Farmers Ins. Exchange v. Anderson, Docket No. 156079
| Decision Date | 06 July 1994 |
| Docket Number | Docket No. 156079 |
| Citation | 206 Mich.App. 214,520 N.W.2d 686 |
| Parties | FARMERS INSURANCE EXCHANGE, Plaintiff-Appellant, v. Joyce ANDERSON, Jack Dillon, Cindi Gale, Conservator of the Estate of Kayse Gale, a Minor and Andora Gale, Personal Representative of the Estate of Robert Lee Gale, Deceased, Defendants-Appellees. |
| Court | Court of Appeal of Michigan — District of US |
Wheeler Upham, P.C. by Gary A. Maximiuk and Jack L. Hoffman, Grand Rapids, for plaintiff.
Thorne & Schlee, P.C. by William N. Schlee, Kalamazoo, for Andora Gale.
Benefiel, Farrer & Glista by William L. Benefiel, Kalamazoo, for Cindi Gale.
Before MICHAEL J. KELLY, P.J., and HOOD and MILLER, * JJ.
This case arises from a motor vehicle accident in which Robert Gale was killed after his vehicle collided with a vehicle driven by defendant Dillon. The automobile driven by Dillon was owned and insured by Dillon's mother, Joyce Anderson. Plaintiff, Farmers Insurance Exchange, claimed that Anderson procured the policy by fraud and that, therefore, it should not have to provide coverage. The trial court disagreed and granted summary disposition in favor of defendants pursuant to MCR 2.116(I)(2). Farmers now appeals as of right. We reverse.
Joyce Anderson applied for insurance on the subject vehicle and represented that she would be the primary driver. Anderson did not disclose that Dillon, whose driver's license had been revoked, would be operating the vehicle. In fact, as a person with a revoked license, Dillon was ineligible for motor vehicle insurance. The policy provided a liability limit of $100,000 a person, with a $300,000 limit in any one accident. At the time of the collision that resulted in Gale's death, Dillon not only was unlicensed and uninsured, but also was driving while intoxicated.
The Gale family initiated a wrongful death action against Dillon and Anderson. Farmers then filed a complaint for declaratory judgment, arguing that it had no duty to defend Dillon or to provide coverage, because Dillon had been using the vehicle without Anderson's permission. Farmers further argued that it had no duty to defend or indemnify Anderson, because Anderson had made fraudulent and material misrepresentations in procuring the insurance policy. More specifically, Farmers asserted that Anderson had represented that she would be the primary driver of the vehicle even though she knew that Dillon would be the primary driver.
Therefore, Farmers argued, the policy should be declared void ab initio and rescinded. Alternatively, Farmers argued that if it was precluded from declaring the entire policy void ab initio, then the policy should be reformed to provide only the statutorily required minimum limits of $20,000/$40,000 rather than the stated policy limits of $100,000/$300,000.
Competing motions for summary disposition were filed. The trial court, relying on Ohio Farmers Ins. Co. v. Michigan Mutual Ins. Co., 179 Mich.App. 355, 445 N.W.2d 228 (1989), denied Farmers' motion for summary disposition and granted summary disposition in favor of defendants. This appeal followed.
Plaintiff now concedes liability for the statutory $20,000/$40,000 limits. Therefore, the issue we must decide is whether an automobile insurer who, upon discovering that the insured has made fraudulent and material misrepresentations in procuring the policy, may assert rescission as a basis to limit its liability to the statutory minimum, even when innocent third parties have been injured.
We first note that when an accident occurs in this state, the scope of liability coverage is determined by the financial responsibility act, M.C.L. § 257.501 et seq.; M.S.A. § 9.2201 et seq. League General Ins. Co. v. Budget Rent-A-Car of Detroit, 172 Mich.App. 802, 805, 432 N.W.2d 751 (1988). Section 520 of the act, M.C.L. § 257.520; M.S.A. § 9.2220, provides in relevant part:
(f) Every motor vehicle liability policy shall be subject to the following provisions which need not be contained therein:
(1) The liability of the insurance carrier with respect to the insurance required by this chapter shall become absolute whenever injury or damage covered by said motor vehicle liability policy occurs; ... except as hereinafter provided, no fraud, misrepresentation, ... or other act of the insured in obtaining or retaining such policy ... shall constitute a defense as against such judgment creditor.
* * * * * *
(g) Any policy which grants the coverage required for a motor vehicle liability policy may also grant any lawful coverage in excess of or in addition to the coverage specified for a motor vehicle liability policy and such excess or additional coverage shall not be subject to the provisions of this chapter. [Emphasis added.]
Generally, a material misrepresentation made in an application for no-fault insurance entitles the insurer to void or to cancel retroactively the policy. Katinsky v. Auto Club Ins. Ass'n, 201 Mich.App. 167, 170, 505 N.W.2d 895 (1993). However, this right to rescind a policy altogether ceases to exist once there is a claim involving an innocent third party. Id. As indicated previously, Farmers concedes that the language of § 520(f)(1) necessitates this result. However, Farmers contends that even though an innocent third party was injured, its liability should be limited to the statutory minimum, because the policy was fraudulently obtained. We agree.
As stated above, § 520(f)(1) prohibits an insurer from using fraud as a basis to void completely coverage under an insurance policy once an innocent third party has been injured. Thus, once an accident occurs, coverage in the amount of the statutory minimum of $20,000/$40,000 must be available for claims by innocent third parties, notwithstanding the fact that the policy in question may have been procured by fraud. However, this prohibition is found only in § 520(f)(1), which, again, deals with the statutorily mandated minimum coverage of $20,000/$40,000. By contrast, § 520(g), which addresses excess coverage, does not include such a limitation. In fact, in drafting § 520(g), the Legislature expressly provided that the additional coverage contemplated in that section "shall not be subject to the provisions of this chapter."
Thus, reading §§ 520(f)(1) and 520(g) together, it is...
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