Michigan Court of Appeals; Docket # 344950; Unpublished
Judges Fort Hood, Sawyer, and Shapiro; per curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Fraud/Misrepresentation
Cancellation and Rescission of Insurance Policies
SUMMARY:
In this unanimous unpublished per curiam opinion, the Court of Appeals affirmed the trial court’s finding that defendant’s fraudulent misrepresentation in the application for insurance made the policy void ab initio, but reversed the trial court’s declaration that the plaintiff had no obligation to defend or indemnify defendant in the underlying tort suit and remanded to the trial court with instruction to conduct a hearing under Bazzi as to the defendant’s rights for defense and indemnification. The Court further vacated the trial court’s order rescinding the insurance policy and remanded the issue of recission to the trial court, instructing it to balance the equities concerning the injured passengers claim.
This case arose from a motor vehicle accident in which defendant’s daughter, Abby, was injured while riding as a passenger in a vehicle driven by a friend and insured under a policy between defendant and plaintiff Pioneer State Mutual Insurance Company. Following the accident, Abby filed a claim against the plaintiff insurer for PIP benefits and separately sued the driver of the vehicle for negligent operation of the vehicle. Defendant requested that plaintiff Pioneer provide him with a defense and indemnification against the tort suit, and plaintiff Pioneer had done so under a reservation of rights until, during its investigation of the PIP claim and underlying tort suit, it found that Abbey was not a named driver on the insurance policy. Accordingly, plaintiff Pioneer filed a complaint for a declaratory judgment to declare the insurance policy void ab initio and that plaintiff had no obligation to defendant or to indemnify defendant in the underlying suit, and grant plaintiff Pioneer recission based on defendant’s misrepresentation of the number of drivers driving the insured vehicles. Following a bench trial, the trial court granted recission, with the following facts being undisputed:
"Defendant first applied for insurance with plaintiff in August 2014 for four vehicles: a 2010 Ford Fusion, 2011 Honda CR-V, 2004 Ford F150, and 2006 Lexus RX 400 Hybrid. In response to the application request to list the names of all household and non-household drivers of all the vehicles, defendant identified himself, his wife, Shelly Frantz (Shelly),and their son, Andrew Frantz (Andrew).The policy was renewed in August 2015 with the same number of vehicles and drivers."
On appeal, the Court first considered defendant’s argument that the trial court erred by granting plaintiff Pioneer recission on the basis of innocent misrepresentation when plaintiff “failed to show defendant’s intent to defraud.” In analyzing this claim, the Court noted that “[a] claim of innocent representation is shown if a party detrimentally relies upon a false representation in such a manner that the injury suffered by that party inures to the benefit of the party who made the representation,” and that “innocent misrepresentation is a proper basis upon which to grant rescission ‘without regard to the intentional nature of the misrepresentation as long as it is relied upon by the insurer.’” Applying these principles, that Court noted that defendant had failed to disclose Abbey as the driver of the vehicle, and had answered twice – once in the application and again in the supplemental policy question – that there were no drivers outside the household using the insured vehicles. Further, the Court also found that the record supported that plaintiff Pioneer detrimentally relied on defendant’s insurance application that omitted Abbey as a driver. Specifically, plaintiff’s underwriter testified that “insurance rates were calculated based upon the number of drivers, their ages, driving records, how they used the vehicle, and how far the vehicles were driven.” As Abbey had multiple traffic citations, plaintiff “rated the insurance risk with incomplete information.” Thus, the Court found that the trial court did not err.
The Court also found that recission was justified under a theory of fraudulent misrepresentation. In doing so, the Court noted that to prove fraudulent misrepresentation, plaintiff Pioneer would have to show that
"(1) the defendant made a material representation; (2) the representation was false; (3) at the time the defendant made the representation, the defendant knew the representation was false, or made it recklessly, without knowledge of its truth as a positive assertion; (4) the defendant made the representation with the intention that the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the plaintiff suffered damage. [M & D, Inc v WB McConkey, 231 Mich App 22, 27; 585 NW2d 33 (1998).]"
Turning to the record before it, the Court noted that Abbey’s use of the vehicle was a significant factor in rating the policy and that her use of the vehicle was known to defendant when he produced the application in 2014. While defendant testified that he would have disclosed Abbey’s existence if the insurance agent had asked him who was the primary diver of the insured vehicle, there was evidence that the agent did in fact make that inquiry. The Court further noted that the defendant’s argument that he never read the policy application that he had signed was of “no defense either, as he is charged with knowledge of its terms and his signature attested to the fact that he represented the information contained in the policy to be accurate. Accordingly, the Court held that the trial court “did not err in finding that the policy between plaintiff and defendant was void ab initio due to the fraudulent manner in which it was entered and that plaintiff was entitled to seek declaratory judgment rescinding the insurance policy on the bases of innocent and fraudulent misrepresentation.
Finally, the Court considered defendant’s argument that recission was not the appropriate remedy after finding that the policy was void ab initio. In analyzing this claim, the Court noted that “[f]raud in the inducement to enter a contract renders the contract voidable at the option of the defrauded party,” but that recission is an “equitable remedy that is granted as a matter of grace in the sound discretion of the trial court; the remedy is not as a matter of right.” Specifically, the Court noted that, per Bazzi v. Sentinel Ins Co, 502 Mich 390; 919 NW2d 20 (2018), “[w]hen a plaintiff is seeking recission, the trial court must balance the equities to determine is entitled to the relief he or she seeks.” Further, the Court noted that “when two equally innocent parties are affected, the court is ‘required, in the exercise of [its] equitable powers, to determine which blameless party should assume the loss . . . .’” Accordingly, the Court found that the trial court “did not undertake analysis to determine the effect of recission on Abbey’s PIP claim under the insurance policy.” Thus, the Court held that on remand, the trial court must discern “whether equity entitles plaintiff to be released from its contractual obligation to defend and indemnify defendant. The Court rejected defendant’s argument that the proper remedy in this case would have been to allow him to pay plaintiff the difference in the premium if Abbey had been included on the policy. Instead, the Court remanded the issue of recission to the trial court in order for it to balance the equities concerning Abbey’s claim.
