Titan Ins. Co. v. Hyten

Decision Date15 June 2012
Docket NumberDocket No. 142774.,Calendar No. 4.
Citation817 N.W.2d 562,491 Mich. 547
PartiesTITAN INSURANCE COMPANY v. HYTEN.
CourtMichigan Supreme Court

OPINION TEXT STARTS HERE

Law Offices of Ronald M. Sangster, PLLC, Troy (by Ronald M. Sangster), for Titan Insurance Company.

Amicus Curiae: Plunkett Cooney (by Mary Massaron Ross and Hilary A. Ballentine), for the Insurance Institute of Michigan.

Opinion of the Court

MARKMAN, J.

We granted leave to appeal to address whether an insurance carrier may avail itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud in the application for insurance, when the fraud was easily ascertainable and the claimant is a third party. In accordance with this Court's precedent in Keys v. Pace, 358 Mich. 74, 99 N.W.2d 547 (1959), we answer this question in the affirmative. There being nothing in the law to warrant the establishment of an “easily ascertainable”rule, we overrule State Farm Mut. Auto. Ins. Co. v. Kurylowicz, 67 Mich.App. 568, 242 N.W.2d 530 (1976), and its progeny 1 and reverse the judgment of the Court of Appeals.

I. FACTS

McKinley Hyten obtained a provisional driver's license in April 2004. In January 2007, Hyten's driver's license was suspended by the Secretary of State because of multiple moving violations and two minor traffic accidents. In light of what she perceived as assurances from her probation officer, Hyten anticipated that her license would be restored at a district court hearing scheduled for August 24, 2007.

That same year, Hyten's mother, Anne Johnson, inherited a motor vehicle that she “earmarked” for Hyten. Given the anticipated restoration of Hyten's driver's license, Johnson sought to obtain automobile insurance for Hyten. Johnson telephoned an independent insurance agent who, after being told that Hyten's license had been suspended, informed Johnson that Hyten could not be insured until her license had been restored. Nonetheless, an application for insurance from Titan Insurance Company was filled out on Hyten's behalf and postdated to August 24, 2007, and on August 22, 2007, Hyten signed the application for insurance. The application form asked, “Does the applicant's household have any unlicensed drivers or any drivers with a suspended or revoked driver's license?” In response to this question, the “No” box was checked. The form stated that Titan could review Hyten's driving record, but also stated that Titan could rely on the applicant's representations. On August 24, 2007, the policy became effective and provided personal protection insurance coverage for bodily injury of $100,000 per person/$300,000 per occurrence.

At the August 24, 2007, hearing, Hyten's driver's license was not restored, and it was not restored until September 20, 2007. Titan was not informed of this fact. Subsequently, in February 2008, Hyten was driving the insured vehicle and collided with the vehicle of Howard and Martha Holmes, causing injuries to them. In the process of investigating the accident, Titan learned that Hyten did not have a valid driver's license when the policy was issued. In anticipation that the Holmeses would be filing claims against Hyten for their injuries, Titan filed the instant action seeking a declaratory judgment. Titan averred that had it been informed that Hyten's license had been suspended, it would never have accepted the risk and would not have issued the insurance policy. Given Hyten's fraudulent conduct in her application for insurance, Titan sought a declaration that, should the Holmeses prevail in their action, Titan was not obligated to indemnify Hyten.2

Farm Bureau Insurance Company, the Holmeses' insurer, intervened as a defendant, and Titan, Farm Bureau, and Hyten each filed cross-motions for summary disposition. Relying on Court of Appeals decisions holding that an insurer may not avoid liability under an insurance policy for fraud that was easily ascertainable, and concluding that whether a person possesses a valid driver's license is easily ascertainable, the trial court granted Farm Bureau's and Hyten's motions for summary disposition. The Court of Appeals affirmed on the basis of Kurylowicz, asserting that once an insurable event has occurred and a third party (the Holmeses here) possesses a claim against an insured arising out of that event, an insurer is not entitled to reform the policy to the third-party's detriment when the fraud by the insured was easily ascertainable. Titan Ins. Co. v. Hyten, 291 Mich.App. 445, 805 N.W.2d 503 (2011) (Hyten I ). Titan filed an application for leave to appeal in this Court, which we granted. Titan Ins. Co. v. Hyten, 490 Mich. 868, 802 N.W.2d 617 (2011) (Hyten II ).3

II. STANDARD OF REVIEW

This Court reviews de novo a trial court's decision on a motion for summary disposition. Shepherd Montessori Ctr. Milan v. Ann Arbor Charter Twp., 486 Mich. 311, 317, 783 N.W.2d 695 (2010). In addition, the proper interpretation of a statute is a question of law that this Court reviews de novo. Eggleston v. Bio–Med. Applications of Detroit, Inc., 468 Mich. 29, 32, 658 N.W.2d 139 (2003). The proper interpretation of a contract is also a question of law that this Court reviews de novo. Rory v. Continental Ins. Co., 473 Mich. 457, 464, 703 N.W.2d 23 (2005).

III. ANALYSIS
A. POLICIES AS CONTRACTS

Insurance policies are contracts and, in the absence of an applicable statute, are “subject to the same contract construction principles that apply to any other species of contract.” Id. at 461, 703 N.W.2d 23. As this Court noted in Rohlman v. Hawkeye–Security Ins. Co., 442 Mich. 520, 525 n. 3, 502 N.W.2d 310 (1993), quoting 12A Couch, Insurance, 2d (rev ed.), § 45:694, pp. 331–332,

[the insurance] policy and the statutes relating thereto must be read and construed together as though the statutes were a part of the contract, for it is to be presumed that the parties contracted with the intention of executing a policy satisfying the statutory requirements, and intended to make the contract to carry out its purpose.

Thus, when a provision in an insurance policy is mandated by statute, the rights and limitations of the coverage are governed by that statute. See Rohlman, 442 Mich. at 524–525, 502 N.W.2d 310 (holding that because personal injury protection benefits are mandated by MCL 500.3105, that statute governs issues regarding an award of those benefits). On the other hand, when a provision in an insurance policy is not mandated by statute, the rights and limitations of the coverage are entirely contractual and construed without reference to the statute. See Rory, 473 Mich. at 465–466, 703 N.W.2d 23 (holding that because uninsured-motorist coverage is optional and not mandated by statute, “the rights and limitations of such coverage are purely contractual and construed without reference to the no-fault act”).

In addition, because insurance policies are contracts, common-law defenses may be invoked to avoid enforcement of an insurance policy, unless those defenses are prohibited by statute. See id. at 470, 703 N.W.2d 23.Rory noted that common-law defenses include duress, waiver, estoppel, fraud, and unconscionability. Id. at 470 n. 23, 703 N.W.2d 23. In this case, Titan asserts the defense of fraud to avoid liability under the insurance policy entered into with Hyten.

B. FRAUD

Michigan's contract law recognizes several interrelated but distinct common-law doctrines—loosely aggregated under the rubric of “fraud”—that may entitle a party to a legal or equitable remedy if a contract is obtained as a result of fraud or misrepresentation. These doctrines include actionable fraud, also known as fraudulent misrepresentation; innocent misrepresentation; and silent fraud, also known as fraudulent concealment. Regarding actionable fraud,

[t]he general rule is that to constitute actionable fraud it must appear: (1) That defendant made a material representation; (2) that it was false; (3) that when he made it he knew that it was false, or made it recklessly, without any knowledge of its truth and as a positive assertion; (4) that he made it with the intention that it should be acted upon by plaintiff; (5) that plaintiff acted in reliance upon it; and (6) that he thereby suffered injury. Each of these facts must be proved with a reasonable degree of certainty, and all of them must be found to exist; the absence of any one of them is fatal to a recovery. [Candler v. Heigho, 208 Mich. 115, 121, 175 N.W. 141 (1919), overruled in part on other grounds by United States Fidelity & Guaranty Co. v. Black, 412 Mich. 99, 116 n. 8, 13 [313] N.W.2d 77 (1981) (citation and quotation marks omitted).] 4

The doctrine of innocent misrepresentation is also well settled in Michigan, recognizing,

by a long line of cases, that if there was in fact a misrepresentation, though made innocently, and its deceptive influence was effective, the consequences to the plaintiff being as serious as though it had proceeded from a vicious purpose, he would have a right of action for the damages caused thereby either at law or in equity. [United States Fidelity, 412 Mich. at 115, 313 N.W.2d 77, quoting Holcomb v. Noble, 69 Mich. 396, 399, 37 N.W. 497 (1888) (Morse, J., concurring) (emphasis omitted).] 5

Silent fraud has also long been recognized in Michigan. This doctrine holds that when there is a legal or equitable duty of disclosure, [a] fraud arising from the suppression of the truth is as prejudicial as that which springs from the assertion of a falsehood, and courts have not hesitated to sustain recoveries where the truth has been suppressed with the intent to defraud.” Tompkins v. Hollister, 60 Mich. 470, 483, 27 N.W. 651 (1886) (citations omitted); see also United States Fidelity, 412 Mich. at 125, 313 N.W.2d 77.

As is evident, although the doctrines of actionable fraud, innocent misrepresentation, and silent fraud each contain separate elements, none of these doctrines requires that the...

To continue reading

Request your trial
195 cases
1 firm's commentaries

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT