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J & J Farmer Leasing5/24/2005
Chief Justice: Clifford W. Taylor Justices: Michael F. Cavanagh, Elizabeth A. Weaver, Marilyn Kelly, Maura D. Corrigan, Robert P. Young, Jr., Stephen J. Markman.
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.), 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, 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.
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.
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.
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 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.
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 7.302(G)(1) and now resolve Citizens' application for leave to appeal.
II.
We review a s
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