MEEMIC INSURANCE COMPANY v FORTSON
Docket No. 158302
Michigan Supreme Court
July 29, 2020
Argued November 6, 2019 (Calendar No. 2). Decided July 29, 2020.
VIVIANO, J. Chief Justice: Bridget M. McCormack. Chief Justice Pro Tem: David F. Viviano. Justices: Stephen J. Markman, Brian K. Zahra, Richard H. Bernstein, Elizabeth T. Clement, Megan K. Cavanagh.
Syllabus
This syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader.
Reporter of Decisions: Kathryn L. Loomis
Meemic Insurance Company brought an action in the Berrien Circuit Court against Louise M. Fortson and Richard A. Fortson, individually and as conservator of their son, Justin Fortson, alleging that Richard and Louise had fraudulently obtained payment for attendant-care services they did not provide to Justin. Richard and Louise were named insureds on a no-fault insurance policy issued by Meemic. Justin was considered an insured person under the policy because he was a “resident relative” as defined by the policy and because under
In an opinion by Justice VIVIANO, joined by Chief Justice MCCORMACK, and Justices MARKMAN, BERNSTEIN, and CAVANAGH, the Supreme Court held:
A no-fault insurance policy may contain contractual defenses to benefits mandated by the no-fault act if the defense is provided by the act or the contractual defense is based on a common-law defense that has not been abrogated by the act; a policy provision may not go beyond either statutory or common-law defenses to limit mandatory coverages to a greater extent than either the act or the common law. Meemic did not assert one of the statutory defenses allowed by the no-fault act, and the contract-based fraud defense was not the type of common-law fraud defense that would allow for rescission, the remedy most analogous to that sought under the antifraud provision. Accordingly, the antifraud provision was unenforceable.
- With regard to motor vehicle insurance policies, the no-fault act governs the coverages that are mandated by the act. Because
MCL 500.3105 provides that PIP benefits are mandatory, the act controls any questions regarding the award of those benefits. In contrast, coverages that are not required by the no-fault act (that is, optional coverages) are controlled by the language of the insurance policy. With regard to optional coverage, a court must construe and apply unambiguous contract provisions as written unless the provision violates a law or one of the traditional defenses to the enforceability of a contract applies; that is, unambiguous insurance policies are not open to judicial construction and must be enforced according to their unambiguous terms unless doing so would violate law or public policy. Common-law defenses that have not been abrogated by the no-fault act are available against claims for coverage mandated by the act. Accordingly, a contractual defense to mandatory benefits under the no-fault act is valid and enforceable when the defense is provided by the act itself or when the contractual defense is based on a common-law defense that has not been abrogated by the act; thus, an insurer may include common-law defenses that have not been abrogated by the act in an insurance policy. However, an insurance policy may not go beyond either statutory or common-law defenses to limit mandatory coverage to a greater extent than either the act or the common law; to hold otherwise would improperly reduce the scope of mandatory coverage required by the no-fault act. Therefore, a provision in an insurance policy that purports to set forth a defense to a claim for mandatory coverage is valid and enforceable only to the extent it contains a defense available under the no-fault act or a common-law defense that has not been abrogated. - If a contract is obtained as a result of fraud or misrepresentation, a party may be entitled to a legal or equitable remedy. At common law, the defrauded party could only seek to rescind the contract, that is, avoid the transaction, if the fraud related to the inducement or inception of the contract. While a contractual provision that rescinds a contract because of postprocurement fraud is not invalid in all circumstances—specifically, the clause would be valid as applied to a party‘s failure to perform a substantial part of the contract or one of its essential terms—in general, the mere breach of a contract would not entitle the injured party to avoid the contract at common law.
- In this case, because Meemic did not assert one of the statutory defenses allowed by the no-fault act, the question was whether its contract defense, the antifraud provision, provided for relief that would have been available under an unabrogated common-law defense; the now-abrogated innocent-third-party rule was, therefore, not relevant with regard to resolving the case. The antifraud provision provided that Meemic could terminate benefit payments to Justin on the basis of the fraudulent activity of anyone who happened to be in or out of the car and entitled to claim under the policy, and the activity could occur years after the policy was entered and relate to any claim or simply to the insurance. The common-law remedy of rescission was the closest analogue to Meemic‘s contract-based defense. Applying the law of rescission, the allegedly fraudulent claims did not induce Meemic to enter into the policy, did not deceive Meemic as to the policy‘s content, and there was no argument or evidence that Richard and Louise‘s misrepresentations regarding attendant care constituted a failure to perform a substantial part of the contract or an essential term such that Meemic could have sought rescission instead of bringing an action for damages. Meemic‘s contract-based fraud defense thus failed because it was not the type of common-law fraud defense that would allow for rescission, and the contract-based defense was, therefore, unenforceable. The concurrence‘s reliance on
MCL 500.3220 is misplaced because (1) Meemic did not seek to cancel the policy under that statute and the statute did not apply to the facts of the case, (2) Meemic did not seek to cancel the policy but, instead, to void coverage and stop paying Justin‘s PIP benefits, and (3)MCL 500.3220 does not abrogate common-law rescission in the context of this case. The concurrence‘s theory also directly conflicts with Titan Ins Co v Hyten, 491 Mich 547 (2012), which rejected the assertion thatMCL 500.3220 abrogated the common-law defense of rescission. And the concurrence‘s analysis does not consider Bazzi v Sentinel Ins Co, 502 Mich 390 (2018), and Marquis Hartford Accident & Indemnity (After Remand), 444 Mich 638 (1994), which held that fraud and other common-law defenses have not been abrogated by the no-fault act. In addition, the concurrence also misreads500.3148(2) and offers no support of its apparent inference that the provision‘s lack of express permission to void the policy constitutes an affirmative prohibition on voiding policies based on fraud.
Court of Appeals judgment affirmed in result only, Court of Appeals opinion vacated, and case remanded to the trial court for further proceedings.
Justice ZAHRA, joined by Justice CLEMENT, concurring, agreed with the majority that the antifraud provision was unenforceable in this case but wrote separately to express disagreement with the majority‘s analysis, specifically, with its conclusion that the state‘s common law had to be analyzed to arrive at the same result. The majority improperly suggests that Michigan‘s common law and the no-fault act are the only authorities that may be employed to determine the validity of a provision in a no-fault policy. Instead, the approach set forth in Cruz v State Farm Mut Auto Ins Co, 466 Mich 588 (2002)—that no-fault policy provisions are allowed if they facilitate the goals of the act and are harmonious with the Legislature‘s no-fault insurance regime—is the correct framework to address the issue in this case and should be reaffirmed.
©2020 State of Michigan
MEEMIC INSURANCE COMPANY, Plaintiff/Counterdefendant-Appellant, v LOUISE M. FORTSON and RICHARD A. FORTSON, Individually and as Conservator for JUSTIN FORTSON, Defendants/Counterplaintiffs-Appellees.
No. 158302
STATE OF MICHIGAN SUPREME COURT
FILED July 29, 2020
BEFORE THE ENTIRE BENCH
In this action, Meemic Insurance Company seeks to void its policy with defendants Louise and Richard Fortson and stop paying no-fault benefits to their son. Although the benefits are mandated by statute, Meemic seeks to avoid its statutory obligations by enforcing the antifraud provision in the policy. The issue before the Court is the extent to which a contractual defense like the one here is valid and enforceable when applied to coverage mandated by the no-fault act,
I. FACTS
In September 2009, defendant Justin Fortson suffered serious injuries when he fell from the hood of a moving automobile.
At the time of the accident, Meemic provided no-fault coverage to Justin and his parents. Richard and Louise were the named insureds in the policy. But Justin was also an “insured person” under the policy‘s “resident relatives” provision and under
Meemic‘s current suit against Richard, Louise, and Justin seeks to void the policy pursuant to the policy‘s antifraud provision so that Meemic is no longer required to pay Justin‘s claim.3 The antifraud provision provides:
This entire policy is void if any insured person has intentionally concealed or misrepresented any material fact or circumstance relating to:
A. This insurance;
B. The Application for it;
C. Or any claim made under it.
For the no-fault coverages, “Insured Person(s)” is defined under the policy to include the named insureds, who were Louise and Richard; any “resident relative,” which included Justin; and “any other person occupying the Insured motor vehicle, or any person, subject to the priorities set forth in the [no-fault act], injured as a result of an accident involving the Insured motor vehicle while not occupying any motor vehicle.” (Emphasis omitted.) The complaint claims breach of contract, fraud, common-law and statutory conversion, and unjust enrichment. Meemic sought damages and a determination that defendants’ actions voided the insurance policy. The Fortsons filed a counterclaim for the past and future attendant-care benefits that Meemic was refusing to pay.
Meemic moved for summary disposition, asking the trial court to enter an order that would void the insurance policy under the policy‘s antifraud provision, terminate any future liability, and require the Fortsons to reimburse Meemic for the fraudulent
The Court of Appeals reversed, concluding that its decision in Bazzi was inapplicable because the fraud here did not occur in the procurement of the policy—it did not, in other words, induce Meemic to enter into the contract with the Fortsons—and thus the fraud did not affect the validity of the contract. Meemic Ins Co v Fortson, 324 Mich App 467, 475-476 & 476 n 1; 922 NW2d 154 (2018). The Court held that the policy‘s antifraud provision was invalid because it would enable Meemic to circumvent the payment of statutorily mandated benefits. Id. at 477-479. It went on to conclude that even if the antifraud provision were valid, at the time they committed fraud, Richard and Louise were no longer “insured persons” under the policy, so the antifraud provision did not apply. Id. at 479-484. Judge CAMERON dissented, arguing that the majority had impermissibly resurrected the innocent-third-party rule. Id. at 485-487 (CAMERON, J., dissenting). Because the policy permitted rescission on the basis of fraud and fraud occurred here, Judge Cameron would have affirmed the trial court‘s grant of summary disposition to Meemic. Id. at 489-493.
We granted Meemic‘s application for leave to appeal. Meemic Ins Co v Fortson, 503 Mich 1031 (2019).
II. STANDARD OF REVIEW
We review de novo a trial court‘s decision on a motion for summary disposition. DeFrain v State Farm Mut Auto Ins Co, 491 Mich 359, 366; 817 NW2d 504 (2012). In addition, statutory interpretation is an issue of law, which we also review de novo. Cardinal Mooney High Sch v Mich High Sch Athletic Ass‘n, 437 Mich 75, 80; 467 NW2d 21 (1991). To the extent this case involves the interpretation of an insurance policy, insurance policies are interpreted like any other contract. See Farm Bureau Mut Ins Co of Mich v Nikkel, 460 Mich 558, 566; 596 NW2d 915 (1999) (“The principles of construction governing other contracts apply to insurance policies. Where no ambiguity exists, this Court enforces the contract as written.“) (citation omitted). Like with other contracts, “[a]ny clause in an insurance policy is valid as long as it is clear, unambiguous and not in contravention of public policy.” Id. at 568 (quotation marks and citation omitted).
III. ANALYSIS
We have described the utopian aims of Michigan‘s no-fault act as follows:
The Michigan No-Fault Insurance Act, which became law on October 1, 1973, was offered as an innovative social and legal response to the long payment delays, inequitable payment structure, and high legal costs inherent in the tort (or “fault“) liability system. The goal of the no-fault insurance system was to provide victims of motor vehicle accidents assured, adequate, and prompt reparation for certain economic losses. The Legislature believed this goal could be most effectively achieved through a system of compulsory insurance, whereby
every Michigan motorist would be required to purchase no-fault insurance or be unable to operate a motor vehicle legally in this state. Under this system, victims of motor vehicle accidents would receive insurance benefits for their injuries as a substitute for their common-law remedy in tort. [Shavers v Attorney General, 402 Mich 554, 578-579; 267 NW2d 72 (1978).]
Whether the no-fault act has lived up to its billing is the subject of an ongoing and vigorous policy debate.4 But one thing that is not open to debate is that the act governs the coverages it mandates, and the insurance policy controls coverages that are optional (i.e., not required by the act):
[Personal protection insurance (PIP)] benefits are mandated by statute under the no-fault act,
MCL 500.3105 ; MSA 24.13105, and, therefore, the statute is the “rule book” for deciding the issues involved in questions regarding awarding those benefits. On the other hand, the insurance policy itself, which is the contract between the insurer and the insured, controls the interpretation
of its own provisions providing benefits not required by statute. [Rohlman v Hawkeye-Security Ins Co, 442 Mich 520, 524-525; 502 NW2d 310 (1993).]5
In a footnote in Rohlman, we explained why the no-fault act governs the coverages mandated by the act:
The policy and the statutes relating thereto must be read and construed together as though the statutes were a part of the contract, for it is to be presumed that the parties contracted with the intention of executing a policy satisfying the statutory requirements, and intended to make the contract to carry out its purpose.
A policy of insurance must be construed to satisfy the provisions of the law by which it was required, particularly when the policy specifies that it was issued to conform to the statutory requirement; and where an insurance policy has been issued in pursuance of the requirement of a statute which forbids the operation of a motor vehicle until good and sufficient security has been given, the court should construe this statute and the policy together in the light of the legislative purpose. [12A Couch, Insurance, 2d (rev ed), § 45:694, pp 331-332.]
The definition[s] in an automobile liability insurance policy required by statute, of the motor vehicles covered by it, [are] to be construed with reference to statutes with which it was intended to comply . . . . [Id., § 45:695, p 333.]
We think the same would hold true for no-fault policies. [Rohlman, 442 Mich
at 525 n 3 (alterations in original)].
In Rory v Continental Ins Co, 473 Mich 457, 461; 703 NW2d 23 (2005), an optional-coverage case involving a claim for uninsured motorist benefits, we held that “unless a contract provision violates law or one of the traditional defenses to the enforceability of a contract applies, a court must construe and apply unambiguous contract provisions as written.” In particular, we held “that an unambiguous contractual provision providing for a shortened period of limitations is to be enforced as written unless the provision would violate law or public policy . . . [and that a] mere judicial assessment of ‘reasonableness’ is an invalid basis upon which to refuse to enforce contractual provisions.” Id. at 470. We noted that “[e]xamples of traditional defenses include duress, waiver, estoppel, fraud, or unconscionability.” Id. at 470 n 23; see also Titan Ins Co v Hyten, 491 Mich 547, 554; 817 NW2d 562 (2012) (“[B]ecause insurance policies are contracts, common-law defenses may be invoked to avoid enforcement of an insurance policy, unless those defenses are prohibited by statute.“).
In the context of mandatory benefits, the Court has also addressed whether common-law defenses remain available. In Marquis v Hartford Accident & Indemnity (After Remand), 444 Mich 638, 652; 513 NW2d 799 (1994), we held “that the common-law rule requiring an injured party in a contract or tort action to mitigate damages applies in suits for work-loss benefits under the no-fault act.” And in Bazzi v Sentinel Ins Co, 502 Mich 390, 400-401; 919 NW2d 20 (2018), this Court held that a common-law fraudulent-procurement defense may be raised to a claim for coverage mandated by the no-fault act.6
Thus, we have stated that to the extent that common-law defenses remain in force and effect, they may apply in certain circumstances to claims for mandatory coverage.7
In this case, by contrast, we are confronted with a contractual fraud defense to
It would make little sense to say that an insurer can invoke common-law defenses when sued but cannot place those defenses in its contract. By the same token, we have never indicated that an insurer‘s contract can go beyond either the statutory or common-law defenses and thereby limit mandatory coverage to a greater extent than either the statute or the common law. To allow such provisions would reduce the scope of the mandatory coverage required by the no-fault act, as supplemented by the common law. It would, in short, vitiate the act. This result is plainly prohibited by our longstanding caselaw that forbids parties from contracting to vitiate an insured‘s duty to promptly pay benefits as required by the no-fault act. See, e.g., Cruz v State Farm Mut Auto Ins Co, 466 Mich 588,
“[w]hether or not a statutory scheme preempts the common law” depends on legislative intent, and when that intent is manifested in “comprehensive legislation prescrib[ing] in detail a course of conduct to pursue and the parties and things affected, and designat[ing] specific limitations and exceptions, the Legislature will be found to have intended that the statute supersede and replace the common law dealing with the subject matter.” Millross v Plum Hollow Golf Club, 429 Mich 178, 183; 413 NW2d 17 (1987).
We have never addressed the apparent tension between these standards in the no-fault context or directly addressed the broader claim of whether the no-fault act is sufficiently comprehensive for us to conclude that the Legislature intended it to supersede and replace all of the common law as it relates to mandatory benefits. Because the issue was not raised by the parties, however, we need not address it in the present case.
598; 648 NW2d 591 (2002) (holding that when a contractual provision “contravenes the requirements of the no-fault act by imposing some greater obligation upon one or another of the parties, [it] is, to that extent, invalid“).8 For these reasons, a provision in an insurance policy purporting to set forth defenses to mandatory coverage is only valid and enforceable to the extent it
The question we are left with is whether Meemic‘s contract-based fraud defense is available under the no-fault act or whether it is a common-law defense that has not been abrogated. If the contractual defense is properly derived from either source, it is valid; if not, then it goes beyond what Meemic can assert to avoid mandatory coverage and is invalid and unenforceable.
IV. APPLICATION
First, Meemic does not assert a statutory defense. The no-fault act permits an insurer to avoid coverage of PIP benefits under certain enumerated circumstances.
he or she was an excluded operator.9 The no-fault act, however, does not provide a fraud defense to PIP coverage, so Meemic‘s antifraud defense is not statutory.10
Second, we must consider whether Meemic‘s fraud defense is available at common law.11 As we explained in Titan, 491 Mich at 555, “Michigan‘s contract law recognizes several interrelated but distinct common-law doctrines—loosely aggregated under the rubric of ‘fraud‘—that may entitle a party to a legal or equitable remedy if a contract is obtained as a result of fraud or misrepresentation.”12 The key phrase is “if a contract is obtained as a result of fraud or misrepresentation.” Id. (emphasis added). At common law, the defrauded party could only seek rescission, or avoidance of the transaction, if the fraud
the reasons discussed later in this opinion, however, neither of those statutes is relevant or applicable to this case.
related to the inducement to or inception of the contract. Dobbs, Remedies (2d ed, abrg), § 9.5, p 716.13 The rationale for this rule is that
to enter into a contract has not assented to the agreement since the fraudulent conduct precludes the requisite mutual assent” to form a contract. 26 Williston, Contracts (4th ed), § 69:1, p 497.14 “Where mutual assent does not exist, a contract does not exist.” Quality Prod & Concepts Co v Nagel Precision, Inc, 469 Mich 362, 372; 666 NW2d 251 (2003).
This is not to suggest that a contractual provision that rescinds a contract because of postprocurement fraud is invalid in all circumstances. At common law, a contract might
in deceiving or misleading him and also in inducing him to enter into the contract or assume the obligation.“).
Both of the two relevant forms of common-law fraud focus on conduct or circumstances at the contract‘s inception. “Fraudulent inducement” generally requires misrepresentations that induce a party to enter a contract, Geisler, § 1, whereas “fraud in the factum” ” ‘is[] the sort of fraud that procures a party‘s signature to an instrument without knowledge of its true nature or contents,” Langley v Fed Deposit Ins Corp, 484 US 86, 93; 108 S Ct 396; 98 L Ed 2d 340 (1987). See also Black‘s Law Dictionary (10th ed) (defining “fraud in the factum” as occurring when the contract “as actually executed differs from the one intended for execution by the person who executes it” or when it otherwise lacks “legal existence” and defining “fraud in the inducement” as “occurring when a misrepresentation leads another to enter into a transaction with a false impression of the risks, duties, or obligations involved“); Farnsworth, Contracts (4th ed), § 4.10, p 236 (explaining that fraud in the inducement “goes only to the ‘inducement,’ ” such as a misrepresentation of the quality of goods, while fraud in the factum (or fraudulent execution) relates “to the very character of the proposed contract itself, as when one party induces the other to sign a document by falsely stating that it has no legal effect“).
also be rescinded because of a party‘s failure to ” ‘perform a substantial part of the contract or one of its essential items[.]’ ” Innovation Ventures v Liquid Mfg, 499 Mich 491, 510; 885 NW2d 861 (2016), quoting Rosenthal v Triangle Dev Co, 261 Mich 462, 463; 246 NW 182 (1933).15 Thus, a postprocurement fraud clause that rescinds a contract would be valid as applied to a party‘s failure to perform a substantial part of the contract or one of its essential terms. Generally, however, the mere
In this case, Meemic seeks to enforce a sweeping antifraud provision against the claim made by Justin, who was neither a party to the insurance contract nor a beneficiary of the claim allegedly obtained by fraud. As noted, the provision purports to void the entire policy if any “insured person” misrepresents a material fact or circumstance “relating to” either the “insurance,” the “[a]pplication,” “[o]r any claim made under it.” And “insured person” is defined broadly such that the fraudulent actor need not be the person receiving benefits under the policy—indeed an insured person can also be “any person” occupying the car or any other person injured as a result of an accident involving the insured motor vehicle while not occupying any motor vehicle who is entitled to coverage. This means that under the contract‘s terms, Meemic could terminate benefit payments to Justin on the basis of the fraudulent activity of anyone who happened to be in or out of the car and entitled to claim under the policy, and the activity could occur years after the policy was entered and relate to any claim or simply to the “insurance.”
As the Court of Appeals recognized, the fraudulent activity at issue here did not relate to the inception of the contract. The fraudulent attendant-care bills submitted by Justin‘s parents neither induced Meemic to enter into the policy nor deceived Meemic as to the contents of the policy.17 Meemic could not possibly have relied on any fraudulent misrepresentations when it agreed to insure the Fortsons in 2009 because, at the time, they had not yet made any of the alleged misrepresentations.18
contract upon the default of the other). This freedom to define fraud is not, however, part of the common law that remains available to the insurer or the insured. If it were otherwise, the parties could contract around the statute itself, treating its mandatory provisions as negotiable. Our caselaw, as already explained, has ruled out such an approach. See, e.g., Cruz, 466 Mich at 598 (explaining that parties cannot, by contract, place greater requirements on the parties than those that are required by the statute). Nor do we believe that Marquis and Bazzi, by permitting certain common-law rules to remain in place, meant to introduce a Trojan horse that would enable the parties to reach agreements in contravention of the statute or the well-defined common-law defenses themselves.
Before they were merged, proceedings in equity and law were distinct, with different rules and procedures in each. See
V. RESPONSE TO THE CONCURRENCE
The concurrence produces more heat than light. As best we can tell, it sees this as a simple case that can be resolved by reference to a statute about canceling insurance policies—
First, Meemic does not seek cancellation of the policy under
Third, and finally,
We agree with the Court of Appeals that
MCL 500.3220(a) shows an intent to allow insurers only a limited period during which to reassess the risk after the formation of a policy and when the risk is deemed unacceptable to “cancel” the policy. However, we disagree that when an insurer elects not to reassess the risk and later uncovers fraud, it is somehow precluded from pursuing traditional legal and equitable remedies in response. [Id. at 566-567.]
In Bazzi, 502 Mich at 401, the Court applied this approach to a claim for mandatory PIP benefits, (“In this case, however, the plain language of the no-fault act does not preclude or otherwise limit an insurer‘s ability to rescind a policy on the basis of fraud.“), as it had done before in Marquis, 444 Mich at 652 (applying common-law defenses to mandatory work-loss benefits under the no-fault act).
The concurrence fails to recognize that its theory directly conflicts with Titan, which rejected the notion that
VI. CONCLUSION
For the reasons set forth in this opinion, we hold that Meemic‘s contractual antifraud provision is invalid and unenforceable because it is not based on a statutory or unabrogated common-law defense. Therefore, we affirm the Court of Appeals in result only, vacate its opinion, and remand the case to the trial court for further proceedings consistent with this opinion.
David F. Viviano
Bridget M. McCormack
Stephen J. Markman
Richard H. Bernstein
Megan K. Cavanagh
It seems to us an unremarkable proposition that an insurer may seek to rescind a policy that is voidable on the basis of fraud. See, e.g., Northland Radiology, Inc v USAA Cas Ins Co, unpublished per curiam opinion of the Court of Appeals, issued June 18, 2020 (Docket No. 346345), p 6 (“When an insurer is induced by fraud to issue a policy of insurance, the fraud renders the policy voidable at the option of the insurer. Bazzi, 502 Mich at 408. Thus, an insurer may rescind a policy on the basis of a material misrepresentation made in an application for no-fault insurance. 21st Century Premier [Ins Co v Zufelt, 315 Mich App 437, 445; 889 NW2d 759 (2016)]“).“).
More importantly, the overarching issue in this case is the enforceability of the antifraud provision in the policy. That is the issue we address, and we do so by analyzing the caselaw and authorities presented by the parties and discussed by the Court of Appeals. In contrast, the concurrence resolves the case by reference to a statute,
MEEMIC INSURANCE COMPANY, Plaintiff/Counterdefendant-Appellant, v LOUISE M. FORTSON and RICHARD A. FORTSON, Individually and as Conservator for JUSTIN FORTSON, Defendants/Counterplaintiffs-Appellees.
No. 158302
STATE OF MICHIGAN SUPREME COURT
ZAHRA, J. (concurring in the judgment).
The majority reaches the correct result in this case. I write separately because the majority‘s opinion improperly suggests that our common law1 and the no-fault
I. FACTS AND PROCEDURAL HISTORY
In 2014, Meemic brought the instant action in the Berrien Circuit Court, seeking a declaration that it was contractually entitled to void the no-fault insurance policy it had issued to Richard and Louise Fortson. This policy was in full force and effect in September 2009 when their son, Justin, who resided with them, was involved in a serious automobile accident. As a result of the accident, Justin needed full-time attendant-care services for which he claimed benefits under the no-fault insurance policy issued by Meemic to his parents. Meemic paid for these services, which were performed by Justin‘s mother, a named insured under the policy. At some point, Louise allegedly sought to be paid for services she did not provide to Justin; Meemic filed the instant suit, seeking to void the policy on the basis of the following policy provision:
22. CONCEALMENT OR FRAUD
This entire Policy is void if any insured person has intentionally concealed or misrepresented any material fact or circumstance relating to:
A. This insurance;
B. The Application for it;
C. Or any claim made under it.
The Fortsons appealed, arguing, in part, that the trial court erred by relying on the Court of Appeals decision in Bazzi because the factual basis for the claim of fraud in Bazzi related to an insured‘s fraudulent procurement of the insurance policy.7 In contrast, the insurance policy in this case was properly procured and was valid when Justin filed his claim. At this point, the Fortsons maintained, the no-fault act controls and mandates that Meemic provide Justin with statutory no-fault benefits.
In a published opinion, the Court of Appeals reversed the trial court‘s order granting summary disposition to Meemic.8 In so doing, the Court of Appeals considered but found inapplicable its decision in Bazzi, reasoning that the fraud defense was not available to void or rescind the no-fault policy at issue here because, unlike in Bazzi,9 the Fortsons’ alleged fraud did not arise in the procurement of the policy.10 The Court of Appeals next considered the fraud-exclusion provision in Meemic‘s policy that purports to void the entire policy if any insured person has intentionally concealed or misrepresented any material fact or circumstance relating to, in pertinent part, “[t]his insurance” or “any claim made under it.”11 The Court of Appeals held that “[b]ecause
Meemic filed an application for leave to appeal in this Court, asking us to decide,
II. ANALYSIS
The majority opinion “hold[s] that such [fraud-exclusion] provisions are valid when based on a defense to mandatory coverage provided in the no-fault act itself or on a common-law defense that has not been abrogated by the act. Because Meemic‘s fraud defense is grounded on neither the no-fault act nor the common law, it is invalid and unenforceable.” This holding is overly broad. The scheme adopted by the majority for determining the viability of contract language in a no-fault insurance policy may place unwarranted constraints on the fundamental right to contract. The majority opinion gives little or no weight to the way in which we have traditionally interpreted no-fault insurance contracts. Ordinarily, we would apply the Cruz standard, which is to say that we are “to construe contracts that are potentially in conflict with a statute, . . . where reasonably possible, [in such a way as] to harmonize them with the statute.”16 The majority opinion implicitly emasculates the Cruz standard by only asking whether the provision at issue is expressly permitted under the no-fault act or the common law.
The majority opinion also states that “one thing that is not open to debate is that the act governs the coverages it mandates, and the insurance policy controls coverages that are optional . . . .” The apparent implication of this dichotomy is that the common law and the no-fault act represent the exclusive authorities used to determine the validity of a provision in a no-fault policy, with no room for the policy
But this Court has clearly held that insurers may insert provisions into a no-fault policy that are not rooted in the common law or referred to in the no-fault act. For instance, in Cruz,18 this Court considered the insertion of an examination under oath (EUO) provision into an insurance policy. The Court of Appeals “found that EUOs were precluded in the automobile no-fault insurance context because they were not mentioned in the act.”19 This Court disagreed and approved the insertion of EUOs “when used to facilitate the goals of the act and when they are harmonious with the Legislature‘s no-fault insurance regime[.]”20
In my view, this Court need not delve into whether the no-fault act expressly permits the fraud-exclusion provision at
The Restatement of Contracts, in noting the distinctions between various ways of putting an end to a contractual relationship, observes:
Sometimes the parties to a contract that is at least partly executory on each side make an agreement under which each party agrees to discharge all of the other party‘s duties of performance. Such an agreement is called an “agreement of rescission” in this Restatement. . . . The term “agreement of rescission” is used in this Restatement to avoid confusion with the word “rescission,” which courts sometimes use to refer to the exercise by one party of a power of avoidance. . . . An agreement of rescission differs from a “termination,” which “occurs when either party pursuant to a power created by agreement or law puts an end to the contract otherwise than for its breach” and from a “cancellation,” which “occurs when either party puts an end to the contract for breach by the other.” [2 Restatement Contracts, 2d, § 283, comment a, p 390 (citation omitted).]
Other treatises offer somewhat different arrangements of these terms. One leading treatise explains:
A rescission avoids the [policy] ab initio whereas a cancellation merely terminates the policy as of the time when the cancellation becomes effective. In other words, cancellation of a policy operates prospectively while rescission, in effect, operates retroactively to the very time that the policy came into existence[.] [2 Couch, Insurance, 3d (rev ed), § 30:3, p 10.]
In this case, all indications suggest that Meemic seeks to ” ‘put[] an end to the contract,’ ” not ” ‘for its breach’ ” but rather ” ‘pursuant to a power created by agreement’ “—i.e., the fraud-exclusion language. Restatement, § 283, comment a, p 390 (citation omitted). If so, that would be a ” ‘termination.’ ” And as the Restatement notes, “if under the terms of the contract the occurrence of an event is to terminate an obligor‘s duty of immediate performance . . . , that duty is discharged if the event occurs.” Restatement, § 230(1), p 189 (formatting altered). Further, Meemic does not truly seek to void the policy ab initio such as a party seeking rescission would. After all, Meemic asks to be reimbursed for PIP benefits made in connection with fraudulent proofs of loss and to terminate future liability, but it does not seek reimbursement for all the PIP benefits it has paid retroactive to the very time that the policy came into existence.
And regardless of whether the fraud-exclusion provision is characterized as allowing for “rescission” or “cancellation,” the no-fault act expressly prevents Meemic from exercising this provision to cancel the policy, let alone from seeking a more robust remedy that would necessarily include cancellation, such as rescission. As we recognized in Bazzi:
When the Legislature intends to limit the common-law remedies available to an insurer for misrepresentation or fraud, that intent is clearly reflected in the language employed in the statute. For example,
MCL 500.3220 —part of the no-fault act—“limits the ability of a licensed insurer to ‘cancel’ automobile coverage after a policy has been in effect for at least 55 days.” [Bazzi, 502 Mich at 400-401 (citation omitted).]
Here, as earlier explained, there is simply no question that Meemic did not “cancel” the policy within 55 days of it being issued, and
And of course I appreciate that cancellation applies only prospectively and that canceling the policy now would not relieve Meemic from liability. That is precisely why Meemic‘s attempt to expand its ability to cancel the policy under the fraud-exclusion provision is inconsistent with
Last, I am not suggesting that “when an insurer elects not to reassess the risk and later uncovers fraud, it is somehow precluded from pursuing traditional legal and equitable remedies in response.”26 I am only saying that these legal and equitable remedies are not available if they are in conflict with a statute and cannot be reasonably harmonized with the statute.
As mentioned, in Cruz, this Court addressed “whether the inclusion of an [EUO] provision in an automobile no-fault insurance policy is permitted under the Michigan no-fault insurance act.”28 The insurer took the “position that the parties could agree in their contract of insurance, notwithstanding the requirements of the statute regarding prompt payment of benefits, to condition the payment of benefits on the submission by [the insured] to an EUO.”29 The insured refused repeated requests to submit to the EUO, and because of this, the insurer denied, in relevant part, the insured‘s claims for personal protection insurance (PIP) benefits mandated under the no-fault act.30
The Cruz Court noted that “the no-fault act contains no reference either allowing or prohibiting examinations under oath.”31 The Court phrased the relevant legal question as “whether, given this silence, the inclusion of examination under oath provisions in no-fault automobile insurance policies is allowed.”32 The Court emphasized its duty “to construe contracts that are potentially in conflict with a statute, and thus void as against public policy . . . [so as] to harmonize them with the statute [where reasonably possible].”33 The Court applied this rule as follows:
[The insurer] and its insured could not contract to vitiate [the insurer]‘s duty to pay benefits in a timely fashion as required by the statute. Once “reasonable proof of the fact and of the amount of loss sustained” was received by [the insurer], it had to pay benefits or be subject to the penalties. Because it is acknowledged that such proof was received, [the insurer‘s] duty to pay benefits to its insured began thirty days thereafter. To the degree that the contract is in conflict with the statute, it is contrary to public policy and, therefore, invalid.[34]
In my view, the Cruz standard presents the proper framework to address the question posed in this case. The fraud-exclusion provision purports to void all of Meemic‘s statutory duties with respect to Justin without any express or implied justification to do so under the no-fault act. The act clearly provides that an insurer is only responsible for those PIP benefits that are “reasonably necessary,”35 and I would submit that a fraudulent charge is ipso facto neither reasonable nor necessary. Given that the Legislature expressly provided an insurer a limited right to challenge particular charges, there appears no reasonable
In addition, the language of the no-fault act suggests that an insured remains entitled to PIP benefits even after the insured has filed a fraudulent charge. Former
An insurer may be allowed by a court an award of a reasonable sum against a claimant as an attorney‘s fee for the insurer‘s attorney in defense against a claim that was in some respect fraudulent or so excessive as to have no reasonable foundation. To the extent that personal or property protection insurance benefits are then due or thereafter come due to the claimant because of loss resulting from the injury on which the claim is based, such a fee may be treated as an offset against such benefits; also, judgment may be entered against the claimant for any amount of a fee awarded against him and not offset in this way or otherwise paid. [
MCL 500.3148(2) , as enacted by 1972 PA 294 (emphasis added).]
This is the only provision in the no-fault act that addresses a claimant‘s fraudulent proof of loss for PIP benefits. And far from permitting an insurer to void the policy at this point, former
Moreover, the fraud-exclusion provision, which only inures to the benefit of an insurer, by no means facilitates the goal of the no-fault insurance system—” ‘to provide victims of motor vehicle accidents with assured, adequate, and prompt reparation for certain economic losses.’ ”36 In my opinion, the instant fraud-exclusion provision in many respects thwarts the goal of the no-fault act. Indeed, the specter of having one‘s unlimited lifetime PIP benefits terminated because of fraudulent activity by anyone entitled to make a claim under the policy at any point in the future provides no meaningful assurance of reparation at all.
III. CONCLUSION
I concur in the result reached by the majority that the instant fraud-exclusion provision is unenforceable. But unlike the majority, I would affirm the Court of Appeals decision on the basis of the Cruz standard and would hold that the fraud-exclusion provision is inconsistent with the no-fault act and, therefore, void as against public policy.
Brian K. Zahra
Elizabeth T. Clement
Notes
Except as provided in subsections (2), (3), and (5), a personal protection insurance policy described in section 3101(1) applies to accidental bodily injury to the person named in the policy, the person‘s spouse, and a relative of either domiciled in the same household, if the injury arises from a motor vehicle accident.
Bazzi, 502 Mich at 400-401, was a mandatory-benefits case, and it thus addressed the separate question of whether a no-fault insurer could raise the common-law defense of fraud in the procurement of the policy to a claim for coverage mandated by the no-fault act or whether the Legislature abrogated that defense when it enacted the no-fault act. Bazzi cited Titan to support its analysis of this issue, even though Titan did not involve the issue of whether the common-law defense of fraud was abrogated by the mandatory coverage provisions of the no-fault act (and logically could not have involved that issue because it did not involve a claim for such benefits). Id. at 400, citing Titan, 491 Mich at 554-555. Bazzi also cited a more common approach for deciding this issue, asking whether the Legislature clearly sought to abrogate the common law. See Bazzi, 502 Mich at 400 (“When the Legislature intends to limit the common-law remedies available to an insurer for misrepresentation or fraud, that intent is clearly reflected in the language employed in the statute.“); see also People v Moreno, 491 Mich 38, 41; 814 NW2d 624 (2012) (“While the Legislature has the authority to modify the common law, it must do so by speaking in ‘no uncertain terms.’ “) (citation omitted). Elsewhere, however, we have noted that
Bazzi, 315 Mich App at 768.A person is not entitled to be paid personal protection insurance benefits for accidental bodily injury if at the time of the accident any of the following circumstances existed:
(a) The person was willingly operating or willingly using a motor vehicle or motorcycle that was taken unlawfully, and the person knew or should have known that the motor vehicle or motorcycle was taken unlawfully.
(b) The person was the owner or registrant of a motor vehicle or motorcycle involved in the accident with respect to which the security required by section 3101 or 3103 was not in effect.
(c) The person was not a resident of this state, was an occupant of a motor vehicle or motorcycle not registered in this state, and the motor vehicle or motorcycle was not insured by an insurer that has filed a certification in compliance with section 3163.
(d) The person was operating a motor vehicle or motorcycle as to which he or she was named as an excluded operator as allowed under section 3009(2).
(e) The person was the owner or operator of a motor vehicle for which coverage was excluded under a policy exclusion authorized under section 3017.
For that reason, we agree with Meemic‘s assertion that it is not seeking equitable relief or bringing an independent rescission action; it is simply trying to enforce its contract defense. But because that contract is valid only if it provides for relief that would be available under an unabrogated common-law defense, we must examine its request to see whether it matches with those common-law defenses. Here, as discussed more below, rescission is the closest common-law analogue to Meemic‘s contract defense.
Id. at 477-478.Id. at 478-479. The Court of Appeals held that under the plain language of the policy, “Louise and Richard were not insured persons under the policy when they committed fraud, so the fraud-exclusion clause is inapplicable and cannot be used to void the policy and deny Justin‘s claim.” Id. at 484. I find the Court of Appeals’ alternative conclusion that Richard and Louise were no longer “insured parties” under the policy to be questionable. Nonetheless, I would not address this argument given the result reached in this case.(1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. [Titan, 491 Mich at 555 (quotation marks and citation omitted).]
Subject to the following provisions no insurer licensed to write automobile liability coverage, after a policy has been in effect 55 days or if the policy is a renewal, effective immediately, shall cancel a policy of automobile liability insurance except for any 1 or more of the following reasons:
(a) That during the 55 days following the date of original issue thereof the risk is unacceptable to the insurer.
(b) That the named insured or any other operator, either resident of the same household or who customarily operates an automobile insured under the policy has had his operator‘s license suspended during the policy period and the revocation or suspension has become final.