Legal Research AI

J & J Farmer Leasing, Inc. v. Citizens Insurance Co. of America

Court: Michigan Supreme Court
Date filed: 2005-05-24
Citations: 696 N.W.2d 681, 472 Mich. 353
Copy Citations
16 Citing Cases
Combined Opinion
                                                                   Michigan Supreme Court
                                                                         Lansing, Michigan
                                            Chief Justice:	          Justices:



Opinion                                     Clifford W. Taylor 	     Michael F. Cavanagh
                                                                     Elizabeth A. Weaver
                                                                     Marilyn Kelly
                                                                     Maura D. Corrigan
                                                                     Robert P. Young, Jr.
                                                                     Stephen J. Markman




                                                          FILED MAY 24, 2005


  J & J FARMER LEASING, INC.,
  FARMER BROTHERS TRUCKING CO.,
  INC., CALVIN ORGANE RICKARD, JR.,
  and JAMES W. RILEY, as Personal
  Representative of the ESTATE OF
  SHARYN ANN RILEY, Deceased,

         Plaintiffs-Appellees,

  v                                                                   	 o. 125818
                                                                      N

  CITIZENS INSURANCE COMPANY OF
  AMERICA,

       Defendant-Appellant.
  _______________________________

  PER CURIAM.

         At issue is whether a covenant not to sue a party is

  indistinguishable from a release and, thus, results in a

  bar    to   suits    against    a   covenantee’s            tortfeasor         by    a

  covenantee’s assignee.         The Court of Appeals concluded that

  the    instruments    are   indistinguishable           and,     accordingly,

  that   a    covenantee’s    assignee   (the     covenantor)           would         be

  barred in a suit against the tortfeasor.                     We disagree and

  vacate that part of the judgment.                The Court of Appeals
correctly concluded for other reasons that the covenantor

was not released.           Yet the Court unnecessarily relied on a

misapplication        of    Frankenmuth       Mut    Ins    Co    v    Keeley      (On

Rehearing), 436 Mich 372; 461 NW2d 666 (1990), so we vacate

that       portion   of     the   Court’s     analysis.           This      case    is

remanded       to    the    Washtenaw        Circuit    Court         for       further

proceedings consistent with this opinion.

                                        I

       Sharyn Riley was killed when her vehicle was struck by

a truck owned by J & J Farmer Leasing, Inc. (or Farmer

Brothers       Trucking      Company,        Inc.),1    operated           by     their

employee      Calvin       Rickard,   Jr.,     and     insured        by    Citizens

Insurance Company.           Rickard was at fault.               James Riley, as

the personal representative of Sharyn Riley’s estate,2 sued

Farmer under a wrongful death theory and Citizens assumed

Farmer’s defense.            Riley obtained a jury verdict of $3.2

million against Farmer, which exceeded the $750,000 limits

of   the     Citizens      policy.      Thus,       Farmer,      after      Citizens

tendered its policy limits, remained liable for the $2.45

million balance of the judgment.




       1
       For ease of reference, we will refer to these parties
jointly as “Farmer.”
       2
       For ease of reference,                  we    will     refer        to    Sharyn
Riley’s estate as “Riley.”


                                        2

      Farmer, believing that the case could have settled for

the policy limits but for Citizens’ bad faith in pursuing

settlement   negotiations,      assigned    to   Riley   its   cause   of

action against Citizens for bad-faith failure to settle.3

As part of the agreement between Riley and Farmer, Riley

agreed not to sue to collect the excess judgment of $2.45

million from Farmer as long as Farmer cooperated in the

suit against Citizens.4

      After Riley and Farmer filed suit, Citizens moved for

summary disposition, MCR 2.116(C)(10), arguing that under

the   agreement   Riley   had    released    its    underlying    claim

against Farmer for the excess judgment and, thus, Farmer’s

surety, Citizens, was also released.             That is, because the

principal was released, so was the surety.                The circuit

court denied the motion, reasoning that the joint agreement


      3
       Michigan recognizes an insured’s claim against its
insurer for bad faith in refusing to settle.            See
Commercial Union Ins Co v Liberty Mut Ins Co, 426 Mich 127;
393 NW2d 161 (1986); Wakefield v Globe Indemnity Co, 246
Mich 645; 225 NW 643 (1929).
      4
       In particular, as relevant here, the agreement sets
out Farmer’s desire to pursue a bad-faith claim and Riley’s
desire to recover the full judgment.       It continues by
stating that the parties will pursue a joint lawsuit
against Citizens, Riley will control the lawsuit, Farmer
will cooperate fully or the agreement may be rendered null
and void, any recovery will go to Riley (with an exception
for $20,000 for attorney fees incurred by Farmer), and
Riley will in return “forever forbear” from collecting any
judgment from Farmer.


                                   3

was in the nature of a covenant not to sue and not a

release       because,         under          certain         conditions,          Riley      could

proceed against Farmer to collect the underlying judgment.

        The Court of Appeals granted Citizens’ application for

leave to appeal and subsequently affirmed on a different

basis than the trial court.                         While the Court held that the

trial       court       reached          the       right        result    because        of     its

understanding of the intent and purpose of our decision in

Frankenmuth Mut Ins Co v Keeley (On Rehearing), 436 Mich

372; 461 NW2d 666 (1990), the panel held that the agreement

itself      was     a    release          because         it     “operates         to   release”

Farmer from the underlying excess judgment.5

        Citizens applied for leave to appeal in this Court. It

argued      that        the    covenant            not     to    sue     in    the      agreement

effectively         operated             as    a     release.            Therefore,           under

Keeley, supra, plaintiffs’ claim must fail because Farmer

had     not      suffered          any        pecuniary          loss    as    a     result      of

Citizens’         alleged          bad    faith          in     failing       to    settle      the

underlying lawsuit.                  We entertained oral argument on this

matter      in    lieu        of    granting             leave    to     appeal      under     MCR




        5
       J & J Farmer Leasing, Inc v Citizens Ins Co of
America, 260 Mich App 607, 621; 680 NW2d 423 (2004).


                                                    4

7.302(G)(1)6 and now resolve Citizens’ application for leave

to appeal.

                                     II

       We    review   a   summary   disposition   ruling   de   novo   to

determine whether the moving party is entitled to judgment

as a matter of law.          Maiden v Rozwood, 461 Mich 109, 118;

597 NW2d 817 (1999).           We view the evidence in the light

most favorable to the party opposing the motion.                 Id. at

120.

                                    III

       There is a material difference between a covenant not

to sue and a release.         A release immediately discharges an

existing claim or right.            In contrast, a covenant not to

sue is merely an agreement not to sue on an existing claim.

It does not extinguish a claim or cause of action.                     The

difference primarily affects third parties, rather than the

parties to the agreement.           Theophelis v Lansing Gen Hosp,

430 Mich 473, 492 n 14; 424 NW2d 478 (1988) (Griffin, J.);

Industrial Steel Stamping, Inc v Erie State Bank, 167 Mich

App 687,693; 423 NW2d 317 (1988).

       As the circuit court concluded, the agreement in this

case is a covenant not to sue.            Additionally, the covenant



       6
           471 Mich 940 (2004).


                                     5

not to sue is not absolute but, rather, is conditioned on

the covenantee, Farmer, performing certain duties in the

litigation against Citizens.               Only if Farmer performs these

duties does Riley’s covenant not to sue on the underlying

excess judgment become absolute and release Farmer of all

liability to Riley.

       This   analysis    resolves         this    matter.       No     resort    to

Keeley to reach the same conclusion was necessary.

                                         IV

       In conclusion, the Court of Appeals incorrectly held

that    the    covenant       not   to     sue     was    a    release    and     it

needlessly relied on Keeley.                   Accordingly, the Court of

Appeals opinion, insofar as it dealt with the release and

covenant      not   to   sue    issue,        is   vacated.       Its    analysis

regarding      Keeley    is    also      vacated.         The    circuit    court

correctly found that the joint agreement was a covenant not

to     sue     and,      therefore,           summary         disposition        was

appropriately       denied.         This      matter     is   remanded     to    the

circuit court for further proceedings.

                                           Clifford W. Taylor
                                           Michael F. Cavanagh
                                           Elizabeth A. Weaver
                                           Marilyn Kelly
                                           Maura D. Corrigan
                                           Robert P. Young, Jr.
                                           Stephen J. Markman




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