FRANKENMUTH MUTUAL INSURANCE COMPANY v. Keeley

ON REHEARING

Riley, C.J.

We granted rehearing¹ after our decision in Frankenmuth Mutual Ins Co v Keeley, 433 Mich 525, 528; 447 NW2d 691 (1989), in which we reversed the decision of the Court of Appeals and held "that when an insurer has exhibited bad faith in failing to settle a claim on behalf of its insured, and a judgment in excess of the policy limits results, the insurer is liable for the excess without regard to whether the insured has the capacity to pay.” After hearing oral arguments on rehearing, this Court remanded the instant case to the trial court to determine whether Frankenmuth’s acts of bad faith caused the excess judgment. On April 17, 1990, the trial court reaffirmed its conclusion that Frankenmuth acted in bad faith when it failed to discharge its attorney for representing the adverse interests of Frankenmuth and its insured, Mrs. Keeley, at the same time.² On May 23, 1990, the trial judge filed written supplemental findings and affirmed its decision of April 17, 1990. The court concluded that Frankenmuth’s acts of bad faith with regard to Mrs. Keeley did not import a finding of bad faith with regard to Frankenmuth’s representation of Charles Keeley. Moreover, the court reaffirmed its conclusion that any acts of bad faith did not cause the excess judgment against Charles Keeley. We agree and so hold.

More importantly, this Court’s decision on the causal relationship between any bad faith and the excess judgment against Charles Keeley does not address the issue which this Court originally decided and granted rehearing to consider, namely, whether this Court should reconsider the version of the excess-judgment rule adopted in our original opinion, and adopt the rule set forth in Justice Levin’s dissenting opinion. While this Court could simply vacate its original opinion upon the basis of bad faith and its causal relationship to the excess-judgment issues, we prefer to resolve the excess-judgment issue at this time.

However, unlike Justice Archer, we are now convinced that the rule articulated in Justice Levin’s dissent represents the better measure of an insurer’s liability when the insurer exhibits bad faith that causes a judgment against its insured in the underlying tort suit which exceeds the policy limits. Therefore, we adopt Justice Levin’s dissent in the instant case. Id. at 546.

Accordingly, we affirm the result of the Court of Appeals.

Levin, Brickley, and Griffin, JJ., concurred with Riley, C.J.

1 433 Mich 1226 (1989).

2 As a result, the trial court awarded $4,152 plus interest to Mrs. Keeley because she had to secure another attorney to represent her.