McDonald v. Farm Bureau Insurance

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 APRIL 23, 2008

MARY ELLEN McDONALD,

Plaintiff-Appellee,

v No. 132218

FARM BUREAU INSURANCE CO,

Defendant-Appellant.

BEFORE THE ENTIRE BENCH

TAYLOR, C. J.

In this case, we must decide whether a contractual limitations period in an

insurance policy is tolled from the time a claim is made until the insurance

company denies the claim and, if it is not, whether the limitations period may be

avoided under the doctrines of waiver or estoppel. Consistently with long-

established contract law, we hold that there is no automatic tolling when a claim is

filed unless the contract so provides. Traditional contract doctrines such as waiver

and estoppel can apply when the facts support them. However, in the present case

plaintiff has not shown that she relied on any misconduct by defendant; therefore,

defendant cannot be estopped from applying the limitations period to plaintiff’s
claim. Because the Court of Appeals held to the contrary, we reverse the Court of

Appeals and remand for entry of summary disposition in favor of defendant.

I. FACTS AND PROCEEDINGS

The policy at issue in this case is one for underinsured motorist (UIM)

coverage. These policies are not mandated by statute; individuals contract for

such coverage voluntarily. When an insured is injured by a tortfeasor motorist

whose own policy is insufficient to cover all of the insured’s damages, the insured

can seek coverage from his or her UIM policy for damages that exceed the

tortfeasor’s policy limits. Thus, the insured generally must first determine how

much of his or her damages will be covered by the tortfeasor and enter into a

settlement with the tortfeasor, and then seek further payment from his or her UIM

provider for the balance.

In this case, plaintiff was injured in an automobile accident on November

29, 2001. The policy under which she was covered included UIM coverage.

However, it contained an endorsement that provided: “No claimant may bring a

legal action against the company more than one year after the date of the

accident.” The policy also had a clause prohibiting the insured from settling

without defendant’s written consent and stating that defendant “shall be obligated”

to respond within 30 days to the insured’s request to settle.

On May 10, 2002, plaintiff’s attorney notified defendant by mail that

plaintiff had an underinsured motorist claim, acknowledging that the policy had a

limitations period that would expire on November 29, 2002. Defendant responded

2

that it needed answers to interrogatories (concerning collectibility of the

underinsured motorist) before it could give permission to settle and that

defendant’s claims representative needed to review the medical records. The

claims representative’s letter indicated that after the medical records were

reviewed, “I will be getting back in touch with you.”

On August 2, 2002, plaintiff’s attorney sent another letter, asking for a

decision regarding consent to settle “so that I can determine if I need to sue Farm

Bureau or not.” On August 16, he sent a third letter stating that he intended to

“commence the process of negotiating the UIM claim” as soon as he received

written permission to settle. The claims representative sent written permission to

settle for $20,000.1 The record indicates no further action by either party before

November 29, 2002, when the period of limitations expired. On December 10,

2002, defendant sent plaintiff a letter indicating that the one-year limitations

period had expired and that defendant would no longer consider the UIM claim.

Plaintiff filed this action five months later. Defendant moved for summary

disposition under MCR 2.116(C)(8) (failure to state a claim) and 2.116(C)(10) (no

material question of fact). The trial court denied defendant’s motion and granted

1
In her brief and in her opposition to defendant’s trial court motion for
summary disposition, plaintiff argued that the written permission, dated August
14, 2002, was later revoked in a telephone conversation on August 16, 2002.
However, plaintiff’s counsel in oral argument before this Court conceded that the
August 14 date on the letter was incorrect. The record indicates that the date was
a clerical error; the letter should have been dated August 24, 2002. Thus, there is
no dispute that written permission to settle was given and not revoked.

3

summary disposition to plaintiff, holding that (1) the one-year period was

unreasonable and thus unenforceable as a matter of law, (2) defendant was

estopped from asserting the limitation because of its dilatory conduct, (3) pursuant

to Tom Thomas Org, Inc v Reliance Ins Co, 396 Mich 588; 242 NW2d 396 (1976),

the limitations period was tolled by plaintiff’s May 10, 2002, letter until defendant

denied the claim, and (4) the limitations period was too ambiguous to enforce.

On appeal in the Court of Appeals, the application for leave was first held

in abeyance for this Court’s decision in Rory v Continental Ins Co, 473 Mich 457;

703 NW2d 23 (2005). After the Rory decision, the Court of Appeals affirmed,

holding that the trial court had correctly ruled that the contractual limitations

period was tolled by plaintiff’s May 10, 2002, letter to defendant until the denial

of plaintiff’s claim on December 10, 2002. McDonald v Farm Bureau Ins Co,

unpublished opinion per curiam of the Court of Appeals, issued August 24, 2006

(Docket No. 259168). In so holding, the panel relied on the decision in West v

Farm Bureau Gen Ins Co of Michigan (On Remand), 272 Mich App 58, 65-67;

723 NW2d 589 (2006), which held that multiple recent decisions of this Court

limiting the doctrine of judicial tolling were inapplicable to insurance contract

claims and that Rory should be applied prospectively only. McDonald, supra at 2.

Because this single issue was dispositive, the panel did not address the issues of

reasonableness, contractual ambiguity, or estoppel. Id.

This Court granted defendant’s application for leave to appeal, directing the

parties to include among the issues to be briefed (1) whether a contractual

4

limitations period may be avoided on the basis of the doctrines of waiver or

estoppel and (2) whether the one-year limitations period contained in the insurance

policy is tolled from the time a claim is made until the insurance company denies

the claim. 477 Mich 996 (2007).

II. STANDARD OF REVIEW

This Court reviews de novo the trial court’s decision to grant or deny

summary disposition. Rory, supra at 464. Questions involving the proper

interpretation of a contract or the legal effect of a contractual clause are also

reviewed de novo. Id. When reviewing a grant of equitable relief, an appellate

court will set aside a trial court’s factual findings only if they are clearly

erroneous, but whether equitable relief is proper under those facts is a question of

law that an appellate court reviews de novo. Blackhawk Dev Corp v Village of

Dexter, 473 Mich 33, 40; 700 NW2d 364 (2005).

III. JUDICIAL TOLLING

This Court has addressed the issue of tolling the limitations periods of

insurance policies several times in the recent past. In Devillers v Auto Club Ins

Ass’n, 473 Mich 562, 564; 702 NW2d 539 (2005), this Court held that the “one-

year-back” limitation provided for in MCL 500.3145(1) for recovering no-fault

personal protection insurance benefits could not be automatically tolled because

that was contrary to the express language of the statute. In so holding, we

overruled Lewis v Detroit Automobile Inter-Ins Exch, 426 Mich 93; 393 NW2d

167 (1986), which had applied to the statutory limitations period the “judicial

5

tolling” doctrine that Tom Thomas had used in the context of optional insurance

contracts. Devillers, supra at 464. We noted in Devillers that Tom Thomas

departed from the well-established legal principle that courts cannot rewrite the

parties’ contracts if the terms are expressly stated. Id. at 567. The Tom Thomas

Court declined to apply traditional contract doctrines such as waiver and estoppel

because it concluded that “[w]aiver and estoppel analysis results in considerable

uncertainty concerning the ‘resaonableness’ of the time remaining for suit.” Tom

Thomas, supra at 597 n 10 (citation omitted). Without explaining why this would

create a problem, the Court simply disregarded the one-year contractual provision

because some of that time would undoubtedly be taken up in processing the claim.

Instead, it declared that the “appropriate resolution” was “to toll the running of the

limitation from the time the insured gives notice until the insurer formally denies

liability.” Id. at 596-597. Because the action had been filed less than 12 months

after the insurer denied liability, the Court held that it was timely, even though

more than one year had passed since notice of the claim was given. Id. The

dissent noted that the insured “was guilty of sleeping on its bargained-for rights”

for more than six months of the elapsed time and that, under standard contract law,

a one-year period was a one-year period. Id. at 601 (Lindemer, J. dissenting).

Devillers set forth this reasoning and explained how the Tom Thomas

tolling doctrine was expanded from contractual limitations periods to the statutory

limitations period provided by MCL 500.3145(1) in the context of automobile no-

fault statutes. Reversing caselaw that had adopted the doctrine, the Court noted

6

that it was “unable to perceive any sound policy basis for the adoption of a tolling

mechanism with respect to the one-year-back rule.” Devillers, supra at 583. The

Court expressly agreed with the dissents in the cases reversed and in Tom Thomas,

stating: “Statutory—or contractual—language must be enforced according to its

plain meaning, and cannot be revised or amended to harmonize with the prevailing

policy whims of members of this Court.” Id. at 582. The Court concluded by

holding that the statutory limitations period should be enforced as written by the

Legislature.

Similarly, in Rory, supra at 468, this Court emphasized that “unambiguous

contracts are not open to judicial construction and must be enforced as written.”

Judicial conclusions regarding the “reasonableness” of unambiguous contractual

provisions cannot be used to evade enforcement of the contract as written. Rory

expressly overruled Tom Thomas and its progeny. Id. at 470. Rory also concluded

that the one-year limitation was not contrary to public policy, noting that “the

Legislature has assigned the responsibility of evaluating the ‘reasonableness’ of an

insurance contract to . . . the Commissioner of Insurance” and that because the

commissioner had approved the policy at issue in that case, which included a one-

year limitation, the courts were not free to determine de novo whether the policy

was reasonable. Id. at 475-476.

In the present case, the Court of Appeals affirmed the trial court’s grant of

summary disposition in favor of plaintiff solely on the basis of its conclusion that

the limitations period was tolled pursuant to Tom Thomas. In so doing, the Court

7

cited, but then expressly ignored, language in Devillers, supra at 582. Instead, the

Court preferred to follow its own precedent, West, which stated that Devillers

concerned “statutory claims brought pursuant to the no-fault act” and so was “not

instructive” in a case that did not involve that act, even while the West panel

acknowledged that Devillers had held that Tom Thomas was wrongly decided.

McDonald, supra at 2; West, supra at 64-65. The Court of Appeals also followed

West’s determination that Rory applies prospectively only and ignored the

substance of Rory’s analysis that concluded that Tom Thomas was incorrectly

decided. McDonald, supra at 2.

The Court of Appeals correctly noted that our caselaw has already declared

that Tom Thomas was wrongly decided. Just as courts are not to rewrite the

express language of statutes, it has long been the law in this state that courts are

not to rewrite the express terms of contracts. See, e.g., Mann v Pere Marquette R

Co, 135 Mich 210, 219; 97 NW 721 (1903), citing Baltimore & O S R Co v Voigt,

176 US 498, 504; 20 S Ct 385; 44 L Ed 560 (1900) (“[T]he usual and most

important function of courts of justice is rather to maintain and enforce contracts,

than to enable parties thereto to escape from their obligation on the pretext of

public policy . . . .”). Rather than blindly following West’s questionable disregard

for Devillers’s clear statement, the Court of Appeals should have, at least, sought

conflict-panel resolution of the question. MCR 7.215(J).

As was made clear in Devillers, supra at 567, and Rory, supra at 470, Tom

Thomas disregarded long-established caselaw requiring that we read unambiguous

8

contract provisions as they are written. By allowing automatic tolling, it made a

nullity of express contract language, and parties were unable to rely on

unambiguous contract provisions. The reasoning we applied in Devillers,

precluding automatic tolling of statutory limitations periods, applies equally to

similar contractual limitations periods.

Moreover, we are not as convinced as Justice Kelly that judicial tolling of

these claims “promotes the quick resolution of insurance claims outside the

courts.” Post at 5. Tolling removes from both sides the incentive to speedily

resolve the claim: until a decision is made to deny a claim, the plaintiff may have

little basis for a claim. Certainly, tolling muddies what rights and responsibilities

exist under the contract, given that the express terms of the contract no longer

control in that situation. We believe the better position is for parties to determine

their own contractual provisions and then bear the responsibility of enforcing them

as written.

We reiterate that Rory overruled Tom Thomas and its progeny and conclude

that express limitations periods in optional insurance contracts are not

automatically tolled as a matter of law by filing a claim. Under the plain language

of the contract, plaintiff was required to bring an action against defendant by

November 29, 2002, unless she can point to a legally supported reason why that

deadline was not effective.

Plaintiff argues that, since our decision in Rory, public policy has changed

to preclude limitations provisions shorter than three years and, therefore, that this

9

provision should not be enforced because it is against public policy. Specifically,

plaintiff points to a “Notice and Order of Prohibition” issued by the Office of

Financial and Insurance Services (OFIS)2 on December 16, 2005, prohibiting

uninsured motorist benefits policies with limitations periods of less than three

years. However, the “Notice and Order” also expressly states that it does not

prohibit insurers from continuing to use policies that were legally in use before

December 16, 2005.3 Moreover, the general rule is that contracts are interpreted in

accordance with the law in effect at the time of their formation. See, e.g., Byjelich

v John Hancock Mut Life Ins Co, 324 Mich 54, 61; 36 NW2d 212 (1949). Thus,

the one-year limitation was valid at the time the parties entered into the contract.

Accordingly, we hold that the trial court erred in granting summary disposition to

plaintiff on this basis.

In her dissent, Justice Kelly asserts that the OFIS order should persuade us

to invalidate unambiguous contracts like the one at issue here on the ground that

they are against good public policy. However, we are of the view that our role is

fundamentally different from that of OFIS. OFIS determines whether an insurance

contract is valid. If it is, it is then the responsibility of this Court to enforce the

valid contract as written. The OFIS order expressly left in force contracts already

2
OFIS is now the Office of Financial and Insurance Regulation, effective
April 6, 2008. Executive Order No. 2008-2.
3
OFIS issued a similar order specifically addressing underinsured motorist
benefits on April 4, 2006.

10

in effect. While the Court is, of course, free to adopt a policy that would apply a

blanket invalidation to countless existing insurance contracts, the majority of this

Court is of the view that we follow the law established by the lawgiver. That is,

when a statute is at issue, the law is established by the Legislature, and we are

compelled to follow it as written. Similarly, when a contract is at issue, the law

we must follow is the unambiguous terms established by the parties to the

contract. Justice Kelly consistently has preferred a more aggressive and invasive

role for the Court, particularly when construing contracts and statutes. The rule

that she wishes is for the Court to serve as an ombudsman, rewriting contracts and

statutes in the name of “public policy” whenever it appears that the plain terms of

the text work some perceived inequity. See, e.g., Herweyer v Clark Hwy Services,

Inc, 455 Mich 14; 564 NW2d 857 (1997), overruled by Rory, supra at 488-489;

Husted v Auto-Owners Ins Co, 459 Mich 500, 517; 591 NW2d 642 (1999) (Kelly,

J., dissenting); Van v Zahorik, 460 Mich 320, 342; 597 NW2d 15 (1999) (Kelly, J.,

dissenting); Nawrocki v Macomb Co Rd Comm, 463 Mich 143, 186; 615 NW2d

702 (2000) (Kelly, J., concurring in part and dissenting in part); Koontz v

Ameritech Services, Inc, 466 Mich 304, 325; 645 NW2d 34 (2002) (Kelly, J.,

dissenting); Karaczewski v Farbman Stein & Co, 478 Mich 28, 46; 732 NW2d 56

(2007) (Kelly, J., dissenting). Yet this approach replaces the rule of law by the

rule of men, which is the very peril we believe that courts are expected to stand

against. We will continue to do so.

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 IV. TERMS OF THE CONTRACT

In the interests of judicial efficiency, because we hold that the one-year

contractual limitations period was not automatically tolled by filing a claim, we

address the trial court’s other bases for granting summary disposition. The trial

court held that the contract was ambiguous because it did not define “legal action,”

and the trial court was persuaded by plaintiff’s assertion that she thought

contacting an attorney, who then sent a letter to defendant, constituted “legal

action.” We disagree. The phrase “a legal action” undisputedly means “a

lawsuit.” CAM Constr v Lake Edgewood Condo Ass’n, 465 Mich 549, 554-555;

640 NW2d 256 (2002); see also United States v El-Ghazali, 142 Fed Appendix 44,

46 (CA 3, 2005) (citing numerous cases and dictionaries and concluding that

“[t]he widespread use of the word ‘action’ in both the civil and criminal context

refutes [the defendant’s] argument that there is disagreement among reasonable

people as to the meaning of ‘legal actions’”); Black’s Law Dictionary (6th ed)

(defining “action” by noting that the “[t]erm in its usual legal sense means a

lawsuit brought in a court”). Even if plaintiff herself thought that contacting an

attorney was a “legal action,” her attorney, once contacted, would have understood

that “legal action” is synonymous with “lawsuit.” See, e.g., Michigan Millers Mut

Ins Co v Bronson Plating Co, 445 Mich 558, 568; 519 NW2d 864 (1994),

overruled in part on other grounds by Wilkie v Auto-Owners Ins Co, 469 Mich 41

(2003). Therefore, we conclude that the trial court erred in ruling that the phrase

“legal action” was ambiguous.

12

 The trial court also held that the one-year time limit was unreasonable,

concluding that the present case was directly analogous to Rory. We agree that the

facts of Rory are squarely on point with this case, and for the same reason that we

reversed the Court of Appeals decision in Rory, we decline to rewrite the parties’

contract here.

V. EQUITABLE RELIEF

The trial court also held that defendant was estopped from seeking

enforcement of the one-year limitations provision because of its “conduct in the

case at bar which resulted in numerous delays.” Defendant concedes that the

traditional contract doctrines of waiver and estoppel are still viable and that

nothing in Rory or Devillers changed basic contract law. Equitable tolling, unlike

judicial tolling, has a legal basis arising out of our common law, and it may be

invoked when traditional equitable reasons compel such a result.4 However,

defendant argues that neither doctrine should be applied under the present facts.

We agree with defendant.

“A waiver is a voluntary relinquishment of a known right.” Dahrooge v

Rochester German Ins Co, 177 Mich 442, 451-452; 143 NW 608 (1913). Neither

4
Justice Kelly asserts that a claim of waiver or estoppel requires “‘wider
ranging investigation and proof’” than a claim that judicial tolling applies. Post at
5, quoting 17 Couch, Insurance, 3d, § 238:1, pp 238-8 to 238-9. However, the
difficulty of proving waiver or estoppel is immaterial to the question whether the
law, as agreed to by the parties themselves, requires enforcement of the one-year
provision. It is not for this Court to conjure up new laws whenever we believe that
such might be more favorable to one party or another.

13

party disputes that waiver is inapplicable here because defendant did not

voluntarily relinquish its right to enforce the one-year time limit. For equitable

estoppel to apply, plaintiff must establish that (1) defendant’s acts or

representations induced plaintiff to believe that the limitations period clause would

not be enforced, (2) plaintiff justifiably relied on this belief, and (3) she was

prejudiced as a result of her reliance on her belief that the clause would not be

enforced. See Grosse Pointe Park v Michigan Muni Liability & Prop Pool, 473

Mich 188, 204, 224; 702 NW2d 106 (2005) (opinions by Cavanagh, J., and

Young, J.); Dahrooge, supra at 452. The trial court’s factual finding that

defendant caused delays is insufficient to grant estoppel because there is no

evidence that plaintiff relied on anything defendant did or said. To the contrary,

plaintiff’s attorney clearly expressed an awareness of the cutoff date,

acknowledging it in his May 10, 2002, letter. He also pursued the claim in August

when, not having heard from the claims representative for some time, he sent a

letter stating that he needed to know what the settlement decision was so he could

“determine if I need to sue Farm Bureau or not.” Defendant responded by sending

written confirmation of the settlement decision.

Finally, plaintiff’s assertion that she relied on Tom Thomas and delayed

bringing suit because she thought the one-year limitation was tolled is not a reason

to estop defendant, because defendant’s “acts or representations” did not induce

plaintiff’s delay. Grosse Pointe Park, supra at 204, 224. Therefore, we find that

waiver or estoppel did not operate to entitle plaintiff to summary disposition.

14

 VI. RETROACTIVITY

Plaintiff asserts that if Tom Thomas is overruled, we should apply our

holding prospectively only because her counsel, relying on Tom Thomas, believed

that the limitations period was tolled by his filing the claim. We need not reach

the issue in this case, however. Although the general rule is that our decisions are

given full retroactive effect, this Court has indicated that prospective application

may be warranted if “injustice might result from full retroactivity.” Pohutski v

City of Allen Park, 465 Mich 675, 696; 641 NW2d 219 (2002). In this case, when

plaintiff’s counsel notified defendant of the claim, he expressly acknowledged that

the limitations period would expire on November 29, 2002. Therefore, counsel’s

post hoc assertions of reliance are belied by his own communications to defendant

that indicated he did not expect tolling to occur. Because plaintiff’s attorney did

not rely on Tom Thomas, no injustice would result from applying our decision to

plaintiff. Accordingly, even if reliance on Tom Thomas justified prospective

application in general, the facts specifically presented in this case do not warrant

that application.

VII. CONCLUSION

When interpreting insurance contracts, standard contract laws apply. Tom

Thomas erroneously refused to read the parties’ unambiguous contract as written

and, for this reason, has been overruled. Because the contract in this case

unambiguously and not unreasonably required suit to be filed within one year of

the accident, defendant properly denied the claim when plaintiff failed to meet that

15

deadline. Standard contract doctrines remain, and waiver or estoppel may be

applied if the facts support it. Plaintiff has not shown any reliance on the conduct

of or statements by defendant, however, so estoppel does not relieve plaintiff of

the duty to timely file suit. We reverse the judgment of the Court of Appeals and

remand this matter to the trial court for entry of summary disposition in favor of

defendant.

Clifford W. Taylor
Maura D. Corrigan
Robert P. Young, Jr.
Stephen J. Markman

16

 STATE OF MICHIGAN

SUPREME COURT

MARY ELLEN McDONALD,

Plaintiff-Appellee,

v No. 132218

FARM BUREAU INSURANCE
COMPANY,

Defendant-Appellant.

WEAVER, J. (dissenting).

I dissent from the erroneous decision of the majority of four (Chief Justice

Taylor and Justices Corrigan, Young, and Markman) to extend its unjust and

unfair holdings in Rory v Continental Ins Co, 473 Mich 457; 703 NW2d 23

(2005), and Devillers v Auto Club Ins Ass’n, 473 Mich 562; 702 NW2d 539

(2005), to the facts of this case. Rather than join the injustice of the majority

opinion, I concur fully with, and join in, Justice Kelly’s thoughtful dissenting

opinion. I vote to affirm the Court of Appeals judgment, which affirmed the trial

court’s decision to deny defendant’s motion for summary disposition and grant the

plaintiff’s motion for summary disposition.
 As it did in Rory1 and Devillers,2 the majority of four continues to overrule

and undermine years of this Court’s well-developed and sound jurisprudence that

has guided lower courts in cases involving disputes about insurance coverage.

Under the guise of enforcing contracts as written, the majority abolishes judicial

tolling of limitations periods in insurance contracts, a doctrine of fairness that has

been in place since 1976, when this Court decided Tom Thomas Org, Inc v

Reliance Ins Co, 396 Mich 588; 242 NW2d 396 (1976). The majority of four now

overrules Tom Thomas, explaining that insurance contracts are not open to judicial

construction.

However, as I explained in my dissent in Rory,3 an insurance contract is a

unique form of contract that requires specialized rules of construction because the

individual terms and clauses of an insurance contract are not typically subject to

negotiation. In Rory, I stated:

These specialized rules recognize that an insured is not able
to bargain over the terms of an insurance policy; indeed, it is
1
In Rory, the majority of four first held that insurance contracts are to be
enforced using the same legal principles that are applied to any other contract.
The Rory holding overruled at least 50 years of this Court’s precedent outlining
how lower courts were to construe insurance-contract provisions using specialized
interpretive rules.
2
In Devillers, the majority of four overruled Lewis v Detroit Automobile
Inter-Ins Exch, 426 Mich 93; 393 NW2d 167 (1986), a case that had allowed
judicial tolling of the no-fault one-year-back provision of MCL 500.3145(1).
Despite the practical hardships that the majority’s decision would inflict upon the
insureds who had relied on the judicial tolling doctrine under Lewis, the majority
gave its decision retroactive effect.
3
Rory, 473 Mich at 516.

2

 common practice for the insured to receive the actual terms of the
contract, the insurance policy itself, only after having purchased the
insurance. Further, in most cases the average consumer will not read
the policy; the consumer will rely on the agent’s representations of
what is covered in the policy. Even if the insured were to read the
policy, insurance policies are not easy to understand and contain
obscure provisions, the meaning of which requires legal education to
grasp.[4]

The doctrine of judicial tolling in insurance contracts is one of the specialized

rules of equity that acknowledge and account for the difference in bargaining

power, or lack thereof, between an insured and an insurer. As Justice Kelly aptly

states, “it is a pragmatic doctrine that is fair to both insurers and insureds.”5 By

extending its decision from Devillers6 to overrule Tom Thomas, the majority of

four does away with a doctrine that allowed for fairness in the insurance-claim

4
Id. at 516-517.
5
Post at 2.
6
I note that the majority is extending its decision from Devillers and not, as
the majority alludes, ante at 8-9, simply restating its position from Devillers. The
resolution of Devillers hinged on statutory interpretation. The instant case
involves contractual interpretation. Thus, any statements made in Devillers
regarding contractual interpretation were dicta and not binding on this case. If the
majority in Devillers intended to create a one-size-fits-all rule of law to apply no
matter what set of facts is before a court, then the majority was legislating from
the bench. Courts interpret laws and apply the laws to the facts before them. The
Court of Appeals correctly applied the law from Tom Thomas to the facts of this
case because this case involves an insurance contract, for which Tom Thomas was
binding precedent. The Court of Appeals followed the precedent of Tom Thomas
and Court of Appeals precedent distinguishing Devillers’s statutory interpretation
from cases involving the interpretation of contracts, such as West v Farm Bureau
Gen Ins Co of Michigan (On Remand), 272 Mich App 58; 723 NW2d 589 (2006).
When the majority criticizes the Court of Appeals for “blindly following West’s
questionable disregard for Devillers’s clear statement,” ante at 8, the majority
(continued…)

3

negotiation process and leaves nothing in its place to ensure that insurers promptly

take action to afford their insureds reasonable time to make decisions regarding

legal action or the settlement of claims.

In this case, the latest example of the majority of four’s judicial activism in

no-fault insurance cases, the majority of four abolishes judicial tolling of

contractual limitations periods for insurance contracts. In doing so, the majority of

four overrules more than 30 years of this Court’s precedent. Or, to borrow the

majority’s rhetoric, the majority of four has replaced the “rule of law”7 with the

“rule of four justices.” Accordingly, I dissent.

Elizabeth A. Weaver

(…continued)

shows a complete disregard for the basic proposition that different sets of facts

necessitate different analyses of laws.

7
Ante at 11.

4

 STATE OF MICHIGAN

SUPREME COURT

MARY ELLEN McDONALD,

Plaintiff-Appellee,

v No. 132218

FARM BUREAU INSURANCE
COMPANY,

Defendant-Appellant.

KELLY, J. (dissenting).

I dissent from the majority’s decision to abolish the use of the judicial

tolling1 doctrine adopted by this Court more than 30 years ago in Tom Thomas.2

Michigan courts have applied judicial tolling without serious contention for more

1
What I call “judicial tolling” is often also referred to as “equitable tolling”
and “intervening tolling.” See In re Certified Question (Ford Motor Co v
Lumbermens Mut Cas Co), 413 Mich 22, 30; 319 NW2d 320 (1982); Feldman,
Zariski & Eaton, The equitable tolling doctrine in first party insurance coverage
matters: Analysis, benefits, and an illustrative case study, 41 Tort Trial & Ins
Prac L J 61 (2005).
Insurance policies often include a limitation-of-suit provision that bars the
insured from bringing an action for coverage unless the suit is filed within a
certain period. These provisions may shorten the time an insured would otherwise
have to file suit under state law. Judicial tolling suspends the elapse of time under
the limitation-of-suit provision from the date the insured gives notice of the loss
until the insurer formally denies liability. Feldman, Zariski & Eaton, 41 Tort Trial
& Ins Prac L J at 61-63.
2
Tom Thomas Org, Inc v Reliance Ins Co, 396 Mich 588; 242 NW2d 396
(1976).
than three decades because it is a pragmatic doctrine that is fair to both insurers

and insureds. It does not create insurance coverage where none exists. Nor does it

deprive insurers of other defenses they might have. Rather, it encourages insureds

to give prompt notice of their claims to their insurers. And it eliminates any

incentive insurers might have to wait until the contractual limitations period

expires before denying claims.

THE JUDICIAL TOLLING DOCTRINE

Thirty-two years ago, in the Tom Thomas case, this Court construed an

inland marine insurance policy that contained a 12-month limitations period.3 We

noted that, although a 12-month period might “represent a reasonable balance

between the insurer’s interest in prompt commencement of action and the

insured’s need for adequate time to bring an action, the insured usually does not

have the full 12 months within which to commence an action.”4 In fact, because

of delays built into standard insurance policies, an insured usually has

substantially less time to decide whether to commence an action against an

insurer. These delays include the time dedicated to filing a proof of loss and the

period allowed for payment or settlement of the claim.5

To reconcile the proof-of-loss and payment-of-claims provisions with the

3
Id. at 591.
4
Id. at 592.
5
Id.

2

limitations provision, this Court adopted the approach of the New Jersey Supreme

Court. It allows the contractual period of limitations in which to bring a lawsuit

against an insurance company to run until the insured gives notice of a claim to the

insurer. Then, the limitations period is tolled until the insurer formally denies

liability.6 The New Jersey court found that this was the best way to give effect to

“the literal language of the limitation provision . . . .”7

For good reason, Michigan and New Jersey are not alone in having adopted

the tolling doctrine.8 Asthe leading treatise on insurance law, Couch on Insurance,

states, those courts’ adoption of the tolling doctrine

stems from the pragmatic knowledge that there simply is no reason
to bring suit until the insurer has either formally denied the claim or
delayed so long that the delay itself becomes the basis for a suit.
This rule also avoids the possibility that the insurer may drag out
negotiations while the period passes, leading either to insureds
losing their rights in a questionable manner or to costly evidentiary
battles over whether the insureds’ actions should be deemed to be a
waiver of the defense, or to estop the insurer from raising it.[9]

6
Id. at 593-597, citing Peloso v Hartford Fire Ins Co, 56 NJ 514; 267 A2d
498 (1970).
7
Peloso, 56 NJ at 521.
8
See Guam Housing & Urban Renewal Auth v Dongbu Ins Co, Ltd, 2001
Guam 24; 2001 WL 1555206 (2001); Prudential-LMI Commercial Ins v Superior
Court, 51 Cal 3d 674; 274 Cal Rptr 387; 798 P2d 1230 (1990); Fed S&L Ins Corp
v Aetna Cas & Surety Co, 701 F Supp 1357, 1362 (ED Tenn, 1988); Nicholson v
Nationwide Mut Fire Ins Co, 517 F Supp 1046, 1051 (ND Ga, 1981); Christiansen
v First Ins Co of Hawaii, Ltd, 88 Hawaii 442; 967 P2d 639 (Hawaii App, 1998),
aff’d in part, rev’d in part on other grounds, 88 Hawaii 136 (Hawaii, 1998); Clark
v Truck Ins Exch, 95 Nev 544, 546-547; 598 P2d 628 (1979).
9
17 Couch, Insurance, 3d, § 237:39, p 237-45.

3

 The majority’s decision to abolish the judicial tolling doctrine inserts

insureds between Scylla and Charybdis. If they bring a claim too soon, the court

may dismiss it as unripe. If they wait for the insurer to decide their claim, they

risk a technical forfeiture under a limitation-of-suit provision.

An insured should not be forced to choose between filing a premature

lawsuit and trusting that the insurance company will consider the claim after the

contractual limitations period has expired. Choosing the first option may

unnecessarily poison the relationship between the parties. It may create

unnecessary litigation that serves only to burden our overtaxed judicial system.

Such a result has been accurately called both “anomalous and inefficient.”10 Yet

choosing the second option gives insurance companies the opportunity to avoid

coverage on timeliness grounds.

Under the majority’s decision, the insured must not only file a timely claim,

he or she may have to make the hard decision to sue rather than await a reply.

Absent judicial tolling, the burden on the insured is greatly increased.

On the contrary, use of the judicial tolling doctrine guarantees that the

insurer shares the burden. The insurer must pay or deny the claim. The doctrine

has other merits. Under it, the insured has no reason to delay filing a claim

because the limitations period will not run uninterrupted. And the insurer can take

the necessary time to investigate the claim and decide on coverage while relevant

10
Guam Housing, 2001 Guam 24 at 11.

4

information is fresh. Removed is any incentive the insurer would have in the

absence of tolling to prolong the investigation period “in order to invoke a

technical forfeiture of the policy’s benefits.”11 Thus, use of the judicial tolling

doctrine promotes the quick resolution of insurance claims outside the courts.

It has been argued that the judicial tolling doctrine is unnecessary, given the

availability of waiver and estoppel. It is asserted that these doctrines can alleviate

the harsh result that may occur when an insured allows the insurer to adjust the

claim after the limitations period expires. However, Couch on Insurance opines

that assertion of a claim of waiver or estoppel

may require a discovery and evidentiary side trip from the substance
of the underlying dispute between the parties to establish who said
and did what, when, and to whom. While this may be the plaintiff’s
last hope of being able to bring the underlying action, in which case
the added effort and expense may still make it worthwhile, it
generally calls for a wider ranging investigation and proof than
would be required for a claim that the same actions effectively
“tolled” the period for some time.[12]

Moreover, as Tom Thomas recognized, reliance on the application of

waiver or estoppel results in considerable uncertainty about how much time is

reasonable to allow the insurer to bring suit.13 Conversely, under the judicial

tolling doctrine, the insurance company “can conclusively determine exactly when

11
Id. at 12.

12
17 Couch, Insurance, 3d, § 238:1, pp 238-8 to 238-9.

13
Tom Thomas, 396 Mich at 597 n 10.

5

the tolling period will terminate simply by denying the claim after it completes its

investigation.”14

The majority’s attempt to return the parties to the certainty of the

contractual language actually leaves them in a state of greater uncertainty. As

stated more than 30 years ago by the New Jersey Supreme Court in Peloso,

judicial tolling “is more satisfactory, and more easily applied, than the pursuit of

the concepts of waiver and estoppel in each of the many factual patterns which

may arise.”15

RORY16 AND DEVILLERS17

Tom Thomas, the case in which this Court first adopted the judicial tolling

doctrine, was recently discussed in Rory and Devillers. In Rory, the same

Supreme Court majority as the one in this case held that judicial assessments of

reasonableness cannot be relied on to invalidate a shortened period of limitations

contractually agreed to.18 In so holding, the majority overruled Tom Thomas to the

extent that Tom Thomas allowed a standard of reasonableness to abrogate

unambiguous contractual terms.19 However, the Rory majority specifically

14
Feldman, Zariski & Eaton, 41 Tort Trial & Ins Prac L J at 77 (2005).
15
Peloso, 56 NJ at 521.
16
Rory v Continental Ins Co, 473 Mich 457; 703 NW2d 23 (2005).
17
Devillers v Auto Club Ins Ass’n, 473 Mich 562; 702 NW2d 539 (2005).
18
Rory, 473 Mich at 470.
19
Id.

6

recognized that the judicial tolling doctrine was the basis for the Tom Thomas

decision, not whether the contractual limitations period in which to bring suit was

reasonable.20 Thus, although Rory rejected Tom Thomas to the extent that it relied

on the “reasonableness” rule, it did not specifically overrule the judicial tolling

doctrine.

Devillers concerned the tolling of a statutory one-year period in which to

bring claims, MCL 500.3145(1).21 The same majority as the one in this case

reasoned that no authority permitted the judiciary to provide for a tolling of the

statutory period.22 According to the majority, judicial tolling, as applied to the

Devillers case, represented “an unconstitutional usurpation of legislative

authority.”23 In the case at bar, a contractual rather than a statutory period of

limitations is at issue. Application of the doctrine of judicial tolling cannot be said

to present an issue of usurpation of legislative authority. Consequently, neither

Rory nor Devillers controls this case.

It is interesting to note that one of the explanations given in Devillers for

rejecting judicial tolling was the alleged lack of a sound policy reason for its use

there. However, such a reason exists in this case. The Michigan Office of

20
Id. at 466.
21
Devillers, 473 Mich at 564.
22
Id. at 581-583.
23
Id. at 593.

7

Financial and Insurance Services (OFIS)24 has now prohibited the use of

contractual one-year limitations periods in insurance contracts that provide for

uninsured motorist benefits.25 OFIS found the Court of Appeals analysis in Rory

compelling, although it was overturned by a majority of this Court.26 The Court of

Appeals had found that a one-year limitations period is unreasonable because it

does not provide claimants with sufficient time to investigate potential claims.27

As noted by the majority, OFIS has allowed insurance companies to continue

using policy provisions that became part of contracts with insureds before the

OFIS order of prohibition entered. However, the reasoning adopted in the order of

prohibition still persuasively suggests that application of the one-year period in

this case is against public policy.

The majority believes that courts must stand against the peril of rule by

men instead of law. I agree. Yet I also believe that courts must stand against the

peril of injustice, because injustice undermines the rule of law. If the process we

24
OFIS is now the Office of Financial and Insurance Regulation, effective
April 6, 2008. Executive Order No. 2008-2.
25
OFIS Order No. 05-060-M, entered December 16, 2005. On April 4,
2006, OFIS issued a similar order addressing underinsured motorist benefits. And,
in May 2007, OFIS added an administrative rule voiding shortened limitation-of-
action clauses in new and revised policies. Mich Admin Code, R 500.2212.
26
OFIS Order No. 05-060-M, pp 2-4, citing Rory v Continental Ins Co, 262
Mich App 679; 687 NW2d 304 (2004), rev’d Rory, 473 Mich at 491.
27
Rory, 262 Mich App at 685-687.

8

adopt for determining liability allows absurdity to reign and inequity to prevail,

people will look outside the rule of law for the “justice” they demand.

All too often, the same Supreme Court majority as that in this case

dismisses legitimate legal arguments by labeling them contrary to the “plain

language” of a statute or contract. But no matter how it is labeled, a rose is still a

rose. In this case, the law in effect when the parties entered into their contract

required judicial tolling. The one-year limitation-of-suit provision was not valid.

To take from either party the benefit of that rule of law undermines the rule of the

law.

The majority appears to conclude that, because Rory and Devillers

criticized Tom Thomas, the decision in this case overturns no precedent. It takes

the position that the judicial tolling doctrine is no longer good law. For the

reasons stated earlier, I disagree.

Judicial tolling of a contractually shortened period of limitations was not

directly overruled in Rory or in Devillers. It promotes the efficient and effective

resolution of insurance claims, and it is fair to insurers and their insureds.

Therefore, I would affirm the Court of Appeals decision that the limitations period

in plaintiff’s contract with defendant was tolled by plaintiff’s May 10, 2002, letter

9

to defendant until defendant denied plaintiff’s claim on December 10, 2002.28

PROSPECTIVE APPLICATION

It is presumably because the majority believes that Tom Thomas has

already been overruled that it fails to articulate its reasons not to adhere to stare

decisis in this case. It recognizes that the question whether today’s decision

should apply only prospectively is a legitimate issue. But it declines to address the

question because plaintiff’s counsel acknowledged that plaintiff was aware of the

contractual limitations period before it expired.

I disagree with the majority’s conclusion that acknowledgement of the

existence of the contractual provision is equivalent to an admission that counsel

did not expect tolling to occur. The acknowledgement was most likely intended to

accelerate the processing of the claim. In any event, when he wrote it, counsel had

good reason to expect that the judicial tolling doctrine this Court had endorsed for

many years would continue to be applied. He was entitled to rely on the doctrine

when deciding to allow the insurance company to adjust plaintiff’s claim without

regard to the limitation-of-suit contractual provision. Thus, I conclude that the

majority errs when it refuses to address whether today’s decision should be given

prospective application only.

28
To the extent that the Court of Appeals concluded in this case and in
West v Farm Bureau Gen Ins Co of Michigan (On Remand), 272 Mich App 58;
723 NW2d 589 (2006), that Rory and Devillers effectively abrogated the judicial
tolling doctrine of Tom Thomas, I disagree.

10

 ESTOPPEL

Finally, plaintiff asserts that her claim should go forward even if this Court

rejects the continued viability of judicial tolling and gives that decision retroactive

effect. She contends that defendant should be estopped from asserting the one-

year limitations period. She points out that the trial court found that defendant

engaged in dilatory conduct in processing her claim. The trial court relied on the

facts that defendant (1) required plaintiff to send interrogatories to the tortfeasor to

determine if he was collectible before defendant would respond to the claim, (2)

required that plaintiff not settle with the tortfeasor until defendant approved the

settlement, and (3) after approving the settlement, purposefully failed to

communicate with plaintiff to negotiate her claim in good faith.

With regard to the last allegation, defendant’s claims representative noted

in an internal status report approximately one month before the limitations period

expired: “1 yr runs 11-29-02.” Then, the claims representative took no further

action on the file until after that date had passed. The next action taken was to

notify plaintiff’s attorney that the claim was being rejected because the one-year

period of limitations had expired. Notably, defendant’s claims representative

admitted that she had access to the information necessary to determine the value of

plaintiff’s claim before the limitations period expired, but neglected to act on it.

“It is a familiar rule of law that an estoppel arises when one
by his acts, representations, or admissions, or by his silence when he
ought to speak out, intentionally or through culpable negligence
induces another to believe certain facts to exist and such other

11

 rightfully relies and acts on such belief, so that he will be prejudiced
if the former is permitted to deny the existence of such facts.”[29]

The facts of this case are an example of exactly what the judicial tolling

doctrine was adopted to prevent. Plaintiff had every reason to expect that her

claim would be processed once she had taken all the steps requested by defendant.

Instead, defendant refrained from processing the claim and making a decision

about it until after the one-year limitations period had expired. By sitting on

plaintiff’s claim, defendant invoked a technical forfeiture of the policy’s benefits.

A majority of the justices of this Court has allowed itself to be made a willing

after-the-fact accomplice to defendant’s wrongdoing.

In August 2002, plaintiff’s counsel inquired of the claims representative

whether she had heard if the tortfeasor’s 401(k) plan was protected from creditors.

The information was relevant to whether defendant would grant permission to

plaintiff to settle with the tortfeasor. Plaintiff’s counsel requested that he be

informed of the answer so he could decide whether to sue defendant. In response,

defendant advised plaintiff that it was granting permission to settle the claim

against the tortfeasor. This was the last communication between the parties until

defendant notified plaintiff’s counsel that the one-year period had expired.

Granting permission to plaintiff to settle with the tortfeasor could easily

have led plaintiff’s counsel to believe that defendant was still adjusting the claim.

29
Hetchler v American Life Ins Co, 266 Mich 608, 613; 254 NW 221
(1934), quoting Kole v Lampen, 191 Mich 156, 157-158; 157 NW 392 (1916).

12

It likely lulled him into believing that defendant would not enforce the limitations

period. Defendant’s silence, knowing that this was likely plaintiff’s belief, caused

plaintiff to reasonably believe something that was not true.

Given the state of the law at the time, plaintiff relied on this belief: judicial

tolling prevented plaintiff’s claim from being lost due to the passage of time. For

estoppel to apply, it was not necessary that plaintiff take any affirmative action in

reliance on the beliefs that defendant induced in plaintiff. “Nonaction in reliance

[on the representations made], resulting in injury, is sufficient.”30 Obviously,

under the majority’s position that judicial tolling is impermissible, plaintiff was

prejudiced as a result of her reliance on the false belief induced by defendant’s

silence. Thus, plaintiff has shown the facts necessary to establish estoppel.31

Contrary to the decision of the majority, the trial court correctly held that

defendant should be “estopped from seeking shelter in the one-year limitation

given their conduct in the case at bar . . . .” Accordingly, I conclude in the

alternative that equitable estoppel entitled plaintiff to summary disposition.

30
Hetchler, supra at 614.
31
Id. at 613; Grosse Pointe Park v Michigan Muni Liability & Prop Pool,
473 Mich 188, 204; 702 NW2d 106 (2005); see also Barbour v Slaughter, 36 Ill
App 3d 857, 862-863; 345 NE2d 113 (1976) (holding that, by arbitrarily
withholding consent to the insured’s personal-injury suit, the insurer waived the
(continued…)

13

 CONCLUSION

Judicial tolling is a pragmatic doctrine that promotes fairness, efficiency,

and certainty in the claims-adjustment process. It has been used in this and other

states for more than 30 years. The majority’s decision to abolish the doctrine in

Michigan should be lamented by both insurers and their insureds. Because neither

Rory nor Devillers expressly overruled the use of judicial tolling in the

circumstances presented in this case, I would hold that the trial court properly

applied the judicial tolling doctrine. Moreover, even if the doctrine cannot be used

to save plaintiff’s claim, I would hold that defendant is estopped from relying on

the contractually shortened period of limitations.

I would affirm the decisions of the lower courts in favor of plaintiff.

Marilyn Kelly
Michael F. Cavanagh
Elizabeth A. Weaver

(…continued)

policy requirement that no judgment be taken against the tortfeasor without the

insurer’s consent).

14