Case Name: CUNNINGHAM v. CITIZENS INSURANCE COMPANY OF AMERICA; CUNNINGHAM v. AUTO-OWNERS INSURANCE COMPANY
Court: Michigan Court of Appeals
Jurisdiction: Michigan
Decision Date: 1984-04-02
Citations: 133 Mich. App. 471
Docket Number: Docket Nos. 70392, 70573
Parties: CUNNINGHAM v CITIZENS INSURANCE COMPANY OF AMERICA CUNNINGHAM v AUTO-OWNERS INSURANCE COMPANY
Judges: Before: R. B. Burns, P.J., and V. J. Brennan and J. T. Kallman, JJ.
Reporter: Michigan appeals reports; cases decided in the Michigan Court of Appeals.
Volume: 133
Pages: 471–489

Head Matter:
CUNNINGHAM v CITIZENS INSURANCE COMPANY OF AMERICA CUNNINGHAM v AUTO-OWNERS INSURANCE COMPANY
Docket Nos. 70392, 70573.
Submitted January 4, 1984, at Grand Rapids.
Decided April 2, 1984.
Leave to appeal applied for.
Plaintiff, Gary L. Cunningham, brought actions in the Kalamazoo Circuit Court after he received an injury in an automobile accident. In one action, Court of Appeals Docket No. 70392, plaintiff sought no-fault insurance benefits from defendant Citizens Insurance Company of America, the insurer of his vehicle, and also certain other benefits from defendant Aetna Life Insurance Company pursuant to a group health insurance plan fully self-funded by plaintiffs employer and administered by Aetna pursuant to an administrative service contract. Citizens resisted the claim contending that plaintiffs policy was void ab initio and that the plaintiff was not insured due to his intentional falsification of information in his application for insurance. Citizens discovered such falsification one day after the plaintiffs accident. Plaintiffs insurance binder was effective 24 days before the accident. In another action, Court of Appeals Docket No. 70573, plaintiff alleged that if rescission ab initio on his policy with Citizens is allowed then he is entitled to benefits from defendant Auto-Owners Insurance Company, as the servicing carrier for the assigned claims facility. The circuit court, C. H. Mullen, J., consolidated the actions brought by the plaintiff. In Docket No. 70392 the plaintiff moved for summary judgment against Citizens. The trial court granted plaintiffs motion. Citizens appeals from the judgment and order to that _effect. In Docket No. 70573 Auto-Owners moved for a summary judgment. The trial court granted Auto-Owners’ motion. Plaintiff appeals from the final judgment entered for Auto-Owners. The Court of Appeals consolidated the appeals for its consideration. Held:
References for Points in Headnotes
[1, 2, 4, 9-12] 7 Am Jur 2d, Automobile Insurance §§ 36-38, 45 et seq.
Validity and construction of "no-fault” automobile insurance plans. 42 ALR3d 229.
Compulsory, financial responsibility, or assigned risk automobile insurance. 83 ALR2d 1104.
[3, 7, 8] 7 Am Jur 2d, Automobile Insurance §§ 35, 356.
[5] 73 Am Jur 2d, Summary Judgment §§ 26, 27.
[6] 7 Am Jur 2d, Automobile Insurance §§ 340, 341.
1. The no-fault insurance act does not preclude Citizens from rescinding plaintiff’s policy so that it is void ab initio as a result of plaintiff’s perjury in the procurement of the policy.
2. Sections 3220 and 3224 of the no-fault insurance act address only the cancellation of automobile liability insurance, not its rescission. Those sections serve only as a limitation on the cancellation of policies issued to honest applicants. Section 3224 impliedly recognizes the continuing vitality of common-law rescission.
3. Under the circumstances, the wrongdoer, plaintiff, must suffer the consequences of his actions. Plaintiff’s fraud was discovered in a reasonably timely fashion. Citizens did not unjustifiably delay notifying plaintiff of its decision to rescind the policy.
4. Citizens permissibly rescinded plaintiff’s insurance policy ab initio.
5. Since plaintiff’s deception permitted Citizens to rescind the policy ab initio as to his personal right to collect no-fault benefits, plaintiff’s claim against the assigned claims facility (Auto-Owners) must fail under § 3113(b) of the no-fault insurance act.
The judgment in Docket No. 70392 is reversed and the judgment in Docket No. 70573 is affirmed.
V. J. Brennan, J., dissented from the reversal in Docket No. 70392. It is his belief that to allow an insurer to rescind a policy of automobile liability insurance ab initio would run contrary to the stated policy of the no-fault insurance act and would be incompatible with the compulsory nature of the act. He noted that another panel of the Court of Appeals has rejected the argument that §§ 3220 and 3224 of the act are inapplicable since they relate to cancellations and not rescission ab initio. He would conclude that the facts indicate that Citizens had an opportunity to discover plaintiff’s driving record but neglected to do so promptly. He noted the policy implications of not granting to the plaintiff the relief requested and that it is very conceivable that in many cases a person would make an innocent misrepresentation on an insurance application which could be used to deny him coverage. On the basis of the policy behind our compulsory insurance scheme that "persons who suffer loss due to the tragedy of automobile accidents in this state shall have a source and a means of recovery”, along with the other considerations, he would affirm the summary judgment in Docket No. 70392.
Opinion of the Court
1. Insurance — Automobiles — No-Fault Insurance — Rescission — Perjury.
The no-fault insurance act does not preclude an insurer from rescinding an insurance policy so that it is void ab initio where the policy was procured as a result of the insured’s deliberate and intentional falsification of information in his application for insurance and such fraud was discovered in a reasonably timely manner and the insurer did not unjustifiably delay in notifying the insured of its decision to rescind (MCL 500.3101 et seq.; MSA 24.13101 et seq.).
2. Insurance — Automobiles — No-Fault Insurance — Cancellation — Rescission — Common Law.
The no-fault insurance provisions regarding cancellation of a policy of insurance do not address the rescission of a policy and serve only as a limitation on the cancellation of insurance policies issued to honest applicants; section 3224 of the act impliedly recognizes the continuing validity of common-law rescission (MCL 500.3220, 500.3224; MSA 24.13220, 24.13224).
3. Insurance — Automobiles — No-Fault Insurance.
The no-fault insurance act provides that a person is not entitled to collect personal protection insurance benefits through the assigned claims facility if he is the owner or registrant of a motor vehicle which is involved in the accident resulting in the claim for benefits if he does not possess the required no-fault automobile insurance coverage (MCL 500.3113[b]; MSA 24.13113[b]).
4. Insurance — Automobiles — No-Fault Insurance — Rescission.
A claimant for personal protection insurance benefits pursuant to the no-fault act is not entitled to receive benefits from an insurance company as the servicing carrier for the assigned claims facility where it is determined that the claimant’s policy of no-fault automobile insurance on his vehicle was properly rescinded ab initio as to his personal right to collect no-fault benefits and therefore he did not possess the required no-fault automobile insurance coverage on his vehicle at the time the accident which resulted in his claim occurred (MCL 500.3113[b]; MSA 24.13113[b]).
Dissent by V. J. Brennan, J.
5. Judgments — Summary Judgment — Issues of Material Fact — Court Rules.
Summary judgment should only be granted on the ground that there is no genuine issue as to any material fact where there is no such genuine issue; the court must be satisSed that it is impossible for the claim or defense to be supported at trial because of some deñciency which cannot be overcome (GCR 1963,117.2[3]).
6. Insurance — Automobiles — No-Fault Insurance — Compulsory Insurance.
Michigan’s no-fault automobile insurance act is a compulsory insurance statute, the purpose of which is to ensure compensation to persons injured in automobile accidents (MCL 500.3101 et seq.; MSA 24.13101 et seq.).
7. Insurance — Automobiles — No-Fault Insurance.
The no-fault automobile insurance act requires that the owner or registrant of a motor vehicle maintain security, usually in the form of insurance, for payment of beneñts of personal protection insurance; the owner of a vehicle which is not insured pursuant to the act is not entitled to recover personal protection insurance beneñts under the act (MCL 500.3101[1], 500.3113[b]; MSA 24.13101[1], 24.13113[b]).
8. Insurance — Automobiles — No-Fault Insurance — Failure to Insure.
The operation of a motor vehicle upon a public highway for which vehicle there is not maintained security for the payment of beneñts of personal protection insurance pursuant to the no-fault automobile insurance act constitutes a misdemeanor, punishable by ñne and/or imprisonment (MCL 500.3102[2]; MSA 24.13102[2]).
9. Insurance — Automobiles — No-Fault Insurance — Termination — Notice.
The Insurance Code provisions dealing with the termination of insurance coverage under the no-fault automobile insurance act prohibit an insurer from terminating personal injury protection prior to giving prospective notice to its insured (MCL 500.3220, 500.3224; MSA 24.132220, 24.13224).
10. Insurance — Automobiles — No-Fault Insurance — Termination Ab Initio.
Termination ab initio of a no-fault automobile insurance policy runs contrary to the statutory purpose of requiring that notice be given before a policy could be terminated in order to allow an insured an opportunity to obtain other insurance; termination ab initio runs contrary to such statutory purpose as it leaves the insured without insurance from the time he obtained his initial policy and doesn’t allow that person a reasonable period to obtain other insurance; rescission ab initio is not a remedy available to insurers under Michigan’s compulsory insurance scheme (MCL 500.3224[3]; MSA 24.13224[3]).
11. Insurance — Automobiles — No-Fault Insurance — Cancellation — Rescission Ab Initio.
The no-fault insurance provisions regarding cancellation of a policy of insurance apply to an insurer’s assertion that a policy may be rescinded ab initio (MCL 500.3220, 500.3224; MSA 24.13220, 24.13224).
12. Insurance — Automobiles — No-Fault Insurance — Misrepresentations by Insured — Public Policy.
A person who makes misrepresentations on an application for no-fault automobile insurance may be allowed to recover beneñts under the policy which he has obtained through those misrepresentations in the furtherance of the policy behind the compulsory insurance scheme that "persons who suffer loss due to the tragedy of automobile accidents in this state shall have a source and means of recovery”.
William R. Oudsema, for plaintiff.
Lilly, Domeny & Durant, P.C. (by Jeffrey E. Gwillim and Terrence J. Lilly), and Dykema, Gos-sett, Spencer, Goodnow & Trigg (by Robert H. Gorlin and Richard A. Barr), for Citizens Insurance Company of America.
Howard & Howard, P.C. (by James H. Geary), for Auto-Owners Insurance Company.
Early, Lennon, Peters & Crocker (by John T. Peters, Jr.), for Aetna Life Insurance Company.
Before: R. B. Burns, P.J., and V. J. Brennan and J. T. Kallman, JJ.
Circuit judge, sitting on the Court of Appeals by assignment.

Opinion:
J. T. Kallman, J.
Plaintiff filed his action in Docket No. 70392 in the Kalamazoo County Circuit Court, seeking no-fault insurance benefits. Citizens Insurance Company of America resisted the claim, contending that plaintiff was not covered by a policy of no-fault insurance. Plaintiff moved for summary judgment pursuant to GCR 1963, 117.2, subds (1), (2), and (3). After a hearing, the trial court granted plaintiffs motion under GCR 1963, 117.2(3). Citizens now appeals as of right.
The plaintiff in this case, in September of 1981, deliberately and intentionally falsified his application for insurance through Jim Madden Associates, Inc., with Citizens. When asked whether he had been convicted of drunk driving within the last five years, plaintiff answered "no", although he had, in fact, been so convicted in March, 1980. The independent insurance agent issued a binder based on this fraudulent application. The insurance company began its routine investigation into plaintiffs driving record. On October 5, 1981, Citizens discovered plaintiff had lied and had falsely sworn to the truth of his driving record in the application.
Plaintiff was injured in an accident which occurred on October 4, 1981, one day before Citizens had knowledge of plaintiffs wrongdoing. It was too late to undo the accident. The binder was effective on September 11, 1981, or 24 days before the accident. On October 22, 1981, Citizens notified plaintiff that it was rescinding his policy, returned his premiums, and stated that it would not pay him no-fault benefits.
Had innocent third parties been seriously injured in a collision with plaintiff's vehicle, we believe that public policy would compel us to hold that coverage for the accident existed, at least for these third parties. See State Farm Mutual Automobile Ins Co v Kurylowicz, 67 Mich App 568; 242 NW2d 530 (1976), lv den 397 Mich 827 (1976). In fact, however, in this case we are not concerned with the rights of third parties but, rather, with whether a person should be entitled to collect no-fault benefits when his policy of insurance has been procured through his personal fraud.
We see no distinction between this case and State Farm Mutual Automobile Ins Co v Allen, 50 Mich App 71; 212 NW2d 821 (1973). Here, plaintiff signed an affidavit that was false, untrue and fraudulent. There was no mistake or ministerial error but, rather, an outright lie. The plaintiff's actions were dishonest. In Allen, there was forgery of the insured's name on the insurance policy. In this case, plaintiff committed perjury. Perjury is a felony. Forgery is a felony. If one cannot profit or benefit from a forgery, should one profit or benefit from perjury? We see no distinction of merit between the two. Public policy should not protect a wrongdoer from his own actions at the expense of an innocent third party.
To permit a false and fraudulent application to bind an insurance company will result in protective measures being taken by the insurance industry. If plaintiffs argument is accepted, one can readily foresee the day when agents will no longer be allowed to issue binders by the companies they represent. One who applies for insurance will have to wait until final acceptance and approval is received from the home office. This may take weeks. We do not believe that those who obey the law and are honest in their dealings should be forced to suffer adverse consequences because of a few wrongdoers' fraudulent acts. Public policy protects those who do right; the courts need not be overly solicitous of those persons who attempt to perpetrate fraud in their contractual relationships.
We do not agree that any provision in the no-fault act, MCL 500.3101 et seq.; MSA 24.13101 et seq., precludes Citizens from rescinding plaintiff's policy so that it is void ab initio. MCL 500.3220; MSA 24.13220 and MCL 500.3224; MSA 24.13224 which plaintiff argues act to bar Citizens' right to rescind the policy ab initio, address only the can cellation of automobile liability insurance, not its rescission. There is an important difference between rescission and cancellation which was noted by the Michigan Supreme Court in Wall v Zynda, 283 Mich 260, 264; 278 NW 66 (1938):
" 'To rescind a contract is not merely to terminate it, but to abrogate and undo it from the beginning; that is, not merely to release the parties from further obligation to each other in respect to the subject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made. Rescission necessarily involves a repudiation of the contract and a refusal of the moving party to be further bound by it. But this by itself would constitute no more than a breach of the contract or a refusal of performance, while the idea of rescission involves the additional and distinguishing element of a restoration of the status quo.' 1 Black on Rescission and Cancellation (2d ed), § 1."
In our opinion MCL 500.3220; MSA 24.13220 and MCL 500.3224; MSA 24.13224 serve only as a limitation on the cancellation of insurance policies issued to honest applicants. In Allen, supra, p 80, this Court accepted this proposition, when it held:
"Dodds and Kendall contend that the trial judge erred in denying their motions asserting that under MCL 500.3220; MSA 24.13220 State Farm could not cancel its insurance policy with Allen. This statute, restricting an insurer's power to cancel a policy of insurance, does not limit the court's power to declare a policy inoperative because of fraud or forgery."
Moreover, we believe that MCL 500.3224; MSA 24.13224 impliedly recognizes the continuing vitality of common-law rescission. Subsection 1 of § 3224 states that "[failure to disclose the cancellation by any insured upon any application for insurance shall not be grounds to deny coverage on the basis of fraud by an insurer who may have accepted the risk thereafter". The very fact that the Legislature specifically provided that this type of misrepresentation does not permit the insurer to deny coverage impliedly recognizes that other fraudulent statements or misrepresentations do permit the insurer to rescind the coverage, that is, "to deny coverage".
This is not a case in which the insurer unjustifiably delayed notifying plaintiff of its decision to rescind his policy. Here, the accident had already occurred before Citizens learned of plaintiffs fraud, and this fraud was discovered in a reasonably timely fashion. Under these circumstances, the wrongdoer, plaintiff, must suffer the consequences of his actions.
Because we hold that Citizens permissibly rescinded plaintiffs insurance policy ab initio, we turn to the issue raised in Docket No. 70573. There, plaintiff argues that if rescission ab initio is allowed, then he is entitled to benefits from Auto-Owners Insurance Company, as the servicing carrier for the assigned claims facility. Pursuant to MCL 500.3113(b); MSA 24.13113(b), a person is not entitled to collect personal protection insurance benefits through the assigned claims facility if he is the owner or registrant of a motor vehicle which is involved in an accident and if he does not possess the required no-fault automobile insurance coverage. Since we conclude that plaintiffs deception permitted Citizens to rescind the policy ab initio as to his personal right to collect no-fault benefits, we believe that plaintiffs claim against the assigned claims facility must fail under MCL 500.3113(b); MSA 24.13113(b).
The judment in Docket No. 70392 is reversed and the judgment in Docket No. 70573 is affirmed.
R. B. Burns, P.J., concurred.
The dissent claims it is very conceivable that in many cases a person might make an innocent misrepresentation on an insurance application which could deny him coverage in the event of an accident. The issue of innocent misrepresentation is not before the Court at this time. We decline to address the hypothetical issue raised by the dissent.
Although this issue has not been extensively addressed, we acknowledge that some authority exists for the proposition that a policy of automobile insurance, issued in a state which mandates that insurance coverage, cannot be rescinded as void ab initio even as to the insured who fraudulently obtained that policy. At the same time, at this juncture, there appears to be no clear majority of decisions going either way and some cases have allowed rescission ab initio as to the insured who has fraudulently obtained the coverage, but not as to innocent third parties. See, e.g., State Farm Mutual Automobile Ins Co v Wall, 92 NJ Super 92; 222 A2d 282 (1966). The ALR annotation cited by the dissent is limited in its scope to whether an insurer who issues a policy in a state mandating compulsory insurance can avoid coverage to third parties by rescinding the policy. It does not collect cases discussing the insurer's right vis-á-vis the insured.
To the extent that Kurylowicz, supra, p 574, can be read as standing for the premise that after injury or damage an automobile insurance policy becomes absolute, we specifically disagree with it. Both pre-no-fault decisions from this state and decisions from jurisdictions which do not mandate compulsory insurance coverage allow an insurer to rescind ab initio an automobile insurance liability policy even where this affects the rights of third parties. See Keys v Pace, 358 Mich 74; 99 NW2d 547 (1959). See, also, inter alia, Fireman's Fund Ins Co v Knutsen, 132 Vt 383; 324 A2d 223 (1974); Utica Mutual Ins Co v National Indemnity Co, 210 Va 769; 173 SE2d 855 (1970); Governmental Employees Ins Co v Chavis, 254 SC 507; 176 SE2d 131 (1970).
Although phrased as not restricting "the court's power to declare a policy" void ab initio, the Allen Court's decision had the effect of upholding plaintiffs rescission of the insurance policy.