Wausau Underwriters Insurance Company v. Reliable Transportation Specialists, Inc. et al

Filing 59

ORDER Declaring Controlling Law re 37 Signed by District Judge George Caram Steeh. (MBea)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
WAUSAU UNDERWRITERS
INSURANCE COMPANY,
Plaintiff,
CASE NO. 15-CV-12954
HON. GEORGE CARAM STEEH

v.
RELIABLE TRANSPORTATION
SPECIALISTS, INC.,
AMARILD USHE, and BURT HOLT,
Defendants.
-andRELIABLE TRANSPORTATION
SPECIALISTS, INC., and AMARILD USHE,
Counter-Plaintiffs,
v.
WAUSAU UNDERWRITERS
INSURANCE COMPANY,
Counter-Defendant.
/

ORDER DECLARING CONTROLLING LAW (DOC. 37)
Plaintiff Wausau Underwriters Insurance Company (“Wausau”) filed this suit
seeking a Declaratory Judgment delineating its obligations under a Commercial Policy
issued by Wausau to Reliable Transportation Services (“RTS”) for a judgment entered
in favor of Burt Holt against RTS and Amarild Ushe in an underlying lawsuit. RTS and
Ushe filed counterclaims alleging that Wausau committed bad faith in failing to settle,
and that Wausau is therefore responsible for the entire judgment despite the policy limit.
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Now before the court is RTS and Ushe’s motion for declaration of controlling law. For
the reasons set forth below, this Court declares that Michigan law controls the resolution
of both the contract and tort counterclaims asserted by RTS and Ushe.
A. Background
This case arises out of an Order of Judgment from an underlying lawsuit
captioned Holt v. Amarild Ushe, et al., Case No. 12-007202-NI, brought in Wayne
County Circuit Court (“Holt Lawsuit”). Burt Holt filed a complaint against RTS, Amarild
Ushe, and another party (not part of this action) relating to injuries allegedly suffered by
Holt when he was struck by a tractor trailer operated by Ushe. At the time of the
accident, Ushe was driving the tractor trailer under the authority of RTS pursuant to an
agreement between Ushe and RTS.
RTS and Ushe requested insurance coverage (defense and indemnity) for the
Holt Lawsuit pursuant to Commercial Policy No. ATJ-Z91-454319-020, effective April
15, 2010 to April 15, 2011, issued by Wausau to RTS (“Wausau Policy”). Wausau
provided both RTS and Ushe with a defense of the Holt Lawsuit. A jury trial was held in
May and June of 2015, and the jury reached its verdict on June 7, 2015. On July 28,
2015, the court in the Holt Lawsuit entered a judgment based on the jury’s verdict, for
the total amount of $8,735,142.35 against RTS and Ushe. The defendants in the Holt
Lawsuit filed post-judgment motions in that action and the Holt Lawsuit is currently on
appeal to the Michigan Court of Appeals. RTS contends that Wausau acted in bad faith
against its insured, RTS and Ushe, by failing to settle within the policy limits and is thus
responsible for the entire judgment and additional damages.

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In the present action, Wausau seeks a declaration that (1) it has no obligation to
satisfy the judgment entered against Reliable above the Wausau Policy’s $1,000,000
limit of insurance plus any required ancillary amounts such as interest or other
supplementary payments, and (2) the Defendants are precluded from asserting any
claim against Wausau for bad faith, extra-contractual remedies, or similar relief relating
to the Holt Lawsuit. In their counterclaims, both RTS and Ushe assert Breach of
Contract (Count I) and Tortious Conduct and Bad Faith (Count II).
In their Motion for Declaration of Controlling Law, RTS and Ushe request that this
Court declare that the substantive law of Indiana controls the resolution of the
counterclaims.
B. Law and Analysis
A federal court sitting in diversity applies the choice-of-law rules of the forum
state. Pedicini v. Life Ins. Co. of Ala., 682 F.2d 522, 526 (6th Cir. 2012). RTS’s and
Ushe’s counterclaims assert Breach of Contract (Count I) and Tortious Conduct and
Bad Faith (Count II). (Doc # 10, Pg ID 217-21; Doc # 12, Pg ID 225-41.) For the
reasons stated below, Michigan choice-of-law rules for contract and tort claims call for
the application of Michigan law.
1. Michigan choice-of-law rules for breach of contract claims
Michigan generally follows the Restatement (Second) Conflict of Laws when a
conflict of law exists in a contract action. See Chrysler Corp. v. Skyline Indus. Servs.,
Inc., 528 N.W.2d 698 (Mich. 1995); Farm Bureau Ins. Co. v. Abalos, 742 N.W.2d 624
(Mich. Ct. App. 2007). Before Chrysler, the longtime view in Michigan had been that
contract disputes are subject to the law of the place of contracting. 528 N.W.2d at 702.
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In Chrysler, the Michigan Supreme Court followed the nationwide trend of adopting the
Second Restatement of Conflict of Laws approach to choice-of-law in contract cases.
Id. Chapter 8 of the Second Restatement covers contract choice-of-law rules, and §
188 specifically addresses contracts that do not contain a choice-of-law provision.
Restatement (Second) of Conflict of Laws § 188 (1971). In the absence of an
agreement by the parties at the time of contracting as to what law will control, courts
should apply the law of the state with the most significant relationship to the transaction
and the parties. Id. This policy-centered approach is more in line with modern
contracting realities, as it acknowledges that multiple states may have interests in an
insurance contract and that the interests of a foreign state may outweigh those of the
place of contracting. See id. at 703.
The Second Restatement contains a provision that applies specifically to
insurance contracts. Aetna Cas. & Sur. Co. v. Dow Chem. Co., 883 F. Supp. 1101,
1106 (E.D. Mich. 1995). Section 193 provides that the principal place of the insured risk
during the term of the policy is the most important factor to the determination of which
state’s law to apply. Id. Comment (b) to § 193 describes the principal location of the
risk as the state where it will be located during “the major portion of the insurance
period.” Restatement (Second) of Conflict of Laws § 193, cmt. b (1971). The location
of the risk is easy to determine when an insurance policy covers an immovable object,
such as a house. Even “in the case of an automobile liability policy, the parties will
usually know beforehand where the automobile will be garaged at least during most of
the period in question.” Id. However, comment (b) recognizes that there are certain
situations where the location of the risk has less significance in determining the state of
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the applicable law, including (1) where the insured object moves from state to state and
(2) where the policy covers a group of risks located in several states. Section 193 thus
teaches a positive correlation between the ability to locate a risk principally in one state
and the significance of that contact in determining which state’s law applies.
RTS and Ushe maintain that § 193 does not apply to this case because the
tractor trailer was constantly on the move and the Wausau Policy covered a group of
risks scattered across two or more states. (Doc # 49, Pg ID 774-75.) As to the tractor
trailer being an object in motion, when automobiles are involved in insurance contract
choice-of-law disputes, courts have typically concluded that the principal place of the
insured risk is where the automobile was “‘principally garaged’ at the time the insurance
policy was issued.” Bristol West Ins. Co. v. Whitt, 406 F. Supp. 2d 771, 787 (W.D. Mich.
2005) (citations omitted). As to the fact that the tractor trailer was covered under a
group policy with risks located in several states, comment (f) to § 193 “provides that a
multiple risk policy should be treated like a separate policy for each state where the
policy incorporates state statutory form[s].” Aetna, 883 F. Supp. at 1107; see also
Meijer, Inc. v. Gen. Star Indem. Co., 61 F.3d 903 (6th Cir. 1995). If a case involves one
or both of these two circumstances, it may still be possible to determine the principal
location of the risk, which dictates which state’s law should be applied. See Aetna, 883
F. Supp. at 1107.
Here, the principal location of the risk insured under the policy is Michigan.
Ushe’s vehicle is not “more or less constantly on the move from state to state,” the first
situation in which the principal location of the risk cannot be determined. Restatement
(Second) of Conflict of Laws § 193, cmt. b (1971). In the Holt Lawsuit, Ushe testified at
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his deposition that he drove mostly locally in Michigan and sometimes to Toledo, Ohio,
but he did not do long hauls. (Doc # 45-4, Pg ID 714.) This hardly constitutes travel
“more or less constantly. . . from state to state.” Additionally, because an automobile is
involved, the location where the car is principally garaged is indicative of which law to
apply. Bristol, 406 F. Supp. 2d at 787. At the time the Wausau Policy was issued,
Wausau understood that RTS’s vehicles would be garaged in several states, including
Michigan. (Doc #45-6, Pg ID 745.) Michigan certainly has an interest in insurance
contracts that cover vehicles garaged in the state and operated by Michigan residents.
The circumstances in this case do not fit the second situation either. Here, the
multiple risk policy incorporates state statutory forms. (Doc # 45-5, Pg ID 721-22.)
Although the Wausau Policy technically covers “a group of risks that are scattered
throughout two or more states,” Restatement (Second) of Conflict of Laws § 193, cmt. b
(1971), it should be treated “as if it involved [several] policies, each insuring an
individual risk.” Restatement (Second) of Conflict of Laws § 193, cmt. f (1971).
Under § 193, Michigan law should apply in this case. Although the insured risk
was one of many within a multiple risk policy, it is considered insured by a single policy
for the purposes of the choice-of-law analysis. Because the insured risk was garaged
and contemplated to be insured in Michigan, any contract disputes arising out of the
Wausau Policy will be governed by Michigan law. See Restatement (Second) of
Conflict of Laws § 193 (1971).
2. Michigan choice-of-law rules for tort claims
The Michigan Supreme Court announced the analytical framework for tort
conflicts of law in Sutherland v. Kennington Truck Serv., Ltd., 562 N.W.2d 466 (Mich.
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1997). According to Sutherland, a court will apply Michigan law to a tort claim brought
in Michigan unless a “‘rational reason’ to do otherwise exists.” Id. at 286. See also
Wells Fargo Advantage Nat. Tax Fee Fund v. Helicon Assocs., 520 F. App’x 367 (6th
Cir. 2013). If no other state has an interest in having its law applied, “the presumption
that Michigan law will apply cannot be overcome.” Id. If a foreign state does have an
interest, the court must then determine if “Michigan’s interests mandate that Michigan
law be applied, despite the foreign interests.” Id. “Although this balancing approach
most frequently favors using [Michigan’s] law, Michigan courts nonetheless use another
state’s law where the other state has a significant interest and Michigan had only a
minimal interest in the matter.” Hall v. Gen. Motors Corp., 582 N.W.2d 866 (Mich. Ct.
App. 1998).
Here, there appears no “rational reason” to displace Michigan tort law. See
Sutherland, 562 N.W.2d 466. In fact, RTS and Ushe have not even offered any rational
reason to displace Michigan law for the tort counterclaims. (See Doc # 37; Doc # 49.)
RTS and Ushe briefed choice-of-law rules for the contract claim only and focused solely
on Indiana law as the appropriate controlling law in this case. Id. Regardless, this
Court analyzes choice-of-law for the tort claim.
Several factors weigh in favor of the application of Michigan law. Indiana
arguably has an interest in the case because RTS, one of the insureds under the
Wausau Policy, is incorporated in Indiana and has its principal place of business there.
On the other hand, Ushe, also an insured under the Policy, resides in Michigan. (Doc #
1, Pg ID 3.) Additionally, as discussed above, the Policy itself covers risks located in
Michigan. (Doc # 1, Pg ID 6-7.) Furthermore, Michigan is likely where the alleged
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wrong – the bad faith failure to settle – occurred. “Michigan courts consider the place
where the injury occurred as the place of the wrong, and they treat the place of the
injury as a significant factor in determining what law to apply.” Stryker Corp. v.
Ridgeway, No. 1:13-CV-1066, 2015 WL 5308038, at *3 (W.D. Mich. Sept. 10, 2015).
The alleged tort of bad faith failure to settle within the policy limits occurred at the
Wayne County courthouse and mediation tribunal offices during the case evaluation
hearings, pretrial settlement conferences, and trial, according to RTS’s and Ushe’s own
counterclaims:
9. The Jury Trial was originally scheduled for February 2, 2015. In an
effort to reach a settlement, Judge McDonald attempted to broker a
settlement at the final pre-trial conference on January 30, 2015.
10. During the January 30, 2015, final pre-trial conference, Rick Joslin,
who was retained by Wausau to defend Reliable Transportation and Ushe,
sent an email to Wausau and Reliable Transportation’s counsel advising
that Mr. Holt would accept $750,000.00 from Reliable Transportation and
Mr. Ushe. While Mr. Joslin was still at the court house, Reliable
Transportation’s counsel sent an email to Wausau demanding it to accept
the current settlement demand of $750,000 and reminding Wausau it
owed Reliable Transportation the duty to act in good faith and fair dealing.
11. Wausau refused to protect Reliable Transportation’s assets by
refusing to settle the claim for $750,000.00 at the January 30, 2015 final
pretrial conference.
***
13. Judge McDonald conducted another final pre-trial conference on May
15, 2015. Judge McDonald again attempted to broker a settlement.
14. During the May 15, 2015 final pre-trial conference, Rick Joslin sent an
email to Wausau and Reliable Transportation’s counsel advising Mr. Holt
would accept $900,000.00 from Reliable Transportation and Mr. Ushe.
While Mr. Joslin was still at the court house, Reliable Transportation’s
counsel sent an email to Wausau demanding it accept the current
settlement demand of $900,000.00...
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***
16. Kraig Lhotak, Reliable Transportation’s General Manager, was its
corporate representative at trial. Prior to jury selection, Mr. Lhotak
informed Mr. Joslin and Wausau’s representative at trial that Reliable
Transportation demanded Wausau to settle the Holt Lawsuit at or within
the $1,000,000 Policy Limits. During trial, Reliable Transportation
repeatedly demanded Wausau to settle the lawsuit in order to protect
Reliable Transportation’s assets. Wausau had the opportunity to settle
the claim for $1,000,000.00 on May 22, 2015 but again refused to protect
Reliable Transportation’s assets.
(Doc # 10, Pg ID 213-15; see Doc # 12, Pg ID 231-33 (emphasis added).) While the
court recognizes that the ultimate decision to deny the settlement offer might have been
made by persons in another state, no part of Wausau’s alleged acts in failing to settle
the Holt Lawsuit (a Michigan lawsuit) within the policy limits occurred in Indiana.
Because Michigan’s interests in this case outweigh any interests Indiana may have, the
tort counterclaim will be governed by Michigan law.
C. Conclusion
For the reasons set forth above, this Court declares that Michigan law controls
the resolution of both the contract and tort counterclaims asserted by RTS and Ushe.
IT IS SO ORDERED.
Dated: August 5, 2016
s/George Caram Steeh
GEORGE CARAM STEEH
UNITED STATES DISTRICT JUDGE
CERTIFICATE OF SERVICE
Copies of this Order were served upon attorneys of record on
August 5, 2016, by electronic and/or ordinary mail.
s/Marcia Beauchemin
Deputy Clerk

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