Michigan Court of Appeals; Docket No. 307458; Published
Judges Borrello, Fitzgerald, and Owens; Unanimous; Per Curiam
Official Michigan Reporter Citation: ____ Mich App _____ (2012); Link to Opinion
On April 29, 2013, the Michigan Supreme Court DENIED Leave to Appeal; Link to Order
STATUTORY INDEXING:
Work Loss Benefits: Calculation of Benefits [§3107(1)(b)]
Work Loss Benefits: Self-Employed Persons [§3107(1)(b)]
Requirement That Benefits Were Unreasonably Delayed or Denied [§3148(1)]
Bona Fide Factual Uncertainty / Statutory Construction Defense
TOPICAL INDEXING:
Not Applicable
In this unanimous published per curiam Opinion regarding plaintiff’s claims for wage loss benefits and statutory attorney fees, the Court of Appeals held that the plaintiff was entitled to receive wage loss benefits for “pass-through” income that he earned annually as the sole shareholder of a subchapter S corporation notwithstanding the Supreme Court decision of Ross v Auto Club Group, 481 Mich 1 (2008) (which Defendant HOIC argued limited plaintiff’s wage-loss benefits to only his annual salary and wage income) because nowhere in the Ross decision did the Supreme Court limit wage-loss benefits to that which is received in the form of salary and wage income reported annually on a W-2 form; however, the Court of Appeals denied Plaintiff’s claim for statutory attorney fees sought under MCL 500.3148, finding that although HOIC’s reliance on Ross was erroneous, the Ross decision nonetheless gave rise to a “legitimate question of statutory interpretation” such that HOIC’s refusal to pay wage-loss benefits was not “unreasonable” for purposes of awarding attorney fees.
The plaintiff in this case was a self-employed attorney who provided mediation and other legal services. He elected to adopt the corporate form of a subchapter-S corporation – under which form he was able to lawfully receive from his corporation income in excess of his salary and wage income that was taxed as individual income. This additional income is known as “pass-through” income because it passes through the corporation to the individual without being subject to corporate income tax under the federal tax code.
It is undisputed that the plaintiff became entitled to receive wage loss benefits under MCL 500.3107(1)(b) after he fell and suffered a traumatic brain injury while alighting from his vehicle. After the accident, plaintiff filed a claim for wage loss benefits pursuant to MCL 500.3107(1)(b) under his auto no-fault policy issued by defendant Home Owners Insurance Company (HOIC). The claim was made in an amount based on plaintiff’s total annual income, which included both his pass-through income and his salary and wage income. After submitting all necessary proof of income for both forms, Defendant HOIC denied the claim as to the pass-through portion of plaintiff’s annual income, arguing that the Supreme Court’s decision of Ross v Auto Club, 481 Mich 1 (2008) limited wage-loss benefits to an amount based only on salary and wage income. In Ross, the Supreme Court held that the owner of a subchapter S corporation was entitled to receive wage-loss benefits for the income he actually received from his subchapter S corporation even though the corporation was operating at an annual loss. Because the Ross plaintiff’s corporation was operating at an annual loss, he was only able to pay himself salary and wage income and therefore had not received any pass-through income in addition to that. Defendant HOIC interpreted the Ross decision to limit wage-loss benefits to only salary and wage income for the sole shareholders of subchapter S corporations.
Following HOIC’s partial denial of his wage-loss claim, plaintiff filed suit against seeking to recover wage-loss benefits for the pass-through portion of his annual income. Shortly thereafter, the parties stipulated to the amounts of income in question and agreed that the central issue needing to be resolved by the court was the proper interpretation of Ross decision. That is, whether Ross limited plaintiff’s wage-loss claim to only his salary and wage income as HOIC contended. The parties then filed cross-motions for summary disposition on this issue, and the trial court held that the Ross decision did not limit plaintiff’s wage-loss claim to only his salary and wage income. After finding that HOIC’s reliance on Ross was “unreasonable,” the trial court further awarded statutory attorney fees pursuant to MCL 500.3148.
This appeal followed, and the Court of Appeals affirmed the trial court’s ruling with respect to the proper interpretation of the Ross decision, but reversed the trial court’s award of attorney fees.
In finding that the Ross decision did not limit plaintiff’s wage loss claim to only his W-2 salary and wage income as HOIC contended, the Court reasoned that:
“In Ross, because the plaintiff’s subchapter S corporation was perating at a loss, there was no income distribution other than the W-2 wages plaintiff received. The holding in Ross, therefore, is limited to those situations where the claimant’s subchapter S corporation is operating at a loss. Nowhere in Ross does the Court say loss of income is limited to W-2 wages for a sole shareholder of a profitable subchapter S corporation. Thus, Ross is distinguishable from the present case.”
However, even though the Court agreed with the trial court that HOIC’s reliance on Ross was erroneous, the Court disagreed that HOIC’s erroneous reliance on Ross was “unreasonable” for purposes of awarding statutory attorney fees pursuant to MCL 500.3148. In this regard, the Court explained:
“Given the lack of definition of the phrase “loss of income from work,” and in particular the term “income,” in MCL 500.3107(1)(b), a legitimate question of statutory interpretation existed, particularly in light of the Ross Court’s calculation of work loss benefits for an individual who was the sole employee and sole shareholders of a subchapter S corporation. Under these circumstances, we conclude that defendant did not act unreasonably by paying plaintiff work loss benefits based upon his W-2 income.”
Therefore, the Court affirmed the trial court’s ruling that Ross did not limit plaintiff’s wage-loss benefits to only his salary and wage income and reversed the trial court’s award of attorney fees.
