested penalty interest for late payment of the claim under § 500.2006(4) of the Michigan Compiled Laws. Section 500.2006(4) states that "[i]f 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, if the claimant is the insured or a person directly entitled to benefits under the insured's insurance contract." This penalty interest "must be paid in addition to and at the time of payment of the loss." Id.

         Scottsdale rejected Palmer's request for penalty interest on October 26, 2015 because "all payments were timely made once the amounts owed were determined." On March 24, 2016, Palmer responded by filing a lawsuit in Michigan state court that sought penalty interest under § 500.2006(4). Scottsdale removed the case to federal court based on diversity jurisdiction. Following the close of discovery, Scottsdale moved for summary judgment, arguing that Palmer's claim was time-barred under the Policy. In relevant part, the Policy provides that "[n]o one may bring a legal action against [Scottsdale] under this Coverage Part unless . . . [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred." (Emphasis added.) The district court agreed with Scottsdale's argument and granted it summary judgment. This timely appeal followed.

         II. ANALYSIS

         A. ...


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