In the recently published decision of Bradley v Westfield Ins Co, et al, the Court of Appeals addressed the issues of fraud and rescission, as well as a conflict in prior published decisions as to how to apply the “unlawful taking” exclusion in MCL 500.3113.
In Bradley, Plaintiff’s mother was the named insured on a policy of insurance issued by Defendant. Plaintiff had permission to use her mother’s vehicle but did not have a valid driver’s license. She was driving her mother’s vehicle in Kentucky when she was involved in a motor vehicle accident. Plaintiff sought to recover personal insurance protection benefits from Defendant, which denied her claim and rescinded her mother’s policy. Defendant sent a letter to Plaintiff’s mother unilaterally rescinding the policy and issued a refund check with Plaintiff’s mother cashed.
In the Circuit Court, Defendant asserted that Plaintiff’s mother committed fraud. She failed to notify Defendant that Plaintiff lived with her and would drive her vehicle. Plaintiff argued that Defendant never asked whether Plaintiff was a driver residing in her mother’s home, and regardless Plaintiff was an innocent third party. The Circuit Court determined that Plaintiff’s mother committed fraud by failing to notify Defendant that Plaintiff was a driver living in her household and concluded that Plaintiff was not an innocent third party.
On appeal, the Court of Appeals first addressed the issue of fraud, finding there was no evidence that Plaintiff’s mother made a false representation to Defendant because Defendant’s application did not ask who lived with its insured or whether other drivers lived in the household. Therefore, Defendant was not entitled to rescind the policy based on fraud. The Court then addressed the issue of mutual rescission, finding that Plaintiff’s mother’s cashing of the refund check alone did not establish the necessary mutual rescission because Defendant’s letter made it clear that Defendant was unilaterally rescinding the policy and the check did not clearly show it was a condition of acceptance. (Unilateral rescission would only suffice had fraud been established).
The Bradley Court addressed the conflict in prior published decisions as to how to apply the “unlawful taking” exclusion in MCL 500.3113. In Swoope v Citizens Insurance Company of the Midwest, the Court of Appeals applied the “unlawful taking” exclusion in MCL 500.3113 to bar the plaintiff driver from recovering personal insurance protection benefits because the plaintiff did not have a valid driver’s license. It was unclear whether plaintiff had permission to take the vehicle. The Swoope Court determined that operating a vehicle without a valid driver’s license is unlawful for purposes of MCL 500.3113(a).
In Monaco v Home-Owners Ins Co, the Court of Appeals addressed the difference between the unlawful taking (as in gaining possession) and unlawful using (as in operating a motor vehicle contrary to law) of a motor vehicle. According to Monaco, the first question is whether the person took possession of the vehicle unlawfully—either without permission or in violation of the law. Monaco at 147. If it was lawful, then MCL 500.3113(a) does not apply. Id. The Monaco Court found plaintiff driver’s use of the vehicle to be unlawful, because plaintiff’s limited license only allowed her to drive with a licensed adult, but what mattered was that plaintiff’s taking of the vehicle was lawful, because plaintiff had permission to take the vehicle. Therefore, plaintiff was not barred from recovering PIP benefits under MCL 500.3113.
In Ahmed v Tokio Marine America Ins Co, the Court of Appeals reasserted the initial question of whether the plaintiff driver gained possession of the vehicle unlawfully. The Ahmed Court set out a three-part test based on MCL 500.3113. This requires analysis of: 1) whether the vehicle was being operated or used willingly; 2) whether the vehicle had been taken unlawfully; and 3) whether the person knew or should have known that they didn’t have authority to take the vehicle. In Ahmed, plaintiff was involved in an accident while driving a rental car. This car was rented by his wife, without a valid driver’s license. The Court found plaintiff had his wife’s permission to drive the vehicle. However, he did not have the rental company’s permission. Therefore, plaintiff took the vehicle unlawfully and was barred from recovering PIP benefits.
The Bradley Court noted that the facts of Swoope and Monaco could not be meaningfully distinguished, but their conclusions were in conflict. Under MCR 7.214(J)(1), Swoope was bound to follow the holding in its predecessor, Monaco, or identify a conflict with it. Since it did not, and because Swoope overlooked Monaco and misapplied Ahmed, the Bradley Court held that Swoope is not binding. Instead, Monaco controls. Plaintiff had permission to take her mother’s vehicle. Therefore, there was no “unlawful taking” under MCL 500.3113(a), even though Plaintiff drove the vehicle without a valid driver’s license.
Notably, Judge Jansen issued a dissent finding no genuine issue of material fact that the evidence was enough to establish fraud in the procurement of the insurance policy by Plaintiff’s mother. The policy application had a block entitled “Drivers.” However, Plaintiff’s mother only listed her own name and information even though Plaintiff lived with her mother and drove her mother’s vehicle. The policy was renewed twice before the accident as well, and Plaintiff’s mother never informed Defendant of Plaintiff. Therefore, Defendant properly rescinded its policy, precluding recovery of PIP benefits by Plaintiff.
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