Michigan Court of Appeals; Docket No. 190910; Unpublished
Judges White, Bandstra, and Smolenski; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion 
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
CASE SUMMARY:
In this unpublished per curiam Opinion, the Court of Appeals held that the plaintiff’s rescission of a no-fault policy for misrepresentation on an application was not effective as to a "innocent third party" injured in an automobile accident who was a member of the named insured's household.
Plaintiff American Fellowship issued a policy of no-fault insurance to Diana L. Ference. After the policy was issued, Ference's son was injured in an automobile accident, while riding as a passenger. The driver of the vehicle in which the son was riding was insured by third-party defendant Auto Club. After the accident and the submission of a claim for first-party coverage by the son of the named insured, American Fellowship sought rescission of the policy on the basis that Ference had made material misrepresentations in her application for insurance, which would then shift liability for first party coverage to Auto Club.
The Court of Appeals, following its prior holding in Katinsky vAuto Club Insurance Association, 201 Mich App 167 (1993) (Item No. 1640), found that American Fellowship was estopped from asserting rescission as to the son, because he was an “innocent third-party." In addition, the Court of Appeals, citing Darnell v Auto Owners Insurance Company, 142 Mich App 1 (1985) (Item No. 831), held that "only the claim of an insured who has committed the fraud will be barred, leaving unaffected the claim of any insured under the policy who was innocent of fraud." American Fellowship argued that Ference's son was a third-party beneficiary and therefore was bound by the condition in the policy that states that no coverage would be afforded in the event of false or inaccurate representations. However, the court rejected this argument, holding that public policy considerations had led the court to consistently apply the innocent third-party doctrine to preclude rescission, notwithstanding this argument.
Judge Bandstra dissented, noting that the “innocent third-party doctrine" was based on the Michigan Supreme Court's decision in Morgan v Cincinnati Insurance Company, 411 Mich 267 (1981), which involved a statutory fire insurance policy and turned upon the language of the fire insurance statute. The Michigan Court of Appeals decision in Darnell, as relied upon by the majority, made no reference to the Morgan decision and the fire insurance statute that was interpreted. Therefore, Judge Bandstra would hold that Darnell had been wrongly decided and therefore not controlling on the case at bar.
