Thomas Tibble v. American Physicians Capital Inc

STATE OF MICHIGAN
COURT OF APPEALS
THOMAS TIBBLE, Bankruptcy Trustee for the UNPUBLISHED
BANKRUPTCY ESTATE OF ROBERT October 28, 2014
PRODINGER, D.O., and STEPHEN L.
LANGELAND, Bankruptcy Trustee for the
BANKRUPTCY ESTATE OF BATTLE CREEK
EMERGENCY PHYSICIANS, P.C.,
Plaintiffs-Appellees/Cross-
Appellants,
and
DALE RUSSELL, P.A.,
Plaintiff,
v No. 306964
Calhoun Circuit Court
AMERICAN PHYSICIANS CAPITAL, INC., LC No. 2006-001805-CZ
Defendant-Appellant/Cross-
Appellee.
Before: WILDER, P.J., and FITZGERALD and MARKEY, JJ.
PER CURIAM.
Robert Prodinger, D.O., and Battle Creek Emergency Physicians, P.C. (BCEP), sued
defendant American Physicians Capital, Inc. (AP Capital), their medical malpractice insurer, for
bad faith in failing to settle a wrongful death action brought against them by the Estate of Daniel
A. Symons (the Symons Estate). In a separate action, Prodinger and BCEP sued attorney Randy
Hackney for legal malpractice in the wrongful death action. During the course of the
proceedings, Prodinger and BCEP filed for bankruptcy. The trustees of the bankruptcy estates
were substituted as plaintiffs. Following a jury trial, a jury found that AP Capital had acted in
bad faith. It awarded $204,000 to Thomas Tibble, trustee of the bankruptcy estate of Prodinger,
and $1,497,723 to Steven Langeland, trustee of the bankruptcy estate of BCEP. The trial court
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set off the damages awarded to Langeland by $350,000, the amount of the settlement in the legal
malpractice action. On October 17, 2011, judgment was entered against AP Capital in favor of
Tibble in the amount of $332,671.72 and Langeland in the amount of $1,489,741.91.1 AP
Capital appeals as of right, and Tibble and Langeland cross-appeal. We affirm in part, reverse in
part, vacate in part, and remand.
I. THE SYMONS JUDGMENT
Prodinger is an emergency room physician. In 2003, Prodinger was a member of BCEP.
BCEP had a contract with Battle Creek Health Systems (BCHS) to staff the hospital’s emergency
room department. BCEP hired physician’s assistants to work with the emergency room
physicians at BCHS. BCEP had a malpractice insurance policy with AP Capital. The policy had
a coverage limit of $300,000 for a single incident of medical malpractice. The policy provided
AP Capital with the right to settle lawsuits without the consent of BCEP.
On May 2, 2003, Daniel Symons, a 35-year-old employed husband and father of three
young children, appeared at the BCHS emergency room and was seen by plaintiff Dale Russell, a
physician’s assistant. Prodinger, the emergency room physician that was supervising Russell,
never spoke with Symons. Russell discharged Symons. Hours later, Symons had a heart attack.
He was again brought to the emergency room, but was dead on arrival.
The Symons Estate sued BCEP, Prodinger, and Russell, as well as BCHS. AP Capital
assigned Hackney, an experienced attorney who specialized in medical malpractice, to defend
BCEP, Prodinger, and Russell. The wrongful death action went to trial, and the jury rendered a
verdict of $1.32 million in favor of the Symons Estate and against BCEP, Prodinger, and Russell.
AP Capital initially indicated that it would appeal the verdict after Hackney provided it with
several grounds for an appeal, but ultimately chose not to appeal after an appellate attorney
reviewed the transcript of the trial and gave AP Capital a low chance of winning on appeal. AP
Capital paid the policy limit of $300,000, plus costs and interest, for a total of $371,000 to the
Symons Estate. BCEP and Prodinger retained their own attorney and appealed.
II. APPEAL OF THE SYMONS JUDGMENT; PRETRIAL PROCEEDINGS
In May 2006, while the appeal of the Symons judgment was pending, Prodinger and
3
BCEP sued AP Capital for bad faith in failing to settle with the Symons Estate. Prodinger and
BCEP requested judgment against AP Capital “in an amount equal to the excess judgment
entered against [them], plus interest, costs and attorney fees so wrongfully incurred.” Prodinger
and BCEP also sued Hackney and his law firm4 for legal malpractice, claiming in relevant part
that Hackney committed malpractice when he failed to object to an instruction regarding the
1
These amounts are inclusive of damages, costs, attorney fees, and judgment interest.
2
The verdict was actually for $1,307,486.
3
Russell joined Prodinger and BCEP as a plaintiff, but voluntarily dismissed his claim.
4
Hackney, Groover, Hoover & Bean, collectively referred to as the Hackney defendants.
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vicarious liability of Prodinger and when he failed to request a setoff for the Social Security
benefits that the Symons children would receive. Prodinger and BCEP claimed that the
malpractice caused injuries and damages, which included “[e]xposure to, and the likelihood of
being required to pay, medical malpractice damages in excess of the available policy limits” and
“[e]expenses associated with post-judgment attorney fees, accounting fee, debt reporting fees,
damage to professional reputation; inclusion in the National Data Bank.” They requested a
judgment that would fully compensate them for their losses. The trial court stayed the two
actions for the pendency of the appeal of the Symons judgment.5 Neither Prodinger nor BCEP
obtained relief from the Symons judgment on appeal.6
The trial court lifted the stay of the bad faith and legal malpractice actions in November
2009 and consolidated the two actions for discovery and trial. The parties reached a settlement
with the Hackney defendants in the amount of $350,000 in the legal malpractice action prior to
trial.7
III. TRIAL ON THE BAD FAITH ACTION
5
On June 7, 2007, BCEP filed for Chapter 7 bankruptcy in an effort to be relieved of the Symons
judgment. Langeland, the trustee of the bankruptcy estate, was substituted for BCEP as plaintiff
in the two actions. BCEP stopped doing business the day it filed for bankruptcy and, the
following day, all of its employees became 90-day employees of BCHS. On May 10, 2010,
Prodinger filed for Chapter 7 bankruptcy protection in an effort to be relieved of the Symons
judgment. Tibble, the trustee of the bankruptcy estate, was substituted for Prodinger as plaintiff
in the two actions.
6
Symons v Prodinger, 484 Mich. 851; 768 NW2d 317 (2009). The Supreme Court reversed this
Court’s holding that the trial court erred in denying Prodinger’s motion for judgment
notwithstanding the verdict because the Symons Estate had not pleaded that Prodinger was
vicariously liable for the negligence of Russell and therefore he was not reasonable placed on
notice of the claim. The Supreme Court stated:
The trial court instructed the jury that its decision as to defendant Dale Russell’s
negligence would also determine Dr. Prodinger’s responsibility. Because Dr.
Prodinger failed to object to that jury instruction, he cannot now disclaim
vicarious liability for Russell’s negligence. Although the plaintiff did not plead a
cause of action based on vicarious liability against Dr. Prodinger in the compliant,
the Court of Appeals dissent correctly noted that under MCR 2.118(C)(1), issues
that are tried by express or implied consent of the parties, even though they are
not raised in the pleadings, are treated as if they had been raised in the pleadings.
[Symons, 484 Mich. 851.]
7
Before the settlement, the trial court had granted summary disposition in favor of Tibble and
Langeland with regard to the issue of whether Hackney was negligent in failing to request a
setoff for the Social Security benefits to be received by the Symons children, but the court
concluded that the amount of the setoff was a question of fact for the jury.
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Prodinger met with Hackney for the first time in March 2004. He indicated to Hackney
that he thought the wrongful death action was defensible, though he expressed some concerns,
including that it did not appear that Russell evaluated Symon’s cardiovascular and pulmonary
systems. Settlement was not an option as the estate demanded $1.2 million to settle, and BCEP
could not pay the $900,000 difference between its policy limits and the settlement demand.8
Additionally, Prodinger wanted the case to be tried as he did not believe that there had been any
violation of the standard of care. Hackney agreed with Prodinger that the case would be tried on
the standard of care and was defensible. According to Hackney, there was a strong argument
that Symons came to the emergency room with symptoms that were consistent with a
musculoskeletal, rather than a cardiac, problem. He had an expert, Earl Reisdorf, a well known
emergency room physician, to testify that there had been no breach of the standard of care.
Hackney provided James Olivetti, a senior claims representative for AP Capital, with
memoranda as the case developed. Hackney informed Olivetti that Reisdorf had testified in his
deposition that Symons did not present with symptoms that were typical for coronary artery
disease and that he would make a very formidable witness at trial. Another memorandum sent
by Hackney discussed Prodinger’s deposition and indicated that Prodinger did an excellent job
and was able to sort through the convoluted nature of the questions asked by the attorney for the
Symons Estate. However, in several memoranda, Hackney indicated that if the jury believed that
Symons presented to the emergency room with arm pain the case would be difficult to win.9
The case went to case evaluation in the summer of 2005. The panel issued a non-
unanimous decision in favor of the Symons Estate for $500,000, with BCEP to pay $250,000 and
BCHS to pay $250,000. AP Capital rejected the evaluation.
On October 13, 2005, a month before trial, the AP Capital trial committee had a meeting,
in part, to decide whether to take the case to trial. Among those present at the meeting were
Olivetti and Roy Bergman, M.D. Before the meeting, Olivetti wrote a comprehensive report to
the file that was also provided to the other committee members. Olivetti wrote that he, as well as
the insureds, recommended taking the case to trial. Olivetti testified that he had spoken with
Prodinger on a regular basis and that Prodinger held the view that the case was 100 percent
defensible, that there was no violation of the standard of care, and that there was no cause for
settlement. Olivetti testified that if Prodinger had requested that the case be settled that he would
have acted on that request and, in acting on that request a paper trail would have been created.
Dr. Bergman, who had reviewed the facts of the case, believed that the case was defensible and
voted for the case to proceed to trial. He explained that Symons was young, had no family
history of heart problems, did not present with symptoms that are high on the list of a cardiac
event, and that the duration of his symptoms suggested something other than a cardiac event.
Bergman found it significant that Dr. Reisdorf, whom he believed to be “outstanding” and one of
the best emergency room physicians, found no violation of the standard of care.
8
This difference is referred to as “excess judgment.”
9
At trial, Olivetti acknowledged that the medical records indicated that Symons reported arm
pain at the emergency room.
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A settlement conference was held on October 31, 2005. The Symons Estate continued to
demand $1.2 million to settle. AP Capital made a counteroffer of $100,000, with half of the
money being paid by BCHS. The Symons Estate refused the offer, but later agreed to settle for
$295,000. AP Capital increased its counteroffer to $75,000, but BCHS refused to increase its
offer, and settlement negotiations ended. According to Olivetti, AP Capital did not accept the
settlement offer by the Symons Estate because Prodinger wanted to go to trial and there was a
strong argument that there had been no violation of the standard of care.
A few days after the settlement conference, the Symons Estate settled with BCHS for
$25,000. Olivetti testified that, after the Symons Estate settled with BCHS, he was not
concerned that Prodinger and BCEP could be forced into bankruptcy if they lost at trial. He
disagreed, however, that AP Capital chose to “roll the dice,” knowing that regardless of the
outcome at trial it would only have to pay the policy limits of $300,000. He reiterated that
Prodinger wanted to go to trial and that there was expert support for the case.
Prodinger, who did not attend the settlement conference, was pleased when he learned
that the Symons Estate had dropped its settlement demand. He explained that a few days before
the settlement conference, a forensic pathologist had issued a report with the conclusion that the
thrombus that caused Symon’s heart attack was in the coronary artery for 12 to 24 hours before
Symons died. Because Symons died within 12 to 24 hours after his emergency room visit, the
report made Prodinger uncomfortable with the merits of the defense. According to Prodinger, he
then had a conversation with Hackney during which they talked about the consequences if the
Symons Estate won at trial. When Hackney indicated that the verdict would be at least $1
million, Prodinger told him that the case needed to get settled within policy limits. Hackney told
him to write a letter to Hackney indicating that he could not absorb such a loss. On November
13, 2005, Prodinger wrote a letter to Hackney that authorized AP Capital to settle the case within
policy limits. The president of BCEP also signed the letter. Prodinger believed that the letter
was clear that he wanted the case settled within policy limits. Dawn Hart, the office manager for
BCEP, testified that she typed the letter for Prodinger and that Prodinger was not happy about
settling because he felt that there had been no violation of the standard of care. However, he
would rather settle than take the case to trial.10 Neither Hackney nor Olivetti viewed Prodinger’s
letter as a demand to settle the case. Hackney testified that if a physician wants a case settled, he
must write, “I hereby demand . . . .”
On the first day of trial, with authority from AP Capital, Hackney offered the Symons
Estate $100,000 as a settlement. The offer was rejected, and the Symons Estate did not make a
counteroffer. Hackney testified that he and Prodinger sat next to each other during trial and that
he spoke with Prodinger at the end of each day of trial. Olivetti testified that he had lunch with
Prodinger on the first day of trial and that Prodinger continued to want to try the case. Prodinger
admitted that, during trial, he never told Hackney or Olivetti that he wanted the case settled. He
10
Prodinger testified that he knew that if the case settled for more than $200,000 that his name
would be reported to the National Practitioners’ Data Bank, which is a “black mark” on a
physician’s name, but he was willing to take the mark to get the case settled.
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also admitted that the November 13, 2005, letter was the only communication in which he
requested a settlement.
During the course of the trial, Hackney wrote reports. After Prodinger testified, Hackney
wrote that Prodinger did a wonderful job. Hackney reported that Prodinger, who had not been
reluctant to testify, was disappointed with the limited cross-examination by the attorney for the
Symons Estate because he wanted to tell his side of the story. Olivetti testified that Prodinger’s
attitude was not consistent with someone who wants a case settled.
Hackney testified that it became evident during trial that the main issue was whether
Symons had arm pain when he went to the emergency room, and that the jury may have believed
that Symons had arm pain. However, both he and Prodinger believed that the jury’s verdict was
the result of sympathy.
Hackney testified that he did not hear any representation by Prodinger that he wanted the
case settled until he was removed from the case by AP Capital. In all of their discussions before,
during, and after trial, Prodinger indicated that he wanted the case to be tried. Hackney testified
that he did not act with reckless disregard in handling the case.
Dr. Gregory Henry, a board-certified emergency physician and a past president of an
offshore insurance company, opined that AP Capital acted in bad faith, which he generally
equated with wanton disregard or recklessness, when it failed to settle with the Symons Estate.
He believed it was “very close” whether the standard of care had been violated and that the case
was not a “slam dunk” for AP Capital, especially where the deceased is a young parent with
three dependent children. He further noted that because the Symons Estate had settled with
BCHS, the “deep pocket” had been removed, and the damages would fall on Prodinger and
BCEP in the event of a verdict for the Symons Estate. Dr. Henry also noted that Hackney knew
that the case would be difficult to win if the jury believed that Symons had arm pain.
Additionally, he found the substance of Prodinger’s letter to AP Capital to be clear that he
wanted the case settled within policy limits. Given all these factors, and where the reduced
settlement was within policy limits, Dr. Henry opined that it was reckless for AP Capital to try
the case.
David Cooper, an experienced medical malpractice attorney, testified that an insurance
company acts in bad faith when it acts in an arbitrary, reckless, or indifferent manner toward its
insured. After reviewing the file, Cooper opined that that it was a “no-brainer” that AP Capital
had the responsibility to settle the case. Cooper explained that his decision was based on several
factors. First, there was the letter from the forensic pathologist indicating that Symons died from
a heart attack and that Symons was suffering from the heart attack when he first appeared in the
emergency room. Second, Hackney recognized that, if the jury found that Symons had reported
arm pain, the case was “over” because the experts recognized that, if there was arm pain, a
cardiovascular examination needed to be performed and that examination would have revealed
the heart attack. Third, the initial settlement demand of $1.2 million was similar to what the
damages would be if AP Capital lost at trial. Cooper noted that Hackney had decided not to use
his own economist and instead accepted the amount of damages offered by the Symons Estates’
economist. Fourth, because the Symons Estate had settled with BCHS, all damages above
$300,000 would be the responsibility of Prodinger and BCEP. According to Cooper, when the
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Symons Estate dropped its settlement demand to $295,000, it was reckless, arbitrary, and
indifferent for AP Capital not to settle the case.
William Tourney, an attorney who specializes in defending medical malpractice cases,
opined that the standard of bad faith was whether the insurance company acted recklessly or
arbitrarily. Tourney opined that AP Capital did not act in bad faith by not settling the case. He
explained that it would be reckless for an insurance company to take a case to trial when it had
no supporting expert testimony. Here, however, Reisdorf, a very reputable expert in emergency
medicine, opined that the care was appropriate. In addition, Tourney believed that the attorney
for the Symons Estate sent a message that the Estate’s case was “not good” when he settled with
BCHS for $25,000. Tourney testified that the case did not present an unusual fact pattern, and
that it is not uncommon for a person who is released from an emergency room to suffer an
untoward event. He further testified that it is exceedingly rare not to have a sympathetic
plaintiff, and that cases where exposure is above policy limits often go to trial. He stated that,
irrespective of policy limits and sympathy, one must look at the merits of the case. According to
Tanoury, based on the medicine practiced and the opinion of the experts who reviewed the case,
it was reasonable for AP Capital to take the case to trial. Tanoury also testified that he saw
nothing in the file, other than Prodinger’s letter authorizing settlement, to indicate that Prodinger
did not want the case to go to trial.11
Bruce Leaman, director of claims at Henry Ford Health System, which is self-insured,
testified that bad faith exists when an insurance company operates counter to the interests of the
insured and fails to take into consideration the best interests of the insured. He opined that AP
Capital acted reasonably and in good faith, and he saw no evidence that AP Capital acted
recklessly, indifferently, or arbitrarily toward Prodinger. Leaman explained that AP Capital had
expert support, and that the file indicated that Prodinger handled himself well at his deposition.
According to Leaman, the fact that a physician believes that the care provided complied with the
standard of care and comes across well at a deposition is an indication that the case is one that
should be defended. He found nothing to indicate that Prodinger had any concerns about the
case. Additionally, the post-trial statement of Prodinger, included in a memo by Olivetti,
indicated that he believed there was no way that the standard of care was violated and that giving
the Symons Estate $295,000 was not justified.
According to Langeland, when BCEP filed for bankruptcy all of its assets and liabilities
were turned over to the bankruptcy estate. After some administrative disbursements, the assets
in the bankruptcy estate totaled $516,687. The Symons Estate is the only remaining creditor of
the bankruptcy estate. He testified that if it was determined that there was no bad faith by AP
11
Tanoury testified that if Prodinger really wanted the case settled, that intent would appear in
multiple locations in the file. He noted that after the letter was written, Prodinger had ample
opportunity, including four days of trial, to demand a settlement. He also noted that the notes in
the file indicated that Prodinger was disappointed that he was not more vigorously cross-
examined at trial. Such an attitude, according to Tanoury’s experience, was not consistent with a
physician who did not want to be in trial.
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Capital, he would distribute these funds to the Symons Estate. However, if it was determined
that AP Capital acted in bad faith, he would collect money from AP Capital, pay off the Symons
Estate judgment, and return any surplus to BCEP.
According to Tibble, after Prodinger filed for bankruptcy he was allowed to keep his
house, airplane, and retirement plan. The largest asset in the bankruptcy estate was the bad faith
claim against AP Capital. Tibble acknowledged that the legal malpractice claim had also been
surrendered to the bankruptcy estate and that the claim was settled for $350,000. Prodinger had
been discharged from the Symons Estate judgment, but the Symons Estate was a creditor of
Prodinger’s bankruptcy estate. Therefore, any judgment against AP Capital in the bad faith
action would be used to pay the Symons judgment.
The jury found that AP Capital had acted in bad faith in failing to negotiate a settlement
with the Symons Estate. The damages awarded by the jury reflect the amount of damages that
were requested by Tibble and Langeland. Tibble requested damages in the amount of
$204,776.64, which was the amount of Tibble’s attorney fees in appealing the Symons judgment
and in filing for bankruptcy.12 Langeland requested damages in the amount of $1,497,723,
which represented $155,672 for BCEP’s attorney fees in appealing the Symons judgment and
filing for bankruptcy, $654,738 for the amount of BCEP’s assets confiscated by him after BCEP
filed for bankruptcy, and $687,313 for the amount remaining on the Symons Estate judgment
after the assets in BCEP’s bankruptcy estate were paid to the Symons judgment.
The trial court entered judgment against AP Capital and in favor of Tibble and
Langeland. On AP Capital’s motion, the court granted a setoff of $350,000, the amount of the
legal malpractice settlement, to the amount of damages awarded by the jury to Langeland, and
entered an amended judgment.
IV. THE INSTRUCTION ON BAD FAITH
AP Capital asserts that the trial court erred when it refused to give the special jury
instruction on bad faith requested by AP Capital. It argues that the trial court erred when it failed
to include the words “arbitrary” and “intentional” in the definition of bad faith, and when it
failed to include specific examples of conduct that do not constitute bad faith. This Court
reviews de novo claims of instructional error.13 Alfieri v Bertorelli, 295 Mich. App. 189, 197; 813
12
During trial, the trial court ruled that, because Prodinger had received a discharge from the
Symons Estate judgment, Tibble could not collect on the judgment. However, Tibble could still
collect for Prodinger’s attorney fees.
13
Tibble and Langeland argue that AP Capital’s claim of instructional error is not preserved.
“To preserve an instructional issue for appeal, a party must request the instruction before
instructions are given and must object on the record before the jury retires to deliberate.” Heaton
v Benton Constr Co, 286 Mich. App. 528, 537; 780 NW2d 618 (2009). After all the testimony
had been received but before the jury was instructed, the trial court informed the parties
regarding how it intended to instruct the jury on bad faith. Tibble and Langeland had no
objections to the instruction. However, AP Capital “suggest[ed],” per its own instruction, that
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NW2d 772 (2012). “Instructional error warrants reversal if it resulted in such unfair prejudice to
the complaining party that the failure to vacate the jury verdict would be inconsistent with
substantial justice.” Ward v Consolidated Rail Corp, 472 Mich. 77, 84; 693 NW2d 366 (2005).
“Even if somewhat imperfect, instructions do not create error requiring reversal if, on balance,
the theories of the parties and the applicable law are adequately and fairly presented to the jury.”
Case v Consumers Power Co, 436 Mich. 1, 6; 615 NW2d 17 (2000).
An insured may sue its insurer for acting in bad faith in refusing to settle. J & J Farmer
Leasing, Inc v Citizens Ins Co of America, 472 Mich. 353, 356 n 3; 696 NW2d 681 (2005);
Commercial Union Ins Co v Liberty Mut Ins Co, 426 Mich. 127, 134-135; 393 NW2d 161 (1986).
There is no standard jury instruction on the definition of bad faith. “[W]hen the standard jury
instructions do not adequately cover an area and a party requests a supplemental instruction, the
trial court is obligated to give the instruction if it properly informs the jury of the applicable law
and is supported by the evidence.” Silberstein v Pro-Golf of America, Inc, 278 Mich. App. 446,
451; 750 NW2d 615 (2008). A supplemental jury instruction, which is to be modeled as nearly
as practicable after the standard jury instructions, must be concise, understandable,
conversational, unslanted, and nonargumentative. Stoddard v Mfr Nat’l Bank of Grand Rapids,
235 Mich. App. 140, 163; 593 NW2d 630 (1999).
AP Capital submitted a proposed supplemental instruction on bad faith that was
structured after an instruction on bad faith set forth in Commercial Union Ins Co, 426 Mich. 127.
After all of the testimony was presented, the trial court informed the parties of the instruction on
bad faith that it intended to give:
Plaintiffs have alleged that defendant AP Capital failed or refused to settle the
underlying medical malpractice lawsuit within the applicable policy limits in bad
faith. You must decide whether AP Capital has acted in bad faith. An insurance
company acts in bad faith when it recklessly or indifferently disregards the
interests of its insureds or when it was motivated by the desire to protect its own
interests at the expense of its insureds.
. . . acts of bad faith may include one or more of the following: A[,]
rejecting a reasonable settlement offer within its policy limits; B, failing to initiate
settlement negotiations when warranted by the circumstances; C, disregarding the
advice of an attorney; D, failing to take an appeal following an excess verdict
when there are reasonable grounds for such appeal especially when recommended
by trial counsel.
AP Capital requested that the trial court include the words “arbitrary” and “intentional disregard”
in the definition of bad faith. Citing Commercial Union Ins Co, 426 Mich. 127. AP Capital also
the instruction include the words “arbitrary” and “intentional” in the definition of bad faith, as
well as a description of conduct that does not establish bad faith. The trial court decided not to
change its proposed instruction. AP Capital did not specifically state that it “objected” to the
trial court’s instruction. However, AP Capital’s request for a specific instruction preserved the
claim of instructional error. Id.
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requested that the jury be instructed regarding what did not constitute bad faith.14 The trial court
refused AP Capital’s request to amend its instruction. The court explained:
Because I used the word recklessly or indifferently in my mind that
eliminates the aspect of mere negligence. Now, as it relates to the balance of your
request, when I say it may include one or more of the following, it seems to me
that that does take into consideration – when I will certainly allow the lawyers to
argue – that negligence is not included and that there could be legitimate reasons
for not settling. We use the word recklessly and indifferently, and those two are
strong words so I will not change what I have proposed.
“A mistake of judgment is not bad faith.” City of Wakefield v Globe Indemnity Co, 246
Mich. 645, 656; 225 NW2d 643 (1929) (opinion of SHARPE, J.). [The lead opinion in Wakefield
was written by Justice FEAD. However a majority of the justices signed the opinion of Justice
SHARPE.] Justice FEAD wrote:
Undoubtedly the insurer does not act in bad faith it if refuses settlement in
the honest belief that it has a fair chance of victory, or of keeping the verdict
within the policy limit, or, upon reasonable grounds, that the compromise is
amount is excessive, or if it has legal defenses, as yet undetermined by a court of
last resort, which fairly seem applicable, as the question of seasonable notice to
the city of the claim of injury may have been in the instant case. There may be
other bona fide reasons for refusal to compromise. On the other hand, arbitrary
refusal to settle for a reasonable amount, where it is apparent that suit would
result in a judgment in excess of the policy limit, indifference to the effect of
refusal in a judgment in excess of the policy limit, failure to fairly consider a
compromise and facts presented and pass honest judgment thereon, or refusal
upon grounds which depart from the contract and the purpose of the grant of
power, would tend to show bad faith. [Id. at 652-653.]
In Commercial Union Ins Co, 426 Mich. at 133, the trial court gave the following
instruction on bad faith:
The term bad faith as used in these instructions may be defined as
involving insincerity, dishonesty, disloyalty, duplicity, or deceitful conduct; it
14
AP Capital argued in part:
[W]e believe that there ought to be some statement about the whole paragraph of
Commercial Union that says good faith denials, offers of compromise, or other
honest errors of judgment are not sufficient to establish bad faith. It goes on at
great length, but it talks about negligence isn’t enough. Bad judgment is not
enough. In other words, there’s not balancing instruction in my mind in what the
court just read. It’s pretty close, but it needs at least a sentence to say not
everything in the world is bad faith.
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implies dishonesty or concealment. An honest mistake of judgment is not in and
of itself bad faith and no single fact is necessarily decisive of the issue.
[Emphasis omitted.]
The Supreme Court agreed that, because bad faith is something less than fraud, the
instruction erroneously increased the plaintiff’s burden of proof. Id. at 136-137. It then stated:
Contrary to holdings in some other jurisdictions, bad faith should not be
used interchangeably with either “negligence” or “fraud.” Michigan has reached
this conclusion in the past. Accordingly, we define “bad faith” for instructional
use in trial courts as arbitrary, reckless, indifferent, or intentional disregard of the
interests of the person owed a duty.
Good-faith denials, offers of compromise, or other honest errors of
judgment are not sufficient to establish bad faith. Further, claims of bad faith
cannot be based upon negligence or bad judgment, so long as the actions were
made honestly and without concealment. However, because bad faith is a state of
mind, there can be bad faith without actual dishonesty or fraud. If the insurer is
motivated by selfish purpose or by a desire to protect its own interests at the
expense of the insured’s interests, bad faith exists, even though the insurer’s
actions were not actually dishonest or fraudulent. [Id. at 136-137.]
The Supreme Court continued that, although it “has articulated here a precise definition of ‘bad
faith’ for instructional purposes,” there are supplemental factors that a fact-finder may consider
in determining whether bad faith existed. Id. at 137-138. The supplemental factors are:
1) failure to keep the insured fully informed of all developments in the
claim or suit that could reasonably affect the interests of the insured,
2) failure to inform the insured of all settlement offers that do not fall
within the policy limits,
3) failure to solicit a settlement offer or initiate settlement negotiations
when warranted under the circumstances,
4) failure to accept a reasonable compromise offer of settlement when the
facts of the case or claim indicate obvious liability and serious injury,
5) rejection of a reasonable offer of settlement within the policy limits,
6) undue delay in accepting a reasonable offer to settle a potentially
dangerous case within the policy limits where the verdict potential is high,
7) an attempt by the insurer to coerce or obtain an involuntary contribution
from the insured in order to settle within the policy limits,
8) failure to make a proper investigation of the claim prior to refusing an
offer of settlement within the policy limits,
-11-
9) disregarding the advice or recommendations of an adjuster or attorney,
10) serious and recurrent negligence by the insurer,
11) refusal to settle a case within the policy limits following an excessive
verdict when the chances of reversal on appeal are slight or doubtful, and
12) failure to take an appeal following a verdict in excess of the policy
limits where there are reasonable grounds for such an appeal, especially where
trial counsel so recommended. [Id. at 138.]
It is within a trial court’s discretion to determine which supplemental factors, if any, to include in
the jury instructions. Id. The Supreme Court concluded:
In applying any factors, it is inappropriate in reviewing the conduct of the
insurer to utilize “20-20 hindsight vision.” The conduct under scrutiny must be
considered in light of the circumstances existing at the time. A microscopic
examination, years after the fact, made with the luxury of actually knowing the
outcome of the original proceeding is not appropriate. It must be remembered
that if bad faith exists in a given situation, it arose upon the occurrence of the acts
in question; bad faith does not arise at some later date as a result of an
unsuccessful day in court. [Id. at 137.]
Here, the language of AP Capital’s proposed instruction came directly from Commercial
Union Ins Co. The trial court’s instruction deviated from AP Capital’s proposed instruction in
three ways: (1) it did not include the words “arbitrary” and “intentional” in the definition of bad
faith; (2) it did not state that good-faith denials, offers of compromise, or other honest errors of
judgment are not sufficient to establish bad faith; and (3) it did not state that it is inappropriate to
review an insurer’s conduct with 20-20 hindsight vision. AP Capital contends only that the first
two deviations constituted error.
We conclude that the trial court erred when it denied AP Capital’s request to include the
words “arbitrary” and “intentional” in the definition of bad faith. In Commercial Union Ins Co,
426 Mich. at 136-137, the Supreme Court articulated a precise definition of “bad faith” for
instructional purposes: bad faith is “arbitrary, reckless, indifferent, or intentional disregard of the
interests of the person owed a duty.” Trial courts are required to follow a decision of the
Supreme Court until it is overruled or modified by the Supreme Court. Boyd v W G Wade
Shows, 443 Mich. 515, 523; 505 NW2d 544 (1993), overruled in part on other grounds
Karaczewski v Farbman Stein & Co, 478 Mich. 28; 732 NW2d 56 (2007), overruled in part
Bezeau v Palace Sports & Entertainment, Inc, 487 Mich. 455; 795 NW2d 797 (2010). Thus,
where the Supreme Court has provided the instructional definition of bad faith, and where AP
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Capital requested that the jury be instructed with the definition, the trial court was required to
give the instruction.15
The trial court’s instruction on bad faith was “somewhat imperfect” because it omitted
the words “arbitrary” and “intentional.” Case, 463 Mich. at 6. AP Capital asserts that this
imperfection was prejudicial because the two omitted words denoted “a higher level of
disregard” than the words “reckless” and “indifferent,” thereby making it easier for the jury to
equate bad faith with negligence. The basis for AP Capital’s argument is the following statement
from Justice LEVIN’S concurrence in Commercial Union Ins Co:
The terms “arbitrary, reckless, indifferent” have varying meanings
depending on the context.
It has been said that some authorities hold that the term “reckless” means
“no more than ‘negligence,’ while others hold that [the term means] ‘wantonness
or bordering on willful,’ and there is also a meaning between these two
extremes.” 76 CJS, p 63. The same encyclopedia states that the term has been
held in particular cases to “imply mere inattention to duty; thoughtlessness;
indifference; heedlessness; carelessness; and nothing more than mere negligence.”
Id. [Commercial Union Ins Co, 426 Mich. at 140 (LEVIN, J., concurring).]
Justice LEVIN disagreed with the Supreme Court’s instructional definition of bad faith and stated
that to instruct the jury in the “abstract . . . without reference or regard to particular
circumstances[] could readily cause jury misunderstanding and lead to erroneous results.” Id. at
140-141 (LEVIN, J., concurring).
A person is negligent when he or she fails to exercise the reasonable care that a
reasonably careful person would exercise under the circumstances. See Case, 463 Mich. at 7.
AP Capital has not presented this Court with any authority holding that “reckless” means nothing
more than negligence. Moreover, AP Capital makes no argument that the jury, upon being
instructed that an insurance company acts in bad faith when it “recklessly” or “indifferently”
disregards the interests of its insured or when it is motivated by the desire to protect its own
interests at the expense of the insured, would conclude that bad faith could be equated with
negligence. A dictionary definition of a word provides how the word is commonly and
ordinarily understood. See Holland v Trinity Health Care Corp, 287 Mich. App. 524, 528; 791
NW2d 724 (2010) (stating that a court may consult a dictionary to determine the plain and
15
We find, however, that the trial court did not err when it refused AP Capital’s request to
include in the bad faith instruction a statement that good faith denials, offers of compromise, or
other honest errors of judgment are insufficient to establish bad faith. The Supreme Court in
Commercial Union Ins Co did not intend that its statement that “[g]ood faith denials, offers of
compromise, or honest errors of judgment are not sufficient to establish bad faith” to be included
in the definition of bad faith. This sentence was the first sentence of the paragraph that followed
the Supreme Court’s instructional definition of bad faith. Where the sentence begins a new
paragraph, it was clearly not intended to be part of the instructional definition for bad faith.
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ordinary meaning of an undefined term in a contract). “Reckless” is defined as “utterly
unconcerned about consequences; rash; careless.” Random House Webster’s Dictionary (2000).
“Indifferent” is defined, in pertinent part, as “without interest or concern; not caring; apathetic.”
Random House Webster’s Dictionary (2000). We agree with the trial court’s statement that
“recklessly” and “indifferently” are strong words and that they eliminate the aspect of
negligence. To be “utterly unconcerned about consequences” or to be “without interest or
concern” and “apathetic,” an insurance company has done more than fail to act as a reasonable
insurance company would under the circumstances. Accordingly, we conclude that the trial
court’s “somewhat imperfect” instruction on bad faith does not require reversal. Because the
jury was instructed that an insurance company acts in bad faith when it “recklessly” or
indifferently” disregards the interests of its insured, the applicable law regarding bad faith, on
balance, was adequately and fairly presented to the jury and AP Capital was not prevented from
arguing that its failure to settle with the Symons Estate, even if negligent or the result of bad
judgment, did not constitute bad faith. Case, 463 Mich. at 6.
In arguing that the trial court’s instruction on bad faith was prejudicial, AP Capital claims
that the experts presented by Tibble and Langeland presented inaccurate information to the jury.
First, it contends that Cooper denied that “bad faith requires a ‘higher intentionality.’” A review
of Cooper’s testimony, however, reveals that Cooper testified consistently with the statements by
the Supreme Court in Commercial Union Ins Co, 426 Mich. at 136-137, when he testified that an
honest error of judgment did not constitute bad faith and that bad faith is a state of mind
described as arbitrary, indifferent, or reckless. A review of Henry’s testimony regarding bad
faith is confusing and subject to two different interpretations. One could interpret his testimony
as stating that an insurance company acts recklessly if it does not do what reasonably prudent
people would do. Or, one could interpret his testimony as stating that one must determine
whether an insurance company, upon not acting as would reasonably prudent people, acted
recklessly. Given the ambiguous nature of Henry’s testimony, we conclude that the testimony
did not render the trial court’s “somewhat imperfect” instruction on bad faith as one requiring
reversal. The unambiguous expert testimony, which not only came from Cooper but also from
AP Capital’s experts, was that bad faith required more than an honest mistake of judgment.
AP Capital further argues that the trial court’s instruction was prejudicial because its
experts testified that its conduct was reasonable, while Henry testified that the decision whether
to go to trial was a judgment call that could have “gone either way.” However, a review of
Henry’s testimony reveals that he did not suggest that the decision to go to trial could have gone
either way. Rather, Henry testified that it was a “very close call” whether the standard of care
was violated, that the case had a “reasonable potential for loss,” and that it was “not a slam dunk
winner.” He also testified that Prodinger and BCEP had a 40 percent chance of winning, but that
this meant that there was a “huge error rate.” He characterized the medical legal system as a
“crap shoot.” The fact that the case was “not a slam dunk winner” for AP Capital and that there
was a “huge error rate” were factors that led Henry to conclude that it was reckless for AP
Capital not to settle with the Symons Estate. Tanoury testified that he believed that AP Capital’s
decision to take the case to trial was a reasonable decision, as did Leaman. Specifically, Leaman
testified that he believed AP Capital acted “reasonably, in good faith.” Because Tanoury and
Leaman also testified that bad faith requires a reckless or arbitrary disregard of the insured’s
interests or a failure to consider those interests, their testimony that AP Capital acted reasonably
cannot be read as stating that bad faith equates to negligence.
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In sum, although the trial court erred when it failed to include the words “arbitrary” and
“intentional” in the instructional definition of bad faith, the error does not require reversal. On
balance, the applicable law regarding bad faith was adequately and fairly presented to the jury.
AP Capital was not prevented from arguing that its failure to settle did not constitute bad faith,
and no expert witness unambiguously testified that bad faith equaled negligence.
II. BANKRUPTCY AND THE BAD FAITH CLAIM
AP Capital argues that, because the obligations of Prodinger and BCEP to pay the
Symons judgment were eliminated in the Chapter 7 bankruptcies, Prodinger and BCEP have not
been damaged by AP Capital’s failure to settle with the Symons Estate. Therefore, AP Capital
claims that Tibble and Langeland, who are subject to all defenses that could have been asserted
against Prodinger and BCEP, have failed to establish that they are entitled to any relief. AP
Capital relies on Frankenmuth Mut Ins Co v Keeley (Keeley I), 433 Mich. 525; 447 NW2d 691
(1989), and Frankenmuth Mut Ins Co v Keeley (On Rehearing) (Keeley II), 436 Mich. 372; 461
NW2d 666 (1990).
This Court reviews a trial court’s decision on a motion for summary disposition de novo.
Moser v Detroit, 284 Mich. App. 536, 538; 772 NW2d 823 (2009). Summary disposition is
proper under MCR 2.116(C)(10) if “there is no genuine issue as to any material fact, and the
moving party is entitled to judgment or partial judgment as a matter of law.” This Court reviews
legal questions de novo. Brown v Loveman, 260 Mich. App. 576, 591; 680 NW2d 432 (2004).
Similarly, this Court reviews de novo a trial court’s ruling on a motion for directed verdict.
Sniecinski v Blue Cross & Blue Shield of Michigan, 469 Mich. 124, 131; 666 NW2d 186 (2003).
A motion for directed verdict should be granted only if the evidence, when viewed in the light
most favorable to the nonmoving party, fails to establish a claim as a matter of law. Id.
A. Keeley I and Keeley II
Before Keeley I and Keeley II were decided, the Supreme Court held that a claim against
an insurer for bad faith sounds in contract. Kewin v Massachusetts Mut Life Ins Co, 409 Mich.
401, 422-423; 295 NW2d 50 (1980). It also held that an insurer’s liability for a breach of the
duty to defend its insured was limited to an amount equal to the insured’s assets not exempt from
legal process. Stockdale v Jamison, 416 Mich. 217, 228; 330 NW2d 389 (1982).
In Keeley I, 435 Mich. 525, the issue before the Supreme Court was the remedy for an
insurer’s bad faith failure to settle. Justice ARCHER, who wrote the lead opinion, explained the
two schools of thought:
The jurisdictional split is distinguished by the following doctrines: the
prepayment rule and the judgment rule. The older prepayment rule is the
doctrine, adopted by a minority of jurisdictions, which dictates that an insurer
may be held liable in an “excess” case only if part or all of the judgment has been
paid by the insured. The judgment rule, adopted by a majority of jurisdictions,
commands an insurer to pay an excess judgment in instances of bad faith, so that
the insured need not make any payment nor have the capacity to pay any part of
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the judgment in order to recover the excess amount from the insurer. [Keeley I,
433 Mich. at 535 (emphasis in original).]
Justice ARCHER, with whom three justices concurred, adopted the judgment rule. Id. at 539-541,
544. He explained that the “major flaw” with the prepayment rule was that an insurer, if
fortunate enough to have an insured that was insolvent, suffered no consequence for its failure to
meet the good faith standard and that the judgment rule was the most effective way to underscore
the serious concern about bad faith practices in the insurance industry. Id. at 539. He further
explained that an insured, even one with little or no assets, suffers injury when an excess
judgment is obtained against him. Id. at 540. He explained that the excess judgment will impair
the insured’s credit, force him into bankruptcy, diminish his reputation, and subject his property
to a lien and his earnings to garnishment. Id.
In dissent, Justice LEVIN, with whom two justices agreed, stated that he would apply
Stockdale to a case where an insurer acted in bad faith in failing to settle. Justice LEVIN agreed
“that the prepayment rule, requiring an insured to have made some payment on the judgment, is
unsound and that the judgment rule is in general the better approach.” Keeley I, 433 Mich. at
553. However, he went on to state:
Adoption of the judgment rule approach does not, however, justify
eliminating the sense of the prepayment rule that the insurer should not be
required to pay more than the insured is able to pay on the judgment. We agree
with Chief Judge Fuld of the New York Court of Appeals who said:
“I do not suggest—although there are a number of
decisions so holding—that an insured must pay the judgment
before he, or another on his behalf, is able to proceed against a bad
faith insurer. However, there must be some showing that he has
been damaged. In the case before us, there is not the slightest
evidence, or even intimation, that the insured was harmed by the
judgment, that he had any assets which were imperiled or that
either his reputation or credit was impaired.
“In short, the complaint in this case should be dismissed
not only because there is no evidence that the insurer acted in bad
faith but also because there is no proof that the insured suffered
any damage.” [Gordon v Nationwide Mutual Ins Co, 30 NY2d
427, 441; 285 NE2d 849 (1972). Emphasis added.]
Judge Keeton has expressed the following view:
“When it seems almost certain the insured will never pay
anything at all on the excess judgment if the claim against the
insurer is denied, arguments that the insured has been damaged by
the increase in debts are rather weak support for any cause of
action at all, much less for a measure of damages equal to the
amount of the increase in the insured’s debts. However, other
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courts have concluded that the entry of judgment against a person
constitutes a loss and that the insured’s ‘loss does not turn on
whether the judgment has been satisfied.’ Since, absent a
discharge of the obligation through a bankruptcy proceeding, the
third party’s judgment can remain as an outstanding obligation for
extended periods of time, in many circumstances there is
considerable uncertainty in regard to predicting whether the
insured may ultimately have resources or assets that may be taken
to satisfy some portion of the judgment.
“Third party claimants are not in a position to assert that
they were harmed as a result of the insurer’s conduct in regard to
having not settled the tort claim. The insurer’s duty was to the
insured, not to the claimant. Furthermore, in one sense, a third
party benefits from the insurer’s refusal to settle because the
insurer’s refusal to settle resulted in the claimant’s obtaining a
judgment in excess of the amount the claimant had offered to
accept in settlement. Thus, although the third party claimant
deserves further compensation, the theoretical justification for
imposing liability on the insurer, which is harm to the insured,
does not warrant a recovery by such a claimant any more than the
innocent victims of an underinsured tortfeasor would be entitled to
indemnification beyond the amount of the applicable coverage
from a liability insurer who had not refused a settlement.” [Keeton
& Widiss, Insurance Law, § 7.8(i)(1), pp 899-900. Emphasis
added.] [Id. at 554-556.]
Justice LEVIN noted that an action for bad-faith failure to settle sounds in contract, not
tort. Id. at 556-557. He explained that “[c]ontract damages seek to place the aggrieved party in
the same economic position he would have been in had the contract been performed” and that
“[c]ontract damages are generally measured by the loss to the promisee, not the loss or gain to
some other person.” Id. at 557-558 (emphasis in original). According to Justice LEVIN, one
could argue that the Supreme Court, by adopting the judgment rule, “no longer restricts plaintiffs
claiming bad-faith settlement practices to recovery of pecuniary loss and has recognized a kind
of hybrid cause of action sounding in contract, but actually allowing recovery of losses akin to
punitive damages.” Id. at 562.
Justice LEVIN reached the following conclusion:
We would accept the judgment rule insofar as it dispenses with the need to
establish that [the insured] paid any amount on the judgment and would, as did
the Court of Appeals, remand to the trial court for a determination of the extent of
[the insured’s] assets not exempt from legal process and, additionally, for a
determination of the value of the excess portion of the judgment—now over
$600,000 including accrued interest plus additional interest as it accrues—taking
into account not only [the insured’s] assets not exempt from legal process but also
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his prospects of attaining in the future additional assets from which the judgment
could be collected.
We thus propose a compromise between the prepayment and the judgment
rule: that this Court accept the essence of the judgment rule by eliminating the
need to show partial payment, but provide protection for insurers along the lines
of the prepayment rule by precluding collection on the judgment from the insurer
beyond what is or would actually be collectable from the insured. [Id. at 562-
565.]
Justice LEVIN further explained what should happen on remand:
The court should, in determining [the insured’s] prospects of attaining in
the future additional assets, consider his educational achievement and plans for
future education, his skills, present and prospective, and the job opportunities that
might be available to him.
I would prefer to direct entry of a judgment declaring that [the insurer] is
subject to liability (not that it is liable) for the $600,000 excess plus interest as it
accrues, but would not require [the insurer] to pay any amount in respect to that
judgment unless and until and then only to the extent [the holder of the excess
judgment] can establish that [the insured] is collectable.
As and when [the insured] acquires assets, greater income, inheritance,
whatever, [the holder of the excess judgment] could seek a declaration requiring
[the insurer] to pay an amount equivalent thereto. The judgment against [the
insurer] would substitute for the judgment against [the insured], so that [the
insured’s] credit would no longer be adversely affected. The burden thus imposed
on [the holder of the excess judgment] would be no greater than in any case where
there is inadequate insurance—he could only recover to the extent he could find
attachable or garnishable assets.
[The holder of the excess judgment] would be better off because he need
not actually attach or garnish, and there should be a minimum of judicial
proceedings. Such a judgment should not be subject to any statute of limitations.
There would be no possibility of bankruptcy discharge of [the insured’s debt].
[Id. at 565 n 28.]
In Keeley II, after granting rehearing, the Supreme Court adopted Justice LEVIN’s dissent
in Keeley I. Keeley II, 436 Mich. at 376. The Supreme Court stated that it was “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.” Id.
B. Procedural History – Summary Disposition
After BCEP filed for bankruptcy, AP Capital moved for summary disposition under
MCR 2.116(C)(10) on BCEP’s bad faith claim. AP Capital argued that, because a claim for bad
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faith was a claim for breach of the insurance contract, the only damages available were economic
damages or, in other words, “the payment of the excess judgment shown to have been caused by
the alleged bad-faith failure or refusal to settle within policy limits.” And, according to AP
Capital, it could not be disputed that Langeland, because he stands in the shoes of BCEP, was
subject to the same defenses and limitations to which BCEP would be subject. AP Capital
claimed that because BCEP had been discharged from the Symons judgment and, therefore, was
relieved from all responsibility for payment of the judgment, nothing was collectable from
BCEP. Therefore, pursuant to Keeley I and Keeley II, BCEP had not suffered any damages from
AP Capital’s bad faith. According to AP Capital, McClarty v Gudenau, 176 B.R. 788 (ED Mich,
1995), held that there are no damages resulting from an excess judgment when the debtor has
filed for bankruptcy and has been discharged from the judgment.
In support of its motion, AP Capital presented the trial court with BCEP’s 2007 petition
for bankruptcy. It also presented BCEP’s list of unsecured creditors. Included on the list was
the Symons Estate, which had a stated claim of $1.16 million against BCEP.
In response, Langeland asserted that, because corporations do not receive discharges in
bankruptcy, BCEP remains liable, at the completion of the bankruptcy proceedings, for any
unpaid amount of the Symons judgment. In addition, Langeland argued that BCEP had suffered
economic damages from AP Capital’s bad faith. BCEP was solvent when the Symons judgment
was entered and, after it filed for bankruptcy, assets in the amount of $585,321.72 were seized.
According to Langeland, the only way that BCEP could be made whole was if AP Capital paid
the entire amount of the Symons judgment, as well as the administrative costs of the bankruptcy,
so that BCEP could recover the value of the assets that were seized. AP Capital could not simply
pay BCEP the amount of the assets that were seized because all payments by AP Capital
belonged to BCEP’s bankruptcy estate. Langeland noted that a distinction was drawn in Keeley I
between a solvent insured and an insolvent insured and that the pertinent cases cited by Justice
LEVIN held that an insured who was solvent before the excess judgment was entered was entitled
to recover the full amount of the judgment.
In support of its arguments, Langeland presented the trial court with an affidavit signed
by him. Langeland averred that the assets of BCEP’s bankruptcy estate included $585,321.72,
which represented accounts receivable. He had made mock distributions of the funds and, under
those distributions, the Symons Estate would receive a minimum payment of $376,150.47 or
$354,597.05. Langeland also averred that, after the funds of the bankruptcy estate were
distributed, the unpaid portion of the Symons judgment would remain as a debt for BCEP
because “corporate debts” are not dischargeable in bankruptcy. He further averred that the only
way an amount equal to the seized accounts receivable could be returned to BCEP was if he
“collects the full amount of the excess judgment from A.P. Capital and Randy Hackney, plus the
costs of administration, which includes a one-third attorney fee [for James Ford, counsel for
Langeland] and the costs of litigation.”
In reply, AP Capital acknowledged that corporations do not receive discharges in
bankruptcy, but stated that Langeland’s suggestion that the unpaid portion of the Symons
Judgment would remain enforceable against BCEP was “a serious exaggeration.” It explained
that the purpose of a Chapter 7 bankruptcy for a corporate debtor is the liquidation of assets and
distribution of the proceeds to creditors. According to AP Capital, there was no reason to
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suppose that BCEP would have any continuing existence after the bankruptcy proceedings were
completed. It had ceased doing business, and at the conclusion of the bankruptcy proceedings, it
would become defunct with its assets having been distributed for payment to creditors.
The trial court denied AP Capital’s motion for partial summary disposition. It held that
there were significant factual issues yet to be resolved and that, but for the Symons Judgment,
BCEP would be “a solvent continuing” corporation and that Langeland has standing on behalf of
BCEP to pursue recovery if liability exists. It noted that BCEP, because no dissolution
documents had been filed, remained in existence.
Then, after Prodinger filed for bankruptcy, AP Capital moved for summary disposition
under MCR 2.116(C)(10) on Prodinger’s bad faith claim. It repeated the arguments it had
asserted when it moved for summary disposition on BCEP’s claim for bad faith. In support of its
motion, AP Capital presented the trial court with Prodinger’s petition for bankruptcy. The
petition listed the Symons Estate as one of several creditors.
In response, Tibble noted that a provision in the insurance policy that AP Capital had
issued to BCEP stated that the bankruptcy of the insured shall not relieve AP Capital of its
obligations. This provision, according to Tibble, was fatal to AP Capital’s motion for summary
disposition because AP Capital had agreed that the bankruptcy of Prodinger would not relieve it
of its obligations arising under the policy. Tibble also argued that Prodinger was solvent when
the Symons judgment was entered and that he had suffered economic damages because of AP
Capital’s bad faith. Damages awarded in the legal malpractice case against Hackney would be
paid to the Symons Estate, rather than to Prodinger. In addition, Prodinger sustained nearly
$100,000 in attorney fees for appealing the Symons judgment and in filing for bankruptcy.
Tibble noted that there was a distinction in Keeley I between solvent and insolvent insureds and
that Justice LEVIN explained that when an insured is solvent at the time of the excess judgment,
the judgment rule applies. Therefore, he was entitled to the collect the full unpaid amount of the
Symons judgment. Tibble further noted that Justice LEVIN specifically disavowed limiting the
measure of damages to the insured’s assets exempt from legal process. In addition, Tibble
asserted that a discharge in bankruptcy has “the identical legal effect” on a bad faith claim as a
covenant not to sue: neither extinguished the debt. He asserted the same argument based on J &
J Farmer Leasing Co, Inc, 472 Mich. 353, that he presents on appeal.
In support of his arguments, Tibble presented the trial court with the insurance policy that
AP Capital issued to BCEP. The insurance policy stated, in part:
Bankruptcy or insolvency of the NAMED INSURED, CERTIFICATE
HOLDER, or ADDITIONAL INSURED shall not relieve the Company of any of
its obligations under this POLICY.
Tibble also presented the trial court with the schedule of Prodinger’s personal property. Included
in the schedule were Prodinger’s claim for legal malpractice against Hackney and his claim for
bad faith against AP Capital. At the hearing on AP Capital’s motion, Tibble presented the trial
court with statements regarding two brokerage accounts that Prodinger had in 2005. One of the
accounts was a 401(k), but the other account was not. This account had a market value of
$306,000 on December 5, 2005. Tibble also presented a document from a law firm that
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indicated Prodinger had paid in excess of $90,000 to prepare and file his bankruptcy petition. In
reply, AP Capital asserted that the insurance policy, pursuant to its own language, only required
it to pay damages up to the policy limits if Prodinger filed for bankruptcy.
The trial court denied AP Capital’s motion for summary disposition because there were
fact issues that needed to be resolved and because as “a matter of policy” the creditor of a
bankruptcy estate could not be left “high and dry” from any recovery. The trial court explained
the policy matter:
And it is abundantly clear that when Dr. Prodinger filed [for] bankruptcy he was
solvent. And the figure that was provided to me this morning was $306,583
market value in his portfolio with Charles Schwab, does not include any and all
other assets that the doctor may have had at the time of filing. The point of it is,
he clearly was solvent.
Whether or not he is collectible it seems to me is not an issue because he is
not collectible at this point. . . .
But, frankly, I cannot overlook for both legal and policy reasons the
decision from the Fifth Circuit in Stanley v Trencher [sic]. And the thing that
struck me when I reviewed that was more from a policy point of view. . . . I do
think Keeley is distinguishable because I think it is important as to whether or not
the debtor is solvent or insolvent.
But in the Fifth Circuit opinion the following appears, and I really think
this is important: The mere fact that due to debtor’s negligence in bankruptcy he
was relieved of any personal liability on a pre-petition judgment entered against
him as a result of the attorney’s alleged malpractice during their representation of
debtor as defendant in the civil rights action did not necessarily mean that the
trustee who stood in the debtor’s shoes in pursing debtor’s legal malpractice claim
would be unable to establish that debtor had sustained the necessary loss as a
result of the attorney’s allegedly negligent representation.
Under Louisiana law as predicted by the Fifth Circuit Court of Appeals it
would be improper to excuse attorneys from liability for their alleged malpractice
based solely on financial misfortunes of their client in allowing the trustee to
pursue these legal malpractice claims on behalf of the estate despite debtor’s
bankruptcy discharge[,] would not threaten the primary purpose behind the
discharge that is avoiding financial harm to the debtor.
Now, in this case it focussed [sic] on the legal malpractice, but I believe as
a matter of policy it would carry over to this excess coverage issue.
It’s clear to me that there is one point three million dollars still owing on
the malpractice verdict. It’s clear to me that Dr. Prodinger has sustained at this
point economic damages at least in two areas, the loss of the Charles Schwab
brokerage account, and the payment to the law firm of $93,028.90, and not to
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permit those issues to ultimately [be] resolved by a finder of fact, be it a jury or a
judge, in my view would not be fair.
C. Procedural History – Motion for Directed Verdict
In its trial brief, AP Capital stated that Tibble and Langeland were seeking to recover (1)
“the entire unpaid balance of the over-limit judgment” and (2) the attorneys fees that were
incurred as a result of the Symons judgment. AP Capital informed the trial court that, if the case
proceeded to trial, it would ask the court to reconsider “its prior decisions regarding recovery of
the unpaid balance of the over-limit judgment.” It stated that the evidence at trial would show
that Prodinger, who had received a discharge from the Symons judgment, and that BCEP, which
had gone defunct, could not be harmed by the Symons judgment because neither can ever be
required to pay a penny toward it. It argued that, “because no amount of the excess judgment
can be collected from either [Prodinger or BCEP], the unpaid balance of the over-limit judgment
can no longer be awarded as damages for the alleged bad-faith refusal to settle . . . .”
During trial, AP Capital requested a directed verdict on a couple of grounds. First, it
referenced its trial brief and asked for a directed verdict on Tibble’s claim with regard to the
“unpaid excess judgment.” AP Capital stated that there was no evidence Prodinger paid or will
pay anything on the judgment. Second, with regard to Langeland’s claim, AP Capital requested
a directed verdict on the excess judgment above the amount of $354,000, which was “the
amount” in Langeland’s affidavit. AP Capital did not request a directed verdict on “the appellate
attorney fees because [the trial court] said those were part of the claimable damages.” However,
it requested a directed verdict on the bankruptcy attorney fees requested by Langeland. AP
Capital argued that, although there were ledger sheets of attorney fees, the jury would have to
speculate to determine which fees were related to the bankruptcy. The trial court denied the
motion as it related to the bankruptcy attorney fees. Regarding the Symons judgment, the trial
court granted, in part, the motion. It stated:
I am going to grant his motion only on that amount that is the difference between
the Symons verdict, together with the accrued interest, less the amount of money
Mr. Tibble and Mr. Langeland now have on hand, and for the purposes of this
motion I will determine that the value of the accounts receivable is $650,000 and
nothing more.
So when you add all of the things together that the trustees have, as I said
before, you’re really over a million, 347 and 350 from Hackney. You’re already
there at $700,000. If you got 650 alone in an accounts receivable, that’s
$1,350,000 . . . . So [AP Capital] may end up getting absolutely nothing in terms
of a directed verdict. . . .
***
What I’m going doing [sic], I’m not cutting out in my view what Dr.
Prodinger has the right to recover back from the trustee that he had to surrender. I
am not cutting out what the professional corporation had to surrender. Again for
purposes of argument if there had not been bad faith on the part of A.P. Capital,
-22-
both the P.C. and Prodinger would have never had to surrender assets to the
trustees. To the extent that they had to surrender assets to the trustees, that’s the
amount of damage that A.P. Capital is going to have to pay. Prodinger doesn’t
have to pay another penny on that judgment.
Later during trial, when the trial court was discussing the verdict form, it reversed its
ruling that Langeland would only be allowed to recover the amount of assets surrendered by
BCEP. It stated:
Now I’m going to segue very briefly to the fact that as far as [BCEP is]
involved, the jury will be able to return money to satisfy the Symons Judgment
once the value of the assets that the trustees have in hand are determined.
. . . and this is what I’m going to do is tell the jury, the trustees have
assets in hand. And they’re going to go pay the Symons first because under
bankruptcy law the Symons have priority over BCEP and Dr. Prodinger. If there
is bad faith, BCEP and Dr. Prodinger are entitled to be put back whole, and that
means getting back the property that they have had to surrender as well as costs
that they have incurred as a result of the bad faith.
So in reality the jury could be dealing with a specific number, that is to
say, here is the Symons Judgment with interest to date which is “X” number of
one point something million dollars. The trustees have in hand already payments
from A.P. Capital, accounts receivable, checking accounts, 401(k)’s,
whatever. . . . The trustees have in hand monies that may or may not satisfy the
Symons Judgment. If they don’t have enough in hand to pay that judgment, then
the jury will be instructed that if they find bad faith, they can award the
differential in what they have on hand and to pay the Symons in full because
Symons have to be paid before BCEP and Prodinger get paid.
If the Symons verdict can be fully satisfied with the monies the trustees
have on hand, then that gets the Symons out of this case. If there’s money left
over, then we begin the process of reimbursing the trustees on behalf of the
plaintiffs in whose shoes they stand. If there is a shortfall, then the jury will be
allowed to return an amount of money that covers that shortfall that puts Dr.
Prodinger and BCEP back in the position they were.
Mr. Bush [counsel for AP Capital], I understand your argument. It’s been
made many times, that as a factual matter BCEP doesn’t exist any more, but under
the law that is a valid liability that if they were [to] rise like Phoenix out of the
ashes and come into assets in [sic] the estate was still open, the trustee could
recover that so I frankly deny and disapprove that argument.
Prodinger is different. He has been discharged. And that’s why I would
not allow the jury to return a verdict in his bankruptcy case, but the amount -- the
possible amount still lives in the BCEP case.
-23-
So I wanted to clarify what will ultimately go to the jury in this case.
First, was there bad faith. If there was not bad faith, then do not answer any other
questions. If there was bad faith, you are to determine what the damages are . . . .
So in terms of setoffs, yes, the jury will be allowed to consider the setoffs.
In terms of the trustee’s [sic] fees, no. The thought that went through my mind,
frankly, when I read this was in the normal case a jury is never told the lawyer [is]
going to take a third off the top . . . . That’s why I’m not going to do it with the
bankruptcy trustees. There may be some shortfall, but the point of it is the jury
will return an amount of money to which it could be said to Mr. Langeland, you
now have enough money -- before you take out your fees and so on -- but you
have enough money from what the jury has done to Symons, to make them whole,
and if the jury finds bad faith, then both for BCEP and Prodinger, the jury is going
to say here is the amount of money that will put them back in the position they
were in had they not been in their forced to file bankruptcy.
The trial court clarified that Tibble, while he could collect the attorney fees that Prodinger had
lost, could not collect on the Symons judgment.
AP Capital then asked the trial court if it was altering its previous order that Tibble could
only collect the attorney fees that Prodinger sustained in filing for bankruptcy from the Hackney
defendants. The trial court responded:
As it relates to Dr. Prodinger, it is the bankruptcy fees first, and more important, I
think he’s entitled to recover. Where that recovery comes from, whether it is
solely from Hackney or a part of A.P. Capital and Hackney’s money, I’m not
prepared to say at this point in time. What I am prepared to say is that this
argument can be made to the jury based upon the evidence that has been
submitted. And if, in fact, we get down to the point post verdict as to the
allocation of the award of the bankruptcy costs and fees that Dr. Prodinger had to
pay, I will be at that time prepared to say “X” percent comes from what the jury
has awarded, and A.P. Capital will pick up that remaining percentage.
The trial court instructed the jury in accordance with its statement on damages:
You should include each of the following elements of damages which you
decide has been sustained by the plaintiffs to the present time: as it relates to Dr.
Prodinger, attorney fees; as it relates to Battle Creek Emergency Physicians,
attorney fees, surrendered assets, and the amount needed to pay off the remaining
unpaid portion of the Symons Judgment. Which, if any, of these elements of
damage have been proved is for you to decide based upon evidence and not upon
speculation, guess, or conjecture.
-24-
D. Analysis16
AP Capital’s motions for summary disposition on the bad faith claims were based on the
fact that BCEP and Prodinger had filed for Chapter 7 bankruptcy. Chapter 7 bankruptcy deals
with liquidation. 9 Am Jur 2d, Bankruptcy, § 42, p 94. “[T]he objective of a Chapter 7
[bankruptcy] is to cause appointment of an independent trustee to marshal and liquidate the
assets of the estate for pro rata distribution among the class of creditors.” In re Conference of
African Union First Colored Methodist Protestant Church, 184 B.R. 207, 218 (Bankr D Del,
1995).17 The trustee of a bankruptcy estate owes a “singular duty” to the estate. Beaty v
Hertzberg & Golden, PC, 456 Mich. 247, 261; 571 NW2d 716 (1997). “They may act only for
the purpose of directly benefiting the estate in bankruptcy and the creditors in general. They
may not represent the interests of individual creditors or shareholders.” Id. The debtor is a
creditor of the bankruptcy estate. See 11 USC 726(a)(6). However, a debtor is only entitled to a
distribution if the trustee has satisfied all allowed claims and has money left over. In re Nagle,
286 B.R. 213, 216 (BAP CA 8, 2003).
When a debtor files a petition for a Chapter 7 bankruptcy, all of the debtor’s assets
become property of the bankruptcy estate. Schwab v Reilly, 560 U.S. 770, 774; 130 S. Ct. 2652,
2657; 177 L. Ed. 2d 234 (2010). A bankruptcy estate is generally comprised of “all legal or
equitable interests of the debtor in property as of the commencement of the case.” 11 USC
541(a). “[I]t is well established that the ‘interests of the debtor in property’ include ‘causes of
action.’” Bauer v Commerce Union Bank, 859 F2d 438, 441 (CA 6, 1988), cert den 489 U.S.
1079; 109 S. Ct. 1531; 103 L. Ed. 2d 836 (1989). The right to pursue these causes of action
belongs to the trustee of the bankruptcy estate for the benefit of the estate. Id. However, the
trustee is subject to the same defenses or limitations that a defendant could have asserted against
the debtor. In re Giorgio, 862 F2d 933, 936 (CA 1, 1988).
The bankruptcy court shall generally grant the debtor in a Chapter 7 bankruptcy a
discharge. See 11 USC 727(a). The discharge of a debt protects the debtor from any personal
16
In Issue III, infra, Tibble argues that the trial court erred when it held that he was precluded
from recovering any portion of the Symons judgment from AP Capital. Following trial, AP
Capital moved for partial judgment notwithstanding the verdict (JNOV) or, in the alternative,
remittitur, arguing that the amount needed to pay off the Symons judgment was not an element
of damages authorized by law in a bad faith action against an insurance company. The trial court
denied the motion. In Issue IV, infra, AP Capital argues that the trial court erred in denying its
motion for partial JNOV. The parties’ arguments regarding Issues III and IV concern, in part,
Justice LEVIN’S opinion in Keeley I. This opinion addresses all arguments regarding Keeley I in
Issue II.
17
Numerous opinions from lower federal courts are cited in this opinion. Although this Court is
bound to follow the decisions of the United States Supreme Court construing federal law, it is
not bound by decision of the lower federal courts. State Treasurer v Sprague, 284 Mich. App.
235, 241; 772 NW2d 452 (2009).
-25-
liability on the debt. Green v Walsh, 956 F2d 30, 33 (CA 2, 1992). 11 USC 524(a) states, in
pertinent part, that a discharge:
(1) voids any judgment at any time obtained, to the extent that such
judgment is a determination of the personal liability of the debtor with respect to
any debt discharged . . . .
(2) operates as an injunction against the commencement or continuation of
an action, the employment of process, or an act, to collect, recover or offset any
such debt as a personal liability of the debtor . . . .
The “discharge of a debt of the debtor does not affect the liability of any other entity on, or the
property of any other entity for, such debt.” 11 USC 524(e). The language of 11 USC 524
illustrates that Congress wanted to free the debtor of his personal obligations while ensuring that
no one else reaps the same benefit. Green, 956 F2d at 33.
However, a bankruptcy court shall not grant a discharge of a debt to a debtor in a Chapter
7 bankruptcy unless the debtor is an individual. 11 USC 727(a)(1). Thus, the debts of a
corporation are not discharged. Nat’l Labor Relations Bd v Better Building Supply Corp, 837
F2d 377, 378-379 (CA 9, 1988). The policy behind Congress’s decision not to grant discharges
of debt to corporations is the prevention of trafficking in corporate shells and bankruptcy
partnerships. In re Tri-R Builders, Inc, 86 B.R. 138, 140 (Bankr ND Ind, 1986). See also Nat’l
Labor Relations Bd, 837 F2d at 379 (“The primary concern underlying this section was to
prevent businesses from evading liability by liquidating debtor corporations and resuming
business free of debt.”); In re Liberty Trust Co, 130 B.R. 467, 472 (WD Tex, 1991) (stating the
intent of Congress was to preclude the continued existence of such corporations). The
corporation, at the close of the bankruptcy proceedings, becomes “defunct.” In re Rack
Engineering Co, 212 B.R. 98, 103 (Bankr WD PA, 1997); In re Liberty Trust Co, 130 B.R. at 473;
In re Fed Insulation Dev Corp, 14 B.R. 362 (Bankr SD Ohio, 1981). A “defunct” corporation has
been defined as one with “a status akin to that of a dissolved corporation or partnership.” In re
Liberty Trust Co, 130 B.R. at 471. However, the Ninth Circuit has stated that a corporate debt
survives the bankruptcy proceedings and is charged against the corporation if it, or an alter ego
of it, resumes operations. Nat’l Labor Relations Bd, 837 F2d at 379.
If BCEP and Prodinger had not filed for bankruptcy, the damages that AP Capital would
have had to pay for its failure to settle with the Symons Estate is an amount equal to “what is or
would actually be collectable from the insured[s].” Keeley I, 433 Mich. at 565 (opinion of LEVIN,
J.). The issue before the Court is how the Chapter 7 bankruptcies of BCEP and Prodinger affect
the amount of damages that AP Capital must pay for its bad faith. Before specifically addressing
this issue, we will address arguments that Tibble and Langeland make about Justice LEVIN’s
opinion in Keeley I.
First, in response to AP Capital’s motions for summary disposition, Tibble and
Langeland argued that in Keeley I a distinction was drawn between insureds who were solvent
when the excess judgment was entered and those who were insolvent. According to the
bankruptcy trustees, cases cited by Justice LEVIN established that the judgment rule applied to
-26-
solvent insureds. On appeal, Langeland does not repeat this argument. However, Tibble makes
the argument.
There is no genuine issue of material fact that BCEP and Prodinger were solvent when
the Symons judgment was entered.18 The Symons judgment was entered in December 2005.
Langeland averred that he collected $585,321.72 in accounts receivable from BCEP. Prodinger,
at the time of the Symons judgment, had more than $300,000 in a brokerage account.
The insured in Keeley I earned $150 a week and was “in no position to pay the $200,000
excess judgment against him.” Keeley I, 433 Mich. at 540. After Justice LEVIN stated that he
agreed the prepayment rule was unsound and that the judgment rule was the better approach, he
wrote in a footnote that “the issue which divides us is how the judgment rule should be applied
where the insured is not able to pay the amount of the judgment.” Keeley I, 433 Mich. at 553 n
15. Justice LEVIN cited numerous bad faith failure-to-settle cases from other jurisdictions where
the courts adopted the judgment rule, but because the cases contained no indication whether the
insured was solvent, he stated that the cases were not on point. Id. Justice LEVIN then cited bad
faith failure-to-settle cases from other jurisdictions where the courts adopted the judgment rule
and that contained some discussion of the solvency of the insured or whether the insured had or
would be able to pay all or part of the judgment. Id. According to Justice LEVIN, because those
cases discussed the solvency of the insured, the cases were on point, but clarified that in most of
the cases, there was “little or no discussion, inadequate analysis, and no discussion, in any of
them, of alternatives such as those adverted to in part III of this opinion.” Id.
Then, after stating that he agreed with Chief Judge Fuld of the New York Court of
Appeals, who stated that a complaint must be dismissed absent a showing by the insured that he
was damaged, Justice LEVIN wrote in a footnote:
See also Levantino v Ins Co of North America, 102 Misc. 2d 77; 422
NYS2d 995 (1979), where the court declared that in ascertaining damages when
the insured pays part of the judgment or is solvent at the time of the judgment, the
judgment rule applies and he is entitled to the full amount of the excess as his
damages; where he was insolvent before the judgment and obtained a discharge in
bankruptcy thereafter, he is not damaged and may not recover; and where he was
insolvent or nearly insolvent prior to judgment, the jury must consider his past,
his prospects, and other economic factors and assess his damages.
Similarly see Anderson v St Paul Mercury Indemnity Co, 340 F2d 406
(CA 7, 1965), where the United States Court of Appeals for the Seventh Circuit
held that because an insured was solvent before judgment was entered, he could
recover the full amount of the judgment in excess of policy limits from an insurer
18
The term “solvent” is defined as being “able to pay all just debts.” Random House Webster’s
College Dictionary (2000). The term “insolvent” means “having liabilities that exceed the value
of assets; having stopped paying debts in the ordinary course of business or being unable to pay
them as they fall due.” Black’s Law Dictionary (7th ed).
-27-
who in bad faith failed to settle. See also Gregersen v Aetna Casualty & Surety
Co, 241 F Supp 204 (SD NY, 1964). [Id. at 554-555 n 16.]19
Tibble relies on this footnote to argue that, because Prodinger was solvent at the time the
Symons judgment was entered, he is entitled to recover the full amount of the excess judgment.
We reject the argument that a distinction must be made between insureds who were
solvent when the excess judgment was entered and those who were insolvent. Footnote 16 was
included in Part II of Justice LEVIN’s opinion, where Justice LEVIN stated why he disagreed with
Justice ARCHER’s adoption of the judgment rule for insureds who are unable to pay the excess
judgment. When Justice LEVIN subsequently announced his compromise rule—precluding
collection on the excess judgment from the insurer beyond what is or would actually be
collectable from the insured—he made no distinction between solvent and insolvent insureds.
Moreover, when Justice LEVIN’s compromise rule was adopted by the Supreme Court in Keeley
19
In Anderson, Leon Allison sued James Goldsberry for personal injuries sustained in an
automobile collision. Following a jury trial, judgment was entered against Goldsberry in the
amount of $75,000. The insurance company with whom Goldsberry had an automobile
insurance policy paid the policy limits of $15,000. Because Goldsberry was unable to pay the
excess judgment, he filed for bankruptcy. The trustee of the bankruptcy estate sued the
insurance company and obtained a judgment of $60,000. On appeal, the insurance company
argued that the trustee was without capacity to sue because Goldsberry had not sustained any
actual loss. It relied on Harris v Standard Accident & Ins Co, 297 F2d 627 (CA 2, 1961), where
the Second Circuit held that when the insured was insolvent before the excess judgment was
entered, paid none of it, and obtained a discharge in bankruptcy, the complaint for bad faith must
be dismissed because the insured had not suffered any loss. The Seventh Circuit in Anderson,
assuming but not deciding the correctness of Harris, held that Harris was factually
distinguishable because “Goldsberry was not insolvent prior to the entry of the judgment and but
for the judgment would not have become a bankrupt.” Anderson, 340 F2d at 409. The Seventh
Circuit also stated that, even absent distinguishing Harris, “it is axiomatic and the underlying
philosophy of bankruptcy law that in exchange for a discharge of all liability of the bankrupt, the
Trustee in Bankruptcy takes all rights of the bankrupt arising therefrom. . . . Any asset or chose
in action of the bankrupt which could have been enforced by the bankrupt had he not gone into
bankruptcy automatically vests in and becomes the property of the Trustees in Bankruptcy.” Id.
In Gregersen, a diversity suit that involved a bad faith failure-to-settle claim, the issue
was raised if the required jurisdictional amount was lacking. A judgment had been entered
against the plaintiff in an amount of $14,500 above the $50,000 limit of the policy. In its
complaint, the plaintiff requested damages in the amount of $14,500. The district court
concluded that, although the plaintiff had only paid $10,000, the entire $14,500 amount was
collectable. It distinguished the case from Harris, stating that the plaintiff was always solvent,
paid part of the excess judgment, and has not been discharged from paying the remainder.
Gregersen, 241 F Supp at 205. It stated, “Under such circumstances we can see no point in
requiring the plaintiff to prove actual payment. The duty and ability to pay an enforceable
judgment seems proof enough to us of financial damage.” Id.
-28-
II, the Supreme Court made no distinction between solvent and insolvent insureds. It stated:
“[W]e are now convicted 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 that exceeds the policy limits.” Keeley II, 436 Mich.
at 376. This statement by the Supreme Court leaves no room for a conclusion that the judgment
rule applies to solvent insureds and that Justice LEVIN’s compromise rule only applies to
insolvent insureds. The statement of the Supreme Court indicates that the compromise rule
provides the measure of an insurer’s liability in all bad faith claims against insurers.
Second, in response to AP Capital’s motion for summary disposition, Tibble argued that
Justice LEVIN specifically disavowed adopting the amount of the insured’s assets exempt from
legal process as the measure of damages. Tibble reasserts the argument to this Court.
Justice LEVIN provided a footnote after he stated that he “would accept the judgment rule
insofar as it dispenses with the need to establish that [the insured] paid any amount on the
judgment and would . . . remand to the trial court for a determination of the extent of [the
insured’s] assets not exempt from legal process.” Keeley I, 433 Mich. at 562. In the footnote,
Justice LEVIN stated:
Judge Keeton suggested that the injured person’s recovery be limited to
“an amount equal to the insured’s net assets which are not exempt from legal
process.” While we would not so limit the injured person’s recovery, we
otherwise agree with his analysis:
(4) Comment: Liability to the Extent of a Solvent Insured’s Net Assets
It should be possible to formulate a workable doctrine (1) that fully
protects the insured from loss, (2) that does not result in eliminating the ‘penalty’
on the insurer, and (3) that does not produce a ‘windfall’ for the third party
claimant. One of the reasons that such a solution has not been developed
probably is that opposing advocates have generally chosen to advance the more
extreme positions, rather than intermediate positions that would involve a more
limited measure of damages that would conform to such a doctrine or theory of
liability. . . .
The appropriate measure of damages, when an insured is entitled to a
recovery that is in excess of the applicable liability insurance policy limits, should
be the amount needed to make the insured whole by placing the insured in the
same position that would have existed had there been no breach of the duty to
settle. Furthermore, this sum should be established after taking into account the
amount, if any, that the third party claimant could have realized upon rights
against the insured if there had been no cause of action for liability in excess of
policy limits—that is, after taking into account how much could have been
recovered above the insurance policy limits against an insured who had some
assets, but not enough that the third party could recover more than could have
been recovered against the insured. This might be done by permitting a single
recovery against the insurer on the excess liability claim, at the instance of either
-29-
the insured or the third party claimant, in an amount equal to the insured’s net
assets which are not exempt from legal process, and holding that the claimant’s
tort judgment against the insured is fully discharged by payment of this sum to the
claimant either by the insured or by the insurer on the insured’s behalf. Although
in some instances this amount may be somewhat more than the net recovery the
claimant would otherwise have realized (apart from the excess liability claim) this
approach certainly more closely approximates that recovery and it provides full
protection of the insured’s financial position from the consequences of the
insurer’s wrong to the insured in failing to settle.
***
The financial interests of both the insured and the third party claimant are
better served by the solution proposed in the preceding paragraph than by leaving
them to other legal processes, such as a bankruptcy proceeding, the cost of which
would have an adverse impact on the interests of each. This proposal may not be
fully within the scope of avoidable consequences rules as thus far developed,
because decisions applying this concept have been concerned with mitigating
damages in a different sense. However, it is within the scope of the principle
underlying the avoidable consequences rule: the principle that even though a
person can show that in fact losses have been greater, legal relief is limited to
what that person would have been entitled to receive if reasonable actions had
been taken to minimize the harm.
Even though a claimant’s tort claim has already been reduced to judgment,
the underlying spirit of exemption and bankruptcy laws expresses a public policy
that there should be a reasonable limitation on the hardship the claimant is
permitted to impose by strict enforcement of the judgment. In this context, the
availability of a cause of action against the insurer in excess of its policy limits
offers a distinctive opportunity—not generally existing in other settings involving
judgment creditors—for achieving at least as much as could be attained for the
claimant through enforcement of the judgment as far as the exemption and
bankruptcy laws would permit, but without incurring the costs of bankruptcy to
the claimant himself and to the insured. It seems consistent with the principles
underlying both the avoidable consequences doctrine, the exemption rules,
specifically, and the bankruptcy laws, generally, to adopt this intermediate
measure of damages in excess liability claims.
***
The only realistic alternative to such an intermediate solution is to set the
measure of damages in these cases at the full amount of the judgment, a solution
that would disadvantage the insured and others like the insured by increasing the
costs of low-limit liability insurance. [Keeton & Widiss, Insurance Law, §
7.8(i)(4), pp 903-905. Emphasis added.] [Id. at 562-564 n 27.]
-30-
Tibble is correct that Justice LEVIN did not limit the measure of damages to the amount of
the insured’s assets exempt from legal process. Justice LEVIN stated that collection on the
judgment from the insurer is precluded beyond “what is or would actually be collectable from
the insured.” Id. at 565 (emphasis added). Thus, under Justice LEVIN’s compromise rule in
Keeley I, recovery is not limited to the assets not exempt from legal process currently held by the
insured, but also includes additional nonexempt assets that the insured might obtain in the future.
In his statement regarding the appropriate measure of damages, Judge Keeton did not include
additional assets that the insured might obtain in the future. The inclusion of these additional
assets in the amount that can be recovered from the insured provides the explanation for Justice
LEVIN’s statement that “we would not so limit the injured person’s recovery.”
A theme that runs throughout the arguments of Tibble and Langeland is that, based on
Justice LEVIN’s opinion in Keeley I, Prodinger and BCEP are entitled to be “made whole,” i.e.,
they are entitled to be placed in the same position that would have existed had there been no bad
faith by AP Capital. And, Tibble and Langeland generally assert that, because Prodinger and
BCEP will not receive any money until Tibble and Langeland have paid off the Symons
judgment, the only way that Prodinger and BCEP can be made whole is if AP Capital pays the
entire unpaid amount of the judgment. The fact that Prodinger and BCEP filed for bankruptcy
makes this case difficult. Because the bad faith claims are part of the bankruptcy estates, Bauer,
859 F2d at 441, any money received for AP Capital’s bad faith in failing to settle with the
Symons Estate goes to Tibble and Langeland. Thus, AP Capital cannot give any money directly
to Prodinger and BCEP. Tibble and Langeland must use any money received from AP Capital to
pay off the creditors of the bankruptcy estates. Only if, after paying all the allowed claims, there
is money remaining in the bankruptcy estates can Tibble and Langeland make distributions to
Prodinger and BCEP. See 11 USC 726(a)(6); In re Nagle, 288 B.R. at 216.
We reject the proposition that, where an insured has filed bankruptcy after a judgment
over its policy limits is rendered against it due to its insurer’s bad faith failure to settle, the
insured is entitled to be “made whole,” or placed in the same economic position that it would
have existed absent the insurer’s bad faith. Because a debtor is not entitled to any distribution
from the bankruptcy trustee unless money remains after all allowed claims have been paid, 11
USC 726(a)(6); In re Nagle, 288 B.R. at 216, an insurer, to make the insured “whole,” may have
to pay an amount that greatly exceeds the excess judgment if there are creditors of the
bankruptcy estate other than the holder of the excess judgment. For example, if the bankruptcy
estate had seven creditors, in addition to the holder of the excess judgment, the insurer would
have to give enough money to pay the excess judgment and the claims of the other seven
creditors before any money would be distributed to the bankrupt insured. This could result in the
insurer paying thousands of dollars more than the amount of the excess judgment.20
20
We acknowledge that this situation will not arise in the present case. According to the trial
testimony of Tibble and Langeland, the Symons Estate is the only creditor of the two bankruptcy
estates. Thus, AP Capital would not have to pay off any allowed claims of other creditors before
any distributions were made to Prodinger and BCEP.
-31-
In its motions for summary disposition, AP Capital asserted that McClarty, 176 B.R. 788,
“well made” the point that, because BCEP and Prodinger had filed for bankruptcy and had
immunized themselves from collection of the Symons judgment, nothing is or would be
collectable from them. In McClarty, an automobile negligence action, a judgment of $1 million
was entered against the debtor. Thereafter, because her insurance policy had a limit of $250,000,
and because she faced personal exposure of $750,000, the debtor filed for bankruptcy. The
debtor received a discharge of the debt. The trustee of the bankruptcy estate filed a legal
malpractice claim against the defendants, who had represented the debtor in the negligence
action. The defendants moved to preclude the trustee from seeking as damages the $750,000.
They argued that, because the $750,000 debt had been discharged, the debtor had not suffered
any damages as a result of their alleged malpractice. The district court agreed. McClarty, 176
B.R. at 790. It explained that one of the elements that the trustee needed to prove to succeed on
the legal malpractice claim was actual damages suffered by the debtor. Id. It reasoned that,
because the debtor received a discharge of the $750,000 debt and no longer owed the excess
judgment, the trustee, who stood in the shoes of the debtor and was subject to the same defenses
that could be asserted against the debtor, was unable to prove damages in the amount of the
excess judgment. Id. The district court stated that Justice LEVIN’s opinion in Keeley I supported
the contention that “if a party directly responsible for a debt will not pay it, then creditors will
also be unable to recover the debt from indirectly liable third parties.” Id. at 791. The district
court concluded its opinion:
[The trustee] by law has nothing more and nothing less than what the Debtor has
in the way of damages, and, by virtue of her discharge, she no longer suffers any
direct economic loss from the excess judgment. Plaintiff will be allowed,
however, to introduce proofs on any injuries that the Debtor suffered as a result of
Defendants’ alleged malpractice in the form of damage to her credit rating and
emotional well-being. [Id. at 793.]
The Fifth Circuit has chosen not to follow the McClarty decision.21 In In re Segerstrom,
247 F3d 218 (CA 5, 2001), following an automobile collision, a judgment of more than $8.5
million was rendered against the debtor. The debtor’s insurance policy had a limit of $75,000.
After an involuntary bankruptcy petition was filed against the debtor, the debtor’s personal
liability on the judgment was discharged. The trustee of the debtor’s bankruptcy estate sued the
defendants, who had represented the debtor, for legal malpractice. The defendants moved for
summary judgment, claiming, among other arguments, that any negligence by them did not cause
the debtor any injury because her personal liability on the $8.5 million judgment was discharged.
The district court accepted this argument, as well as another argument, and granted summary
judgment to the defendants. On appeal, the Fifth Circuit affirmed on alternative grounds. Id. at
223. Regarding the defendants’ argument that the trustee would not be able to prove any
damages, the Fifth Circuit stated:
21
No court has followed the holding of McClarty, but McClarty has only been cited in a handful
of opinions.
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In an alternative holding, the district court determined that [the trustee]
would be unable to prove any damages because [the debtor’s] personal liability
[on the judgment] had been discharged. See McClarty v. Gudenau, 176 B.R. 788,
790 (E.D.Mich.1995) (holding that a chapter 7 trustee could not recover an excess
judgment against the debtor’s former attorney through a legal malpractice action
because the debtor’s personal liability had been discharged). We do not adopt the
district court’s holding. In In re Edgeworth, this Court held that a discharged debt
“continues to exist” and judgment creditors “may collect from any other source
that may be liable.” In re Edgeworth, 993 F.2d 51, 53 (5th Cir.1993); 11 U.S.C. §
524(e) (2000) (“[D]ischarge of a debt of the debtor does not affect the liability of
any other entity on, or the property of any other entity for, such debt.”). We noted
in Edgeworth that the bankruptcy code’s fresh start policy was not intended to
allow insurers to escape obligations simply based on the “financial misfortunes of
the insured.” Id. Though Edgeworth does not control the present case because it
involved a nominal suit against the debtor for the debtor’s negligence and an
insurance company’s liability for that negligence, its rationale could be extended
to include cases like this one. As we explained in Edgeworth, it makes little sense
to allow those who have committed torts to escape liability because of the
financial misfortunes of their victims. Moreover, allowing a cause of action to go
forward on the facts of this case would not threaten financial harm to the debtor,
thus the primary purpose behind the discharge would be protected. Because we
are able to affirm the district court’s judgment based on the issues of injury and
causation under Texas law, however, we need not resolve this issue. [Id. at 225 n
4.]
In Stanley v Trinchard, 500 F3d 411 (CA 5, 2007), in a § 1983 action, a $4 million
judgment was rendered against the debtor. After he was forced into involuntary bankruptcy, the
debtor received a discharge on the judgment. The trustee for the debtor’s bankruptcy estate sued
the defendants for legal malpractice. The district court granted the defendants’ motion for
summary disposition, in part, on the basis that because the debtor had been discharged from the
judgment, it was impossible for the trustee to show any damages from the alleged malpractice.
On appeal, the Fifth Circuit first addressed the defendant’s request to apply the holding of
McClarty. Id. at 419. It explained that the district court, based on the decisions of In re
Edgeworth and In re Segerstrom, which the district court had noted established that “a
bankruptcy discharge eliminates only the debtor’s personal liability and not the debt itself,” held
that summary judgment based on the debtor’s discharge was not warranted. Id. at 419-420
(emphasis in original). The Fifth Circuit agreed with the district court, and declined the
defendants’ insistence that the rationale of In re Edgeworth did not apply. Id. at 420. It
reasoned:
That the facts of the instant case thus differ from those operative in
Edgeworth is of no moment here. As the district court recognized, Segerstrom
presented facts “on all four corners” with the instant case, and we acknowledged
that Edgeworth was not directly controlling precedent. We also acknowledged in
Segerstrom, however, that the rationale for Edgeworth’s holding could properly
be extended to cases such as this one. We accept that we are not bound, in the
strictest sense, to follow the path laid out in Segerstrom, but we see no compelling
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reason not to do so. We remain convinced that (1) it would be improper to excuse
the malpractice liability of a potentially negligent attorney because of the
“financial misfortunes” of his client/tort victim; and (2) allowing a legal
malpractice cause of action to go forward despite the purported tort victim’s
bankruptcy discharge would not threaten “the primary purpose behind the
discharge,” i.e., avoiding financial harm to the debtor. Accordingly, we reject the
rationale of McClarty and hold that [the] trustee for [the debtor’s] bankruptcy
estate, is not barred by [the debtor’s] bankruptcy discharge from asserting a legal
malpractice claim that had accrued to [the debtor] before commencement of his
bankruptcy proceedings. [Id. at 420-421.]
The Fifth Circuit then addressed the trial court’s ruling, which relied on Louisiana law,
that granted the defendants’ motion for summary judgment. Id. at 421. According to the Fifth
Circuit, the trial court’s reasons for granting the motion could not be distinguished from the
holding of McClarty. Id. It explained:
The [district] court ruled . . . that [the trustee] could not prove the third element of
legal malpractice, i.e., that the . . . defendants’ allegedly negligent representation
caused [the debtor] any loss or damage. Specifically, the court determined that, as
[the debtor’s] bankruptcy discharge extinguished his personal liability for the
judgment debt and [the trustee] offered no evidence that [the debtor] “had any
additional assets that he lost, or that he was forced to make any payments to [the
plaintiff in the § 1983 action],” [the trustee] could not show “that [the debtor]
suffered any monetary or economic loss at all . . . .” Thus, like the McClarty
court, the district court here failed to distinguish between [the debtor] individually
and his bankruptcy estate—the very distinction that underpins Segerstrom. [Id.]
The Fifth Circuit continued its explanation:
[The debtor] never asserted a legal malpractice claim. . . . [The debtor’s] accrued
but unasserted malpractice claim automatically devolved to his bankruptcy estate
when involuntary bankruptcy proceedings were commenced in October 2001. At
that point, [the] trustee of the estate for the benefit of its creditors, became
responsible, ipso facto, for satisfying that judgment, to the extent possible from
the property of [the debtor’s] bankruptcy estate; and [the debtor’s] inchoate legal
malpractice claim against the . . . defendants was property of the estate. The fact
that [the debtor] was later discharged from personal liability for his judgment debt
had no legal effect on [the trustee’s] right and duty to continue pursuing that claim
on behalf of the bankruptcy estate.
. . . the district court seems to have misapprehended the effect of the rule
establishing that a debtor’s bankruptcy estate includes any causes of action that
had accrued to him as of the time the bankruptcy case has commenced.
Adherence to this rule requires that our assessment of the estate’s malpractice
claim focus only on [the debtor’s] financial condition at the instant bankruptcy
proceedings were initiated. The record makes clear that, when [the debtor’s]
bankruptcy proceedings commenced, he was a multi-million dollar judgment
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debtor, but he had not paid any portion of that debt. If [the debtor’s] unpaid
judgment debt was the result of compensable malpractice, however, the cause of
action to recover damages from the tortfeasors devolved to the bankruptcy estate
immediately on the initiation of [the debtor’s] bankruptcy proceedings in October
2001. [The debtor’s] subsequent discharge from personal liability through the
bankruptcy proceedings is irrelevant. [Id. at 422 (emphasis in original).]
However, the Eighth Circuit noted that the trustee and the defendants disagreed whether
the debtor’s “unpaid judgment debt constituted a compensable legal injury.” Id. at 422
(emphasis in original). It explained that the trustee urged it to adopt the judgment rule. Id. The
Fifth Circuit acknowledged that the Louisiana courts had not addressed the judgment rule in the
context of a legal malpractice claim, but it made an “Erie-guess” and predicted that Louisiana
would be more likely to follow the judgment rule, rather than the prepayment rule, when faced
with a situation like the present case. Id. at 423-424. It explained:
We agree . . . that the viability of a legal malpractice claim should not
depend on the ability of the victim to satisfy all or part of a judgment against him.
We do not believe that Louisiana would adopt a rule that would require its courts
to recognize the legal malpractice cause of action of a solvent claimant but reject
an otherwise identical action brought by a claimant forced by that very
malpractice to seek bankruptcy protection. Such a rule would produce anomalous
results contradictory to Louisiana’s basic interests in tort deterrence and fair
application of its laws. [Id. at 425.]
The Fifth Circuit announced its holding:
Accordingly, we hold that, at the time bankruptcy proceedings
commenced, [the debtor] had incurred a legal injury—in the form of an adverse
money judgment—sufficient to allow [the trustee] to assert a legal malpractice
claim against the . . . defendants on behalf of [the debtor’s] bankruptcy estate and
that [the debtor’s] subsequent discharge from personal liability for that judgment
had no effect on the right and duty of the trustee to pursue that claim. The district
court erred, therefore, in dismissing [the trustee’s] legal malpractice claim against
the . . . defendants based on its flawed conclusion that [the debtor] suffered no
compensable injury. [Id. (emphasis in original).]
We decline to follow the Fifth Circuit’s decision in Stanley in determining whether
Prodinger and BCEP suffered any damages for AP Capital’s bad faith. The Fifth Circuit
concluded that, because it believed that Louisiana would adopt the judgment rule, the debtor,
despite his discharge from the judgment, had suffered an injury for which the trustee of the
bankruptcy estate could sue. Although the Supreme Court initially adopted the judgment rule,
Keeley I, 433 Mich. at 541, it subsequently rejected the judgment rule in favor of the compromise
rule announced by Justice LEVIN. Keeley II, 436 Mich. at 376. Thus, Stanley runs afoul of case
law that is binding on this Court. See Griswold Props, LLC v Lexington Ins Co, 276 Mich. App.
551, 563; 741 NW2d 549 (2007) (stating that this Court is required to follow the decisions of the
Supreme Court).
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We also decline to follow the holding of McClarty. In McClarty, there was no discussion
whether the debtor’s bankruptcy estate included any assets other than the legal malpractice
claim, such that the debtor had assets that the trustee of the bankruptcy estate used to pay the
excess judgment. However, because the district court in McClarty wrote that $750,000, the
amount of the excess judgment, remained as part of the unpaid judgment, we believe that it is
reasonable to conclude that the debtor had no assets that were used to pay part of the excess
judgment. In this situation, we generally agree with the district court in McClarty: if the debtor
has been discharged from the excess judgment and no assets from the debtor have been used to
pay part of the excess judgment, the debtor has not suffered damages. The debtor is generally in
the same economic position despite the conduct that resulted in the excess judgment. However,
if a debtor has been discharged from the excess judgment and assets were collected by the trustee
of the bankruptcy estate and used to pay part of the excess judgment, it cannot be disputed that
the debtor has been damaged. As a direct result of the conduct that resulted in the excess
judgment, the debtor is not in the same economic position. A criticism of the prepayment rule,
which Justice LEVIN agreed was unsound, is that it allows the insurer to capitalize on the poor
financial condition of the insured. Keeley I, 433 Mich. at 539. It allows there to be no
consequence for an insurer’s bad faith failure to settle if the insured is insolvent. Id. Likewise,
adopting the rule of McClarty—that an insured, by virtue of being discharged from the excess
judgment, has suffered no damages—for all situations, regardless whether assets were collected
by the trustee of the bankruptcy estate and used to pay part of the excess judgment permits the
insurer to capitalize on the financial condition of the insured. There is no consequence for an
insurer’s bad faith if the insured files for bankruptcy and is discharged from the obligation to pay
the excess judgment.
Accordingly, we conclude that the damages in a bad faith action against an insurer, where
the insured files for bankruptcy, is an amount equal to the debtor’s assets that are collected by the
trustee of the bankruptcy estate. Our conclusion advances the goals that led to the compromise
rule announced in Keeley I by Justice Levin. First, it accepts the essence of the judgment rule by
precluding the insurer from taking advantage of the insured’s inability to pay the excess
judgment and having to file for bankruptcy, see Keeley I, 433 Mich. at 565 (opinion by LEVIN, J.),
and provides a consequence for the insurer’s act of bad faith. Second, it protects the insurer by
precluding collection from the insurer beyond what is collectable from the insured by the trustee
of the bankruptcy estate. See id. In addition, regardless of whether the insured files for
bankruptcy, the liability of insurers in bad faith actions is generally the same. If the insured does
not file for bankruptcy, the insurer’s liability is an amount equal to the assets that are or would be
collectable from the insured; if the insured files for bankruptcy, the insurer’s liability is an
amount equal to the debtor’s assets that were collected by the bankruptcy trustee. And, the
insured can make an informed decision whether to file for bankruptcy (and be discharged from
the excess judgment and any other debts, while knowing that he will not receive any
compensation for the assets that he surrendered) or to seek a judgment that Justice LEVIN
described (where a judgment against the insurer would substitute for excess judgment against the
insured).
We acknowledge that there is a distinction between an individual and a corporation who
files for Chapter 7 bankruptcy. In Chapter 7 bankruptcies, individuals receive discharges of their
debts, while corporations do not. 11 USC 727(a)(1). The debt of a corporation survives the
bankruptcy and is charged against the corporation if it, or an alter ego, resumes operations. Nat’l
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Labor Relations Bd, 837 F2d at 379. Thus, in bad faith actions where the insured is a
corporation and the corporation has filed for bankruptcy, an order in favor of the insured could
include provisions stating (1) that the insurer is liable for the amount of the corporation’s assets
that were collected by the bankruptcy trustee and (2) that the insurer is subject to liability for the
remaining amount of the excess judgment and should the corporation ever resume operations and
acquire assets, the insurer must pay an amount equal to the assets. Such a provision would be
similar to the one described by Justice LEVIN in Keeley I. See Keeley I, 433 Mich. at 565 n 28.
We now address whether the trial court erred in denying AP Capital’s motion for
summary disposition on Tibble’s bad faith claim. In moving for summary disposition, AP
Capital argued that Tibble could not prove damages in the bad faith claim against it because
Tibble stood in the shoes of Prodinger and because Prodinger, who had been discharged from the
Symons judgment and was uncollectable, had not been harmed by its bad faith. However, as we
have concluded, the amount of damages that Tibble could collect from AP Capital for its bad
faith was an amount equal to Prodinger’s assets that were collected by Tibble. Thus, in arguing
for summary disposition, AP Capital did not show that it was entitled to judgment as a matter of
law. MCR 2.116(C)(10). It did not argue the correct method of determining the amount of its
liability for its bad faith failure to settle with the Symons Estate. In addition, AP Capital would
have only been entitled to summary disposition on Tibble’s bad faith claim if it showed that there
was no genuine issue of material fact that no assets of Prodinger were collected by Tibble.
Although the trial court was presented with Prodinger’s petition for bankruptcy and a schedule of
Prodinger’s personal property, it was presented with no evidence from either party regarding
what assets, if any, were actually placed in the bankruptcy estate and the value of those assets.
Accordingly, AP Capital did not present documentary evidence establishing that no assets
belonging to Prodinger were placed in the bankruptcy estate. Because the trial court reached the
right result on AP Capital’s motion for summary disposition, albeit for a different reason, we
affirm the trial court’s order denying the motion. See Messenger, 232 Mich. App. at 643.
In concluding that the trial court properly denied AP Capital’s motion for summary
disposition, we find no merit to Tibble’s argument that the Supreme Court’s decision in J & J
Farmer Leasing, 472 Mich. 353, establishes that, even though Prodinger has been discharged
from the Symons judgment, Tibble is entitled to pursue the bad faith claim. In J & J Farmer
Leasing, an employee of J & J Farmer Leasing, Inc. (Farmer) was at fault for an automobile
accident in which Sharyn Riley was killed. Riley’s estate (Riley) sued Farmer, which was
insured by Citizens Insurance Company (Citizens). Riley obtained a judgment of $3.2 million
against Farmer, which exceeded the $750,000 limits of the insurance policy that Farmer had with
Citizens. Farmer assigned its claim for bad faith against Citizens to Riley, and Riley agreed not
to sue Farmer to collect the excess judgment as long as Farmer cooperated in the suit against
Citizens. After Riley and Farmer sued Citizens for bad faith, Citizens moved for summary
disposition. It argued that, because Riley had released its underlying claim against Farmer for
the excess judgment, it, as Farmer’s surety, was also released. The trial court denied the motion,
stating that the agreement was a covenant not to sue, rather than a release, because Riley, under
certain conditions, could proceed against Farmer to collect the excess judgment. This Court
affirmed, but on an alternative ground. Based on its understanding of Justice LEVIN’s opinion in
Keeley I, the agreement was a release because it operated to release Farmer from the excess
judgment.
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On appeal to the Supreme Court, Citizens argued that the agreement was a release and
that, under Keeley I, the bad faith claim must fail because Farmer had not suffered any damages
as a result of its failure to settle. The Supreme Court rejected the argument. Id. at 358-357. The
Supreme Court explained the difference between a covenant not to sue and a release:
There is a material difference between a covenant not to sue and a release.
A release immediately discharges an existing claim or right. In contrast, a
covenant not to sue is merely an agreement not to sue on an existing claim. It
does not extinguish a claim or cause of action. The difference primarily affects
third parties, rather than the parties to the agreement. [Id. at 357-358 (citations
omitted).]
Based on this difference, the Supreme Court stated that the trial court correctly concluded that
the agreement was a covenant not to sue. Id. at 358. In addition, the Supreme Court stated that
the covenant not to sue was not absolute but conditioned on Farmer performing certain duties in
the action against Citizens. Id. Only if Farmer performed those duties did Riley’s covenant not
to sue become absolute and release Farmer of all liability to Riley. Id. According to the
Supreme Court, this analysis was sufficient to resolve the matter and no resort to Keeley I was
necessary. Id.
We do not find J & J Farmer Leasing helpful, in any way, in deciding the present case.
The Supreme Court gave no guidance regarding the compromise rule announced by Justice
LEVIN in Keeley I or the effect of a bankruptcy discharge, which are the two main facets of the
present case. Moreover, the assertion by Tibble that there is “no material difference in law”
between Prodinger’s discharge and the covenant not to sue is wrong. The covenant not to sue
did not extinguish Farmer’s liability on the excess judgment. However, the discharge that
Prodinger received from the Symons judgment extinguished his personal liability on the
judgment. The discharge voided the Symons judgment to the extent that it made a determination
of the liability of Prodinger and it acts as an injunction against any action to collect on the
judgment from Prodinger. 11 USC 524(a)(1), (2).
We also conclude that the trial court reached the right result when it denied AP Capital’s
motion for summary disposition on the bad faith claim asserted by Langeland. In moving for
summary disposition, AP Capital argued that Langeland could not prove damages because he
stood in the shoes of BCEP and because BCEP, who had filed for bankruptcy and would
subsequently become a “defunct” corporation, had not been harmed by its bad faith. However,
the amount of damages that Langeland could recover from AP Capital was an amount equal to
BCEP’s assets that were collected by Langeland. Thus, AP Capital did not argue the correct
method of determining the amount of its liability for its bad faith and, by doing so, failed to show
that it was entitled to judgment as a matter of law. MCR 2.116(C)(10). Regardless, AP Capital
was only entitled to summary disposition on the bad faith claim if it showed that there was no
genuine issue of material fact that no assets of BCEP were collected by Langeland. The
documentary evidence presented to the trial court showed that significant assets were placed in
the bankruptcy estate of BCEP. Langeland averred that more than $585,000, representing
accounts receivable, was collected by him in the administration of the bankruptcy estate.
Because the trial court reached the right result on AP Capital’s motion for summary disposition,
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albeit for a different reason, we also affirm the trial court’s order denying the motion. See
Messenger, 232 Mich. App. at 643.
AP Capital also states that the trial court, in addition to erring when it denied the motions
for summary disposition, erred in denying its motion for directed verdict. We assume that AP
Capital’s argument for why the trial court erred in denying its motion for directed verdict is the
same argument it presents for why the trial court erred in denying its motions for summary
disposition: because Prodinger and BCEP had filed for bankruptcy and because Prodinger had
received a discharge from the Symons Judgment and BCEP was a “defunct” and liquidated
corporation, meaning that no amount of the judgment can be collected from either of them, they
had not suffered any damages by AP Capital’s bad faith. We reject this argument. AP Capital’s
argument, as presented below and on appeal, is not based on the correct measure of determining
the amount of an insurer’s liability for its bad faith failure to settle.
E. INSURANCE POLICY
Langeland also argues that BCEP’s bankruptcy filing does not relieve AP Capital from
liability for damages caused by its failure to settle with the Symons Estate because AP Capital
agreed, in the insurance policy, not to use the bankruptcy of BCEP to escape any of its
contractual obligations. We disagree.
Insurance policies are subject to the same principles of contract construction that apply to
any other species of contract. Rory v Continental Ins Co, 473 Mich. 457, 461; 703 NW2d 23
(2005). The goal of contract interpretation is to read the document as a whole and apply the
plain language used in order to honor the intent of the parties. Greenville Lafayette, LLC v Elgin
State Bank, 296 Mich. App. 284, 291; 818 NW2d 460 (2012). A court must enforce the clear and
unambiguous language of a contract as written. Id.
Section IX.G of the insurance policy states that the “[b]ankruptcy or insolvency of the
NAMED INSURED, CERTIFICATE HOLDER, or ADDITIONAL INSURED shall not relieve
the Company of any of its obligations under this POLICY.” The term “policy” is defined as “the
complete insurance document consisting of POLICY form, Declarations, and all endorsements,
and all CERTIFICATEs issued by the Company under this POLICY.” The obligations of AP
Capital were generally stated in section II of the policy, which provided:
II. INSURING AGREEMENTS
In consideration of the payment of the premium, in reliance on the statements
contained in the declarations, and subject to the limits of liability, exclusions,
conditions and any other terms of this POLICY:
A. The Company agrees to defend the NAMED INSURED, CERTIFICATE
HOLDER, or ADDITIONAL INSURED, and to pay DAMAGEs on behalf of the
NAMED INSURED, CERTIFICATE HOLDER, ADDITIONAL INSURED, or
the NAMED INSURED’s estate, in any CLAIM for DAMAGEs, whenever
reported due to a HEALTH CARE INCIDENT which happened on or after the
RETROACTIVE DATE and reported as of a date within the POLICY period of
this POLICY.
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B. Only CLAIMs reported to the Company as of a date within the POLICY
period of this POLICY are covered by it. A CLAIM is deemed first reported only
when the Company receives notice of either of the following:
1. Notice to the NAMED INSURED of a written or oral CLAIM for
DAMAGES or intention to hold the NAMED INSURED legally
responsible for DAMAGEs, or
2. Notice to the NAMED INSURED of a legal action based on a
CLAIM for DAMAGEs.
C. Upon receipt of notice the Company shall immediately assume its
responsibility for defense against any such CLAIM. The Company may select
and retain legal counsel who shall defend under the supervision of the Company.
Defense shall be maintained until 1) final judgment or other disposition of the
CLAIM shall be obtained, or 2) following proceedings at the trial court level and
at the Company’s sole and complete discretion, all feasible remedies by appeal,
writ of error, or other legal proceedings have been exhausted. The Company will
pay the cost of counsel it retains. The Company shall not be obligated to defend
the NAMED INSURED, CERTIFICATE HOLDER, or ADDITIONAL
INSURED in any CLAIM after the aggregate limit of liability has been exhausted
by payment of judgment or settlements.
D. The Company shall pay premiums on appeal bonds and premiums on
bonds to release attachments in any suit covered by the POLICY, but not for a
bonded amount exceeding the per CLAIM limit of liability of this POLICY. The
NAMED INSURED shall pay for the bonding of any amount of excess of the
limits of liability.
In addition, the policy stated that, except for the cost of defense and the limited obligation to pay
premiums for bonds, the liability of AP Capital was limited to the following:
The Company’s liability for DAMAGEs shall not exceed the stated limit
of liability for any one CLAIM, and subject to the same limit for each CLAIM,
the Company’s total liability shall not exceed the stated POLICY aggregate limit
of liability.
Any assessed statutorily-required pre-judgment or post-judgment interest
will be paid in addition to these limits of liability. The Company shall not,
however, be liable for interest assessed on DAMAGEs above these limits of
liability.
Section IX.G of the insurance policy prohibited AP Capital from using the bankruptcy of
BCEP from relieving itself of any of its obligations under the policy. The obligations of AP
Capital under the policy included providing a defense and paying damages. However, its
liability for damages was not to exceed the stated limit of liability for any one claim. It is
undisputed that the stated limit of liability in the insurance policy for any one claim was
$300,000 and that, following entry of the Symons Judgment, AP Capital paid $300,000, along
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with the required interest, to the Symons Estate. AP Capital had no obligations under the
insurance policy to pay additional amounts. Accordingly, AP Capital did not use the bankruptcy
of BCEP (or Prodinger) to relieve itself of any of its obligations under the policy.
Section IX.G of the insurance policy was required by MCL 500.3006. Under the
Insurance Code of 1956, MCL 500.100 et seq., casualty insurance includes medical malpractice
insurance. MCL 500.624(1)(h). Chapter 30 of the Insurance Code of 1956, MCL 500.3004 et
seq., governs contracts for casualty insurance. MCL 500.3004 provides:
No policy of insurance against loss or damage resulting from accident to
or injury suffered by an employee or other person and for which the person
insured is liable, or against loss or damage to property caused by draft animals or
by any vehicle drawn, propelled or operated by any motive power, and for which
loss or damage the person insured is liable, shall be issued or delivered in this
state by any insurer authorized to do business in this state, unless there shall be
contained within such policy the provisions required under [MCL 500.3006 and
MCL 500.3008].
MCL 500.3006 provides:
In such liability insurance policies there shall be a provision that the
insolvency or bankruptcy of the person insured shall not release the insurer from
the payment of damages for injury sustained or loss occasioned during the life of
such policy, and stating that in case execution against the insured is returned
unsatisfied in an action brought by the injured person, or his or her personal
representative in case death results from the accident, because of such insolvency
or bankruptcy, then an action in the nature of a writ of garnishment may be
maintained by the injured person, or his or her personal representative, against
such insurer under the terms of the policy for the amount of the judgment in the
said action not exceeding the amount of the policy. [Emphasis added.]
The Supreme Court has cited MCL 500.3006 for the proposition that, even if an insured is
insolvent or bankrupt, his insurer must defend the action and pay if a judgment is rendered
against the insured. Williams v Grossman, 409 Mich. 67, 85, 85 n 23; 293 NW2d 315 (1980).
Section IX.G of the insurance policy does not contain the language of MCL 500.3006.
MCL 500.3012 states the effect of an insurance policy that does not include the language of
MCL 500.3006. MCL 500.3012 states:
Such a liability insurance policy issued in violation of [MCL 500.3004 to
MCL 500.3012] shall, nevertheless, be held valid but be deemed to include the
provisions required by such sections, and when any provision in such policy or
rider is in conflict with the provisions required to be contained by such sections,
the rights, duties and obligations of the insured, the policyholder and the injured
person shall be governed by the provisions of such sections: Provided, however,
That the insurer shall have all the defenses in any action brought under the
provisions of such sections that it originally had against its insured under the
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terms of the policy providing the policy is not in conflict with the provisions of
such sections.
There is no claim that § IX.G of the insurance policy conflicts with the language of MCL
500.3006. Therefore, the language of MCL 500.3006 should be deemed to be included in the
insurance policy and § IX.G should be read, according to its plain language, to determine
whether it provides any further protection for the insured. We are not aware of any authority that
would support replacing § IX.G with the language of MCL 500.3006 where there is no conflict
between the two provisions. Accordingly, we look at the language of § IX.G, rather than MCL
500.3006, to analyze Langeland’s argument. But, as already explained, § IX.G does not support
the argument made by Langeland.
In sum, we hold that the amount of damages in a bad faith action against an insurer,
where the insured files for bankruptcy, is an amount equal to the assets that are collected by the
trustee of the bankruptcy estate. The trial court did not err in denying AP Capital’s motions for
summary disposition or its motion for directed verdict.
III. TIBBLE’S RECOVERY FROM THE SYMONS ESTATE
Tibble argues that the trial court erred when it held that he was precluded from
recovering any portion of the Symons judgment from AP Capital because Prodinger had been
discharged from the judgment. He asserts that the trial court erred because (1) one of
Prodinger’s assets—the legal malpractice action against the Hackney defendants, which was
settled for $350,000—was used to pay the Symons judgment and (2) based on Keeley II, which
adopted Justice LEVIN’s opinion in Keeley I, Prodinger’s discharge did not preclude him from
recovering a portion of the Symons judgment.22 Tibble claims that, because Prodinger was
solvent when the Symons Judgment was entered and suffered economic harm as a result of the
judgment, Prodinger’s discharge in bankruptcy did not preclude the bad faith claim. The
argument is generally based on Justice LEVIN’s opinion in Keeley I. In response, AP Capital
argues that, based on Justice LEVIN’s opinion in Keeley I and McClarty, Prodinger’s discharge in
bankruptcy, regardless whether Prodinger was solvent when the Symons Judgment was entered,
barred Tibble from collecting any portion of the Symons Judgment. These arguments are
duplicative of the arguments presented in Issue II, supra, in which we concluded that the
damages in a bad faith action against an insurer, where the insured has filed for bankruptcy,
should be an amount equal to the insured’s assets that were collected by the trustee of the
bankruptcy estate.
Given our conclusion in Issue II, the trial court properly prevented Tibble from
recovering any portion of the Symons Judgment from AP Capital only if Tibble did not collect
22
Although the trial court precluded Tibble from collecting any portion of the Symons Judgment
from AP Capital, it allowed Tibble to collect the attorney fees that Prodinger incurred for
appealing the Symons Judgment and filing for bankruptcy. AP Capital makes no argument that
the trial court erred in allowing Tibble to recover Prodinger’s attorney fees. In fact, AP Capital
states that it was “arguably liable” for Prodinger’s attorney fees.
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any assets from Prodinger. If Tibble collected assets from Prodinger, then Tibble was entitled to
recover an amount equal to those assets from AP Capital. Prodinger did not testify about any
assets that were collected by Tibble after he filed for bankruptcy. Tibble testified that the largest
asset of Prodinger’s bankruptcy estate was the bad faith claim and that “there may be a few other
things.” However, Tibble acknowledged that the legal malpractice action was also an asset of
Prodinger’s bankruptcy estate and that the actions had been settled for $350,000. The legal
malpractice action, which had a value of $350,000, was an asset of Prodinger that was collected
by Tibble.23
AP Capital argues that the appropriate measure of damages in a bad faith action is the
amount needed to make the insured whole by placing the insured in the same position that would
have existed had there been no breach of the duty to settle and that this amount does not include
the value of the cause of action for a party’s conduct that resulted in entry of the excess
judgment. AP Capital argues that, absent its bad faith, there would have been no opportunity for
Hackney to commit malpractice during the Symons trial. According to AP Capital, but for its
bad faith, Prodinger would not have had a legal malpractice claim against Hackney and his
financial position could not have been increased by the proceeds of the settlement.
The basis for AP Capital’s argument is a paragraph that Judge Keeton wrote in explaining
why an insured’s damages in a bad faith action should be limited to the insured’s net assets not
exempt from legal process. Justice LEVIN stated that, while he would “not so limit the injured
person’s recovery,” he otherwise agreed with Judge Keeton’s analysis. Keeley I, 433 Mich. at
562 n 27. The pertinent paragraph by Judge Keeton reads:
The appropriate measure of damages, when an insured is entitled to a
recovery that is in excess of the applicable liability insurance policy limits, should
be the amount needed to make the insured whole by placing the insured in the
same position that would have existed had there been no breach of the duty to
settle. Furthermore, this sum should be established after taking into account the
amount, if any, that the third party claimant could have realized upon rights
against the insured if there had been no cause of action for liability in excess of
policy limits—that is, after taking into account how much could have been
recovered above the insurance policy limits against an insured who had some
assets, but not enough that the third party could recover more than could have
been recovered against the insured. This might be done by permitting a single
recovery against the insurer on the excess liability claim, at the instance of either
the insured or the third party claimant, in an amount equal to the insured’s net
23
We find no merit to AP Capital’s argument that the settlement proceeds did not “belong” to
Prodinger’s bankruptcy estate. There is no dispute that the legal malpractice claim was an asset
that Prodinger surrendered to his bankruptcy estate. AP Capital admits that the $350,000 was
paid to Tibble. Thus, the $350,000 became part of Prodinger’s bankruptcy estate, and Tibble
was required to give the settlement proceeds to the Symons Estate.
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assets which are not exempt from legal process, and holding that the claimant’s
tort judgment against the insured is fully discharged by payment of this sum to the
claimant either by the insured or by the insurer on the insured’s behalf. Although
in some instances this amount may be somewhat more than the net recovery the
claimant would otherwise have realized (apart from the excess liability claim) this
approach certainly more closely approximates that recovery and it provides full
protection of the insured’s financial position from the consequences of the
insurer’s wrong to the insured in failing to settle. [Id. at 562-563 n 27 (emphasis
in original omitted, emphasis added).]
Judge Keeton suggested that the measure of damages in a bad faith action be limited to
“an amount equal to the insured’s net assets which are not exempt from legal process.”24 Judge
Keeton reached this conclusion after stating that the measure of damages “should be the amount
needed to make the insured whole by placing the insured in the same position that would have
existed had there been no breach of the duty to settle” and that this “sum should be established
after taking into account the amount, if any, that the third party claimant could have realized
upon rights against the insured if there had been no cause of action for liability in excess of
policy limits.” Thus, Judge Keeton stated that the amount of the insured’s damages is
determined by looking at the amount that could be collected from the insured by the third-party
claimant had the insurer not acted in bad faith. Accordingly, the bad faith cause of action is not
to be considered in determining the amount of damages against the insured.
In addition, specific to this case, the value of the legal malpractice action should not be
considered in determining the amount of damages for AP Capital’s bad faith. AP Capital is
correct that, but for its bad faith, the question of whether Hackney committed legal malpractice
would not have arisen. If AP Capital had settled with the Symons Estate, no trial would have
occurred, and there would have been no opportunity for Hackney to allegedly commit
malpractice. Thus, Prodinger only had the asset of a legal malpractice action because AP Capital
acted in bad faith. Because the legal malpractice action was a consequence of AP Capital’s bad
faith, payment to Prodinger of the value of the action, eventually determined to be $350,000, was
not necessary to place him in the economic position that would have existed had there been no
bad faith by AP Capital. In fact, payment of the value of the legal malpractice action to
Prodinger would place Prodinger in a better economic position than would have existed.
Because the legal malpractice action did not exist absent AP Capital’s bad faith, a third-party
claimant could not have collected the value of the action from Prodinger if AP Capital had not
acted in bad faith.
24
Justice LEVIN expanded the measure of damages to include assets that the insured could obtain
in the future and from which the judgment could be collected. Id. at 565. Justice LEVIN’s
addition to the measure of damages is not applicable to Prodinger. Because Prodinger was
discharged from the Symons Judgment, no assets that Prodinger obtains in the future can be used
to satisfy the judgment.
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A comparison of the legal malpractice action and the assets of BCEP that were collected
by Langeland is helpful. Langeland testified that the assets he collected from BCEP had a value
of $654,738. Nolin testified that BCEP turned over accounts receivable, a tax return, and a bank
account to Langeland. The accounts receivable, the tax return, and the bank account were not
owned by BCEP because of AP Capital’s bad faith. Thus, absent AP Capital’s bad faith, a third-
party claimant could have collected the accounts receivable, the tax return, and the bank account
from BCEP. Because these assets were owned by BCEP irrespective of AP Capital’s bad faith,
damages in an amount equal to their value would be necessary to place BCEP in the same
position that would have existed had AP Capital not acted in bad faith.
Because Prodinger did not have the legal malpractice action absent AP Capital’s bad
faith, we affirm the trial court’s holding that Tibble could not recover any portion of the Symons
Judgment from AP Capital. This Court will affirm the trial court if it reached the right result
albeit for the wrong reason. Messenger, 232 Mich. App. at 643.
IV. MOTION FOR PARTIAL JNOV OR REMITTITUR
AP Capital argues that the trial court erred when it denied its motion or partial JNOV or,
in the alternative, remittitur, because there was no legal justification for the portion of the jury
verdict that represented the amount needed to pay off the Symons judgment, which was
$687,313, because that amount, as a matter of law, was not an element of damages authorized by
law in an action for bad faith against an insurer. AP Capital argued that, based on Keeley II, the
amount of damages in a bad faith action equals the amount that the third-party claimant could
recover from the insured (which was the amount of the insured’s assets not exempt from legal
process) and that this amount did not include the value of the bad faith action. AP Capital
asserted that permitting Langeland to recover the amount to pay off the Symons judgment
eliminated and eviscerated the rule of Keeley II because “permitting and treating the value of the
bad faith cause of action to be deemed an ‘asset of the insured’ would make the insured
collectible vis-à-vis the injured party and has, improperly made [BCEP] collectible to the extent
of $687,313.”
In response, Tibble and Prodinger argued that Keeley I made clear that whether the
judgment rule, prepayment rule, or the compromise rule of Justice LEVIN applied, the damages in
a bad faith action must be sufficient to make the insured whole and to place the insured in the
same economic position he would have been in had the contract been performed. They asserted
that the remedy proposed by AP Capital would turn Keeley II on its heads by ensuring that BCEP
did not recover one penny of its lost accounts receivable. They claimed that AP Capital’s
argument was valid only if bankruptcy law allowed Langeland, after giving the assets of BCEP
to the Symons Estate in partial satisfaction of the Symons judgment, to give the damages
obtained in the bad faith to BCEP. Tibble and Prodinger further argued that nothing in Justice
LEVIN’s opinion in Keeley I supported the assertion that the amount of damages to be recovered
from AP Capital did not include the value of the asset of the bad faith action. They stated that
Justice LEVIN never carved out an exception for the value of the bad faith action and that,
because the damages collected from AP Capital for its bad faith would be confiscated by
Langeland, the entire unpaid amount of the Symons Judgment must be collected so that
Langeland could return BCEP to its previous position.
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In reply, AP Capital argued that if Langeland, but not Tibble, was permitted to recover
the amount necessary to pay off the Symons judgment because corporate debtors, unlike
individual debtors, do not receive discharges of debt in bankruptcy, then it was denied equal
protection of the law. According to AP Capital, there cannot be one rule for individual insureds
and a different rule for corporate insureds.
The trial court denied AP Capital’s motion. It explained:
Under the bankruptcy law on a bad faith claim the bankrupt brt [sic] insured is
entitled to be made whole as a result of the bad faith by the medical malpractice
carrier in this case.
The corporate bankrupt surrendered $654,000 in value of accounts
receivable. Under [AP Capital’s] argument the bankruptcy law then discharges
the Simons [sic] obligation, the value of the accounts receivable is turned over to
the Simons [sic]. It is the effect of the discharge that limits the exposure of the
carrier in order to make the bankrupt debtor whole, to put the corporation back
into the position it had been at the time of the surrender just prior to the surrender
of assets, however many there were.
The liability to the Simons [sic] still exists. And it may well be that this
conclusion that I have reached is contrary to the idea that it is only the hard assets
that can be utilized to pay the Simons [sic]. But [Langeland] has argued I need to
declare the bankruptcy law constitutional (sic) and I will not do so. That’s not in
my view within my prerogative in this case.
If, on the other hand, A. P. Capital pays to Mr. Langeland 1.9 million
dollars, the bankruptcy judge could well decide that 1.3 million dollars in round
figures will be returned to A. P. Capital because the debt to the Simons has been
satisfied solely by the value of the accounts receivable and damage returned,
whatever else may be there. I will not decide the effect of the discharge, the
requirement for additional funds given the fact that a corporation does not vanish.
I will leave that in the hands of the bankruptcy judge and I will not go any further.
In Support of their arguments on appeal, AP Capital, as well as Tibble and Langeland,
discuss Keeley I and Keeley II and what amount, pursuant to these two cases, can be recovered
against AP Capital for its bad faith. We need not reanalyze Keeley I and Keeley II. Rather, we
stand by our two previous conclusions: (1) the damages in a bad faith action against an insurer,
where an insured has filed for bankruptcy, is an amount equal to the insured’s assets that were
collected by the trustee, and (2) the damages do not include the value of the bad faith action
against the insurer.
We conclude that the trial court should have granted AP Capital’s motion or partial
JNOV or, in the alternative, for remittitur. A motion for JNOV should be granted when the
evidence, viewed in the light most favorable to the nonmoving party, fails to establish a claim as
a matter of law. Prime Fin Servs LLC v Vinton, 279 Mich. App. 245, 256; 761 NW2d 694 (2008).
A partial JNOV may be granted to vacate discrete elements of a verdict that are wholly lacking
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in evidentiary support. See Attard v Citizens Ins Co of America, 237 Mich. App. 311, 322-327;
602 NW2d 633 (1999). Remittitur is justified when the jury verdict is “excessive.” MCR
2.611(E)(1). A verdict is excessive when the amount awarded is greater than the highest amount
the evidence will support. Palenkas v Beaumont Hosp, 432 Mich. 527, 531-532; 443 NW2d 354
(1989). In light of our conclusion in Issue II, Langeland was permitted to collect damages from
AP Capital in the amount equal to the assets that he collected from BCEP. Langeland testified
that he confiscated $654,738 in assets. Thus, damages awarded by the jury above the amount of
$810,410 (which is the sum of $654,738, the amount of the confiscated assets, and $155,672, the
amount of BCEP’s attorney fees) were wholly unsupported by the evidence.
Consequently, the verdict in favor of Langeland must be reduced by $687,313. A
reduction in the verdict of $1,497,732 by $687,313 results in damages in the amount of
$810,410. Accordingly, we grant remittitur and instruct the trial court to reduce the jury’s
verdict in favor of Langeland by $687,313.
V. LANGELAND’S POST-JUDGMENT REQUEST FOR SETOFF
On cross-appeal, Langeland argues that the trial court erred by granting AP Capital’s
request for a setoff in the amount of the legal malpractice settlement, thereby reducing the
damages awarded by the jury to Langeland by $350,000. A trial court’s decision whether to
grant a setoff, which is an equitable remedy, is reviewed de novo. Grace v Grace, 253 Mich
App 357, 468; 655 NW2d 595 (2002).
Following trial, AP Capital objected to Langeland and Timmon’s proposed judgment,
claiming that the judgment should include a setoff for the proceeds from the legal malpractice
settlement. AP Capital argued that a setoff was necessary to prevent a double recovery because
the $350,000 received from the legal malpractice settlement had been added to the funds
available to satisfy the Symons judgment. The trial court granted AP Capital’s motion for a
setoff, explaining in part:
[T]he point of it is on the first day of trial in Langeland and Tibble versus
American Physicians Capital, Hackney got settled out. He paid $350,000. Now,
I’m not about to get into nickels and dimes. The settlement was 350 and that’s
the setoff.
The reason setoff is being granted is A.P. Capital is entitled to the credit of
whatever has been used against the Simons [sic] verdict, together with the accrued
interest and costs, in paying the net amount, whatever that net amount is clearly
almost a million dollars in excess of what their exposure was. They already paid
the $350,000 plus accrued interest and so on. So that comes off the verdict.
The accounts receivable from BCEP comes off the verdict.
The $350,000 that Hackney paid which related exclusively to his failure to
ask for a setoff for the social security benefits which he should have done, and the
Supreme Court in its order said it was wrong not to seek that. His payment for his
failure to see the setoff is exclusively economic.
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And Prodinger has said it didn’t bother me that he didn’t do that. So A.P.
Capital is entitled to that setoff. And it is the net amount to be paid by A.P.
Capital.
The court reiterated that the $350,000 would be set off against Langeland’s judgment.
Langeland argues that the trial court erred when it reduced the damages awarded to him
for AP Capital’s bad faith by the amount of the legal malpractice settlement because (1) AP
Capital, in requesting postjudgment relief in the form of a setoff, took a position contrary to what
it had taken at trial; (2) there was no double recovery because the settlement did not duplicate the
economic damages awarded by the jury; (3) the tort reforms of 1995 abolished setoffs; and (4)
there is no case law to support the proposition that the damages awarded to Langeland can be set
off with the proceeds from the settlement when he received nothing from the settlement.
Langeland first argues that AP Capital was precluded from requesting a setoff in the
amount of the legal malpractice settlement after judgment was entered because it never objected
to letting the jury decide whether the amount of the Hackney settlement proceeds should be
subtracted from any verdicts in favor of him and Tibble. The rule of law relied on by Langeland
is well known. “A party is not allowed to assign as error on appeal something which his or her
own counsel deemed proper at trial since to do so would permit the party to harbor error as an
appellate parachute.” Dresselhouse v Chrysler Corp, 177 Mich. App. 470, 477; 442 NW2d 705
(1989). See also Lewis v Legrow, 258 Mich. App. 175, 210; 670 NW2d 675 (2003) (“It is settled
that error requiring reversal may only be predicated on the trial court’s actions and not upon
alleged error to which the aggrieved party contributed by plan or negligence.”).
During trial, Tibble presented the trial court with the following proposed jury instruction
regarding the legal malpractice settlement:
You heard during this trial that the Plaintiffs have settled with Attorney
Randy Hackney for $350,000. If you find in favor of the Plaintiffs against the
Defendant AP Capital, you are not to deduct all or any portion of the $350,000
from your award to the Plaintiffs. Following your verdict, I will determine
whether any portion of the $350,000 settlement should be deducted from your
verdict.
Before the jury was instructed, there was no discussion on the record regarding this “special jury
instruction #3.”
Also, during trial, AP Capital submitted a supplemental trial brief in which it explained
that sufficient funds would be available to apply to the Symons judgment. AP Capital provided
the trial court with a proposed verdict form. The verdict form asked the following five
questions: (1) Did AP Capital act in bad faith in failing to negotiate a settlement with the
Symons Estate? (2) Was Prodinger or BCEP damaged by AP Capital’s bad faith? (3) What is the
amount of attorney fees that BCEP was required to pay for appealing the Symons Judgment,
negotiating a settlement, and filing for bankruptcy? (4) What was the net value of the assets that
BCEP turned over to Langeland? and (5) What was the net value of the assets that Prodinger
turned over to Tibble?
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Langeland disputed AP Capital’s assertion that the $350,000 from the Hackney
settlement should be subtracted from the damages payable to him. He argued that the assertion
“ignores the obvious fact that the reason BCEP did not share in that settlement . . . because those
damages were paid for Dr. Prodinger’s emotional distress damages and his bankruptcy attorney
fees, both of which were recoverable only from Mr. Hackney.” In addition, Langeland argued
that Prodinger lost the $350,000 from the settlement as a result of AP Capital’s bad faith and,
therefore, the amount of damages collectable from AP Capital should include the $350,000.
In reply, AP Capital denounced the suggestion that the $350,000 settlement proceeds
should be considered an asset surrendered to the bankruptcy estates. It wrote:
Defendant APCapital contends that this should not be allowed because there is no
basis in the evidence presented for any finding that the payment of this money
was necessitated by any bad-faith conduct on APCapital’s part. This money was
instead paid to settle Plaintiffs’ claim that the Symons Judgment was larger than it
should have been because of Mr. Hackney’s malpractice. Without that
malpractice, the judgment against Dr. Prodinger and BCEP would have been
smaller, and thus, they would not have had any claim for the excess amount
attributable to the malpractice as an element of damages for APCapital’s bad
faith. . . . [T]hat payment has no relevance to the determination of what Dr.
Prodinger and BCEP have lost by virtue [of] their bankruptcy filings as a result of
any bad faith conduct on the part of APCapital.
In addition, AP Capital asserted that, if the jury was allowed to include the settlement proceeds
as an asset lost to the bankruptcy estates, it should be granted a $350,000 setoff against any
damages awarded.
The trial court held that Langeland could recover from AP Capital the unpaid amount of
the Symons judgment and an amount necessary to place BCEP in the position it was before AP
Capital’s bad faith and that Tibble, because Prodinger had been discharged from the Symons
Judgment, could not collect on the judgment, although he could recover the amounts that
Prodinger had spent in attorney fees as a result of AP Capital’s bad faith. Also in its decision,
the trial court stated that the jury would be allowed to consider setoffs, including the legal
malpractice settlement.
In their closing arguments, neither Tibble nor Langeland addressed the legal malpractice
settlement. In its closing argument, AP Capital requested the jury, in determining how much
Langeland needed to pay off the Symons judgment, to reduce the amount of the Symons
judgment by $350,000. It stated, “Well, we know Mr. Hackney settled his case for $350,000.
And that’s going to be applied to the judgment. So you have to reduce the [$]696,000[25] by
25
The amount of $696,000 is the total of the Symons judgment ($1.3 million) minus the
maximum Social Security setoff that Hackney failed to request ($402,317) minus the amount that
AP Capital paid on the Symons judgment ($371,000) plus accruing interest ($163,000).
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$350,000.” In rebuttal arguments, Langeland and Tibble addressed the $350,000 settlement
proceeds. Langeland stated:
There’s still a judgment that’s owed to Mrs. Symons for 1.206 million dollars.
Now if there’s bad faith in this case, BCEP, its shareholders who still own that
corporation are entitled to get their money back. . . .
***
Now did he [Langeland] sue Mr. Hackney. [sic] Yes, he did. Did he get a
verdict against Mr. Hackney. [sic] Yes, he did. They’ve already asked Judge
Kingsley to reduce whatever you award in this case by $350,000. Now he’s
trying to get double dip on the reduction. He’s asking you to reduce your verdict
by the 350, then he’s going to ask Judge Kingsley to do it again.
AP Capital objected to Langeland’s statement. The trial court sustained the objection and the
remark was stricken from the record. Tibble argued:
It’s true that Dr. Prodinger settled with Mr. Hackney for $350,000. The reason is
they’re not responsible -- sometimes the law is silly. They’re not responsible for
all the emotional distress he went through by filing bankruptcy, humiliation, the
being out of work for two years, every thing that poor man went through they
have to pay for, but Mr. Hackney does. For his malpractice he’s responsible for
the emotional distress. That $350,000 should not go to pay this judgment. It
belongs to Dr. Prodinger for all he’s been put through.
And if you decide that A.P. Capital should be the one paying that
judgment, as I think they should, then that Dr. Prodinger should get that $350,000.
If you decide otherwise, then he doesn’t get it. It goes to pay the judgment, but
that’s the issue that’s up to you. . . .
The trial court’s instructions to the jury did not mention anything about setoffs. When it
finished instructing the jury, the trial court asked the parties if they had any objections to the
instructions that had not previously been noted. Tibble responded, “I do object to the fact you
didn’t give the instruction on the fact that the $350,000 setoff -- $350,000 settlement with Mr.
Hackney would be setoff later by the court which I believe [is] the appropriate way to do this and
which was, in fact, requested earlier in trial by [the attorney for Langeland]. The trial court
overruled the objection “for the reason that each side had the ability to argue and did so argue
how you determine the net value of the verdict to the Symons family.” AP Capital did not have
any objections to the instructions.
We reject Langeland’s argument that AP Capital took a position contrary to what it had
taken during trial when it asked the trial court for postjudgment relief in the form of a setoff for
$350,000. First, as previously stated, there was no discussion on the record regarding “special
jury instruction #3.” Because there was no discussion on the record regarding this instruction, it
is simply unknown what arguments AP Capital made concerning the instruction. Second, an
issue raised by AP Capital’s supplemental trial brief and Langeland’s response to it was whether
the legal malpractice settlement proceeds could be considered part of the assets that were lost by
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Prodinger or BCEP when they filed for bankruptcy. AP Capital asserted that, if the jury was
allowed to include the $350,000 settlement proceeds in the assets that were lost to the bankruptcy
estates, it was then entitled to a setoff in that amount. However, AP Capital made no suggestion
regarding who, the trial court or the jury, should determine whether it was entitled to a setoff. In
determining what damages Tibble and Langeland could collect from AP Capital for its bad faith,
the trial court changed its previous ruling on the issue. It held that Langeland’s damages
included the unpaid amount of the Symons Judgment and the amount necessary to place BCEP
in the position it was in before AP Capital’s bad faith. The trial court stated that the jury, in
determining the amount of damages to award Langeland, could consider setoffs, including the
proceeds of the Hackney settlement. However, before the trial court held that the jury could
consider setoffs, there had been no argument before the trial court regarding whether it or the
jury should decide whether AP Capital was entitled to a setoff for the proceeds from the Hackney
settlement.
The basis for Langeland’s argument that AP Capital was precluded from asking for
postjudgment relief in the form of a setoff was that AP Capital had wanted the jury, rather than
the trial court, to determine whether it was entitled to a setoff for the settlement proceeds.
However, as just explained, AP Capital never took a position, on the record, regarding whether
the jury or the trial court should make this determination. It was the trial court, without any
argument from the parties, who held the jury could consider setoffs in awarding damages for AP
Capital’s bad faith. Accordingly, we cannot conclude that AP Capital, in moving for
postjudgment relief, assigned as error a decision which its counsel deemed proper at trial.
Dresselhouse, 177 Mich. App. at 477.
Langeland next argues that AP Capital is not entitled to a setoff for the proceeds of the
legal malpractice settlement because setoffs were abolished with the 1995 tort reforms.
MCL 600.2925d, before it was amended by 1995 PA 161, stated:
When a release or a covenant not to sue or not to enforce a judgment is
given in good faith to 1 or 2 or more persons liable in tort for the same injury or
the same wrongful death:
(a) It does not discharge any of the other tort-feasors from liability for the
injury or wrongful death unless its terms so provide.
(b) It reduces the claim against the other tort-feasors to the extent of any
amount stipulated by the release or the covenant or to the extent of the amount of
the consideration paid for it, whichever amount is the greater.
(c) It discharges the tort-feasor to whom it is given from all liability for
contribution to any other tort-feasor.
MCL 600.2925d(b) codified the common-law setoff rule. Velez v Tuma, 492 Mich. 1, 11; 821
NW2d 432 (2012); Markley v Oak Health Care Investors of Coldwater, Inc, 255 Mich. App. 245,
255; 660 NW2d 344 (2003). However, the subsection was deleted from MCL 600.2925d by the
1995 tort reform legislation “because the tort reform legislation, for the most part, abolished joint
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and several liability in favor of allocation of fault or several liability.” Markley, 255 Mich. App.
at 255, citing MCL 600.2956 and MCL 600.6304.
MCL 600.2956 provides:
Except as provided in [MCL 600.6304], in an action based on tort or
another legal theory seeking damages for personal injury, property damage, or
wrongful death, the liability of each defendant for damages is several only and is
not joint. However, this section does not abolish an employer’s vicarious liability
for an act or omission of the employer’s employee. [Emphasis added.]
MCL 600.6304 provides,
(1) In an action based on tort or another legal theory seeking damages for
personal injury, property damage, or wrongful death involving fault of more than
1 person, including third-party defendants and nonparties, the court, unless
otherwise agreed by all parties to the action, shall instruct the jury to answer
special interrogatories or, if there is no jury, shall make findings indicating both
of the following:
(a) The total amount of each plaintiff’s damages.
(b) The percentage of the total fault of all persons that contributed to the
death or injury, including each plaintiff and each person released from liability
under [MCL 600.2925d], regardless of whether the person was or could have been
named as a party to the action.
(2) In determining the percentages of fault under subsection (1)(b), the
trier of fact shall consider both the nature of the conduct of each person at fault
and the extent of the causal relation between the conduct and the damages
claimed.
(3) The court shall determine the award of damages to each plaintiff in
accordance with the findings under subsection (1), subject to any reduction under
subsection (5) or [MCL 600.2955a or MCL 600.6303], and shall enter judgment
against each party, including a third-party defendant, except that judgment shall
not be entered against a person who has been released from liability as provided
in [MCL 600.2925d].
(4) Liability in an action to which this section applies is several only and
not joint. Except as otherwise provided in subsection (6), a person shall not be
required to pay damages in an amount greater than his or her percentage of fault
as found under subsection (1). This subsection and [MCL 600.2956] do not apply
to a defendant that is jointly and severally liable under [MCL 600.6312].
***
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(8) As used in this section, “fault” includes an act, an omission, conduct,
including intentional conduct, a breach of warranty, or a breach of a legal duty, or
any conduct that could give rise to the imposition of strict liability, that is a
proximate cause of damage sustained by a party. [Emphasis added.]
The goal of statutory interpretation is to ascertain and effect to the intent of the
Legislature. Scholma v Ottawa Co Rd Comm, 303 Mich. App. 12, 19; 840 NW2d 186 (2013). If
the statutory language is unambiguous, the Legislature is presumed to have intended the meaning
clearly expressed, and the statute must be enforced as written. Id. “[A] court may read nothing
into an unambiguous statute that is not within the manifest intent of the Legislature as derived
from the words of the statute itself.” Roberts v Mecosta Co Gen Hosp, 466 Mich. 57, 63; 642
NW2d 663 (2002).
In Laurel Woods Apartments v Roumayah, 274 Mich. App. 631; 734 NW2d 217 (2007),
the defendants, Najah Roumayah and Rebecca Roumayah, signed a lease agreement for an
apartment that listed them “jointly severally” as the “tenant.” The lease agreement made the
“tenant” liable for any damage to the apartment. A fire caused by Rebecca resulted in substantial
damage to the apartment. The plaintiff sued Najah and Rebecca, claiming that they were jointly
and severally obligated to pay for the damage. Najah argued that the claim against him should
be dismissed because there was no evidence that he caused the fire and, pursuant to MCL
600.2956, he could not be held jointly and severally liable for the damage. This Court rejected
the argument. Id. at 641-642. It stated:
[T]his case does not sound in tort. It is strictly a breach of contract claim, and the
contract provides:
THIS APARTMENT LEASE AGREEMENT (“Lease”) is
made and entered into this date of June 1, 2005 between LAUREL
WOODS APARTMENTS L.L.C[.]; with an address of 22200
Laurel Woods Drive, Southfield, Michigan 48034 (“Landlord”)
(jointly severally) Najah Roumayah & Rebecca Roumayah
(“Tenant”).
It is undisputed that Najah and Rebecca Roumayah signed the lease agreement.
Thus, according to its plain terms, the parties agreed that Najah and Rebecca
Roumayah were jointly and severally liable.
By its plain terms, MCL 600.2956 does not preclude this agreement; it
applies to tort actions “or another legal theory seeking damages for personal
injury, property damage, or wrongful death.” While this breach of contract claim
clearly seeks to recover for damage to plaintiff’s property, the damages sought are
pursuant to contract and therefore are contract damages that arise incidentally
from property damage. MCL 600.2956 does not provide that it applies to a legal
theory seeking contract damages. Nor is there any indication that the Legislature,
by amending MCL 600.2956, sought to limit or eliminate the parties’ freedom to
contract. The parties agreed that defendants would be jointly and severally liable
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for any damage that either of them caused. This agreement is not precluded by
MCL 600.2956. [Id. at 642.]
In Zahn v Kroger Co of Michigan, 483 Mich. 34; 764 NW2d 207 (2009), Brian Zahn, an
employee of Cimarron, a subcontractor, was injured when he fell from scaffolding during the
renovation of a Kroger store. Zahn sued the Kroger Company and the general contractor, Martin
Construction Company, for negligence. Martin Construction Company settled with Zahn and
resolved indemnification claims with the Kroger Company. It then requested enforcement of the
terms of an indemnification clause in its agreement with Cimarron. The indemnification clause
stated that Cimarron shall indemnify Martin Construction Company for all claims of bodily
injury or property damage that arise from the performance of its work. The trial court, after
finding that Cimarron was 80 percent negligent and Martin Construction Company was 20
percent negligent, held that Cimarron was required to reimburse Martin Construction Company
for 80 percent of the settlement amounts. On appeal, Cimarron argued that, because MCL
600.2956 abolished joint and several liability, the indemnification clause was unenforceable.
The Supreme Court disagreed. Id. at 39. It stated that “[t]o adopt the position that MCL
600.2956 renders express contractual indemnification clauses unenforceable would require that
we negate the parties’ contract. We find no language in the statute, nor any compelling public
policy, that would require us to do so.” Id. It also stated:
The Court of Appeals addressed the identical legal challenge in reviewing a
substantially similar express indemnification clause governing a construction site
accident. See Essell v George W Auch Co [, unpublished opinion per curiam of
the Court of Appeals, issued February 24, 2004 (Docket No. 240940)]. That
Court noted, “Although novel, the argument is also contrived because it
selectively implicates the underlying negligence complaint and ignores the
substance of the cross-complaint, an action based in contract.” The Court opined:
However, defendants ignores [sic] the first sentence of
MCL 600.2956, that limits its application to “an action based on
tort or another legal theory seeking damages for personal injury,
property damage, or wrongful death . . . [.]” While the underlying
complaint by Essel [sic] is a tort action seeking damages for
personal injury, the action at issue in this cross-complaint is an
action based on contract theory. Plaintiff’s lawsuit seeks
reimbursement for monies paid, not for its own personal injury,
property damage, or wrongful death. There is no indication that
the Legislature, by amending MCL 600.2956, sought to limit or
eliminate the parties’ freedom of contract to allocate damages
should a breach of contractual duty occur. Indeed, MCL 600.2956
contains the proviso that it applies to tort actions or actions where
the legal theory results in damages for personal injury, property
damage, or wrongful death. ISB [Sales, Co v Dave’s Cakes, 238
Mich. App. 520, 529-530; 672 NW2d 181 (2003)]. If the
Legislature had intended to include all other actions, including
contract actions, it expressly would have done so and would not
have placed any restricting language within the statute. [Id. at 5.]
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We find the above analysis persuasive and hold that MCL 600.2956 does not
apply to contract actions, and the language chosen by the parties as contained in
the contract is controlling. [Id. at 13.]
Here, the present action was a claim by Langeland and Tibble that AP Capital acted in
bad faith when it failed to settle with the Symons Estate. A claim against an insurer for bad faith
is a breach of contract claim. See Keeley I, 433 Mich. at 556-557 (opinion by LEVIN, J.) (“Until
now, the rule in Michigan has been that the action for bad-faith failure to settle sounds in
contract and not in tort.”); Kewin, 409 Mich. at 422-423 (stating that a tort action will not lie for
an insurer’s bad faith breach of an insurance contract).26 Because the claim against AP Capital is
a contract claim, we conclude that MCL 600.2965 does not apply to the bad faith claim asserted
against AP Capital. Admittedly, the facts of the present case are significantly different from the
facts of either Zahn or Laurel Woods Apartments. The present case does not involve a contract
clause that sets forth the liability of the contracting parties. However, the Supreme Court in
Zahn and this Court in Laurel Woods Apartments looked at the “proviso” of MCL 600.2956—
”in an action based on tort or another legal theory seeking damages for personal injury, property
damages, or wrongful death”—and held that the statute does not apply to contract actions, Zahn,
483 Mich. at 37, 40, or to legal theories seeking contract damages, Laurel Woods Apartments,
274 Mich. App. at 642. Because Langeland and Tibble were seeking damages from AP Capital
for its breach of the insurance policy, the claim against AP Capital falls outside the purview of
MCL 600.2965. See Scholma, 303 Mich. App. at 19 (stating that unambiguous statutory language
must be enforced as written). Accordingly, MCL 600.2965 does not preclude AP Capital’s
request for a setoff in the amount of the proceeds from the legal malpractice settlement.
The two remaining issues raised by Langeland are whether the settlement proceeds
constituted a double recovery and whether the damages awarded to him can be set off by the
settlement proceeds when the proceeds were received by Tibble. These arguments, however,
were made in the context of the jury having awarded $1,497,723 in damages to Langeland. We
have concluded that Langeland was only entitled to damages in the amount of $810,410, the sum
of the value of the assets BCEP surrendered when it filed for bankruptcy and the amount of its
attorney fees in appealing the Symons judgment and filing for bankruptcy. Additionally, we
have concluded that, because the legal malpractice action resulted from AP Capital’s bad faith,
the proceeds of the legal malpractice settlement are not an asset of Prodinger’s bankruptcy estate
for which Tibble can recover. The parties have not addressed whether a setoff for the proceeds
of the settlement is necessary if Langeland’s recovery is limited to the value of the assets that
BCEP turned over to the bankruptcy estate and BCEP’s attorney fees and the settlement proceeds
are not considered an asset of the bankruptcy estate for which recovery is available. We
therefore vacate that portion of the judgment that awarded a setoff to Langeland in the amount of
26
We note that Langeland, in his brief on cross-appeal, states that his claim against AP Capital
for bad faith was a claim for breach of warranty. However, in his reply brief, Langeland
acknowledges that a claim for bad faith is a breach of contract claim.
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$350,000 and remand to the trial court for reconsideration of the setoff issue in light of this
Court’s conclusions.27
Affirmed in part, reversed in part, vacated in part, and remanded for further proceedings
consistent with this opinion. Jurisdiction is not retained.
/s/ Kurtis T. Wilder
/s/ E. Thomas Fitzgerald
/s/ Jane E. Markey
27
On remand, if the trial court determines that a setoff for the legal malpractice settlement
cannot be applied to the damages awarded to Langeland, Tibble may raise his argument
presented on appeal that a setoff should be applied to the damages awarded to Tibble in order to
avoid a double recovery by Tibble of the attorney fees that Prodinger incurred in filing for
bankruptcy. Additionally, the trial court shall consider the effect of Greer v Advantage Health,
___ Mich App ___; ___ NW2d ___ (2014), which both parties have submitted to this Court as
supplemental authority regarding the setoff issue.
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