Splitting Up the Pie: How Michigan Courts Are Required to Handle Interpleader of Uninsured Motorist Benefits

Splitting Up the Pie: How Michigan Courts Are Required to Handle Interpleader of Uninsured Motorist Benefits

08/11/2022

Introduction

In Secura Ins Co v Stamp, the Michigan Court of Appeals determined how interpleaded uninsured motorist benefits should be distributed and who decides the distribution.  In Secura, Brian Stamp and Rhonda Mahaffy lost their lives after an auto accident.  Both estates sued Secura Insurance Company to recover uninsured motorist (UM) benefits. After resolution of a dispute over the amount of available policy limits, Secura then filed an interpleader action against Stamp and Mahaffy’s estates to determine the distribution of the policy limits.  The two actions were consolidated.

Mahaffy’s estate requested that the judge, not a jury, divide the proceeds equally as it was a claim that sounded in equity. On the other hand, Stamp’s estate requested that the proceeds be divided proportional to the damages suffered by the parties, since Stamp had dependents while Mehaffy had none. Stamp’s estate also requested that a jury award the damages to each estate, not the judge. After oral argument on a motion to distribute the proceeds equally, the lower court ruled that a jury trial was not appropriate and ordered that the proceeds be divided equally between the two estates. After the denial of a motion for reconsideration, Stamp’s estate appealed the court’s decision.

The Court of Appeals answered two questions: (1) Whether the insurance funds should have been divided equally when claims exceeded the interpleaded insurance funds, and (2) Whether the claimants had a right to a jury trial to determine the amount of damages in the interpleader action.

Distribution of the Insurance Funds

The Court of Appeals first ruled that a pro-rata distribution of the insurance funds, as opposed to an equal split, was required because the damages exceeded the available policy limits. The court found that the lower court misinterpreted Moore and the meaning of pro-rata distribution to mean that each claimant should receive an equal share of the interpleaded insurance funds regardless of the extent of damages. Instead, the Moore court held that when claims exceed the funds available, equity requires that the funds be distributed on a pro-rata basis. Moore v McDowell, 54 Mich App 663; 221 NW2d 446 (1974).

Thus, the Secura court concluded that to achieve a pro rata distribution, each estate’s share of the limited funds must be equal to the ratio of its damages to the total combined damages suffered by the estates. Merely dividing a limited fund into equal shares when claimants have unequal losses is not an equitable result. Because Stamp’s losses exceeded Mahaffy’s losses, there was an issue of material fact as to each estate’s damages.

Who Decides the Distribution?

Turning to the second issue, the Court of Appeals held that, while Stamp did not have an absolute right to a jury trial in this interpleader action, the trial court abused its discretion in refusing to permit one. The Court noted that, “generally, a court should see to it that no just right or privilege of trial is lost to either party as a result of having been compelled by bill of interpleader to litigate in a court of equity.” In addition, the Court also pointed that US Supreme Court precedent and a learned treatise supported a growing consensus that interpleader actions should not deprive parties of a jury trial to which they would have otherwise been entitled.  The Court also noted that juries regularly decide damages in wrongful death cases where there are multiple plaintiffs.

Stamp did have a right to a jury trial in its breach of contract action to recover under the insurance policy.  Therefore, the fact that Stamp was compelled to proceed with an interpleader action should not deprive him of that jury trial.  The Court also noted that, even if Stamp was not entitled to a jury trial, he would be entitled to at least an evidentiary hearing or a bench trial.

Analysis

When insurance carriers are faced with multiple plaintiffs seeking uninsured motorist benefits and the damages exceed the available limits, interpleader is a viable option for extinguishing the carrier’s liability.  However, the interpleaded funds must be distributed on a pro-rata basis based on the amount of damages of each party.  In addition, the claimants are entitled to adjudication of the distribution by hearing or trial.  That adjudication includes a jury trial if if desired by one or more of the parties, as the parties would be entitled to a jury trial on the underlying claim.


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