Mcdonald v. Farm Bureau Ins. Co.

Decision Date23 April 2008
Docket NumberCalendar No. 1.,Docket No. 132218.
Citation480 Mich. 191,747 N.W.2d 811
PartiesMary Ellen McDONALD, Plaintiff-Appellee, v. FARM BUREAU INSURANCE CO., Defendant-Appellant.
CourtMichigan Supreme Court

TAYLOR, C.J.

In this case, we must decide whether a contractual limitations period in an insurance policy is tolled from the time a claim is made until the insurance company denies the claim and, if it is not, whether the limitations period may be avoided under the doctrines of waiver or estoppel. Consistently with long-established contract law, we hold that there is no automatic tolling when a claim is filed unless the contract so provides. Traditional contract doctrines such as waiver and estoppel can apply when the facts support them. However, in the present case plaintiff has not shown that she relied on any misconduct by defendant; therefore, defendant cannot be estopped from applying the limitations period to plaintiff's claim. Because the Court of Appeals held to the contrary, we reverse the Court of Appeals and remand for entry of summary disposition in favor of defendant.

I. FACTS AND PROCEEDINGS

The policy at issue in this case is one for underinsured motorist (UIM) coverage. These policies are not mandated by statute; individuals contract for such coverage voluntarily. When an insured is injured by a tortfeasor motorist whose own policy is insufficient to cover all of the insured's damages, the insured can seek coverage from his or her UIM policy for damages that exceed the tortfeasor's policy limits. Thus, the insured generally must first determine how much of his or her damages will be covered by the tortfeasor and enter into a settlement with the tortfeasor, and then seek further payment from his or her UIM provider for the balance.

In this case, plaintiff was injured in an automobile accident on November 29, 2001. The policy under which she was covered included UIM coverage. However, it contained an endorsement that provided: "No claimant may bring a legal action against the company more than one year after the date of the accident." The policy also had a clause prohibiting the insured from settling without defendant's written consent and stating that defendant "shall be obligated" to respond within 30 days to the insured's request to settle.

On May 10, 2002, plaintiff's attorney notified defendant by mail that plaintiff had an underinsured motorist claim, acknowledging that the policy had a limitations period that would expire on November 29, 2002. Defendant responded that it needed answers to interrogatories (concerning collectibility of the underinsured motorist) before it could give permission to settle and that defendant's claims representative needed to review the medical records. The claims representative's letter indicated that after the medical records were reviewed, "I will be getting back in touch with you."

On August 2, 2002, plaintiff's attorney sent another letter, asking for a decision regarding consent to settle "so that I can determine if I need to sue Farm Bureau or not." On August 16, he sent a third letter stating that he intended to "commence the process of negotiating the UIM claim" as soon as he received written permission to settle. The claims representative sent written permission to settle for $20,000.1 The record indicates no further action by either party before November 29, 2002, when the period of limitations expired. On December 10, 2002, defendant sent plaintiff a letter indicating that the one-year limitations period had expired and that defendant would no longer consider the UIM claim.

Plaintiff filed this action five months later. Defendant moved for summary disposition under MCR 2.116(C)(8) (failure to state a claim) and 2.116(C)(10) (no material question of fact). The trial court denied defendant's motion and granted summary disposition to plaintiff, holding that (1) the one-year period was unreasonable and thus unenforceable as a matter of law, (2) defendant was estopped from asserting the limitation because of its dilatory conduct, (3) pursuant to Tom Thomas Org., Inc. v. Reliance Ins. Co., 396 Mich. 588, 242 N.W.2d 396 (1976), the limitations period was tolled by plaintiff's May 10, 2002, letter until defendant denied the claim, and (4) the limitations period was too ambiguous to enforce.

On appeal in the Court of Appeals, the application for leave was first held in abeyance for this Court's decision in Rory v. Continental Ins. Co., 473 Mich. 457, 703 N.W.2d 23 (2005). After the Rory decision, the Court of Appeals affirmed, holding that the trial court had correctly ruled that the contractual limitations period was tolled by plaintiff's May 10, 2002, letter to defendant until the denial of plaintiff's claim on December 10, 2002. McDonald v. Farm Bureau Ins. Co., unpublished opinion per curiam of the Court of Appeals, issued August 24, 2006, 2006 WL 2457692 (Docket No. 259168). In so holding, the panel relied on the decision in West v. Farm Bureau Gen. Ins. Co. of Michigan (On Remand), 272 Mich.App. 58, 65-67, 723 N.W.2d 589 (2006), which held that multiple recent decisions of this Court limiting the doctrine of judicial tolling were inapplicable to insurance contract claims and that Rory should be applied prospectively only. McDonald, supra at 2. Because this single issue was dispositive, the panel did not address the issues of reasonableness, contractual ambiguity, or estoppel. Id.

This Court granted defendant's application for leave to appeal, directing the parties to include among the issues to be briefed (1) whether a contractual limitations period may be avoided on the basis of the doctrines of waiver or estoppel and (2) whether the one-year limitations period contained in the insurance policy is tolled from the time a claim is made until the insurance company denies the claim. 477 Mich. 996, 725 N.W.2d 670 (2007).

II. STANDARD OF REVIEW

This Court reviews de novo the trial court's decision to grant or deny summary disposition. Rory, supra at 464, 703 N.W.2d 23. Questions involving the proper interpretation of a contract or the legal effect of a contractual clause are also reviewed de novo. Id. When reviewing a grant of equitable relief, an appellate court will set aside a trial court's factual findings only if they are clearly erroneous, but whether equitable relief is proper under those facts is a question of law that an appellate court reviews de novo. Blackhawk Dev. Corp. v. Village of Dexter, 473 Mich. 33, 40, 700 N.W.2d 364 (2005).

III. JUDICIAL TOLLING

This Court has addressed the issue of tolling the limitations periods of insurance policies several times in the recent past. In Devillers v. Auto Club Ins. Ass'n, 473 Mich. 562, 564, 702 N.W.2d 539 (2005), this Court held that the "one-year-back" limitation provided for in MCL 500.3145(1) for recovering no-fault personal protection insurance benefits could not be automatically tolled because that was contrary to the express language of the statute. In so holding, we overruled Lewis v. Detroit Automobile Inter-Ins. Exch, 426 Mich. 93, 393 N.W.2d 167 (1986), which had applied to the statutory limitations period the "judicial tolling" doctrine that Tom Thomas had used in the context of optional insurance contracts. Devillers, supra at 564, 702 N.W.2d 539. We noted in Devillers that Tom Thomas departed from the well-established legal principle that courts cannot rewrite the parties' contracts if the terms are expressly stated. Id. at 567, 702 N.W.2d 539. The Tom Thomas Court declined to apply traditional contract doctrines such as waiver and estoppel because it concluded that "[w]aiver and estoppel analysis results in considerable uncertainty concerning the `reasonableness' of the time remaining for suit." Tom Thomas, supra at 597 n. 10, 242 N.W.2d 396 (citation omitted). Without explaining why this would create a problem the Court simply disregarded the one-year contractual provision because some of that time would undoubtedly be taken up in processing the claim. Instead, it declared that the "appropriate resolution" was "to toll the running of the limitation from the time the insured gives notice until the insurer formally denies liability." Id. at 596-597, 242 N.W.2d 396. Because the action had been filed less than 12 months after the insurer denied liability, the Court held that it was timely, even though more than one year had passed since notice of the claim was given. Id. The dissent noted that the insured "was guilty of sleeping on its bargained-for rights" for more than six months of the elapsed time and that, under standard contract law, a one-year period was a one-year period. Id. at 601, 242 N.W.2d 396 (Lindemer, J. dissenting).

Devillers set forth this reasoning and explained how the Tom Thomas tolling doctrine was expanded from contractual limitations periods to the statutory limitations period provided by MCL 500.3145(1) in the context of automobile no-fault statutes. Reversing caselaw that had adopted the doctrine, the Court noted that it was "unable to perceive any sound policy basis for the adoption of a tolling mechanism with respect to the one-year-back rule." Devillers, supra at 583, 702 N.W.2d 539. The Court expressly agreed with the dissents in the cases reversed and in Tom Thomas, stating: "Statutory — or contractual — language must be enforced according to its plain meaning, and cannot be revised or amended to harmonize with the prevailing policy whims of members of this Court." Id. at 582, 702 N.W.2d 539. The Court concluded by holding that the statutory limitations period should be enforced as written by the Legislature.

Similarly, in Rory, supra at 468, 703 N.W.2d 23 this Court emphasized that "unambiguous contracts are...

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