In this unanimous unpublished per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiff Meemic Insurance Company’s (“Meemic”) action for declaratory relief, in which Meemic sought a declaration that Patricia Musser’s no-fault insurance policy was void because Musser had committed post-procurement fraud. The Court of Appeals held, first, that the trial court erred in ruling that Meemic could only rescind the policy if it could show that Musser committed fraud in procuring the policy: Meemic could also rescind the policy if Musser committed post-procurement fraud which amounted to a substantial breach of contract. Since a question of fact existed as to whether Musser’s alleged fraud did amount to such, the Court of Appeals remanded the case back to the trial court. Secondly, the Court of Appeals held that Meemic did not waive its ability to rescind the policy by notifying Musser that it was cancelling her policy only after filing its action for declaratory relief.
Melissa Musser was driving five passengers—Ryan Harston, Joseph Grinage, John Musser, Andrew Musser, and Brendan Pearce—in a 2002 Oldsmobile Silhouette, owned by her mother, Patricia Musser, when she lost control of the vehicle and struck a tree. The surviving occupants of the crash sought no-fault PIP benefits from Patricia’s no-fault insurer, Meemic, after which Meemic filed the underlying action for declaratory relief, seeking a declaration that Patricia’s policy was void, in part, because Patricia committed post-procurement fraud regarding which individuals would be operating vehicles covered under the policy. Specifically, Meemic alleged that, after several policy renewals and the addition of the 2002 Oldsmobile Silhouette to the policy, Patricia failed to disclose that Melissa was a regular driver of the Silhouette, despite having a duty under the policy to “inform [Meemic] within 30 days of any changes related to . . . the operators who regularly drive [the Silhouette].” The defendants to Meemic’s declaratory action—including the five claimants involved in the subject crash—moved for summary disposition, arguing that Meemic was only entitled to rescission if it could establish that Patricia committed fraud in procuring the policy. Additionally, the defendants argued that, because Meemic sent Patricia a notice of nonrenewal of the policy after filing its declaratory action, Meemic waived any right to rescission. The trial court agreed with the defendants and granted summary disposition in their favor.
The Court of Appeals reversed the trial court’s summary disposition order, noting, preliminarily, that under Meemic Ins Co v Fortson, 506 Mich 287 (2020), rescission is still available as a remedy for post-procurement fraud if the fraud amounts to a substantial breach of contract. The Court observed that, in this case, Patricia contacted Meemic prior to the crash to ensure that Melissa would be covered under the policy: she informed Meemic that Melissa would be occasionally transporting her kids to school in the Silhouette and using the Silhoette to run errands; but she did not classify Melissa as a “regular driver.” She also did not inform Meemic of an operating-while-intoxicated conviction Melissa received the same year she submitted her original application for coverage. The facts of Melissa’s usage were testified to by Musser, who “opined that Melissa used the Silhouette three or four times per week and . . . about as much as [Musser] did.” Based on these facts, the Court of Appeals held that a question of fact existed as to whether Musser substantially breached the contract—and the aforementioned duty to inform thereunder—by not disclosing sufficient information.
“The record, however, does not provide us with adequate information to decide this issue. Patricia testified that she contacted Meemic to see if Melissa would be covered while driving the Silhouette. When she did so, Patricia did not ask for Mellissa to be added to her insurance policy, and she did not notify Meemic about Melissa’s alcohol-related driving offense. That said, Patricia did tell Meemic that Melissa would frequently drive the Silhouette. Whether this level of disclosure was sufficient to notify Meemic that Melissa would be a “regular driver” of the Silhouette is a question of fact for the jury to decide.
Who drives a vehicle on a regular basis is an integral part of a car-insurance policy. The driver of a vehicle is one of the largest factors an insurer uses to determine the rates it charges. Thus, if Patricia failed to disclose sufficient information, then it amounted to a substantial breach of contract because Meemic no longer knew the actual terms of the contract it had entered into. Such a substantial breach would permit Meemic to rescind the contract. But we cannot conclude that Patricia substantially breached the contract based on the record before us. Rather, that is a question for the jury to decide on remand.”
The Court of Appeals next held that Meemic did not waive its ability to rescind the policy by issuing a notice of nonrenewal after filing its declaratory action. The defendants in this case sought to analogize Meemic’s actions in this case to those of the defendant insurer in Burton v Wolverine Mut Ins Co, 213 Mich 514 (1995). In Burton, the defendant insurer discovered evidence of a fraudulent insurance act and chose to issue a cancellation notice to its insured rather than seek rescission. After doing so, but before the effective date of cancellation, the insured was injured in a motor vehicle collision. When the defendant insurer then attempted to rescind the policy based on the fraud it had uncovered prior to serving the notice of cancellation, the Court of Appeals held that it had waived its ability to do so because it “induce[d] the plaintiffs to believe that they would continue to have insurance until the effective date of the cancellation.” In this case, Meemic discovered Patricia's alleged fraud after the crash, then sought rescission and later decided not to renew her policy. Therefore, Meemic "did not induce any reliance by Patricia to her detriment."
“Conversely, in this case, Meemic sought rescission after the loss and upon becoming aware of Patricia’s alleged fraud, and only later decided not to renew the policy. Unlike in Burton, these decisions were not inconsistent and did not induce any reliance by Patricia to her detriment. Pearce cites no authority for the proposition that an insurance company that seeks a determination of its right to rescind an insurance policy on the basis of fraud forfeits its right to do so by choosing also not to renew the policy. Contrary to what Pearce argues, the rationale in Burton does not support a finding that Meemic in this case waived its right to pursue its claim for rescission of the policy by later electing not to renew it. Accordingly, we decline to affirm the trial court’s decision on the basis of a waiver analysis.”