Opinion
Docket No. 85193.
Decided September 9, 1986.
John F. O'Grady, P.C. (by John F. O'Grady), for plaintiff.
Kerr, Russell Weber (by Monte D. Jahnke and Robert R. Florka), for defendant.
Plaintiff physician and his professional corporation (collectively referred to as plaintiff) appeal as of right from an order granting summary judgment pursuant to GCR 1963, 117.2(1), now MCR 2.116(C)(8), in favor of defendant. We affirm.
On April 20, 1983, the estate of Arthur C. Hilderbrant filed a medical malpractice action against plaintiff. On the date of the alleged negligence, plaintiff was insured for professional malpractice under a policy issued by defendant insurer. The policy limited defendant's liability to $100,000 per occurrence. Pursuant to the policy, defendant undertook to defend plaintiff in the malpractice action.
On March 14, 1984, the Hilderbrant estate offered to settle the malpractice case for the policy limit of $100,000 plus interest at twelve percent, conditioned upon the entry of an offer of judgment. Defendant informed the estate that it was willing to pay only $100,000, including interest and costs. The estate refused to accept the offer unless interest from the date of filing the complaint was paid in addition to $100,000.
In the meantime, defendant evaluated the full liability of the estate's claim against plaintiff at $250,000 and predicted that the estate had a ninety percent chance of winning at trial. In light of this evaluation and subsequent to defendant's refusal to settle in excess of its $100,000 policy limit, plaintiff elected to pay the estate $14,000 "presettlement interest." The parties to the malpractice action then entered into an agreement whereby the estate released all claims against plaintiff in exchange for the payment of $114,000, $100,000 of which was paid by defendant. The case was dismissed with prejudice.
On November 27, 1984, plaintiff filed a complaint against defendant alleging that defendant breached its contract of insurance by not paying interest on the $100,000 settlement. Plaintiff also alleged that defendant breached its duty of good faith by failing to act in plaintiff's best interest in defending the malpractice action. Defendant responded by filing a motion for summary judgment pursuant to GCR 1963, 117.2(1) and (3). Defendant contended that it was not obligated to pay interest on the policy limit when settling the lawsuit. The trial court agreed and granted summary judgment in favor of defendant apparently pursuant to GCR 1963, 117.2(1), ruling that defendant had no legal duty to pay anything more than the amount of the policy limit in settlement of the lawsuit.
On appeal, plaintiff contends that the trial court erred in concluding that plaintiff failed to state a claim for breach of contract, since defendant had no obligation to pay presettlement interest. In support of this contention, plaintiff cites MCL 600.6013; MSA 27A.6013, which authorizes prejudgment interest on a money judgment recovered in a civil action at a rate of twelve percent per year for a lawsuit filed after June 1, 1980, and the clause of his insurance policy obligating defendant to pay on behalf of its insured those damages for which the insured is legally responsible. Plaintiff reasons that, since under the statute he would have been legally responsible for prejudgment interest in the malpractice action, defendant's own policy obligates it to pay the amount of that interest.
Plaintiff's argument fails in its premise that the prejudgment interest statute, MCL 600.6013, MSA 27A.6013, is applicable on these facts. This Court has twice held that where a case is terminated by dismissal following a settlement the right to statutory prejudgment interest is waived — and, hence, the legal responsibility to pay such interest is removed — because no final judgment was rendered. Silisky v Midland-Ross Corp, 97 Mich. App. 470, 476; 296 N.W.2d 576 (1980), lv den 414 Mich. 868 (1982); Awedian v Theodore Efron Mfg Co, 66 Mich. App. 353, 357-358; 239 N.W.2d 611 (1976), lv den 396 Mich. 856 (1976). See also Commercial Union Ins Co v The Shelby Mutual Ins Co, 563 F. Supp. 803 (ED Mich, 1983); Darnell v Auto-Owners Ins Co, 142 Mich. App. 1; 369 N.W.2d 243 (1985); Celina Mutual Ins Co v Citizens Ins Co of America, 133 Mich. App. 655; 349 N.W.2d 547 (1984). In Young v Robin, 146 Mich. App. 552; 382 N.W.2d 182 (1985), lv den 424 Mich. 900 (1986), this Court recently extended the holding of Silisky and Awedian to consent judgments which do not include an agreement to pay prejudgment interest. Denham v Bedford, 407 Mich. 517; 287 N.W.2d 168 (1980), relied upon by plaintiff, is inapposite to the instant case since in that case judgment was entered on a jury verdict which expressly awarded prejudgment interest.
Applying the rule of Silisky, Awedian, and Young to the instant case, it is clear that neither plaintiff nor defendant was statutorily obligated to pay prejudgment interest in the settlement of the underlying malpractice suit. Because plaintiff was not legally responsible for presettlement interest, it follows that defendant could not be obligated under the cited contract clause to pay interest. When considering a motion for summary judgment pursuant to GCR 1963, 117.2(1) the court must consider only the complaint and must accept all well-pled allegations as true. The court must then determine whether the claim is so clearly unenforceable as a matter of law that no factual development can possibly justify a right to recovery. Commercial Union Ins Co v The Medical Protective Co, 136 Mich. App. 412, 416; 356 N.W.2d 648 (1984), lv gtd 422 Mich. 939 (1985). Here, the trial court did not err in granting summary judgment on plaintiff's breach of contract claim.
Plaintiff also contends that the trial court erred in granting summary judgment with respect to his claim that defendant breached its duty of good faith. Plaintiff maintains that defendant had a duty to enter into a consent judgment which would subject defendant to payment of its policy limits plus presettlement interest and that, in refusing to do so, defendant breached its duty of good faith by putting its own interests ahead of those of its insured. We cannot agree.
The obligation of an insurer to protect in good faith its insured arises out of contract. City of Wakefield v Globe Indemnity Co, 246 Mich. 645, 649; 225 N.W. 643 (1929); Rutter v King, 57 Mich. App. 152, 168; 226 N.W.2d 79 (1974). This obligation is not absolute, however. The policy limit constitutes a "dead line of contractual power, obligation, and duty." City of Wakefield, supra, p 649. The insured pays for protection to that amount only, and the insurer has no obligation to indemnify him in a greater sum. Id.
The policy of insurance in the instant case provided a contractual limit of $100,000. The policy further stated that defendant's liability for damages shall not exceed the stated limit. The policy did not provide for payment of presettlement interest or payment of an amount in excess of its liability limit in settling a claim brought against its insured. As noted above, defendant was not liable under the prejudgment interest statute for interest on amounts paid in settlement of the underlying malpractice action. Further, an insurer is not required to pay an amount in excess of the policy limit in settlement of the claim. Wakefield, supra, pp 649-650. Plaintiff's argument that defendant placed its interest above that of its insured by refusing to pay the interest on the settlement is thus without merit in view of the applicable law. Defendant had no legal or contractual duty to pay in excess of its policy limit, or to pay presettlement interest on the amount paid in settlement of the malpractice action against plaintiff. No factual development could support a right to recovery where defendant had no obligation to pay the $14,000 in excess of the policy limit. Accordingly, summary judgment for failure to state a claim was proper.
Finally, we wish to point out that plaintiff's underlying assumption, that defendant refused to enter into a consent judgment because such an action would necessarily subject defendant to payment of presettlement interest, is legally flawed. As previously noted, this Court had recently held that the prejudgment interest statute does not apply to consent judgments where the parties have not reached an agreement as to interest. Young, supra. Moreover, under the new court rules, MCR 2.405(A)(1), an offer of judgment "is deemed to include all costs and interest then accrued," thus taking judgments entered under that rule outside the scope of the prejudgment interest statute. See Young, supra, p 556, n 2, and concurring opinion of MAHER, J. In view of these authorities it is clear that under the present state of the law, an insurer does not "escape" liability for prejudgment interest simply by refusing to enter into a consent judgment when settling a case. Settlement by consent judgment or by release, the result is the same: unless the parties expressly agree otherwise, the insurer and his insured are not obligated to pay prejudgment interest.
Affirmed.