Kent County Circuit Court; Docket No. 95-3400-NI; July 24,1997; Unpublished
Honorable Dennis C. Kolenda
Official Michigan Reporter Citation: Not Applicable; Link to Opinion 
STATUTORY INDEXING:
Requirement That Benefits Were Unreasonably Delayed or Denied [§3148(1)]
Conduct Establishing Unreasonable Delay or Denial [§3148]
Penalty Attorney Fees and Other Court Rule Sanctions [§3148]
12% Interest Penalty on Overdue Benefits – Nature and Scope [§3142(2), (3)]
Interest Penalty Additive to Judgment Interest [§3142]
Reasonable Proof Requirement [§3142(1)]
Interest Penalty on Attorney Fee Sanctions [§3142]
TOPICAL INDEXING:
Civil Judgments and Interest (MCL 600.6013)
CASE SUMMARY:
In this written Opinion dealing with a claim for medical expenses, replacement services, interest and attorney fees, Judge Kolenda rendered several significant holdings.
First, the court ruled that where a no-fault insurance company receives proof of claim and supporting medical documentation, and then does nothing for several months, thus forcing plaintiff to commence litigation to toll the statute of limitations, the insurer has not acted reasonably in the investigation and processing of the claim. Typically, an insurance company should be able to conclude its review within 30 days after receiving sufficient supporting information. Moreover, the fact that litigation is pending does not constitute justification for the insurance company to continue denying payment of the claim, if a denial is not otherwise reasonable. The simple fact of litigation does not justify denial of otherwise valid claims.
Second, the court held that if an insurance company pays claims on the eve of trial, including making direct payment to medical providers, it cannot escape a finding that such payment was a recognition of liability and cannot be excused from an earlier unreasonable denial or delay in making payment of the claim. Payments made under such circumstances will be viewed by the court as being made as a result of the litigation and an insurance company will be liable for attorney fees with respect to the legal services rendered by plaintiffs counsel in pursuing the litigation that eventually resulted in the late payment of these claims.
Third, in addition to recovering attorney fees under §3148 of the statute, a plaintiff who accepts mediation and otherwise improves their position by 10%, is also entitled to mediation sanctions. In calculating the amount of the "verdict " for purposes of determining mediation sanctions, the court will consider medical expenses paid directly to medical providers by the defendant insurance company, and other late paid benefits to be payments made as a direct result of the lawsuit. In addition, attorney fees awarded to plaintiffs counsel are also to be considered part of the judgment.
Fourth, statutory no-fault interest recoverable under §3142(2) is assessable from 30 days after adequate proof of loss is received by the insurer. In addition, civil judgment interest is also to begin that day, pursuant to the Court of Appeals' earlier holding in McKelvie v Auto Club Insurance Association [Item No. 1694]. However, Judge Kolenda questioned the correctness of that holding, inasmuch as RJA interest runs from the date of filing the complaint. Nevertheless, McKelvie is controlling.
Fifth, interest recoverable under §3142 and RJA interest is to be calculated on the total amount of plaintiff s claim, not just what remains to be paid on the date of trial. Moreover, RJA interest is also assessable against the attorney fee award under §3148. However, §3142, no-fault interest cannot be assessed against the attorney fee award under §3148.
In rendering these rulings, Judge Kolenda made significant observations regarding the public policy considerations involved in claims such as this. In this regard, Judge Kolenda stated:
"Certainly, ignoring a claim which was not being investigated, cannot be characterized as reasonable. ... Hence, a month was adequate time to evaluate plaintiff's claim, making non-payment beyond that time unreasonable. It seems appropriate to borrow the month time frame from MCLA 500.3142 which gives insurance companies 30 days after receipt of sufficient supporting information to pay claims or face penalty interest.
That plaintiff's claim was 'in litigation' does not constitute an acceptable reason for not paying it. That a claim is the subject of a lawsuit says nothing, one way or the other, about the merits of that claim.... The existence of litigation says absolutely nothing about the reasonableness of the claim, or the reasonableness of not paying it. Furthermore, it is inappropriate as a matter of policy to permit the mere pendency of litigation to establish reasonableness. A principal point of the no-fault statutory scheme is to minimize the need for litigation to collect so-called 'first party benefits.' Hence, the pendency of litigation cannot be permitted to allow an insurer to stop processing a first party claim and to delay paying it once verified Permitting that would encourage insurance companies to encourage litigation over first-party benefits.
Finally, that defendant negotiated an acceptable payment directly, i.e., without even notice to her counsel, with plaintiff's treating physician does not obviate its obligation to pay plaintiff's counsel. It is readily apparent that the pendency of this case and the prospect of imminent trial prompted that payment.... That defendant's counsel did not negotiate the payment with plaintiff's counsel does not change the fact that this case, which was being pursued by plaintiff's counsel, prompted the payment. Hence, the purpose of awarding attorney fees is fully implicated in this case. In fact, to not award fees to plaintiff's counsel because of the way the doctor's bill was paid, would undermine the policy behind the statutory provision for attorney fees when payment is unreasonably refused or delayed. The purpose of that provision is to ensure prompt payment to the insured by imposing a penalty on insurers when payment is unreasonably delayed. If insurance companies can, as did defendant in this case, withhold payment for many months, and, then, on the eve of a deposition or trial, decide to pay what is owed, but do so directly and, by doing so, avoid the penalty of attorney fees, a device will have been created to delay payment without any penalty. Insurance companies will be encouraged to withhold payment, wait for litigation, and then deal directly with the care providers on the eve of trial, using the money until the very end. Almost surely, if payment can be delayed without a penalty, it will be delayed, directly contravening the objective of the no-fault scheme of insurance, which is to provide prompt payment and to avoid litigation by doing so....
If insurance companies can pay directly after a lawsuit has been filed and not be assessed attorney fees, even though the delay in payment was not reasonable, deserving claimants may not pursue their claims, which will encourage insurance companies to withhold payment in the hope that they will never be sued for it. If lawyers are not paid by the insurance companies, as the statute authorizes, the claimants will have to pay; lawyers cannot properly be expected to work for free. The much reduced net recovery will discourage claimants from pursuing modest claims, which is the size of many first-party claims . . . If health care providers come to anticipate routinely receiving less than they bill, one of two things will happen: they will inflate their bills, or they will insist on payment from a patient, leaving the patient to seek reimbursement, something which may impose a significant hardship on the patient. And of course, if payment is not available, treatment may not be provided. The end result will be the undermining of the no-fault insurance scheme."
