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Simpson, et al. v. Ameriprise Insurance Company, et al. (COA – UNP 11/12/2020; RB #4177)


Michigan Court of Appeals; Docket # 348279; 348977; Unpublished
Judges Boonstra, Cavanagh, and Borrello; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion

Insurer’s Right to Penalty Attorney Fees for Fraudulent/Excessive Claims [§3148(2)]

Cancellation and Rescission of Insurance Policies

In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s dismissal of the Plaintiff’s first-party action to recover no-fault PIP benefits, as well as the trial court’s order granting defendant IDS Property Casualty Insurance Company’s (IDS) motion for attorney fees and costs pursuant to MCL 500.3148(2).  The Court of Appeals held that IDS was entitled to rescission of the automobile insurance policy it issued to plaintiff Isha Simpson and Aquanetta Terry, jointly, because Simpson and Terry stated on their application for insurance that they lived together at the same address in Redford, when in fact, Simpson lived in Redford and Terry lived in Detroit.  Plaintiffs Simpson and Richard Boyd were therefore barred from recovering PIP benefits related to the subject motor vehicle collision under the IDS policy.

Simpson and Boyd were involved in a motor vehicle collision while traveling in a vehicle co-owned by Simpson and Aquanetta Terry, and insured to Simpson and Terry, jointly, under a policy issued by IDS.  After Simpson and Boyd filed the underlying first-party action against IDS to recover no-fault PIP benefits, IDS informed them that it had rescinded their policy on the basis of fraud.  Specifically, IDS noted that Simpson and Terry claimed to live at the same address in Redford on their original application for insurance, and contended that, had it known that, in actuality, Simpson lived in Redford and Terry lived in Detroit, it would not have issued the policy.  Ultimately, the trial court granted summary disposition in IDS’s favor, ruling that IDS was entitled to rescission on the basis of fraud.  Furthermore, the trial court granted IDS’s subsequent motion for attorney fees and costs pursuant to MCL 500.3148(2) and case evaluation sanctions.

On appeal, the Court of Appeals first held that the trial court did not err in granting IDS’s motion for summary disposition and allowing IDS to rescind Simpson and Terry’s policy.  The Court noted that, pursuant to the Michigan Supreme Court’s decision in Meemic Ins Co v. Fortson, the dispositive question whenever an insurance company defends its decision to rescind a policy based on an antifraud provision “is whether the defense is available under the no-fault act or is a common-law defense that has not been abrogated.”  In Meemic, the Supreme Court held that an insurer may avail itself of such a defense “so long as the fraud related to the inception of the contract,” which it indisputably did in this case.

Simpson is a named insured under the no-fault policy, and her coverage is therefore mandatory under MCL 500.3114(1).5 To the extent that IDS sought to rescind its no-fault policy on the basis of the antifraud provision, the antifraud provision is enforceable because the alleged fraud related to the procurement of the policy and consequently is based on a type of common-law fraud that would allow for rescission. Meemic, ___ Mich at ___; slip op at 1-2, 8, 10, 13-15; Bazzi, 502 Mich at 400-401, 406.

The Court of Appeals thus held that there was no genuine issue of material fact as to whether Simpson and Terry made a material misrepresentation in their application for insurance such as would entitle IDS to rescind the policy, and that it did not matter that the misrepresentation may have been made innocently.  Furthermore, the Court held that the trial court did not err in rescinding the policy with respect to Simpson, too, even though she actually did live at the address listed on the application.

The plaintiffs also challenged on appeal the trial court’s grant of attorney fees and costs and case evaluation sanctions to IDS.  With regard to the trial court’s grant of attorney fees and costs, the plaintiffs argued that once the policy was rescinded—and therefore voided ab initio—it was as if the policy never existed, and if the policy never existed, plaintiffs could not have made a “claim” under it, for purposes of MCL 500.3148(2), against which IDS was required to defend.  The Court of Appeals noted that while the plaintiffs argument was “inventive,” it was not supported by Michigan law.

MCL 500.3112 and that, applying this definition, IDS was not defending against a “claim” within the meaning of MCL 500.3148(2). They reason as follows: because the trial court determined that IDS was entitled to rescind the no-fault policy, the policy was therefore void ab initio, which, from a legal standpoint, means that it never existed. If no contract ever existed, then plaintiffs never had the right to receive PIP benefits from IDS, and could not have made a “claim” under the nofault policy against which IDS was required to defend. See Covenant, 500 Mich at 211 n 31; MCL 500.3148(2).

While plaintiffs’ argument is inventive, Michigan law does not support it. In Bazzi, 502 Mich at 409-410, our Supreme Court held that rescission is an equitable remedy and that the actual rescission of a policy does not occur automatically or by operation of law, but instead is left to the discretion of the trial court. See also Meemic, ___ Mich at ___; slip op at ___ n 19; Bazzi, 502 Mich at 409 (discussing the need for a trial court to balance the equities before applying the remedy of rescission). Therefore, until a trial court enters an order rescinding a policy, the policy remains in effect. During the 21-month period in which this action was pending, Simpson and Boyd were able to, and did, file claims for payment of PIP benefits under the policy, and IDS defended against those claims. Covenant, 502 Mich at 211 n 31. The plain language of MCL 500.3148(2) allows an insurer to seek an award of attorney’sfees for fraudulent or excessive claims in such a situation.

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