Farm Bureau General Insurance Co v. Ace American Insurance Co
329585
| Mich. Ct. App. | Jan 19, 2017Background
- On May 22, 2013, pedestrian Robynn Rueckert was injured by a truck insured by Ace American Insurance Company (Ace).
- Earlier in 2013, Mark Rueckert and Maryan Petoskey obtained an auto policy from Farm Bureau; Farm Bureau sent notice cancelling the policy effective May 25, 2013 for missing application information.
- The accident occurred before the cancellation took effect; Robynn filed a no-fault PIP claim against the Farm Bureau policy and Ace’s insured.
- After the loss, Farm Bureau discovered material misrepresentations/omissions in the application (missing spouse info; false answers about valid licenses, DUI convictions, and uninsured vehicle use) and rescinded the policy from inception.
- Dispute: whether Farm Bureau’s prior cancellation barred it from later rescinding, whether the misrepresentations were material and made by applicants (or their agent), and whether the innocent-third-party rule protects Robynn.
- Trial court granted summary disposition to Ace; the Court of Appeals reversed and remanded, concluding Farm Bureau was entitled to rescind despite the earlier cancellation and that Bazzi controlled on the innocent-third-party point.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Farm Bureau may rescind the policy after earlier cancelling it for missing info | Farm Bureau: cancellation was for missing information; later discovery of distinct, material misrepresentations permits rescission | Ace: having cancelled, Farm Bureau cannot change course and rescind | Held: Rescission allowed; cancellation on a different, earlier basis does not preclude later rescission when new, distinct misrepresentations are discovered |
| Whether application contained material misrepresentations justifying rescission | Farm Bureau: false/omitted answers (license status, DUIs, uninsured vehicle use, missing spouse data) were material and induced issuance | Ace: applicants or agent made no actionable fraud; some misstatements may be agent errors or not attributable to applicants | Held: Material misrepresentations existed; applicants signed and are charged with their representations; innocent misrepresentation suffices for rescission |
| Whether Farm Bureau relied on the misrepresentations such that rescission is justified | Farm Bureau: investigator testified the misrepresentations affected issuance | Ace: disputes reliance and materiality | Held: Court found no genuine factual dispute that Farm Bureau relied and would have refused coverage |
| Whether innocent-third-party rule prevents rescission as to Robynn | Ace: Robynn was uninvolved in application and should be protected as an innocent third party | Farm Bureau: Bazzi controls to reject the innocent-third-party protection | Held: Under controlling Bazzi precedent, the innocent-third-party rule no longer bars rescission; court followed Bazzi and rejected Ace’s alternative argument |
Key Cases Cited
- Maiden v. Rozwood, 461 Mich. 109 (Mich. 1999) (standard of review for motions under MCR 2.116)
- Klapp v. United Ins. Group Agency, Inc., 468 Mich. 459 (Mich. 2003) (contract interpretation reviewed de novo)
- Burton v. Wolverine Mut. Ins. Co., 213 Mich. App. 514 (Mich. Ct. App. 1995) (insurer may rescind after discovery of material misrepresentation, but may not rescind if it instead cancelled upon discovery)
- Titan Ins. Co. v. Hyten, 491 Mich. 547 (Mich. 2012) (limits on estoppel; innocent misrepresentation can support rescission)
- Oade v. Jackson Nat’l Life Ins. Co. of Mich., 465 Mich. 244 (Mich. 2002) (definition of material misrepresentation in insurance applications)
- Lash v. Allstate Ins. Co., 210 Mich. App. 98 (Mich. Ct. App. 1995) (rescission justified where party relied on misstatement)
- Montgomery v. Fidelity & Guaranty Life Ins. Co., 269 Mich. App. 126 (Mich. Ct. App. 2005) (duty to read and know contents of signed application)