State Farm Mut. Auto. Ins. Co. v. Kurylowicz

• Decision Date: 08 March 1976
• Docket Number: Docket No. 19677
• Citation: 67 Mich.App. 568,242 N.W.2d 530
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellant, v. Frank KURYLOWICZ and Robert John Kurylowicz, Defendants, Third-Party Plaintiffs and Appellees, and Secretary of State of the State of Michigan, Third-Party Defendant and Appellee, and Ronald Reeder et al., Defendants.
• Court: Court of Appeal of Michigan — District of US

Page 530

242 N.W.2d 530

67 Mich.App. 568

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellant, v. Frank KURYLOWICZ and Robert John Kurylowicz, Defendants Third-Party Plaintiffs and Appellees and Secretary of State of the State of Michigan, Third-Party Defendant and Appellee and Ronald Reeder et al., Defendants.

Docket No. 19677

Court of Appeals of Michigan.

March 8, 1976.

Released for Publication June 8, 1976.

Cholette, Perkins & Buchanan by Sherman H. Cone, Grand Rapids, for plaintiff-appellant.

Bergstrom, Slykhouse & Shaw by Michael R. Smolenski, Grand Rapids, for Kurylowicz.

Frank J. Kelley, Atty. Gen., Robert A. Derengoski, Sol. Gen., Carl K. Carlsen, Asst. Atty. Gen., G. Thomas Johnson, Sp. Asst. Atty. Gen., Muskegon, for Sec'y State.

Phelps, Linsey, Strain & Worsfold by Dale M. Strain, Grand Rapids, for Smith.

Before T. M. BURNS, P.J., and V. J. BRENNAN and CAVANAGH, JJ.

V. J. BRENNAN, Judge.

Plaintiff, State Farm Mutual Automobile Insurance Company (hereinafter State Farm), appeals as of right from a judgment entered on January 29, 1974 which refused plaintiff's request that an automobile insurance policy which it had issued to defendants Frank and Robert Kurylowicz be cancelled and held void Ab initio.

In February or March of 1971 defendant Robert John Kurylowicz made application to State Farm for insurance coverage on an automobile. In filling out the application form, the agent asked Mr. Kurylowicz a number of questions, one of which was whether or not, at any time during the past five years, had the insured or any member of his household had his license to drive suspended or revoked. Although there was a conflict in the testimony, the trial judge found that Robert Kurylowicz had answered 'no' to that question, whereupon the agent so indicated in the appropriate box on the application form. On May 10, 1971, Robert Kurylowicz returned to the office, made a deposit of $65 on the insurance and received a verbal binder from the agent. The agent thereupon completed the application form, showing May 10, 1971 as the date of the application and the effective date of the policy of insurance. It was uncontroverted at trial that Robert Kurylowicz's driver's license had been suspended from September 14 to October 13, 1970.

On May 20, 1971, Robert Kurylowicz was involved in an automobile accident in which one Michael W. Thorn was killed and five other persons injured. Robert Kurylowicz was involved in a second accident on July 19, 1971. On August 23, 1971, State Farm declared a rescission of the policy retroactive to May 10, 1971, alleging as grounds that Robert Kurylowicz had misrepresented material facts in his application concerning previous revocation or suspension of his driver's license.

A suit was subsequently commenced by the administrator of the estate of Michael W. Thorn against Robert John Kurylowicz, Frank G. Kurylowicz and others. Thereafter, State Farm brought the instant action for declaratory judgment seeking to determine the rights of the various parties under the policy. A trial was held and the circuit judge issued a written opinion in which he held that there was insurance coverage at the time of the accident on May 20, 1971. A motion for rehearing was denied and State Farm thereupon filed this appeal. The sole issue presented is whether the misrepresentation by Robert Kurylowicz in his application for automobile insurance will justify a determination that his automobile insurance policy was void Ab initio.

State Farm relies on the case of Keys v. Pace, 358 Mich. 74, 99 N.W.2d 547 (1959), for the proposition that an insurer under an automobile insurance policy may avoid liability under the policy if, in procuring the insurance, the insured has misrepresented a fact material to the risk and the falsity of the representation was unknown to the insurer. In that case the insured was one Robert H. Pace, who was found guilty of a traffic violation and was therefore ordered to surrender his driver's license on July 25, 1955. Pace's driver's license was returned on November 27, 1956. On that very day, Pace, representing that he had not had his operator's license revoked, suspended or refused during the last three years, applied for and was issued a policy of automobile insurance. On December 3, 1956, Julia Keys, a passenger in an automobile, was injured when the automobile in which she was riding was struck by an automobile operated by Pace. In the suit which followed, the court entered a judgment of $9,500 against defendant Pace. In the garnishment action which followed, the insurance company, garnishee defendant, sought to avoid liability on the policy, contending that the policy was totally void from its inception because of misrepresentations made by the principal defendant Pace in his application. The circuit court entered judgment against the insurance company. The Michigan Supreme Court reversed and directed that a judgment of no cause of action be entered. In reaching this decision, the Court was impressed by the palpable dishonesty of Pace and what it considered the 'onerous' burden of imposing a duty on insurance companies to investigate the representations of their porposed insureds.

'Rather, is the insurer not entitled to give credence to its insured's honesty until it has actual notice that he is a scoundrel? Moreover, if inquiry is to be demanded, is it enough to stop with the traffic court? Might not the accident suggest physical or psychiatric defects? Should investigations not also be made of the past hospitalizations of the insured? Where will we say this may stop within the existing economic framework? It is doubtful whether one who deliberately sets out to swindle an insurance company can be prevented from doing so by any such requirement, and it is even more doubtful that there is enough of this practice to warrant the placing upon the insurance business a requirement so onerous.' 358 Mich. at 84, 99 N.W.2d at 552.

Keys v. Pace has never been overruled, but it is interesting to note that no Michigan appellate court has seen fit to cite this case since it was released in 1959.

In 1966, the Michigan Legislature saw fit to amend the Michigan Insurance Code of 1956 by the enactment of 1966 P.A. 342. M.C.L.A. § 500.3204 Et seq.; M.S.A. § 24.13204 Et seq. There the Legislature provided, Inter alia, for limitation of the grounds which an insurance company could use for cancellation of a policy. M.C.L.A. § 500.3220; M.S.A. § 24.13220. Under these provisions, an insurance company could cancel an automobile liability policy only for one or more of some thirteen different reasons. Among those reasons was 'that the insured failed to disclose fully in his application his record of motor vehicle accidents or traffic violations as are material to the insurer's acceptance of the risk.' The Michigan Legislature saw fit to amend this section once again by 1970 P.A. 161, by deleting most of the grounds upon which an insurance company would be able to cancel a policy of automobile liability insurance and by providing that after 55 days from the original issue of the policy the insurer could cancel a policy only if 'the named insured or any other operator, either resident of the same household or who customarily operates an automobile insured under the policy has had his operator's license suspended during the policy period and the revocation or suspension has become final.' M.C.L.A. § 500.3220; M.S.A. § 24.13220.

The Michigan Legislature in 1965 enacted the Motor Vehicle Accident Claims Act, M.C.L.A. § 257.1101 Et seq.; M.S.A. § 9.2801 Et seq., in order to provide compensation for citizens injured by uninsured tort-feasors who would otherwise have no source of recovery. Bowser v. Jacobs, 36 Mich.App. 320, 194 N.W.2d 110 (1971).

Finally, we note that the Legislature has enacted 1972 P.A. 294, commonly referred to as the 'no-fault act', M.C.L.A. § 500.3101 Et seq.; M.S.A. § 24.13101 Et seq. The provisions on compensation therein sought to serve the important social interests of lessening the tragic social and economic consequences that often accompany automobile mishaps. Shavers v. Attorney General, 65 Mich.App. 355, 237 N.W.2d 325 (1975).

Of course the case at bar accrued prior to the enactment of the 'no-fault act', so our holding in this case cannot be precedent for actions arising after the effective date of no-fault, but the purposes of the Legislature in passing the no-fault act are instructive in our determination of the policy of the State of Michigan in seeking to provide for recovery for victims of automobile mishaps in the state.

When these statutes are read In pari materia, the policy of the State of Michigan regarding automobile liability insurance and compensation for accident victims emerges crystal clear. It is the policy of this state that persons who suffer loss due to the tragedy of automobile accidents in this state shall have a source and a means of recovery. Given this policy, it is questionable whether a policy of automobile liability insurance can ever be held void Ab initio after injury covered by the policy occurs. Generally, it is held that:

'The liability of the insurer with respect to insurance required by the act becomes absolute whenever injury or damage covered by such policy occurs * * * no statement made by the insured or on his behalf and no violation of the policy provisions may be used to defeat or avoid the policy.' 1 Long, The Law of Liability Insurance, § 3.25 pp. 3--83--84. See Detroit Automobile Inter-Insurance Exchange v. Ayvazian, 62 Mich.App. 94, 233 N.W.2d 200 (1975).

That issue is not before us in this case, so we need not decide it. We need only decide whether, under the facts of the case at bar, State...