Klapp v. United Ins. Group Agency, Inc.

• Decision Date: 18 June 2003
• Docket Number: Docket No. 119175,Docket No. Calendar No. 1.,Docket No. 119176
• Citation: 663 N.W.2d 447,468 Mich. 459
• Parties: Craig A. KLAPP, Plaintiff-Appellant, v. UNITED INSURANCE GROUP AGENCY, INC, Defendant-Appellee.
• Court: Michigan Supreme Court

663 N.W.2d 447

468 Mich. 459

Craig A. KLAPP, Plaintiff-Appellant, v. UNITED INSURANCE GROUP AGENCY, INC, Defendant-Appellee.

Docket Nos. 119175, 119176, Calendar No. 1.

Supreme Court of Michigan.

Argued January 14, 2003.

Decided June 18, 2003.

Warner, Norcross & Judd, L.L.P. (by James Moskal), Grand Rapids, for plaintiff-appellant.

Falcone & Rolfe, P.C. (by Brian H. Rolfe), Southfield, for defendant-appellee.

MARKMAN, J.

We granted leave to appeal in this case to consider whether defendant breached the parties' written contract by refusing to pay plaintiff retirement renewal commissions on insurance policies that plaintiff sold on behalf of defendant while plaintiff was working for defendant. The trial court denied defendant's motion for summary disposition. It concluded that the contract was ambiguous and, thus, that its interpretation raised a question of fact that must be decided by the jury, which could consider relevant extrinsic evidence. The jury found in favor of plaintiff. The Court of Appeals reversed, concluding that the contract unambiguously stated that an agent must be at least sixty-five years old and have worked at least ten years for defendant in order to qualify for retirement renewal commissions and, therefore, that the trial court erred in not granting defendant's motion for summary disposition. Because we agree with the trial court that the language of this contract is ambiguous and, thus, that its interpretation raises a question of fact for the jury to determine in light of relevant extrinsic evidence, we reverse the judgment of the Court of Appeals and remand this case to the Court of Appeals for consideration of defendant's other appellate issue and plaintiff's cross-appeal.¹

I. FACTS AND PROCEDURAL HISTORY

When plaintiff began working as an insurance agent for defendant in 1990, they entered into a contract, titled the "Agent's Agreement." Plaintiff permanently stopped working for defendant in 1997.² Plaintiff brought this action, alleging that defendant failed to pay renewal commissions to which plaintiff was entitled pursuant to the vesting schedule in their contract that provided that an agent with seven years of service is entitled to the vesting of one hundred percent of his renewals.³ After discovery, defendant brought a motion for summary disposition pursuant to MCR 2.116(C)(10), contending that, in order for renewal commissions to be vested on the basis of retirement, one must be at least sixty-five years old and have worked for defendant for at least ten years.⁴ The trial court denied defendant's motion for summary disposition,⁵ finding the contract to be ambiguous,⁶ and the jury subsequently found in favor of plaintiff.⁷ The Court of Appeals then reversed, concluding that the contract unambiguously requires that an agent must be at least sixty-five years old and have worked at least ten years for defendant in order to qualify for retirement renewal commissions.⁸ We granted plaintiff'sapplication for leave to appeal.⁹

II. STANDARD OF REVIEW

We review de novo a trial court's ruling on a motion for summary disposition. Stanton v. Battle Creek, 466 Mich. 611, 614, 647 N.W.2d 508 (2002). Similarly, whether contract language is ambiguous is a question of law that we review de novo. Farm Bureau Mut. Ins. Co. v. Nikkei, 460 Mich. 558, 563, 596 N.W.2d 915 (1999). Finally, the proper interpretation of a contract is also a question of law that we review de novo. Henderson v. State Farm Fire & Cas. Co., 460 Mich. 348, 353, 596 N.W.2d 190 (1999).

III. ANALYSIS

The Agent's Agreement at issue here provides in relevant part:

5. Vested Commissions. Commissions shall be vested in the following manner:

(A) Death, disability, or retirement during term hereof. Upon the death, disability, or retirement (as those terms shall be then defined in the Agent's Manual) of Agent at any time prior to the termination of this Agreement, Agent (or Agent's designated death beneficiary who shall be designated by Agent in writing; or in the absence of such written designation, Agent's estate) shall thereafter be entitled to receive one hundred percent (100%) of such renewal commissions then payable from premiums on Agent's policies in place, in such amounts as would otherwise have been payable to Agent, until the aggregate renewals payable to Agent thereon shall equal less than Forty-One Dollars and Sixty-Seven Cents ($41.67) per month. If upon the date of death, disability, or retirement, Agent shall have aggregated eight (8) or more years of service under this Agreement, his then vesting shall be determined in accordance with the normal vesting schedule.

(B) Vesting Schedule. In the event of a termination of this Agreement for reasons of death, disability and retirement (as defined in the Agent's Manual), Agent as set forth below on the date of execution hereof shall be entitled to receive a percentage of renewal commissions then payable from premiums on Agent's policies in place, applicable to such amounts as would otherwise have been payable to Agent in accordance with the following vesting schedule:

Agent's Years % of of Service Renewals Vested Less than 2 years 0% 2 years 10% 3 years 30% 4 years 50% 5 years 70% 6 years 90% 7 years 100% 8 years 110% 9 years 120% 10 years 130% 11 years 140% 12 years 150% With regard to retirement, the Agent's Manual provides:

Retirement is understood to be disengagement from the insurance industry. Vestment for retirement is age 65 or 10 years of service whichever is later.

When defendant moved for summary disposition, it argued that plaintiff was not entitled to renewal commissions because, although plaintiff had disengaged from the insurance industry, he was not at least sixty-five years old and had not worked for defendant for at least ten years, whereas the contract unambiguously required an agent to satisfy all three of these requirements in order to be eligible for retirement renewal commissions. Defendant further argued that, because the contract was unambiguous, extrinsic evidence may not be considered in interpreting the contract.

Plaintiff, on the other hand, argued that the contract was ambiguous because the vesting schedule in § 5(B) of the Agent's Agreement conflicts with the sixty-five years of age and ten years of service requirements in the Agent's Manual. That is, under the vesting schedule, a percentage of renewal commissions were vested after two years of service, while, under the Agent's Manual's definition of retirement, which the Agent's Agreement incorporated, renewal commissions were not vested at all until an agent reached sixty-five years of age and had served as an agent with defendant for ten years. Plaintiff further argued that, because this contract was ambiguous, its interpretation was a question of fact that must be decided by the jury in light of relevant extrinsic evidence. As already noted, the trial court agreed with plaintiff that the contract was ambiguous and, thus, must be interpreted by the jury in light of relevant extrinsic evidence.¹⁰

On appeal to the Court of Appeals, plaintiff argued that the early years of the vesting schedule (years two through nine) directly conflicted with the sixty-five years of age and ten years of service requirements, creating an ambiguity that the jury properly resolved against defendant. Defendant, on the other hand, argued that years two through nine of the vesting schedule should be ignored. The Court of Appeals, correctly recognizing that years two through nine of the vesting schedule had to be given some meaning, but disagreeing with plaintiff that they applied to agents who had retired, concluded that these years of the vesting schedule only applied to agents who died or had become disabled. Plaintiff filed a motion for rehearing, arguing that the Court of Appeals had overlooked § 5(A) of the Agent's Agreement, which provided that, regardless of age or years of service, an agent who died or became disabled while still employed was entitled to receive one hundred percent of his renewal commissions. Therefore, plaintiff argued, the Court of Appeals erred in concluding that years two through nine of the vesting schedule applied to agents who died or became disabled. The Court of Appeals denied plaintiff's motion for rehearing without explanation.

A. THE CONTRACT LANGUAGE IS AMBIGUOUS

"An insurance contract is ambiguous when its provisions are capable of conflicting interpretations." Nikkei, supra at 566, 596 N.W.2d 915. Accordingly, if two provisions of the same contract irreconcilably conflict with each other, the language of the contract is ambiguous. Further, courts cannot simply ignore portions of a contract in order to avoid a finding of ambiguity or in order to declare an ambiguity. Instead, contracts must be "`construed so as to give effect to every word or phrase as far as practicable.'"Hunter v. Pearl Assurance Co., Ltd, 292 Mich. 543, 545, 291 N.W. 58 (1940), quoting Mondou v. Lincoln Mut. Cas. Co., 283 Mich. 353, 358-359, 278 N.W. 94 (1938).

In our judgment, the vesting schedule found in § 5(B) of the Agent's Agreement irreconcilably conflicts with the Agent's Manual's definition of retirement, which the Agent's Agreement incorporates. Under the vesting schedule, an agent who has served two or more years with defendant is entitled to a percentage of renewal commissions; while, under the Agent's Manual's definition of retirement, an agent is only entitled to a percentage of renewal commissions if that agent is at least sixty-five years old and has served ten or more years with defendant. Accordingly, while plaintiff is entitled to renewal commissions under the vesting schedule, he is not entitled to renewal commissions under the Agent's Manual's definition of retirement. Therefore, the language of the contract is ambiguous.

The Court of Appeals attempted to avoid a finding of ambiguity by concluding that, if an agent has less than ten years of service with defen...