Arco Industries Corp. v. American Motorists Insurance , 233 Mich. App. 143 ( 1999 )

594 N.W.2d 74 (1998) 233 Mich. App. 143

ARCO INDUSTRIES CORPORATION, Robert P. Ferguson, and Frederick C. Matthei, Plaintiffs-Appellants/Cross-Appellees,
v.
AMERICAN MOTORISTS INSURANCE COMPANY, Defendant-Appellee/Cross-Appellant, and
Home Indemnity Company, Consolidated American Insurance, CNA Insurance Company, Indiana Insurance Company, Argonaut Insurance Company, and Kemper Insurance Company, Defendants.

Docket No. 210651.

Court of Appeals of Michigan.

Submitted April 3, 1998, at Lansing. Decided October 9, 1998, at 9:10 a.m. Submitted on Rehearing November 30, 1998. Decided on Rehearing December 11, 1998, at 9:00 a.m. Released for Publication March 12, 1999.

Honigman Miller Schwartz & Cohn (by Jay E. Brant, Philip A. Grashoff, Jr., and Mark A. Goldsmith), Detroit, and Butler Durham & Willoughby (by Sidney D. Durham), Parchment, for the plaintiffs.

Miller, Canfield, Paddock & Stone (by Kevin J. Moody), Lansing, and Drinker Biddle & Reath, LLP (by T. Andrew Culbert and Paul H. Saint-Antoine), Philadelphia, PA, for American Motorists Insurance Company.

Before: CORRIGAN, C.J., and MICHAEL J. KELLY and MacKENZIE, JJ.

ON SECOND REMAND, ON REHEARING

MacKENZIE, J.

This case is before us on rehearing, limited to part VIII of our most recent opinion in this dispute, Arco Industries Corp. v. American Motorists Ins. Co. (On Second Remand), 232 Mich.App. 146, 170-171, 594 N.W.2d 61 (1998). In part VIII, we originally held that, in accordance with the language of the majority opinion in Yaldo v. North Pointe Ins. Co., 457 Mich. 341, 578 N.W.2d 274 (1998), Arco was entitled to collect twelve percent penalty interest pursuant to M.C.L. § 500.2006; MSA 24.12006. Upon further review, we conclude that our reliance on Yaldo was misplaced. We now affirm the trial court's determination that Arco could not collect twelve percent penalty interest under the statute.

Yaldo involved the fire loss of a building sold on a land contract and the insurer's subsequent refusal to pay the plaintiff land-contract vendor under its policy's loss payable clause. After a judgment was entered in favor of the plaintiff, a dispute arose concerning the rate of interest on the judgment. The plaintiff contended that the insurance policy was a "written instrument," entitling him to twelve percent judgment interest under M.C.L. § 600.6013(5); MSA 27A.6013(5). The insurer, on the other hand, asserted that the lower interest rate set forth in M.C.L. § 600.6013(6); MSA 27A.6013(6) applied because its policy was not a "written instrument" within the meaning of subsection 5. Yaldo, supra, pp. 343-345, 578 N.W.2d 274. Thus, as the Yaldo majority acknowledged, the issue before the Court was "whether subsection 5 or subsection 6 of M.C.L. § 600.6013; MSA 27A.6013" applied for purposes of computing interest on the judgment. Id., p. 344, 578 N.W.2d 274. The Court determined that the term "written instrument" as used in M.C.L. § 600.6013(5); MSA 27A.6013(5) was "clear and unambiguous," and held that an "insurance policy is a written instrument," entitling the plaintiff to twelve percent judgment interest. Id., p. 346, 578 N.W.2d 274.

After resolving the issue, the Yaldo majority then turned to additional arguments raised by the defendant, including a claim that this Court erred in its opinion, see 217 Mich.App. 617, 622, n. 1, 552 N.W.2d 657 (1996), when it observed that, even if subsection 5 did not apply, twelve percent interest could have been awarded under M.C.L. § 500 .2006(4); MSA 24.12006(4), governing penalty interest when an insurance company is dilatory in making timely payments on a claim. The Yaldo majority found no error, stating that "[w]here the action is based solely on contract, the insurance company can be penalized with twelve percent interest, even if the claim is reasonably in dispute." Yaldo, supra, p. 348, n. 4, 578 N.W.2d 274. It was this interpretation of M.C.L. § 500.2006(4); MSA 24.12006(4) upon which we relied in part VIII. Arco, supra, p. 171, 594 N.W.2d 61.

Upon further review, we conclude that the Yaldo majority's interpretation of M.C.L. § 500.2006(4); MSA 24.12006(4) was dictum. At issue in Yaldo was the interpretation and application of the judgment interest statute, M.C.L. § 600.6013; MSA 27A.6013, and not the penalty interest statute. It is a well-settled rule that statements concerning a principle of law not essential to determination of the case are obiter dictum and lack the force of an adjudication. Roberts v. Auto-Owners Ins. Co., 422 Mich. 594, 597-598, 374 N.W.2d 905 (1985); Auto-Owners Ins. Co. v. Stenberg Bros., Inc., 227 Mich.App. 45, 51-52, 575 N.W.2d 79 (1997). The portion of the Yaldo majority opinion discussing M.C.L. § 500.2006(4); MSA 24.12006(4) was not necessary to its decision of the issue before the Court and must therefore be regarded as merely dictum that is not binding on this Court. Compare Auto Club Ins. Ass'n v. State Farm Ins. Cos., 221 Mich.App. 154, 170, n. 5, 561 N.W.2d 445 (1997). Accordingly, Yaldo did not establish a rule of law with regard to the interpretation of M.C.L. § 500.2006(4); MSA 24.12006(4).

Since 1983, when this Court decided Siller v. Employers Ins. of Wausau, 123 Mich.App. 140, 143-144, 333 N.W.2d 197 (1983), it has been clearly established that, in cases involving claims of breach of an insurance contract, under M.C.L. § 500.2006; MSA 24.12006 "an insurer may refuse to pay a claim and be relieved of paying interest on the claim only when `the claim is reasonably in dispute.'" The Siller interpretation has been followed in Norgan v. American Way Life Ins. Co., 188 Mich.App. 158, 164, 469 N.W.2d 23 (1991), and by federal courts applying Michigan law. See Bd. of Trustees of Michigan State Univ. v. Continental Casualty Co., 730 F. Supp. 1408, 1416-1417 (W.D.Mich., 1990). See also Jones v. Jackson Nat'l Life Ins., 819 F. Supp. 1372, 1379 (W.D.Mich., 1993), aff'd. 27 F.3d 566 (C.A.6, 1994); All American Life & Casualty Co. v. Oceanic Trade Alliance Council Int'l, Inc., 756 F.2d 474, 480-482 (C.A.6, 1985).

The purpose of the penalty interest statute is to penalize insurers for dilatory practices in settling meritorious claims, not to compensate a plaintiff for delay in recovering benefits to which the plaintiff is ultimately determined to be entitled. Jones, supra, p. 1379. See also Fletcher v. Aetna Casualty & Surety Co., 80 Mich.App. 439, 445, 264 N.W.2d 19 (1978). In its June 9, 1989, opinion denying Arco an award of penalty interest, the trial court specifically found that AMICO had disputed its defense obligation to Arco in good faith, that there were legitimate issues being contested, and that there had been no effort to delay or to forestall the recovery of benefits given the complexity of the case. The lengthy history of this case—including, to date, three visits to this Court and two to the Supreme Court— amply supports the court's finding. Applying the reasoning of Siller, supra, and its progeny, we therefore affirm the trial court's determination that Arco was not entitled to twelve percent penalty interest under M.C.L. § 500.2006; MSA 24.12006, because AMICO's obligation to pay benefits under its policies was reasonably in dispute.

In all other respects, we adhere to our decision reported at 232 Mich.App. 146, 594 N.W.2d 61 (1998).