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May 14, 2021
In the published Court of Appeals decision of Farm Bureau General Insurance Co. v ACE American Insurance Co., the Court affirmed the Circuit Court’s decision to deny Farm Bureau’s request for equitable rescission as to third-party Robynn Rueckert.
Mark Rueckert, accompanied by his wife Robyn Rueckert, and step-daughter Maryan Petoskey, went to a Farm Bureau office to procure a no-fault policy for a 1996 Dodge ram van. Farm Bureau insurance agent Jeffrey Brandt assisted them. On the insurance application, Mark listed his marital status as “M” and only listed himself and Maryan as owners or drivers of the van. But when asked to list all vehicle owners, household residents, and/or separate spouses not listed, Mark did not provide a response. The application was approved March 4, 2013. Shortly after that, Farm Bureau’s underwriting agent, Larry Clark, determined that the application contained incomplete or inaccurate information. On March 22, 2013, Clark emailed agent Brandt to address the application discrepancies. After waiting only one week and receiving no response, Clark decided to cancel the policy. On April 22, 2013, Farm Bureau sent a letter to Mark informing him of the cancellation due to incomplete or inaccurate information, and that his coverage would end on May 25, 2013.
Three days before the date set for cancellation, Robyn was struck by a garbage truck insured by ACE while walking properly in a crosswalk. Farm Bureau became aware of Robyn’s claim for no-fault benefits on June 21, 2013, after receiving a hospital bill, and Farm Bureau’s special investigator, Kurt Simon, began his investigation. On October 22, 2013, Simon informed Mark that the policy was rescinded and declared null and void from its inception date for material misrepresentations in the application.
Farm Bureau filed a complaint seeking rescission of the policy and a declaratory judgment that ACE was the insurer first in priority to pay Robyn’s no-fault benefits. Farm Bureau’s motion for summary disposition was denied because the trial court found Farm Bureau’s decision to cancel the policy prevented it from later rescinding the policy. The Court of Appeals reversed finding Farm Bureau could rescind its policy even as to Robyn. The Michigan Supreme Court, having just issued Bazzi v Sentinel Ins Co, 502 Mich 390 (2018), vacated the Court of Appeals opinion only to the extent that it held that Farm Bureau was entitled to automatic rescission as a matter of law and remanded the matter for the trial court to determine if rescission was equitable. Justice Markman’s concurrence identified five nonexclusive factors for trial courts to consider in “innocent third-party cases” such as this:
After an evidentiary hearing, the trial court found two factors favored rescission, two factors did not favor rescission, and one did not apply. The first factor weighed against rescission because the lack of information from Mark on the application about his wife, Robyn, put Farm Bureau on notice that something could be awry and there was no justification for Farm Bureau’s lack of professional diligence. The second factor weighed in favor of rescission because the closeness of Robyn’s relationship to Farm Bureau’s insureds allowed for an inference that Robyn knew about the fraud. The third factor weighed against rescission because Robyn was in the crosswalk while the walk signal was on and was neither negligent nor reckless. The fourth factor weighed in favor of rescission because Robyn would be entitled to no-fault benefits from ACE if rescission was permitted. The fifth factor was found to be inapplicable because Mark, the fraudulent insured, was not the injured claimant.
Weighing the factors, as well as other considerations such as the failure of Farm Bureau to promptly rescind the policy and the timing of its refund of the premium payments, the trial court found rescission would be inequitable. The Court of Appeals determined the trial court did not abuse its discretion or commit legal error by denying rescission.