Author(s): Daniel S. Saylor

No-Fault 12% “Penalty Interest” Does Not Continue to Accrue Post-Verdict *** Supreme Court Leaves Intact Court of Appeals’ Holding in Bonkowski v Allstate Ins Co

In Bonkowski v Allstate Ins Co, 281 Mich App 154; 761 NW2d 784 (2008), the Court of Appeals rebuffed conventional wisdom to hold that 12% interest under the No-Fault Act, MCL 500.3142 (so-called “penalty interest”) does not continue to accrue following a jury award of overdue benefits and interest. Previously, an insurer deciding whether to appeal a large judgment for PIP benefits was forced to weigh the merits of its appeal against the specter of watching the adverse judgment grow during the appeal not only by the accrual of ordinary judgment interest but by an additional 12% per annum under the No-Fault Act. Such deliberation is no longer necessary. With the Supreme Court’s denial of the plaintiff’s application for leave to appeal, Bonkowski v Allstate Ins Co, __ Mich __ (S Ct No 137672, January 22, 2010), the issue is now resolved.

The plaintiff in Bonkowski had prevailed at trial with a jury awarding over a million dollars in family-provided attendant care benefits. Additionally, the jury found that the benefits were “overdue” and, accordingly, included in its verdict an award of more than $300,000 in no-fault penalty interest. In post-verdict motions preceding the inevitable appeal (during which the insurer would obtain a stay of enforcement rather than pay the judgment), the trial court was asked to rule on whether 12% no-fault interest would continued to accrue on the unpaid “benefits” through the course of the appeal. Declining to so hold, the trial court recognized that the Court of Appeals ultimately would address the issue and thus ruled that plaintiff’s no-fault interest ended with the verdict.

Surprising some, the Court of Appeals upheld the trial court’s ruling in a published, binding opinion. After a thorough analysis, the Court agreed with Allstate’s argument that no-fault “penalty interest” is purely a part of the substantive damages that a jury may or may not award, and that a court is not permitted, in effect, to take over where the jury left off by adding “damages” to the verdict in the form of continually accruing penalty interest:

Simply put, a court is not authorized to continue the work of a jury post verdict. Plaintiff was entitled to penalty interest as found by the jury. Plaintiff was also entitled to interest on the judgment authorized under the RJA [standard judgment interest] from the filing of the complaint through satisfaction of judgment. However, MCL 500.3142(3) does not entitle plaintiff to judicial enhancement of the substantive damages awarded by the jury.

Bonkowski, 281 Mich App at 180-181. The Court agreed that a claim for “overdue benefits” no longer exists once a jury awards those benefits and a judgment has been entered. At that point, the plaintiff has no “claim” for benefits — overdue or otherwise — since that claim has been replaced by a judgment.

Plaintiff challenged the Court of Appeals’ ruling by application to the Michigan Supreme Court. To aid its consideration, the Court heard oral arguments on the penalty interest issue. Two months later, on January 22, 2010, the Court issued an order (by a 5-2 vote) denying Plaintiff’s application; Chief Justice Marilyn Kelly (via a lengthy dissenting opinion) and the newest member of the Court, Justice Diane Hathaway, would have granted leave to appeal.

The Supreme Court’s rejection of Plaintiff’s appeal leaves intact the Court of Appeals’ published opinion, which now stands as binding precedent on the issue. As a part of the plaintiff’s claim for damages, no-fault penalty interest may or may not be awarded by a jury along with PIP benefits found to be overdue, but in no event will penalty interest continue to accrue thereafter.