Michigan Court of Appeals; Docket No. 294472; Unpublished
Judges Murphy, Whitbeck, and Murray; unanimous: per curiam
Official Michigan Reporter Citation: Not applicable; Link to Opinion 
The Michigan Supreme Court DENIED application for leave to appeal on 10/19/11; Link to Order
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
CASE SUMMARY:
In this unanimous unpublished per curiam opinion, the Court of Appeals reversed the trial court’s summary disposition ruling that Citizens did not have to provide no-fault benefits to plaintiff on the basis that the subject no-fault policy can be rescinded, because the plaintiff, in November 2003, made material misrepresentations and failed to divulge material facts in her written application for the policy.
The plaintiff in this case was seriously injured in a motor vehicle accident that occurred in July 2007, when she was driving her Ford Escape and was hit head-on by another vehicle that had crossed the centerline. At the time of the collision, plaintiff was covered under an automobile insurance policy issued by Citizens that covered the Ford Escape, as well as a Dodge Ram owned in part by the plaintiff. The plaintiff originally applied for the insurance policy through Citizens in November 2003. At that time, the plaintiff owned a Dodge Ram and a Chevy Blazer, which were both covered under the original policy. In May 2007, about two months before the subject collision, the plaintiff traded in the Blazer for the Ford Escape she was operating at the time of the collision.
Citizens argued that alleged misrepresentations occurred during the process of the plaintiff filling out the insurance application in November 2003. In that application, the plaintiff allegedly indicated that the Dodge Ram and the Chevy Blazer were garaged in Marquette, Michigan, and that the plaintiff lived in Marquette, when, in truth, she resided and garaged her vehicles in Lansing, Michigan, where her boyfriend lived and attended Michigan State University’s College of Law. Citizens further argued that in the application, the plaintiff failed to divulge that her boyfriend had a drunk driving conviction, that her boyfriend was on the title of the Dodge Ram, and that he occasionally drove both of the vehicles insured under the policy.
The plaintiff argued that she did not even fill out any application for the policy, but simply informed her family’s Marquette area insurance agent, Nancy Laurila, that she simply wanted to extend coverage to the Chevrolet Blazer. Apparently, Ms. Laurila then filled out the application herself and then plaintiff’s mother, who lived in Marquette, came to the insurance agent’s office and signed the application on behalf of the plaintiff. The application was left blank with respect to yes/no questions concerning other drivers in the household, but the written application did indicate that plaintiff lived at the Marquette address of her parents.
The trial court ultimately granted Citizens’ motion for summary disposition under MCR 2.116(C)(10) and denied the plaintiff’s cross motion for summary disposition, finding that the plaintiff, or plaintiff’s mother, acting as plaintiff’s agent, made misrepresentations in the application such that Citizens was entitled to rescind the policy.
In reversing the trial court, the Court of Appeals recognized the well-established body of case law dealing with the rescission of no-fault insurance policies that essentially stands for the proposition that while an insurer may rescind an insurance policy that has been procured through the insured’s intentional misrepresentation of a material fact, an insurer is estopped from asserting fraud to rescind no-fault coverage to an injured party that did not make the misrepresentations. Based on this case law, the Court of Appeals concluded that the plaintiff did not engage in fraud or make misrepresentations, intentional or otherwise, as there was no dispute that the plaintiff did not fill out the written insurance application, that plaintiff did not sign the written application, that plaintiff did not view the written application, that plaintiff did not provide any of the information used by Laurila to fill out the written application other than possibly the Blazer’s VIN, and that plaintiff was not asked questions pertaining to her address, the garaging of the vehicles, other household drivers and title owners, drunk driving convictions, and restricted licenses. In this regard, the Court specifically held:
“‘It is a well-established rule that ‘[w]here a policy of insurance is procured through the insured's intentional misrepresentation of a material fact in the application for insurance, and the person seeking to collect the no-fault benefits is the same person who procured the policy of insurance through fraud, an insurer may rescind an insurance policy and declare it void ab initio.”’ Roberts v Titan Ins Co (On Reconsideration), 282 Mich App 339, 359-360; 764 NW2d 304 (2009) (citation omitted; alteration in original); see also Lake States Ins Co v Wilson, 231 Mich App 327, 331; 586 NW2d 113 (1998); Hammoud v Metro Prop & Cas Ins Co, 222 Mich App 485, 488; 563 NW2d 716 (1997); Farmers Ins Exch v Anderson, 206 Mich App 214, 218; 520 NW2d 686 (1994). We note that this Court has also stated that if an insurer relied on an insured’s misrepresentations, rescission may be appropriate even if the misrepresentations were unintentional. Lake States, 231 Mich App at 331; Lash v Allstate Ins Co, 210 Mich App 98, 103; 532 NW2d 869 (1995). ‘Reliance may exist when the misrepresentation relates to the insurer’s guidelines for determining eligibility for coverage.’ Lake States, 231 Mich App at 331. A material misrepresentation occurs when the misrepresentation ‘substantially increase[s] the risk of loss insured against so as to bring about a rejection of the risk or the charging of an increased premium.’ Darnell v Auto-Owners Ins Co, 142 Mich App 1, 9; 369 NW2d 243 (1985); see also Katinsky v Auto Club Ins Ass’n, 201 Mich App 167, 170; 505 NW2d 895 (1993) (‘A false representation in an application for no fault insurance that materially affects the acceptance of the risk entitles the insurer retroactively to void or cancel a policy’). The misrepresentation need not causally relate to the accident that results in the injury giving rise to the claim in order to be material. Darnell, 142 Mich App at 9; Auto-Owners Ins Co v Comm’r of Ins, 141 Mich App 776, 781-782; 369 NW2d 896 (1985). In general, an insurer is estopped from asserting fraud to rescind an insurance policy relative to mandatory coverage once an innocent party is injured in an accident in which coverage was in effect with respect to the relevant vehicle. Lake States, 231 Mich App at 331; Hammoud, 222 Mich App at 488 (‘right to rescind ceases to exist once there is a claim involving third party’). Only the claim by an insured who committed a fraud as to a policy will be barred, not the claim of an insured under the same policy who is innocent of fraud. Roberts, 282 Mich App at 360. In Anderson, 206 Mich App at 219, this Court deemed ‘it unwise to permit an insurer to deny coverage on the basis of fraud after it has collected premiums, when it easily could have ascertained the fraud at the time the contract was formed.’ …
There is no dispute that plaintiff did not fill out the written insurance application, that plaintiff did not sign the written application, that plaintiff did not view the written application, that plaintiff did not provide any of the information used by Laurila to fill out the written application other than possibly the Blazer’s VIN, and that plaintiff was not asked questions pertaining to her address, the garaging of the vehicles, other household drivers and titled owners, drunk driving convictions, and restricted licenses. Plaintiff herself had nothing to do with the written application, and she certainly had no connection with supplying and entering information for purposes of the electronic transmission to Citizens through the computer system utilized by EAI and Citizens. Plaintiff’s testimony concerning her phone call to Laurila when plaintiff purchased the Blazer revealed no discussion whatsoever with respect to the subject matter of the alleged misrepresentations, and Laurila did not even recall the phone conversation. There was no documentary evidence indicating that the phone conversation encompassed questions concerning plaintiff’s address, the garaging of the vehicles, other household drivers and titled owners, drunk driving convictions, and restricted licenses. Rather, plaintiff’s testimony suggests that the phone conversation simply entailed a request to cover the newly purchased Blazer with a no-fault policy, with Laurila indicating that ‘she would take care of it.’ When an underwriter for Citizens who was involved in the decision to rescind the policy was informed that plaintiff had not signed the application, she responded by testifying that, if true, plaintiff did not make any misrepresentations.
Given the very limited extent of plaintiff’s involvement in the application process and the lack of any evidence reflecting inquiry by Laurila or Citizens directed to plaintiff on the matters related to the alleged misrepresentations, we cannot conclude that plaintiff engaged in fraud or made misrepresentations, intentional or otherwise. Citizens did not base its decision to rescind the policy on the premise that plaintiff should have divulged the information at issue without prompting or absent query.”
In regards to the argument by Citizens that the failure to disclose the accurate garaging location/address, the Court reasoned there was no basis for rescission despite the allegations that premiums would have been higher in Lansing than in Marquette. The Court reasoned that the insurance agent knew the plaintiff was living in Lansing in law school at the time of the collision, and, therefore, the onus was on the agent to inquire more deeply if there is any concern about the plaintiff’s actual residency status. The Court further reasoned that given the fact the plaintiff had made two separate claims under the policy prior to the subject collision, there was further reason and/or opportunity for Citizens to determine if the vehicles were still located in Marquette.
The Court also disagreed that even though the plaintiff’s mother may have been operating as her agent, any misrepresentations made by the mother should result in rescission of the subject no-fault policy. The Court reasoned that while the mother may have been acting as the plaintiff’s agent, there was no benefit for her to procure through making any misrepresentations regarding her financially independent daughter’s automobile insurance policy, and even if there was such a benefit to the mother, the daughter remains a third party innocent to any misrepresentations that may have been made by the mother. In this regard, the Court held:
"Plaintiff here was innocent with respect to any misrepresentations, and there was no evidence that she was actively involved in defrauding the insurer in the application process, where plaintiff testified, without evidence to the contrary, that she had no conversations or discussions with her mother about the application and that she had nothing to do with the written application. While the Court in Roberts did not specifically address the law of agency, certainly the mother there, like plaintiff’s mother here, could have qualified as an agent of the injured insured. And in Roberts, the plaintiff’s mother stood to benefit, despite her misrepresentations, by not having to pay her child’s medical expenses. Here, plaintiff’s mother did not receive any comparable benefit in executing the written application.…
Looking solely at the conduct and communications of plaintiff, without consideration of her mother’s actions, we conclude that there is no genuine issue of material fact that plaintiff did not engage in fraud or make misrepresentations with respect to the insurance application and the matters cited by Citizens. Accordingly, plaintiff was entitled to judgment on her motion for summary disposition, and the trial court erred in denying that motion and in granting Citizens’ motion for summary disposition. Citizens is ordered to pay the benefits available under plaintiff’s policy.”
