Stryker Corporation et al v. National Union Fire Insurance Company of Pittsburgh, PA et al

Filing 239

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

S t r y k e r Corporation et al v. National Union Fire Insurance Company of Pittsburgh, PA et al

D o c . 239

UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF MICHIGAN S O U T H E R N DIVISION

S T R Y K E R CORPORATION and HOWMEDICA OSTEONICS CORP., P l a i n t if f s , F ile No. 1:05-CV-51 v. H O N . ROBERT HOLMES BELL X L INSURANCE AMERICA INC., formerly known as WINTERTHUR INTERNATIONAL AMERICA INSURANCE COMPANY, and TIG In s u ra n c e Company, D e f e n d a n ts . /

OPINION T h is matter is before the Court on a motion filed by Defendant XL Insurance America ( " X L " ) seeking a judgment on the pleadings in favor of the Defendant on all remaining c la im s in this action. Plaintiffs Stryker Corporation ("Stryker") and Howmedica Osteonics C o rp o ra tio n oppose Defendant's motion, and have moved for summary judgment on their c la im for penalty interest under Mich. Comp. Laws. § 500.2006.

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I. T h is diversity action ("Stryker II") is one of three related actions arising out of an in s u ra n c e coverage dispute. In this action, Plaintiffs brought suit against Defendant XL se e k in g indemnification for the DUK claims brought against Pfizer that were at issue in P fiz e r v. Stryker, File No. 1:02-CV-8613, in the Southern District of New York. On January 8 , 2009, this Court issued an amended opinion and partial judgment granting Plaintiffs' m o tio n for summary judgment as to XL's liability for the judgment against Stryker in Pfizer v . Stryker. On February 2, 2009, Defendant XL made a payment to Pfizer which settled P f iz e r's claims against Stryker. This Court has ruled that XL's payment to Pfizer satisfies its liability for the judgment in Pfizer v. Stryker. (Dkt. No. 196.) O n e issue remains. Plaintiffs seek statutory penalty interest under Mich. Comp. L aw s § 500.2006, which requires insurers to pay 12% interest on insurance benefits that are n o t timely paid. Despite the fact that Plaintiffs never made a payment to Pfizer, Plaintiffs' c la im that Defendant XL owes them $5,603,290 in penalty interest. The parties raise a number of arguments and counter-arguments regarding who, if a n yo n e , is entitled to penalty interest under § 500.2006, and whether the right to said interest h a s been waived. Most of these arguments are gratuitous, as the Court's prior analysis of c u rre n t Sixth Circuit law inexorably leads to a finding for the Defendant. T h e Court need not entirely reproduce the analysis from its June 24, 2009 opinion in th e companion case to this action, Styker Corp. and Howmedica Osteonics corp v. XL

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In s u r a n c e America, Inc., File No. 4:01-cv-157, ("Stryker I"), but a brief reiteration and a p p lic a tio n to the present action is appropriate. M.C.L. § 500.2006(1)(4) states as follows: If benefits are not paid on a timely basis the benefits paid shall bear s im p le interest . . . at the rate of 12% per annum, if the claimant is the in s u re d or an individual or entity directly entitled to benefits under the in s u re d 's contract. If the claimant is a third party tort claimant, then the b en ef its paid shall bear interest from a date 60 days after satisfactory p ro o f of loss was received by the insurer at the rate of 12% per annum if the liability of the insurer for the claim is not reasonably in d is p u te . . . . A m b ig u ity arose in the Sixth Circuit regarding the scope of the "reasonably in dispute" la n g u a g e in Michigan law. (see Stryker I, Dkt. No. 1122 at 15-17.) The issue was addressed in Griswold Properties, L.L.C. v. Lexington Insurance Co., 740 N.W.2d 659 (Mich. Ct. App. 2 0 0 7 ) ("Griswold II"), in which the Sixth Circuit interpreted the Michigan law as applying th e "reasonably in dispute" language only to third party tort claimants, and not to directly in s u re d parties. In Stryker I, a companion to this action, Plaintiffs obtained judgment against D e f e n d a n t XL for indemnification of settlement costs incurred directly by Stryker with re sp e c t to DUK claims. Stryker also sought penalty damages under § 500.2006 in that case. A lth o u g h a lengthy litigation history indicates that the insurance claim against XL was " re a so n a b ly in dispute," Stryker argued that, following Griswold II, the "reasonably in d is p u te " language did not apply to Stryker as the insured party. In opposition, Defendant X L cited the recent Michigan Court of Appeals decision in Auto-Owners Insurance CO. v. F e rw e rd a Enterprises, Inc., --- N.W.2d ---, No. 277547, 2010 WL 322986 (Mich. Ct. App. 3

J a n . 28, 2010) in support of its argument that § 500.2006 interest is not available on any c la im (even one brought by the insured) that is reasonably in dispute and is tied to underlying th ird -p a rty claims. The Court disagreed with Defendant's broad interpretation of Ferwerda and awarded S tryk e r § 500.2006 interest. Importantly, in Stryker I, the Plaintiffs had settled and paid the u n d e r lyin g DUK tort claims. The Court reasoned as follows: F e rw e rd a is distinguishable from [Stryker I] because, unlike [the plaintiff in F e r w e r d a ], Plaintiffs have settled and paid the third-party claims, and those s e ttle m e n ts are part of the judgment for which Plaintiffs seek an award of in te re st. The court in Ferwerda made a point of distinguishing the third-party lo s s e s in its case from the direct losses by the insured claimants in Griswold. H o w e v e r , when the insured pays the third party's claims, the third party's loss is transferred to the insured, and the insured suffers the consequences of c o n tin u e d delay by the insurer. If the purpose of § 500.2006 is to encourage p rom p t payment of claims, that purpose is met, in part, with respect to the third p a rty when it receives payment from the insured. But the insurer continues to b e obligated to pay the claim; the only difference is that the insured, the co n trac tin g party, is the party suffering the consequences of the insurer's c o n tin u e d delay. It would undermine the purpose of § 500.2006(4) to p ro m o te timely payment of claims if an insurer could, after its insured has paid th e third party's claims, continue to delay payment to its insured and be s u b je c t to the bad faith standard applicable to third-party tort claimants, or be e x e m p t entirely from a claim for interest by its insured. Stryker I, Dkt. No. 1122 at 21-22. T h e present action features the same parties and the same penalty interest statute. In d e e d , the basis of this action is once again indemnification for an underlying third party c la im . However, there is a critical and obvious difference. Here, Plaintiffs never paid the u n d e rlyin g third party claim. Defendant XL settled directly with Pfizer, satisfying both

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P f iz e r's judgment against Stryker and, as this Court has ruled, XL's liability to Stryker for th a t judgment. (Dkt. No. 196) A s Plaintiffs never paid Pfizer, the present action is indistinguishable from Ferwerda, in which the sixth ircuit ruled that an insured party cannot seek § 500.2006 interest from its in s u re r on reasonably disputed underlying third party claims when those claims were never p a id . Stryker, the insured, was not injured by XL's delay. Pfizer was the injured party, but P fize r was a third party tort claimant. Therefore, under Griswold II as modified by F e rw e rd a , neither the Plaintiffs nor Pfizer are entitled to § 500.2006 penalty interest in this a c tio n . Therefore, Plaintiffs' motion for summary judgment on their claim of penalty interest u n d e r § 500.2006 will be denied. A s all parties agree that Plaintiffs' § 500.2006 claim was the only remaining issue in th is case. Accordingly, Defendant's motion for judgment on the pleadings, for entry of final ju d g m e n t, and for a determination that the final judgment has been satisfied will be granted. A n order and final judgment consistent with this opinion will be entered.

Dated: September 30, 2010

/s/ Robert Holmes Bell ROBERT HOLMES BELL UNITED STATES DISTRICT JUDGE

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