Michigan Court of Appeals; Docket #357395; Published
Judges Borrello, Shapiro, and Hood; Authored
Official Michigan Reporter Citation: Forthcoming; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Common Fund Doctrine
SUMMARY:
In this unanimous, published decision authored by Judge Shapiro, the Court of Appeals reversed the trial court’s decision to split $500,000 in total, available uninsured motorist (UM) coverage equally between the estates of two individuals who died in a motorcycle-versus-motor vehicle crash, and remanded to the trial court for a pro rata distribution of that amount after each estate’s respective damages were determined by a jury. The Court of Appeals held that a common fund should only be split equally if all claims are equal, and that in this case, since one estate argued that its damages were greater than the other's, the jury should apportion the $500,000.
Brian Stamp and Rhonda Mahaffy were both killed when the motorcycle they were traveling on was hit by an uninsured driver. At the time of the crash, both Stamp and Mahaffy were covered under an automobile insurance policy issued by Secura Insurance Company, which provided for up to $1 million per incident in uninsured motorist coverage. After a dispute arose as to whether Secura was entitled to a setoff based on amounts paid or payable under other policies, Stamp’s estate filed a lawsuit against Secura, alleging that Secura refused to pay the UM coverage owed it under the Secura policy. The trial court ultimately determined that Secura was entitled to a setoff of $500,000 and that a balance of $500,000, therefore, was still available to Stamp’s and Mahaffy’s estates with respect to the subject crash. Secura then filed the underlying interpleader action against Stamp’s and Mahaffy’s estates, and Mahaffy’s “moved the trial court to equally divide the $500,000 between the estates.” Stamp’s estate opposed equal distribution of the funds, arguing that each party’s respective damages should be determined by a jury, especially considering that Stamp was survived by a 14-year-old dependent son, whereas Mahaffy had no dependents. After oral argument, the trial court granted Mahaffy’s motion, stating “that it could not ‘fathom having a jury trial where we are going to have heirs argue that Mr. Stamp’s life was worth so much more than Ms. Mahaffy’s. . . .”
The Court of Appeals reversed the trial court’s order granting Mahaffy’s motion to split the $500,000 evenly rather than have a jury determine each party’s respective damages. The Court of Appeals noted, preliminarily, that the trial court relied on the following passage from the Court of Appeals’ decision in Moore v McDowell, 54 Mich App 657 (1974)—which featured a dispute as to how $20,000 in insurance coverage should be divided among 23 injured bus passengers—in reaching its conclusion:
“Equality is equity; in other words, if the fund is not sufficient to discharge all claims upon it in full, or if the debtor is insolvent, equity will incline to regard all the demands as standing upon equal footing, and will decree a pro rata distribution or payment.”
The Court of Appeals held that the trial court erred when it read the maxim “equality is equity” to mean that, in all situations where separate claims exceed the available funds, the funds must be divided equally. Rather, that maxim “must be considered relative to the context in which it was used.” Thus, claimants should only receive equal shares if their claims are equal. In this case, Stamp’s estate contended that the claims were unequal, and thus there was a material question of fact as to each estate’s damages that ought to be decided by the jury.
“On the basis of the maxim that ‘equality is equity,’ Mahaffy’s estate successfully argued before the trial court that the $500,000 funds should be equally divided between the estates. But this maxim must be considered relative to the context in which it was used. Moore did not hold that each claimant should receive the same share of the limited insurance funds regardless of the extent of their damages; rather, it held that when the claims exceed the funds, equity requires distribution on a pro rata basis. See Moore, 54 Mich App at 663. Pro rata means ‘[p]roportionately; according to an exact rate, measure, or interest.’ Black’s Law Dictionary (11th ed). This definition of pro rata is consistent with Michigan caselaw. See e.g., Soup v Letllier, 123 Mich 640, 644; 82 NW2d 523 (1900) (‘From these findings of fact, the court below concluded that all the parties must share in the mortgage pro rata,—that is, in proportion to the value of the materials furnished by them, respectively.’). Accordingly, a pro rata distribution when there are limited funds means that the claimants will receive distributions in proportion to their claims. See Ballentine’s Law Dictionary (3rd ed) (defining ‘prorating claims’ as ‘[a] distribution of assets to creditors in proportion to the size of their respective claims where there are insufficient assets for payments of all claims in full.’) (emphasis added). If the underlying claims are equal, then the claimants will receive the same proportional shares. But if the claims are unequal—as Stamp’s estate asserts in this case—the proportional shares will differ. . . .
. . . To achieve a pro rata distribution, each estate’s share of the limited funds must be equal to the ratio of its damages to the total combined damaged suffered by the estates. Merely dividing a limited fund into equal shares when a claimant asserts unequal losses is not an equitable result. Because Stamp’s estate maintains that its losses exceeds Mahaffy’s estate, there was a material question of fact as to each estate’s damages.”