Farm Bureau Mut. Ins. Co. v. Buckallew, Docket No. 243673.

• Decision Date: 05 August 2004
• Docket Number: Docket No. 243673.
• Citation: 262 Mich.App. 169,685 N.W.2d 675
• Parties: FARM BUREAU MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. Michele D. BUCKALLEW, Personal Representative of the Estates of Thomas A. Brouwer and Charlotte A. Brouwer, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

685 N.W.2d 675

262 Mich.App. 169

FARM BUREAU MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v. Michele D. BUCKALLEW, Personal Representative of the Estates of Thomas A. Brouwer and Charlotte A. Brouwer, Defendant-Appellee.

Docket No. 243673.

Court of Appeals of Michigan.

Submitted April 15, 2004, at Grand Rapids.

Decided May 25, 2004, at 9:00 a.m.

Released for Publication August 5, 2004.

Mequio & Peterson, P.L.C. (by Gary R. Peterson), Portage, for the defendant.

Jonathan Shove Damon, Grand Rapids, for the plaintiff.

Before: WHITE, P.J., and MARKEY and OWENS, JJ.

MARKEY J.

Plaintiff, Farm Bureau Mutual Insurance Company, appeals by right the trial court's order denying its motion for summary disposition and instead granting summary disposition to defendant, Michele D. Buckallew, personal representative of the estates of Thomas A. Brouwer and Charlotte A. Brouwer. This case involves two contracts: (1) an automobile liability insurance policy with limits of liability for bodily injury of $100,000 per person, $300,000 per occurrence, and (2) an agreement to settle a lawsuit for the wrongful death of two people. The trial court ruled that plaintiff was not entitled to rescind or reform its agreement to settle defendant's wrongful death lawsuit against plaintiff's insured for $300,000 even though, when the agreement was entered, it was erroneously believed that plaintiff's insurance policy provided liability coverage for that amount. We affirm.

I. Summary of Material Facts and Proceedings

Some of the underlying facts leading plaintiff to file this action to rescind or reform the settlement agreement are set forth in Farm Bureau Mutual Ins. Co. v. Buckallew, 246 Mich.App. 607, 633 N.W.2d 473 (2001). The trial court initially granted defendant summary disposition on the basis of its interpretation of the insurance contract that "Buckallew is entitled to the `per occurrence' limit of $300,000." Id. at 610, 633 N.W.2d 473. But this Court held that the trial court erred in its interpretation of plaintiff's insurance policy because "the policy language unambiguously limits recovery to $100,000 for each decedent and that, therefore, the trial court erred in failing to grant partial summary disposition to Farm Bureau with regard to this issue." Id. at 620, 633 N.W.2d 473. In remanding this case to the trial court, this Court left unresolved whether plaintiff might be entitled to reform or rescind the settlement agreement, opining:

We do not address the ultimate question whether Farm Bureau may rescind or reform the settlement agreement on the basis of misinterpretation of the insurance policy. The issues on appeal are limited to the trial court's rulings regarding the interpretation of the policy and the applicable policy limit. [Id. at 609-610 n. 2, 633 N.W.2d 473.]

* * *

As stated in n. 2, supra, because the issue before this Court concerns the trial court's denial of defendant's motion for partial summary disposition based on its interpretation of the policy, we do not address the issue whether and on what specific grounds Farm Bureau may reform or rescind a settlement contract to which it previously agreed. [Id. at 620 n. 11, 633 N.W.2d 473.]

On remand, the trial court found that the material facts leading to the settlement agreement were undisputed. The Brouwers were killed when plaintiff's insured lost control of the car he was driving on an icy patch of roadway, crossed the centerline, and struck the Brouwers from behind as they walked on the shoulder of the opposite lane. Defendant filed a wrongful death action, MCL 600.2922, against plaintiff's insured in the Kalamazoo Circuit Court. Plaintiff's claims representative, Stanley L. Rakowski, commenced settlement negotiations with defendant's original attorney, John Kneas. Although aware that the bodily injury limits of the insurance policy were "$100,000 per person, $300,000 per occurrence," Rakowski believed the $300,000 limit applied in this instance because the claim involved more than one person. Likewise, although Kneas was furnished a copy of the policy, he only glanced at the declarations sheet and relied on Rakowski's representation that the policy limits were $300,000. Rakowski acknowledged that Kneas did not mislead him in any way.

During negotiations, Rakowski offered $200,000 to settle defendant's claims but Kneas demanded $300,000. Rakowski requested additional settlement authority from his supervisor, James Pell. Pell passed the file on to his supervisor, Blythe Green, Jr., with a memorandum from Rakowski stating, "My authority to settle was for $200,000. Obviously this is not going to settle this case, as the attorney demands the policy limits." Green wrote a note on the file, "Okay, let's resolve up to $300,000." In his deposition, Green testified that he asked Rakowski what the limits of the policy were and was told "$300,000." Green testified he did not review the file and assumed the policy was a single-limit $300,000 policy. Kneas and Rakowski then orally agreed to settle the wrongful death lawsuit for $300,000. Rakowski confirmed the settlement agreement in a letter to Kneas dated May 3, 1996:

This letter will confirm that Farm Bureau Insurance Auto Insurance Carrier for Gary Majewski, hereby surrender the policy limits of $300,000 in regards to the death of Thomas and Charlotte Brouwer.

Please forward copies of the probate settlement at which time I will issue our drafts.

Defendant obtained an order from the probate court approving the settlement agreement on July 3, 1996. On the same day, defendant dismissed her wrongful death action in circuit court. On July 5, 1996, defendant forwarded to plaintiff facsimiles of the probate court order approving the settlement and of the circuit court order of voluntary dismissal. Then, on July 11, 1996, counsel for plaintiff notified Kneas that it would not honor the $300,000 settlement agreement because its policy limits were only $200,000. On August 9, 1996, plaintiff filed this action to rescind or reform the settlement agreement. Without waiving any rights or defenses in the instant lawsuit, plaintiff and defendant entered a second settlement agreement that required plaintiff to "forthwith" pay defendant $200,000 and pay the remaining $100,000 "plus any additional damages, interest, costs and attorney fees, if and as ordered" by the trial court if "it is ultimately determined that the $300,000 settlement agreement is a legally binding agreement."

Plaintiff alleged four theories to rescind or reform the settlement agreement: mutual mistake, unilateral mistake, unjust enrichment, and contract (its policy limits could not be changed except by endorsement). Defendant counterclaimed, alleging breach of the settlement contract, promissory estoppel, and that the settlement agreement was binding under MCR 2.507(H). Defendant also requested specific performance of the settlement agreement.

On January 28, 2002, and March 11, 2002, the trial court conducted hearings on the parties' motions for summary disposition pursuant to MCR 2.116(C)(10). Defendant argued below, and now on appeal, that a mutual mistake regarding the limits of the insurance policy at issue did not occur because Rakowski was aware the policy provided limits of liability of $100,000 per person, $300,000 per occurrence. But Rakowski also testified he believed, on the facts of this case, that the $300,000 limit applied, and both Kneas and Green testified that Rakowski told them during the settlement negotiations the policy limit was $300,000. Accordingly, the trial court found that

[t]here was, in fact, a mutual mistake. It's clear from everything that's uncontested here that both parties for a long period of time operated under the premise that this insurance policy provided $300,000 worth of coverage when, in fact, as a matter of law in doing contract interpretation it was only [$]200,000.

Although the trial court found a mutual mistake had occurred, it ruled that plaintiff was not entitled to rescind or reform the settlement agreement because Farm Bureau bore the risk of the mistake, citing Restatement Contracts, 2d, § 154(b) and (c). Subsection b provides that a party bears the risk of a mistake when it "is aware, at the time the contract is made, that [it] has only limited knowledge with respect to the facts to which the mistake relates but treats [its] limited knowledge as sufficient." The trial court reasoned:

Farm Bureau drafted the policy; Farm Bureau reviewed the policy at three different levels — an adjuster, a senior adjuster, and a claims manager — and everyone [sic] of them looking at the policy said, yes, go ahead and pay $300,000.

Who's in a better position between [Buckallew and Farm Bureau] to say, wait a minute, this is a $200,000 policy? Clearly Farm Bureau is.

* * *

So if there was limited knowledge with Farm Bureau, they treated it as sufficient. And this was not a situation where some representation [sic] of Farm Bureau exceeded his or her authority; but, rather, this went through the three levels of review I've mentioned. And in every level Farm Bureau said, yes, go ahead, pay the $300,000.

And they chose to rely upon their review of the matter up to that point and to tell [Buckallew's] counsel and to allow a probate court to act upon the representation that $300,000 was available. So they bear the risk of mistake — under subsection (b) of section 154 of the restatement of contracts, the risk of mistake is with Farm Bureau.

Further, under subsection c, which states "the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so," the trial court ruled that it "allocates the risk of the mistake to Farm Bureau because they are in a superior position to know what their policy states." The trial court again found that Farm Bureau was "in a position and did, in fact, review it at three levels of review and after that went forward and told everyone, including a...