On November 27, 2013, Palmer sent Scottsdale an itemized proof of loss. Scottsdale did not object to Palmer's proof of loss as inadequate. Instead, it submitted a payment of $150,000 to Palmer on or about June 16, 2014, almost seven months after Palmer had submitted its proof of loss. This payment was made outside the period permitted for a "timely" payment under Section 500.2836(2) of the Michigan Compiled Laws.

Because the $150,000 payment was less than the amount claimed, Palmer requested an appraisal under the policy. Scottsdale agreed to the appraisal and noted that the claim still was under investigation.

The appraisers concluded that Palmer's actual-cash-value loss was $1,642,796.76. Because coverage under the policy was limited to $1,000,000, Scottsdale tendered two checks over a period of several months that paid the balance of the appraisal award up to the policy limit.

Palmer then requested penalty interest for late payment of the claim under Section 500.2006(4) of the Michigan Compiled Laws.

Scottsdale rejected Palmer's request for penalty interest on October 26, 2015, asserting that "all payments were timely made once the amounts owed were determined."

On March 24, 2016, Palmer sued Scottsdale, seeking penalty interest under Section 500.2006(4). It filed its suit for penalty interest over four years after it had suffered its loss.

Scottsdale moved for summary judgment, arguing that Palmer's claim was time-barred under its policy. The U.S. District Court for the Eastern District of Michigan agreed with Scottsdale and granted it summary judgment.

Palmer appealed to the Sixth Circuit.

The Scottsdale Policy

The Scottsdale policy provided that:

No one may bring a legal action against [Scottsdale] under this Coverage Part unless . . . [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred.

(Emphasis added.)

Michigan Law

Section 500.2836(2) of the Michigan Compiled Laws provides that:

losses under any fire insurance policy shall be paid within 30 days after receipt of proof of the amount of loss.

Section 500.2006(4) of the Michigan Compiled Laws states that:

If benefits are not paid on a timely basis, the benefits paid 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 a person directly entitled to benefits under the insured's insurance contract.

This penalty interest:

must be paid in addition to and at the time of payment of the loss.

The Sixth Circuit's Decision

The circuit court reversed, holding that the district court erred in concluding that Palmer's claim for penalty interest was governed by the policy's two-year limitations provision.

In its decision, the Sixth Circuit explained that Palmer was not contending that Scottsdale had failed to pay the loss or otherwise had breached Scottsdale's obligations under the policy but, rather, that Scottsdale had breached a separate statutory obligation to pay losses owed under the policy in a timely manner. In other words, the circuit court found, Palmer's penalty-interest claim did not arise from any legal duty created by the policy but from an obligation created by Section 500.2006(4).

The Sixth Circuit added that the fact that Scottsdale's obligation to timely pay the insured loss would not have arisen but for the obligation to pay the loss in the first place did not mean that the claim for a violation of § 500.2006(4) was a claim under the policy.

The Sixth Circuit concluded that Michigan's general six-year statute of limitations governed Palmer's penalty-interest claim and, therefore, that its complaint had been timely filed.

The case is Palmer Park Square, LLC v. Scottsdale Ins. Co., No. 17-1158 (6th Cir. Dec. 22, 2017). Attorneys involved include: ARGUED: Donald M. Fulkerson, Westland, Michigan, for Appellant. Hans H.J. Pijls, DINSMORE & SHOHL, LLP, Ann Arbor, Michigan, for Appellee. ON BRIEF: Donald M. Fulkerson, Westland, Michigan, for Appellant. Hans H.J. Pijls, Julia T. Stuebing, DINSMORE & SHOHL, LLP, Ann Arbor, Michigan, for Appellee.