Michigan Court of Appeals; Docket # 329585 and 329614; Unpublished
Judges Murphy, Meter and Ronayne Krause; Unanimous, Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Fraud/Misrepresentation
CASE SUMMARY:
In this unanimous unpublished per curiam Opinion involving a priority dispute between insurers, the Court of Appeals held that summary disposition was improperly granted for Ace American Insurance Company because the policyholder had made a material misrepresentation on the policy application that permitted Farm Bureau to rescind the policy. The Court further held that Farm Bureau’s prior cancellation of the policy on a different basis did not preclude it from subsequently rescinding the policy upon discovering the material misrepresentation.
On May 22, 2013, Robynn Rueckert, a pedestrian, was struck and injured by a truck insured by defendant Ace American. Robynn’s husband, Mark, and her daughter, Maryan Petoskey, were the named insureds on an insurance policy with Farm Bureau. A month prior to the accident, Farm Bureau informed Mark and Petoskey that it was cancelling the policy, effective May 25, 2013, because of incomplete information on the application. Because the accident occurred prior to the effective date of the cancellation, Robynn submitted a claim for PIP benefits. Farm Bureau then rescinded the policy, concluding the application contained material misrepresentations. This declaratory action was then filed to determine whether Farm Bureau or Ace was the priority insurer for Robynn’s injuries. Farm Bureau and Ace disputed whether there were in fact any material misrepresentations on the application, whether Farm Bureau’s initial cancellation of the policy precluded it from subsequently rescinding it, and whether Robynn was an innocent third party against whom the rescission could not apply. The trial court granted summary disposition for Ace. Farm Bureau appealed, and Ace cross-appealed.
The Court of Appeals reversed, finding there was no question that Mark and Petoskey made a material misrepresentation on the insurance application, and that this entitled Farm Bureau to rescind the policy. The Court wrote:
“[T]he application indicated that Mark was married but omitted basic information like his spouse’s name, date of birth, and so on. Thus, the cancellation was not due to any misrepresentation at all, but rather a simple failure to provide any information. In contrast, the later discovery was that the application also contained incorrect information; for example, stating that all drivers in the household had a valid Michigan driver’s license, denying that any driver had been convicted in the past 36 months of operating a motor vehicle while intoxicated or impaired, and denying that either an applicant or a member of the household drove or moved any vehicle owned by the applicant which had not had all the required insurance in force for the previous six months. … Had Farm Bureau initially discovered the misrepresentations and cancelled the policy as a result, it would not have been permitted to subsequently decide to rescind it instead.”
The Court of Appeals continued by noting that Farm Bureau “acted within its rights” by responding differently to two distinct discoveries, i.e., by first cancelling the policy and then rescinding it. The Court said:
“[C]ancelling the policy did not preclude subsequently rescinding the policy on a different basis that was unknown at the time of the cancellation. The trial court apparently concluded that Farm Bureau subsequently decided that it should have rescinded the policy instead of cancelling it, when in fact Farm Bureau rescinded the policy in addition to cancelling it. Case law establishes that Farm Bureau may do so.”
Regarding Ace’s alternative argument that the policy could not be rescinded because Robynn was an innocent third party, the Court of Appeals noted that, in Bazzi v Sentinel Ins Co, ____ Mich App ____ (2016), it was determined the “innocent third-party rule” no longer exists in Michigan. As a result, “we are constrained to follow Bazzi and to reject Ace’s alternative argument,” the Court held.
Further, the Court of Appeals agreed that Farm Bureau was entitled to summary disposition because the evidence did not show a question of material fact existed about whether it was entitled to rescind the policy based on the material misrepresentation. In this regard, the Court said:
“We find room for disagreement whether Robynn could or should be considered a ‘driver’ within the meaning of the policy application. However, one of the questions — that the application stated would make the applicant ineligible if answered affirmatively — pertained to a driver or any other member of the household, which indisputably includes Robynn and equally indisputably should have been answered affirmatively but was not. Ace makes a persuasive case that there is doubt whether Mark and Petoskey engaged in intentional fraud. However, ‘actionable fraud’ is not the only kind of ‘fraud or misrepresentation’ that would entitle a party to rescind a contract if the contract had been procured thereby. … Innocent misrepresentation has no scienter element, but rather requires ‘that the misrepresentation be made in connection with making a contract and the injury suffered by the victim must inure to the benefit of the misrepresenter.’ … The above misrepresentation was clearly made in connection with making the contract, and we agree with Farm Bureau that it was harmed by being exposed to a risk to which it did not agree while Mark and Petoskey received insurance benefits to which they were not entitled.”
The Court also said it was “unpersuaded” by Ace’s arguments that any misrepresentations were technically made by Farm Bureau’s agent rather than by Mark or Petoskey. The Court said:
“Even if Mark struggled to read the application, Petoskey testified that she did not have any trouble reading, she simply did not read the application before signing. … Both of them signed the application after having had the opportunity to read and review it, which constitutes making any representations or misrepresentations therein.”
Accordingly, the Court of Appeals held there was no genuine question of fact that Mark and Petoskey made a material misrepresentation on the insurance policy application that entitled Farm Bureau to rescind the policy. The Court further concluded that Farm Bureau’s earlier cancellation of the policy on a different basis did not preclude it from the subsequent rescission upon discovery of the misrepresentation. The Court thus reversed the trial court’s grant of summary disposition in favor of Ace and remand for entry of summary disposition in favor of Farm Bureau.
