Michigan Court of Appeals; Docket #352411; Unpublished
Judges Gleicher, Borrello, and Swartzle; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
STATUTORY INDEXING:
Disqualification of Uninsured Owners / Operators for Noneconomic Loss [§3135(2)]
TOPICAL INDEXING:
Fraud/Misrepresentation
Cancellation and Rescission of Insurance Policies
Presently, this decision is pending review before the Michigan Supreme Court. Presently, this decision is pending review before the Michigan Supreme Court.On March 23, 2022, the Supreme Court directed the Clerk to schedule a mini oral argument on the application. In doing so, the Court instructed the parties to file a supplemental briefing addressing the issue of “whether the rescission of an insurance policy under the no-fault act, MCL 500.3101 et seq., bars recovery of noneconomic damages under MCL 500.3135(2)(c) on the basis that the claimant “did not have in effect . . . the security required by [MCL 500.3101(1)] at the time the injury occurred.”
SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s summary disposition order dismissing Plaintiff Adora Wilmore-Moody’s first-party action against Defendant Everest National Insurance Company (“Everest”), but reversed the trial court’s summary disposition order dismissing Wilmore-Moody’s third-party action against Defendant Mohammed Zakir. The Court of Appeals held that the trial court was justified in rescinding Wilmore-Moody’s automobile insurance policy with Everest based on fraudulent statements Wilmore-Moody made in procuring the policy. The Court of Appeals also held, however, that permitting Everest to rescind the policy ab initio did not “alter the past” and mean that Wilmore-Moody did not actually have insurance at the time of the collision. In other words, she was not actually an uninsured person at the time of the collision for purposes of MCL 500.3135(2)(c), and therefore not barred from pursuing her third-party claim against Zakir.
Wilmore-Moody procured insurance through Everest on August 26, 2016, and indicated on her application for coverage that she had disclosed “all members of [her] household who are the age of 14 or older[.]” She then signed the application beneath a section which provided:
“ 'I hereby apply to the Company for a policy of insurance, as set forth in this application, on the basis of the statements contained herein. I agree that if I intentionally conceal or misrepresent a material fact or circumstance relating to the insurance, the policy shall be null and void. . . . I certify that all household members age 14 or older, including but not limited to spouse(s), roommate(s), children, family members and wards have been listed as potential drivers. . . . I understand that my total policy premium could be affected by this information.' ”
It was later discovered, after Wilmore-Moody was injured in the subject motor-vehicle collision and deposed, that she had failed to disclose that she lived with her 18-year-old daughter at the time she first obtained coverage. As a result, Everest denied her claim for no-fault PIP benefits and moved for summary disposition in her subsequent first-party action. The trial court granted Everest’s motion, ruling that rescission was warranted based on Wilmore-Moody’s fraud.
Zakir, the driver of the vehicle that caused the subject motor vehicle collision, then moved for summary disposition with respect to Wilmore-Moody’s third-party action against him, arguing that the rescission of her policy ab initio meant that she was uninsured at the time of the collision, and therefore could not pursue her third-party claim against him pursuant to MCL 500.3135(2)(c). The trial court agreed, and also granted his motion for summary disposition.
The Court of Appeals affirmed the trial court’s summary disposition order in favor of Everest, holding that Wilmore-Moody failed to present any evidence which might create a question of fact as to whether her misrepresentation in her original application was intentional. All the evidence on the record—i.e. all her affirmative representations on the application—indicated that she did, in fact, intentionally misrepresent her household relatives.
“In this case, the record evidence shows that Wilmore-Moody sought an insurance policy from Everest and signed an application for insurance in which Wilmore-Moody was the only listed driver and no other household members were listed. Yet, Wilmore-Moody testified in her examination under oath that multiple other family members resided with her at the time that she obtained this insurance policy, including Alexandra who was over the age of 14. In the insurance application, Wilmore-Moody affirmatively represented—by signing the application beneath the applicant statement—that she was applying for the insurance policy on the basis of her statements in the application, that she had identified all household members over the age of 14, that she understood that this information could affect her policy premium, and that she agreed that her policy would be void if she intentionally concealed or misrepresented a material fact. There was unrebutted evidence that including Alexandra as a household member over the age of 14 would have resulted in a premium increase of more than $1,500. From this undisputed evidence, reasonable minds could not differ in concluding that Wilmore-Moody intentionally misrepresented that there were no members of her household over the age of 14. El-Khalil, 504 Mich at 160; Titan, 491 Mich at 555; Webb, Mich App at; slip op at 4 (holding that the insured ‘made the misrepresentation with the intent that she would obtain insurance, as evidenced by [the insured’s] signature on the insurance application that contained the misrepresentation’). Hence, Wilmore-Moody has not shown any error in the trial court’s ruling on this basis.”
The Court of Appeals next rejected Wilmore-Moody’s argument that the language in the contract required that Everest merely adjust her premium, not rescind her policy altogether. In support of her argument, Wilmore-Moody relied on the following language in the application: one section which provided, “I agree that the Insurance Company may correct my premium if rated incorrectly or if information obtained from additional sources, including Motor Vehicle Reports, changes factors which affect the premium”; and another section which provided, “I certify that all household members age 14 or older, including but not limited to spouse(s), roommate(s), children, family members and wards have been listed as potential drivers . . . I understand that my total policy premium could be affected by this information.” Based on these sections, Wilmore-Moody asserted that the only remedy available to Everest was a premium adjustment, not rescission. The Court of Appeals disagreed, noting that they rejected a similar argument in Pioneer State Mut Ins Co v Frantz, unpublished per curiam opinion of the Court of Appeals, issued March 11, 2021 (Docket No. 348917), and also that Wilmore-Moody ignored the fact that the same section which contained the quoted language above also provided, in essence, that “intentionally concealing or misrepresenting a material fact or circumstance related to the insurance will render the policy void.” Therefore, the Court held that “considering the cited language in context, it does not suggest as Wilmore-Moody claims that Everest is prohibited from seeking rescission of the policy based on the misrepresentation regarding household members age 14 or older.”
The Court of Appeals next rejected Wilmore-Moody’s argument that equity did not favor rescission because Everest failed to exercise proper due diligence which, if it had, would have led to its discovery of her misrepresentation earlier. Wilmore-Moody pointed to the admission in her deposition in arguing that Everest merely had to ask her about her resident relative situation in order to uncover the truth. The Court of Appeals held that insurers have no duty to investigate such matters, however, and noted that Everest did ask Wilmore-Moody about her resident relative status on her original application, in response to which she lied. Therefore, her argument that Everest did not do enough to uncover the truth because all it needed to do was ask her about her living situation was unavailing.
“As previously discussed, the undisputed evidence in this case supports the conclusion that Wilmore-Moody signed the application in which she failed to list all of her household members age 14 or older—specifically Alexandra—as required by the application, thereby committing an intentional misrepresentation. To the extent Wilmore-Moody claims that Everest could have discovered this omission by asking her, Everest did ask her through its questions on the application. Considering this evidence, along with the lack of any duty by Everest to verify Wilmore-Moody’s representations, Titan, 491 Mich at 570, Wilmore-Moody has not shown that she was an equally innocent party that should not have assumed the loss, Bazzi, 502 Mich at 410-411.”
The Court of Appeals next rejected Wilmore-Moody’s argument that Everest failed to show that she misrepresented her resident relative status with the intent to defraud Everest. The Court of Appeals held that the evidence belied this argument, specifically the plain language of the contract and Wilmore-Moody’s signature affirming that she read and understood the contract—presumably including the part which made it clear that any disclosures in the resident relative section would affect her premium.
The Court of Appeals rejected Wilmore-Moody’s final argument with respect to Everest: that Everest waived rescission by paying for repairs of Wilmore-Moody’s vehicle under the policy, after informing her that her claim was under investigation. The Court noted that Everest refuted Wilmore-Moody’s assertion that Everest paid for her vehicle repairs, and that, even if Everest had paid for her vehicle repairs, Wilmore-Moody failed to present any evidence to suggest that Everest did so after discovering her misrepresentation.
Despite these holdings with respect to Everest, the Court reversed the trial court’s summary disposition order with respect to Zakir. The Court found its previous holding in Bernard Estate v Avers, unpublished per curiam opinion of the Court of Appeals, issued April 8, 2021 (Docket No. 348048)—that rescission is a contractual remedy, and does not “operate to ‘alter the past’ and render the insured as actually having been without no-fault insurance at the time of the accident for purposes of the prohibition contained in MCL 500.3135(2)(c) with respect to a third-party negligence claim”—persuasive, and thus adopted it in this case. Therefore, Wilmore-Moody could pursue her third-party claim against Zakir irrespective of the fact that her policy was rescinded ab initio by Everest.
“We find the above reasoning persuasive and adopt it as our own for purposes of this case as well. In this case, it was undisputed that Wilmore-Moody had an insurance policy with Everest at the time of the accident and that Everest subsequently rescinded the policy on the basis of fraud. Hence, the bar to recovery in MCL 500.3135(2)(c) does not apply with respect to Wilmore- Moody’s third-party negligence claim against Zakir. Bernard Estate, unpub op at 12-13. We reverse the trial court’s grant of summary disposition in favor of Zakir and remand for further proceedings not inconsistent with this opinion.”
