J&J FARMER LEASING INC V CITIZENS INS CO OF AMERICA
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Michigan Supreme Court
Lansing, Michigan
Chief Justice:
Opinion
Justices:
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,
o. 125818
N
v
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
covenantee’s assignee.
the
that
instruments
a
are
covenantee’s
a
covenantee’s
tortfeasor
by
a
The Court of Appeals concluded that
indistinguishable
assignee
(the
and,
accordingly,
covenantor)
would
barred in a suit against the tortfeasor.
vacate that part of the judgment.
be
We disagree and
The Court of Appeals
correctly concluded for other reasons that the covenantor
was not released.
Yet the Court unnecessarily relied on a
misapplication
Frankenmuth
of
Mut
Ins
Co
v
Keeley
(On
Rehearing), 436 Mich 372; 461 NW2d 666 (1990), so we vacate
that
portion
remanded
to
of
the
the
Court’s
Washtenaw
analysis.
Circuit
This
Court
case
for
is
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
employee
Calvin
Rickard,
Insurance Company.
Inc.),1
Company,
Jr.,
and
operated
insured
Rickard was at fault.
by
by
their
Citizens
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,
Riley’s estate as “Riley.”
2
we
will
refer
to
Sharyn
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.
trial
court
reached
the
While the Court held that 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
effectively
the
covenant
operated
as
not
a
to
sue
release.
in
the
agreement
Therefore,
under
Keeley, supra, plaintiffs’ claim must fail because Farmer
had
not
Citizens’
suffered
any
pecuniary
alleged
bad
faith
underlying lawsuit.
matter
in
lieu
of
in
loss
as
failing
a
to
result
settle
of
the
We entertained oral argument on this
granting
leave
5
to
appeal
under
MCR
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.
597 NW2d 817 (1999).
Maiden v Rozwood, 461 Mich 109, 118;
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.
6
471 Mich 940 (2004).
5
Additionally, the covenant
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
needlessly relied on Keeley.
was
a
release
and
it
Accordingly, the Court of
Appeals opinion, insofar as it dealt with the release and
covenant
regarding
not
to
Keeley
sue
issue,
is
also
is
vacated.
vacated.
The
Its
analysis
circuit
court
correctly found that the joint agreement was a covenant not
to
sue
and,
appropriately
therefore,
denied.
summary
This
matter
disposition
is
remanded
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
to
was
the
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