Michigan Court of Appeals; Docket # 325657; Published
Judges K.F. Kelly, Fort Hood and Borrello; Unanimous, Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion 
STATUTORY INDEXING:
Not Applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Equitable Estoppel
Fraud/Misrepresentation
Interpretation of Insurance Contracts
CASE SUMMARY:
In this unanimous published per curiam Opinion, the Court of Appeals held that plaintiff no-fault insurer properly rescinded defendant's policy because defendant failed to disclose a recent car accident on his insurance application. The Court further held the medical providers that treated defendant for car-accident injuries after the no-fault policy was issued must reimburse plaintiff for the payment that plaintiff made under the policy.
In June 2012, defendant Barry Zufelt applied for a no-fault policy with plaintiff 21st Century Premier Insurance Company. Less than 6 points was required for coverage eligibility and he had 7 points on his driving record at the time. In his application for insurance, Zufelt did not disclose 3 points, which arose from an April 18, 2012 traffic accident. Plaintiff's subsequent investigation of Zufelt's driving record did not reveal the April 18 accident, so plaintiff issued Zufelt a no-fault policy on June 17, 2012. In December 2012, plaintiff automatically renewed the policy because 4 points from other violations had dropped off Zufelt's driving record. At the time of this renewal, Zufelt had 5 points on his record. In March 2013, Zufelt was seriously injured in a car crash. The driver of the other vehicle, Daniel Novak, was also injured. The University of Michigan Regents (the Regents) treated Zufelt for his injuries. Novak then filed a lawsuit against the Zufelts for damages, and the Zufelts sought defense and indemnity from plaintiff under the no-fault policy. Meanwhile, Regents, among others, sought more than $600,000 in medical costs from plaintiff. On July 19, 2013, plaintiff brought an action against the Zufelts, the Regents and others, claiming Zufelt was ineligible to be insured at the time the policy was issued because he made material misrepresentations on his application by not disclosing the April 2012 accident. Plaintiff sought a judgment declaring the policy was rescinded and the Zufelts were not entitled to indemnity for damages awarded or a defense in the lawsuit involving Novak. Plaintiff also requested the trial court to order the Zufelts to reimburse it for any benefits that were paid under the policy, and sought a judgment declaring that those who provided medical services were not entitled to PIP benefits. Alternatively, plaintiff sought to reform the policy to limit its liability to the statutory minimum. Ultimately, various defendants were dismissed from the case, leaving a dispute between plaintiff, the Zufelts and the Regents. The trial court granted plaintiff's motion for summary disposition, ordered the policy rescinded and entered a judgment in favor of plaintiff and against the Zufelts and the Regents in the amount of $53,673.95. The Regents appealed.
The Court of Appeals affirmed, holding the policy was properly rescinded. In so ruling, the Court rejected the Regents' argument that plaintiff failed to show fraud on Zufelt's part, finding that the crux of plaintiff's argument was that rescission was permissible because Zufelt did not disclose the April 2012 accident on his application.
The Court of Appeals further rejected plaintiff's argument that the December 2012 policy renewal was a "new and distinct contract" and was not tainted by Zufelt's initial misrepresentation. According to the Court, the renewal agreement did not alter the terms governing Zufelt's eligibility and plaintiff's right to rescind. Therefore, the Court said, when the policy was renewed, the same terms and conditions that controlled the original policy also controlled the renewal.
The Court of Appeals continued by holding that a finding of fraud or intentional misstatement on Zufelt's part was not required. Rather, the Court said the policy's plain language allowed plaintiff to rescind based on a false statement, misstatement of a material fact or a failure to disclose. The Court explained:
"Indeed, it is well-settled that an insurer is entitled to rescind a policy ab initio on the basis of a material misrepresentation made in an application for no-fault insurance. ... Although [Zufelt] did not admit to an intentional fraud, he admitted that he failed to disclose the accident that made him ineligible under the terms of the policy. Plaintiff relied on [this] misrepresentation when it determined he was eligible for the insurance policy. Had [Zufelt] disclosed the April 2012 accident, he would have been unable to obtain the insurance policy. Therefore, based on the plain language of the policy, after discovering the non-disclosure, plaintiff had the right to rescind coverage."
The Court of Appeals further found that Zufelt's ineligibility was not "cured" when points dropped off his driving record. In this regard, the Court said the following policy provision did not apply: "We will insure or continue to insure all eligible persons with respect to eligible vehicles subject to the following guidelines...." According to the Court, Zufelt was not an "eligible person" because he made material misrepresentations in his insurance application. The Court observed:
"The eligibility for the renewal turned on the representations that [were] made on the initial application and the material terms in the initial contract applied to the renewal. Therefore, the renewal was inextricably linked to the initial application and plaintiff was entitled to rescind the contract based on [Zufelt's] misrepresentations even after the renewal issued. There was no evidence that plaintiff was aware of the misrepresentation at the time the renewal issued and plaintiff was not under an obligation to continue to check Barry's record. ... In short, plaintiff did not have a duty to insure [Zufelt] under the plain terms of the policy and the renewal did not cure the initial misrepresentation."
In conclusion, the Court of Appeals rejected the Regents equitable estoppel argument. The Regents claimed that plaintiff sent a renewal confirmation to Zufelt, on which he relied to believe he had no-fault coverage. However, the Court said there was no evidence that plaintiff intentionally or negligently induced Zufelt to believe he had insurance coverage or that Zufelt justifiably relied on plaintiff's representations. The Court held:
"Importantly, there was no evidence to support that plaintiff was aware of [the] misrepresentation at the time the policy renewed. Furthermore, because [Zufelt] made the misrepresentation in obtaining the policy, he could not show justifiable reliance. ... Thus, plaintiff had the right to declare the policy void upon determination of the material misrepresentation, even where, as here, that determination occurred after the automobile accident."
