Post on Contract Clause and State Legislation to Force Insurers to Cover Losses Under Commercial Insurance Policies due to COVID19 Pandemic
Court of Appeals Rules Disagreement Over the Terms of Settlement Contract Not an Ambiguity Over What Terms Actually Mean
This is an interesting, if not unsurprising, case in which the Court of Appeals affirmed a trial court’s finding concerning what the terms of a settlement contract were in a dispute over their meaning.
The plaintiff and the defendant’s insured entered into a settlement agreement in which the plaintiff repaid the insurer an amount to settle past due offsets for previously overpaid workers’ compensation benefits. The dispute centered on a handwritten entry on the settlement agreement in which the plaintiff claimed future claims against him by the insurer for overpayments were forever precluded and the insurer claimed potential future claims were preserved.
According to the plaintiff, the handwritten entry stated that the insurer agreed to: “$95,000 in full settlement of all claims and waives future claims”; whereas the insurer claimed it agreed to: “$95,000 in full settlement of all liens and leaves future credits.”
The trial court found in favor of the plaintiff, reading the provision as plaintiff urged. The insurer appealed, claiming that the contract was ambiguous, and as such, parol evidence should have been allowed to clarify the true meaning of the entry.
The Court of Appeals affirmed the trial court’s ruling in favor of plaintiff. The Court reasoned that the question was not one of whether the contract was “ambiguous”, which would mean that although the terms were clearly discernible, their meaning and intent were not. This situation would allow the introduction of evidence outside of the four corners of the contractual agreement, i.e., parol evidence, as a means to allow the factfinder (here the trial court) to discern the parties’ understanding and intent, and thus, the true meaning of their agreement. Rather, the Court points out the dispute was truly one of discerning, factually, what terms were handwritten onto the document, a function reserved for the finder of fact and subject, therefore, to a different, more burdensome standard of review, to wit, “clear error”. As the Court of Appeals concluded, it reviewed the handwritten entry and could not conclude, under the appropriate standard of review, that the trial court had made a mistake in his review of the facts. As explained by the Court, “[w]here the parties disagree about what the words themselves are, the issue before the trial court is not one of contract ambiguity, but a straightforward factual determination, reviewed for clear error. MCR 2.613(C). In this case, the trial court expressly determined that the words used in the settlement agreement are ‘waives future claims,’ and our review of the settlement agreement does not leave us with a ‘definite and firm conviction that the trial court made a mistake.’ Hill v City of Warren, 276 Mich App 299, 308; 740 NW2d 706 (2007).”
This short opinion teaches a couple of important lessons. First, the dispute between the parties in an appeal must be properly identified because that dispute will dictate what standard of review the Court of Appeals will apply. If the issue were truly one concerning the contract’s “ambiguity”, a question of law, then the standard of review would be de novo, in which the Court of Appeals would be free to review the entire record, pleadings, lower court proceedings, and, potentially, the proffered, but rejected, parol evidence, to discern the parties’ intent and understanding of the contract and its meaning and effect.
If the dispute, on the other hand, is one of pure fact, here, what did the handwritten terms of the contract really say, then the question is one of fact, and the trial court’s determination of what the facts are in the lower court proceedings can only be reviewed for “clear error”. The burden to overcome such review is much more difficult. As articulated by the Court of Appeals in this case, it must be persuaded with “definite and firm conviction” that the trial court made a mistake.
Perhaps one way the insurer could have avoided such a preclusive consideration by the Court of Appeals was to alternately concede the plaintiff’s version of what the handwritten entry stated, but to argue, nonetheless, that this language itself was ambiguous. The insurer might concede it would not itself file future claims, but that this did not mean it was precluded from seeking repayments in the future for overpayments made on the prior claim. Alternatively, while in the ordinary sense, the insurer might seek compensation for overpayments in the future, there might be another method it could use than actually filing a “claim” in the workers’ compensation agency to recuperate such overpayments. Thus, the meaning of “$95,000 for all claims and waives future claims“, might not be deemed to foreclose other, future methods of seeking recovery (including simply reducing future payments for benefits if applicable). Thus, having lodged alternate meanings of the contract’s language, the insurer may claim it is “ambiguous”, and it would thereby be free to at least urge its own interpretation, offer (and have admitted) the parol evidence, and, ultimately to have the question of the contract’s “ambiguity”, a pure question of law, reviewed under the de novo standard of review.
In the latter case, the chance of succeeding on appeal in overturning the trial court’s ruling in this case would have been infinitely greater than having the Court of Appeals find “clear error” in the trial court’s simple determination of what was deemed only a question of mere fact.
Here is the Court of Appeals’ Opinion: Stelman v. Troy Auto et al