At the outset, State Farm concedes that claims alleging the breach of a duty other than a duty owing under a no-fault insurance policy are actionable in tort and not barred by Michigan's No-Fault Act. See Hearn v. Rickenbacker, 428 Mich. 32, 39-40, 400 N.W.2d 90 (1987). "[I]f a relationship exists which would give rise to a legal duty without enforcing the contract promise itself, the tort action will lie, otherwise not."
Second, unlike an action for no-fault benefits, which arises when the insurer fails to pay benefits, an action for fraud arises when the fraud is perpetrated. Hearn v Rickenbacker, 428 Mich 32, 39; 400 NW2d 90 (1987). Finally, under a no-fault cause of action, the insureds can only recover no-fault benefits, whereas under a fraud cause of action, the insureds may recover damages for any loss sustained as a result of the fraudulent conduct, which may include the equivalent of no-fault benefits, reasonable attorney fees, damages for emotional distress, and even exemplary damages.
These provisions are found only in the relevant Michigan statutes. Scottsdale argues, however, that Palmer's penalty-interest claim is not "independent" from the underlying contract claim for payment of the insured loss and thus derivatively arises under the Policy. To support its argument, Scottsdale relies on isolated statements found in Hearn v. Rickenbacker , 428 Mich. 32, 400 N.W.2d 90 (1987).But Hearn does not support Scottsdale's position. Hearn addressed the question of whether the plaintiff's claims for fraud and negligence relating to a fire insurance policy were governed by that policy's one-year-limitations provision.
We find there is an important distinction between an action "arising out of the contractual relationship" and an action "on the policy." See Murphy v. Allstate Ins. Co., 83 Cal.App.3d 38, 147 Cal.Rptr. 565, 574 (1978); Hearn v. Rickenbacker, 428 Mich. 32, 400 N.W.2d 90, 93 (1987). While most claims may be said to have arisen or evolved from the insurance policy, not all claims are actions on the policy.
Finally, there is nothing to suggest that this is a circumstance where the promise must be enforced if injustice is to be avoided. Ford appears to primarily rely on Hearn v Richenbacker, 428 Mich 32, 38-41; 400 NW2d 90 (1987), and Huhtala v Travelers Ins Co, 401 Mich 118; 257 NW2d 640 (1977), in support of her promissory estoppel claim, but that reliance is misplaced because, as stated above, her promissory estoppel claim fails as a matter of law. Furthermore, each of those cases are distinguishable from this matter in substantial ways. Hearn involved a fraud and negligence lawsuit against an independent insurance agency for what amounted to, in essence, conversion of the insured's premium payments under the insurance agreement.
We need not resolve this apparent conflict because we hold that the contractual limitation is applicable even if the Troxells' complaint does allege a cognizable negligence action against American States. In Hearn v. Rickenbacker (1987), 428 Mich. 32, 400 N.W.2d 90, a case the Troxells rely upon, the Supreme Court of Michigan reasoned that, although a contractual limitation which refers only to actions "on the policy" does not cover collateral actions involving, in some measure, policy proceeds, such a limitation would apply to an action which is "truly contractual in nature and `on the policy.'" 428 Mich. at 36-37, 400 N.W.2d at 92.
Id. at 562, at *7. In Hearn v. Rickenbacker, 428 Mich. 32, 39, 400 N.W.2d 90 (1987), the Michigan Supreme Court found an insured plaintiff's fraud and negligence claims did not constitute actions on the insurance policy. The court noted the claims “are based on actions falling outside the policy of insurance.
1993). In Hearn v. Rickenbacker, 400 N.W.2d 90 (Mich. 1985), the Michigan Supreme Court confronted a similar issue. The plaintiff and the defendant were parties to an insurance contract.
Aetna Casualty Surety Co. v. Dow Chemical Co., 883 F. Supp. 1101, 1111 (E.D.Mich. 1995) (citing Kewin v. Massachusetts Mutual Life Ins. Co., 409 Mich. 401, 403, 295 N.W.2d 50, 56 (1980) and Hearn v. Rickenbacker, 428 Mich. 32, 400 N.W.2d 90 (1987)). Michigan law recognizes a tort claim only when a plaintiff's complaint alleges "the breach of duties existing independent of and apart from" the contract of insurance.
But Michigan has declined to recognize an independent tort cause of action for an insurer's bad faith handling of an insured's claim or denial of benefits arising from an insurer's breach of an insurance contract. See, e.g., Hearn v Rickenbacker, 428 Mich 32, 37; 400 NW2d 90 (1987) (breach of an insurer's duty to act in good faith in the handling and payment of claims is not a tort recognized in Michigan); Casey v Auto Owners Ins Co, 273 Mich App 388, 401-402; 729 NW2d 277 (2006) ("An alleged bad-faith breach of an insurance contract does not state an independent tort claim."); Runions v Auto-Owners Ins Co, 197 Mich App 105, 109-110; 495 NW2d 166 (1992) (the "tort of bad-faith handling of an insurance claim" is "nonexistent" and there is no cause of action in tort where the only tortious conduct alleged is the insurer's failure to pay the claim). Further, to the extent that the allegations contained in plaintiff's proposed amended complaint may be read to allege that State Farm negligently performed its obligations under the contract by failing to act reasonably in handling plaintiff's claim, such claims arose from the insurance contract and, thus, do not support an independent tort claim.