Mich. Court Orders $10 Million Settlement in Sterling Heights Suit

January 24, 2007

In a written opinion issued January 19, 2007, United States District Court Judge Nancy G. Edmunds of the Eastern District of Michigan has ordered United National Insurance Co. to pay the city of Sterling Heights over $10 million for coverage claims arising out of a $31 million March 2004 settlement with Hillside Productions, Inc., owners/operators of the Freedom Hill Amphitheatre located in Sterling Heights.

Edmunds has set a March 23rd trial date for the city’s remaining claims, including the claim that United National breached the covenant of good faith and fair dealing in its handling of the city’s claim.

Edmunds had previously determined that United National’s insurance policies provided coverage for the Freedom Hill dispute. The new ruling settles a disagreement over various methods that could be used to determine the amount of United National’s liability. The decision follows settlements totaling $18,750,000.00 with two other insurance companies which insured the city.

In briefing before the Court, United National argued that although the city had already proven its right to coverage, it must still prove what portion, if any, of the underlying settlement was attributable to covered claims, and that because the covered claims were allegedly defensible, the city could not recover the remaining portion of the settlement.

The city argued that the Court should apply one of three allocation methods to determine United National’s share of the settlement, in part because United National’s proposal would require the city to prove against itself the very claims it thought it had settled.

Because there was “no feasible way to separate the various covered and uncovered causes of the underlying plaintiffs’ economic damages,” Judge Edmunds adopted the “time-on-the-risk” pro-ration method, rejecting United National’s request for the city to “do the impossible.”

Judge Edmunds did not allow United National to raise arguments against the reasonableness of the underlying settlement because United National chose not to actively participate in the settlement negotiations and did not raise its objections at the time of settlement. Judge Edmunds said, any other result “would discourage settlement,” allowing insurance companies to re-litigate the facts of cases their policyholders thought were settled.

Source: Anderson Kill & Olick, P.C.

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