Emerson v. Kusano

In the case of mutual mistake as to policy limits in a settlement agreement, in absence of clear and convincing evidence that the parties would have agreed to the actual policy limits, rather than what they mistakenly believed them to be, there is no antecedent agreement, and there is nothing to which the contract may be reformed.

Defendant Kusano appealed from a judgment entered reforming the terms of an agreement settling Plaintiff Emerson’s personal injury action, arguing that the agreement should have been rescinded rather than reformed because there was no antecedent agreement. Emerson and Kusano entered into a settlement agreement following an automobile accident to cover Emerson’s personal injuries. The parties entered into the agreement under mutual yet mistaken belief that the policy limits were $50,000 rather than $100,000. The issue was whether the first element for reformation of a contract is met—whether there existed an antecedent agreement to which the contract can be reformed. Emerson asserted that the antecedent agreement was that the settlement would be for policy limits, and Kusano countered that, absent any meeting of the minds, the agreement should be rescinded. The Court held that, in spite of the parties’ mutual mistake, there was no evidence that the parties had agreed to what the settlement would have been had they been aware that actual policy limits were $100,000. Thus, there was nothing from which the trial court could find clear and convincing evidence that the parties had an antecedent agreement to settle for policy limits of $100,000. Reversed and remanded