Court Opinion

ID: 4667083
Source: CourtListenerOpinion
Date Created: 2021-03-12 10:09:28.510139+00
Date Added: 2024-06-11T08:02:53.461703
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

PIONEER STATE MUTUAL INSURANCE                                         UNPUBLISHED
COMPANY,                                                               March 11, 2021

               Plaintiff-Appellee,

v                                                                      No. 348917
                                                                       Calhoun Circuit Court
ANDREW LYNN FRANTZ,                                                    LC No. 2018-000311-CZ

               Defendant-Appellant.

Before: STEPHENS, P.J., and SAWYER and BECKERING, JJ.

PER CURIAM.

        Andrew Lynn Frantz (Defendant) appeals as of right the circuit court’s declaratory
judgment stating that the policy of insurance issued by Pioneer State Mutual Insurance Company
(Plaintiff) to defendant (Policy Number: PA00232999) was void ab initio and that plaintiff had no
obligation to defend or indemnify defendant in an underlying tort suit. For the reasons stated
below, we affirm in part, reverse in part, vacate in part, and remand.

                                         I. BACKGROUND

         Defendant’s daughter, Abbey, filed a claim against the plaintiff insurer for personal injury
protection (PIP) benefits after she was involved in an accident in November 2015, when she was
a passenger in a vehicle insured under a policy between plaintiff and defendant. A friend of
Abbey’s, Austin Cable, was the vehicle driver. Abbey made a claim for PIP benefits under
defendant’s insurance and separately sued Cable and defendant for negligent operation of the
vehicle. Defendant requested plaintiff provide him with a defense and indemnification against the
tort suit; plaintiff had done so, under a reservation of rights. It was during plaintiff’s investigation
of the PIP claim and the underlying tort suit that it discovered that Abbey was not a named driver
under the insurance policy.

        That discovery precipitated plaintiff’s complaint for a declaratory judgment that asked the
trial court: (1) to declare the insurance policy void ab initio and that plaintiff had no obligation to
defendant or to indemnify defendant in the underlying tort suit; and (2) grant it rescission based

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on defendant’s misrepresentation of the number of drivers driving the insured vehicles. After a
bench trial, the trial court granted rescission.

       The following facts were undisputed. Defendant first applied for insurance with plaintiff
in August 2014 for four vehicles: a 2010 Ford Fusion, 2011 Honda CR-V, 2004 Ford F150, and
2006 Lexus RX 400 Hybrid. In response to the application request to list the names of all
household and non-household drivers of all the vehicles, defendant identified himself, his wife,
Shelly Frantz (Shelly), and their son, Andrew Frantz (Andrew). The policy was renewed in August
2015 with the same number of vehicles and drivers.

                                II. DECLARATORY JUDGMENT

                                   A. STANDARD OF REVIEW

       We review de novo a trial court’s decision in a declaratory judgment action. Flanders
Indus, Inc v Michigan, 203 Mich App 15, 20; 512 NW2d 328 (1993). We review its factual
findings for clear error. Ter Beek v City of Wyoming, 297 Mich App 446, 452; 823 NW2d 864
(2012). “A finding is clearly erroneous when, although there is evidence to support it, the
reviewing court on the entire record is left with the definite and firm conviction that a mistake has
been committed.” Home-Owners Ins Co v Perkins, 328 Mich App 570, 579; 939 NW2d 705
(2019) (citation omitted). “To the extent a factual determination turns on the credibility of a
witness, this Court generally defers to the trial court.” Andrusz v Andrusz, 320 Mich App 445,
455; 904 NW2d 636 (2017).

       We also review de novo issues of contract interpretation. Titan Ins Co v Hyten, 491 Mich
547, 553; 817 NW2d 562 (2012).

        We review the trial court’s decision to grant or deny the remedy of rescission for an abuse
of discretion. Pioneer State Mut Ins Co v Wright, 331 Mich App 396,405; 952 NW2d 586 (2020).
“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).

                                    B. MISREPRESENTATION

       Defendant first argues that it was error for the trial court to grant plaintiff rescission on the
basis of innocent misrepresentation when plaintiff failed to show defendant’s intent to defraud.
We disagree.

                             1. INNOCENT MISREPRESENTATION

        “A claim of innocent misrepresentation is shown if a party detrimentally relies upon a false
representation in such a manner that the injury suffered by that party inures to the benefit of the
party who made the representation.” M&D, Inc v WB McConkey, 231 Mich App 22, 27; 585
NW2d 33 (1998). Contrary to defendant’s contention, innocent misrepresentation is a proper basis
upon which to grant rescission “without regard to the intentional nature of the misrepresentation,
as long as it is relied upon by the insurer.” 21st Century Premier Ins Co v Zufelt, 315 Mich App
437, 446; 889 NW2d 759 (2016) (quotation marks and citation omitted). “Rescission is justified
in cases of innocent misrepresentation if a party relies upon the misstatement, because otherwise

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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). “Reliance may exist when the misrepresentation relates to the insurer’s guidelines for
determining eligibility for coverage.” 21st Century Premier Ins Co, 315 Mich App at 446
(quotation marks and citation omitted). “It is unnecessary to prove that the party making the
representation had knowledge that it was false.” Roberts v Saffell, 280 Mich App 397, 404; 760
NW2d 715 (2008). “[C]ontrary to fraudulent misrepresentation, a plaintiff asserting an innocent
misrepresentation claim need not prove that the defendant intended to deceive the plaintiff into
relying on the false or misleading representation.” Id. at 405.

        The trial court did not err in finding that defendant misrepresented the number of drivers
on the application for insurance when he failed to disclose Abbey as the driver of the CR-V.
Defendant answered twice, once in the application and again in the supplemental policy questions,
that there were no drivers outside the household using the insured vehicles. Defendant contends
that those responses were not false at the time of signing the application, because Abbey was not
driving the CR-V when she lived outside the home. The record supports a contrary conclusion.
Defendant testified that at the time he acquired the CR-V in March 2014, he intended it to be for
Abbey. He testified that he was the primary driver of the F150 and only drove the CR-V if
something was wrong with his vehicle, which he estimated happened approximately three times.
Of the 55,000 miles that were driven on the CR-V after defendant acquired title, defendant
estimated to having only driven 300 of them. Abbey testified that she drove the CR-V whenever
she wanted, drove it back and forth to work, and had her own set of keys. Thus, the trial court’s
fact finding that Abbey was a driver of the CR-V as of the signing of the 2014 application for
insurance was not clearly erroneous.

         The record also supports the trial court’s finding that the plaintiff detrimentally relied on
the defendant’s insurance application which omitted Abbey as a driver. Plaintiff’s underwriter
testified that insurance rates were calculated based upon the number of drivers, their ages, driving
records, how they used the vehicle, and how far the vehicles were driven. Abbey, it was disclosed,
had numerous traffic citations. The plaintiff rated the insurance risk with incomplete information
and the defendant ultimately benefitted from his failure to disclose Abbey’s status as a driver
whether in the household or outside of it. Defendant argues that he did not have the intent to
deceive plaintiff; it was his testimony that he honestly believed he was insuring vehicles and that
he did not believe he was required to disclose Abbey’s access to and use of the CR-V because she
did not live in the household and instead resided with her boyfriend and his father. We note that
there was evidence to the contrary because the boyfriend’s father denied that assertion. However,
since the plain language of the application asked for disclosure of both household and non-
household drivers, the failure to list Abbey was false regardless of her residence because she was
in fact a regular driver. Defendant’s intent in making the misrepresentation was irrelevant to
establishing innocent misrepresentation. We find no error.

                          2. FRAUDULENT MISREPRESENTATION

       The court also found that rescission was justified under a theory of fraudulent
misrepresentation. To prove fraudulent misrepresentation, plaintiff must show:

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       (1) the defendant made a material representation; (2) the representation was false;
       (3) at the time the defendant made the representation, the defendant knew the
       representation was false, or made it recklessly, without knowledge of its truth as a
       positive assertion; (4) the defendant made the representation with the intention that
       the plaintiff would act upon it; (5) the plaintiff acted in reliance upon it; and (6) the
       plaintiff suffered damage. [M & D, Inc v WB McConkey, 231 Mich App 22, 27;
       585 NW2d 33 (1998).]

“A misrepresentation on an insurance application is material if, given the correct information, the
insurer would have rejected the risk or charged an increased premium.” Montgomery v Fid &
Guar Life Ins Co, 269 Mich App 126, 129; 713 NW2d 801 (2005). This is because “[a]n insurer’s
evaluation of the likelihood of a factor increasing the risk of loss affects its decision to enter into
a contract.” Id.

        As noted above, the failure to disclose Abbey’s use of the CR-V was a significant factor in
rating the policy. Her use of the vehicle was known by the defendant and his list of “all drivers”
was thus, inaccurate when he produced the application in 2014. Defendant testified that he would
have disclosed Abbey’s existence if his insurance agent had asked him about the primary driver of
the CR-V. There was evidence that the agent did in fact make that inquiry. The representative
from the insurance agency testified that the habit, practice, and routine of their agents was to have
the agent ask direct questions of the applicant on the information required in the application which
included the names of all household and non-household drivers of each insured vehicle. The court
resolved the factual dispute regarding whether the defendant was asked about all drivers and
knowingly omitted Abbey against the defendant based upon competent evidence. We defer to the
trial court’s determination of credibility. Plaintiff also had the burden to establish that the
intentional misrepresentation by omission was made with the intent that the insurer relied on the
omission. While there was no direct evidence on the defendant’s intent, the trial court did not
clearly err in concluding that the defendant had the requisite intent based upon circumstantial
evidence. Houston v Mint Group, LLC, ___ Mich App ___, ___; ___ NW2d ___ (2021), slip op
at 10 (“But intent can plainly be established by conduct and circumstantial evidence.”). See Krolik
v Lang, 187 Mich 286, 291; 153 NW 686 (1915) (“It is an elementary rule that much latitude may
be allowed in admission of circumstantial evidence in cases where fraud is charged[.]”) The
defendant’s argument that he never read the policy application that he signed is of no defense
either, as he is charged with knowledge of its terms and his signature attested to the fact that he
represented the information contained in the policy to be accurate.1 As we noted above, there is

1
  See Montgomery v Fid & Guar Life Ins Co, 269 Mich App 126, 130; 713 NW2d 801 (2005)
(internal citations omitted) (“A contracting party has a duty to examine a contract and know what
the party has signed, and the other contracting party cannot be made to suffer for neglect of that
duty. Regardless of who actually completed the application, plaintiff and decedent both signed the
authorization, attesting to the completeness and truth of the answers, after the application was
completed.”). In this case, the following paragraph directly preceded defendant’s signature on the
application:

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record support for the conclusion that the plaintiff did rely on the misrepresentations to its
economic detriment.

       Accordingly, the trial court did not err in finding that the policy between plaintiff and
defendant was void ab initio due to the fraudulent manner in which it was entered and that plaintiff
was entitled to seek a declaratory judgment rescinding the insurance policy on the bases of
innocent and fraudulent misrepresentation.

                                          B. RESCISSION

       Defendant next argues that rescission was not the appropriate remedy after finding that the
insurance policy was void ab initio. We agree with this argument, in part.

        “Fraud in the inducement to enter a contract renders the contract voidable at the option of
the defrauded party....” 5A Michigan Civil Jurisprudence, Contracts, § 44, p. 215. “For that
reason, an insurance policy procured by fraud may be declared void ab initio at the option of the
insurer.” Bazzi v Sentinel Ins Co, 502 Mich 390, 408; 919 NW2d 20 (2018). Here, the insurance
policy contained a provision for fraud that read:

        The entire policy will be void if, in obtaining or maintaining this policy, or
        whether before or after a loss, you, an “insured”, a “family member” or any other
        person seeking coverage has:

        1. Intentionally concealed or misrepresented any material fact or circumstance;

        2. Engaged in fraudulent conduct; or

        3. Made false statements; relating to this insurance.

“[I]t is well settled that an insurer is entitled to rescind a policy ab initio on the basis of a material
misrepresentation made in an application for no-fault insurance.” 21st Century Premier Ins Co,
315 Mich App at 445-446. Rescission however, is an equitable remedy that is granted as a matter
of grace in the sound discretion of the trial court; the remedy is not as a matter of right. Bazzi, 502
Mich at 409. In other words, “[t]he fact that the rescission of a contract is an available remedy

        WARNING: MISREPRESENTATION MAY VOID COVERAGE

        The foregoing is a complete and accurate representation of the information sought
        by this application. I understand that if the foregoing is incomplete or incorrect or
        if I fail to provide material rating or eligibility information as requested at any
        future time, coverage may be terminated. Any questions I have been unable to
        accurately answer, have been so noted and I authorize Pioneer to obtain all available
        reports of driving history.

        I have read the above application and I declare that to the best of my knowledge
        and belief that all of the foregoing statements are true.

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does not lead to the conclusion that it is required”. 12A CJS, Cancellation of Instruments, § 11, p.
507. For example, “rescission should not be granted in cases where the result thus obtained would
be unjust or inequitable.” Amster v Stratton, 259 Mich 683, 686; 244 NW 201 (1932). Rather,
Bazzi instructs that “[w]hen a plaintiff is seeking rescission, the trial court must balance the equities
to determine whether the plaintiff is entitled to the relief he or she seeks.” 502 Mich at 410
(citation and quotation marks omitted). Here, plaintiff sought and was granted two forms of relief:
(1) rescission, and (2) a declaration that it had no obligation to defend or indemnify defendant. On
remand, the trial court must discern whether equity entitles plaintiff to be released from its
contractual obligation to defend and indemnify defendant.

        Bazzi’s holding further instructed that when an insurance company seeks rescission of an
insurance policy for which a third-party claim exists, the trial court is also required to determine
whether rescission of the insurance policy is available for the third-party claim. 502 Mich at 411-
412. “Rescission abrogates a contract and restores the parties to the relative positions that they
would have occupied if the contract had never been made.” Id. at 409-410. “Unless rescinded, a
voidable contract imposes on the parties the same obligations as if it were not voidable.” 1
Williston, Contracts (4th ed), § 1:20, p 76. When two equally innocent parties are affected, the
court is “required, in the exercise of [its] equitable powers, to determine which blameless party
should assume the loss....” Lenawee Co Bd of Health v Messerly, 417 Mich 17, 31; 331 NW2d
203 (1982). “[W]here one of two innocent parties must suffer by the wrongful act ... of another,
that one must suffer the loss through whose act or neglect such third party was enabled to commit
the wrong.” Zucker v Karpeles, 88 Mich 413, 430; 50 NW 373 (1891). “The doctrine is an
equitable one, and extends no further than is necessary to protect the innocent party in whose favor
it is invoked.” Id. Here, the trial court did not undertake analysis to determine the effect of
rescission on Abbey’s PIP claim under the insurance policy.

        Consequently, the declaratory judgment voided the policy ab initio making it so that
plaintiff also had no obligation to Abbey. Accordingly, we remand this matter to the trial court so
that it can determine whether rescinding the insurance policy as between plaintiff and Abbey
would be equitable.

        We reject defendant’s argument that the proper remedy in this case is to allow him to pay
plaintiff the difference in the premium had Abbey been included on the policy which amounted to
approximately $380. In support of this solution, defendant relies on the following insurance policy
provision:

        CHANGES

        A. This policy contains all the agreements between you and us. Its terms may not
        be changed or waived except by endorsement issued by us.

        B. If there is a change to the information used to develop the policy premium, we
        may adjust your premium. Changes during the policy term that may result in a
        premium increase or decrease include, but are not limited to, changes in:

        1.   The number, type or use classification of insured vehicles;

        2.   Operators using insured vehicles;

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       3.   The place of principal garaging of insured vehicles;

       4.   Coverage, deductible or limits.

       If a change resulting from A. or B. requires a premium adjustment, we will
       make the premium adjustment in accordance with our manual rules.

Defendant’s reliance on this provision is misplaced. Plainly read, the provision applies to changes
made during the policy term. The provision is inapplicable where defendant’s failure to disclose
occurred during the application for insurance. Further, defendant failed to report Abbey at any
time during the policy period so that an increase in the premium could have taken effect.

        We affirm the trial court’s findings that defendant’s fraudulent misrepresentation in the
application for insurance made the policy void ab initio. We reverse the trial court’s declarations
that the plaintiff had no obligation to indemnify or defend defendant in the underlying tort suit and
remand for the trial court to conduct a hearing under Bazzi as to defendant’s rights for defense and
indemnification. We vacate the trial court’s order rescinding the insurance policy and remand the
issue of rescission to the trial court for it to balance the equities concerning Abbey’s claim. We
do not retain jurisdiction.

                                                              /s/ Cynthia Diane Stephens
                                                              /s/ David H. Sawyer
                                                              /s/ Jane M. Beckering

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