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April 06, 2021
The unpublished Court of Appeals case released on March 18, 2021, Roskamp v Fremont Insurance and Allstate Insurance, raises the question whether an insurance company can rescind its policy based on fraudulent misrepresentation after sending to the insured a notice of non-renewal. In Roskamp, Fremont’s insured, Dexter, failed to disclose material coverage information including that her boyfriend, Plaintiff Roskamp, lived with her, that she insured a vehicle Roskamp owned in her own name, and that Roskamp was primary driver on a vehicle Dexter owned. On November 7, 2016, Roskamp suffered injuries in a motor vehicle accident while driving Dexter’s vehicle.
Fremont learned, during its investigation of the accident, that Roskamp had a poor driving record, was a member of Dexter’s household, and was regularly driving Dexter’s vehicles. On November 14, 2016, Fremont notified Dexter that it would not be renewing her no-fault policy after the policy term ended in December 2016. In March 2017, after additional investigation, Fremont informed Dexter that it was rescinding her no-fault policy, citing her material misrepresentations.
Roskamp sued Fremont for PIP benefits claiming the rescission was unlawful. Later, he amended his Complaint adding Allstate Insurance Company (the assigned insurer), which, as part of its responsive pleadings, filed a Cross-Claim against Fremont saying that it was higher in priority. The trial court ruled in favor of Allstate finding that Fremont had waived its right to seek rescission because it had issued Dexter a notice of non-renewal first.
The Court of Appeals found that a notice of non-renewal did not bar an insurer’s later decision to rescind its policy. This ruling turned on the Court’s reading of Burton v. Wolverine Mutual Insurance Company, 213 Mich App 514 (1995), which held that once an insurance carrier has elected the remedy of cancellation, it cannot later seek to rescind the policy. In Burton, Wolverine determined that Burton had misrepresented his driving record before the accident occurred. Rather than rescinding the policy, Wolverine sent a notice of cancellation on October 27, 1986, informing Burton that coverage would end on November 17, 1986, and thus choosing to continue to insure Burton until that date. Burton was injured in a motor vehicle accident on November 8, 1986. After Wolverine received notice of Burton’s PIP claim, it rescinded the policy on the basis of the misrepresentation. The Burton Court found Wolverine had “induced” Burton to believe that he would have insurance until the effective date of the cancellation.
The Roskamp Court distinguished its case from Burton noting it was not until after Roskamp’s accident that Fremont learned of Dexter’s misrepresentations in procuring the policy. In other words, Dexter was not induced to rely on the coverage of Fremont’s policy because the accident had already occurred at the time of Fremont’s notice of non-renewal. The Roskamp Court noted the trial court had not resolved whether Fremont was entitled to rescind and so remanded the matter for a determination whether Dexter’s fraud or misrepresentation would support rescission of the policy as to Roskamp, who was not a named insured on the policy, and if so, whether Fremont was entitled to this remedy pursuant to Bazzi v. Sentinel Insurance, 502 Mich 390 (2018), and Farm Bureau General Insurance Company v. ACE American Insurance Company, 503 Mich 903.
NOTE: The Bazzi case is not over. The trial court, after receiving the case back from the Supreme Court, had no problem finding that Sentinel Insurance Company was entitled to rescind and was not obligated to pay any no-fault benefits to the perpetrator of the fraud. However, with respect to the “innocent” claimant, the trial court found that the equities weighed in favor of that innocent person [Ronnie Moussa El-Achkar] and ordered Sentinel to reimburse Citizens, the assigned insurer, $125,000, the amount it had paid to settle the “innocent” party’s claim. The Court of Appeals affirmed in an unpublished decision released on December 3, 2020 (Docket # 348383).
On January 13, 2021, Sentinel filed an application for leave to appeal to the Supreme Court. Just recently, on March 5, 2021, the Michigan Defense Trial Counsel filed an amicus brief. The gist of the amicus brief, echoing Sentinel’s application, is that when a policy is validly rescinded, which means the policy is void ab initio, there is no insurance policy. In other words, there can be no coverage for anyone. Sentinel is challenging the ruling that a claimant-by-claimant analysis is needed in order to balance the equities when an insurance policy has been obtained by fraud. The amicus brief pointed out what appears to be an illogical position. How can the court, on one hand, say that there is no longer an innocent third party rule (Titan v. Hyten, 491 Mich 547 (2012)), but then say that an insurance carrier cannot rescind a policy as to an innocent third party, as determined by the trial court in a formal hearing weighing the equities.
GLM attorneys will be watching the Bazzi case closely and will keep you updated on any important developments that arise.