On a matter of first impression, the Sixth Circuit Court of Appeals recently concluded that an insured’s claim for statutory penalty interest due on an untimely payment was not subject to the policy’s two-year limitation period. In Palmer Park Square, LLC v. Scottsdale Insurance Company,1 the Sixth Circuit reversed the district court’s conclusion and found that Michigan’s statutory six-year limitation period applied to the insured’s claim, rather than the policy’s contractually shortened two-year limitation period.

Palmer submitted a claim for a burglary and vandalism which had occurred to its apartment complex a year and a half before. Scottsdale acknowledged receipt of the claim and began its investigation under a reservation of rights. Palmer then submitted a sworn statement in proof of loss. Seven months after the submission of the proof of loss, Scottsdale submitted a partial payment. Palmer requested appraisal, which ultimately resulted in an appraisal award in excess of $1,500,000. Over a period of several months, Scottsdale tendered two checks for the balance of the appraisal award up to the $1,000,000 policy limit. Palmer then requested payment of interest for the late payment of the claim under §500.2006(4) of Michigan Insurance Code. Michigan’s Insurance Code on failure to pay claims timely provides as follows:

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

After Scottsdale’s refusal to pay the interest claim, Palmer filed suit four years after the loss solely seeking interest under §500.2006(4). Scottsdale ultimately moved for, and was granted, summary judgment on the basis that the claim was time-barred under the policy’s two-year limitation provision. On appeal, the Sixth Circuit reversed the district court’s conclusion, finding that Palmer’s claim for interest was “independent” from the underlying contract claim and not subject to the two-year limitation provision. The Sixth Circuit articulated that the penalty interest claim did not arise from any legal duty created under the Policy, but arose by statute and was subject to Michigan’s general six-year statute of limitations. The Sixth Circuit concluded that Palmer’s claim was timely filed and remanded the case for further proceeding on a determination of the amount of interest owed by Scottsdale.
1 Palmer Park Square, LLC v. Scottsdale Ins. Co., 2017 WL 6544108 (6th Cir. Dec. 22, 2017).