Michigan Court of Appeals; Docket # 329332; Unpublished
Judges Wilder, Borrello and Gleicher; 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In this unanimous unpublished per curiam Opinion, the Court of Appeals held that Farm Bureau was not obligated to pay PIP benefits to an injured third party because it had rescinded the applicable no-fault policy due to a material misrepresentation on the insurance application.
The Court further held that, under the binding decision in Bazzi v Sentinel Ins Co, ___ Mich App ___ (2016), the injured third party was not entitled to PIP benefits.
Robert Elzer owned Diverse Contracting and had obtained a business auto insurance policy through Farm Bureau. The insurance application said that all insured vehicles must be titled to Elzer, and he had indicated that he was the sole driver of the insured vehicles. On January 20, 2014, Elzer added a 2002 Ford Explorer to the policy, but Elzer neither owned nor drove the vehicle. Rather, the vehicle was titled to and used by Danielle Petrie, a friend of Elzer’s wife. According to Farm Bureau, Elzer represented that he was the owner and driver of the vehicle, something which Elzer denied. During his deposition, Elzer said he employed Petrie part-time in the past, but that she was no longer an employee when he added the Explorer to his policy. Elzer explained that he added the Explorer to the policy because Petrie couldn’t afford her own insurance. A month later, Petrie’s sister’s fiancé, Shawn Kimbrough, was driving the Explorer and collided with a vehicle in which Devon Holmes was a passenger. Both Kimbrough and Holmes were injured. Kimbrough was treated at Munson Medical Center and incurred more than $200,000 in medical expenses. Munson sought PIP benefits from Farm Bureau, which denied the claim based on Elzer’s alleged misrepresentation that the Explorer was titled to and driven by him, and was used for his business. Munson then filed a claim with the Michigan Assigned Claims Plan (MACP), which assigned the claim to Citizens. Numerous lawsuits ensued.
This action was filed, in part, to determine whether Farm Bureau could rescind the policy and to determine the priority of insurers to cover Kimbrough’s PIP benefits: Farm Bureau (issuer of Elzer’s commercial auto policy); Citizens (assigned by MACP) or State Farm (no-fault insurer of Kimbrough’s mother, with whom he resided). Farm Bureau sought to rescind all coverage on the Explorer based on Elzer’s alleged misrepresentations on the application. Citizens filed a summary disposition motion, arguing that Farm Bureau could not rescind the policy because it would deny coverage to an innocent third party — Kimbrough — who played no role in the application process. Citizens further claimed it was not liable for Kimbrough’s PIP benefits because, pursuant to MCL 500.3114(4)(b), Kimbrough was operating a “covered auto” and, therefore, Farm Bureau was the “insurer” of Kimbrough. The trial court ultimately agreed with Citizens, holding that the innocent third-party rule was applicable. The trial court ordered Farm Bureau to reimburse Citizens for benefits it had provided on Kimbrough’s behalf.
The Court of Appeals reversed, relying on Bazzi. The Court said:
“Now an innocent permissive driver loses entitlement to first-party PIP benefits when the insurer rescinds coverage due to someone else’s fraud in the application process. Whether we agree with Bazzi’s reasoning or not, we are bound to follow it. Leave to appeal has been sought in the Michigan Supreme Court, but the Court has yet to take action. Unless and until the Supreme Court overrules Bazzi, it remains binding law. Pursuant to Bazzi, Farm Bureau had the authority to rescind the policy for the Explorer and deny PIP benefits even to Kimbrough, who played no role in the application process, if Elzer committed fraud.”
According to the Court of Appeals, Elzer made a material misrepresentation when he contacted his insurance agent to add a vehicle to his commercial policy, knowing that the vehicle was not being used for commercial purposes. The Court concluded:
“Farm Bureau acted in reliance on Elzer’s misrepresentation by following through and adding the vehicle to the policy’s coverage. If Farm Bureau were not permitted to rescind the policy, it would suffer harm as a result of relying on Elzer’s knowing, material misrepresentation. Elzer’s admissions supported Farm Bureau’s claim to rescind the insurance coverage of the Explorer, warranting summary dismissal of any claim against this insurer. Accordingly, we reverse the circuit court’s denial of Farm Bureau’s summary disposition motion and remand for further proceedings consistent with this opinion.”
