In Sherman v Progressive Michigan Insurance Company, the Michigan Supreme Court addressed the standard of review the Court of Appeals must apply when evaluating a trial court’s decision whether to rescind or reform an auto insurance policy.
Following a 2021 motor vehicle accident, Janice Sherman sought PIP benefits from her auto insurer, Progressive Michigan Insurance Company. However, Progressive discovered that Sherman had made material misrepresentations in her insurance application regarding where her vehicles were garaged and the existence of resident relatives. Had Sherman disclosed this information, her insurance premiums would have been 83.2% higher. As a result, Progressive denied coverage, refunded Sherman’s premium payments, and rescinded her policy ab initio (i.e., void from inception).
Sherman then filed suit in Washtenaw Circuit Court, alleging improper denial of benefits and breach of contract. Progressive moved for summary disposition under MCR 2.116(C)(10), arguing the policy was rescinded ab initio due to Sherman’s material misrepresentations in her application. The Circuit Court denied Progressive’s motion and ordered the policy reformed to reflect the premiums Sherman would have paid absent the misrepresentations. Progressive then applied for leave to appeal.
Initially, the Court of Appeals reversed the Circuit Court’s order and remanded the case. However, on reconsideration, the Court of Appeals clarified that the abuse of discretion standard applies to a trial court’s decision to reform or rescind an insurance contract. Applying that standard, however, the Court came to the same conclusion and held that the Circuit Court abused its discretion by ordering reformation in light of Sherman’s material misrepresentations and a lack of any misconduct by Progressive. Sherman then applied for leave to appeal to the Michigan Supreme Court.
The Michigan Supreme Court affirmed the Court of Appeals’ decision. The Court found that when a party requests rescission of a policy by way of a motion for summary disposition pursuant to MCR 2.116(C)(10), the Court of Appeals must first determined novo that there is no genuine issue of material fact such that the moving party is entitled to judgment as a matter of law. In this case, the Court of Appeals properly found there was no genuine issue of material fact that Plaintiff misrepresented material facts in her insurance application. The Court of Appeals must then review the Circuit Court’s decision to grant or deny rescission for abuse of discretion.
In this case, the Supreme Court held that the Court of Appeals applied the proper standard of review and correctly concluded that there was no genuine issue of material fact regarding Sherman’s material misrepresentations and Progressive’s reliance on those misrepresentations. The Court then properly determined that the Circuit Court abused its discretion by ordering reformation without evaluating Progressive’s conduct in procuring the policy. Because the evidence established that Progressive engaged in no wrongdoing, equity did not justify reformation. Therefore, by denying Progressive’s motion and ordering reformation, the Circuit Court abused its discretion. The matter did not need to be remanded to the Circuit Court, however, because the Circuit Court conducted a rescission analysis before reaching the wrong conclusion.
