Court Opinion

ID: 3188124
Source: CourtListenerOpinion
Date Created: 2016-03-23 17:05:21.331187+00
Date Added: 2024-06-11T12:05:29.901560
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                             File Name: 16a0169n.06

                                             Case No. 15-1347

                             UNITED STATES COURT OF APPEALS
                                  FOR THE SIXTH CIRCUIT
                                                                                               FILED
                                                                                        Mar 23, 2016
THE D BOYS, LLC,                                          )                         DEBORAH S. HUNT, Clerk
                                                          )
        Plaintiff-Appellee,                               )
                                                          )        ON APPEAL FROM THE UNITED
v.                                                        )        STATES DISTRICT COURT FOR
                                                          )        THE EASTERN DISTRICT OF
MID-CENTURY INSURANCE COMPANY,                            )        MICHIGAN
                                                          )
        Defendant-Appellant.                              )
                                                          )        OPINION
                                                          )

BEFORE: KETHLEDGE, DONALD, and ROTH*, Circuit Judges.

        BERNICE BOUIE DONALD, Circuit Judge. This is an insurance dispute involving

three apartment buildings owned by The D Boys, LLC that sustained roof damage. Mid-Century

Insurance Company, which insured the apartment buildings, appeals the district court’s grant of

summary judgment to D Boys, LLC and its order to pay The D Boys, LLC penalty interest,

pursuant to Mich. Comp. Laws Ann. § 500.2006(4). The district court ruled that this dispute was

governed by Mich. Comp. Laws Ann. § 500.2833(1)(m), which mandated that both parties

participate in Michigan’s statutory appraisal process.                Mid-Century Insurance Company

disagrees with the district court’s determination and argues that because it claims that the

*
  The Honorable Jane Richards Roth, Circuit Judge for the United States Court of Appeals for the Third Circuit,
sitting by designation.
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

damage suffered by two of the buildings at issue was not covered under The D Boys, LLC’s

policy, the district court was obligated to first determine whether the damage sustained by two of

the buildings was covered under the policy before compelling the parties to participate in

Michigan’s appraisal process. We agree, and REVERSE and REMAND the case to the district

court for proceedings consistent with this opinion.

                                                I.

       The D Boys, LLC (“D Boys”), owns Philamer Apartments, which is a collection of ten

different apartment buildings designated by letters A through J, located at 4319 Judson Road in

Royal Oak, Michigan. (Page ID # 735.) Mid-Century Insurance Company (“Mid-Century”)

issued D Boys an insurance policy covering Philamer Apartments that was effective from April

27, 2011 through April 27, 2012. (Page ID # 35). The policy insured the apartment buildings in

the event that they sustained damage from a windstorm, but the policy did not contractually

obligate Mid-Century to pay D Boys for damage caused by wear, tear, and deterioration. (Page

ID # 248; 426.)

       On March 15, 2012, a windstorm allegedly damaged Philamer Apartment buildings C, D,

and J. (Page ID # 735.) On March 20, 2012, D Boys filed a claim under the policy alleging that

Building J suffered roof damage because of the windstorm. (Page ID # 427.) On March 27,

2012, Mid-Century denied D Boys claim because it took the position that the amount of damage

sustained to Building J was less than the policy’s deductible. (Page ID # 27.) On May 21, 2012,

D Boys filed a second claim for the damage from the windstorm to the roofs of Buildings C and

D. (Appellant Br. 9-10.) Mid-Century denied D Boys second claim because it found that the

damage to the roofs was caused by wear, tear, and deterioration, not the windstorm. (Appellant

Bt. 10-11.)

                                               -2-
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

          After Mid-Century denied the claims, D Boys demanded an appraisal for the amount of

loss sustained to Buildings C, D, and J. (Page ID # 411; 428.) The appraisal process proved to

be unavailing; therefore, D Boys filed the instant action invoking the Michigan appraisal statute,

which requires that disputes over the amount of loss in an insurance claim be submitted for

appraisal. See Mich. Comp. Laws Ann. § 500.2833. In its Answer, Mid-Century denied liability

for Buildings C and D, but admitted that the damage suffered to Building J was caused by the

windstorm.1 (Page ID # 17.) Mid-Century also filed a Counter-Complaint, arguing that statutory

appraisal would be premature and inappropriate because the parties disputed whether the damage

to Building C and D was caused by the windstorm. Thus, Mid-Century asked the district court to

hold a hearing to determine if the damage suffered by Buildings C and D was covered under the

insurance policy before compelling the parties to participate in the statutory appraisal process.

On June 21, 2013, D Boys moved for partial judgment on the pleadings, requesting that the

district court compel the parties to participate in Michigan’s mandatory statutory appraisal

process. (Page ID # 176.) Mid-Century’s response largely reiterated the same argument set

forth in its Counter-Complaint. (Page ID # 231.)

          On October 24, 2013, the district court granted D Boys’ motion for partial judgment on

the pleadings and compelled the parties to participate in Michigan’s statutory appraisal process.

(Page ID # 431-32.) The district court determined that since Mid-Century admitted that Building

J’s damage was caused by the windstorm, “the nature and the extent of the damages incurred by

the [other] affected buildings ‘present[ed] a scope-of-loss issue’” not a coverage issue. (Page ID

# 431.)

1
  Mid-Century admitted that the damage to Building J was caused by the windstorm but contends that the damage
suffered did not amount to the policy’s deductible.

                                                    -3-
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

       On August 8, 2014, a neutral umpire, appointed by the district court pursuant to Mich.

Comp. Laws § 500.2833(1)(m), awarded D Boys the following amounts: $900,000 for the

replacement cost, $720,000 for the actual cash value, and $173,000 for lost rent.

       On October 17, 2014, D Boys moved for “summary judgment and entry of final judgment

on the appraisal award, including interest.” (Page ID # 441.) Mid-Century filed a response

disputing the penalty interest request and again reiterating its prior argument that the case was

improperly submitted to Michigan’s appraisal process. (Page ID # 489.) The district court found

that Mid-Century waived its right to challenge the appraisal award because its challenge was not

timely. (Page ID # 739.) However, the district court also stated that it had previously held that

the case was properly turned over to Michigan’s appraisal process because “Buildings C and D

posed issues of ‘scope-of-loss,’ not coverage issues.” (Page ID # 741.) Ultimately, the district

court entered final judgment on the appraisal amount and awarded D Boys penalty interest.

(Page ID 745.) This timely appeal followed.

                                                II.

       “Motions for judgment on the pleadings pursuant to Federal Rule of Civil Procedure

12(c) are analyzed under the same de novo standard as motions to dismiss pursuant to Rule

12(b)(6).” Northville Downs v. Granholm, 622 F.3d 579, 585 (6th Cir. 2010). In reviewing the

district court’s decision, we must construe the complaint in the light most favorable to the non-

moving party. D’Ambrosio v. Marino, 747 F.3d 378, 383 (6th Cir. 2014). Likewise, we also

review de novo a district court’s summary judgment decision. Employers Ins. of Wausau v.

Petroleum Specialties, Inc., 69 F.3d 98, 101 (6th Cir. 1995). We “must affirm the district court

only if we determine that the pleadings, affidavits, and other submissions show ‘that there is no

genuine issue as to any material fact and that the moving party is entitled to a judgment as a

                                               -4-
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

matter of law.’” Id. (quoting Fed.R.Civ.P. 56(c)). “A district court's interpretation of state law is

also governed by the de novo standard on appeal.” Am. Home Assurance Co. v. Hughes, 310

F.3d 947, 949 (6th Cir. 2002) (citing Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926, 931

(6th Cir. 1998)).

       “In diversity cases such as this, we apply state law in accordance with the controlling

decisions of the state supreme court.” Allstate Ins. Co. v. Thrifty Rent-A-Car Sys. Inc., 249 F.3d

450, 454 (6th Cir. 2001). If a state’s supreme court has yet to address the issue a particular case

presents, we anticipate how the relevant state's highest court would rule by looking at all

available data. Id.; In re Dow Corning Corp., 419 F.3d 543, 549 (6th Cir. 2005). Unless it is

shown that the state’s supreme court would decide differently, we view its intermediate court’s

decisions as persuasive. Allstate Ins. Co., 249 F.3d at 454.

                                                III.

       On appeal, Mid-Century argues that the district court improperly compelled it to

participate in Michigan’s statutory appraisal process. It contends that since it has never admitted

that the damage endured by Buildings C and D was caused by the windstorm, the district court

should have held a hearing to decide if the damage to Buildings C and D was covered under D

Boys’ insurance policy before compelling Mid-Century to participate in Michigan’s statutory

appraisal process.

       Michigan’s statutory appraisal process is set forth in Mich. Comp. Laws

§ 500.2833(1)(m), which provides as follows:

       That if the insured and insurer fail to agree on the actual cash value or amount of
       the loss, either party may make a written demand that the amount of the loss or
       the actual cash value be set by appraisal. If either makes a written demand for
       appraisal, each party shall select a competent, independent appraiser and notify
       the other of the appraiser's identity within 20 days after receipt of the written
       demand. The 2 appraisers shall then select a competent, impartial umpire. If the

                                                -5-
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

       2 appraisers are unable to agree upon an umpire within 15 days, the insured or
       insurer may ask a judge of the circuit court for the county in which the loss
       occurred or in which the property is located to select an umpire. The appraisers
       shall then set the amount of the loss and actual cash value as to each item. If the
       appraisers submit a written report of an agreement to the insurer, the amount
       agreed upon shall be the amount of the loss. If the appraisers fail to agree within
       a reasonable time, they shall submit their differences to the umpire. Written
       agreement signed by any 2 of these 3 shall set the amount of the loss. Each
       appraiser shall be paid by the party selecting that appraiser. Other expenses of the
       appraisal and the compensation of the umpire shall be paid equally by the insured
       and the insurer.

       In granting D Boys’ motion for partial judgment on the pleadings, the district court relied

on one Michigan appellate case, Michigan Department of Labor and Economic Growth Office of

Financial and Insurance Services Bulletin (Bulletin), 2006-07-INS, and two district court

opinions interpreting Michigan law. However, neither the Michigan appellate case, nor the

Bulletin addressed the issue this case presents.

       In Auto-Owners Ins. Co. v. Kwaiser, 476 N.W.2d 467, 467-68 (Mich. Ct. App. 1991), the

roof of the defendant’s mobile home collapsed over the living room because of heavy rain. After

the appraisal process provided in the insurance policy failed to resolve the matter, Auto-Owners

brought a declaratory judgment action requesting the court to resubmit the case for appraisal

after a clarification of its liability. Id. Following a hearing, the court ordered Auto-Owners to

pay the appraisal amount. Id. Auto-Owners appealed, claiming that the appraisal was not

properly premised on the policy’s coverage.          Id.   Auto-Owners submitted payment to the

defendant for replacement of the portion of the new roof covering the living room. Id. The

defendant disagreed with Auto-Owners’ assessment of the damages and submitted three separate

appraisals, all valued at an amount that would cover replacing the entire roof, not just the portion

covering the living room. Id.

                                                   -6-
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

       When the defendant did not accept Auto-Owners’ payment, Auto-Owners asked for an

appraisal in accordance with Michigan’s statutory appraisal process. Id. On appeal, Auto-

Owners argued that the defendant’s appraisers failed to consider the policy’s exclusions. Id. at

469. The Kwaiser court concluded that the trial court erred in granting summary disposition to

the defendant without first determining the extent of coverage and remanded the case for a

determination of Auto-Owners’ liability. Id. at 470. Importantly, the Kwaiser court stated that

“matters of an insurance policy’s coverage are generally for a court and not for appraisers,” and

that “[t]he appraisal process cannot legally settle coverage issues.” Id.

       In accord with Kwaiser, the Bulletin reads, in relevant part,

       Once an insurer determines that a loss is covered under the subject policy of
       insurance, and there is a demand for appraisal by the policyholder or insurer,
       disagreements between policyholders and insurers over factual issues of whether
       some of the damages claimed by the policyholder are part of the amount of loss
       caused by the coverage event are part of the appraisal process. These issues do
       not constitute a “coverage question” for the Courts, and are manifestly included
       with the mandatory legislative requirements that disputes over the “amount of the
       loss” be subject to appraisal.

Bulletin, 2006-07-INS.

       Both district court cases relied upon by the district court in this case dealt with scenarios

in which the insurance company admitted liability under the policy with respect to one piece of

property (e.g. an entire house), but the insurance companies attempted to withdraw from the

appraisal process because they alleged that the plaintiffs’ appraisers included damages in their

appraisal that was not covered under their respective policy. See Smith v. State Farm Fire &

Cas. Co., 737 F. Supp. 2d 702, 705 (E.D. Mich. 2010); Olivet Coll. v. Indiana Ins. Co., No. 98–

cv–821 (W.D. Mich. Sept. 2, 1999). In both cases, the courts reasoned that since the insurance

companies admitted liability for at least part of the damage to the property, the cases were

properly ordered for appraisal.

                                                -7-
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

         The previously discussed authorities all stand for the proposition that once an insurer

admits that a loss is covered under its policy, a court is statutorily mandated to order the parties

to participate in Michigan’s statutory appraisal process, as the parties do not dispute liability and

only are at odds about the amount of the loss. See Mich. Comp. Laws § 500.2833(1)(m).

However, the cases all make clear that if liability is not admitted by an insurer, the trial court

must first determine the issue of “coverage” before ordering appraisal.

       We respectfully disagree with the district court, and find that none of the previously cited

authorities dealt with the issue presented in this case, nor has any other Michigan case. Unlike

the cases relied upon by the district court, which involved a single claim expanded to include

additional damage to the same structure, the present case involves two separately filed claims

involving damage to physically distinct structures. Since there is no mandatory or persuasive

authority directly on point we must “anticipate how the [Michigan Supreme Court] court would

rule by looking at all available data.” Allstate Ins. Co., 249 F.3d at 454.

       In this case, Mid-Century admitted in its Answer that the damage suffered to Building J

was caused by the windstorm. (Page ID # 16-17.) However, it never made such a legal

admission with regard to Buildings C and D. As emphasized in the authority discussed above,

Mich. Comp. Laws § 500.2833(1)(m)’s purpose is to resolve the “amount of the loss” in

insurance disputes when liability has already been admitted. See Kwaiser, 476 N.W.2d at 470

(“The appraisal process cannot legally settle coverage issues.”). While we agree that the damage

to Building J presented an “amount of the loss” issue, as liability was undisputed, we hold that

Buildings C and D present coverage issues outside the purview of Mich. Comp. Laws

§ 500.2833(1)(m). Therefore, the district court should have held a hearing to determine whether

the damage to Buildings C and D was covered under the policy prior to ordering the parties to

                                                -8-
Case No. 15-1347
The D Boys, LLC v. Mid-Century Insurance Company

participate in Michigan’s statutory appraisal process.          Our holding is harmonious with

Michigan’s precedent, as it ensures that an insurer’s ability to contest liability is not

circumvented by the statutory appraisal process and also prevents appraisers from effectively

determining coverage issues.

           Since the district court did not specify what damages were attributable to each particular

apartment building, we must remand the entire case. Additionally, our holding also reverses the

district court’s award of penalty interest. The interest award was premised on the district court’s

summary judgment ruling upholding the appraisal award. Therefore, we need not address it

further.

                                                  IV.

           For the reasons detailed above, we REVERSE and REMAND the case to the district

court for proceedings consistent with this opinion.

                                                  -9-