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### STATE OF MICHIGAN

COURT OF APPEALS

AUTO-OWNERS INSURANCE COMPANY,

Plaintiff/Counter-DefendantAppellee, UNPUBLISHED September 8, 2015

v No. 321059

Montcalm Circuit Court YAHIA MOTAN and MOTAN YAHIA, INC., d/b/a M&S QUICK STOP, LC No. 2013-017405-CK

Defendants/CounterPlaintiffs/Third-Party PlaintiffsAppellants,

and

JAMES M. ANDERSON and J.M. ANDERSON AGENCY, L.L.C.,

Third-Party Defendants-Appellees.

Before: T ALBOT , C.J., and K. F. K ELLY and S ERVITTO , JJ.

P ER C URIAM

.

In this declaratory judgment action, defendants/counter-plaint iffs/third-party plaintiffs Yahia Motan and Motan Yahia, Inc . d/b/a M&S Quick Stop (collect ively “Motan”), appeal as of right the trial court’s order granting summary disposition in favor of both plaintiff/counterdefendant Auto-Owners Insurance Company (“Auto-Owners’) as well as third-party defendants James M. Anderson and J.M. Anderson Agency, LLC (collectively “ Anderson”) pursuant to MCR 2.116(C)(10). We affirm, but remand this case with instruc tions to the trial court to order Auto-Owners to return all prem iums paid to Auto-Owners by Motan

.

The instant litigation concerns a commercial insurance policy entered into between M&S Quick Stop (the insured) and Auto-Owners (the insurer). In lat e June 2012, Najieb Jabbar, an agent of Motan and M&S Quick Stop, contacted James Anderson, an independent insurance agent, indicating that he wanted to purchase insurance for M&S Quick Stop. Subsequently, on July 10, 2012, James Anderson and Jabbar met in person, and Jam es Anderson filled out an application for insurance using information given to him by Jab bar. There is no dispute that,-2- after James Anderson completed the application, Jabbar signed i t without reviewing it for accuracy. There is also no dispute that the application contai ned numerous misrepresentations. For instance, where the applicant is asked if any previous poli cy coverage had been declined, cancelled, or non-renewed in the previous 3 years, Anderson che cked the “no” box. In reality, however, M&S Quick stop had two separate insurance policies can celled or non-renewed within that time frame, including one from Westfield Insurance Company that was non-renewed in July 2011, and a previous Auto-Owners policy that was cancelled in J une 2012 for non-payment of premiums. Next, in several different places on the application , Anderson indicated that M&S Quick Stop had no prior losses or claims. In reality, however, M&S Quick Stop had several previous claims, including one in April 2011 after a vehicle cr ashed into the store. Finally, where the applicant is asked if it had any previous violations, suspensions, or revocations of its liquor license in the previous f ive years, Anderson indicated “ no.” In reality, however, between May 2008 and May 2012, M&S Quick Stop was cited for numerous li quor license violations by the Michigan Department of Li censing and Regulatory Affairs for non-sufficient funds checks.

Based on the representations in the application, Auto-Owners i ssued an insurance policy to M&S Quick Stop on July 10, 2012. Subsequently, however, it sent M&S Quick Stop a notice of cancellation, indicating that t he policy would cease to exis t at 12:01 a.m. on October 6, 2012.

The cancellation was based on the fact that Auto-Owners had lea rned of the previously cancelled Auto-Owners policy.

On September 16, 2012—after the notice of cancellation was sen t but before it became effective—M&S Quick Stop was de stroyed by a fire. Motan subseq uently submitted a claim, but Auto-Owners denied coverage and initiated this action seeking a declaratory judgment that the insurance policy was void by virtue of several additional misre presentations in the application. Motan responded with a counter-c omplaint alleging breach of con tract. It further initiated a third-party complaint against Anderson alleging that he neglige ntly filled out t he application.

The trial court granted summary disposition to Auto-Owners pur suant to MCR 2.116(C)(10), finding that Motan had made material misrepresent ations in the application for insurance which affected Auto-Owners’ acceptance of the risk, s uch that Auto-Owners could properly rescind or void the insu rance policy. The trial court further granted summary disposition in favor of Anderson pursuant to MCR 2.116(C)(10), finding that the misrepresentations in the applic ation were attributable to Mota n rather than Anderson. This appeal followed.

We review de novo a trial court’s decision on a motion for sum mary disposition. BC Tile & Marble Co, Inc v Multi Bldg Co, Inc , 288 Mich App 576, 583; 794 NW2d 76 (2010). A motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint. Maiden v
Rozwood , 461 Mich 109, 120; 597 NW2d 817 (1999). In deciding a motion under MCR 2.116(C)(10), the trial court cons iders affidavits, pleadings, depositions, admissions, and other evidence submitted by the parties in the light most favorable t o the nonmoving party. Id

. “Where the proffered evidence fails to establish a genuine issu e regarding any material fact, the moving party is entitled to judgment as a matter of law.” Id

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With respect to whether summary disposition was appropriate in favor of Auto-Owners, it is well-settled that an insurer may rescind an insurance pol icy because of a material-3- misrepresentation in the application for insurance. Titan Ins Co v Hyten , 491 Mich 547, 558; 817 NW2d 562 (2012); Burton v Wolverine Mut Ins Co , 213 Mich App 514, 517; 540 NW2d 480 (1995). Here, the policy provide d that the coverage would be “ void in any case of fraud by you as it relates to this Coverage Part at any time. It is also vo id if you or any other insured, at any time, intentionally conceal or misrepresent a material fact con cerning . . . the Covered Property[.]”

Motan does not dispute that the application for insurance cont ained numerous misrepresentations. It argues, however, that Auto-Owners waive d its right to rescind or void the insurance policy once it chose, in August 2012, to cancel the p olicy at a specific future date and thereafter required Motan to pay premiums for coverage up to th e effective date of cancellation. We disagree.

We do not dispute the general proposition that an insurer may waive its right to rescission by first seeking cancellation of a n insurance policy on the sam e grounds. See Burton , 213 Mich App at 517-518. However, “a litig ant cannot be held estopped t o assert a defense, or to have waived his right thereto, because of facts he does not know[.]” Titan , 491 Mich at 562, quoting Keys v Pace , 358 Mich 74, 84; 99 NW2d 547 (1959). Here, Auto-Owners basedits cancellation on the fact that Motan had failed to disclose that its previous Auto-Owners policy was cancelled for non-payment. Subsequently, however, Auto-Owners discovered additional misrepresentations, including the failure to disclose the previ ous non-renewal of the Westfield policy and the misrepresentations regarding previous claims and liquor license violations, which prompted it to seek rescission. In other words, the misreprese ntation that formed the basis for Auto-Owners’ decision to cancel the policy was different from t he misrepresentations that formed the basis for its subsequent decision to void the policy . Cf. Burton , 213 Mich App at 517, wherein the insurer discover ed material misrepresentation in the application and chose to

issue a notice of cancellation ba sed on the misrepresentations rather than rescind the contract, then thereafter attempted to r escind the contract based upon th e same material misrepresentations. Because there is no evidence that Auto-Own ers was aware of these additional misrepresentations at the time it cancelled the poli cy (nor did not base its cancellation on the material misrepresentati ons), it did not waive its rightto later rescind or void the policy on those grounds. Titan , 491 Mich at 562.

Motan additionally argues that Auto-Owners was not entitled to rescind or void the policy because there are genuine issues of material fact as to whether the misrepresentations

were material or inten tional. We disagree.

First, as to materiality, “a fact or representation in an appl ication is ‘material’ where communication of it would have had the effect of ‘substantially increasing the chances of loss insured against so as to bring a bout a rejection of the risk or the charging of an increased premium.’ ” Oade v Jackson Nat’l Life Ins Co of Mich , 465 Mich 244, 253-254; 632 NW2d 126 (2001), quoting Keys , 358 Mich at 82. In this case, Auto-Owners provided an affida vit of one of its underwriters, who averred that the misrepresentations were material and that Auto-Owners would not have issued the insurance policy had it been aware of the various misrepresentations. This has been held sufficient to establish materiality. Montgomery v Fidelity & Guaranty Life

Ins Co , 269 Mich App 126, 129; 713 NW2d 801 (2005); Lash v Allstate Ins Co , 210 Mich App 98, 103; 532 NW2d 869 (1995). Second, if the insurer relies on the misrepresentation, rescission-4- is justified regardless of whether the misrepresentation was in nocent or intentional. Lash , 210 Mich App at 103. “Reliance may exist when the misrepresentatio n relates to the insurer’s guidelines for determining eligibility for coverage.” Lake States Ins Co v Wilson , 231 Mich App 327, 331; 586 NW2d 113 (1998), citing Lash , 210 Mich App at 101. Here, it is clear, based on

the affidavit of Auto-Owners’ unde rwriter, that Auto-Owners rel ied upon the misrepresentations in the application to determine that Motan was eligible for ins urance coverage and to determine the premiums to be paid. Given its reliance, Auto-Owners was e ntitled to rescind the insurance policy “even accepting that [the misrepresentations were] innoc ent.” Lash , 210 Mich App at

104. 1 Summary disposition was thus p roperly granted in favor of Aut o-Owners.

Having reached the above conclusion, we nonetheless remand thi s case with instructions to the trial court to order Auto-Owners to return all premiums paid to Auto-Owners by Motan. Rescission, by its very nature, requires restitution because it is based on the idea that the parties should be returned to the status quo. Lash , 210 Mich App at 102; Cunningham v Citizens Ins Co of America , 133 Mich App 471, 479; 350 NW2d 283 (1984). Thus, when an in surer seeks to rescind a contract, it must gene rally return all premiums paid by the insured. See Burton , 213 Mich App at 520. We find that the same applies with respect to Auto-Owners voiding the policy

in this case.

We recognize that Auto-Owners claims that it voided the policy under the explicit voiding clause contained therein, rather than rescind the polic y, and thus was not required to return the premiums. Auto-Owners cites to Cohen v Auto Club Ins Ass'n , 463 Mich 525; 620 NW2d 840 (2001) in support of this position. However, Cohen did not hold that when an insurer voids a policy under explicit po licy language it need not retur n premiums. Cohen did not even address, for that matter, a misrepresentation on an initial app lication for insurance. Nor did any of the other cases cited by Auto-Owners. See Bahri v IDS Prop Cas Ins Co , 308 Mich App 420; 864 NW2d 609 (2014)(fraud in procuring PIP benefits after an ac cident voids coverage); TBCI,

PC v State Farm Mut Auto Ins Co , 289 Mich App 39; 795 NW2d 229 (2010)(same). While these policy-voiding cases did not menti on a return of premiums, it d oes not necessarily follow that the cases stand for the proposition that a return of premiums is ne ver required when a policy is voided. Auto-Owners has provided no authority holding that whe re an applicant makes a material misrepresentation in the application for insurance, su ffers a loss and seeks to enforce the policy, and the insurer thereafte r discovers the misrepresentat ions and seeks to void the policy the premiums should be treated a ny differently than if the insu rer had rescinded the policy.

We are more persuaded by the language in Burton , 213 Mich App at 520, wherein a panel of this Court stated that an insurer cannot earn a premium with out having to provide coverage. “Rather, it must either rescind the policy upon discovery of th e misrepresentation and refund the premium or cancel the policy, retaining the premium earned unti l the effective date of the

1 Moreover, the policy also provi des that “[t]his Coverage Part is void in any case of fraud by you as it relates to this Coverage Part at any time.” There ar e several theories to establish fraud, one of which is innocent misrepresentation. See, e.g

. , M&D Inc v W. B. McConkey , 231 Mich App 22, 26; 585 NW2d 33 (1998).-5- cancellation and provide coverage until the effective date of t he cancellation. But it cannot have its premium and deny coverage too. ” Thus, the trial court erre d in allowing Auto-Owners to void the policy (after it had already issued a notice of cancellatio n) without ordering Auto-Owners to return the premiums.

With respect to whether summary disposition was appropriate in favor of Anderson, we find instructive our opinion in Montgomery , 269 Mich App at 126. In that case, the plaintiff and her husband applied for a life insurance policy with the defend ant insurance company. Montgomery , 269 Mich App at 127. Although the husband had a significant smoking habit, the application for insurance represented that he had not used toba cco within the previous five years.

Id . After the defendant issued the policy, the husband was kille d in a car accident. Id . The plaintiff then filed a claim for life insurance benefits, but t he defendant denied the claim on the basis of the misrepresentation. Id . at 128. On appeal from the tr ial court’s grant of summary disposition to the defendant, th e plaintiff argued that it was the insurance agent, rather than she or her husband, who completed the application, and that neither she nor her husband read the application before signing it. Id . at 129. We found that it was “not material” who misrepresented the husband’s tobacco use on the application bec ause the plaintiff and her husband each signed the applicat ion, thereby attesting that the y had read the questions and answers and that the information provided was complete, true, a nd accurate. Id . at 130. We reiterated the long-standing prin ciple that “[a] contracting pa rty has a duty to examine a contract and know what the party has signed, and the other contracting p arty cannot be made to suffer for neglect of that duty.” Id . (citations omitted). Thus, because the plaintiff and her hus band signed the application after having an opportunity to review it, “ther e was no genuine issue of material fact” that the material misrep resentation was attributable to t he plaintiff and/or her husband. Id

.

The same holds true in this case. Obviously, the parties disp ute whether the misrepresentations in the applic ation resulted from Jabbar prov iding misinformation to James Anderson or from Anderson mischaracterizing the correct informa tion given to him by Jabbar. There is no dispute, however, that after Anderson filled out th e application, Jabbar signed it. By doing so, he ratified that all of the information in the applic ation was complete and accurate. Id

. It is of no import that Jabbar failed to review the application for accuracy before signing it; his signature is valid just the same. Id . Thus, regardless of whether the insurance application was actually completed by Anderson, and regardless of whether Ander son may have mischaracterized some of the information provided to him by Jabbar , the misrepresentations were attributable to Jabbar, not Ande rson. Accordingly, summary dis position was properly granted in

Anderson’s favor.

We affirm the trial court’s order granting summary disposition in favor of Auto-Owners and Anderson, but remand this cas e with instructions to the tri al court to order Auto-Owners to return all premiums paid to Aut o-Owners by Motan. We do not re tain jurisdiction.

/s/ Michael J. Talbot /s/ Kirsten Frank Kelly

/s/ Deborah A. Servitto