Marketos v. American Employers Insurance

                                                                       Michigan Supreme Court
                                                                       Lansing, Michigan 48909
____________________________________________________________________________________________
                                                                C hief Justice                   Justices
                                                                Maura D. Cor rigan	              Michael F. Cavanagh




Opinion
                                                                                                 Elizabeth A. Weaver
                                                                                                 Marilyn Kelly
                                                                                                 Clifford W. Taylor
                                                                                                 Robert P. Young, Jr.
                                                                                                 Stephen J. Markman

____________________________________________________________________________________________________________________________

                                                                                 FILED SEPTEMBER 26, 2001





                GEORGE J. MARKETOS and

                MARK VIDEO ENTERPRISES, INC.,


                        Plaintiffs-Appellants,


                v                                                                                No. 117376


                AMERICAN EMPLOYERS INSURANCE

                CO.,


                     Defendant-Appellee.

                ________________________________

                PER CURIAM


                        The plaintiffs brought this action to recover on a fire


                insurance policy for damages to their property.                                    The trial


                resulted in a judgment for the plaintiffs, with the jury


                rejecting        defendant’s          arson      defense.             The     circuit       court


                refused to award mediation sanctions under MCR 2.403(O).


                However, the Court of Appeals reversed, concluding that the


                trial court should not have deducted a setoff in determining


                whether mediation sanctions were warranted.                              We hold that the


                setoff       was    properly        deducted          and         therefore    reverse        the


                judgment of the Court of Appeals in part.

                                        I


     Plaintiff,        Mark    Video    Enterprises,         Inc.,1    owned    a


facility in Ann Arbor that it used to duplicate tapes of


television programs and distribute them to local stations. On


the evening of January 4, 1986, the building and most of the


equipment were destroyed by fire.                  Plaintiffs filed a claim


with defendant American Employers Insurance Co, which insured


the property against loss by fire.                    Defendant denied the


claim, asserting that the fire had been deliberately set and


that Marketos was responsible for the arson.                   Following the


denial    of    the   claim,     plaintiffs        brought   this     action   in


December    1986      alleging    breach      of   contract    and    bad-faith


refusal    to   pay    the    claim.2        Defendant   had    already    paid


$455,073.15 to First of America Bank, which held a mortgage on


the real estate.3


     The case has been tried twice.                In 1990 a jury awarded no


damages after finding that Marketos had committed arson.                       The


trial judge, however, granted judgment notwithstanding the



     1
      Plaintiff George J. Marketos was the president and sole

shareholder of Mark Video Enterprises, Inc. 

     2

       Three amended complaints added claims for emotional

distress and defamation, on which summary dispositions were

granted for the defendant in April 1987, July 1987, and

November 1987. 

     3
       The mortgagee had independent rights under the policy

and would have had a valid claim even if the jury found that

Marketos committed arson.     In exchange for payment, the

mortgagee assigned its debt instruments to the defendant,

including the mortgage, promissory note, and personal

guarantee of Marketos that secured the loan to Mark Video.


                                        2

verdict   and   awarded   $3,138,113.99       to    Mark    Video      and


$330,671.90 to Marketos.      Under MCR 2.610(C), the judge also


granted   conditionally   a   new    trial   in   the   event   that    an


appellate court reversed the judgment notwithstanding the


verdict. The judge concluded that the defendant’s evidence of


arson was insufficient, that the verdict was against the great


weight of the evidence, and that the plaintiffs were unfairly


prejudiced when the defendant added a new theory during


closing arguments.


     The Court of Appeals thereafter reversed, concluding that


sufficient evidence supported the verdict and that the verdict


was not contrary to the great weight of the evidence.                  The


Court also rejected the trial judge’s conclusions regarding


defense counsel’s closing argument.4


     The plaintiffs applied for leave to appeal to this Court.


On August 22, 1995, we reversed the judgment of the Court of


Appeals in part.   Our order stated:


          As to that part of the Court of Appeals

     judgment reversing the judgment notwithstanding the

     verdict, leave to appeal is denied because we are

     not persuaded that the questions presented should

     now be reviewed by this Court.     We reverse that

     part of the Court of Appeals judgment that reversed

     the Washtenaw Circuit Court’s conditional ruling

     granting the plaintiffs’ motion for a new trial.

     MCR 2.610(C).     The Court of Appeals erred by

     rejecting the trial judge’s conclusion that, in the

     circumstances of this case, the plaintiffs were

     disadvantaged unfairly when the defendant’s closing

     argument advanced a previously unpleaded theory of



     4

        Unpublished opinion per curiam, issued June 29, 1994

(Docket Nos. 140985, 143322).


                                    3

      affirmative defense.   We remand the case to the

      Washtenaw Circuit Court for a new trial pursuant to

      that conditional ruling.[5]


      At the second trial in September 1997, the verdict form


asked whether defendant had established the arson defense; if


not, the verdict form then instructed the jury to determine


the   actual   cash   value   of   eight    categories   of   property


allegedly damaged in the fire.             The jury found that the


insurer had not proved arson, and determined that the actual


cash value of the damaged property was $1,707,709.


      In posttrial motions, the judge adjusted the jury’s


findings of actual cash value on the basis of the trial


evidence, policy language, and legal principles, resulting in


an award of $799,394.85.      The court entered judgment in that


amount, plus accrued interest, on December 11, 1997. 


      Before trial, mediation proceedings under MCR 2.4036 had


resulted in a proposed award of $1.5 million.7       The plaintiffs


sought     sanctions under MCR 2.403(O), contending that the


jury’s “verdict” was more favorable than the mediation award.


The trial judge refused to award sanctions because the verdict





      5
       Docket Nos. 101058, 101059, 102026, 102027.            See 450

Mich 852 (1995).

      6

       Effective August 1, 2000, MCR 2.403 was amended to

change the term “mediation” to “case evaluation.” In this

opinion we will use the terminology applicable at the time of

the proceedings in this case.

      7

       The plaintiffs had accepted the mediation award; the

defendant had rejected it.


                                   4

following the posttrial adjustments was not more favorable to


plaintiffs than the mediation award. 


     The Court of Appeals reversed on the sanctions issue. It


examined the language of MCR 2.403(O), which provided, in


part:


          (1) If a party has rejected an evaluation and

     the action proceeds to verdict, that party must pay

     the opposing party’s actual costs unless the

     verdict is more favorable to the rejecting party

     than the mediation evaluation. . . .


          (2) For the purposes of this rule “verdict”

     includes,


          (a) a jury verdict,


          (b) a judgment by the court after a nonjury

     trial,


          (c) a judgment entered as a result of a ruling

     on a motion after rejection of the mediation

     evaluation.


          (3) For the purpose of subrule (O)(1), a

     verdict must be adjusted by adding to it assessable

     costs and interest on the amount of the verdict

     from the filing of the complaint to the date of the

     mediation evaluation . . . .


     The Court held that the circuit court had improperly


considered its posttrial adjustment of the jury’s findings


when determining whether to award sanctions:


          We   hold   that  the   plain   language   of

     MCR 2.403(O) requires the trial court to award

     mediation sanctions if the jury verdict itself,

     adjusted only as set forth in MCR 2.403(O)(3), is

     not more favorable to the rejecting party than the

     mediation evaluation. See Frank v William A Kibbe

     & Assoc, Inc, 208 Mich App 346, 352; 527 NW2d 82

     (1995) (“The judge should have considered the

     amount of the jury verdict, adjusted only as

     permitted by MCR 2.403(O)(3), when determining if

     sanctions were required”). As applied to the case


                             5

      at hand, we find that the trial court erred by

      subtracting the setoff amount before determining if

      mediation sanctions were warranted.


      The plaintiffs have applied for leave to appeal to this


Court, raising claims about other aspects of the Court of


Appeals    decision.        Defendant    has   cross-appealed   on   the


mediation sanctions ruling.


                                   II


      This issue involves interpretation of a court rule,


which, like matters of statutory interpretation, is a question


of law that we review de novo.          McAuley v General Motors Corp,


457   Mich    513,   518;    578   NW2d     282   (1998).   Grievance


Administrator v Underwood, 462 Mich 188, 193-194; 612 NW2d 116


(2000), articulates the proper mode of interpretation:


           When called on to construe a court rule, this

      Court applies the legal principles that govern the

      construction    and   application    of   statutes.

      Accordingly, we begin with the plain language of

      the court rule. When that language is unambiguous,

      we must enforce the meaning expressed, without

      further judicial construction or interpretation.

      Similarly, common words must be understood to have

      their everyday, plain meaning. [Citations omitted.]


      In this case, the Court of Appeals erred in treating the


jury’s findings as the “verdict” for purposes of MCR 2.403(O).


The jury did not determine the amount that plaintiffs should


recover.     Rather, it made specific factual findings about the


cash value of categories of property damage.


      After the questions on the arson defense, the verdict


form asked the jury:




                                   6

          3.   What was the actual cash value, that

     Plaintiffs have proven by a preponderance of the

     evidence for each of the following categories of

     property, at the time of the fire:


The form then listed the categories of property.


     However, the trial court--not the jury--determined the

                              -             -

amount that defendant would have to pay.                 In particular, the


court decided the legal effect of the setoff for defendant’s


payments to the bank on the mortgage.                 The jury was told:


          There has been some testimony in this case

     about the defendant’s payment of monies to First of

     America and obtaining an assignment of the mortgage

     as a result. If you decide to rule in favor of the

     plaintiffs, you should award plaintiffs the full

     $480,000 stipulated value of the building and

     should not consider whether the defendant is

     entitled to a credit for the amount paid to First

     of America.     Any credit in this case can be

     determined by the Court, by me, as a matter of law.


     MCR     2.403(O)(2)     was   amended       in    1987          to   include   a


definition     of    “verdict.”         The    rule    now          clarifies   that


decisions    by     the   court,   as    well    as    by       a    jury,   may    be


considered a verdict in some instances.8                        For purposes of


awarding     sanctions     under   MCR       2.403(O),      a       “verdict”   must


represent a finding of the amount that the prevailing party


should be awarded.        The dollar amount that the jury includes


on the verdict form may or may not be the “verdict” for that


purpose.9



     8
       See Mehelas v Wayne Co Comm College, 176 Mich App 809,

811-814; 440 NW2d 117 (1989); Wayne-Oakland Bank v Brown

Valley Farms, Inc, 170 Mich App 16, 20; 428 NW2d 13 (1988).

     9

        The Court of Appeals has considered other questions

related to the meaning of this rule. For example, several


                                        7

     The    jury’s      factual   findings      in     this    case    do    not


constitute a “verdict” under MCR 2.403(O).                    The jury found


that the value of the building was $480,000.                    However, the


circuit    court   determined     as      a   matter    of    law     that   the


plaintiffs were not entitled to recover that amount because


the insurer had paid over $450,000 to the mortgagee, in effect


on behalf of the plaintiffs.           Similarly, some of the jury’s


findings regarding the actual cash value of other categories


of property did not entitle plaintiffs to recover those


amounts in light of applicable policy limits or deductibles.


     Thus, in this case, the actual “verdict” was the decision


by the court using the jury’s factual findings.                 This verdict


was not more favorable to the plaintiffs than the mediation


award,     and   thus    sanctions     against       the     defendant       were



decisions have stated that the result following appeals

controls for purposes of sanctions under MCR 2.403. Hyde v

Univ of Mich Bd of Regents, 226 Mich App 511, 526; 575 NW2d 36

(1997); Keiser v Allstate Ins Co, 195 Mich App 369, 374-375;

491 NW2d 581 (1992).    In condemnation cases, the Court of

Appeals has held that the jury’s “verdict” should be adjusted

to take into account the condemnor’s deposit at the outset of

the case, to make the verdict actually reflect the actual

amount in controversy. Detroit v Kallow Corp, 195 Mich App

227, 229; 489 NW2d 500 (1992); Great Lakes Gas Transmission v

Markel, 226 Mich App 127, 134; 573 NW2d 61 (1997).          In

Szymanski v Brown, 221 Mich App 423, 432-435; 562 NW2d 212

(1997), the Court held that for the purpose of MCR 2.403

sanctions, the amount of damages found by the jury must be

trebled as provided by the applicable statute. Finally, a

jury’s findings must be adjusted by the court to take into

account a plaintiff’s comparative negligence.        Klinke v

Mitsubishi Motors Corp, 219 Mich App 500, 517-518; 556 NW2d

528 (1996), aff’d 458 Mich 582; 581 NW2d 272 (1998). While we

have noted the Court of Appeals application of the rule in

these various circumstances, we confine our holding in this

case to the issue before us.


                                     8

inappropriate.     Accordingly, the judgment of the Court of


Appeals is reversed in part,10 and the case is remanded to the


Washtenaw Circuit Court for any further proceedings necessary.


     CORRIGAN , C.J., and CAVANAGH , WEAVER , KELLY , TAYLOR , YOUNG , and


MARKMAN , JJ., concurred.





     10
        We have considered the plaintiffs’ application for

leave to appeal, and it is denied because we are not persuaded

that the questions presented should be reviewed by this Court.


                                   9