Taylor v State Farm - Brief PDF

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Parol Evidence (corbin view)

Taylor v. State Farm Insurance COURT AND DATE: Arizona Supreme Court PROCEDURAL HISTORY: Trial Court: Found that the release was ambiguous and parol evidence was admissible. Taylor wins Appellate Court: Release agreement wasn’t ambiguous. Taylor loses.

ISSUE: Does a judge need to find a contract ambiguous before considering extrinsic evidence of the parties’ intended meaning?

TRIGGER FACTS: Taylor (plaintiff) purchased a car insurance policy from State Farm Mutual Automobile Insurance Co. (State Farm) (defendant). Taylor’s policy included uninsured motorists coverage up to a limit of $15,000. Taylor was involved in an accident involving several other vehicles. Many of the drivers sued Taylor and obtained a verdict against Taylor for approximately $2.5 million above his policy limits. The owner of one vehicle was uninsured. Months after the jury returned the verdict against Taylor, State Farm paid Taylor $15,000 in uninsured motorist’s benefits in exchange for Taylor’s signature on a release. The release provided that Taylor released “all contractual rights, claims, and causes of action he ha[d] or may have against STATE FARM under the policy of insurance, in connection with the collision…and all subsequent matters.” A State Farm representative directed that “general release language,” with no mention of bad faith, be used in the release. Taylor filed suit against State Farm, claiming that they failed to settle with the other drivers within the policy limits, and that State Farm acted in bad faith in connection with the release. State Farm moved for summary judgment, claiming that the release precluded Taylor’s bad faith claim. Taylor moved for summary judgment, claiming that the release did not preclude his claim. The trial judge denied both motions, finding that, because of the ambiguity of the release, parol evidence would be admissible at trial for the purpose of interpretation. The matter went to trial, and a jury returned a verdict in favor of Taylor. State Farm appealed. The court of appeals held that the release was not ambiguous and, therefore, admitting parol evidence was in error. Taylor appealed to the Arizona Supreme Court.

PLAINTIFF’S MAIN ARGUMENTS: State farm should’ve settled the matter within his policy limits instead of going to trial. Bad faith is a tort so that isn’t covered by his release. DEFENDANT’S MAIN ARGUMENTS: Taylor gave up his right to bring a bad faith claim when he signed the release.

Parol Evidence (corbin view)

RULE (the law): A judge may consider parol or other extrinsic evidence for the purpose of determining whether the contract language is ambiguous.

HOLDING + REASONING: Yes. When parties have memorialized their agreement in an express contract, a party may not introduce parol or other evidence for the purpose of contradicting the express terms of the contract. This evidence may be introduced, however, for other purposes. Parol and other extrinsic evidence may be introduced for the purpose of interpreting the meaning of the contract, including interpreting the parties’ intent. The oversimplified rule that ambiguity must exist before parol or other extrinsic evidence is admissible is rejected. A trial judge may consider offered parol or other extrinsic evidence and, if the language of the contract is “reasonably susceptible” to the interpretation proposed by the offering party, then the evidence may be admitted for the purpose of interpreting the meaning of the contract. Whether the language of the contract is reasonably susceptible to more than one interpretation is a question of law that must be decided by the court. How the contract language is to be interpreted is a question of fact that must be decided by the trier of fact. The legal nature of a bad faith claim, whether it sounds in contract or tort, is not universally established. Case law shows that the legal nature of that claim depends upon context. The Arizona Supreme Court recently designated bad faith claims as sounding in tort. In the current matter, Taylor seeks to introduce parol and other extrinsic evidence for the purpose of interpreting the release language. Taylor argues that the language could be interpreted to mean that only “contractual” claims are released and, therefore, his claim of a breach of good faith and fair dealing, which is technically a tort claim, is not covered by the release language. Additionally, there is ample parol and extrinsic evidence to support Taylor’s interpretation. The cryptic language of the release, purposefully used by State Farm, in light of the obvious nature of Taylor’s claim supports his interpretation of the release. Additionally, given that Taylor has a potential bad faith claim, possibly worth millions, it is unreasonable to think that he would have agreed to a release after a payout of the mere $15,000 UM claim. Moreover, because the limiting language in the release is so specific otherwise, it is reasonable to assume that, had the parties intended to release bad faith claims, the release would have expressly referenced them. This is especially true when considering that that release only references “contractual” claims, but the state supreme court had recently designated bad faith claims as tort claims. Furthermore, the release language may reasonably be interpreted as proposed by State Farm. The release language is broad enough to release bad faith claims and there is evidence suggesting that both parties may have believed bad faith claims were covered by the release. That there is evidence to support both parties’ interpretation would suggest that the parol and extrinsic evidence should be admitted. In light of these facts, the release could be reasonably interpreted in accordance with Taylor’s or State Farm’s interpretations. Therefore, the trial court properly submitted to the jury the question of how the contract language should be interpreted. Accordingly, the decision of the court of appeals is vacated, and the case is remanded for further resolution of outstanding issues.

Parol Evidence (corbin view)...