Michigan Supreme Court issues two new opinions of interest to insurers, holding that:

(1) an insurance policy’s 30-day notice-of-claim provision is enforceable, even though the insurer was not actually prejudiced by the insured’s late notice, and

(2) a false representation by an insured in an insurance application can be the basis for denying insurance benefits, even though the false representation could have been easily ascertained by the insurer before it issued its policy.

The Michigan Supreme Court recently issued two new opinions of interest to insurers. They are: (1) DeFrain v State Farm Mutual Automobile Ins Co, __ Mich __; 2012 WL 1948768 (5-30-2012), and (2) Titan Ins Co v Hyten, __ Mich __; 2012 WL ______ (6-15-2012).

1. In the first case, DeFrain v State Farm, Justice Brian Zahra wrote the 4-3 majority opinion. Justice Zahra was appointed in 2011 to the Michigan Supreme Court by Governor Rick Snyder to replace Justice Maura Corrigan.

In Defrain v State Farm, the plaintiff’s decedent, a pedestrian, died from injuries he sustained when he was struck by a car being operated by a hit-and-run driver. The plaintiff sued the defendant-insurer for uninsured-motorist (UM) coverage. The terms of the UM provisions in the insurance policy that had been issued to the plaintiff’s insured specified that a claimant is required to report a hit-and-run incident to the insurer within 30 days. The plaintiff failed to meet this 30-day notice-of-claim requirement, having given notice to the insurer about 85 days after the hit-and-run incident. Both the trial court and the Court of Appeals held that the defendant-insurer still had to pay benefits, even though the plaintiff had failed to comply with the insurance policy’s 30-day notice-of-claim requirement, because the defendant-insurer had not shown that the plaintiff’s failure to comply with the 30-day provision had actually prejudiced the insurer any way.

The Michigan Supreme Court reversed the opinions of both the trial court and Court of Appeals and held that an insurance policy’s “unambiguous notice-of-claim provision setting forth a specified time within which notice must be provided is enforceable without a showing that the failure to comply with the provision prejudiced the insurer.” The Supreme Court emphasized that, “[i]n reading a prejudice requirement into the notice provision where none existed, the Court of Appeals . . . frustrated the parties’ right to contract freely.” The Supreme Court also emphasized the limits of its ruling in this matter. It specified that its ruling applies only to insurance provisions requiring notice to be given within a specific period of time, such as 30 days, and that it does not apply to insurance provisions requiring notice to be given within non-specific periods of time, such as within “a reasonable time” or “immediately.” For such non-specific periods, a defendant-insurer seeking to cut off responsibility to pay benefits continues to be obligated to show that it sustained actual prejudice as a result of the insured’s non-compliance with the insurance policy’s notice provision.

2. In the second case, Titan Ins Co v Hyten, Justice Markman wrote the 4-3 majority opinion.

In Titan Ins v Hyten, an insured misrepresented in an application for auto insurance that no one in her household was then a driver with a suspended driver’s license. In fact, the insured’s son, who resided in the insured’s home, was a driver with a suspended license. Approximately three weeks after the insurance application was filled out and the insurer issued its policy, the son’s driver’s license was restored. About five months later, the son was involved in a motor vehicle collision when he was driving an insured vehicle, resulting in injury to third parties. The insurer filed a declaratory judgment action in which it maintained that it would never have issued its insurance policy to the insured if it had been informed in the insurance application that the son was a resident driver whose driver’s license had been suspended, and it asked the trial court to issue a declaratory judgment that it was not obligated to indemnify the son for the damages he caused to third parties in the collision. Both the trial court and the Court of Appeals ruled against the defendant-insurer, on the basis that an insurer cannot avoid liability under an insurance policy for fraud or misrepresentation that was otherwise “easily ascertainable” to the insurer.

The Michigan Supreme Court reversed the opinions of both the trial court and Court of Appeals and held that an insurer can avoid liability under an insurance policy on the ground of fraud in an application for insurance, even though the fraud was otherwise easily ascertainable and even though the matter involves injuries to innocent third parties. The Supreme Court emphasized that the so-called “easily ascertainable” rule was created in a flawed 1976 opinion of the Court of Appeals, contradicted an earlier 1959 opinion of the Michigan Supreme Court, and contradicted the policy of this state as embodied in the no-fault motor-vehicle insurance act. According to the Supreme Court, “[b]y requiring an insurer to indemnify an insured despite fraud in obtaining an insurance policy, the ‘easily ascertainable’ rule relieves the insured of what would otherwise be the insured’s personal obligation in the face of his or her own misconduct,” which was a result that was rejected by a majority of the justices. Thus, according the Supreme Court, “an insurer has no duty to investigate or verify the representations of a potential insured.”

For full copies of these two new Michigan Supreme Court opinions, use the following Online links:

– DeFrain v State Farm Mutual Automobile Ins Co, __ Mich __; 2012 WL 1948768 (5-30-2012):

http://coa.courts.mi.gov/documents/OPINIONS/FINAL/SCT/20120530_S142956_68_defrain-op.pdf