Michigan Court of Appeals; Docket No. 134492; Published
Judges Marilyn Kelly, Shepherd, and Connor; Unanimous; Opinion by Judge Connor
Official Michigan Reporter Citation: 201 Mich App 167; Link to Opinion 
STATUTORY INDEXING:
Ways to Provide Required Security [§3101(3) + 3101(4)]
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Equitable Estoppel
Reformation of Insurance Contracts
CASE SUMMARY:
In this unanimous published Opinion by Judge Connor, the Court of Appeals held that the insurance company could not avoid paying no-fault insurance benefits to a third-party when the purchaser of the policy paid the insurance premium with a check that was later dishonored. Claiming that it had rescinded the policy it had issued on the car because of the dishonored check, Auto Club was granted summary disposition by the trial court, which the Court of Appeals in this case reversed.
Plaintiff, a motorcyclist, was injured on May 6,1989, when struck by an automobile owned by McBride and insured by Auto Club. McBride had applied for the insurance coverage with the Michigan Automobile Insurance Placement Facility. Coverage was placed with Auto Club, and on May 3,1989, Auto Club deposited McBride's check for coverage on his automobile. On May 6,1989, the automobile accident occurred, and on May 17,1989, the check was returned to Auto Club dishonored due to insufficient funds in McBride's checking account.
On May 19,1989, Auto Club issued a policy billing notice and a declaration certificate for automobile coverage on the vehicle for a period of time including the date of the accident. The billing notice reflected no money having been received from McBride, and warned that the policy would be canceled unless McBride paid half the premium by June 5,1989. On May 24,1989, Auto Club sent another notice to McBride stating that the policy had been canceled due to non-payment of premium, and that the coverage terminated on April 25,1989.
The Court of Appeals held that the May 19 bill and declaration certificate are evidence that Auto Club accepted McBride's April 25,1989 offer to enter into an insurance contract and communicated that acceptance to McBride. The Court of Appeals rejected Auto Club's argument that it had a right to void and retroactively cancel or rescind the policy because of the dishonored check. Although a false representation in an application for no-fault insurance which materially affects the acceptance of the.risk entitles the insurer to retroactively void or cancel a policy, this right to rescind ceases to exist once an innocent third-party is involved. Darnell v Auto Owners Insurance Company, 142 Mich App 1 (1985). The court held that public policy requires that an insurer be estopped from asserting rescission when a third-party has been injured.
Further, the court, citing Coburn v Fox, 425 Mich 300 (1986), noted that the Supreme Court in that case had decided that an insured's failure to cooperate cannot act as a defense to a claim for no-fault benefits made by a third-party. The public policy arguments that persuaded the Supreme Court to protect innocent third parties despite the insured's non-cooperation apply just as forcefully to non-payment of premium.
The Court of Appeals stated that if no-fault insurers do not want to pay third-party claims on policies for which they have not been paid a premium, they should not bind themselves to coverage until they have actually received the premiums. When an insurer issues a no-fault policy, that policy provides security that no-fault benefits will be paid and is deemed to provide insurance for the payment of benefits.
