Bank of America, N.A. v. State Farm Fire and Casualty Company

Filing 20

ORDER Granting Defendant's Motion for Reconsideration Re: Order Denying Defendant's Motion for Judgment on the Pleadings and/or for Summary Judgment 17 . Signed by District Judge Denise Page Hood. (LSau)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
BANK OF AMERICA, N.A.,
Plaintiff,
Case No. 2:11-CV-15266
v.
HON. DENISE PAGE HOOD
STATE FARM FIRE AND CASUALTY
COMPANY,
Defendant.
/
ORDER GRANTING DEFENDANT’S MOTION FOR
RECONSIDERATION RE ORDER DENYING DEFENDANT’S MOTION
FOR JUDGMENT ON THE PLEADINGS AND/OR FOR SUMMARY
JUDGMENT [#17]
This matter involves an insurance contract.

Now before the Court is

Defendant’s Motion for Reconsideration, dated October 19, 2012. For the reasons
stated below, Defendant’s Motion for Reconsideration is GRANTED.
I.

BACKGROUND
On November 7, 2011, mortgagee Bank of America, an additional named

insured, filed a claim seeking the balance of proceeds payable by insurer State Farm
under an insurance policy covering against water damage to mortgagor’s house. On
December 22, 2011, Defendant filed a Motion for Judgment on the Pleadings and/or

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for Summary Judgment.

On September 30, 2012, the Court denied in part

Defendant’s Motion for Judgment on the Pleadings and/or for Summary Judgment,
based on its finding that State Farm is liable to Bank of America for the actual cash
value of the property at the time of loss without offset.
II.

STANDARD OF REVIEW
Eastern District of Michigan Local Rule 7.1(h) allows a party to file a motion

for reconsideration within fourteen days after entry of judgment or order. E.D. Mich.
L.R. 7.1(h)(1). No response or oral argument is allowed unless the Court orders
otherwise. E.D. Mich. L.R. 7(h)(2). Pursuant to Rule 7.1(h)(3), “the court will not
grant motions for rehearing or reconsideration that merely present the same issues
ruled upon by the court, either expressly or by reasonable implication.” The standard
of review to be employed by the Court when examining a motion for reconsideration
is the “palpable defect” standard. E.D. Mich. L.R. 7.1(h)(3). A “palpable defect” is
a “defect which is obvious, clear, unmistakable, manifest, or plain.” Olson v. The
Home Depot, 321 F. Supp. 2d 872, 874 (E.D. Mich. 2004). The movant must show
that (1) the court and the parties have been misled by a “palpable defect,” and (2)
correcting the defect will result in a different disposition of the case. E.D. Mich. L.R.
7.1(h)(3).
III.

ANALYSIS
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Regarding the threshold issue of the total amount payable under the insurance
policy, the parties agree that it is the market value of the property at the time of loss.
The major issues remaining are (1) whether reappraisal is appropriate to re-determine
that market value, and (2) whether that market value may be offset by the Plaintiff’s
bid amount at the sheriff’s sale (“bid amount”), the amount for which the Plaintiff
subsequently resold the property (“resale amount”), or some other amount. In its
Order Denying in Part Defendant’s Motion for Judgment on the Pleadings and/or for
Summary Judgment, the Court postponed its decision regarding the issue of
reappraisal and denied the motion with respect to the issue of setoff.
Regarding the issue of setoff, the Court was presented with the narrower issue
of whether State Farm is entitled to offset the total amount payable under the policy
by $968,000 i.e. the resale amount. State Farm did not present the argument that it is
entitled to offset the total amount payable by $607,914.26 i.e. the bid amount. As the
Court previously stated in its Order Denying in Part Defendant’s Motion, State Farm
fails to point to a section of the policy allowing it to offset the market value at the time
of loss by the resale amount. The Court also noted that, regardless of any payment by
State Farm pursuant to the policy, Bank of America would still be entitled to resell the
property at a later time.

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In its original motion, the two cases cited by the Defendant did not support the
Defendant’s argument. The Court in Smith clearly stated, “[W]hen the loss occurs
before a foreclosure sale in which the mortgagee purchases the property for a bid
which extinguishes the mortgage debt, the mortgagee is not entitled to the insurance
proceeds.” Smith v. Gen. Mortgage Corp., 402 Mich. 125, 127 (1978) (emphasis
added). The court in Heritage Federal Savings clearly stated, “When [the mortgagee]
foreclosed on the property and purchased it for a price in excess of the amount of the
indebtedness, the debt was satisfied and the mortgagee’s right to the proceeds
terminated.” Heritage Fed. Sav. Bank v. Cincinnati Ins. Co., 180 Mich. App. 720, 726
(1989) (emphasis added). Neither case mentions the resale amount as a relevant
factor.
The Court acknowledges the Defendant’s present argument that State Farm is
entitled to offset the total amount payable by the bid amount. However, whether this
argument constitutes a “palpable defect” depends on whether the original issue
presented for judgment on the pleadings and/or summary judgment was (1) the
narrower issue of whether Defendant may offset the total amount payable by the resale
amount (i.e. permissibility of setoff); or (2) the broader issue of whether setoff uses
the resale amount, the bid amount, or some other amount (i.e. amount of setoff). In
the former case, the Defendant would now be raising an entirely unrelated issue that
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the Court cannot “reconsider” because the Plaintiff has had no opportunity to respond.
However, in the latter case, the Court may reconsider its ruling because it was based
on an oversight that misled the court and the parties.
The Court believes that the broader issue was originally at stake for a few
reasons. First, the Defendant’s argument was necessarily predicated on the position
that setoff is generally appropriate. Second, the two cases that the Defendant offered
in support of its argument state that the total amount payable should be offset by the
bid amount. Third, the Plaintiff, in its response to the motion, argued that the amount
of setoff is some other amount: the net amount recovered upon resale i.e. the resale
amount less the bid amount. All three circumstances point to a disagreement
regarding the amount of setoff and not the permissibility of setoff. Accordingly, the
Court may reconsider its ruling. Regarding the first element of the palpable defect
standard, it is obvious that the Defendant’s choice of amount for setoff was a plain
defect, when compared with the accompanying cases, Smith and Heritage Federal
Savings.
Regarding the second element of the palpable defect standard, the palpable
defect does not result in a different disposition of the overall case at this stage for two
reasons. First, as previously stated in the Order Denying in Part Defendant’s Motion,
the total amount payable under the policy still depends on the unresolved issue of
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reappraisal, which the Court has decided to address after discovery. If reappraisal is
appropriate and results in a market value sufficiently higher than State Farm’s
appraisal, there will be an outstanding amount payable. The second reason that the
palpable defect will not change the result at this stage is that the total amount payable
depends, to a lesser extent, on another unresolved issue: characterization of the
$200,000 advance payment as a mitigation or replacement-cost payment. If the
$200,000 is deemed to be a mitigation payment, the total amount payable is to that
extent still outstanding.
However, the palpable defect does result in a different outcome of the
Defendant’s Motion for Judgment on the Pleadings and/or for Summary Judgment
because the Defendant’s argument that the Plaintiff has been made whole depends on
the unresolved issues just discussed, in addition to the now-resolved issue of setoff
amount. And because the Motion for Reconsideration was narrowly drawn to the
issue of setoff alone, the Court may clarify the Court’s order without disturbing the
other unresolved issue of reappraisal.
Therefore, the Court grants this Motion for Reconsideration to clarify its
previous order. Defendant’s Motion for Judgment on the Pleadings and/or for
Summary Judgment shall be granted in part to reflect that State Farm is liable to Bank

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of America for the market value of the property at the time of loss, offset by the
amount bid by Bank of America at the sheriff’s sale.
IV.

CONCLUSION
Accordingly,
IT IS ORDERED that Defendant’s Motion for Reconsideration [Docket No.

17, filed on October 19, 2012] is GRANTED. State Farm is liable to Bank of
America for the actual cash value of the property at the time of loss, offset by the
amount bid by Bank of America at the sheriff’s sale.
IT IS SO ORDERED.

S/Denise Page Hood
Denise Page Hood
United States District Judge
Dated: March 28, 2014
I hereby certify that a copy of the foregoing document was served upon counsel of
record on March 28, 2014, by electronic and/or ordinary mail.
S/LaShawn R. Saulsberry
Case Manager

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