Frankenmuth Mutual Insurance v. Keeley

Keeley Frankenmuth v KEELEY INSURANCE COMPANY FRANKENMUTH MUTUAL 7). (Calendar Argued Decided No. Docket 81566. October No. 19, 1989. Rehearing post, granted 1226. October brought Joey Circuit Court an action in the Genesee G. Boone mother, Keeley Keeley, against his and Wilma Charles gun injuries inflicted shot wounds sustained as a result Charles, quadriplegic. At time of the him which rendered shooting, Keeley Mutual insured Frankenmuth Charles was Company of insurance. On Insurance under Wilma’s contract date, declaring sought judgment the same Frankenmuth shooting policy under the because was was not covered expected standpoint the insured. Boone or intended from the counterclaimed, charging Keeleys and the that Frankenmuth had refused in bad faith to settle the claim and had fraudu- misrepresented lently deceitfully and limit. The court, Borradaile, J., E. Frankenmuth Earl determined that parties responsible policy, were under the found that both equally negligent, judgment jury’s and entered for one-half the Thereafter, Keeleys brought verdict. Boone an action to and brought against have their counterclaims Keeley attorney trial. The court awarded Mrs. fees and ruled failing that Frankenmuth had exhibited bad faith in to settle case, any damages owing Keeley but held that to Charles respect with to Frankenmuth’s breach of its to settle were necessarily injured party limited to the amount that the would have been able to recover from Charles absent Weaver, P.J., coverage. Appeals, Court of insurance Kelly Kirwan, JJ., unpub- R. aifirmed in an Michael and J. curiam, opinion per lished for a but remanded the case deter- exempt Keeley’s mination of the extent of Charles assets not legal process entry judgment against from and for Franken- 89615). (Docket parties appeal. muth in that amount No. opinion by joined by Archer, In an Justice Chief Justice Riley Boyle opinions by Cavanagh, Justice and Justice Supreme Court held: failing An insurer that has bad faith in to settle a exhibited claim on behalf of its insured which results in a regard excess of limits is liable for the excess without capacity pay. whether the insured has the agreement whereby parties give 1. Insurance is an valuable protection from and indemnification consideration for loss, public, damage, injury, liability. As servants companies universally high are held to the standard Thus, faith; good anything less tolerated. should be to be to its for a insurer held liable insured insurer, exceeding policy having limits the exclusive where settlement, fraudulently refuses or in bad faith to control of Adoption rule is the most of this settle within limits. regarding way bad- to serious concern effective underscore the industry. practices faith in the injury person 2. or assets suffers An insured with little no injuries judgment constitute when excess is obtained. Such an sense, damages insurer the most traditional and an actual in neglect flagrantly the interests of its cannot allowed to be case, facing consequences. In be- this insured without serious relationship a cause effect between the cause there is direct and entry judgment, bad-faith failure settle and the of the excess to responsible paying the excess. the insurer is Cavanagh judg- application the the concurred in Justice case, suggestion it ment rule in this but not in the be rejected in a failure to defend context. Boyle, concurring, adoption the Justice stated that judgment requiring an fails to rule insurer who bad faith judgment a settle a claim which results in excess narrowly. pay limits to should be viewed It excess establishing a definition standard should not be seen as new or cases, applying existing definition of bad faith in such nor as an or standard of bad faith because that issue was not before the Supreme being Court. should the decision be seen as Nor Jamison, (1982). incompatible 416 Mich 217 with Stockdale v and remanded. Reversed Brickley by Levin, Griffin, joined Justices and Justice damages dissenting, in a stated that the assessment of breach assignor of a to limited to the assets of the not settle is exempt legal only process. apply not from The standard should where, insured, where an insurer fails to defend an but also as faith, case, insurer, alleged is in this it that the in bad refused to settle. requires prepayment rule an insured to have which unsound; judgment payment judgment made some on required approach. rule An insured should be is the better pay money or to in order to to sell assets borrow failing an the insurer for bad faith maintain action However, adoption policy limits. of the to settle a claim within eliminating justify rule does not sense required pay prepayment not be rule that the insurer should judgment. pay on the more than the insured is able to now, Michigan the rule in has been that an action for Until failure to settle sounds in contract and not tort. bad-faith damages place aggrieved party in seek to the same Contract position that would have obtained had the contract economic general performed. rule no It is well established that as a been damages or emotional will be awarded for the mental distress may by system of contract. The trauma that be caused a breach compulsion promisors is not directed at of contract remedies rather, perform; promisees its aim is relief for to redress breach, i.e., promisors perform, not to cause but rather to securing encourage promisees rely promises by expec- through interest the award of for the economic tation damaged by promisee. loss suffered While credit finan- compensable, appel- ruin loss and if the cial are economic damaged that his credit had been or lant could demonstrate that he had suffered financial ruin he should recover for such contract, economic loss caused the breach of does not appear damaged on the record that his credit has been to the $600,000. extent of over There should not be concern about damages generally a windfall to an insurer. Contract are gain promisee, measured the loss to not the loss person. some other Michigan, damages compensa- In in contract and in tort are states, tory. punitive In other where mental distress and dam- recoverable, ages are concerns about windfalls to insurers and industry practices ignore led the courts to the have damages difference between the measure of in contract and tort punitive recovery actions and to allow for mental distress and $600,000 damages permitting for bad-faith failure to settle. In a recovery proof appellant without that the incurred economic loss, Court, departs principle this for the first time from of the confining damages by the for breach of contract an insurer to by promisee. the economic loss suffered the compromise prepayment judg- A between the rule and the judgment ment rule should be made. The essence of the rule accepted by eliminating partial should be the need to show along payment, protection but for the insurers lines of the provided precluding prepayment by rule should be on collection judgment beyond the that a from insurer the amount is or Thus, actually would from the be recoverable insured. this case, accepted judgment be as it dis- the rule should insofar penses appellant paid any with the need to establish that the judgment, amount on the and the case should be remanded to 433 Mich by Archer, Opinion appel- the a of extent the trial court for determination legal process, exempt a from and for determi- lant’s assets not portion judgment, the the value of the excess of nation of exempt taking only appellant’s not the assets account not into attaining legal process prospects his future from but also judgment could be collected. assets from which the finding judge’s being faith It unclear whether trial bad settle, respect to or a failure to was in to failure defend a determination case should be remanded to trial court for failing policy to there faith in offer limits of whether was bad declaratory in the before trial court rendered its decision least to the action. The case should at be remanded in, Appeals Court of with a direction to consider issues raised Court, to the insurer to that so as enable but addressed argue inadequate support, to and there is evidence find, hypothesis to would been clear error factual have majority flagrantly reversal advanced insurer neglected guilty of its the interest insured deliber- failing bad offer limits it did. ate faith before App 372; Michigan Sederholm v Mutual Ins (1985) NW2d 357 overruled. Cooper Garan, Lucow, Miller, Seward, Becker, & Rochkind); (by P.C. Milton Lucow and Rosalind (<Jonathan counsel), plaintiff. Holt, E. for the Segar, (by Dean, Dean, Shulman, Hart & P.C. Segar), L. Robert for the defendant. granted appeal J. We leave to

Archer, cross-appeal trial consider whether court Appeals correctly and the Court of nature and ered limited the amount of can be recov- an insured when an insurer has breached duty a claim. its settle hold has We that when insurer exhibited bad failing faith settle claim behalf of its insured, and a in excess of the results, limits without insurer is liable for excess

regard to the insured has the whether Accordingly, capacity ing pay. to we reverse the hold- Appeals of Court and remand case Opinion Archer, J. to the trial court for damages determination accordance opinion. with this

FACTS 7, 1978, On or about May Boone was Joey Guy friend, visiting his Charles at the resi- Keeley, mother, dence of Charles’ Mrs. Wilma At Keeley. point some during the Charles day, Keeley had placed his shotgun open view in the living room. According to statement Joey’s police, to the Charles was around "playing gun, with” the gun discharged, severely injuring Joey Boone. Joey Boone was rendered quadriplegic.

At the time of shooting, Charles Keeley was insured with Frankenmuth Mutual Insurance Company.1 provided coverage through Charles his mother’s contract of insur- ance.

In an effort lawsuit, to avoid the initiation of a negotiations settlement were conducted between counsel for Mr. Boone and counsel for the Keeleys, agreement but no result, was reached. As a 8, 1979, June Joey Boone filed negligence action Keeley sought coverage following Charles under the section of the policy: Coverage Liability. E—Personal Company agrees pay This on behalf of the Insured all legally obligated pay sums which the Insured shall become bodily injury property damage, as because of or applies,

which this insurance caused an occurrence. This Company right duty, expense, shall have the at its own any seeking damages defend count of suit the Insured on ac- bodily injury property damage, any such even if allegations may groundless, fraudulent, the but of the suit are false or investigation any make such and settlement of claim expedient. Company or suit as it deems This shall not be obligated pay any to applicable claim or or to defend suit Company’s liability after the limit of this has been by payment judgments exhausted or settlements. Mich Opinion Archer, J. Wilma, mother, in and his Keeley Charles Court. Genesee Circuit de- date, sought a the same Frankenmuth

On to Mr. Boone injury that the claratory judgment standpoint of the or intended from "expected was therefore, asserted, the insured.”2 Frankenmuth shooting Guy Boone Joey Keeley’s that Charles policy.3 covered under the was not having joined the Keeleys, Boone and Joey the insur- counterclaimed, forces, charging faith, refused, to settle had bad company ance case, Joey oifers made despite the several policy the compromise attorney Boone’s $50,000. Franken- limits, alleged further They represented fraudulently deceitfully muth only limit was attorney Boone’s $25,000. dam- requested any countercomplaint ages appropriate by the deemed court._ declaratory judg Apparently, general basis for Frankenmuth’s police investigation against ongoing Charles ment action was bolstering Keeley muth’s prior reputation Boone’s statement murder. Also Franken for assault with intent Keeley’s alleged noncoverage request was for declaration of featuring police report Joey and character and Specifi Keeley intentionally. shot him Charles questions cally, pertinent and answers in the statement were: Keeley] Q. you any why he think of reason [Charles Can might you? have shot gave really A. him reason. I never Q. purpose or not? You are not sure if he done this on [sic] you get purpose, A. If didn’t do it on I think I don’t know. he spot plenty picture, in. . . He said

the times beforehand he wasn’t a better to see me . had me, thought going to I that he was shoot but guess wrong, kidding he me the time. I I was all [was] kidding me. language exclusion reads as follows: contained this This does include loss: Coverage Liability 1. Under E—Personal bodily injury property damage which is either ex- f. or standpoint pected from the Insured. intended Keeley Opinion by Archer, 6, 1981, July On the circuit court determined that Frankenmuth responsible pol- under provisions and, icy to defend if appropriate, settle Meanwhile, on behalf of the Keeleys. princi- case, pal found jury Charles Keeley Joey Boone equally negligent with total equal- $500,000. ing Thus, a judgment was entered against Charles the net amount $250,000, plus interest and costs.

Thereafter, Joey Boone and the initi- Keeleys ated an action to have their brought counterclaims to trial. Frankenmuth responded with a motion for summary disposition regarding each of the claims.4 motion, In resolving the the court awarded Wilma $4,152 Jean Keeley In attorney doing, fees. so the court simultaneously ruled that Frankenmuth exhibited bad faith in failing to settle the case.5 however, More importantly, the court held that Keeley’s attorney Wilma counterclaim was for fees which were incurred as a result Joey of Frankenmuth’s failure to settle. Boone’s argument counterclaim dealt with his that the calculation of interest apply $250,000, should solely to the entire amount of and not $50,000. policy Paramount, however, to the limit of was Charles Keeley’s damages counterclaim for from Frankenmuth as a result of duty its bad-faith breach of the to settle Boone’s tort action for the policy limits. 5Among other inferences drawn the basis of circumstances surrounding Joey attorney’s attempts case, Boone’s to settle the as allegations well misrepresented as limits were appellee during subsequent nego Frankenmuth the evidence these and settlement tiations, appears signifi to have contributed most cantly faith, to the trial court’s determination of had was revealed in supervisor an "interoffice” memo from a at Frankenmuth to a subor produced by dinate. The memo discovery, itself was Frankenmuth in year shooting reads, and is dated more than a after the occurred. It pertinent part, as follows: presents, my opinion, The file material available a rather certainly guilty

weak defense. While this insured is extremely firearm, very careless use of a there is little indica- tion as to whether or not his state of mind was such that a shooting police deliberate indicates report intentional occurred. The scene, boys that when the officers arrived at the both blood, suggesting supporting were covered with the in- 433 Mich Opinion Archer, J. respect owing Keeley Charles with were of its settle breach to Frankenmuth’s injured limited to the amount necessarily Boone, re- have been able would party, Joey from absent Charles cover i.e., of Mr. assets Keeley’s the amount coverage, exempt legal process. not from decision, Appeals, in a unanimous The Court of ruling court in all re- affirmed the lower However, the case for the Court remanded spects.6 Keeley’s of Charles the extent determination legal entry exempt process, assets from amount. against of judgment granted appeal.7 subsequently leave We

i the Court before brought The substantive issue Keeley, Charles was acknowl appellant, Wakefield ago. in this state six decades edged Indemnity Co, Globe 225 NW 643 (1929), brought by City involved an action insurer, Globe In liability its Wakefield aid, position in a confused state of sured’s that he rendered mind, plaintiff to asked for instructions and was advised the call an ambulance. complete investigation on me is the lack of What concerns part department. claim are numerous unre- the solved areas our There may clarify all-important state of the mind .... presently, very to the I we have little As file stands feel waiting something position. Apparently justify our we are for during discovery process improve happen the which will our to position. Notably, the faith existed is trial court’s determination that bad not before us. 6 unpublished opinion Keeley, per Frankenmuth Mutual Ins Co v (Docket 19, Appeals, August the decided 1987 curiam of 89615). Court of No.

7 (1988). Keeley, Mich Frankenmuth Mutual Ins Co v 857 Ins Opinion Archer, demnity, for company’s the failure exercise effecting compromise reasonable care in the of a y,8 claim brought against tort the and for the cit company’s refusing bad faith settlement.9 regard With the specific question whether Globe had to Indemnity pay judgment, the excess the Wakeñeld did not the opportunity Court have In directly dealing answer. the bad-faith with first,10 the issue the Court ruled that insurer was Wakefield, underlying City tort action Borski v of Wakef ield, (1927), injury 239 Mich NW 19 the involved of Frank passenger city’s Borski while a on one of At the buses. the time of the injury, $10,000. city liability policy Indemnity the Globe carried brought with for Borski suit for Globe assumed the However, defense. $15,000, Borski when recovered a for over city filed a claim Globe for the excess its failure to case. settle the mentioned, City In addition to the claims Wakefield also charged negligent However, underlying defense suit. because appellants adequacy the instant did raise an of defense issue in appeal, this it is not addressed here. Liberty 10 CommercialUnion Ins Co v Mutual 138-139; (1986), 393 NW2d 161 has since bad-faith defined failure to part utilizing company following settle on the factors: of an insurance 1) keep fully develop- failure to the insured of all informed reasonably ments in the claim or suit that could affect the insured, interests of the 2) failure to inform insured of all settlement offers that limits, policy do not fall within the 3) failure to a settlement solicit offer or initiate settlement negotiations circumstances, when warranted under the 4) accept compromise failure to a reasonable offer of settle- ment when the facts case or claim indicate obvious liability injury, and serious 5) rejection of a reasonable offer of settlement within the policy limits, 6) accepting delay undue offer a reasonable to settle a

potentially dangerous verdict case within limits where the potential high, 7) attempt by the insurer to coerce or obtain an involun- tary contribution from insured in to settle within order policy limits, 8) proper investigation prior failure to make a the claim refusing limits, an offer of settlement within the 9) disregarding adjuster the advice or recommendations of an attorney, Opinion Archer, settle unless for refusal to to its insured liable Hence, the Court in faith. because refusal was bad Indemnity as actions of Globe did not view the constituting court, faith, trial the bad it reversed leaving remanding Globe, favor for in of substantively damage undecided.11 issue recog- text, Nonetheless, Wakeñeld within its at bar: nized the issue case addressed opinion, in the The courts to be unanimous seem ruling, recognition, or as expressed by direct as sumption, is to the insured the insurer liable face of the excess of over the an insurer, having control exclusive policy when the settlement, refuses or bad faith fraudulently of within the compromise to a claim for an amount [Wakefield, supra at policy limit. 648.] supplied years followed, In Wakefield Michigan upon relied which courts standard facing allegations bad-faith failure when of companies. part In settle on v Medical Protective Commercial Union Co (1986), this 109, 116; 426 Mich 393 NW2d Wakeñeld, Court cited reasoning:_ 10) insurer, negligence serious and recurrent 11) following case limits refusal to settle a within appeal are an slight verdict when the chances of reversal on excessive doubtful, 12) following appeal verdict excess failure take grounds the an limits there reasonable for such where are especially appeal, so where trial counsel recommended. Although primarily Union with the issue Commercial dealt insurers, many liability factors primary the fact that Frankenmuth acted in bad trial court and is not before us. merely primary excess insurers and between solely uniformly analyzed applied reference be with can however, insurers, importantly, as in the case at instant More bar. appeal not concern the issue whether does by the faith. was made This determination Hence, note the inclusion this clearly Michigan amplify law and not serves to established ruling provide comment the lower court here. 11 Wakefield, supra at 658-659. See 535 by Opinion Archer, J. judg insurer is liable to its insured for a [A]n insurer, exceeding

ment who has exclusive control of the policy limits when the defending settling suit, refuses to settle within limits in faith.”[12] "bad ii thought regarding There are two schools of for an insurer’s bad-faith remedy breach of its The duty jurisdictional split settle. is distin- guished by following doctrines: the prepay- ment judgment pre- rule and the rule. The older doctrine, rule is the payment adopted by a minor- ity jurisdictions, which dictates that an insurer be held in may liable an "excess” case if only part or all of the judgment paid has been the in- rule, sured. judgment adopted aby majority of jurisdictions, commands an insurer an ex- pay faith, cess in judgment instances of bad so that insured need not make nor any payment have the capacity pay any part of the in order to recover the excess amount from the insurer. See Carter v Co, Pioneer Mutual 67 Casualty Ohio St (1981). 146; 2d 423 188 NE2d The cases relied on appellants clearly reveal vigorous dichotomy of the courts their analyses the doctrines. For example, Wolfberg Co, v Prudence Mutual Casualty 98 Ill 190, App (1968), 2d 240 NE2d 176 the Court recited: majority country represented view in this

by Jenkins v General Accident Fire & Life Assur- 12 Appeals The United States Court of for the Sixth Circuit Michigan United States District Court for the Eastern District of have rendering also relied on Wakefield decisions on this issue. See Co, (CA Liberty 6, 1980); Valentine v Mutual Ins 620 F2d 583 Jones v v (ED Co, Mich, Supp 1977); Noshey Nat’l Emblem Ins 436 F 1119 (CA Co, 6, 1934). American Automobile Ins 68 F2d 808 433 Mich Opinion Archer, [703]; 212 NE2d Corp, 349 Mass

anee (1965), which stated: cases, in earlier conflict

"Despite some necessary for it is not authority is that weight of pay a paid he has or will allege that the insured to in an action policy limits in excess of the to act in of its the insurer for breach .”[13] . . . good faith omitted.] [Citations v Pacific Automobile Purdy The court (1984), 59, 74; 203 Rptr Cal App 3d 157 Cal Appleman, presented in 7C premise was also discussed here 4712, Practice, pp 426-430: Law & § Insurance possible prone make the test of Many . . to cases . were is, if the insurer liability faith —that that of fraud or bad excess either fraudulently effect a settlement in faith failed to or bad judgment limits, discharge full policy must it

within the guilty, so then limits. If it was not of those even in excess excess must recover, imposed. the insured liability To would not be connection produce faith and causal evidence of bad [a] damage The cause sustained. the bad faith and between pay judgment required to is when the insured action arises that policy limits. is in excess of his obligation was fulfill his contractual did not If the insurer bring negotiate failing negligence guilty in faith or of bad generally settlement, damage is the insured to the about a amount policy charged excess of his insured becomes for which the 4711, p coverage. 414.] at § [Id. theory, Mutual v State Farm applying see Smith this For cases (ED Tenn, 1968); Co, v Nat’l Supp Davis 405 278 F Automobile Ins (ED Va, 1968);Shapiro Ins Co, Supp v Allstate Grange Co, F 998 Ins 281 Surety Casualty (ED Pa, 1968); Herges & v Western 44 FRD 429 1969) (bad (CA faith); 8, Liberty Ins Co v Bush v Mutual Co, 408 F2d 1157 faith); (failure good (CA 5, 1969) Davis, to exercise 412 F2d 475 (1970), (CA 1970), 5, 833 Co, 400 US cert den 393 Ins 425 F2d Allstate Co, Family (1970); Ins Mutual v American Luke 400 US 985 reh den (D 1971), part SD, judgment rev’d Supp aff’d 325 F 1972) law, (under (CA insur- an South Dakota part F2d 1015 to be held as company may in such a manner itself conduct ance liable limits); Services United of the in excess for 1972) (D Conn, Co, Supp 869 350 F Ins v Glens Falls Automobile Ass’n judgment entered (damages may entire amount extend to the limits). insured, against it in excess even if Ins v Opinion by Archer, expressed deterioration view- minority point: "prepayment rule” has fact been rele-

gated past to the in majority juris- of American dictions, perceived primarily inequity due to the being permitted an capitalize insurer’s on the financial weakened condition of the .... insured California, damages In in the amount of the excess are, demonstration, without further recovery measure of faith bad failure settle. v Dumas State Farm Mutual Automobile Ins In Co, 43, 45; (1971), 111 NH 274 A2d 781 the New Hampshire Supreme Court reasoned the pre- payment longer rule could no be considered fair or judicious: argument A policy present our rule is as a serves windfall an insurer fortunate (Citation enough to have an insured insolvent. omitted.) In event statement damaged cannot insured has pay been he because upon the excess is based fallacy damaged credit and financial ruin are not

injuries.[14] Henegan v Mutual 12; See also Merchants AD2d Accident, (1968); Jenkins v General Life NYS2d 547 Fire & Assurance Ltd, Corp, (1965); 349 Mass Brown Guarantee 212 NE2d 464 Co, App 679; Ins Mutual (1957); Farm 155 2d Alabama Bureau Cal 319 P2d 69 Casualty Dalrymple, Ins Co v 119; 270 Ala 116 So 2d 924 Davis, (1959); Casualty (Fla Fire & American Co v App, 146 2d 615 So 1962); Wolfberg Co, Casualty v Prudence App 190; Mutual Ill 98 2d Co, (1968); Casualty 240 NE2d 176 Henke v Iowa Home Mutual 250 (1959); Lange Fidelity 1123; Casualty v Iowa 97 168 & Co of NW2d York, (1971); Gray 61; New Mutual Ins v Nationwide 290 Minn 185 881 NW2d Co, 500; (1966); 422 Pa A2d Southern Fire & 223 8 Norris, Casualty App 657; Co v (1952); 35 Tenn 250 785 SW2d York, Hernandez v Great (Tex, American Ins Co New 464 SW2d 91 1971); Exchange, v 187; Ammerman Farmers Ins 22 Utah 2d 450 P2d Co, (SD (1969); Harris v Supp Standard Accident & Ins 460 F 191 538 Co, NY, 1961); v Smoot State Farm Mutual Ins Automobile 299 F2d (CA 5, Co, Mercury Indemnity 1962); Anderson v St Paul 525 340 F2d (CA 7, 1965); Co, Gaskill v Preferred Risk Mutual Ins Supp 406 66 251 F (D 1966). Md, 525 433 538 by Opinion Archer, J. Appeals

Conversely, Court of the United States judg- argued against Circuit for the Second accompanying theories in Harris rule its ment v (CA 2, Co, 297 F2d 627 Accident & Standard 1961). agree with the notion That court did upon a receive a windfall insurers would bankruptcy by The court its insured. declaration of receiving premiums upon opined that an insurer subject payment of that amount face regardless of the insured’s financial condi- amount attempted Further, rebut tion. the court adoption prepayment rule would notion make insurers less

responsive to its to settle (because liability when its the insurer could avoid insolvent), stating only very was insured percentage of with such factual small cases unfold parameters. Primarily, did not construe court paying an excess risk actual burden result of an failure as a insurer’s constituting damages to the actionable settle as insured.

Accordingly, declined to rule court responsible payment of an that the insurer judgment. v See also Dumas Hartford Acci- excess Indemnity Co, 140; 26 A2d 361 dent & NH (1942); Culberson, Co Automobile Ins v Universal (1935); Seguros Tepeyac 86 SW2d 727 Tex (CA 1965); Bostrom, F2d 168 Smith v v (ED Supp Casualty Tex, Co, 281 F Transit 1968).15 III A agreement whereby parties give Insurance is Indemnity & Co was later overruled Dumas v Hartford Accident Further, Ins Co. Univer Dumas v State Farm Mutual Automobile sal, supra, appear Seguros Casualty, to have and Smith v Transit similarly American Ins n outdated Hernandez Great been supra. Keeley Opinion Archer, J. protection from and consideration valuable damage, injury loss, indemnification public, liability. com- As servants high universally panies standard are held to the Appleman, "good Insurance Law & faith.” See 7C Anything toler- Practice, § 4711. less should be Accordingly, adopt the rule which man- ated. we engages if in bad faith while an insurer dates compensate failing claim, it to settle a must regardless insured, of financial status.

Although prepayment a re- rule allows for covery by the in instances of bad-faith insured recovery settle, is the amount of failure upon directly dependent status of the the financial assets, insured, i.e., no the insur- if an insured has part obligated pay any company is not ance judgment. rule, Thus, under this an excess permitted capitalize on the weakened insurer is Purdy, See su- financial condition of insured. pra. prepayment major rationale is flaw the enough that when an insurer is "fortunate

the fact supra Dumas, insolvent,” at to have insured an consequence failure to there is no for its deliberate good-faith rule meet the standard. ability to hide behind the the insurer’s eliminates adoption Hence, financial status of its insured. way effective rule is the most our serious concern with bad-faith underscore industry. practices in the insurance B acknowledge potential injury to an that the We great. bar, In the case at insolvent insured 433 Opinion Archer, weekly salary $150,16 earns a Charles position pay $200,000 excess in to and is no Despite charge against judgment made in him. supra, one Harris, like the instant that situations presently Keeley’s position rare, is neither are Mr. prospectively nor uncommon. previously, minority of courts has noted

As suffers no actionable asserted that an insured damages its insurer breaches when an settling good We, however, in are faith in claims. majority jurisdic- express agreement with the person with tions that has held that an insured injury an excess little or no assets suffers when against judg- him. Such a is obtained impair potentially credit, force him ment his will reputation, subject bankruptcy, into diminish his immediately outright property lien, to his earnings possible garnish- subject any future generally, See, Mutual ment. Carter v Pioneer supra. injuries Casualty Co, Such do constitute damages actual in the most traditional sense.17 flagrantly An ne- insurer cannot be allowed facing glect the interests of its insured without consequences. is, case, in this serious There relationship direct cause and effect between entry and the bad-faith failure to settle respon- judgment. Therefore, the insurer is excess sible paying the excess. reemphasis premise Worthy set forth in is the ago. liability many years in- When a Wakeñeld 10, 1985, Keeley Charles listed In an affidavit dated March opposition mo several statistics about himself tion for Frankenmuth’s disposition. summary (5th ed) Dictionary as follows: Black’s Law defines compensation indemnity, may

Damages. pecuniary A or which loss, person by any who has suffered be recovered the courts detriment, rights, injury, person, property, or whether to his through negligence of the unlawful act or omission or another. Opinion Archer, J. power litiga- surer has sole and control over the insured, brought tion of claims its which if obligation compromise includes the the claim feasible, must faith. proceed good then counsel good encompass This mandate of faith does notion that counsel should settle and all any claims, equivalent so that failure to do so is to bad faith, for is not bad faith if counsel for the insurer "[i]t

refuse settlement under the bona fide belief that might action, or, event, they probably keep defeat the can

the verdict within the limit. ... A mistake of is not bad faith.” [Wakefield, supra at 656.] However, upon the determination an in- faith,18 surer failed to settle in deliberate bad such subterfuge allowing cannot be rewarded the escape insurer compensating its insured for this avoidable situation. Accordingly, as the measure of damages has been established a majority jurisdictions to be payment the re- foreseeably excess, sultant we likewise adopt this rule, as it explain serves to and extend previously existing precedent in our state.

iv appellee-insurer argues this case governed Jamison, should be by Stockdale v (1982). Mich 330 NW2d 389 Stockdale in- volved an automobile accident Mr. between Mrs. Stockdale and Wayne Jamison. Jamison was $20,000 insured for Farm Bureau Insurance Group. The issue the case involved whether the $160,000 Stockdales could recover from 18See n 10. 433 Opinion by Archer, company, of its a result as

Jamison’s his behalf. claim on failure to defend "ordinarily holding principal an Court’s duty liability of its contractual for breach insurer’s equal an amount limited to its insured is to defend legal exempt from assets to the insured’s process.” plaintiffs result, were at 228. As Id. judgment. recovery of the excess denied n 15 of within this case lies with The concern opinion: suggested that this is Keeton has Professor damages for an insurer’s measure of appropriate Keeton its to settle. [Insurance breach points 7.8(f), Keeton p 516. As Professor Law], § advantage par- out, to both approach has the this (and eliminating the insured the need for ties of consequently, of a to suffer the costs plaintiff) to establish proceeding in order bankruptcy amount of loss. actual & Ins Co v Standard Accident also Harris See settle, (no recovery for faith failure [supra], bad entry of an before insured was insolvent where afterwards); Du- bankrupt judgment, excess Indemnity [supra], Co & Hartford Accident

mas v court said: where the outstanding judg- existence of an "The mere legal ment, paid, not a may be which never in such a case injury injury, for the essence Mutual Ins Co State Automobile pecuniary is of loss. (CA 4, York, Columbus, F2d Ohio v 1939). may reduce plaintiff owes What on an accountant’s of his net worth appearance sheet, he is pays his debt but unless he balance pocket.” not out of taking the discuss Keeton did not Professor context, failure to defend approach same an in- not consider that he did possibly because limits for a policy might be liable above surer to who is unable against an insured obtaining Kee- damages by counsel. mitigate his supra 7.6(e), [Stockdale, at ton, p 484. supra, 228.] § Opinion Archer, The Stockdale of this footnote Court’s inclusion which perch beneath intended to be was not to fall.19 The were precedent of decades several Stock- preceding case law Michigan ampleness dale jurisdiction’s clear this this issue makes for excess insurers liable holding preference failure to set- in instances of bad-faith judgments tle.20 Stockdale addressed company’s insured, application and to defend its failure to cases of solely findings applied should be of its defend.21 failure to consequences an insur was written to address Stockdale Stock- company’s insured. Within the lead failure to defend its

ance dale pointedly concurrence, opinion, a distinction as well as within its and "failure to settle” "failure to defend” drawn between cases: liability policy good may limit an insurer’s While faith settle, it is not a defense to an in actions for failure to limits action for breach of an sured. in excess of settlement fends the action conduct obligation its in- insurer’s to defend liability subjecting to its insured The rule an insurer good policy faith in for failure to act limits negotiations recognizes de- the insurer where control in the measure of has substantial position disregard the in a of the lawsuit and is expose him to the risk of a interests of the insured policy protect To the insured’s in excess of limits. interest, required make rea- have that the insurer the courts within limits. at 223-224.] sonable eiforts to settle [Id. Ryan’s

Further, in Justice concurrence: good agree my faith on the faith or bad I with brother company part in an action based the insurance is irrelevant claiming to defend. In of the contractual on breach liability "good in excess of is an absolute defense faith” limits, confusing Bureau is this case the defendant Farm City alleging to settle. See a bad faith refusal with cases Co, 645, 651; Indemnity 225 NW 246 Mich Wakefield v Globe (1929). at [Id. 229.] accompanying n 12 text. See opinion Accordingly, inconsistent with that this to the extent App Michigan 370 NW2d 142 Mich Mutual Ins Sederholm (1985), it is overruled. 433 Mich 525 Boyle, JJ. Opinions Cavanagh

CONCLUSION rule, adopting In the we hold that judgment failing has exhibited bad faith in when an insurer its and a to settle a claim on behalf of insured results, in excess of the limits judgment in en- judgment insurer must the excess its pay regard without to whether the insured has tirety we reverse the capacity pay. Accordingly, of remand the holding Appeals of the Court case to the trial court for a determination damages opinion. in accordance with this

Riley, C.J., Archer, concurred with J. {concurring). Cavanagh, I in Brother join my J. Archer’s decision to rule in apply case, join this but do not its dicta rejecting view, rule in the In my failure defend context. Stockdale v our and our today decision decision Jamison, (1982), 416 Mich are NW2d incompatible.

Boyle, (concurring). Although J. I concur Justice adopt, majority Archer’s decision to as a have, jurisdictions rule” of in- "judgment surer an liability where insurer’s bad-faith failure settle claim results in a limits, insured in excess of the I write separately emphasize order to narrowness this ruling.

I read Justice Archer’s majority opinion as addressing question mea- only proper damages sure of once a claim of bad- recoverable faith failure to settle has been established. not, it, opinion does as I pass upon understand propriety finding of the trial court’s in this case of faith on part, propriety bad defendant’s nor on the Opinion Boyle, finding.1 Appeals affirmance of the Court of necessary result of our so is the Its failure to do grant case, the the directed order this which limited parties question only whether

to address Appeals properly limited Court of trial court and the nature available and amount of counterplaintiff in this case. 430 as Charles Mich (1988). 857 opinion my not be seen Thus, should view establishing or standard of bad a new definition as apply- matter, cases, nor, that as in such faith ing existing of bad faith. definition or standard Liberty e.g., Ins Co v See, Commercial Union Co, 127; 393 161 426 Mich NW2d Mutual Ins (1986); Indemnity City Co, of Wakefield v Globe (1929). question 225 643 645; 246 Mich NW properly shown under these bad faith was whether simply this Court.2 is not before circumstances express my agreement with Jus- 1 write also agree court did make a Justice Archer that the trial 1 I with believe, despite finding I Justice Levin’s faith in this case. also bad consider, issue, Appeals that the Court of did reservations on the reject, argument appeal that faith had not been bad defendant’s established, attorney only upheld fees to it not the award since entry Keeley, trial court for also remanded the case to the Mrs. but equal "in an amount defendant Frankenmuth process.” exempt legal Keeley’s such from No Charles remand would accepted assets Appeals necessary had have been if the Court plaintiff argument that had failed show the defendant’s faith. bad observes, true, the Court of as Justice Levin While it is argument Appeals not shown is that bad faith was treatment of the defendant’s best, not, Levin, "cursory” I would like Justice at fully Appeals presume failed to consider that the Court of therefore that, Rather, presumption engage in as a we should the issue. procedure, the Court would not have answered matter of question whether bad faith was lack of bad faith question for itself the at all if it had not first resolved case, begin properly with. In this shown to argument; I cannot was the defendant’s "lead” Appeals simply the issue and missed the Court of assume reached question have had to resolve. otherwise it would not which believes, apparently say, that I am as Justice Levin This is not finding may . . . opinion error that "there have been clear Post, finding.” support inadequate evidentiary for such a bad faith or obvious, i.e., only merely pointing p that we reach out the 567. I am Mich 525 Opinion by Dissenting Levin, J. today’s not, as Justice decision tice Archer "incompatible” necessarily Cavanagh with states, Jamison, 217; Mich decision Stockdale our 330 NW2d (1982). majority are, There as aptly points out, a number of differences between cases. "failure to settle” "failure to defend” and affecting opinion be seen as This should not continuing viability rule with of the Stockdale respect cases. to failure to defend question presented (dissenting).

Levin, damages in an action the assessment of concerns against refusing in "bad faith” to an insurer for settle within limits. Appeals authority of this The Court of the—on Jamison, 416 decision in Stockdale v Court’s (1982),2 decision, 217; 330 NW2d 389 and its earlier Michigan applying Stockdale, in Sederholm v Mu- App tual 142 Mich 370 NW2d 357 (1985) damages in a the "measure of —held breach of a to settle is limited to the assets of the plaintiff’s in this and do not address the merits of issue of case claim, challenged in the bad-faith which the defendant challenge, again, undeniably Appeals Court of lost—and —a respect grant appeal. with to which we did not leave to 1 Co, 645, Indemnity 648; In 246 Mich 225 NW Wakefield Globe (1929), an to for this Court said that "insurer is liable the insured insurer, policy the an excess of having refuses to over the face of the when settlement, fraudulently faith exclusive control of or bad compromise policy a limit.” claim within the Similarly, Medical see Commercial Union Co v Protective (1986) (Williams, C.J.), stating 426 on the action” NW2d so Wakeñeld, authority it was added that the "cause of where originates implied good in the covenant of faith and fair dealing that arises from the contract between the insurer and the insured. 2 Stockdale, plaintiff In the obtained a in a tort action for policy assignment an amount in excess of of the insured’s claim action. The insured that the limits and then obtained an against failing his insurer for to defend the tort appeared judgment proof. held be This Court plaintiff could recover from the insurer the amount he could insured, ordinarily actually have recovered from the which amount exempt equal to the assets not "is limited to an amount insured’s Id., legal process.” p from 228. Keeley Frankenmuth by Levin, J. and process,” from assignor exempt legal not for a of the extent remanded determination legal from Keeley exempt of Charles assets process.3 case, Stockdale limit to a majority would Stockdale, of a failure to would and

such as defend ato principle or there stated apply not extend insurer where, here, alleged it is as case apply in bad to settle. We would refused faith Stockdale in this failure-to-settle case.

i Guy shotgun Joey at Keeley pointed Charles rendered pulled trigger. and Boone was Boone quadriplegic. was insured under a homeowner’s

Keeley an his by issued Frankenmuth policy mother, provided Keeley. policy Wilma Jean except injury coverage bodily injury "bodily or in- is either property damage expected which with standpoint tended from the the Insured” $50,000.4 limit of Frankenmuth asserted coverage applicable. from exception lawyer represent A Mrs. retained resulting from proceedings5 her son criminal pursue and a retained lawyer incident Boone Franken- personal his claim demanded that injury limits Boone’s muth tender to settle lawyer claim. Boone’s wrote lawyer Keeley’s limits advising that unless 1, 1978, tendered December a tort "suit were Keeleys my filed clients will be per Keeley, unpublished opinion Frankenmuth Mutual Ins Co v (Docket August 19, Appeals, No. curiam of the Court of 89615). decided excerpt opinion appendix. attached as See from 4 (1989). Freeman, Allstate v 432 Mich 734 See NW2d pled guilty Keeley charge, of a was bound over on an assault and offense. lesser 433 Mich Levin, J. damages and will full measure their will seek liability of the the limits not feel bound and will look [Frankenmuth] and held with resulting satisfy any Keeleys holdings all Judgment.” offering responded for to settle

Frankenmuth rejected if the offer was $20,000 indicated that and regard- declaratory judgment action file a would rejected. dispute. ing coverage offer was Keeley on A action was commenced tort offered to settle 22, 1978.6Frankenmuth December January 1979, was 18, that offer $25,000 but for on provided rejected.7 for a defense Frankenmuth rights. reservation of under a 8, on June an action commenced against Keeley declaratory judgment filed a counterclaim The defendants and Boone. against to set- failure Frankenmuth for bad-faith tle. separate tort claims: the thus three

There were declaratory judgment against Keeley, the action against Keeley Boone, and the bad-faith action against Frankenmuth. claim declaratory action to be tried was The first Following July a bench trial action. finding judge 6, 1981, entered an order coverage. judge that he was there was satisfied that said pointed

Keeley intentionally trigger, pulled shotgun but at Boone "failed to bear the burden Frankenmuth had Negligent parental Keeley was also named as a defendant. Mrs. supervision was dismissed before trial. was claimed. That claim lawyer rejecting the offer indicated that Boone’s The letter $25,000: impression policy limits were under the that the would, they my they have withdrawn As clients indicated Keeleys’ policy limits of

their offer to settle the case within $25,000. Keeley 549 Frankenmuth by Levin, J. result,” and showing that he intended the proof of coverage. found that there was fees8 request attorney denied a for judge The fact disputed "questions there were of stating that could differ.” upon which reasonable minds 2, 1981, Frankenmuth offered the July On $50,000, rejected. limits of but this offer on judgment Sep- Frankenmuth filed an offer of 2, 1981, $50,000 plus for all taxable inter- tember date, Franken- rejected. est and costs to which was Boone accepted Keeley, muth behalf of but October, offer, mediation valua- rejected $50,000. tion of mid-1982, nine

The tort action came to trial months after Frankenmuth had filed offer jury The found that Boone had suffered judgment. $500,000, damages fifty percent but that he was A comparatively negligent. judgment was entered $250,000 against in- plus prejudgment terest to the date of the verdict in the amount of $84,890. $66,978 partial Frankenmuth tendered limits of payment —the $50,000 $16,978. and interest of verdict, After the tort action had been tried to agreement and into an Keeleys Boone entered concerning against claim Frank- Keeley’s bad-faith representing Keeley enmuth. The lawyer appeal instant was substituted as counsel for both Boone Keeley. agreed any and Boone forbear action to collect on the he had obtained agreed to Boone sums Keeley. Keeley pay recovered on the claim. Boone was authorized to accept or settlement offer made reject any appor- settlement would be tioned ninety-five percent per- to Boone five cent to the Keeleys. 1963, request was based on GCR 111.6. Mich Opinion by Dissenting Levin, J. trying claim, the court en bad-faith

Before granting 1985, 20, Frank June tered an order on respect summary judgment motion for enmuth’s Keeleys ing claimed all items Keeley. except attorney Mrs. fees incurred ruling in Stock this Court’s decisions was based on Mutual Life Ins Massachusetts dale and Kewin v (1980). The court 409 Mich 292 NW2d 1985, that there was found on December question minds could fact which reasonable Keeley concerning attorney fees Mrs. differ "alleged as a result of bad claimed were incurred handling part faith” the of Frankenmuth Boone’s claim. judge hearing 6, 1985, the

At a on December handling the case found that Frankenmuth’s Keeley’s inadequately protected Mrs. interest had faith, that she had in bad with the result and was legal expenses not have incurred that she would judgment in the The offer of otherwise incurred. plus $50,000 was, interest said the amount of added.) (Emphasis judge, A "too late to save costs.” plus judgment $4,152 interest was entered respect attorney by Mrs. Kee- to the fees incurred ley.9_ hearing judge stated at conclusion of the on December the

1985: improper lawyer] absolutely I as find for [Frankenmuth’s talking giving

late about advice to the insurance as 4/23/80 attorney, company, acting company the almost as insurance get That’s where we into when he owed a the factor that insured. fiduciary talk that relation- courts about of ship company the insured. between insurance throughout quite apparent It’s this that Court keeping company lawyer] were not that and [the quite lawyer] relationship separate. apparent was It’s [the serving two masters in essence. Keeley Levin, question appears that there is a substantial It judge found, find, there or would whether relationship the bad-faith between was a causal handling of the claim he found in the conduct that and the loss entry Keeley resulting from the claimed $250,000. in the amount of of the $4,152 Frankenmuth asserts that damage actually only flowed for "the which was by that Court. It faith conduct found from the bad attorney’s failure to found that Frankenmuth’s properly his role had caused Franken- delineate But was faith in this failure to delineate the there bad relationship Company Court is satisfied that that as much as lawyer] Insurance had to Frankenmuth [the And, representing Keeley. once he was Wilma anything is bad faith. And, primary others. that’s the basis. The Court has mentioned company does tend to feel that the insurance was Court that, acting good negotiations. again, But not an issue that is insurance faith its very always part close. There is on the of an so, try company, rightly a need to to avoid part paying the anymore necessary. out than That’s whole [sic] game pays of lawsuits and who out what. say example. they So I that is an But the Court thinks waited really too little too late. Even—the first time finds that the insurance frankly the Court company finally through did come they accepted after mediation and the mediation apparent award. But in between times it was to the Court that really part there was insurance a lack of effort on the real company to settle this matter and to avoid the fees

which in fact Mrs. did incur. issue, primary But the the one that bothers the Court the basically most and the one that the Court faith, lawyer] feels shows the bad relationship is that failure to delineate the between [the attorney as to whether he was for the insurance And, company attorney Keeley. or was the for whether he Mrs. that, giving to him to that failure the delineate and for to be advice company company investigator, it for the to use his most of trying avoiding liability really aimed at to find a basis for on And, policy opinion in the the that liable for the the Court’s is the bad faith. that’s primary upon finding which Court does make the basis the already company it has indicated: that the insurance attorney Keeley by fees incurred Mrs. as a matter contract, contract, by yet that should have been covered and put expense protect she was her otherwise. to that because of that failure to noted, counter-plaintiff may judgment So have a as the Court $4,152. 525 Levin, ex- insured, Keeley, muth’s to incur Wilma Jean in the of a second securing representation pense damage That was the attorney.10 expense defense breach, particular the caused However, was not judgment awarded. excess to, flow naturally and did not causally related from, of the insurance con- particular breach tract in this case.” involved not raise

Keeley that Frankenmuth did asserts Appeals.11 On those contentions the Court did, appeal Appeals, the Court however, did not establish argue that evidence reach Appeals faith.12 Court of did not bad question. faith It is whether found bad judge unclear failing limits the declara- policy to offer before against Frank- action was decided tory attor- judge’s findings enmuth. The on earlier might have suggests fees that he ney issue13 offer limits failing bad faith to found might offered. The have judge were they before at thought had need to decide that he no 1985, 6, the failure hearing December whether importance limits earlier was of offer 20, 1985, decided, he on June already because had and Kewin recovery Stockdale precluded any awarded ultimately than that he other the amount attorney incurred unnecessarily fees._ attorney” lawyer who was was the same The "second defense proceedings. represent in criminal her son retained Mrs. however, Appeals, stated: in the Court of Frankenmuth’s brief on the found a bad faith It is whether trial court unclear defend, duty

part its settle. of fmic in its assert there file a Frankenmuth was not See cross was no that the n 8 appeal bad faith. accompanying February It required appears, text. trial court 1986. to file a cross however, should be affirmed because that Frankenmuth appeal in order to did 553 Dissenting Opinion Levin, J. judge

We would remand the cause to the trial for a determination of whether there was bad faith offer failing judge limits before judgment rendered his decision the declaratory action.14

II agree We with the majority prepay- rule, requiring ment an insured to have made some on the is unsound and payment judgment, judgment general rule is the better approach.15 An required insured should be 14 opinion negate The letter adverted to in the lead does not apparent opinion legitimacy coverage question. of the The letter indicates an adjustor. of an That did not constitute an admission coverage Frankenmuth that there was no issue. 15 cases, following adopted In the failure-to-settle the courts rule, judgment but there is no indication whether the insured was Co, (CA Noshey 6, v American Automobile Ins solvent. 68 F2d 808 Co, 1934); (ED Mich, Jones v Nat’l Emblem Ins Supp 436 F 1119 York, 1977); Hernandez v Great American Ins Co of New 464 SW2d (Tex, 1971); Thompson York, v Commercial Union Ins Co of New 91 (Fla, 1971); Conrady, 485; 250 So 2d 259 Bennett v 180 Kan 305 P2d (1957); (CA 10, Kelly, Foundation Reserve Ins Co v 823 388 F2d 528 Mitchell, 1968); Casualty Southern Farm Bureau Ins Co v 312 F2d (CA 8, 1963); Shapiro Co, (Pa, 1968); v Allstate Ins 485 44 FRD 429 Co, (ED Smith v State Farm Mutual Automobile Ins Supp 278 F 405 Tenn, 1968); Co, Casualty Surety Terrell v Western & 427 SW2d 825 Fidelity Evans, (Ky, 1968); 789; Guaranty United States & Co v 223 Ga Co, Family (1967); Luke v American 243 Mutual Ins SE2d (CA 1972). 476 F2d 1015 Because the issue which divides us is how applied rule should be where the insured is not able to pay judgment, foregoing point. the amount of the cases are not in cases, following adopted In the failure-to-settle where the courts rule, solvency there is some discussion of the of the insured pay part or whether the insured had or would be able to all or Davis, judgment. (Fla Casualty American Fire & Co v 146 So 2d 615 Co, App, 1962); Casualty Carter v Pioneer Mutual 146; St 2d Ohio (1981); Purdy Co, v Pacific App 423 NE2d 188 3d Automobile 157 Cal 59; Rptr (1984); 203 Cal Dumas v State Farm Mutual Automo Co, 43; (1971); Lange Fidelity bile Ins 111 NH & 274 A2d 781 NY, Casualty 61; Co of (1971); Sweeten v Brown v v Henke v 290 Minn 185 NW2d 881 DC, Nat’l Mutual Ins Co of 52; (1963); 233 Md 194 A2d 817 Co, 679; (1957); Gray Guarantee Ins App 155 Cal 2d 319 P2d 69 Co, 500; (1966); Nationwide Mutual Ins Pa A2d 8 Casualty Iowa Home Mutual (1959); 250 Iowa 97 NW2d 168 433 Mich 525 Levin, J. in pay judgment a money or borrow sell assets for the insurer against an action order maintain claim within failing faith in settle a bad limits. does approach rule

Adoption judgment of the however, sense of the not, justify eliminating the not that the should be rule insurer prepayment is than the insured able to pay more required Judge Chief agree with judgment. on the We pay Appeals who said: of the New York Court of Fuld a number suggest although I there are do not — pay holding insured must so of decisions the —that behalf, he, his judgment or another on before proceed against able to a bad faith insurer. is However, showing has must that he there be some us, damaged. the there not In case before is been evidence, intimation, the slightest even that the or had judgment, he insured was harmed his imperiled or that either any assets which were impaired. reputation credit was short, complaint in this case should be In only there is no evidence dismissed because in faith also be that cause there the insurer acted bad but proof is the insured suffered no Co, damage. Mutual any v Nationwide Ins [Gordon (1972). 427, 441; Emphasis 30 NY2d 285 NE2d 849 added.][16]_ Co, 85; Mass 449 v American Mutual Ins 389 NE2d 1189 DiMarzo (La, Co, 1966); (1983); Ins 182 2d 146 Wooten v Central Mutual So (ED Co, SC, Chitty 1965); Ins FRD v Farm Mutual Automobile 38 37 State (D Co, SC, 1967); Supp Surety F 814 v Central Ins Andrews 612; Exchange (1977); Schropp, v 222 Kan 567 P2d 1359

Farmers Ins (CA Co, 4, 1961); Ins 286 F2d 295 Anderson Lee v Nationwide Mutual (CA 7, Co, Mercury Indemnity 1965); v Paul 340 F2d 406 Southern St Norris, 657; (1952); Casualty App Co v 35 Tenn 250 SW2d 785 Fire & Harris (SD Co, NY, 1961); Supp v & Ins F Standard Accident 187; Exchange, 22 Utah 2d 450 P2d 469 299 F2d 525 Ammerman v Farmers Ins (1969); Ins Smoot v State Farm Mutual Automobile (CA 1962). solveney-of-the is Because there some discussion most, however, cases, point. question they In these are insured there is little in discussion, discussion, inadequate analysis, and no or no them, part any iii as those adverted to in of alternatives such opinion. this America, 2d Levantino v Ins of North Misc See also Co Opinion Dissenting Levin, J. following expressed Judge view: Keeton has will the insured almost certain seems When judgment excess all on the pay anything at never if the claim denied, argu- the insurer damaged has been the insured ments that support weak are rather increase debts all, a measure of much less for action at cause of damages of the increase equal to the amount However, have other courts the insured’s debts. against a entry concluded the insured’s a loss and person constitutes has turn on whether "loss does not Since, discharge absent been satisfied.” proceeding, through bankruptcy obligation as an outstand- can remain party’s judgment third time, in periods of ing obligation for extended many circumstances uncer- there is considerable the insured regard predicting in to whether tainty may that resources or assets may ultimately have judgment. of the satisfy portion be taken to some to position not in a party Third claimants are of the harmed as a result they were assert insurer’s having regard to not settled conduct in ascertaining (1979), in court declared that 422 NYS2d 995 damages where the part judgment pays or is solvent at when the insured applies judgment, judgment and he is entitled the rule the time the damages; where he was of the excess as his to the full amount discharge bankruptcy judgment a in before the and obtained insolvent recover; thereafter, may damaged insolvent not and where he was he is not prior judgment, jury nearly must con- to the insolvent or sider his damages. past, prospects, and assess his his and other economic factors Anderson, Similarly supra, Court n where the United States see Appeals an insured was Circuit held that because of solvent amount of the for the Seventh entered, judgment full he could recover the before policy from an insurer in excess of limits Casualty Gregersen also v Aetna who in bad faith failed to settle. See 1964). (SD NY, Co, Surety Supp 204 & 241 F refusing in faith in hold that an insurer did not act bad Other cases the insured was insolvent. Since when the insurer knew that to settle harm, the was no reason to allow would suffer no there the insured insured or an limit from the insurer. assignee recover in excess of the of the insured to Co, Employees Bourget See v Government (CA App 2, 1972); Shapero 14 Cal 3d v Allstate Ins 456 F2d 282 433; (1971). Rptr 92 Cal Levin, the was to insurer’s tort claim. the insured, Furthermore, in one not to the claimant. sense, the party a from insurer’s third benefits because the insurer’s refusal refusal to settle obtaining judg- in the claimant’s a settle resulted in the amount the claimant had ment excess Thus, although accept offered settlement. compensa- further third tion, claimant deserves party imposing justification for lia- the theoretical insured, insurer, bility on the which is harm recovery by such claimant does warrant victims of an under- any more than innocent would to indemniñ- insured tortfeasor be entitled applicable cover- beyond cation the amount of age liability had not refused a from a insurer who Law, Widiss, settlement. & Insurance [Keeton 7.8(i)(l), pp Emphasis 899-900. added.] § majority would that Frankenmuth hold $200,000 over liable for the excess of now, interest, $600,000— with over limits — regard to whether the insured has "without capacity pay”17 thus without evidence finding pecuniary suffered loss lead that amount. The stated rationale opinion is this will "underscore our serious practices in the concern with bad-faith industry.”18 Michigan now, rule in has Until been the action to settle for bad-faith failure sounds 17Ante, p 528.

18Ante, p 539. opinion "[a]nything The lead states that less conformance also [than public’ by companies duty to the servants of the to 'as "good 'high not the of should tolerated.” observe (Ante, standard faith” be ’] 539.) adopt p opinion the rule The lead asserts that it would ability to the “eliminates hide behind financial status the insurer’s Hence, adoption the insured. of the rule is most effective its practices way insurance the to serious with bad-faith underscore our concern 539.) (Ante, p industry.” "An cannot be Also: insurer neglect flagrantly of its without allowed to interests p insured 540.) (Ante, facing consequences.” serious by Levin, J. damages seek Contract in tort.19 not and contract the same economic party aggrieved place to the contract been had have been he would position general that as established It is well performed.20 for the mental awarded will be damages rule no caused may be trauma or emotional distress of contract.21 breach by di- is not remedies” contract "system

The its perform, to promisors compulsion at rected aim redress breach. to promisees to is relief rather to perform, promisors cause is not to objective The to rely encourage promisees to rather but "expec- securing by done this is promises, damages awarding through interest”22 tation supra. n 1 v Medical Protective Union Ins Co Commercial Cf. place damages seeks the law of For breach of contract position he would have aggrieved party economic in the same performed. an award This involves had been if the contract had by gains prevented the defen the "losses caused of both dant’s Perillo, breach, savings possible.” & made [Calamari in excess of (3d ed), 14-4, Emphasis p 591. added.] § Contracts predic- keep means a at common law a contract it, keep pay damages you you if do not tion that must —and law, [Holmes, path LR nothing 10 Harv else. (1897).] rule, that, damages general no will as a It is well established trauma that distress or emotional awarded for the mental be may by some courts have of contract. While be caused breach damages are because such that this result is reached concluded contemplation of the to have been within too remote forged apparent "a rule parties, of Perillo, courts have it seems policy defining & risk.” [Calamari the limits business (3d ed), 14-5, p Contracts § 596.] 350-53, party injured Subject to limitations stated §§ expectation as right interest based on his has a measured (a) perfor- party’s him of the other the loss in the value to plus deficiency, by its failure or mance caused loss, (b) loss, consequential including any incidental or other breach, caused less having (c) or other loss that he has avoided cost perform. 433 Mich by Levin, J. promisee.23 suffered loss the economic Supreme opinion, in the lead As stated pre- Hampshire that reasoned Court of New longer payment fair be considered rule could no ordinarily damages based on the are . . . Contract Comment: give party’s expectation are intended to injured interest and awarding money bargain by him a sum of him the benefit of his that as he Restatement good position will, possible, put a him as to the extent performed. [3 the contract been would have been had Contracts, 2d, 347, p Emphasis 112. added.] § 23See n 20. part, rejects, system the most remedies of contract [O]ur impose goal. promisor compulsion criminal a It does not of the as promise, perform penalties his one who refuses on damages. pay punitive generally require Our him to it nor does system compulsion of not at remedies is directed contract aimed, instead, breach; promisors prevent at relief to it is to to redress breach. preoccupation

promisees is not with the Its promises? keep question: Its concern is encouraged promisors their be made to how can people question: how can be with a different promises? . . . deal those who make with rely promises? encourage promisees to on How do courts expectation by protecting Ordinarily they injured party put contract been do so attempting he made the contract had when good position he would have been had him in as a as is, performed, there been no breach. had expectation way called the in this is The interest measured give injured party the "benefit of the interest and is said injured expectation bargain.” not on the interest is based contract, party’s hopes but on the at the time he made the to him would have had had actual value that the contract been 12.1, Contracts, pp performed. [Farnsworth, 812-813. § Emphasis added.] principle of those party’s expectation. for the measurement basic injured compensation based on the that of put that in had the contract been him in as to recover an amount will He is entitled good position would have been as he principle, party’s expectation performed. is mea- At least performance contract sured the actual worth him, might have had the worth that it would have had to to some person. Damages hypothetical based reasonable expectation peculiar needs and take account of circumstances should therefore party, including injured his own to the situation of the values, personal opportunities, and even his his 12.8, Emphasis [Id., p idiosyncracies. . . . 839. § added.] Levin, Opinion by Dissenting as to an insurer "it serves a windfall because just insolvent,” to have insured enough fortunate has not been an insured concept judg- the excess pay he cannot damaged because credit damaged fallacy on the ment is based State Dumas v not injuries. ruin are financial and Co, Automobile Ins 45; Farm Mutual 111 NH (1971). 781 274 A2d are, agree, ruin we

Damaged and financial credit could compensable. If Keeley and economic loss or damaged been his credit had demonstrate ruin, no then he should financial he had suffered by loss caused for such economic doubt recover on this appear of It does not contract. breach however, has been record, credit Keeley’s $600,000. to extent over damaged a so- not be concern about There should damages to an insurer. Contract windfall called prom- the loss measured generally are isee, person.24 other gain not the to some loss of other Michigan, in contrast with a number

In tort) (and are states, also in contract damages states, and In other mental distress compensatory. legal In are those damages recoverable.25 punitive climates, and about windfalls insurers concerns led courts to practices have industry

24 expressed general damages therefore be measure can (loss effects, in value and four two of which in terms these are adverse loss) party injured to the and therefore other increase avoided) (cost damages, two and loss his and of which avoided his dam to him and therefore decrease are beneficial Contracts, 12.9, pp Emphasis ages. [Farnsworth, 847-848. § original.] (CA 25 Co, Royal Indemnity 604 F2d 1208 Bros Inc v See Larraburu (Mont, 1984); Co, 9, 1979); 682 P2d 725 Fire Ins Gibson v Western (ND Cal, Co, Supp F 1271 Co v Ford Motor 599 Union Ins Commercial Co, 1984); F Glens Ins 350 Automobile Ass’n v Falls United Services Co, (D Conn, 1972); Murphy 3d Supp 17 Cal v Allstate (1976); Campbell Rptr 424; v Government 553 P2d 584 132 Cal 1975). (Fla, Co, Employees Ins So 2d 525 433 Mich 525 Opinion by Dissenting Levin, J. the measure of dam ignore the difference between action, and in a contract action and a tort ages punitive for mental distress and recovery to allow damages for bad-faith failure settle.26 lead opin- stated Although expressly ion, $600,000 is awarded recovery the over since loss, proof without incurred economic departed this Court will for the first time have confining damages for principle from the of contract an insurer to the economic breach promisee. loss suffered v Massachusetts Mutual Life Ins Kewin In (1980), 401, 421; this Court NW2d recognize declined action bad-faith indemnity breach of an insurance contract allegation proof ruled that "absent of tortious breach, . . . existing independent conduct not be awarded in com- exemplary may brought mon-law actions for breach of a commer- cial contract.” Dozorc,

In Friedman v 1; 412 Mich 312 NW2d (1981), Court tort expand this declined to the remedy prosecution by eliminating of malicious special requirement in a injury countersuit against commenced had by physicians lawyers who a previously unsuccessfully brought malpractice against action them. Roberts v Auto-Owners Ins

In (1985), 374 NW2d 905 this Court reversed a judg- $2,500 ment for mental damages distress of outrageous processing, stating awarded for claims requirements proof threshold to make prima out a facie case of intentional infliction of 26 Id. Credit, Inc, 256, 261; In Valentine v General American 420 Mich (1984), 362 NW2d 628 ages this Court declared that mental distress dam- employment were not recoverable in an action for breach of contract, although the denial of such would "leave the

plaintiff recovery with less than full . . . Levin, J. established, had not been stress emotional tort whether question to address declined distress would of emotional infliction of intentional processing claims in the insurance recognized be other contexts. or Protec- v Medical Ins Co Union Commercial

In (1986), Co, 426 Mich 109, 126; 393 NW2d tive not owe insurer did primary that a held this Court good faith to act excess insurer a to an duty the insured and against a claim settle pri- of action insurer’s cause excess of the subrogee equitable as an insurer mary join declined holding, majority In so insured. indicated opinion, lead which 5 of the footnote good faith and a direct might there be an ex- insurer toward primary "from a due care to an and, possibly analysis, on that cess insurer” — holding, In so such as Boone. person injured convincing was "no there stated majority consid- reasoning and no or legal precedent to deter- majority] would lead erations which [the tort of traditional expansion mine that such circumstances.” these appropriate doctrine is Co, 139 Mich Michigan Mutual Young In (1984), the Court of 600, 606; 362 NW2d App Practices Trade the Uniform Appeals ruled that in- claims Act, timely payment requiring to be certain activities designating sureds acts or deceptive unfair or competition unfair action cause of private provide did practices, act, provisions in tort for violation and said: private cause of that a also claimed Plaintiff 500.2026; 24.12026. MSA implied MCL action Supreme Michigan by rejected

This claim was General, Attorney in Shavers v Court (1978), sub 604, 27; cert den 267 NW2d n 433 Mich Levin, J. 934; 99 S Ct Kelley, 442 US nom Allstate (1979). Michigan Supreme L Ed 2d 303 do not consti- incidents isolated Court noted 500.2026; MCL practices under trade tute unfair 500.2027; 24.12027. 24.12026, MSA MCL independent MSA in a action cause of no There can be cli- an insurance client since insurance particular are of company dealings with an ent’s 500.2026; MSA incident. MCL necessity an isolated give the Commissioner designed to 24.12026 is continuing prac- authority certain over Insurance 500.2028 et companies. See MCL tices of insurance not seq. insured does et seq.; MSA 24.12028 MCL action under independent cause of have an 500.2026; 24.12026. MSA view, counsel for majority adoption of Upon longer Michigan no argue could plaintiffs claiming bad-faith settlement plaintiffs restricts and has loss pecuniary practices recovery of action sound- kind of cause recognized hybrid allowing contract, recovery actually but ing damages. punitive losses akin to as it rule insofar accept We would that Keeley need to establish dispenses with the would, as amount on the paid any to the trial court Appeals, Court of remand did the Keeley’s of the extent of assets for a determination and, legal process27 additionally, from exempt injured person’s recovery Judge suggested that be Keeton equal net assets which are not to “an amount to the insured’s limited exempt injured legal process.” not so limit the from While we would analysis: recovery, agree person’s his we otherwise with (4) Liability Extent of a Solvent Insured’s to the Comment: Net Assets (1) possible a workable doctrine It be to formulate should (2) loss, fully protects not result insured from that does Dissenting Opinion by Levin, J. (3) eliminating insurer, "penalty” in not on the does produce party for the third claimant. One of "windfall” developed proba-

the reasons that such a solution has not been bly vance the more extreme opposing generally is that advocates have chosen to ad- positions, rather than intermediate positions that would involve a more limited measure of dam- ages liability. theory that would conform to such a doctrine or hand, party one the third claim- On the counsel for pressing in- the insured’s cause of action either ants — assignee sured’s name or in the name of the claimant as successor to the insured’s ity insured’s financial status. On the other ers have amount ity) action. right sought to establish liabil- —have judgment, regardless to the full extent of the excess of the hand, counsel for insur- generally attempted proof to establish that (or of the paid certainty probabil- or of the at least reasonable payment of an amount of future to the cause of is essential appropriate damages, measure of when an insured is recovery applicable liability entitled to a insurance that is in of the excess limits, should be the amount needed to make by placing position the insured whole that would have existed had there been no to settle. taking the insured in the same of the breach Furthermore, this sum should be established after amount, any, party into if the third account upon rights against claimant could have realized the insured if liability there had been no cause of action for policy in excess of is, taking limits—that after into account how much could against have been recovered above the insurance limits assets, enough an insured who had some but not that the third party could more than recover could have been recovered against might by permitting single at the the insured. This be done claim, against recovery instance of either amount from liability the insurer on the excess claimant, party in an insured or the third equal exempt to the insured’s net assets which are not legal process, holding judg- that the claimant’s tort discharged fully by payment ment sum to the claimant either of this insured by the insured or the insurer on Although the insured’s behalf. in some instances this amount may recovery be somewhat more than the net the claimant (apart liability would otherwise have realized from the excess claim) approach certainly closely approximates this more provides recovery cial protection and it full the insured’s finan- position consequences wrong from the of the insurer’s failing the insured to settle. The financial interests of insured and the third both the party the proposed are claimant better served the solution preceding paragraph by leaving legal than them to other processes, proceeding, bankruptcy such as a the cost of which impact would have an adverse on the interests of each. This proposal may fully scope within the avoidable conse- not be quences this developed, applying rules as thus far because decisions concept mitigating damages have been with in a concerned 433 Levin, excess value of the of the determination for a $600,000 in- over portion —now interest as plus additional interest cluding accrued only Keeley’s not taking into account it accrues — his process but also legal from exempt assets principle However, scope is within different sense. principle consequences the underlying rule: the avoidable though person in fact losses have been can show that a even greater, person legal would have to what that relief is limited taken to actions had been to receive if reasonable been entitled minimize the harm. already re- though has been tort claim a claimant’s Even exemption underlying spirit judgment, and of the duced expresses public policy bankruptcy that there should be a laws hardship permit- the claimant is limitation on the a reasonable ted to context, judgment. impose by In this of the strict enforcement against availability the insurer a cause of action the of opportunity— policy limits offers a distinctive in excess of its not creditors—for for the claimant the incurring involving judgment existing settings generally in other achieving could be attained at least as much as judgment through the as far as enforcement of permit, exemption bankruptcy but without laws would and bankruptcy to the claimant himself the costs of principles underly- It seems consistent with to the insured. ing rules, doctrine, exemption consequences both the avoidable laws, generally, adopt bankruptcy specifically, and the damages liability claims. of in excess intermediate measure this damages may present application of this measure of The faced, they proof be problems manageable. but should of not heretofore right example, the insurer should have the For can, shouldering satisfactory if it evidence on these issues offer the burden as one advancing customarily an avoidable does consequences defense. approach requires implementation the in- this necessity privacy for a because of the sured suffer a loss complete however, is, financial situation. This disclosure of the insured’s consequence the insured has contributed a to which committing by a tort the claimant that caused liability severity that the limited amount of such coverage, privacy able and insured, inadequate. by was The loss of chosen a that it seems both reason- in this context is burden justifiable for the insured to bear. only an intermediate solu- realistic alternative to such damages in cases at the full measure of these tion is to set the amount the insured and of low-limit Law, 7.8(i)(4), disadvantage judgment, that would a solution increasing by the costs others like the insured Widiss, liability & Insurance insurance. [Keeton Emphasis pp 903-905. added.] § Frankenmuth Levin, in the future additional prospects attaining could be col- judgment assets from which lected.28 between the propose compromise

We thus rule: prepayment judgment this accept the essence of the rule judgment Court eliminating partial payment, the need to show but the lines of provide protection along for insurers precluding rule collection on prepayment from the insurer what is or beyond actually would be collectable from the insured.

IV prepared to settle Keeley’s claim for limits nine months before trial and offered to have a entered for that plus amount interest. That offer was declined hope greater be judgment would awarded, and that a sympathetic judge or jury would find bad faith in failure to Frankenmuth’s offer limits resolution of the question before whether Frankenmuth was subject any liability. should, determining Keeley’s prospects attaining The court of assets, in the future additional consider his educational achievement education, skills, plans present prospective, for and future his and job opportunities might and the be available to him. prefer entry judgment declaring I would to direct of a Frank- liable) (not $600,000 subject liability enmuth is excess to to that it is for the accrues, plus require interest as it but would not Frankenmuth pay any respect amount in to that until unless and and only then to the extent Boone can establish that is collectable. assets, income, inheritance, Keeley acquires greater As and when whatever, requiring Boone could seek a declaration Frankenmuth to pay equivalent judgment against an amount thereto. The Franken- judgment against Keeley, muth would substitute for the so that Keeley’s longer adversely credit would no be affected. The burden Boone, imposed injured person, greater thus in on would be no than any inadequate only case where there is insurance —he could garnishable recover to the extent he could find attachable or assets. actually Boone would be off he better because need not attach or garnish, judicial proceedings. and there should a minimum be of Such subject should not be to of There statute limitations. possibility bankruptcy discharge Keeley’s would be no of of debt. Mich 525 by Opinion Dissenting Levin, J. Appeals argued of in the Court

Frankenmuth The faith. establish bad did not that the evidence agreed Appeals on Frankenmuth with Court of grounds The issue. not reach and did other majority not reach that issue.

did Appeals it and of the Court When we reverse in that raised alternative issues failed to reach invariably appellee Court, we in this Court Appeals it can so that to the Court remand consider litigant by the issues advanced the alternative Appeals prevailed but Court of who except where we in those cases in this Court lost address the alternative issues.29 majority for such a direction should add issue(s) Appeals consider to to the Court remand raised by that Court. not addressed but op- have the remand, would On inadequate argue portunity evi- there is to support, clear been it would have to dence error advanced hypothesis for reversal find, the factual majority "fla- that Frankenmuth grantly neglect[ed]” interest of its insured failing guilty faith”30 of "deliberate bad limits before did. offer justices separate opinion, com- one of the In a appears prising majority distance herself stating: result, from the somewhat opinion majority as Justice Archer’s I read proper question addressing only mea- occasion, and when has been overlooked for remand the need On rehearing petition we to our attention has called this have been invariably granted that relief. properly in the raised question issues were whether alternative Appeals to decide since we Appeals be for the Court Court of would appeal grant those issues. leave to declined 30 Ante, p 541. Keeley Ins v Levin, J. of bad- once a claim damages recoverable sure The established. has been failure to settle faith it, not, pass upon the as I understand opinion does propriety of the finding in this case of trial court’s propriety part, nor on faith on defendant’s

bad finding. of that Appeals affirmance the Court of of Its failure limited of our necessary result so is the to do case, which directed in this grant order question whether only the parties to address properly Appeals Court of and the trial court damages avail- amount of as the nature and limited able to Charles case. 430 counterplaintiff in this (1988). Mich 857 Thus, opinion should not be seen my view or standard bad establishing a new definition as faith in such ing matter, cases, nor, apply- as for faith. standard of bad existing definition or Liberty See, Ins Co e.g., Commercial Union Co, 127; 393 NW2d Mutual Indemnity (1986); v Globe City of Wakefield (1929). question The 645; 225 246 Mich NW under these properly shown faith was whether bad this Court. simply not before circumstances [Ante, pp 544-545.] our con- underscores foregoing statement error have been clear may there cern inade- find, faith or did bad finding, if the judge finding or for such a support quate evidentiary $600,000 against exceeding of a entry Frankenmuth. court did make "that the trial stating

In case,”31 concurring in this finding of bad faith ac- the issue which she respecting opines justice this Court.”32 simply "is not before knowledges ordered the remand further statement Ap- the Court implied Appeals Court of "ar- Frankenmuth’s rejected considered and peals had not been that bad faith gument appeal 31 Ante, p n 1. 32 Ante, p 545. 433 Mich Dissenting Opinion Levin, J. assumes that the Court of Appeals

established”33 although opinion considered this issue of the Appeals indicating Court of contains a word nary that it did in fact consider issue. Absent opinion statement or even allusion in the of the Appeals indicating Court of that it did consider issue, appears that the Court of Appeals failed focus on the need to consider this issue. conclusion, The implication, the basis of the Court of Appeals rejected, considered and al- word, beit without of the evi- sufficiency fact-finding dence/clear error in suggests issues at least its treatment of these issues was cur- basis, also, sory.34 On that should majority issues, remand for plenary consideration of these in especially light regarding of the reservation sufficiency the evidence/clear error fact- finding suggested issues in the quoted para- two graphs concurring opinion. of the

Brickley JJ., Griffin, concurred with Levin, J.

APPENDIX The following unpublished is the text of the 33Ante, 545, p n 1. dispositive language unpublished opinion The in the of the Court Appeals indulge is the best evidence that this Court should not "presumption” Appeals the Court of "resolved for itself the 1.) (Ante, 545, question p properly faith n whether bad shown.” opinion Appeals text of so much of the of the Court of as The discusses the issues dealt with in that appendix. opinion is attached as an opinion Appeals, majority of the Court of and the failure of the procedure invariably to follow the this Court follows when there are clearly Appeals, alternative issues not addressed the Court of "undeniably challenge that Frankenmuth lost” its to "the indicates merits of Court of not reach and "we did not issue. Id. 2), (ante, plaintiff’s p n bad-faith claim” Court, Appeals, although Appeals did but in this the Court of concerning grant appeal” leave Levin, Appeals case, opinion instant the Court of opinion except the facts as states much of the so preceding proceedings history reference claim: on the bad-faith decision the trial court’s Kelly Weaver, P.J., R. and J. M. J. E. A. Before: Kirwan, JJ.* Per Curiam. granted part Frankenmuth’s trial court the counter- summary disposition on

motion However, that Frank- the trial court found claims. handling of in its guilty of bad faith was enmuth claim, in the amount of awarded and interest, $4,152 Keeley’s claim for on Wilma plus dismissal Appellants appeal now attorney fees. the counterclaim. trial appeal is that Appellants’ first issue on Stockdale v applying the rule of erred court (1982), in Jamison, 217; 330 416 Mich NW2d Supreme measuring damages. In Stockdale the principles held that an applied contract Court damages limited to the liability is insurer’s as a result of the breach by the insured suffered and, perform party who fails to its like other obligations, an insurer who breaches contractual duty defend liable for all foresee- its able However, becomes flowing 224. damages from the breach. Id. at liability "[Ojrdinarily an insurer’s duty to defend its insured breach of its contractual equal to the insured’s limited to an amount is legal at 228. exempt process.” not from Id. assets sought dam- In counterclaim Charles his (based of Franken- ages on the bad-faith conduct settle), failing to the extent muth him, despite the fact entered interrogatories Charles Kee- in his answer to his total assets were less than ley admitted that $5,000. argues that Stockdale was a appeal he On apply duty case and therefore does to defend Appeals by assignment. judge, sitting the Court of * Circuit 433 Mich Levin, Opinion Dissenting Furthermore, failure to settle claim. to a bad-faith contention that Stockdale appellants’ it than a tort action based on contract action rather faith, situation, present making applica- bad tion of Stockdale’s damage inappropri- limitation ate. Michigan Appellants cite Sederholm v Mutual (1985), App 372; 370 142 Mich NW2d (1985), and concede that it lv den situation, presents analogous but contend that weight Sederholm give did not sufficient to the fact that Stockdale involved a breach of contract case upon

rather conduct of the insurer. We decline to than a tort action based the bad-faith accept appel- argument. lants’ Sederholm, involved a situation similar to which the Stockdale mea- here, presented extended where, here, damages to like sure of insurer situations failing acted in bad faith to settle.

Relying on footnote 15 in Stockdale the Sederholm Court stated: language upon

"Based the clear of footnote apparent majority approved is accepted to us that Keeton’s recommendation Professor settle, damages in actions for breach of question remaining only and the rule should be extended to 'failure was whether

to defend’ Accordingly, situations. we hold that the trial the Stockdale refusing apply court erred measure of plaint.” plaintiffs’ ii to count com- Sederholm, supra at 398. Stockdale, damages In the measure of where duty of its to defend an insurer’s breach limited to the insured’s assets not legal process, exempt from Supreme relied on Court following rationale: suggested that this "Professor Keeton has damages appropriate measure of for an insurer’s duty of its to settle. Keeton breach [Insurance 7.8(f), Law, 7.8(b), 510], p p 516. As Professor § § out, approach points this has the advan- Keeton tage eliminating parties the need for the to both (and plaintiff) consequently, to suffer insured Frankenmuth Levin, bankruptcy proceeding the costs of a establish in order to [Stockdale, the actual amount of loss.” supra at n 15.] The Sederholm Court reasoned that if the Su- preme extrapolate Court can from Professor Kee- ton’s treatise a limitation on the measure of dam- ages in duty a breach of a to defend case to those assignor assets of the cess, exempt legal pro- not from proposition then the stated in Professor Kee- treatise, ton’s damages the measure of in a breach of a to settle is limited to the assets of assignor exempt legal process, not from is also appropriate. agree. We However, Stockdale, like Sederholm and May- (On Remand), nard v 445; Sauseda App Mich (1983), 343 NW2d 590 this case should be re- manded for a determination of the extent of the assets of Charles Keeley exempt legal from process, with the trial against Frankenmuth entering judgment court in an equal amount Charles Keeley’s exempt legal assets not from process. Appellants argue also the trial court erred in computing post and prejudgment Ap- interest. pellants argue that Frankenmuth should have required been pay interest on the entire tort action from the complaint time of the until limits were tendered and that since this, failed to do it should be postjudgment liable for interest until the deficien- cy is satisfied. This claim is without merit. This Court has repeatedly rejected attempts to hold an insurer liable for prejudgment judg- interest on ment amounts which exceed the liability policy Bostwick, limit. See Bent App Mich (1986); NW2d 124 Matich v Modern Research Corp, App 813; 146 Mich (1985), 381 NW2d 834 lv gtd Sederholm, (1986); Mich 871 supra; Celina Mutual America, Ins Co v Citizens Ins Co of (1984). App 655; 349 NW2d 547 Appellants argue also the trial court erred ruling for emotional and mental strain were Appellants not recoverable. contend 433 Mich 525 Levin, J. failure to settle will bad-faith that Frankenmuth’s on emotional for based support a claim strain. and mental allega- merit. is without

Appellants’ claim "[A]n contract of an insurance tion of bad-faith breach damages for mental support recovery of not does distress finding must Michigan. be a There independent of the contractual tortious conduct distress of mental justify award breach Co, Ins 155 Mich damages.” Crossley v Allstate (1986). 694, 698; App 400 NW2d attorney in the award of Error is also claimed originally Keeley. Wilma fees to Wilma $13,344.92 attorney The trial requested fees. $4,152 holding that ultimately awarded court declaratory expenses by Keeley incurred chargeable com- not action were pany. Michigan is that Since the rule in declaratory for improper attorney fees award the trial coverage, action to enforce insurance limiting its here. award court did err Co, App 140 Mich v Citizens Schiebout (1985), 427 Mich 366 NW2d 45 aff’d [398 (1986); Shepard Maryland v NW2d Marine Co, 62, 66; App 250 NW2d Casualty Casualty (1976); Poultry Egg Hawkeye & City Co (1941). 509; 298 297 Mich NW in part the trial court is affirmed The decision of proceedings consis- and the matter is remanded tent herewith.

Case Details

Case Name: Frankenmuth Mutual Insurance v. Keeley

Court Name: Michigan Supreme Court

Date Published: Oct 19, 1989

Citation: 447 N.W.2d 691

Docket Number: 81566, (Calendar No. 7)

Court Abbreviation: Mich.