Michigan Court of Appeals; Docket #356702; Unpublished
Judges Redford, Kelly, and Letica; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
Cancellation and Rescission of Insurance Policies
In this unanimous unpublished per curiam decision, the Court of Appeals affirmed the trial court’s summary disposition order dismissing Plaintiffs Munson Medical Center and Munson Healthcare Otsego Memorial Hospital’s (“Munson,” collectively) first-party action against Defendant Falls Lake National Insurance Company (“Falls Lake”). The Court of Appeals held that Falls Lake was entitled to rescind the policy of Dawn Drum, its insured/Munson’s patient, because Drum made a material misrepresentation on her original application for automobile insurance.
Dawn Drum moved into the basement of a home occupied by her best friend, Marcella Dever, and Marcella Dever’s husband, Tom Dever, and shortly thereafter acquired no-fault insurance for her personal vehicles from Falls Lake. On her application for insurance, Drum was instructed to list all household members over the age of 14, as well as all vehicles garaged at her address, but she neglected to disclose the Devers or their many vehicles. Drum was later injured in a motor vehicle collision and received treatment from Munson, but Falls Lake refused to pay her any no-fault PIP benefits under her policy because ofher failure to list the Devers and their vehicles on her original application, instead rescinding her policy altogether. Munson then filed a first-party actionagainst Falls Lake directly, and the trial court granted summary disposition in Falls Lake’s favor.
The Court of Appeals affirmed the trial court’s summary disposition order, holding that Falls Lake was entitled to rescind Drum’s policy and deny payment of any PIP benefits thereunder because Drum committed fraud in the inducement of the policy, which the Supreme Court defined in Meemic Ins Co v Fortson, 506 Mich 287 as “ ‘when a misrepresentation leads another to enter into a transaction with a false impression of the risks, duties, or obligations involved.’ ” Central to the Court’s holding was the fact that Drum answered “yes” on her application in response to the question, “ ‘Have you identified on this application all members of your household who are age 14 or older?’ ” The underwriter of Drum’s policy testified that, had Drum answered no to that inquiry, he never would have written the policy. Thus, the Court held that Drum’s misrepresentation led Falls Lake to enter into a transaction that it otherwise would not have if it had known the truth. Moreover, the Court of Appeals held that it was immaterial whether Drum’s misrepresentation was innocent or intentional, relying on its holding in Lash v Allstate Ins Co, 210 Mich App 98 (1995). In Lash, the Court held that an insurer is entitled to rescission if it issues a policy based on a misrepresentation, whether intentional or not, that it otherwise would not have issued if it knew the truth.
“Thus, the Lash Court concluded that Allstate was entitled to rescission because if it had known of the plaintiff’s citation, it would not have issued a policy of insurance because the plaintiff was not eligible according to the insurer’s guidelines. Id. at 104.
Applying the Lash decision to the present case, the trial court properly granted summary disposition to defendant. After her accident, Drum was examined under oath. At that time, she disclosed that she had roommates at her residence and there were multiple garaged vehicles there. However, this information was omitted from Drum’s application, and she expressly answered ‘no’ to the question addressing whether there were other residents age 14 or older at her home. In her examination under oath, Drum did not proffer a reason for failing to truthfully answer the disclosures required by defendant, but as the Lash Court instructs, the nature of the misrepresentation, whether intentional or innocent, did not alter defendant’s entitlement to rescission. Id. at 104. Further, underwriter Serota testified that if Drum had truly disclosed the other occupants, the policy at issue would not have issued according to defendant’s guidelines. Where an insurer would not have issued the policy of insurance under its guidelines if it had known of the true circumstances underlying the driver’s application for insurance, the insurer is entitled to the remedy of rescission. Id.”