Case Name: FRANKENMUTH MUTUAL INSURANCE COMPANY v. KEELEY (ON REHEARING)
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1990-09-26
Citations: 436 Mich. 372
Docket Number: Docket No. 81566
Parties: FRANKENMUTH MUTUAL INSURANCE COMPANY v KEELEY (ON REHEARING)
Judges: Levin, Brickley, and Griffin, JJ., concurred with Riley, C.J.
Reporter: Michigan Reports
Volume: 436
Pages: 372–385

Head Matter:
FRANKENMUTH MUTUAL INSURANCE COMPANY v KEELEY (ON REHEARING)
Docket No. 81566.
Argued March 7, 1990
(Calendar No. 11).
Decided September 26, 1990.
Joey G. Boone brought an action in the Genesee Circuit Court against Charles Keeley and Wilma Keeley, his mother, for injuries sustained as a result of gunshot wounds inflicted by Charles, which rendered him quadriplegic. At the time of the shooting, Charles Keeley was insured by Frankenmuth Mutual Insurance Company under Wilma’s contract of insurance. On the same date, Frankenmuth sought a judgment declaring that the shooting was not covered under the policy because it was expected or intended from the standpoint of the insured. Boone and the Keeleys counterclaimed, charging that Frankenmuth had refused in bad faith to settle the claim and had fraudulently and deceitfully misrepresented the policy limit.
The court, Earl E. Borradaile, J., determined that Frankenmuth was responsible under the policy, found that both parties were equally negligent, and entered judgment for one-half the jury’s verdict. Thereafter, Boone and the Keeleys brought an action to have their counterclaims against Frankenmuth brought to trial. The court awarded Mrs. Keeley attorney fees and ruled that Frankenmuth had exhibited bad faith in failing to settle the case, but held that any damages owed to Charles Keeley with respect to Frankenmuth’s breach of its duty to settle were necessarily limited to the amount that the injured party would have been able to recover from Charles Keeley absent the insurance coverage.
The Court of Appeals, Weaver, P.J., and Michael J. Kelly and J. R. Kirwan, JJ., affirmed in an unpublished opinion per curiam, but remanded the case for a determination of the extent of Charles Keeley’s assets not exempt from legal process and for entry of judgment against Frankenmuth in that _amount (Docket No. 89615). The Supreme Court reversed and remanded the case to the trial court for a determination of damages, holding that an insurer that has exhibited bad faith in failing to settle a claim on behalf of its insured which results in a judgment in excess of policy limits is liable for the excess without regard to whether the insured has the capacity to pay. 433 Mich 525 (1989). Thereafter, the Supreme Court granted rehearing. 433 Mich 1226 (1989).
References
Am Jur 2d, Insurance §§ 1402,1405.
See the Index to Annotations under Insurance and Insurance Companies.
Subsequent to oral argument on rehearing, the case was remanded to the trial court for a determination of whether Frankenmuth’s acts of bad faith caused the excess judgment to be entered against the defendant. On remand, the court, Earl E. Borradaile, J., determined that Frankenmuth’s acts of bad faith did not result in the excess judgment entered against the defendant. The defendant appeals, and the plaintiff cross-appeals.
In an opinion by Chief Justice Riley, joined by Justices Levin, Brickley, and Griffin, the Supreme Court held:
Any acts of bad faith on the part of Frankenmuth did not cause the excess judgment against Charles Keeley. The assessment of damages for a breach of a duty to settle is limited to the assets of the assignor not exempt from legal process. The standard applies not only where an insurer fails to defend an insured, but also where, as in this case, it is alleged that the insurer, in bad faith, refused to settle.
Affirmed.
Justice Archer, joined by Justice Cavanagh, dissenting, stated that when an insurer has breached its duty to settle in good faith and the insurer’s bad-faith failure to settle results in a judgment in excess of the policy’s limit, the insurer is liable for the excess judgment regardless of the insured’s ability to pay the judgment. Because, in this case, the trial court found on remand that Frankenmuth’s acts of bad faith did not result in the excess judgment, the defendant cannot establish causation. Thus, Frankenmuth is not liable to the defendant for damages resulting from the judgment entered against him in the underlying tort action.
Contract damages typically are awarded to compensate a party for its lost expectation interest which results in economic damages. The general goal of contract damages is to place the aggrieved party in the same economic position it would have obtained had the contract been performed. In the context of this case, the insurer’s duty to settle a tort suit in good faith formed part of the party’s expectation interest, which is the contractual right to be free from a judgment in excess of the policy limits resulting from the insurer’s bad-faith failure to settle. The only way to place the insured in the same position as if the contract had been performed and to restore to the insured what was fairly bargained for by paying insurance premiums is for the insurer to be held liable for the excess judgment without regard to the insured’s ability to pay. The view that damages are to be based upon the insured’s financial status should be rejected.
In order for an insured to recover damages from an insurer for bad-faith failure to settle, the insured must establish that the insurer’s failure to settle was in bad faith, that the insurer’s bad-faith failure to settle resulted in a judgment in excess of the policy’s limits, and that the insured has been damaged. In this case, the trial court on remand determined that Frankenmuth’s acts of bad faith did not cause the excess judgment in the principal tort suit. The defendant thus could not establish causation, and Frankenmuth should not be held liable for damages resulting from the judgment entered against the defendant in the underlying tort action.
The trial court did not violate the law of the case doctrine in issuing new findings inconsistent with the original ruling of the Court of Appeals. That ruling was not the law of the case. Rather, the law of the case was the Supreme Court remand to the trial court to determine the issue of causation, superseding the ruling of the Court of Appeals.
Justice Boyle, dissenting, stated that in light of the finding of the trial court on remand that any acts of bad faith by the insurer were not the cause of the excess judgment against Charles Keeley, the original opinion of the Supreme Court in this case should be vacated as moot. The finding of the trial court additionally removes any need for further consideration of the adoption of the judgment rule set out in that opinion or the modified version in the accompanying dissent.
Insurance — Bad-Faith Refusal to Settle — Damages.
The assessment of damages for a breach by an insurer of a duty to settle is limited to the assets of its assignor not exempt from legal process; the standard applies where the insurer fails to defend an insured and where it, in bad faith, refuses to settle.
Garan, Lucow, Miller, Seward, Cooper & Becker, P.C. (by Rosalind Rochkind and Milton Lucow), for the appellee.
Dean, Dean, Segar, Hart & Shulman, P.C. (by Robert L. Segar), for the appellant.
Amici Curiae:
Willingham & Coté, P.C. (by John A. Yeager and Curtis R. Hadley), for Michigan Association of Insurance Companies.
Cheatham & Acker, P.C. (by Charles C. Cheat-ham, James G. Gross, Mary T. Nemeth, and Michael E. Hunt), for Auto Club Insurance Association, Auto Club Group Insurance Company, Michigan Physicians Mutual Liability Company, Physicians Insurance Company of Michigan, and Transamerica Insurance Group.

Opinion:
ON REHEARING
Riley, C.J.
We granted rehearing after our decision in Frankenmuth Mutual Ins Co v Keeley, 433 Mich 525, 528; 447 NW2d 691 (1989), in which we reversed the decision of the Court of Appeals and held "that when an insurer has exhibited bad faith in failing to settle a claim on behalf of its insured, and a judgment in excess of the policy limits results, the insurer is liable for the excess without regard to whether the insured has the capacity to pay." After hearing oral arguments on rehearing, this Court remanded the instant case to the trial court to determine whether Frankenmuth's acts of bad faith caused the excess judgment. On April 17, 1990, the trial court reaffirmed its conclusion that Frankenmuth acted in bad faith when it failed to discharge its attorney for representing the adverse interests of Frankenmuth and its insured, Mrs. Keeley, at the same time. On May 23, 1990, the trial judge filed written supplemental findings and affirmed its decision of April 17, 1990. The court concluded that Frankenmuth's acts of bad faith with regard to Mrs. Keeley did not import a finding of bad faith with regard to Frankenmuth's representation of Charles Keeley. Moreover, the court reaffirmed its conclusion that any acts of bad faith did not cause the excess judgment against Charles Keeley. We agree and so hold.
More importantly, this Court's decision on the causal relationship between any bad faith and the excess judgment against Charles Keeley does not address the issue which this Court originally decided and granted rehearing to consider, namely, whether this Court should reconsider the version of the excess-judgment rule adopted in our original opinion, and adopt the rule set forth in Justice Levin's dissenting opinion. While this Court could simply vacate its original opinion upon the basis of bad faith and its causal relationship to the excess-judgment issues, we prefer to resolve the excess-judgment issue at this time.
However, unlike Justice Archer, we are now convinced that the rule articulated in Justice Levin's dissent represents the better measure of an insurer's liability when the insurer exhibits bad faith that causes a judgment against its insured in the underlying tort suit which exceeds the policy limits. Therefore, we adopt Justice Levin's dissent in the instant case. Id. at 546.
Accordingly, we affirm the result of the Court of Appeals.
Levin, Brickley, and Griffin, JJ., concurred with Riley, C.J.
433 Mich 1226 (1989).
As a result, the trial court awarded $4,152 plus interest to Mrs. Keeley because she had to secure another attorney to represent her.