Michigan Court of Appeals; Docket #302191; Unpublished
Judges Murphy, Hoekstra, and Murray; unanimous; per curiam
Official Michigan Reporter Citation: Not Applicable, Link to Opinion
On October 24, 2012, the Michgian Supreme Court VACATED this decision and REMANDED to the Court of Appeals for reconsideration in light of Titan Ins Co v Hyten, 491 Mich 547 (2012); Link to Order
Reformation of Insurance Contracts
In this unanimous unpublished per curiam Opinion, the Michigan Court of Appeals affirmed the trial court’s Order granting summary disposition in favor of the intervening plaintiff Auto-Owners Insurance Company and defendants Nichole Falls, Kyle Richard Falls, and Larry Henry, individually and as Personal Representative for the Estate of Bonnie Henry. Specifically, the Court of Appeals affirmed the trial court’s ruling that with respect to the bodily injury claim the Henry family was pursuing against the Falls family, Titan Insurance Company could not reform its automobile liability insurance policy that covered Nicole Falls from its policy limits of $100,000/$300,000 to the statutory minimum of $20,000/$40,000, because it was not clear whether Nicole Falls made any misrepresentations to Titan when applying for the policy and, even if she did, those misrepresentations were easily ascertainable by Titan.
The important facts in this case began on June 10, 2009, when Nicole Falls entered into an automobile insurance contract with Titan Insurance by calling K C Insurance Agency and spoke with an insurance agent over the telephone for five minutes. Then, later on the same day, Nicole went to the insurance agency’s office, where the agent handed her the insurance application, one page at a time, for her to review, initial, and sign. Notably, Nichole was never shown the first page of the insurance application, which contained a section to list all household drivers. Nicole then made a $300 downpayment on the insurance premium and left the office three minutes after she arrived. There was no dispute that Nicole informed the insurance agent that she was married to Kyle Falls; that the family received its health insurance through Kyle Falls’ employment; and that Kyle Falls was able to drive both vehicles. However, Kyle Falls was not listed as a household driver on the insurance application Nicole signed on June 10, 2009.
On July 10, 2009, 30 days after the insurance application was completed, Kyle Falls was involved in an automobile accident that led to the death of Bonnie Henry, the wife of Larry Henry.
Shortly after the automobile accident, Titan initiated litigation in this case by filing a declaratory action in which Titan ultimately moved for summary disposition, arguing that the failure to list Kyle Falls as a household driver on the insurance application was a material misrepresentation in the insurance application that allowed Titan to reform the liability coverage from $100,000/$300,000 to $20,000/$40,000. The trial court denied Titan’s motion for summary disposition on the grounds that there was clearly a question of fact on whether Nicole made any misrepresentations to Titan, considering there was evidence she never saw the first page of the insurance application where household drivers were supposed to be listed, as well as the evidence that she told the agent that she was married and that her husband was able to operate both of their vehicles. Furthermore, in response to the defendants’ cross-motion for summary disposition, the trial court found that the $100,000/$300,000 policy limits applied under the Titan insurance policy, because even if Nicole Falls made a material misrepresentation by not listing her husband as a household driver, the misrepresentation was easily ascertainable by Titan.
The Court of Appeals affirmed the trial court’s ruling. In doing so, the Court of Appeals made it explicitly clear that it was basing its decision on the “easily ascertainable” doctrine as recently followed by the Michigan Court of Appeals in Titan Ins Co v Hyten, 291 Mich App 445 (2011), which, at the time of this decision, remained pending before the Michigan Supreme Court to decide whether an insurance carrier may reform an insurance policy on the ground of misrepresentation in the application for insurance, where the misrepresentation is “easily ascertainable” and the claimant is an injured third-party.
The Court of Appeals then applied the “easily ascertainable” doctrine to this case and determined that Titan was not allowed to reform the liability policy because it could have easily ascertained whether Kyle Falls was a household driver by simply asking Nicole Falls, or having Nicole Falls review and initial the first page of the insurance application to verify that all household drivers were listed, especially after Nicole informed the insurance agent that her husband was allowed to drive the vehicles. In this regard, the Court of Appeals stated:
“In this case Larry, individually and as personal representative of Bonnie, qualifies as an innocent third party and the undisputed facts reveal that the material misrepresentation was easily ascertainable. The evidence submitted highlights that while Nicole did not list Kyle as a household driver on the insurance application, she informed the insurance agent that she had a husband both over the telephone and in person. Significantly, the evidence shows that Titan’s insurance agent inquired into whether there was any household driver who could not use the vehicles, and Nicole informed the agent that her husband was allowed to drive both vehicles. Moreover, according to Nicole, she was never shown the first page of the application where the household drivers were listed. Under these facts, and looking at them in a light most favorable to the non-moving party, Titan could have easily ascertained whether Kyle was a household driver by simply asking Nicole or having Nicole review and initial the first page of the insurance application to verify that all household drivers were listed, especially after Nicole informed the agent that her husband was allowed to drive the vehicles. Therefore, the trial court properly denied Titan’s request to reduce the insurance policy to the statutory minimum limits.”
After finding that the policy could not be reformed because the misrepresentation could have been easily ascertained by Titan, the Court of Appeals rejected Titan’s argument that under MCL 500.3220(a), Titan should be allowed to reform the policy to the statutory minimum. The court reasoned that as noted by the Court of Appeals in Titan Ins Co v Hyten, supra, MCL 500.3220(a) allows an insurer to cancel a policy within 55 days from the formation of an insurance contract, if the insurer determined that the risk was unacceptable. The court noted that Titan did not argue that the addition of Kyle Falls as a household driver would have been an unacceptable risk resulting in a cancellation of the insurance policy at issue to Nicole Falls. The court noted that Titan merely stated that the addition of Kyle Falls as a household driver would have raised the premium for the policy. Therefore, the court concluded that Titan essentially admitted that it would not have cancelled the insurance policy within the prescribed 55 days, even if it had discovered that Kyle Falls was a household driver during that time frame. The court further noted that MCL 500.3220(a) allows an insurer to cancel a policy within 55 days from the formation of an insurance contract, but the statute does not allow an insurer to reform an insurance policy to a lesser limit.
The Court of Appeals also rejected Titan’s argument that the “easily ascertainable” doctrine imposes an improper duty upon an insurer by requiring an insurer to verify the accuracy of information provided to the insurer by the insured within an insurance application. In rejecting this argument, the Court of Appeals relied on the reasoning set forth by the Court of Appeals in Titan Ins Co v Hyten, supra, wherein the Court of Appeals recognized that while an insurer does not owe a duty to the insured to investigate the accuracy of information the insured has provided the insurer, an automobile liability insurer must undertake a reasonable investigation of the insured’s insurability within a reasonable period of time from the acceptance of the application and the issuance of a policy. Therefore, the Court of Appeals stated that “while Titan has no statutory duty to investigate, it cannot use its failure to investigate as a reason to reform an insurance policy once an innocent third-party is injured, because Michigan’s no-fault system seeks to protect innocent third parties.”