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Hammoud v Metropolitan Property and Casualty Insurance Company; (COA-PUB, 4/1/1997; RB #1931)

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Michigan Court of Appeals; Docket No. 178285; Published   
Judges Marilyn Kelly, MacKenzie, and Ernst; 2-1 (with Judge Kelly Dissenting); Opinion by Judge MacKenzie  
Official Michigan Reporter Citation:  222 Mich App 485; Link to Opinion alt   


STATUTORY INDEXING:  
Not Applicable

TOPICAL INDEXING:  
Cancellation and Rescission of Insurance Policies  
Equitable Estoppel  
Actual Fraud   


CASE SUMMARY:  
In this 2-1 published Opinion by Judge MacKenzie, the Court of Appeals ruled that a no-fault insurer was entitled to rescind a no-fault policy ab initio because of material misrepresentations made in the application for insurance. In this case, the plaintiff was the owner of a vehicle which he allegedly was purchasing with his brother. Plaintiff also resided with his brother. Plaintiffs brother obtained insurance from defendant and in the insurance application, failed to disclose the fact that the plaintiff was a resident relative who regularly drove the vehicle. When plaintiff was subsequently involved in an accident, the defendant insurance company denied benefits on the basis that material misrepresentations were made in the application for insurance which entitled it to rescind the policy ah initio. Plaintiff argued that he was an innocent third party, and therefore, the defendant's rescission of the policy could not affect his claim for benefits. The Court of Appeals disagreed with plaintiff, and permitted the insurance company to rescind the policy. The Court of Appeals affirmed.  

Although the Court of Appeals agreed with the proposition that an insurer's right to rescind "ceases to exist once there is a claim involving an innocent third party, " the Court of Appeals found that plaintiff was not an innocent third party, but rather, was a participant in a scheme to defraud the insurance company.  

In reaching its conclusion, the court stated,

"Plaintiff was the owner of the insured vehicle, with the responsibility to maintain a policy of no-fault insurance. To save money, he allowed his older brother to obtain the necessary insurance by misrepresenting plaintiff's status as a driver of the vehicle. Under these circumstances, plaintiff was actively involved in defrauding defendant and was not an innocent third party."

The court also ruled that the defendant did not have a duty to investigate or verify the representation made in the application of insurance, or to discover that intentional misrepresentations had occurred. Therefore, defendant was not estopped from asserting rescission.  

Judge Marilyn Kelly dissented on the basis that disputed fact issues existed that should have been submitted to a jury. Judge Kelly stated,

"It is quite possible that plaintiff fully expected that [his brother] would include his name as an insured. Because we are reviewing a motion brought pursuant to MCR 2.116(C)(10), we must look at the evidence in a light most favorable to plaintiff. Therefore, I would leave it to the jury to determine whether plaintiff's version is credible."

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