Tuesday, October 30, 2007

Clevenger v. Oliver Insurance Agency[1]

Opinion handed down October 30, 2007.
Link to Supreme Court Opinion

The Missouri Supreme Court reversed a jury award for the Appellants and held that they were not entitled to recovery under the equitable theory of promissory estoppel because equitable relief cannot lie where a party has an adequate remedy at law.

I. Facts and Holding

Appellants Neil and Mitsu Clevenger own an equestrian park. After receiving complaints from a neighboring property owner that runoff from the equestrian park was contaminating the neighbor’s lake, the Appellants contacted insurance agent Bill Adams at Oliver Insurance in order to obtain pollution liability insurance. Adams secured insurance for the Clevengers through Gulf Insurance. The policy, however, explicitly excluded claims by the neighboring property owner and all substantially similar claims. When the policy came up for renewal, the Clevengers consulted Adams about the possibility that the renewed plan cover claims related to the neighbor’s lake. Adams sought assurances from the insurance broker before informing Appellants that they would have coverage for incidents involving the neighbor’s lake. The Clevengers subsequently renewed their policy with Adams’ assurances, and the exclusion still attached to the policy.

Shortly thereafter, the neighbor sued the Clevengers for damage to the lake. Appellants tendered the claim to Gulf Insurance, which denied their claim because their pollution liability insurance policy explicitly excluded the neighbor’s claim. After settling the suit with their neighbors, the Clevengers brought this suit against Oliver Insurance on the theories of negligence and promissory estoppel. [2] After trial, a jury returned verdicts for the Clevengers on both counts. As to the negligence count, the jury assessed 98.6% of fault to the Clevengers, thus reducing their negligence damages to $1,095. [3] The jury did not assign any fault to the Clevenger on the promissory estoppel claim, however, and awarded them $78, 223.82. The trial court overruled Oliver’s motion for a judgment notwithstanding the verdict. On appeal, the Missouri Supreme Court held that equitable relief under promissory was not proper because the legal remedy of negligence provided for an adequate remedy at law.

II. Legal Background

Promissory estoppel is just one type of equitable estoppel, which encompasses all forms of estoppels arising out of some form of misrepresentation. [4] “Estoppel prevents a person from showing the truth contrary to a representation of fact made by him after another has relied on the representation.” [5] Promissory estoppel is an equity doctrine and therefore disfavored by courts of law; it should be applied “with caution, sparingly and only in extreme cases to avoid unjust results.”[6] A Missouri plaintiff must establish four elements by clear and convincing evidence in order to prevail on a claim of promissory estoppel: (1) a promise; (2) that the promisee detrimentally relied on the promise; (3) the promisor could have reasonably foreseen the precise action the promisee took in reliance on the promise; and (4) injustice can only be avoided by enforcement of the promise. [7] Missouri law recognizes promissory estoppel claims in both the commercial setting and those involving gratuitous promises. [8] Most Missouri cases rely on the Restatement of the Law of Contracts §90 or the Restatement of the Law of Contracts (Second) §90 for a formulation of the doctrine. [9]

Missouri courts do not favor promissory estoppel and the party seeking its enforcement must clearly prove each and every element. [10] At least one Missouri court has stated that element number four, the availability and adequacy of other remedies at law, is the most important factor for a court to consider. [11] The prioritization makes sense, because it is a well-established that in order to obtain equitable relief, a petitioner generally must show that he has no adequate remedy at law. [12] The Restatement lists several factors to consider in determining the existence of prong number four of equitable estoppel, including the availability and adequacy of other remedies, particularly restitution and cancellation; the definite and substantial character of the action or forbearance in relation to the remedy sought; the reasonableness of the forbearance; and the extent to which the forbearance was foreseeable by the promisor. [13]

In Zipper v. Health Midwest, the plaintiff doctor brought an action against a medical center corporation, its officers and directors alleging liability based on promissory estoppel, among other claims. [14] The plaintiff claimed that the defendants breached an alleged agreement to sell him a medical building, provided that the plaintiff made improvements to it. [15] In reliance on the agreement, the plaintiff spent about $125,000 renovating the building, reliance which the court said the defendants should have or did in fact foresee. [16] However, the court held that the plaintiff did not make a submissible case of promissory estoppel because he failed to show that injustice could only be avoided by enforcement of the promise. [17] The court stated that the plaintiff actually sought restitution of the $125,000 he had spent to renovate the building. [18] Restitution is an adequate legal remedy, and therefore the plaintiff was barred from equitable relief in these circumstances. [19]

In contrast, the plaintiff in Katz v. Danny Dare [20] was entitled to equitable relief based on promissory estoppel. [21] Plaintiff Katz was a retired employee seeking pension payments from his employer. [22] Katz alleged that he voluntarily retired in 1975 because his employer promised to pay him a pension of $13,000 per year, in exchange for Katz’s 25 years of loyal employ and his failing health. [23] The employer ceased the pension payments in 1978 due to his belief that Katz’s health had improved and that he was now able to work. [24] The court found for Katz and held that he was entitled to the pension payments under the theory of promissory estoppel, but neglected to discuss any injustice that would result if the promise were not enforced or whether or not there was an adequate remedy at law. [25]

III. Commentary

A unanimous Missouri Supreme Court decided Clevenger. The unanimity, combined with the fact that promissory estoppel is an equitable doctrine to be applied sparingly and used only to prevent miscarriages of justice, militates against criticizing the result reached by the Court. However, the case poses interesting questions regarding the contours of promissory estoppel, the fourth element in particular, and the consistency with which courts apply the doctrine.

The confusion surrounding the promissory estoppel doctrine stems in part from courts’ failure to cast the fourth element, the prong which states that injustice can only be prevented by its application, with precision or consistency. Scholars have aptly described the fourth prong as “the most elusive element of promissory estoppel.” [26] While the Restatement provides several factors to aid in determining whether an injustice will result, [27] some courts consider the adequacy of a remedy at law essentially dispositive of the issue. [28] However, in theory no one factor should be given greater weight than any other, and according to the Restatements the test to be applied is a flexible one. [29]

When courts deny promissory estoppel relief due to the existence of an adequate remedy at law, the question arises of what constitutes an “adequate” remedy. Undoubtedly the Clevengers did not feel that the $1,000 recovery under a negligence theory was adequate, especially when compared with the nearly $80,000 a jury awarded them based on promissory estoppel. [30] The jury in the Clevengers’ case felt that an injustice had occurred, or they would not have returned the large equitable verdict in favor of the Clevengers and against Oliver Insurance.
One explanation for the Clevenger decision may be that in assessing promissory estoppel claims, courts place more emphasis on the reasonability of the reliance in assessing the fourth prong than the opinions indicate. At trial, a jury assessed 98.6% of negligence liability to the Clevengers. [31] It is possible that the Missouri Supreme Court felt that the Clevengers’ relying on insurance coverage for a claim that was explicitly excluded by the policy did not warrant invocation of the doctrine. However, the opinion scarcely touched on the conversations between Bill Adams and the Clevengers that resulted in the Clevengers being assured that the neighbor’s claim would be covered. The opinion even stated that Adams had been the Clevengers insurance agent for twenty years and that the Clevengers “relied on [Adams] to explain what was covered and what was not covered.” [32]

Beginning in the 1980s, certain commentators warned that modern courts’ tendencies to seek just results made further expansion of the promissory estoppel principle likely. [33] However, such predictions have not come to fruition and nearly all opinions discussing application of the doctrine recognize that it is one of last resorts and should be used only to prevent grave miscarriages of justice. Due to the potential to undermine the consideration and offer and acceptance components of contracts law, it is understandable that courts seek to invoke promissory estoppel stringently. However, all parties would benefit from a body of jurisprudence with a more thorough discussion of when the elements of promissory estoppel are met, and element number four in particular.

- Lauren Standlee

[1] No. SC88325 (Mo. Oct. 30, 2007) (en banc), available at http://www.courts.mo.gov/file.jsp?id=26576.  The West reporter citation is Clevenger v. Oliver Insurance Agency, 237 S.W.3d 588 (Mo. 2007) (en banc).
[2] The plaintiffs named Oliver Insurance as defendant based on the master/servant theory and contended that Bill Adams was an employee for Oliver Insurance who acted within the scope of his employment at the time he informed the Clevengers about the extent of their insurance coverage.
[3] Oliver did not appeal the portion of the judgment based on the negligence theory. Clevenger, 237 S.W.3d at 589, n.2.
[4] Resnik v. Blue Cross and Blue Shield of Missouri, 912 S.W.2d 657, 572 (Mo. App. E.D. 1995).
[5] Id. at 573 (citing Restatement (Second) of Contracts §90 (1981)).
[6] Zipper v. Health Midwest, 978 S.W.2d 398, 411 (Mo. App. W.D. 1998); Kearney Commercial Bank v. Popejoy, 119 S.W.3d 143, 147-48 (Mo. App. W.D. 2003).
[7] Zipper, 978 S.W.2d at 411.
[8] Debron Corp. v. Nat’l Homes Constr. Corp., 493 F.2d 352, 357 (8th Cir. 1974)
[9] Id.; Delmo Inc. v. Maxima Elec. Sales, Inc., 878 S.W.2d 499, 504 (Mo. App. S.D. 1994). Missouri first adopted Section 90 of the Restatement of the Law of Contracts in the 1947 case of In re Jamison’s Estate. Katz v. Danny Dare Inc., 610 S.W.2d 121, 124 (Mo. App. W.D. 1980).
[10] Clevenger, 237 S.W.3d at 590.
[11] Zipper, 978 S.W.2d at 411-12 (citing Restatement (Second) of Contracts, § 139(2) (1981)).
[12] See Hammons v. Ehney, 924 S.W.2d 843, 847 (Mo. 1996); State ex rel. General Dynamics Corp. v. Luten, 566 S.W.2d 452, 460 (Mo. 1978) (stating that the absence of an adequate remedy at law must appear from the face of the pleadings); Zipper, 978 S.W.2d at 412.
[13] Zipper, 978 S.W.2d at 411-12 (citing Restatement (Second) of Contracts § 139(2) (1981)).
[14] Zipper, 978 S.W.2d at 412. The plaintiff doctor also brought claims based on breach of contract, conspiracy to violate antitrust laws, civil conspiracy, and unjust enrichment. Id.
[15] Id. at 411.
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] 610 S.W.2d 121 (Mo. App. W.D. 1980).
[21] See id. It should be noted that the Katz court only three elements for promissory estoppel: (1) a promise; (2) a detrimental reliance on such promise; and (3) injustice can only be avoided by enforcing the promise. Id. at 124. Thus, this court omitted the requirement of foreseeable reliance.
[22] Id. at 122-23
[23] Id.
[24] Id.
[25] Id. at 126. The court did not discuss why there was no adequate remedy at law, nor expound upon the injustice requirement. The court did not question the existence of the injustice prong, stating only: “The elements of promissory estoppel are present: a promise of a pension to Katz, his detrimental reliance thereon, and injustice can only be avoided by enforcing that promise.” Id.
[26] Henry F. Luepke, III, Promissory Estoppel and the Statute of Frauds in Missouri, 58 Journal of the Mo Bar 132, 135 (2002) (stating “[t]he most elusive element of promissory estoppel is the fourth one, the requirement that injustice can be avoided only by enforcing the promise. With trenchant understatement, Missouri courts have noted that, ‘[t]his element is not cast with precision.’”).
[27] See supra note 13.
[28] See Zipper, 978 S.W.2d at 411 (stating that “[o]f the factors considered under the Restatement, the adequacy and availability of a remedy at law is the most significant. The rationale behind the emphasis on factor (a) results from the nature of promissory estoppel. . . . Generally, equity will not intercede if an adequate remedy at law exists.”).
[29] Luepke, supra note 26, at 136 (citing Restatement (Second) of Contracts § 139, comment b (1981)).
[30] The Missouri Supreme Court stated that the Clevengers “prevailed” on the negligence theory. Clevenger, 237 S.W.3d at 591.
[31] Id. at 589.
[32] Id. The fact that Adams had been the Clevengers insurance agent for twenty years and that they relied on his explanation of the policy gives weight to factor (d) of the Restatement, namely the extent to which the reliance was foreseeable by the promisor.
[33] See Michael B. Metzger, The Parol Evidence Rule: Promissory Estoppel’s Next Conquest?, 36 Vand. L. Rev. 1383, 1421 (1983).