Michigan Court of Appeals; Docket #265597; Unpublished
Judges Jansen, Neff, and Zahra; unanimous; per curiam
Official Michigan Reporter Citation: Not applicable, Link to Opinion 
STATUTORY INDEXING:
Not applicable
TOPICAL INDEXING:
Cancellation and Rescission of Insurance Policies
Reformation of Insurance Contracts: Reformation for Misrepresentation
CASE SUMMARY:
In this unanimous unpublished per curiam opinion, the Court of Appeals found that where there was a material factual dispute regarding whether plaintiff’s insured misrepresented where he lived when he applied for insurance from plaintiff, the trial court improperly dismissed plaintiff’s action for a declaration regarding whether it was entitled to reform the no-fault insurance policy. Plaintiff’s insured, defendant Ivory Grandberry, was involved in a motor vehicle accident with defendant Christopher Mason. Mason filed a third-party action against Grandberry and Grandberry submitted a vehicle damage claim to plaintiff. When Grandberry submitted his claim, he listed his parents’ address in Detroit as his residence. However, in his original application for insurance, he had stated that he lived with his brother in Clinton Township. Based on this conflicting information, plaintiff denied Grandberry’s claim, reasoning the policy was void because Grandberry had intentionally concealed or misrepresented facts regarding his address. As to Mason, plaintiff offered to pay the statutory minimum of $20,000 rather than the policy amount of $100,000. Plaintiff then filed this declaratory judgment action. The trial court granted defendants summary disposition, ruling plaintiff was barred from rescinding or reforming the policy because of the involvement of Mason, an innocent third party.
In reversing, the Court of Appeals recognized that where an insured makes a material misrepresentation in an application for insurance, the insurer is entitled to rescind the policy and declare it void unless an innocent third party would be adversely affected by the rescission. If an innocent third party is involved, the insurer is entitled to reform the policy to eliminate optional coverage and only provide coverage that is required by law. Therefore, the court determined, the issue is whether Grandberry made a material misrepresentation in his application for insurance. In concluding that an issue of fact existed regarding whether Grandberry made a material misrepresentation, the court noted plaintiff presented evidence that by listing the Clinton Township address as his residence, plaintiff was subject to a much lower premium than if he had listed the Detroit address as his residence. Although this supports a finding that Grandberry intentionally misrepresented his address, Grandberry presented evidence that he did, in fact, live in Clinton Township when he applied for the insurance. However, the trial court did not resolve this issue because it mistakenly held that due to the involvement of the innocent third party, no changes could be made to the policy. Because material issues of fact exist regarding whether defendant Grandberry materially misrepresented where he lived when he applied for insurance, defendants were improperly granted summary disposition. In this regard, the court stated:
“[A]n insurer is entitled to reformation of an insurance policy if (1) there was a material misrepresentation, (2) the coverage the insurer wishes to rescind is ‘optional,’ and (3) the fraud or misrepresentation could not have been easily ascertained by the insurer at the time that the insurance contract became effective.
The address at which an insured resides is a material fact when applying for insurance. Plaintiff alleged in its complaint that there would have been a substantial rate difference in the policy had the Detroit address been on the application. . . . While these facts suggest a material misrepresentation, Grandberry, his brother, and his sister-in-law all testified that Grandberry lived in Clinton Township at the time of the accident. When viewed in the light most favorable to the non-moving party, it creates a material factual issue as to whether Grandberry defrauded plaintiff by misrepresenting his home address. The trial court based its ruling solely on the proposition that plaintiff could not rescind coverage to an innocent third party. Consequently, it did not explicitly rule as to whether the misrepresentation existed, whether it was innocent or fraudulent, and whether plaintiff’s reliance on it was justified.
Resolution of these factual issues will form the basis for a finding of whether plaintiff rightfully rescinded the insurance policy as to Grandberry, and whether plaintiff rightfully reformed the policy to supply coverage for Mason at the $20,000/$40,000 statutory minimum. If Grandberry was actively defrauding plaintiff by stating that he lived in Clinton Township when he really lived in Detroit, then rescission is appropriate as to Grandberry’s property damage claim. . . . Likewise, if a material misrepresentation existed, then plaintiff would be entitled to reformation of the insurance contract to the statutory minimum limits of $20,000/$40,000 for any coverage claimed by Mason, the innocent third party. . . . Because there is a genuine issue of fact regarding whether Grandberry made a material misrepresentation, summary disposition was improperly granted to Mason and Grandberry.”
