455 Companies, LLC alleges that Landmark American Insurance Company breached their property insurance contract by denying a claim resulting from water damage to 455 Companies’ property.  Landmark moved for partial summary judgment on multiple grounds, including on 455 Companies’ allegations of bad faith, arguing that these allegations fail to state a claim under Michigan law.  The court noted that Michigan courts have declined to recognize bad faith breach of an insurance contract as a separate tort independent of the contract claim, and that Michigan law does not allow punitive or exemplary damages for breach of an insurance contract absent a tort claim that is independent of the breach.  Because 455 Companies asserted a breach of contract claim seeking consequential damages, to the extent 455 Companies “seeks to assert a freestanding claim for bad faith and to recover punitive or exemplary damages,” the court ruled that Landmark is entitled to summary judgment.  The court also ruled that bad faith is irrelevant to whether 455 Companies may be entitled to penalty interest pursuant to Mich. Comp. Laws § 500.2006 because insurers “are subject to this penalty if they fail to timely pay the insured regardless of whether a claim is reasonably in dispute” (quotations omitted).

455 Companies also asserted that Landmark breached the covenant of good faith and fair dealing inherent in every insurance contract by continuing to direct and supervise mitigation work after Landmark had already decided to deny 455 Companies’ claim.  The court had already determined that damages relating to the mitigation work were not available because 455 Companies made separate contractual arrangements for the work—to which Landmark was not a party—before notifying Landmark of the loss.  The court, therefore, determined that it did not need to address the good faith and fair dealing argument further.

Finally, 455 Companies argued that Landmark’s alleged bad faith is relevant to whether it may recover the full cost of repairing and replacing its property under the terms of the policy.  The court agreed and recognized a dispute of fact as to whether Landmark’s “unwillingness to recognize [Plaintiff’s] claims may, as a practical matter, have disabled [Plaintiff] from undertaking the repair, rebuilding, or replacement of [the building]” (quotations omitted).  In the event that the fact finder “determines the loss to have been covered under the policy, Defendant’s alleged bad faith would be relevant to whether Plaintiff should receive the replacement cost immediately or only after repairing or replacing the building.”  For this reason, the court denied Landmark’s motion with respect to Landmark’s contention that 455 Companies is limited to recovering only the actual cash value of the property.

455 Companies, LLC v. Landmark American Insurance Co., No. 16-10034 (E.D. Mich. Aug. 9, 2017)