Michigan Court of Appeals; Docket No. 70392; Published
Judges R.B.I. Burns, Brennan, and Kallman; 2-1; Opinion by Judge Kallman
Official Michigan Reporter Citation: 133 Mich App 471; Link to Opinion 
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Cancellation of Auto Liability Policies (MCL 500.3204, et seq.)
Fraud/Misrepresentation
CASE SUMMARY:
In this 2-1 Opinion by Judge Kallman, the Court of Appeals held that a no-fault insurance company was entitled to rescind an insurance policy and declare it void ab initio where the insured deliberately and intentionally falsified his application for insurance by denying that he had been previously convicted of drunk driving. Thus, when the insured was involved in an accident before the insurance company had been able to discover the fraudulent misrepresentation, the insurer could properly deny payment of no-fault benefits to the insured under the policy.
The Court held there was no provision in the Michigan No-Fault Act nor in the Insurance Code, including MCLA 500.3220 and §3224, which prohibited an insurance company from rescinding a policy ab initio where there has been a false and fraudulent application. The Court stated that §3220 of the Code serves "only as a limitation on the cancellation of insurance policies issued to honest applicants." In addition, the Court noted that there is a difference between cancellation and rescission, the latter involving an annulment of the contract from its beginning.
In footnote no. 1 the majority carefully noted that the issue of "innocent misrepresentation" was no' before the Court in this case and, consequently, the Court was not expressing any opinion is to the right of an insurance company to deny coverage in cases where a person makes an innocent misrepresentation on an insurance application.
The Court also stated that "had innocent third parties been seriously injured in a collision with plaintiff’s vehicle, we believe that public policy would compel us to hold that coverage for the accident existed, at least, for these third parties."
Judge Brennan dissented. Among other things, he argued that allowing an insurance company to rescind an insurance policy ab initio would run contrary to the stated policy of Michigan insurance legislation and would be incompatible with the compulsory nature of the No-Fault Insurance Act. He stated that notice of cancellation/policy annulment is necessary in a compulsory insurance system to allow the insured person to obtain other coverages prior to termination. Rescinding a policy ab initio runs contrary to statutory purposes.
[Author's Comment: The holding in this case is consistent with the holding in item number 722.]
