Law Fax Volume XXIII, No. 19, July 25, 2011

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Volume XXIII, No. 19, July 25, 2011

From the Law Offices of Garan Lucow Miller, P.C.

 

From the Co-Editors

James L. Borin & Simeon R. Orlowski

　

MICHIGAN SUPREME COURT HOLDS STATUTE OF LIMITATION/REPOSE FOR

LAWSUITS AGAINST ARCHITECTS AND CONTRACTORS APPLIES TO TORT CLAIMS

BUT NOT TO BREACH-OF-CONTRACT CLAIMS

CONTRIBUTOR – DAVID M. SHAFER

　

The Michigan Supreme Court recently issued a unanimous opinion that should make it easier for certain plaintiffs to sue architects and builders for breach of contract within the applicable six-year statute of limitation period. The new Michigan Supreme Court opinion is Miller-Davis Co v Ahrens Construction, Inc, __ Mich __ (7-11-2011).

There is a Michigan statute that protects architects, engineers, and builders from so-called stale claims in lawsuits involving injuries and damage caused by their work. That statute is MCL 600.5839(1). This architect statute says that no person may maintain any action against a state licensed architect or professional engineer or a contractor to recover money damages for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property more than six years after the time of occupancy of the completed improvement, use, or acceptance of the improvement. The statute also allows an action to be filed within one year after the defect is discovered. However, the statute further provides an absolute ten-year cut-off period, stating that no action may be filed more than ten years after the time of occupancy or use or acceptance of the improvement has occurred. The purpose of the statute is to shield architects, engineers, and contractors from stale claims and relieve them of open-ended liability for defects in their workmanship.

The new Miller-Davis opinion of the Michigan Supreme Court addresses the scope of this architect statute of limitation, MCL 600.5839(1). In essence, the Supreme Court limits the application of the statute to tort claims (for malpractice, for example) against architects and engineers and contractors; and it says that for other non-tort claims for breach of contract against architects and engineers and contractors, a different statute of limitation applies. That different statute of limitation is MCL 600.5807(8), under which the six-year limitation period ends six years after the breach-of-contract claim accrued.

Architects, engineers, and contractors would generally prefer the application of MCL 600.5839(1) over MCL 600.5807(8), because, under the former statute, the six-year period of the statute of limitation begins to run as soon as the plaintiff accepted or began using the building improvement, and it includes a ten-year cut-off period of repose; whereas under the latter statute, the six-year period begins to run only when the plaintiff’s claim “accrued”–which could well be long after the time when the plaintiff actually accepted or began using the building improvement–and it does not include any cut-off period of repose.

Finally, it is noted that in rendering its opinion in the Miller-Davis case, the Michigan Supreme Court specifically overruled two earlier opinions of the Michigan Court of Appeals from 1992 and 1998 that came to the opposite conclusion.

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The Court of Appeals Finds an Underinsured Motorist Policy Illusory

And Permits Cumulative Recovery 

　

CONTRIBUTOR – JOHN W. WHITMAN

　

In Ile v Foremost Insurance Company (Docket #295685), a published decision released July 14, 2011, the Michigan Court of Appeals found the Defendant’s $20,000/$40,000 underinsured motorist endorsement illusory because the decedent paid for coverage “…that will never result in payment of benefits.”

The Plaintiff’s decedent was killed when he struck a parked motor-vehicle while operating a motorcycle. The underlying tortfeasor was covered by a liability policy with $20,000 limits. The limits were tendered and the tort case was settled.

The Plaintiff’s decedent then sought the $20,000 in underinsured motorist (UIM) benefits from Foremost. Foremost denied the claim citing the fact that the tortfeasor had insurance equal to the amount of the UIM coverage. Suit followed and the trial court ruled that the policy was illusory. The Plaintiff was allowed to recover “up to” the $20,000 in UIM benefits. The Defendant appealed and the Court of Appeals affirmed.

The Court of Appeals cited the Foremost policy language as the basis for concluding that the policy was illusory. In order to qualify as an underinsured motor-vehicle, the following conditions were required:

1. The vehicle had to be insured but with limits less than the limits of the Foremost UIM coverage (i.e. less than $20,000/$40,000), and

2. However the motor-vehicle could not have coverage which was “…less than the minimum limit for bodily injury liability specified by the financial responsibility law of the state in which ‘you covered auto’ is principally garaged.” ( the decedent’s covered auto was garaged in Michigan so the limits again were $20,000/$40,000)

Thus, with the UIM defined as above, the Court concluded that there could never be a claim in which benefits would be paid and the policy was found to be illusory. This part of the Court’s ruling is not entirely surprising. What happened next was.

The Court of Appeals noted that there are two “recognized but conflicting” theories of UIM coverage. Under the first theory, a policy holder purchases a set amount of coverage and the tortfeasor’s coverage, when combined to reduce the UIM coverage, assures that the insured will receive at least that minimum coverage (in this case $20,000/$40,000). The second theory is that the UIM policy is intended to compensate for damages which exceed the tortfeasor’s coverage. Thus in Ile, the claimant would potentially be entitled to the additional $20,000 from Foremost. The Court followed the second theory of UIM coverage in this case, ostensibly following the Foremost policy language.

CONCLUSION

There are three lessons to take away from this case. First, policy language which leaves the insured with no possible recovery will, of course, be found illusory. Second, the plaintiffs’ bar now has a published Court of Appeals opinion upon which to base their argument that UIM coverage is cumulative, not to be reduced by the tortfeasor’s liability policy. Third, read your policy language VERY carefully.

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Michigan Supreme Court Emphasizes Application of Partial Disability Definition from Lofton

　

CO-CONTRIBUTORS – DENNIS P. PARTRIDGE AND TODD A. BARRY

　

The Michigan Supreme Court in two recent orders appears to have signaled a significant shift in the interpretation of partial disability, which may result in significant mitigation of exposure regarding indemnity benefits.

Section 361(1) states that a partially disabled worker is entitled to benefits “equal to 80% of the difference between the injured employee’s after-tax average weekly wage before the personal injury and the after-tax average weekly wage which the employee is able to earn after the personal injury.” Plaintiffs have argued that this language refers to actual earnings, while defendants contend that it means wages the employee could earn, whether or not he or she actually works.

The Supreme Court attempted to deal with this issue in Sobotka v Chrysler Corp, 447 Mich 1 (1994). The lead opinion rejected the idea that an employee’s ability to earn was limited to actual wages but also stated that proofs regarding “theoretical employment opportunities” would not further the goals of the Act. It was not clear how this decision was to be applied and, as a plurality opinion, was not binding precedent.

In Sington v Chrysler Corp, 467 Mich 144 (2002), the Supreme Court indicated that a claimant would be considered disabled if he or she was unable to perform any job that paid maximum wages and that lesser-paying jobs were irrelevant to the analysis. While the language suggests that a claimant’s continuing ability to earn less than maximum wages was legally irrelevant, the court further indicated “once it is found that an employee is disabled, per § 301(4), the employee must then establish wage loss in order to compute wage loss benefits under § 361. The clear language of the second sentence of § 301(4) militates against any holding that the terms wage-earning capacity and wage loss are synonymous.”

The Supreme Cout in Stokes v Chrysler, LLC, 481 Mich 266 (2008) went on to add that while it was not addressing the wage loss issue, “a plaintiff who makes a prima facie showing of disability must also prove a wage loss.”

Some panels of the Appellate Commission have held that this language imposes on claimants a burden of proving an inability to earn less than maximum wages; however, at least one panel has rejected the idea that a claimant’s benefits could be reduced by an amount representing his theoretical wage-earning capacity absent actual wages.

In Lofton v Autozone, Inc, 482 Mich 1005 (2008), the Supreme Court attempted to clarify the partial disability issue. The court wrote:

If it is found that the plaintiff is disabled under Section 301(4), but that the limitation of wage-earning capacity is only partial, the Magistrate shall compute wage loss benefits under Section 361(1) based upon what the plaintiff remains capable of earning.

The order in Lofton was widely viewed as a sign that the court was looking to a theoretical wage-earning capacity as opposed to actual wages earned in determining whether a benefit rate offset is in order. However, it did not address whose burden of proof it is to prove or disprove the appropriateness of an offset, whether actual job openings must be identified, or how the amount an injured employee remains capable of earning will be ascertained in the absence of actual wages earned. Some argue that the court substituted the phrase “capable of earning” for the statutory phrase “able to earn”.

While subsequent Appellate Commission decisions have held that Lofton was not binding or controlling, the Supreme Court has indicated in two orders that if it is determined that the plaintiff is only partially disabled, then a calculation of wage loss benefits must be made pursuant to § 361(1). Umphrey v General Motors, #142694; Vrooman v Ford Motor Co. #142824.

Though many of the questions posed by Lofton have yet to be answered, the most recent orders of the Supreme Court reaffirm the viability of Lofton in determining whether an individual’s established disability can then be deemed partial for purposes of reducing the wage loss. Any claims presently being voluntarily paid, or paid pursuant to order, should be reviewed and vocational evaluations/wage-earning capacity analysis considered. If indeed the Supreme Court is signaling that it is inclined to move toward a theoretical wage-earning capacity for purposes of partial disability under § 361(1), there may be many instances where employers and insurance carriers can mitigate wage loss exposure significantly.

　

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SAVE THE DATE

The 4th Annual Cherry-Roubaix bicycle race, sponsored by Garan Lucow Miller, P.C., will be held from August 12th through the 14th, 2011, on the streets of Traverse City, Michigan and neighboring Leelanau County, and will feature the 2011 State Road Race Championships. There will also be a charity fun ride out Old Mission Peninsula. Please see the event website at www.cherry-roubaix.com for more details.

Please mark your calendars to join us at this exciting event. Garan Lucow Miller will be hosting special VIP viewing areas at each race, please advise Peter Worden, in our Traverse City office at (231) 941-1611 or pworden@garanlucow.com, if you will be available to join in the festivities.

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GLM ANNUAL GOLF OUTING CLIENT INVITATIONAL

EVENT: Garan Lucow Miller’s Annual Golf Outing

DATE: Tuesday, August 23, 2011

VENUE: Forest Akers West Golf course on the campus of MSU

Banquet dinner to be on campus at the University Club

RSVP to Eileen Carty at ecarty@garanlucow.com by August 4, 2011.

　

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BASICS OF NO-FAULT

Jim Borin will be teaching the Fundamentals of No-Fault (PIP) course on Monday evenings from September 12 through November 7, 2011. The classes will be held at the Lexington Hotel, 925 S. Creyts Road, Lansing, Michigan 48192 from 6:00 to 8:30 p.m. Please contact Denise Tedder at dtedder@garanlucow.com to register, or call at (800)875-7600.