In a recent opinion marked for publication, the State of Michigan Court of Appeals made clear that no-fault insurers cannot avoid penalty interest by delaying benefit payments while a particular claim is under investigation. See Bronson Health Care Group, Inc v Titan Ins Co (Docket No. 324847).
In Bronson, a health care provider submitted an application to the Michigan automobile insurance placement facility for bodily injury benefits under the Michigan Assigned Claims Plan (MACP). The claim for benefits related to the provider’s treatment of a passenger who was injured in an automobile accident. Because the automobile had been uninsured, the MACP assigned the provider’s claim for benefits to Titan, but the benefits were not paid within 30 days. The provider then brought suit, and after the deposition of the injured plaintiff confirmed that no there was no insurer with higher priority, Titan paid the provider’s claim, but refused to pay nearly one year penalty interest resulting from the delay in payment. The provider’s motion for penalty interest under MCL 500.3142(2) was denied by the trial court, which concluded that contradictory information in the provider’s applications to the MACP, created a question regarding whether or not the passenger was eligible to receive personal protection insurance through the MACP.
The Court of Appeals, however, reversed the trial court, concluding that under MCL 500.3142 penalty interest is required whenever payment of benefits is made more than 30 days after the insurer receives “reasonable proof of the fact and the amount of loss sustained”. The Court held that the statute does not allow an assigned insurer additional time beyond the statutory the statutory 30 days to conduct its own investigation, through discovery or otherwise, regarding the eligibility of the claimant to receive benefits. The Court of Appeals also reversed the trial court’s denial of attorney fees to the provider under MCL 600.2591. The Court held that Titan’s position regarding the payment of penalty interest was frivolous, and thus subject to sanctions under MCL 600.2591 because its position was “devoid of arguable legal merit.”
Notably, the provider was not awarded its attorney fees under MCL 500.3148(1). That statute provides that an attorney is entitled to a reasonable fee in representing a claimant for personal protection insurance benefits which are “overdue”, but only if the “court finds that the insurer unreasonably refused to pay the claim or unreasonably delayed in making proper payment” Id. In this way, even when benefits are overdue – i.e., paid more than 30 days after receipt of reasonable proof of the fact and the amount of sustained – the insurer can avoid the payment of attorney fees as long as the insurer was reasonable when it denied the claim or delayed payment. Stated otherwise, while it is clear that the insurer cannot avoid penalty interest to conduct its own investigation, attorney fees can be avoided when there is a reasonable basis to investigate the claim. The lesson to be drawn is that rather than argue that penalty interest does not accrue while the insurer investigates a claim (and risk attorney fees as a sanction under MCL 600.2591), the insurer is likely better off supporting its decision to engage in the investigation as reasonable. Most times, the pain inflicted by the payment of penalty interest will be much less than the pain of paying the plaintiff’s attorney fees.