Michigan Court of Appeals; Docket # 347963; Unpublished
Judges Gadola, Krause, and O’Brien; per curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion; Link to Partial Concurrence & Partial Dissent
Misrepresentation / Fraud as a Basis to Rescind Coverage [§500.3113]
Innocent Third Party Doctrine
In this 2-1 unpublished per curiam opinion (with Judge Krause concurring in part and dissenting in part), the Court of Appeals remanded the case to the trial court for further proceedings consistent with its opinion that Defendant Progressive was entitled to rescind the insurance policy with respect to Plaintiff if she was not found to be an innocent third party and if the equities weighed in favor of recission.
This case arose from an accident involving Plaintiff and Defendant Owusu. Plaintiff was insured through Christopher Johnstone’s insurer, Defendant Progressive, and Owusu was insured by Defendant Hizmo Trucking, LLC. Following the accident, Plaintiff claimed injuries, and Progressive initially paid her benefits. However, Progressive soon stopped paying these benefits and informed Johnstone that “his no fault policy had been rescinded as of the date it was issued because progressive had determined that Johnstone or an unsured person under the policy had ‘concealed, misrepresented, or made incorrect statements or representations regarding a material fact or circumstance; or engaged in fraudulent conduct in connection with [the] application.’” Specifically, Progressive indicated that plaintiff had misrepresented the fact that she lived with Johnstone in order to become insured under his policy. Consequently, Plaintiff filed an action against DefendantOwusu and Defendant Hizmo for negligence and a claim for first party PIP benefits against Defendant Progressive. Progressive moved for summary disposition and alleged that Johnstone’s policy was void ab initio and properly rescinded due to fraudulent misrepresentations made when adding Plaintiff to his policy. Defendant Owusu and DefendantHizmo then moved for summary disposition on the basis that Progressive’s recission of the policy “precluded plaintiff from recovering tort damages against Owusu and Hizmo.” The trial court granted Defendants’ motion.
On appeal, Plaintiff first argued that the trial court’s ruling was improper because Progressive was not entitled to rescind Johnstone’s policy on the basis of material misrepresentation. The Court disagreed, finding Progressive was entitled to void the policy. In reaching its holding, the Court noted that there was “no dispute that misrepresentations were made to Progressive regarding plaintiff’s residence,” but that there was “disagreement . . . regarding who provided the misinformation to Progressive.” However, the Court ultimately held that “[h]ere, either Johnstone, or Richardson acting as Johnston’s agent, provided incorrection information to Progressive with the result that Progressive acted upon that information and issued a policy to Johnston that covered Plaintiff and her vehicle. Because the unambiguous language of the policy permit Progressive to void the policy if Johnston made incorrect statements or representations to Progressive with regard to any material fact or circumstance, concealed or misrepresented any material fact or circumstance, or engaged in fraudulent conduct at the time of application. . . .”
Plaintiff next argued that “the information regarding her legal domicile was not material, and therefore a misrepresentation regarding her domicile could not be a basis for recission. Again, the court disagreed, stating that a representation is material “if the insurer would not have issued the policy in the manner or at the rate at which it was issued if the insurer had known of the misrepresentation or nondisclosed fact.” In this case, the Court found that the record was clear that “had Progressive been aware that Plaintiff was not living at Johnstone’s address as represented, and was also garaging her vehicle at her address in Sterling Heights, it would not have added plaintiff’s vehicle to Johnstone’s no-fault policy . . . .”
Plaintiff next argued that the trial court erred by relying on the affidavit of Copic, a litigation underwriting specialist for Progressive who stated in her affidavit that Plaintiff would not have been insured by Defendant Progressive had it been aware of the misrepresentations by Plaintiff and Johnstone. Specifically, Plaintiff argued that Copic lacked personal knowledge of Progressive’s decision to rescind the policy. However, the court found that “[i]n her capacity as a litigation underwriting specialist [Copic] was familiar with the risks that Progressive was willing to insure and Copic therefore was able to offer her personal knowledge concerning whether Progressive would have insured plaintiff and her vehicle if it had been aware of the misrepresentations in the application.”
Plaintiff’s next argument contended that she was “deprived of due process because the trial court chose to reach the issue whether Richardson was an agent of Progressive or an independent agent without allowing her to brief and address the issue.” The Court again disagreed, finding that:
Progressive sought summary disposition on the basis that plaintiff and Johnstone had concealed information and actively made fraudulent representations during the application process. Plaintiff argued that she did not make misrepresentations during the application process, and suggested that any error in the application was the responsibility of Richardson. Plaintiff’s argument thus by necessity invites an assessment of Richardson’s status as an independent agent and whether his alleged misrepresentations can be imputed to Johnstone and plaintiff. Plaintiff was not precluded from addressing this aspect of the analysis, and could have done so in response to Progressive’s motion for summary disposition. However, plaintiff did not focus on Richardson’s status as an independent agent in her responsive briefing in the trial court
Finally, Plaintiff argued that the equities weighed against rescinding the policy because she was an innocent third party. The Court found this argument unpersuasive but noted that the trial court had not specified whether it found Plaintiff was an innocent third party or not, and did not apply the balancing test set forth in Pioneer State Mut. Ins. Co which “it must do before ordering the remedy of recission once it determines that plaintiff is an innocent third party.” Thus, the Court instructed that, on remand, these Pioneer factors must be weighed if Plaintiff is determined to be an innocent third party before deciding whether Progressive was permitted to rescind the policy with respect to Plaintiff. The Court further instructed that “[o]n remand, the trial court shall determine what, if any, effects its determination on remand has on its decision to grant summary disposition in favor of Owusu and Hizmo Trucking.”
Judge Krause concurred with the opinion of the Court but wrote separately to disagree that there was no question of fact as to where Plaintiff’s vehicle was “garaged.” Specifically, Judge Krause argued that, because Plaintiff spent half of her time at Johnstone’s residence, a genuine question of fact may have existed as to whether the policy question at issue actually misrepresented where plaintiffs vehicle was garaged. However, Krause ultimately concluded that “[t]here is no other evidence in the record that would contradict the evidence that Richardson told Progressive that plaintiff and Johnstone lived together. As the majority observes, Richardson acted as Johnstone’s agent, so that communication must be attributed to Johnstone. As a consequence, I am unable to find a question of material fact whether there was a misrepresentation as to plaintiff’s residence. The garaging location of the Kia is, therefore, immaterial. I concur with the remainder of the majority’s opinion and analysis.”