Stryker Corporation et al v. National Union Fire Insurance Company of Pittsburgh, PA et al
OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
STRYKER CORPORATION and
HOWMEDICA OSTEONICS CORP.,
Case No. 1:05-CV-51
HON. ROBERT HOLMES BELL
XL INSURANCE COMPANY, INC.,
f/k/a Winterthur International America
Insurance company, and TIG INSURANCE
On October 30, 2014, this Court granted Stryker Corp. and Howmedica Osteonic
Corporation’s (collectively “Stryker”) motion for summary judgment on the issue of liability,
and determined that TIG Insurance Company (“TIG”) was obligated to insure Stryker for
losses associated with Stryker’s settlement of claims arising out of defective Uni-Knees.
(Oct. 30, 2014, Op. & Order, ECF Nos. 546, 547.) The parties stipulated that remaining
issues regarding the amount of the judgment could be decided on briefs without a hearing.
(ECF No. 551.) This matter is now before the Court on the parties’ cross-motions for
summary judgment on the issues of damages and prejudgment interest. (ECF Nos. 555, 557.)
The first issue for the Court’s consideration is the principal amount of the judgment.
The parties agree on the amount Stryker paid for Uni-Knee claims ($7,620,731) and they
agree on the portion of this amount that fell within Stryker’s self-insured retention
($1,426,473). TIG contends that the difference between those two amounts ($6,194,258)
represents the principal amount due.1 Stryker, on the other hand, contends that the principal
amount due is $7,088,713. The difference between TIG’s and Stryker’s total loss amounts
is $894,455, the amount XL paid in excess of its policy limits to settle Stryker’s obligations
in the Pfizer litigation. Stryker contends that the principal amount due should be computed
by taking Stryker’s total covered loss ($6,194,258 for Stryker’s Uni-Knee settlements and
$15,894,455 paid by XL toward the Pfizer settlement) and subtracting from that amount XL’s
$15,000,000 policy limits.
“The aim of a contractual remedy is to put the harmed party in the position in which
[it] would have been absent the breach.” Branham v. Thomas M. Cooley Law Sch., 689 F.3d
558, 565 (6th Cir. 2012). “The remedy for breach of contract is to place the nonbreaching
party in as good a position as if the contract had been fully performed.” Corl v. Huron
Castings, Inc., 544 N.W.2d 278, 280 (Mich. 1996). “The party asserting a breach of contract
has the burden of proving its·damages with reasonable certainty, and may recover only those
damages that are the direct, natural, and proximate result of the breach.” Alan Custom
Homes, Inc. v. Krol, 667 N.W.2d 379, 383 (Mich. 2003).
The relevant contract is the insurance policy issued by TIG. Under the policy, TIG
The parties’ numbers differ by $1 dollar. The Court has selected the lower number.
agreed to coverage as follows:
We will pay on YOUR behalf the ULTIMATE NET LOSS (1) in excess of all
UNDERLYING INSURANCE, and (2) only after all UNDERLYING
INSURANCE has been exhausted by the payment of the limits of such
insurance for losses arising out of occurrences insured by all of the policies
designated in the Declarations as UNDERLYING INSURANCE.
(TIG Policy, ECF No. 557-1, Page ID #10426.)
Stryker contends that pursuant to the contract language, “the Court must deduct the
underlying policy limits from the total covered loss.” (Pl. Br. 7, ECF No. 556.) Stryker’s
argument does not properly construe the contract language. Exhaustion of policy limits,
which is addressed in subsection (2) of the coverage language quoted above, determines
when TIG’s obligation arises, but it does not determine what amount TIG must pay.
Subsection (1), determines what amount TIG must pay, and it requires the Court to deduct
all “underlying insurance,” not the underlying policy limits.
Stryker suffered one set of losses associated with the defective Uni-Knees that was
to be covered first by XL, with the excess to be covered by TIG. Stryker does not contend
that it was damaged by XL’s payment in excess of its policy limits, nor could it. The final
judgment in Stryker I,2 included a finding that “XL is not entitled to recover from Stryker any
payment in excess of its $15 Million policy limit in connection with its payment of the Pfizer
settlement.” (Stryker I, Jgmt., ECF No. 1215.) This judgment was affirmed on appeal.
In this opinion the Court will use “Stryker I” to refer to Stryker v. XL Ins. Am., No.
4:01-CV-157 (W.D. Mich.), and its associated appeals, and “Stryker II” to refer to Stryker
Corp. v. XL Ins. Am.& TIG Ins. Co., 1:05-CV-51 (W.D. Mich.), and its associated appeals.
Stryker Corp. v. XL Ins. Am., Inc., 576 F. App’x 496 (6th Cir. 2014). Stryker contends that
if the amount of XL’s overpayment is not added into the principal amount due, TIG would
obtain an undeserved windfall. According to Stryker, the benefit of XL’s overpayment
should go to Stryker, the non-breaching party, rather than to TIG, the breaching party.
Stryker’s argument lacks merit. Stryker agrees that the proper measure of damages
for breach of contract is the amount necessary to put the non-breaching party in the same
position that it would have been in if there had been no breach. (Pl. Br. 8, ECF No. 556).
Stryker then stands the law on its head by arguing that an award of $7,088,713 “compensates
Stryker for the insurance benefit that TIG owes under its policy.” (Pl. Reply Br. 1, ECF No.
562.) Stryker is in effect measuring damages according to what it would take to place the
breaching party in the position it would have been in but for the breach. There is no
authority for measuring damages in this manner.
“[T]he goal in contract law is not to punish the breaching party, but to make the
nonbreaching party whole.” Corl, 544 N.W.2d at 280. The proper measure of damages is
not the amount TIG would have paid had it not breached the TIG Policy, but what amount
will place Stryker in the position it would have been in had TIG not breached the TIG Policy.
That amount is $6,194,258.
Accordingly, the Court will enter judgment for the principal amount of $6,194,258.
The second issue for the Court’s consideration is the amount of prejudgment interest
that should be awarded to Stryker. Two kinds of prejudgment interest are at issue: statutory
prejudgment interest pursuant to Mich. Comp. Laws § 600.6013(8), and penalty prejudgment
interest pursuant to Mich. Comp. Laws § 500.2006(4). The two kinds of prejudgment
interest serve different purposes and are triggered by different events. “[P]rejudgment
interest under Mich. Comp. Laws § 600.6013 is intended to compensate the insured for the
loss of the use of funds to which it is entitled,” while “the penalty interest provision in Mich.
Comp. Laws § 500.2006(4) is intended to penalize the insurer for dilatory action.” Stryker
I, 2008 WL 5235886, at *6 (W.D. Mich. Dec. 15, 2008). The parties disagree on when
§ 600.6013(8) statutory interest begins to run and whether penalty prejudgment interest
pursuant to Mich. Comp. Laws § 500.2006(4) is triggered at all.
As a federal court sitting in diversity, this Court is required to apply the substantive
law of Michigan, the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938);
Performance Contracting Inc. v. DynaSteel Corp., 750 F.3d 608, 611 (6th Cir. 2014).
“Prejudgment interest is a substantive element of damage which must be determined under
state law.” Perceptron, Inc. v. Sensor Adaptive Machs., Inc., 221 F.3d 913, 922 (6th Cir.
2000). The Court must apply Michigan law in accordance with the controlling decisions of
the Michigan Supreme Court. Meridian Mut. Ins. Co. v. Kellman, 197 F.3d 1178, 1181 (6th
Cir. 1999). “Where no controlling state decision exists, the federal court must attempt to
predict what the state’s highest court would do.” Rutherford v. Columbia Gas, 575 F.3d 616,
619 (6th Cir. 2009) (quoting Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th
Cir.2003)). “[D]ecisions by ‘the Michigan Court of Appeals are binding authority where the
Michigan Supreme Court has never addressed the issue decided therein.’” Berrington v.
Wal-Mart Stores, Inc., 696 F.3d 604, 608 (6th Cir. 2012) (quoting Morrison v. B. Braun Med.
Inc., 663 F.3d 251, 257 n.1 (6th Cir. 2011)). When the Sixth Circuit “has rendered a decision
interpreting state law, that interpretation is binding . . . unless an intervening decision of the
state’s highest court has resolved the issue.” Rutherford, 575 F.3d at 619 (quoting Wankier,
353 F.3d at 866).
B. Statutory Prejudgment Interest – § 600.6013(8)
Section 600.6013(8) provides that statutory interest runs “from the date of filing the
complaint.” TIG contends that notwithstanding the language of the statute, the Sixth Circuit
explicitly prohibited Stryker from seeking prejudgment interest from TIG prior to June 5,
2012. See Stryker Corp. v. TIG, 681 F.3d 819, 826 (6th Cir. 2012). TIG contends that
because Stryker did not seek modification or clarification of that ruling, it is the law of the
case, and it precludes an award of any prejudgment interest, including statutory interest under
§ 600.6013(8), for any time before the Sixth Circuit’s opinion.
The basis for this argument is the Sixth Circuit’s statement that “Stryker may not
attempt on remand to hold TIG liable for any pre-judgment interest that has been imposed
thus far in this case.” Id. Contrary to TIG’s assertions, this language does not address
prejudgment statutory interest pursuant to § 600.6013(8). Read in context, it is clear that the
Sixth Circuit was only addressing prejudgment interest pursuant to the penalty interest
statute, Mich. Comp. Laws § 500.2006(4).
The Sixth Circuit gave no opinion on
prejudgment interest pursuant to § 600.6013(8). The Court concludes that the Sixth Circuit
opinion does not bar Stryker from seeking prejudgment interest for any period prior to June
Stryker contends that statutory prejudgment interest pursuant to § 600.6013(8) begins
to run on January 20, 2005, when Stryker filed its original complaint. Stryker notes that
section 600.6013 “is a remedial statute which is to be liberally construed to give effect to its
intent and purposes.” Gordon Sel-Way, Inc. v. Spence Bros., 475 N.W.2d 704, 716 (Mich.
1991); see also Perceptron, 221 F.3d at 923 (“The prejudgment interest statute is remedial
in nature and is to be construed liberally in favor of the prevailing party.”). The statute
“plainly states that interest on a money judgment is calculated from the date of filing the
complaint,” and this language is “clear and unambiguous.” Ayar v. Foodland Distribs., 698
N.W.2d 875, 877 (Mich. 2005) (holding that prejudgment interest is calculated from the date
the complaint was filed, even with respect to attorney fees ordered as mediation sanctions
that were not incurred until after the complaint was filed); Morales v. Auto-Owners Ins. Co.,
672 N.W.2d 849, 852 (Mich. 2003) (holding that interest is calculated from the date the
complaint is filed, with no exception for periods of prejudgment appellate delay); Phinney
v. Verbrugge, 564 N.W.2d 532, 549 (Mich. Ct. App. 1997) (holding that where the plaintiff
recovered under a theory that first appeared in her fourth amended complaint, she was still
entitled to prejudgment interest from the date of her original complaint).
TIG, on the other hand, contends that it would not be proper to measure prejudgment
interest from the date Stryker filed its original complaint because that complaint sought only
declaratory relief, and TIG owed Stryker no money at the time that complaint was filed. TIG
notes that the purpose of § 600.6013 is “to compensate the prevailing party for the delay in
the use of the money,” and “to offset the costs of bringing the action and to provide an
incentive for prompt settlement.” Perceptron, 221 F.3d at 923; see also Gordon Sel-Way,
475 N.W.2d at 716 (noting that the policies underlying § 6013 are “to encourage early
settlement . . . and to compensate the prevailing party for litigation expenses and the delay
in receiving money damages.”). TIG contends that these purposes would not be furthered
by awarding prejudgment interest from the filing of the declaratory judgment complaint
before any money was due.
TIG directs the Court to Foremost Life Insurance Co. v. Waters, 337 N.W.2d 29
(Mich. Ct. App. 1983). In Foremost, the original complaint sought only declaratory relief
and was filed before any money was due. The Michigan Court of Appeals held that
prejudgment interest began to run from the date that the defendant came into possession of
the funds to which the plaintiff asserted a claim, not from the date of the original complaint.
Id. at 31. Similarly, in Beach v. State Farm Mutual Automobile Insurance Co., 550 N.W.2d
580 (Mich. Ct. App. 1996), the Michigan Court of Appeals held that, with respect to claims
existing before the filing of the complaint, prejudgment interest ran from the date of the
complaint, but for claims arising after the complaint was filed, the plaintiff could recover
prejudgment interest “from each date that defendant refused to pay benefits, i.e., the date of
delay, until the date that judgment was entered.” Id. at 586. The Court reasoned:
For claims that arise after the complaint is filed, however, it is erroneous to
award prejudgment interest from the date of the complaint because such an
award exceeds the purpose of compensating for a delayed payment,
overcompensates for the related litigation, and departs from the purpose of
providing an incentive for prompt settlement by both imposing a penalty upon
the defendant and conferring a favor upon the plaintiff. Rather, prejudgment
interest regarding subsequent claims would be properly awarded from the date
of delay, i.e., the postcomplaint date on which the insurer refused to pay and
the delay in receiving money began.
Id. (citations and internal quotations omitted); see also Elser ex rel. Elser v. Auto Owners Ins.
Co., No. 294068, 2013 WL 1008929, at *13 (Mich. Ct. App. Mar. 14, 2013) (affirming
district court’s refusal to award prejudgment interest as of the date of the complaint with
respect to claims arising after the filing of the complaint); Dow Corning Corp. v. Cont’l Cas.
Inc., Nos. 200143-54, 1999 WL 33435067 at *16 (Mich. Ct. App. Oct. 12, 1999) (holding
that when “an insurer fails to pay claims arising after the complaint, prejudgment interest is
payable from the postcomplaint date on which the insurer refused to pay”). Stryker urges
this Court not to follow the Foremost/Beach line of cases. Stryker contends that they are
inconsistent with the Michigan Supreme Court’s rulings in Ayar and Morales, and that the
Sixth Circuit “has repeatedly predicted that the Michigan Supreme court would apply
§ 600.6013 as written and would award statutory interest from the filing of the complaint,
and not when payments are due.” (Stryker Reply Br. 5, ECR No. 562.)
The Court disagrees with Stryker’s argument. None of the Michigan Supreme Court
cases involving the statutory prejudgment interest statute have considered situations where
the insurance liability did not exist when the complaint was filed. Moreover, despite the
statute’s apparent bright-line rule regarding the starting date for prejudgment interest, the
Michigan Supreme Court itself has varied from a strict application of the statutory language
where necessary to serve the statutory purpose. In Rittenhouse v. Erhart, 380 N.W.2d 440,
462-63 (Mich. 1985), the Michigan Supreme Court held that when a party is added to a
lawsuit that is already in progress, interest on the money judgment against that party accrues
not from the date of filing the original complaint, but from “the date of the filing of the
complaint upon the defendant against whom the judgment has been entered.” Id. at 462-63
(Riley, J., for the majority on the issue of prejudgment interest). The Court explained its
position as follows:
That the Legislature intended plaintiffs to be compensated for periods during
which no disputed claim even existed against the judgment debtor strains
credulity. Likewise, the laudable purpose of encouraging settlements is not
applicable to periods during which no claim existed against the defendant. A
statute must be construed in the light of the purpose sought to be accomplished
Id. at 463 (Riley, J.)
Moreover, despite Stryker’s assertions to the contrary, the Sixth Circuit has never
suggested that the Michigan Supreme Court would not follow Foremost or Beach in an
appropriate case. In Perceptron, the Sixth Circuit recognized the two lines of authority from
the Michigan Court of Appeals with “seemingly divergent” applications of the prejudgment
interest statute, but was “convinced Michigan law requires that prejudgment interest be
calculated in this case on the entire judgment from the date that the complaint was filed,”
even when certain monetary claims included in the judgment had not accrued at the time of
filing. 221 F.3d at 923 (emphasis added). The Perceptron Court did not reject the
Foremost/Beach line of cases. Instead, the Court distinguished those cases by noting that in
Perceptron, “the breach of contract claim was alleged in the complaint and clearly arose
before the complaint was filed,” even though the defendant’s “continued breach allegedly
resulted in damages that did not accrue until after the complaint was filed.” Id. at 923-24.
In a subsequent case, the Sixth Circuit explained its position vis-a-vis the Foremost and
Beach line of cases:
As we explained in Perceptron, the Michigan cases that have reached a result
seemingly contrary to the plain wording of the statute refused to award
prejudgment interest from the date of the complaint only “[f]or claims that
arise after the complaint is filed.” In Perceptron, as in this case, the actual
legal wrong (here, the anticipatory repudiation) predated the filing of the
federal court action; it was only the quantification of damages that awaited
later events. Consequently, we are bound by our earlier decision in Perceptron.
Seton Co. v. Lear Corp., 198 F. App’x 496, 500-01 (6th Cir. 2006) (citations omitted).
Similarly, in Whitesell Corp. v. Whirlpool Corp., No. 1:05-CV-679, 2010 WL 1416855
(W.D. Mich. Apr. 1, 2010), this Court calculated prejudgment interest from the date the
complaint was filed because, as in Perceptron, “Plaintiff’s claim for breach of the [contract]
was alleged in the complaint and clearly arose before the complaint was filed, even though
Defendant’s continued breach resulted in damages that did not accrue until after the
complaint was filed.” Id. at *1. See also Roskam Baking Co. v. N. Ins. Co. of N.Y., 108 F.
Supp. 2d 789, 791 (W.D. Mich. 2000) (Enslen, C.J.) (“Section 600.6013(5) stands as a
bright-line rule which requires payments of interest from the date the complaint is filed on
all claims that existed when the complaint was filed.”) (emphasis added).
In this case, in contrast to Seton and Perceptron, the legal wrong (the failure to pay
insurance) did not predate Stryker’s filing of its original complaint. Stryker had no monetary
claim against TIG when it filed the declaratory judgment action. Stryker’s claim for damages
against TIG did not arise until after the complaint was filed. TIG was not obligated to pay
insurance until after the XL policy had been exhausted, and the XL policy had not yet been
exhausted when Stryker filed its complaint for declaratory judgment in 2005. The Court
concludes, under the facts of this case, that the Michigan Supreme Court would not calculate
prejudgment interest from the date Stryker’s original complaint against TIG was filed
because Stryker did not have a claim against TIG for damages at that time. The Michigan
Supreme Court would calculate statutory prejudgment interest from the date Stryker’s
damages claim against TIG arose. The parties do not agree on what date that would be.
TIG contends that statutory prejudgment interest should not begin to run until August
7, 2014, the date of the Sixth Circuit’s second opinion in Stryker I. In support of this
argument TIG contends the rationale supporting the Sixth Circuit’s directive compels this
finding because TIG’s conduct cannot be considered “dilatory” before August 7, 2014. See
Stryker I, 681 F.3d at 826. This argument fails because the Sixth Circuit’s “dilatory”
language concerned application of the penalty interest statute rather than the statutory
prejudgment interest statute.
In the alternative, TIG contends that prejudgment interest should not begin to run until
August 7, 2014, because that is when the amount covered by the TIG policy was both due
and ascertainable. (TIG Reply Br. 6, ECF No. 563.) TIG contends that August 7, 2014, was
the earliest date that the amount of TIG’s payment obligation could be determined because
that is when the Sixth Circuit finally determined that XL could benefit from the SIR. (Id. at
7.) TIG’s argument is not convincing. First, there is nothing in the statute or Michigan case
law that conditions the accrual of prejudgment statutory interest on an amount being both due
and ascertainable. Beach, cited by TIG, held that “prejudgment interest regarding subsequent
claims would be properly awarded from the ‘date of delay,’ i.e., the postcomplaint date on
which the insurer refused to pay and the delay in receiving money began.” Beach, 550
N.W.2d at 586. Beach does not require that the amount be ascertainable, only that it was due
and unpaid. Second, TIG’s suggestion that the obligation to pay statutory prejudgment
interest does not begin to run until the obligation is confirmed by a court of appeals is not
supported by the case law. An insurer’s breach occurs when it fails to pay benefits when due,
“not when the court later confirmed that failure.” City of Sterling Hts. v. United Nat. Ins.
Co., 319 F. App’x 357, 364 (6th Cir. 2009).
Another reason TIG opposes running prejudgment interest from any date prior to
August 7, 2014, is because Stryker continued to assert that the XL policy was not exhausted
until August 7, 2014, when the Sixth Circuit affirmed this Court’s final judgment in Stryker
I. (TIG Br. 10, ECF No. 557.) TIG contends that because it had no duty to pay until the XL
policy was exhausted, Stryker cannot contend that the XL policy was not exhausted and
simultaneously assert that TIG had a present obligation to pay. According to TIG, Stryker’s
position that the XL policy was not exhausted precludes Stryker from seeking prejudgment
interest for any period before August 7, 2014.
TIG’s argument is not persuasive. There is nothing in the statute or case law to
suggest that statutory prejudgment interest does not begin to run while the prevailing plaintiff
pursues inconsistent positions in the litigation, or appeals a trial court ruling.
TIG has implied that, in any event, statutory interest should not begin to run before
October 15, 2013, when Stryker filed its supplemental complaint adding a claim for money
damages. (Supp. Compl., ECF No. 363.) The Court is not persuaded that postponing the
start of statutory interest until a declaratory judgment action is converted by an amended
complaint into an action for damages is required by state or federal law. In Foremost, the
Court of Appeals held that statutory prejudgment interest should begin to run from the date
that the plaintiff’s claim arose, notwithstanding the fact that the plaintiff’s complaint only
sought declaratory relief and the plaintiff had not filed an amended complaint for damages.
337 N.W.2d at 30-32. The Federal Declaratory Judgment Act similarly enables a court to
grant further relief, including monetary damages, whether or not they have been requested
in the declaratory judgment proceeding.3 See Fred Ahlert Music Corp. v. Warner/Chappell
Music, Inc., 155 F.3d 17, 25 (2d Cir.1998); Sec. Ins. Co. of New Haven v. White, 236 F.2d
215, 220 (10th Cir.1956); Travelers Prop. Cas. Co. v. R.L. Polk & Co., No. 06-12895, 2008
WL 3843512, at *4 (E.D. Mich. Aug. 13, 2008).
The Court concludes that Stryker is entitled to statutory prejudgment interest from the
time its claim for damages arose, even if it did not file its amended complaint for damages
until a later date. Pursuant to the TIG policy, Stryker’s claim for damages against TIG arose
when the XL policy was exhausted. On February 2, 2009, XL paid Pfizer $26 million to
settle all of Stryker’s liability to Pfizer. (Settlement Agrmt, ECF No. 556-2; Bloss Supp.
Decl. ¶ 2, ECF No. 180.) See also Stryker I, 735 F.3d at 353. This payment exhausted the
XL policy. (Feb. 8, 2013, Op. 10, ECF No. 304.) As of February 2, 2009, Stryker’s damages
exceeded the XL policy limits and TIG’s obligation to pay arose. Moreover, TIG was on
notice of Stryker’s claim for damages. Stryker’s original complaint alleged that Pfizer’s
claim for indemnification, together with Stryker’s other payments, would exhaust the limits
of the XL policy and that TIG had an obligation to cover any loss in excess of the XL policy.
(Compl. ¶ 33, ECF No. 1.) In its Third Amended complaint filed in 2007, Stryker sought a
declaration that Pfizer’s claim for indemnification, when added to other defense and
indemnity payments made by Stryker will exhaust the limits of the XL policies, and that TIG
The Declaratory Judgment Act provides that the Court may enter “further necessary
or proper relief . . . against any adverse party whose rights have been determined by such
judgment.” 28 U.S.C. § 2202.
has an obligation to cover any loss in excess of the primary umbrella policies. (Third Am.
Compl. ¶ 72, ECF No. 70.) Accordingly, the Court concludes that Stryker’s damages claim
against TIG arose on February 2, 2009. Requiring TIG to pay prejudgment interest from this
date, the date its liability arose, and at a time when it was on notice of Stryker’s claim, is
consistent with the central purposes of § 600.6013(8) to compensate the insured for delay
caused by the insurer in receiving sums owed under the policy and to encourage prompt
settlement of meritorious claims between an insurer and its insured.
C. Penalty Interest– § 500.2006(4)
Michigan’s Uniform Unfair Trade Practices Act, Mich. Comp. Laws § 500.2006(4),
allows a claimant under an insurance policy to recover twelve percent interest for the delay
in payment of an insurance claim.4 “[T]he purpose of the penalty interest statute is to
penalize insurers for dilatory practices in settling meritorious claims, not to compensate a
plaintiff for delay.’” Stryker II, 681 F.3d at 826 (quoting Arco Indus. Corp. v. Am. Motorists
Ins. Co.,594 N.W.2d 74, 76 (Mich. Ct. App. 1998), rev’d on other grounds by Griswold
The Act provides in pertinent part:
(4) If benefits are not paid on a timely basis the benefits paid shall bear simple
interest from a date 60 days after satisfactory proof of loss was received by the
insurer at the rate of 12% per annum, if the claimant is the insured or an
individual or entity directly entitled to benefits under the insured’s contract of
insurance. . . . Interest paid pursuant to this section shall be offset by any
award of interest that is payable by the insurer pursuant to the award.
Mich. Comp. Laws § 500.2006(4).
Props., LLC v. Lexington Ins. Co., 741 N.W.2d 549, 555 (Mich. Ct. App. 2007)). As the
Sixth Circuit noted in Stryker I, “first party insurance claimants need not demonstrate that
the claim was ‘not reasonably in dispute’ in order to recover the 12% interest.” 735 F.3d at
Under § 500.2006(4), penalty interest commences 60 days after the insured provides
“satisfactory proof of loss” to the insurer. Stryker contends that it is entitled to penalty
interest from September 4, 2012 (60 days after the Sixth Circuit’s remand of its June 5, 2012,
opinion), or, at the latest, from December 23, 2012, (60 days after Stryker’s October 24,
2012, response to TIG’s request for further information regarding proof of loss). TIG
contends that Stryker is not entitled to any penalty interest because TIG’s actions were not
dilatory and because Stryker did not submit a satisfactory proof of loss.
In its June 5, 2012, opinion, the Sixth Circuit stated:
Stryker has not alleged that TIG has engaged in “dilatory practices” with
regard to paying claims. Indeed, Stryker currently argues that TIG has no
obligation to Stryker at all. Therefore, Stryker has a right to pre-judgment
interest from XL, and only XL. Thus, Stryker may not attempt on remand to
hold TIG liable for any pre-judgment interest that has been imposed thus far
in this case.
Stryker II, 681 F.3d at 826.
TIG notes that Stryker continued to argue in 2013 and 2014 that XL had not exhausted
its policy because it was liable for the self-insured retention. TIG contends that because
Stryker continued to assert that the XL policy was not exhausted, under the rationale of the
Sixth Circuit’s June 5, 2012, opinion, Stryker cannot claim that TIG was dilatory at any time
prior to the Sixth Circuit’s August 7, 2014, opinion.
The Court disagrees. The Sixth Circuit made it clear in its June 5, 2012, opinion that
XL’s Pfizer settlement would erode XL’s policy limits. Stryker I, 735 F.3d at 359 (“[O]n
remand, the district court should consider Pfizer’s costs stemming from the indemnification
action against Stryker as part of the sum that may be used to exhaust the $15 million
aggregate limit of liability of the XL policy.”) As a result of this determination, TIG became
obligated to Stryker for Stryker’s Uni-Knee settlements. Although Stryker and TIG
continued to assert that XL was liable for the $2 million self-insured retention, (see Feb. 8,
2013, Op. 4, ECF No. 304), this dispute did alter the fact that TIG was liable to Stryker for
an amount in excess of $6 million.
As a precondition to the award of penalty interest, the claimant must provide
“satisfactory proof of loss.” Mich. Comp. Laws § 500.2006(4). The statute does not define
what constitutes “satisfactory proof of loss.” However, the obligation to supply a satisfactory
proof of loss must be read in light of Mich. Comp. Laws § 500.2006(3) which provides in
relevant part that “[a]n insurer shall specify in writing the materials that constitute a
satisfactory proof of loss not later than 30 days after receipt of a claim unless the claim is
settled within the 30 days.” If the insurer fails to specify in writing the materials that
constitute satisfactory proof of loss, the insured is excused from providing further proof of
loss. Angott v. Chubb Grp. Ins., 717 N.W.2d 341, 354 (Mich. Ct. App. 2006); Medley v.
Canady, 337 N.W.2d 909, 911-12 (Mich. Ct. App. 1983). The Michigan Court of Appeals
has explained that “satisfactory proof of loss does not equate to agreement as to the amount
of damages.” Griswold Properties, LLC v. Lexington Ins. Co., 740 N.W.2d 659, 673,
opinion reinstated in part, superseded in part, 741 N.W.2d 549 (Mich. Ct. App. 2007). If
an insured provides the materials specified by the insurer, the proof of loss is satisfactory.
Id. “The insurer may disagree with the amount of loss claimed, at which point the damages
are in dispute, but the insurer may not argue that the insured has failed to supply satisfactory
proof of loss. Whether the damages are reasonably in dispute is another inquiry entirely.”
Stryker contends that its notices to TIG of each underlying claim and lawsuit between
2000 and 2006 were sufficient to constitute a satisfactory proof of loss, and that because TIG
did not specify in writing within 30 days of receiving those notices what materials would
constitute a satisfactory proof of loss, Stryker was excused from submitting any further proof
of loss. The Court disagrees. “A claim is more than just a notice of accident and injury; it
contemplates a demand for relief as well.” Medley, 337 N.W.2d at 911. The notices Stryker
provided TIG between 2000 and 2006 were notices of claims against Stryker. These notices
of claims against Stryker that arose before the XL policy was exhausted do not constitute
demands for relief from TIG.
Stryker did make a demand for payment from TIG in a letter dated September 14,
In light of the Sixth Circuit’s rulings in Stryker I & II, Stryker has suffered a
loss in excess of the XL insurance policy. TIG is liable for this loss under its
2000 excess policy. At a minimum, TIG is liable for $6,515,186. This is the
amount that Stryker paid in settlements ($7,620,731) less the amount that XL
paid for Pfizer’s defense expenses ($1,105,545) which the Sixth Circuit ruled
do not erode XL’s policy limits. If the XL policy is exhausted, then TIG is
liable for the full amount of Stryker’s settlements, or $7,620,731.
This letter reiterates Stryker’s claim under TIG’s policy. We are enclosing the
Sixth Circuit’s opinions, which constitute Stryker’s proof of loss.
(Pl. Br., Ex. H, ECF No. 556-8.)
TIG’s counsel responded on October 5, 2012, that the Sixth Circuit opinions did not
constitute adequate proof of loss because they provided no information regarding the
settlements as to which Stryker now intended to seek recovery from TIG. (Id. at Ex. I, ECF
No. 556-9.) TIG requested the following documents and information with respect to each
direct DUK claim Stryker settled:
Name, address and other identifying information regarding claimant;
Date of implant, date of diagnosis, date of explant;
Complaint and/or claim;
Amount of settlement, date of settlement, and date of settlement payment;
Dismissal order, release, settlement agreement, and/or stipulation of settlement; and
Communications with any insurer regarding claim evaluation and settlement.
In response, on October 24, 2012, Stryker’s counsel sent TIG a chart showing the
name of each claimant, the date of implant, and the date of explant, if known. (Pl. Br. Ex.
J, ECF No. 556-10.) Stryker also sent a chart showing the amount of each settlement, and
the date of settlement, and copies of the complaints and settlement agreements. Stryker
advised that additional information in the underlying litigation files was available to TIG for
review. (Id.) There is no evidence that TIG specified in writing that these materials did not
constitute a satisfactory proof of loss. Accordingly, the Court concludes that Stryker
provided satisfactory proof of loss as of October 24, 2012, and that penalty interest begins
to run on December 23, 2012, 60 days after the proof of loss was submitted.
For the reasons stated herein, Stryker and TIG’s cross-motions for summary judgment
on the issue of damages will be granted in part and denied in part.
An order consistent with this opinion will be entered.
Dated: April 29, 2015
/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE
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