Relief Physical Therapy & Rehab v. Hartford Insurance Co
328265
| Mich. Ct. App. | Nov 22, 2016Background
- Kassem Koubise was injured while driving a 2005 Hyundai titled and registered in his name; the car was insured under a commercial policy issued to Koubise Construction, Inc.
- Ali Koubise (father and company owner) procured the Hartford commercial policy via an agent but listed the Hyundai as a business vehicle and did not list Kassem as an employee driver; Ali signed a declaration that the application information was accurate.
- Hartford discovered material misrepresentations as to ownership, use, and primary driver and sought to rescind the policy as procured by fraud.
- The trial court agreed the policy was procured by fraud but denied rescission as to Kassem and his medical providers, invoking the innocent third-party rule and distinguishing Hyten.
- Parties entered a stipulated judgment reserving Hartford’s right to appeal; the Court of Appeals considered whether Hyten’s abrogation of the innocent third-party rule extends to first-party no-fault PIP claims.
- The Court of Appeals held Hartford was entitled to rescind the policy and that Hyten’s reasoning applies to bar first-party no-fault (PIP) claims by parties innocent of the procurement fraud.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hartford may rescind the commercial policy because Ali’s application contained material misrepresentations | Kassem/Koubise: misrepresentations should not bar coverage for innocent claimants | Hartford: Ali’s misrepresentations about ownership/use/driver were material and relied upon; rescission proper | Court: Rescission proper as a matter of law because misrepresentations were material and relied upon |
| Whether Hyten’s abrogation of the innocent third-party rule applies to first-party no-fault PIP claims | Kassem/Koubise: Hyten limited to third-party liability/excess indemnity and does not bar statutorily mandated PIP benefits | Hartford: Hyten permits insurers to use fraud defense generally; no provision in no-fault act precludes rescission for fraud | Court: Hyten applies; insurer may rescind and is not obligated to pay PIP benefits under a policy procured by fraud |
Key Cases Cited
- Oade v Jackson Nat’l Life Ins Co of Mich, 465 Mich 244 (2001) (material misrepresentation permitting rescission when it affects acceptance of risk)
- Keys v Pace, 358 Mich 74 (1959) (fraud in application allows avoidance of contractual obligations)
- Titan Ins Co v Hyten, 491 Mich 547 (2012) (abrogated Kurylowicz innocent third-party rule for fraudulently procured policies)
- State Farm Mut Auto Ins Co v Kurylowicz, 67 Mich App 568 (1976) (earlier innocent third-party rule limiting insurer’s ability to avoid liability)
- Montgomery v Fidelity & Guar Life Ins Co, 269 Mich App 126 (2005) (duty to examine and know the contents of signed application)
- Lake States Ins Co v Wilson, 231 Mich App 327 (1998) (materiality and reliance in insurance application misrepresentations)
- TBCI, PC v State Farm Mut Auto Ins Co, 289 Mich App 39 (2010) (statutory framework for PIP and claims by medical providers)