Smith v. Childs

• Decision Date: 01 February 1993
• Docket Number: Docket No. 133984
• Parties: Jeanine SMITH, Plaintiff-Appellee, v. Francis CHILDS, Defendant-Appellant, and Farm Bureau Life Insurance Company and Farm Bureau Marketing Corporation, Defendants.
• Court: Court of Appeal of Michigan — District of US

Page 538

497 N.W.2d 538

198 Mich.App. 94

Jeanine SMITH, Plaintiff-Appellee, v. Francis CHILDS, Defendant-Appellant and Farm Bureau Life Insurance Company and Farm Bureau Marketing Corporation, Defendants.

Docket No. 133984.

Court of Appeals of Michigan.

Submitted Nov. 10, 1992, at Grand Rapids.

Decided Feb. 1, 1993, at 9:05 a.m.

Released for Publication April 12, 1993.

Gruel, Mills, Nims & Pylman by J. Clarke Nims and Brion J. Brooks, Grand Rapids, for plaintiff-appellee.

Cholette, Perkins & Buchanan by Robert J. Riley, Grand Rapids, for Francis Childs.

Before MacKENZIE, P.J., and RICHARD ALLEN GRIFFIN and CONNOR, JJ.

CONNOR, Judge.

Defendant Francis Childs appeals as of right the judgment entered against him pursuant to a jury's verdict. We affirm.

Plaintiff's now deceased husband purchased a life insurance policy from defendant Farm Bureau Life Insurance Company through defendant Childs, an employee of defendant Farm Bureau Marketing Corporation. On the application, the decedent falsely stated that he had not been convicted of three or more speeding offenses in the previous three years, when in fact he had been convicted of over a dozen.

Plaintiff's husband was killed in a motor vehicle accident. Farm Bureau Life refused to pay his life insurance benefits, claiming that the decedent had made a material misrepresentation on the application. Plaintiff brought this action seeking enforcement of the policy against Farm Bureau Life and damages against Farm Bureau Marketing and Childs for Childs' negligence in submitting an application he knew to be inaccurate. Plaintiff claimed that Childs was aware of the decedent's driving record, and negligently permitted the decedent to sign the life insurance application containing an inaccurate response.

On the eve of the trial, plaintiff and Farm Bureau Life entered into a release and settlement agreement. Plaintiff agreed to continue to pursue her claims against the remaining defendants to the full extent of the law, and to release Farm Bureau Life from all liability arising out of the life insurance contract. In exchange, Farm Bureau Life agreed to pay plaintiff up to $20,000, depending on how much plaintiff ultimately recovered from the remaining defendants. If plaintiff recovered $20,000 or more from Farm Bureau Marketing and Childs, Farm Bureau Life would pay plaintiff nothing. If plaintiff recovered less than $20,000 from Childs and Farm Bureau Marketing, Farm Bureau Life would pay plaintiff the difference between $20,000 and plaintiff's actual recovery.

Plaintiff's case against Childs went to trial. ¹ A jury found that Childs had been negligent and that plaintiff's damages were $100,000. The jury determined that the decedent's comparative negligence accounted for forty percent of the total damages, and the award to plaintiff was reduced to $60,000.

At issue on appeal is the propriety and effect of the settlement agreement between plaintiff and Farm Bureau Life. Defendant Childs contends that the agreement was a Mary Carter ² agreement, and should be declared void as contrary to public policy. We disagree.

The distinguishing characteristics of a Mary Carter agreement are that it (1) not act as a release, so the agreeing defendant remains in the case, (2) is structured in a way that it caps the agreeing defendant's potential liability and gives that defendant an incentive to assist the plaintiff's case against the other defendants, and (3) is kept secret from the other parties and the trier of fact, causing all to misunderstand the agreeing defendant's motives. See Ward v. Ochoa, 284 So.2d 385, 387 (Fla.1973). Courts have found that such agreements deny the nonagreeing defendants a fair trial. Seeid. at 388.

We conclude that this agreement was not a Mary Carter agreement. The agreement was not kept secret, and because it released Farm Bureau Life from liability, the insurance company played no part in the trial.

Moreover, the agreement did not cause any detrimental effect on Childs' trial. It did not result in any participant in the trial having misunderstood or hidden motives. And it did not foreclose Childs from demonstrating to the jury that a breach of contract by Farm Bureau Life, and not his negligence, was the cause of plaintiff's injury. ³

Childs contends the agreement should be void as being champertous, because it required plaintiff to continue her litigation against Childs, and Farm Bureau Life would benefit from any judgment entered against him. Champerty was the common-law offense of assisting another to maintain a suit in exchange for a share of the proceeds. This argument fails because the defense of champerty does not exist in Michigan except as specified by statute with regard to attorneys. Grant v. Stecker & Huff, Inc., 300 Mich. 174, 177, 1 N.W.2d 500 (1942); Wildey v. Crane, 63 Mich. 720, 30 N.W. 327 (1886); see M.C.L. Sec. 600.919; M.S.A. Sec. 27A.919.

The agreement was not without its potential hazards. Chief among them was that it effectively barred plaintiff from settling her dispute with Childs for less than $20,000. However, the agreement was reached the day before the trial began and the record gives no indication that Childs was interested in settling for any amount even if this agreement had not been reached. ⁴

We see no reason to invalidate the agreement as being contrary to public policy. As long as the terms are not kept secret, such an agreement does not harm the integrity of the legal system and can further the goal of resolving disputes amicably. Childs is not entitled to a new trial because of plaintiff's settlement agreement with Farm Bureau Life.

Childs next argues that plaintiff's release of Farm Bureau Life from liability should act to release him as well. We disagree.

Under the common law, release of an agent acted to discharge a vicariously liable principal, and release of the principal discharged the agent. Geib v. Slater, 320 Mich. 316, 321, 31 N.W.2d 65 (1948). Plaintiff released Farm Bureau Life from all liability, not just liability premised on a breach of contract. Thus, under the common law, if plaintiff could have claimed against Farm Bureau Life under the doctrine of respondeat superior for the negligence of Childs, then plaintiff's release of that liability would have discharged Childs' liability as well. ⁵

Our statutes provide that a release of one of two or more persons liable in tort for the same injury does not discharge "any of the other tort-feasors from liability" unless the release says it does. M.C.L. Sec. 600.2925d; M.S.A. Sec. 27A.2925(4). In Theophelis v. Lansing General Hosp., 430 Mich. 473, 424 N.W.2d 478 (1988), our Supreme Court struggled with the effect the enactment of the statute had on the common-law rule. The Court found that, because a vicariously liable principal is not a tortfeasor, id. at 483, 424 N.W.2d 478, as that term is used in the statute, the statute did not abrogate the common-law rule that release of an agent discharged the principal. Id. at 491, 493, 424 N.W.2d 478; see alsoFelsner v. McDonald Rent-A-Car, Inc., 193 Mich.App. 565, 484 N.W.2d 408 (1992). The Court concluded that "[a]ny other result would be illogical and unjust because release of the agent removes the only basis for imputing liability to the principal." Theophelis, supra, 430 Mich. at 491, 424 N.W.2d 478. However, it is equally true that the liability of the agent is not dependent upon the agent's relationship to the principal but is attributable to his own misconduct.

We conclude that enactment of the statute did abrogate the common-law rule that release of the principal discharged the liability of the agent. By the plain wording of the statute, if the principal obtains a release, that...