350 F. Supp. 3d 631
E.D. Mich.2018Background
- In February 2017 Erich Purry (with his wife) bought 11175 Rossiter St., Detroit, by quitclaim deed from an impostor posing as Iesha/Lesha Kurtz; the true owner was Bee Property Management per an earlier recorded deed.
- Plaintiffs repaired the property, leased it to a tenant, and on March 1, 2017 applied for a State Farm Rental Dwelling policy. On the application they listed "ownership type" as "individual."
- State Farm issues Rental Dwelling policies only to property owners; the application did not explicitly ask "do you own this property?" but asked ownership type.
- A fire occurred on May 21, 2017; State Farm investigated, learned Plaintiffs were not the recorded owners, and rescinded the policy, denying coverage.
- Plaintiffs sued for breach of contract and violation of the Michigan Uniform Trade Practices Act; State Farm moved for summary judgment arguing Plaintiffs made a material misrepresentation entitling rescission.
- The court granted summary judgment for State Farm, holding the misrepresentation was material, innocent misrepresentations can support rescission, and policy language limited to intentional misrepresentation did not waive equitable rescission for innocent misrepresentation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was Plaintiffs' answer "individual" a misrepresentation of ownership type? | "Individual" accurately stated ownership type and did not necessarily imply legal ownership. | Answer implied ownership and was factually incorrect because Bee Property Management was the owner. | Misrepresentation: Plaintiffs' "individual" answer was a misrepresentation. |
| Was the misrepresentation material? | Plaintiffs had insurable interest and maintained the property, so non-ownership did not increase insurer's risk. | State Farm would not have issued the policy to a non-owner; knowledge of non-ownership would have caused rejection. | Material: The misrepresentation was material because State Farm would have rejected the risk. |
| Can innocent (good-faith) misrepresentation be grounds for rescission? | Plaintiffs relied on cases saying good-faith mistakes (esp. in life-insurance contexts) bar rescission. | Insurers may rescind for innocent misrepresentations; Michigan precedent allows equitable relief for innocent misstatements. | Rescission allowed for innocent material misrepresentations; Plaintiffs also had constructive notice and should have known. |
| Does policy language limiting voidance to "intentional" misrepresentation waive rescission for innocent misrepresentation or limit remedies to cancellation? | Because the policy void provision references only "intentionally concealed or misrepresented," State Farm waived rescission for innocent misrepresentations; cancellation provision controls. | Contractual language does not waive equitable right to rescind for innocent misrepresentation; cancellation option does not foreclose rescission. | No waiver: Policy language did not waive State Farm's equitable right to rescind for innocent material misrepresentation; rescission was appropriate. |
Key Cases Cited
- Lake States Ins. Co. v. Wilson, 231 Mich. App. 327 (holding material misrepresentation on an insurance application permits rescission)
- United States Fidelity & Guaranty Co. v. Black, 412 Mich. 99 (innocent misrepresentation can support equitable relief/rescission)
- Lash v. Allstate Ins. Co., 210 Mich. App. 98 (rescission may be justified for innocent misrepresentation when relied upon)
- Oade v. Jackson Nat'l Life Ins. Co. of Mich., 465 Mich. 244 (definition of materiality in insurance applications)
- Titan Ins. Co. v. Hyten, 491 Mich. 547 (elements for actionable fraud under Michigan law)
- AMI Stamping LLC v. ACE Am. Ins. Co., [citation="709 F. App'x 354"] (Michigan law distinguishes contractual right to void for intentional misrepresentation from equitable rescission for innocent misrepresentation)
- Franklin Life Ins. Co. v. William J. Champion & Co., 350 F.2d 115 (life-insurance context on "good health" misstatements; distinguished by the court)
- Burton v. Wolverine Mut. Ins. Co., 213 Mich. App. 514 (insurer's choice between cancellation and rescission does not eliminate the right to rescind)