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
6