June 13, 2016
In the recent, published decision, 21st Century Premier Ins. Co. v. Zufelt, 2016 Mich. App. LEXIS 1052 (Mich. Ct. App. May 24, 2016), the Michigan Court of Appeals reviewed the rescission of a no-fault automobile insurance policy issued to defendants Barry and Nancy Zufelt and an entry of judgment against defendant University of Michigan Regents as reimbursement for costs of medical services paid under the policy.
21st Century issued a policy of insurance to Mr. Zufelt on June 17, 2012. This policy required less than six (6) points for eligibility. Mr. Zufelt had seven (7) points at the time the policy was obtained and failed to disclose three (3) of these points stemming from an automobile accident that occurred less than two (2) months before the policy was issued. This recent accident did not appear on Mr. Zufelt’s record when the underwriting department completed its investigation. In other words, 21st Century was under the impression that Mr. Zufelt only had four (4) points and was otherwise eligible.
These four (4) points dropped off Mr. Zufelt’s record in September 2012. 21st Century automatically renewed Mr. Zufelt’s policy in December 2012. In other words, the policy was renewed when Mr. Zufelt actually had less than six (6) points and would have been eligible for the policy had it been originally issued in December 2012.
Mr. Zufelt was involved in a March 2013 motor vehicle accident with Daniel Novak and suffered severe injuries stemming from same. Defendant Regents provided medical care to Mr. Zufelt. Mr. Novak sued the Zufelts for damages arising from the subject accident and the Zufelts sought defense and indemnity from 21st Century. In addition, Regents and other providers, sought reimbursement of over $600,000.00 in medical expenses from 21st Century.
21st Century sued the Zufelts, Regents, and other medical providers on the ground that Mr. Zufelt was ineligible at the time the policy was issued on June 17, 2012 due to Mr. Zufelt’s failure to disclosure the April 2012 accident. 21st Century sought a declaration judgment that the policy was rescinded due to Mr. Zufelt’s misrepresentations, the Zufelts were not entitled to indemnification, and that 21st Century was entitled to reimbursement for all benefits paid under the policy. 21st Century moved for summary disposition on the grounds that it relied upon Mr. Zufelt’s false statements made in obtaining the policy at issue and that the rescission of the policy was proper under the policy language and state law. [1]
In an MCR 2.116(I)(2) response, Regents requested summary disposition on the ground that Mr. Zufelt was an eligible driver when the policy was renewed and that he was properly covered under the renewed policy at the time of the subject accident. The trial court agreed with 21st Century, ordered the policy rescinded, and entered a judgment in favor of 21st Century against Regents for no-fault benefits paid. Regents appealed.
Regents argued that 21st Century did not prove that Mr. Zufelt committed fraud. In other words, there was no evidence that Mr. Zufelt intentionally made a material misrepresentation. The Court of Appeals found that there was a misrepresentation and that 21st Century relied upon same. This misrepresentation, without consideration of intent, was sufficient to rescind the policy based upon past case law and the policy language. The subject policy had a “Misrepresentation or Fraud” provision, meaning there was no requirement of a finding of fraud. It provided a lower standard of false statement, misstatement of material fact, or failure to disclose – all absent of intent.
Regents next argued that the policy renewal was a new and distinct contract not tainted by the initial misrepresentation. In addition, Regents argued that the misrepresentation was “cured” after the points dropped below the threshold in September 2012. The Court of Appeals found that there was nothing in the renewal agreement that indicated that the parities intended to alter the terms concerning eligibility and the right to rescission as set forth in the original agreement. As such, the original terms and conditions governed the renewal. In other words, a misrepresentation at the outset of the issuance of the policy would allow the renewed policy to be rescinded, and eligibility for renewal turned on the representations made on the initial application.
Regents’ final and weakest argument was an equitable estoppel claim based on the allegations that 21st Century’s renewal of the policy at issue led Mr. Zufelt to believe that he had coverage. The Court of Appeals found that there was no evidence to suggest that 21st Century intentionally or negligently induced Mr. Zufelt to believe he had coverage as there was no evidence that 21st Century knew of the misrepresentation.
[1] It should be noted that Plaintiff admitted to his involvement in the April 2012 accident and the non-disclosure of same. The underwriter stated that 21st Century would not have issued the policy if it has knowledge of the April 2012 accident.