Michigan Court of Appeals; Docket No. 156079; Published
Judges Michael Kelly, Hood, and S. B. Miller; Unanimous; Per Curiam
Official Michigan Reporter Citation: 206 Mich App 214; Link to Opinion 
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Fraud/Misrepresentation
Reformation of Insurance Contracts
Motor Vehicle Code (Financial Responsibility Act) (MCL 257.501, et seq.)
CASE SUMMARY:
In this unanimous published per curiam Opinion, the Court of Appeals held that plaintiff insurance company was entitled to limit its liability coverage to the statutory minimum $20,000/540,000 where its insured, Joyce Anderson, procured the policy on the basis of fraud by not disclosing that her son, whose driver's license had been revoked, would be operating the vehicle.
Plaintiff issued the policy to Joyce Anderson with liability coverage in the amount of $100,000/$300,000. Joyce Anderson's son then drove the car and caused the collision resulting in the death of an innocent third party. The court noted that because an innocent third party was involved, plaintiff Farmers could not rescind the policy ab initio. [See MCLA 257.520(f)(1)] However, §520(g) does not preclude an insurer from using fraud as a defense to void additional liability insurance coverages, even where innocent third parties are involved. Therefore, a validly imposed defense of fraud may limit an insurer's exposure to the statutory minimum liability limits.
The court, however, stopped short of stating that a validly imposed fraud defense will always be successful in limiting liability coverage to the statutory minimum. In this regard, the court noted:
"... we do not go so far as to say that a validly imposed defense of fraud will absolutely avoid any optional excess insurance coverage in all cases. To the contrary, when fraud is used as a defense in situations such as these, the critical issue necessarily becomes whether the fraud could have been readily ascertained by the insurer when the contract of insurance was entered into. We think it unwise to permit an insurer to deny coverage on the basis of fraud after it has collected premiums, when it could have readily ascertained the fraud at the time the contract was formed."
The court distinguished the earlier cases of Katinsky v Auto Club Insurance Association (Item No. 1640) and Ohio Farmers Insurance Company v Michigan Mutual Insurance Company (Item No. 1285) on the basis that those cases involved a situation where the fraud relied upon by the insurer was readily ascertainable and thus, the insurer was estopped from honoring the contract where an innocent third party was involved.
