FRANKENMUTH MUTUAL INSURANCE COMPANY v KEELEY (ON REHEARING)
Docket No. 81566
Supreme Court of Michigan
September 26, 1990
Decided September 26, 1990
436 MICH 372
Argued March 7, 1990 (Calendar No. 11).
The court, Earl E. Borradaile, J., determined that Frankenmuth was responsible under the policy, found that both parties were equally negligent, and entered judgment for one-half the jury‘s verdict. Thereafter, Boone and the Keeleys brought an action to have their counterclaims against Frankenmuth brought to trial. The court awarded Mrs. Keeley attorney fees and ruled that Frankenmuth had exhibited bad faith in failing to settle the case, but held that any damages owed to Charles Keeley with respect to Frankenmuth‘s breach of its duty to settle were necessarily limited to the amount that the injured party would have been able to recover from Charles Keeley absent the insurance coverage.
The Court of Appeals, WEAVER, P.J., and MICHAEL J. KELLY and J. R. KIRWAN, JJ., affirmed in an unpublished opinion per curiam, but remanded the case for a determination of the extent of Charles Keeley‘s assets not exempt from legal process and for entry of judgment against Frankenmuth in that amount (Docket No. 89615). The Supreme Court reversed and
Subsequent to oral argument on rehearing, the case was remanded to the trial court for a determination of whether Frankenmuth‘s acts of bad faith caused the excess judgment to be entered against the defendant. On remand, the court, Earl E. Borradaile, J., determined that Frankenmuth‘s acts of bad faith did not result in the excess judgment entered against the defendant. The defendant appeals, and the plaintiff cross-appeals.
In an opinion by Chief Justice RILEY, joined by Justices LEVIN, BRICKLEY, and GRIFFIN, the Supreme Court held:
Any acts of bad faith on the part of Frankenmuth did not cause the excess judgment against Charles Keeley. The assessment of damages for a breach of a duty to settle is limited to the assets of the assignor not exempt from legal process. The standard applies not only where an insurer fails to defend an insured, but also where, as in this case, it is alleged that the insurer, in bad faith, refused to settle.
Affirmed.
Justice ARCHER, joined by Justice CAVANAGH, dissenting, stated that when an insurer has breached its duty to settle in good faith and the insurer‘s bad-faith failure to settle results in a judgment in excess of the policy‘s limit, the insurer is liable for the excess judgment regardless of the insured‘s ability to pay the judgment. Because, in this case, the trial court found on remand that Frankenmuth‘s acts of bad faith did not result in the excess judgment, the defendant cannot establish causation. Thus, Frankenmuth is not liable to the defendant for damages resulting from the judgment entered against him in the underlying tort action.
Contract damages typically are awarded to compensate a party for its lost expectation interest which results in economic damages. The general goal of contract damages is to place the aggrieved party in the same economic position it would have obtained had the contract been performed. In the context of this case, the insurer‘s duty to settle a tort suit in good faith formed part of the party‘s expectation interest, which is the contractual right to be free from a judgment in excess of the policy limits resulting from the insurer‘s bad-faith failure to
In order for an insured to recover damages from an insurer for bad-faith failure to settle, the insured must establish that the insurer‘s failure to settle was in bad faith, that the insurer‘s bad-faith failure to settle resulted in a judgment in excess of the policy‘s limits, and that the insured has been damaged. In this case, the trial court on remand determined that Frankenmuth‘s acts of bad faith did not cause the excess judgment in the principal tort suit. The defendant thus could not establish causation, and Frankenmuth should not be held liable for damages resulting from the judgment entered against the defendant in the underlying tort action.
The trial court did not violate the law of the case doctrine in issuing new findings inconsistent with the original ruling of the Court of Appeals. That ruling was not the law of the case. Rather, the law of the case was the Supreme Court remand to the trial court to determine the issue of causation, superseding the ruling of the Court of Appeals.
Justice BOYLE, dissenting, stated that in light of the finding of the trial court on remand that any acts of bad faith by the insurer were not the cause of the excess judgment against Charles Keeley, the original opinion of the Supreme Court in this case should be vacated as moot. The finding of the trial court additionally removes any need for further consideration of the adoption of the judgment rule set out in that opinion or the modified version in the accompanying dissent.
INSURANCE - BAD-FAITH REFUSAL TO SETTLE - DAMAGES.
The assessment of damages for a breach by an insurer of a duty to settle is limited to the assets of its assignor not exempt from legal process; the standard applies where the insurer fails to defend an insured and where it, in bad faith, refuses to settle.
Garan, Lucow, Miller, Seward, Cooper & Becker, P.C. (by Rosalind Rochkind and Milton Lucow), for the appellee.
Dean, Dean, Segar, Hart & Shulman, P.C. (by Robert L. Segar), for the appellant.
Willingham & Coté, P.C. (by John A. Yeager and Curtis R. Hadley), for Michigan Association of Insurance Companies.
Cheatham & Acker, P.C. (by Charles C. Cheatham, James G. Gross, Mary T. Nemeth, and Michael E. Hunt), for Auto Club Insurance Association, Auto Club Group Insurance Company, Michigan Physicians Mutual Liability Company, Physicians Insurance Company of Michigan, and Transamerica Insurance Group.
ON REHEARING
RILEY, C.J. We granted rehearing1 after our decision in Frankenmuth Mutual Ins Co v Keeley, 433 Mich 525, 528; 447 NW2d 691 (1989), in which we reversed the decision of the Court of Appeals and held “that when an insurer has exhibited bad faith in failing to settle a claim on behalf of its insured, and a judgment in excess of the policy limits results, the insurer is liable for the excess without regard to whether the insured has the capacity to pay.” After hearing oral arguments on rehearing, this Court remanded the instant case to the trial court to determine whether Frankenmuth‘s acts of bad faith caused the excess judgment. On April 17, 1990, the trial court reaffirmed its conclusion that Frankenmuth acted in bad faith when it failed to discharge its attorney for representing the adverse interests of Frankenmuth and its insured, Mrs. Keeley, at the same time.2
More importantly, this Court‘s decision on the causal relationship between any bad faith and the excess judgment against Charles Keeley does not address the issue which this Court originally decided and granted rehearing to consider, namely, whether this Court should reconsider the version of the excess-judgment rule adopted in our original opinion, and adopt the rule set forth in Justice LEVIN‘S dissenting opinion. While this Court could simply vacate its original opinion upon the basis of bad faith and its causal relationship to the excess-judgment issues, we prefer to resolve the excess-judgment issue at this time.
However, unlike Justice ARCHER, we are now convinced that the rule articulated in Justice LEVIN‘S dissent represents the better measure of an insurer‘s liability when the insurer exhibits bad faith that causes a judgment against its insured in the underlying tort suit which exceeds the policy limits. Therefore, we adopt Justice LEVIN‘S dissent in the instant case. Id. at 546.
Accordingly, we affirm the result of the Court of Appeals.
LEVIN, BRICKLEY, and GRIFFIN, JJ., concurred with RILEY, C.J.
ARCHER, J. (dissenting). We granted rehearing
I
At issue when we granted leave to appeal was whether Frankenmuth Mutual Insurance Company should be held liable to Charles Keeley for damages resulting from a judgment entered against him in the principal action. In the underlying tort suit, a judgment of $250,000 plus costs and interest was entered against Charles Keeley for the shooting of Joey Boone, who was rendered a quadriplegic.
Frankenmuth Mutual insured Charles Keeley through a homeowner‘s policy issued to Charles’ mother, Wilma Keeley. On the day that Boone filed his tort suit, Frankenmuth filed the present action seeking a declaratory judgment that the shooting was intended and that Charles Keeley had no rights under the policy. Subsequently, the Keeleys and Joey Boone joined forces and counterclaimed.
Wilma Keeley counterclaimed for attorney fees, which, she alleged, resulted from Frankenmuth‘s bad-faith failure to settle the tort suit. The trial court rejected Frankenmuth‘s motion for summary
Charles Keeley also counterclaimed for damages resulting from Frankenmuth‘s bad-faith failure to settle the tort suit. Frankenmuth‘s policy provided liability coverage of up to $50,000. Charles Keeley alleged that Frankenmuth refused in bad faith to settle the tort case, despite several compromise offers of $50,000. Consequently, he alleged that the $250,000 tort judgment, which was $200,000 in excess of Frankenmuth‘s liability coverage and included interest and costs, resulted from Frankenmuth‘s bad-faith failure to settle. 433 Mich 530-531.
Frankenmuth also moved for summary disposition against Charles Keeley‘s counterclaim. The trial court granted the motion and held that any damages Frankenmuth owed Charles Keeley resulting from Frankenmuth‘s bad-faith failure to settle the tort suit were limited by what Joey Boone could have recovered from Charles Keeley absent insurance coverage: those assets not exempt from legal process. 433 Mich 532. See also Stockdale v Jamison, 416 Mich 217; 330 NW2d 389 (1982).
The Court of Appeals unanimously affirmed1 and remanded the case to the trial court to determine the extent of Charles Keeley‘s assets not exempt from legal process and to enter judgment in that amount. 433 Mich 532. See also 433 Mich 546-547 (LEVIN, J., dissenting).
Subsequently, we granted leave to appeal lim-
Following our decision, we granted rehearing. 433 Mich 1226 (1989).
II
Frankenmuth first argues on rehearing that we should abandon the rule set forth in our previous opinion and instead adopt the rule articulated by the dissent. See 433 Mich 546 (LEVIN, J., dissenting). Under the majority opinion, Frankenmuth maintains that, contrary to traditional contract
The rule that Frankenmuth proposes and that the majority now adopts will result in a windfall for the insurer and would fail to compensate an insured for its lost expectation interest. Although the majority quite properly would not require a judgment debtor under these circumstances to pay the judgment as a precondition to recovering damages, the “compromise” (see 433 Mich 565) misses the mark in concluding that a judgment debtor lacking the ability to pay the judgment has incurred no economic loss for which contract damages may be awarded.
Contract damages, as the majority and the parties properly note, are typically awarded to compensate for a party‘s lost expectation interest resulting in economic damages. 433 Mich 556-557.
In the context of the case before this Court, the insurer‘s duty to settle a tort suit in good faith forms a part of the party‘s expectation interest, which is the contractual right to be free from a judgment in excess of the policy limits resulting from the insurer‘s bad-faith failure to settle. The only way to place the insured in the same position as if the contract had been performed and to restore to the insured what was fairly bargained for by paying insurance premiums is for the insurer to be held liable for the excess judgment without regard to the insured‘s ability to pay. I thus again reject the view adopted by other jurisdictions that the inquiry should rest upon the insured‘s financial status. Instead, I merely would hold that when an insurer has breached its duty to settle in good faith and the insurer‘s bad-faith failure to settle results in a judgment in excess of the policy‘s limits, the insurer is liable for the excess judgment regardless of the insured‘s ability to pay the judgment.
III
Frankenmuth‘s second argument on rehearing is that, on the facts of this case, it should not be held liable to Charles Keeley for damages under the rule of law I would reaffirm today. Frankenmuth contends, and I agree, that our holding requires Charles Keeley to establish three elements in order to recover damages. First, the insurer‘s failure to settle was in bad faith. Second, the insurer‘s
Frankenmuth claims that the second element, causation, had not been established on the record before this Court when leave to appeal was granted. In other words, Frankenmuth argues that the lower courts had not yet determined whether any bad faith on the part of Frankenmuth resulted in the excess judgment.
Subsequent to oral argument before this Court on March 7, 1990, I agreed with Frankenmuth that our previous opinion was limited to determining the correct measure of damages to be applied in a failure-to-settle case. Consequently, I also agreed that, on the record then before this Court, the causation issue had not yet been decided and that a remand to the trial court would be necessary. Our Court then remanded the case and ordered the trial court to determine whether Frankenmuth‘s acts of bad faith caused the excess judgment to be entered against Charles Keeley. 434 Mich 1206 (1990). We also retained jurisdiction.
On remand, the Genesee Circuit Court determined at a hearing held April 17, 1990, that Frankenmuth‘s acts of bad faith did not result in the excess judgment entered against Charles Keeley. As to the issue of bad-faith conduct, the trial court found that Frankenmuth acted in bad faith when it failed to discharge Mr. Buck, whom Frankenmuth had retained to represent the Keeleys in the tort action, when he breached his duty of fidelity by providing Frankenmuth with detailed information detrimental to the Keeleys’ defense and, ultimately, their claim for insurance coverage.
More importantly, however, the trial court also ruled that Frankenmuth‘s acts of bad faith did not
Following the trial court‘s findings delivered from the bench, Charles Keeley moved for reconsideration. The trial court denied reconsideration in a written opinion issued May 23, 1990. The court analyzed the issue of bad faith in light of the twelve factors set forth in Commercial Union Ins Co v Liberty Mutual Ins Co, 426 Mich 127, 138-139; 393 NW2d 161 (1986), and again found that Frankenmuth‘s acts of bad faith did not cause the judgment in the principal tort suit.
The parties filed supplemental briefs in this Court to address the circuit court‘s findings on remand. The original Court of Appeals opinion held that appellant was entitled to recover from the appellee for damages resulting from appellee‘s bad-faith conduct. The Supreme Court denied leave to appeal on the issue of bad faith. Thus, appellant contends, the Court of Appeals decision remained the law of the case on the issue of bad faith. The trial court, therefore, violated the law of the case doctrine in issuing its new findings inconsistent with the original ruling of the Court of Appeals.
Appellee, however, asserts that the case remained pending before this Court, and so the law
Appellant next contends that the trial judge‘s findings regarding causation are clearly erroneous. A review of the evidence in this case demonstrates that the judge‘s findings are not clearly error.
CONCLUSION
I would hold that an insurer is liable for a judgment in excess of its policy limits without regard to the insured‘s ability to pay when the insurer‘s bad-faith refusal to settle results in the excess judgment. However, because the trial court on remand found that Frankenmuth‘s acts of bad faith did not result in the excess judgment, Charles Keeley cannot establish causation under the rule I would reaffirm today. Consequently, I would hold that Frankenmuth is not liable to Charles Keeley for damages resulting from the judgment entered against him in the underlying tort action. I would therefore affirm the trial court‘s order granting Frankenmuth‘s motion for summary disposition against Charles Keeley‘s counterclaim for damages.
CAVANAGH, J., concurred with ARCHER, J.
BOYLE, J. (dissenting). In light of the trial court‘s finding on remand that any acts of bad faith by the insurer were not the cause of the excess judg-
However, since the trial court‘s finding with respect to the cause of the excess judgment against Keeley also removes the factual premise of our original opinion — i.e., that acts of bad faith by the defendant insurer caused the excess judgment — I agree that the opinion should not stand. I would therefore vacate the Frankenmuth opinion as effectively “moot” in light of the findings below. I would not retain jurisdiction.