Michigan Supreme Court; Docket No. 60756,60757; Published
Opinion by J. Kavanagh; 6-1 (with J. Williams Affirming in Part and Reversing in Part)
Official Michigan Reporter Citation: 409 Mich 401; Link to Opinion 
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Extra Contractual / Mental Anguish Damages
CASE SUMMARY:
In a 6-1 Opinion written by Justice Kavanagh, the Supreme Court (in a non-no-fault case) held that a disability income protection insurance policy is a commercial contract, the mere breach of which does not give rise to a right to recover damages for mental anguish. The Court held that the damages that are recoverable in such contracts are those damages that "arise naturally from the breach or which can reasonably be said to have been in the contemplation of the parties at the time the contract was made. Absent proof of such contemplation, the damages recoverable do not include compensation for mental anguish."
In reaching its conclusion, the Court relied on the old English case of Hadley v Baxendale which stands for the general proposition that the damages which are recoverable for breach of contract are those that arise naturally from the breach or those that are in the contemplation of the parties at the time the contract was made. Under this rule, a general rule has evolved that damages for mental distress cannot be recovered in actions for beach of contract. The Court, however, did acknowledge an exception which was created by a previous Supreme Court decision in Stewart v Rudner, 349 Mich 459 (1957). This case acknowledged that where the contract is a personal one involving "matters of mental concern and solicitude" damages for mental anguish and emotional distress are recoverable. However, a disability income protection insurance contract such as the type that was involved in this case, is not a contract involving mental concern and solicitude. Such contracts are commercial in nature and are agreements to pay a sum of money upon the occurrence of a specified event.
Other highlights of the decision are as follows:
1. The Court went on to discuss the parameters of "exemplary damages." The Court acknowledged that exemplary damages are recoverable as compensation to the plaintiff and not as punishment to the defendant The Court stated that a review of case precedent indicated that cases which permit recovery for exemplary damages "involve tortious conduct on the part of the defendant." In these cases, an award of exemplary damages is considered proper if it compensates the plaintiff for the "humiliation, sense of outrage and indignity" resulting from the injuries "maliciously, willfully and wantonly" inflicted by the defendant.
The Court held that in cases involving only breach of contract, the general rule is that exemplary damages are not recoverable. However, the Court did not entirely foreclose recovery of exemplary damages in contract situations. On the contrary, the Court held that "absent allegation and proof of tortious conduct existing independent of the breach, exemplary damages may not be awarded in common law actions brought for breach of a commercial contract." The Court did not define what it meant by such independent tortious conduct.
2. The Court also commented that it was expressing no opinion on the accuracy of the Court of Appeals observations that Michigan law recognizes a tort action for "intentional infliction of mental distress." The Court agreed with the holding of the Court of Appeals that such an action was not properly pleaded in this case.
3. The Court also opened another door when it intimated that had it been properly plead, the plaintiff may have been entitled to pursue a cause of action sounding in tort for "fraud, undue influence or invasions of privacy." The Court did not comment on the validity of such causes of action for the reason that the plaintiff’s complaint was deficient in that it contained only conclusory language rather than facts which would support a finding of such tortious conduct. If such tortious conduct is to be a basis for recovery, the Court strongly suggested that there is a significant difference between a bad faith breach of contract and independent tortious conduct justifying separate tort recovery.
4. The Court specifically refused to follow the lead of the California courts and "declare the mere bad faith breach of an insurance indemnity contract as an independent and separately actionable tort", thereby opening another door to recovery for mental pain and suffering caused by the breach of such a contract. However, the Court made a very critical reference to an old Michigan decision, Harbaugh v Citizens-Telephone Company 190 Mich 421 (1916). The Court recognized that in Harbaugh the same set of facts which established a breach of contract also established a cause of action in tort However, the Court distinguished Harbaugh by stating, "Harbaugh involved a breach of duty imposed by statute upon the defendant. The duty existed independently of and apart from the contractual undertaking." In so stating, there seems to be a significant implication that where a duty is imposed by statute, there may be a cause of action in tort for bad faith breach and resultant recovery of mental anguish damages.
5. The Court also made an important observation in footnote 2 where the Court stated that they did not address the question of "whether compensation for attorney fees or other items of pecuniary loss caused by a breach of the insurer's contractual obligation to process claims in good faith might be recoverable if properly pleaded."
Justice Williams filed a very lengthy Opinion which stated that income protection disability insurance policies are contracts of mental concern and solicitude, therefore justifying recovery of mental anguish damages. Justice Williams stated, however, that a plaintiff should not be entitled to recover both mental anguish damages and exemplary damages in that both kinds of damages are basically intended to compensate for the same injury.
[Author's Comment: In many ways, the Kewin decision has raised more questions than it has answered in the no-fault area. First of all, the insurance contract in Kewin was not a no-fault contract. Therefore, it is unresolved whether or not a contract of no-fault insurance is a contract of mental concern and solicitude. If it is, then a simple breach entitles a plaintiff to recover mental anguish damages. Second, the Court has strongly suggested that there may be a tort cause of action for an insurer's breach of a duty of "good faith fair dealing" where this duty has its genesis in a statute. If such an independent tort exists, it would obviously require proof of bad faith and it would justify recovery of mental and emotional damages. Third, the Court has also indicated that where an insurer's conduct results in a tort "independent of the breach" then exemplary damages for mental anguish may be recoverable. The Court seems to be referring to such independent causes of action as fraud, misrepresentation, deceit, undue influence, intentional infliction of emotional distress, etc. This approach would seem to be the most demanding insofar as requiring proof of malicious, willful and wanton misconduct on the part of the insurer.]
