**_______________________________** Michigan Supreme Court Lansing, Michigan
Chief Justice: Justices: Clifford W. Taylor Michael F. Cavanagh Elizabeth A. Weaver Marilyn Kelly 

# Opinion

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

**FILED MAY 24, 2005**

**J & J FARMER LEASING, INC., FARMER BROTHERS TRUCKING CO.,**  **INC., CALVIN ORGANE RICKARD, JR., and JAMES W. RILEY, as Personal**  **Representative of the ESTATE OF SHARYN ANN RILEY, Deceased,**  **Plaintiffs-Appellees,**

**v No.**  **125818**
**CITIZENS INSURANCE COMPANY OF AMERICA,**  **Defendant-Appellant.**

**PER CURIAM. At issue is whether a covenant not to sue a party is**  **indistinguishable from a release and, thus, results in a bar to suits against a covenantee’s tortfeasor by a**  **covenantee’s assignee. The Court of Appeals concluded that the instruments are indistinguishable and, accordingly,**  **that a covenantee’s assignee (the covenantor) would be barred in a suit against the tortfeasor. We disagree and**  **vacate that part of the judgment. The Court of Appeals correctly concluded for other reasons that the covenantor**  **was not released. Yet the Court unnecessarily relied on a misapplication of**  Frankenmuth Mut Ins Co v Keeley (On Rehearing), **436 Mich 372; 461 NW2d 666 (1990), so we vacate that portion of the Court’s analysis. This case is**  **remanded to the Washtenaw Circuit Court for further proceedings consistent with this opinion.** 
**I Sharyn Riley was killed when her vehicle was struck by**  **a truck owned by J & J Farmer Leasing, Inc. (or Farmer Brothers Trucking Company, Inc.),**  **1 operated by their**  **employee Calvin Rickard, Jr., and insured by Citizens Insurance Company. Rickard was at fault. James Riley, as**  **the personal representative of Sharyn Riley’s estate, 2**  **sued Farmer under a wrongful death theory and Citizens assumed**  **Farmer’s defense. Riley obtained a jury verdict of $3.2 million against Farmer, which exceeded the $750,000 limits**  **of the Citizens policy. Thus, Farmer, after Citizens tendered its policy limits, remained liable for the $2.45**  **million balance of the judgment.**

**1 For ease of reference, we will refer to these parties**  **jointly as “Farmer.”**

**2 For ease of reference, we will refer to Sharyn**  **Riley’s estate as “Riley.”**
2**Farmer, believing that the case could have settled for the policy limits but for Citizens’ bad faith in pursuing**  **settlement negotiations, assigned to Riley its cause of action against Citizens for bad-faith failure to settle.**  **3 As part of the agreement between Riley and Farmer, Riley**  **agreed not to sue to collect the excess judgment of $2.45 million from Farmer as long as Farmer cooperated in the**  **suit against Citizens. 4**  **After Riley and Farmer filed suit, Citizens moved for summary disposition, MCR 2.116(C)(10), arguing that under**  **the agreement Riley had released its underlying claim against Farmer for the excess judgment and, thus, Farmer’s**  **surety, Citizens, was also released. That is, because the principal was released, so was the surety. The circuit**  **court denied the motion, reasoning that the joint agreement**

**3 Michigan recognizes an insured’s claim against its**  **insurer for bad faith in refusing to settle. See** Commercial Union Ins Co v Liberty Mut Ins Co, **426 Mich 127; 393 NW2d 161 (1986);**  Wakefield v Globe Indemnity Co, **246 Mich 645; 225 NW 643 (1929).** 

**4 In particular, as relevant here, the agreement sets**  **out Farmer’s desire to pursue a bad-faith claim and Riley’s desire to recover the full judgment. It continues by**  **stating that the parties will pursue a joint lawsuit against Citizens, Riley will**  **control the lawsuit, Farmer will cooperate fully or the agreement may be rendered null**  **and void, any recovery will go to Riley (with an exception for $20,000 for attorney fees incurred by Farmer), and**  **Riley will in return “forever forbear” from collecting any judgment from Farmer.** 
3**was in the nature of a covenant not to sue and not a release because, under certain conditions, Riley could**  **proceed against Farmer to collect the underlying judgment. The Court of Appeals granted Citizens’ application for**  **leave to appeal and subsequently affirmed on a different basis than the trial court. While the Court held that the**  **trial court reached the right result because of its understanding of the intent and purpose of our decision in**  Frankenmuth Mut Ins Co v Keeley (On Rehearing), **436 Mich 372; 461 NW2d 666 (1990), the panel held that the agreement**  **itself was a release because it “operates to release” Farmer from the underlying excess judgment.**  **5 Citizens applied for leave to appeal in this Court. It**  **argued that the covenant not to sue in the agreement effectively operated as a release. Therefore, under**  Keeley, supra, **plaintiffs’ claim must fail because Farmer had not suffered any pecuniary loss as a result of**  **Citizens’ alleged bad faith in failing to settle the underlying lawsuit. We entertained oral argument on this**  **matter in lieu of granting leave to appeal under MCR**

**5** J & J Farmer Leasing, Inc v Citizens Ins Co of America, **260 Mich App 607, 621; 680 NW2d 423 (2004).**
4**7.302(G)(1) 6**  **and now resolve Citizens’ application for leave to appeal.** 
**II We review a summary disposition ruling de novo to**  **determine whether the moving party is entitled to judgment as a matter of law.**  Maiden v Rozwood, **461 Mich 109, 118; 597 NW2d 817 (1999). We view**  **the evidence in the light most favorable to the party opposing the motion.**  Id. **at 120.** 
**III There is a material difference between a covenant not**  **to sue and a release. A release immediately discharges an existing claim or right. In contrast, a covenant not to**  **sue is merely an agreement not to sue on an existing claim. It does not extinguish a clai**  **m or cause of action. The difference primarily affects third parties, rather than the**  **parties to the agreement.** Theophelis v Lansing Gen Hosp, **430 Mich 473, 492 n 14; 424 NW2d 478 (1988) (Griffin, J.);** Industrial Steel Stamping, Inc v Erie State Bank, **167 Mich App 687,693; 423 NW2d 317 (1988).**  **As the circuit court concluded, the agreement in this case is a covenant not to sue. Additionally, the covenant** 

**6 471 Mich 940 (2004).** 
5**not to sue is not absolute but, rather, is conditioned on the covenantee, Farmer, performing**  **certain duties in the litigation against Citizens. Only if Farmer performs these**  **duties does Riley’s covenant not to sue on the underlying excess judgment become absolute and release Farmer of all**  **liability to Riley. This analysis resolves this matter. No resort to**  Keeley **to reach the same conclusion was necessary.**
**IV In conclusion, the Court of Appeals incorrectly held**  **that the covenant not to sue was a release and it needlessly relied on**  Keeley **. Accordingly, the Court of Appeals opinion, insofar as it dealt with the release and**  **covenant not to sue issue, is vacated. Its analysis regarding**  Keeley **is also vacated. The circuit court correctly found that the joint agreement was a covenant not**  **to sue and, therefore, summary disposition was appropriately denied. This matter is remanded to the**  **circuit court for further proceedings. Clifford W. Taylor**  **Michael F. Cavanagh Elizabeth A. Weaver**  **Marilyn Kelly Maura D. Corrigan**  **Robert P. Young, Jr. Stephen J. Markman** 

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