Michigan Court of Appeals; Docket #353845; Unpublished
Judges Sawyer, Boonstra, and Rick; 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
SUMMARY:
In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s denial of Defendant Progressive Marathon Insurance Company’s (“Progressive”) motion for summary disposition, in which Progressive sought dismissal of Plaintiff Estate of Derell Darnell Johnson’s (“the Estate”) first-party action against it. The Court of Appeals held that Progressive failed to conclusively prove that its insureds, Tomeka Roche Lewis and Brandon Lawrence Byers—under whose policy the Estate sought PIP benefits after Johnson was killed in the subject motor vehicle collision—committed fraud, which would have entitled State Farm to rescind their policy and deny the Estate’s claim for PIP benefits thereunder.
One day before the subject collision, Lewis and Byers purchased the vehicle involved in the collision and procured a no-fault insurance policy from Progressive. They made their initial premium payment by credit card, but Progressive mailed them a notice three days later informing them that it was rescinding their policy ab initio “due to ‘fraudulent conduct in connection with [their] application’ ”—specifically, that Lewis and Byers had used a stolen credit card to make their initial premium payment, evidenced by the fact that credit card company, Visa, declined the transaction on the basis of suspected fraud. In the three-day interim, while Byers was driving the vehicle he co-owned with Lewis at 125 miles per hour, he rear-ended a vehicle in which Johnson was traveling, killing Johnson. After Progressive attempted to rescind Lewis and Byers’s policy, the Estate filed the underlying first-party action seeking no-fault PIP benefits from Progressive. The trial court denied Progressive’s subsequent motion for summary disposition, ruling that Progressive had not conclusively established fraud nor proved that the equities weighed in favor of rescission.
Progressive then provided “ ‘additional information’ ” regarding its fraud determination that was different from the information it provided in support of its original motion. Now, Progressive asserted that it voluntarily refunded the premium to Lewis and Byers after its own computer program—not Visa’s—suspected potential fraud based on the fact that the computer from which Lewis and Byers filled out their application had been used to commit fraudulent transactions in the past. It is unclear from the Court of Appeals’ opinion whether Progressive moved again for summary disposition after disclosing this “ ‘additional information,’ ” or whether it was only the trial court’s denial of Progressive’s aforementioned motion at issue on appeal.
The Court of Appeals affirmed the trial court’s denial of Progressive’s motion nonetheless, noting that Progressive had not presented any evidence to prove conclusively that fraud was committed, such as “evidence that the computer used to procure the policy was under the exclusive control of Lewis and Byers.” Thus, Progressive could not rescind a policy ab initio on the basis of mere suspected fraud, and in the process deny a claim for no-fault PIP benefits made by someone other than the alleged fraudulent actor before the rescission even occurred.
The Court of Appeals further rejected Progressive’s argument that, “because it issued a letter rescinding the policy and refunded the credit card payment, that is the status quo, and it was [therefore the Estate who bore the burden of disproving fraud].” For various reasons, the Court rejected this argument:
“Perhaps realizing that its argument stands on shaky ground, Progressive, for the first time, now argues that it was plaintiff who bore the burden of disproving fraud. Progressive argues, because it issued a letter rescinding the policy and refunded the credit card payment, that is the status quo, and it is up to plaintiff to prove otherwise. Progressive’s position, if accepted, would turn MCR 2.116(C)(10) on its head. Insurers could issue letters rescinding policies for purported fraud, and then, when faced with a lawsuit, seek summary disposition on the basis that the plaintiff has not disproved fraud. It is Progressive who seeks to avoid liability on the basis of fraud, and thus, Progressive bears the burden of proving that fraud occurred. 'This [C]ourt has held repeatedly that fraud cannot be presumed, but must be established by a preponderance of the evidence; and the burden of proving it is upon the party who complains of it.' Waldbauer v Hoosier Cas Co, 285 Mich 405, 408; 280 NW 807 (1938) (quotation marks and citation omitted). Until Progressive comes forward with evidence that would actually prove that a fraudulent transaction took place, it cannot be granted summary disposition. Indeed, Progressive’s position that it was incumbent upon plaintiff to disprove fraud is even more untenable given that plaintiff is not even the alleged fraudfeasor. That is, any fraud justifying rescission of the policy would have been committed by Lewis or Byers, but certainly not by plaintiff or plaintiff’s decedent.”
Progressive further argued that Lewis and Byers’s contract failed for a lack of consideration, but the Court of Appeals rejected that argument as well, noting that “it was Progressive who unilaterally caused the failure of consideration to occur,” and that Progressive, therefore, “[could not] claim that the policy [was] void ab initio because it chose to refund a policy premium without any input from the other parties to the contract.” In other words, “[i]f there was a failure of consideration, it was because Progressive chose to cause one.”
