Michigan Court of Appeals; Docket #357110; Published
Judges Shapiro, Rick, and Garrett; Per Curiam
Official Michigan Reporter Citation: Forthcoming; Link to Opinion
Cancellation and Rescission of Insurance Policies
Exclusions from Underinsured Motorist Benefits [Underinsured Motorist Coverage]
In this unanimous, published, per curiam decision, the Court of Appeals affirmed the trial court’s denial of Defendant LM General Insurance Company’s (“LM”) motion for summary disposition, seeking dismissal of Plaintiff Melvina Howard’s action for no-fault PIP benefits and underinsured motorist (“UIM”) coverage. With respect to Howard’s claim for PIP benefits, the Court of Appeals held that LM could not rescind Howard’s policy and deny her claim thereunder based on misrepresentations Howard’s coinsured made regarding a vehicle that was not involved in the accident and was added to the policy approximately only after its original procurement. With respect to Howard’s claim for UIM benefits, the Court held that although LM could deny coverage as to all insureds based on the misrepresentations of only one insured, it could not do so in this case, because the policy’s antifraud provision only allowed for voidance of the policy if the misrepresentation was of a “material fact or circumstance.” In this case, the Court found, Howard’s coinsured’s misrepresentation was not material to Howard’s claim.
Melvina Howard was injured in a motor vehicle accident while driving her 2008 Mercury Mariner. The Mariner was insured by LM, under a policy issued in 2014 to both Howard and Jasmine Bartell, and approximately three weeks prior to the accident, on April 19, 2019, Bartell added a 2008 GMC Yukon to the policy. In adding the Yukon, she represented to LM’s representative that she was the owner and that the vehicle was garaged at her home, but after the accident, LM discovered that the vehicle was actually owned by Bartell’s relative and garaged at the relative’s house in Detroit. Thus, in October of 2019, LM sent Howard and Bartell a letter asserting that the entire policy was rescinded retroactive to April 19, 2019, such that Howard could not claim PIP benefits or UIM coverage relative to her accident. Howard proceeded to file suit against LM and LM moved for summary disposition, arguing that Bartell’s misrepresentations regarding the Yukon entitled it to rescind the policy as to all insureds, but the trial court disagreed, denying LM’s motion.
The Court of Appeals affirmed the trial court’s denial of LM’s motion for summary disposition, holding first that LM could not deny Howard’s claim for PIP benefits under the policy based on Bartell’s misrepresentations regarding the Yukon. The Court noted that, in order to rescind the policy, LM would have to establish common-law fraud by showing, among other things, that it acted in reliance on the Bartell’s misrepresentations and suffered injury as a result. In this case, LM did not suffer injury as a result of Bartell’s misrepresentations regarding the Yukon because the Yukon was not involved in the accident and LM was already covering the Mariner at the time the Yukon was added to the policy.
There is evidence that Bartell made a material and false representation regarding the Yukon and at least a reasonable inference that she knew the representation was false and that she intended LM to rely upon it. However, the “injury” element is missing because the coverage obtained by the misrepresentation is not at issue. That is, there is no claim that the Yukon was involved in the accident or that absent coverage on the Yukon, plaintiff would not have been covered as to the Mariner. Accordingly, LM did not suffer injury through reliance upon the misrepresented fact.
Alternatively, the Court held that Howard was innocent third party to Bartell’s fraud and that a balancing of the equities weighed against rescission of the policy as to Howard. The relevant factors to consider when balancing the equities in cases invoking the innocent third party doctrine, set forth in Justice Markman’s concurrence in Farm Bureau Gen Ins Co of Mich v ACE American Ins Co, 503 Mich 903 (2018), include: (1) “the extent to which the insurer, in fact, investigated or could have investigated the subject matter of the fraud before the innocent third party was injured, which may have led to a determination by the insurer that the insurance policy had been procured on a fraudulent basis”; (2) “the specific relationship between the innocent third party and the fraudulent insured”; (3) “the precise nature of the innocent third party’s conduct in the injury-causing event”; (4) “whether the innocent third party possesses an alternative avenue for recovery absent enforcement of the insurance policy”; and (5) “whether enforcement of the insurance policy would merely relieve the fraudulent insured of what would otherwise be the insured’s personal liability to the innocent third party.”
The Court found that factors one through four weighed in favor of Howard and against rescission, and that the fifth factor was inapplicable. Thus, the equities weighed against rescission and the trial court did not err in ruling that LM could deny Howard’s claim for benefits under the policy.
With respect to Howard’s claim for UIM coverage under the policy, the Court of Appeals held that while LM could theoretically deny such coverage to all insureds based on the misrepresentations of only one insured, it could only do so if the misrepresentation was of a “material fact,” which Bartell’s was not. The Yukon was added to the policy after LM decided to insure the Mariner, and thus Bartell’s misrepresentations regarding the Yukon were not material to LM’s earlier decision to offer UIM coverage for accidents involving the Mariner.
“The policy language, by its terms, permits ‘void[ing]’ of the policy if any insured makes a material misrepresentation. Accordingly, we conclude that as to UIM coverage, Bartell’s misrepresentations regarding the Yukon, if material, would allow for rescission. However, LM has not presented any evidence that the misrepresentation was material to the coverage on the Mariner. This Court has equated materiality of a misrepresentation in a no-fault insurance application with reliance by the insurer. 21st Century Premier Ins Co v Zufelt, 315 Mich App 437, 445-446; 889 NW2d 759 (2016). ‘ ‘Reliance may exist when the misrepresentation relates to the insurer’s guidelines for determining eligibility for coverage.’ ’ Id. at 446, quoting Lake States Ins Co v Wilson, 231 Mich App 327, 331; 586 NW2d 113 (1998). But LM has provided no evidence that Bartell’s statements concerning the later-added Yukon affected LM’s earlier decision to insure the Mariner. In other words, the alleged misrepresentation by Bartell as to the Yukon did not relate to the eligibility for coverage on the Mariner that was previously obtained and as to which no fraud is alleged.
LM relies on the affidavit of Randall Lawrence-Hurt, a LM senior compliance analyst. Notably, Lawrence-Hurt does not state that the alleged fraud by Bartell in adding the Yukon affected the company’s earlier decision to insure the Mariner. He states that the allegedly false representation ‘was integral to and directly influenced LM General’s decision to add the 2008 Yukon to [the policy],’ but he makes no mention of the decision to insure the Mariner. He also states that ‘LM General would not have added the 2008 Yukon . . . if true and correct information’ regarding it had been provided. Again, he makes no claim that there was any fraud involved in the application for coverage on the Mariner. In the absence of evidence that the misrepresentation was material to the decision to insure the Mariner, we conclude that Bartell’s alleged misrepresentation was not material to policy’s coverage of the Mariner and so was not a basis to rescind coverage on that vehicle.”