In Webb v Progressive Marathon Ins. Co. (released for publication January 28, 2021) (Docket No. 351048), Progressive sought to rescind coverage on the basis that the insurance policy at issue was procured by fraud. On March 24, 2018, Plaintiff Brian Webb was driving a 2013 Dodge Challenger registered to his mother, Chirece Clark, when he was involved in a motor vehicle accident. The vehicle was insured in her name. Plaintiff Webb was not listed as a driver or member of his mother’s household on the policy. Progressive sought to rescind coverage on the basis that the policy was procured by fraud because Clark did not disclose on her application for insurance that her son Webb lived with her. Additionally, had that been disclosed, Clark’s premiums would have been thirty-two percent higher.
Progressive produced two telephone call recordings between Clark and Progressive agents. In the first call, Clark did disclose her son’s identity and residence with her, and additionally, that he would be the primary driver of the vehicle. Clark did not procure a policy at that time. A week later, there was a second call between Clark and a Progressive agent. On this second call, the issue of who lived in Clark’s household never came up. However, when Webb spoke with the insurance agent to make a payment on the policy, he advised the agent that he was Clark’s “friend”. Clark did eventually submit an application for insurance and Webb was not listed as a resident relative at her home.
Progressive filed a motion for summary disposition, which was denied by the trial court because the court found genuine issues of material fact regarding whether Clark committed fraud when submitting the application. The court concluded Webb was innocent of any fraud, and when balancing the equities between Webb’s need for coverage and Progressive’s desire to avoid liability, the court found the equities weighed in favor of finding coverage for Webb.
Progressive appealed. The Court of Appeals noted the elements of fraud, and that Progressive had the burden of proof to establish all of the elements. The Court of Appeals concluded that Progressive was, in fact, entitled to rescind its policy in its entirety as to Clark, concluding Clark committed fraud in the procurement of the policy, and specifically that:
The policy was procured through Clark’s misrepresentation that no one else lived in her household, and this misrepresentation was material;
The Court of Appeals made reference to a recent decision by the Michigan Supreme Court, Meemic Ins. Co. v Fortson, 506 Mich 287 (2020) as a basis for determining that the defrauded party (Progressive in this case) could only seek rescission if the fraud related to the inducement or inception of the contract (as in this case). Thus, rescission of the policy as to Webb would be premature because the Court of Appeals concluded that a question of fact remained regarding whether Webb was a participant in the fraud. The Court remanded the case to the trial court to consider that question. If the trier of fact finds that Webb did participate in the fraud, then he cannot be an innocent party, and the trial court need not consider balancing the equities. Further, Progressive could then deny coverage not only to Clark, but also to Webb.
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Sarah Nadeau, Editor of The Garan Report Publication, is a Shareholder in our Detroit Office. Sarah can be reached at 313.446.1530 or snadeau@garanlucow.com