Court Opinion

ID: 4655710
Source: CourtListenerOpinion
Date Created: 2021-01-29 10:06:53.694186+00
Date Added: 2024-06-11T08:00:29.796168
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                    revision until final publication in the Michigan Appeals Reports.

                              STATE OF MICHIGAN

                              COURT OF APPEALS

BRIAN WEBB,                                                          FOR PUBLICATION
                                                                     January 28, 2021
                 Plaintiff-Appellee,                                 9:05 a.m.
and

VHS OF MICHIGAN, INC., doing business as
DETROIT MEDICAL CENTER,

                 Intervening Plaintiff-Appellee,

v                                                                    No. 351048
                                                                     Wayne Circuit Court
PROGRESSIVE MARATHON INSURANCE                                       LC No. 18-012887-NF
COMPANY,

                 Defendant-Appellant,
and

MICHIGAN AUTOMOBILE INSURANCE
PLACEMENT FACILITY also known as
MICHIGAN ASSIGNED CLAIMS PLAN,

                 Defendant-Appellee,
and

UNNAMED SERVICING INSURER,

                 Defendant.

Before: JANSEN, P.J., and SERVITTO and RIORDAN, JJ.

JANSEN, P.J.

                                                   -1-
        In this no-fault action, defendant, Progressive Marathon Insurance Company (Progressive)
appeals by leave granted1 the trial court’s order denying Progressive’s motion for summary
disposition under MCR 2.116(C)(10), which sought to rescind coverage on the basis that the
insurance policy at issue was procured by fraud. We reverse, vacate the portion of the trial court’s
order denying Progressive’s motion for summary disposition as to Clark, and remand for further
proceedings consistent with this opinion.

                                       I. BACKGROUND

        This case arises out of a motor vehicle accident that occurred on March 24, 2018, in Detroit,
Michigan. At the time of the accident, plaintiff, Brian Webb, was driving a 2013 Dodge Challenger
registered to his mother, Chirece Clark, and insured in her name. Webb was not listed as a driver
or member of Clark’s household on the policy. Webb spent approximately two weeks in the
hospital after the accident.

         Progressive sought to deny coverage because Clark did not disclose on her application for
insurance that Webb lived with Clark. According to Progressive, Clark’s premiums would have
been 32% higher had Webb’s identity been disclosed. Two telephone call recordings between
Clark and Progressive agents were disclosed during the course of discovery. During the first call,
which occurred on November 23, 2016, Clark did in fact disclose Webb’s identity and residence
in her home. She also disclosed that Webb would be the primary driver of the vehicle. Clark was
soliciting quotes from the agent, but did not purchase a policy at that time. Instead Progressive
emailed Clark a quote at the e-mail address she provided. During the second call, which occurred
on November 30, 2016, the topic of who was in Clark’s household did not come up. However,
when Webb spoke with the insurance agent to make payment for the policy, he told the agent he
was Clark’s “friend.” When Clark eventually submitted the application for insurance, Webb was
not listed as a resident relative in Clark’s home. Clark did not attempt to add Webb as a resident
of her home after receiving the completed application for insurance from Progressive, which she
signed and returned.

        The trial court denied Progressive’s motion for summary disposition, concluding there
were genuine issues of material fact regarding whether Clark committed fraud when submitting
the application for insurance. The trial court also concluded Webb was innocent to Clark’s fraud
and, when balancing the equities between Webb’s need for coverage and Progressive’s desire to
avoid liability, those equities favored Webb.2 This appeal followed.

1
  Webb v Progressive Marathon Ins Co, unpublished order of the Court of Appeals, entered
January 10, 2020 (Docket No. 351048).
2
  In a separate order, the Michigan Automobile Insurance Placement Facility (“MAIPF”) was
dismissed from the case when the trial court granted its motion for summary disposition. That
order has not been appealed.

                                                -2-
                                  II. STANDARD OF REVIEW

        “Appellate review of the grant or denial of a summary-disposition motion is de novo . . . .”
West v Gen Motors Corp, 469 Mich 177, 183; 665 NW2d 468 (2003). This Court “review[s] a
motion brought under MCR 2.116(C)(10) by considering the pleadings, admissions, and other
evidence submitted by the parties in the light most favorable to the nonmoving party.” Latham v
Barton Malow Co, 480 Mich 105, 111; 746 NW2d 868 (2008). “Summary disposition is
appropriate . . . if there is no genuine issue regarding any material fact and the moving party is
entitled to judgment as a matter of law.” West, 469 Mich at 183. “A genuine issue of material fact
exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open
an issue upon which reasonable minds might differ.” Id.

        The interpretation of a contract, such as an insurance policy, is also reviewed de novo.
Reed v Reed, 265 Mich App 131, 141; 693 NW2d 825 (2005); see also Meemic Ins Co v Fortson,
324 Mich App 467, 481; 922 NW2d 154 (2018) (insurance policies are reviewed under standard
principles of contractual interpretation), aff’d on other grounds ___ Mich ___; ___ NW2d ___
(2020) (Docket No. 158302). “When interpreting a contract, such as an insurance policy, the
primary goal is to honor the intent of the parties.” Fortson, 324 Mich App at 481 (quotation marks
and citation omitted).

        Rescission is “granted only in the sound discretion of the court.” Lenawee Co Bd of Health
v Messerly, 417 Mich 17, 26; 331 NW2d 203 (1982). “The trial court abuses its discretion when
its decision falls outside the range of reasonable and principled outcomes.” Berryman v Mackey,
327 Mich App 711, 717; 935 NW2d 94 (2019).

                                         III. ANALYSIS

  A. FRAUDULENT MISREPRESENTATION IN THE PROCUREMENT OF THE POLICY

       Progressive first argues the trial court erred when it concluded that factual issues precluded
summary disposition on the issue of whether Clark committed fraud when submitting her
application for insurance. We agree.

       The elements of fraud in connection with an insurance policy are as follows:

       To establish actionable fraud, [Progressive] bears the burden of proving that (1)
       [Clark] made a material misrepresentation; (2) it was false; (3) when [Clark] made
       it, [she] knew it was false, or else made it recklessly, without any knowledge of its
       truth, and as a positive assertion; (4) [she] made it with the intention that it should
       be acted on by [Progressive]; (5) [Progressive] acted in reliance on it; and (6)
       [Progressive] thereby suffered injury. [Titan Ins Co v Hyten, 491 Mich 547, 571-
       572; 817 NW2d 562 (2012).]

“When there is a question of fact on at least one of the elements, and the insured is not otherwise
entitled to summary disposition, the matter is one for the jury.” Nahshal v Freemont Ins Co, 324
Mich App 696, 719; 922 NW2d 662 (2018).

                                                -3-
        “Rescission is justified in cases of innocent misrepresentation if a party relies upon the
misstatement, because otherwise the party responsible for the misstatement would be unjustly
enriched if he were not held accountable for his misrepresentation.” Lash v Allstate Ins Co, 210
Mich App 98, 103; 532 NW2d 869 (1995). Thus, even if it is true that Progressive completed the
application and Clark did not read it, Progressive was still entitled to an order that Clark committed
fraud in connection with the application for insurance. See Montgomery v Fidelity & Guaranty
Life Ins Co, 269 Mich App 126, 129-130; 713 NW2d 801 (2005) (“Whether it was plaintiff, the
decedent, or the agent who misrepresented the decedent’s tobacco use on the application is not
material because plaintiff and the decedent signed the authorization, stating that they had read the
questions and answers in the application and that the information provided was complete, true, and
correctly recorded.”).

         The evidence of record in this case is clear that Clark committed fraud in the procurement
of the insurance policy at issue. During the first phone call with Progressive’s agent, Clark initially
disclosed that Webb was not only a member of her household, but that Webb would be the primary
driver of the vehicle. Clark asked the agent to run various coverage scenarios in order to find a
better price to insure the Challenger, and even inquired if transferring the title of the vehicle to
Webb’s name only would provide a better insurance rate. Progressive’s agent indicated that the
insurance rate would only drop minimally, because Webb and Clark were members of the same
household. After the call ended, the agent forwarded an insurance quote to the e-mail address
Clark provided. One week later, Clark again called Progressive and spoke to a second agent,
explaining that the quote sent to her via e-mail by the first agent was “way higher” than discussed.
At no point during the second phone call did Clark mention anything about Webb living in her
household or driving the vehicle, and when Webb spoke to the agent to pay the premium, he
identified himself as a friend.

        To be clear, we conclude that Progressive is entitled to rescind its policy as it pertained to
Clark in its entirety: (1) the policy was procured through Clark’s misrepresentation that no one
else lived in her household, and this misrepresentation was material; (2) the representation was
false, as Clark was not the sole member of her household, nor would she be the primary driver of
the vehicle; (3) Clark knew that she was not the sole member of her household and that she was
not the sole driver of the vehicle; (4) Clark made the misrepresentation with the intent that she
would obtain insurance, as evidenced by Clark’s signature on the insurance application that
contained the misrepresentation; (5) Progressive relied on the misrepresentation in issuing the
insurance policy; and (6) Progressive was injured where it would not have ordinarily issued the
policy according to its underwriting guidelines and for a decreased premium as the actual risk of
providing the insurance was not fully contemplated. Titan Ins Co, 491 Mich at 555, 571-572.
Thus, we conclude that Progressive was entitled to summary disposition in its favor on the issue
of whether Clark committed fraud when procuring the policy at issue.

    B. WEBB AS AN INNOCENT PARTY AND THE BALANCING OF THE EQUITIES

       Next, Progressive argues the trial court erred when it concluded that Webb was an innocent
party with respect to Clark’s fraud. Progressive asserts that Webb conspired with Clark to defraud
Progressive, evidenced by Webb’s statement to the insurance agent that he was Clark’s “friend.”
We conclude that a question of fact remains regarding whether Webb participated in the fraudulent

                                                 -4-
procurement of the insurance policy at issue. Accordingly, the trial court erred by finding Webb
was an innocent party and then proceeding to engage in a balancing of the equities analysis.

        Under prior caselaw, “[t]he ‘innocent third party’ rule prohibit[ed] an insurer from
rescinding an insurance policy because of a material misrepresentation made in an application for
no-fault insurance where there is a claim involving an innocent third party.” Sisk-Rathburn v Farm
Bureau Gen Ins Co of Mich, 279 Mich App 425, 430; 760 NW2d 878 (2008). Recently, in Bazzi
v Sentinel Ins Co, 502 Mich 390; 919 NW2d 20 (2018), our Supreme Court addressed the viability
of the innocent-third-party rule in the context of no-fault law. In Bazzi, the plaintiff, the son of the
insured, brought suit against the defendant insurer for PIP benefits. Bazzi, 502 Mich at 396. The
defendant obtained a default judgment against the insured rescinding the policy on the basis of
fraud. Id. The defendant then moved for summary disposition in the trial court with respect to the
plaintiff’s claims, which the trial court denied on the basis of the innocent-third-party rule. Id.
at 397. This Court reversed, concluding “the innocent-third-party rule did not survive this Court’s
decision in Titan because there was no meaningful distinction between the easily-ascertainable-
fraud rule and the innocent-third-party rule and because no statute prohibits an insurer from raising
a fraud defense with respect to PIP benefits.” Id. at 397-398.

        Our Supreme Court agreed with this Court that the innocent-third-party rule was not
applicable. The Court first noted that “[i]n the absence of any applicable statute . . . the rights and
limitations of the coverage are entirely contractual and construed without reference to the statute.”
Bazzi, 502 Mich at 399-400. Our Supreme Court also reiterated that in Titan, it held “ ‘an insurer
is not precluded from availing itself of traditional legal and equitable remedies to avoid liability
under an insurance policy on the ground of fraud in the application for insurance, even when the
fraud was easily ascertainable and the claimant is a third party.’ ” Id. at 403, quoting Titan, 491
Mich at 571. Thus, our Supreme Court conclusively held that Titan abrogated the innocent-third-
party rule in the context of the no-fault act. Bazzi, 502 Mich at 407.

        After reviewing the record evidence in this case, we conclude that a question of fact
remains regarding whether Webb participated in the fraudulent procurement of the insurance
policy at issue. The evidence is clear that during the first phone call between Clark and
Progressive’s agent, Webb spoke directly to Progressive’s agent regarding coverage and the cost
of the policy. Webb also spoke to Progressive’s agent during the second phone call. However,
this time, Webb did not indicate that he would be the primary driver of the vehicle or that he was
a member of Clark’s household. Rather, Webb provided authorization to use his debit card to
purchase the policy. Webb provided Progressive’s agent with his address and phone number, and
identified himself as Clark’s “friend.” Thus, a material question of fact remains regarding whether
Webb participated in the fraudulent procurement of the insurance policy. If a trier of fact answers
that question in the affirmative, then Webb cannot be considered an innocent party, and the trial
court need not engage in any balancing of the equities where Progressive would be entitled to
rescind coverage to Webb. Indeed, our Supreme Court recently explained that “[a]t common law,
the defrauded party could only seek rescission, or avoidance of the transaction, if the fraud related
to the inducement to or inception of the contract.” Meemic Ins Co v Fortson, ___ Mich ___; ___
NW2d ___ (2020) (Docket No. 158302); slip op at 14. Thus, under the no-fault act, an insurer
may only deny all coverage under a policy on the basis of fraud if the policy itself was procured
by fraud. Id. at ___; slip op at 15-16.

                                                  -5-
                                      IV. CONCLUSION

      We reverse, vacate the portion of the trial court’s order denying Progressive’s motion for
summary disposition as to Clark, and remand for further proceedings consistent with this opinion.
We do not retain jurisdiction.

                                                           /s/ Kathleen Jansen
                                                           /s/ Deborah A. Servitto
                                                           /s/ Michael J. Riordan

                                               -6-