Titan Ins. Co. v. Hyten

• Decision Date: 01 February 2011
• Docket Number: Docket No. 291899.
• Citation: 291 Mich.App. 445,805 N.W.2d 503
• Parties: TITAN INSURANCE COMPANY v. HYTEN.
• Court: Court of Appeal of Michigan — District of US

291 Mich.App. 445

805 N.W.2d 503

TITAN INSURANCE COMPANY

v.HYTEN.

Docket No. 291899.

Court of Appeals of Michigan.

Submitted Aug. 5, 2010, at Detroit.Decided Feb. 1, 2011, at 9:10 a.m.

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

William E. Ziem, Walled Lake, for McKinley Hyten.

Kopka, Pinkus, Dolin & Eads, P.L.C. (by Mark L. Dolin), Farmington Hills, for Farm Bureau Insurance.

Before: GLEICHER, P.J., and ZAHRA and K.F. KELLY, JJ.

GLEICHER, P.J.

In an insurance application submitted to plaintiff, Titan Insurance Company, on August 24, 2007, defendant McKinley Hyten represented that she possessed a valid driver's license as of that date. In reality, Hyten's license had been suspended and was not restored until nearly a month later, on September 20, 2007. In February 2008, Hyten was involved in an automobile accident in which defendants Martha Holmes and Howard Holmes suffered injuries. On the basis of Hyten's misrepresentation that she held a license on August 24, 2007, Titan sought to reform Hyten's policy by reducing to the statutory minimum the excess liability coverage available to the Holmeses. The circuit court denied Titan this equitable remedy on the ground that Titan could have easily ascertained Hyten's misrepresentation of her licensing date. We affirm the circuit court's order denying Titan's motion for summary disposition and granting summary disposition in favor of Hyten and intervening defendant Farm Bureau Insurance.

I. UNDERLYING FACTS AND PROCEEDINGS

Hyten obtained a provisional driver's license in April 2004. Over the next 2 1/2 years, she incurred multiple moving violations and had two minor traffic accidents. On January 6, 2007, the Secretary of State suspended Hyten's driver's license. Meanwhile, Hyten's mother, Anne Johnson, inherited a 1997 Dodge Stratus. Johnson “earmarked” the vehicle for Hyten's use after the suspension was lifted. Based on assurances from Hyten's probation officer, Johnson anticipated that Hyten's license would be restored at a scheduled court date of August 24, 2007.

On August 22, 2007, in preparation for Hyten's license restoration, Johnson spoke by telephone with an insurance agent, Brett Patrick.¹ Patrick filled out a Titan Insurance Michigan automobile insurance application on Hyten's behalf. Johnson informed Patrick that Hyten's driver's license was suspended, and Patrick responded that Hyten could not be insured until her driving privileges had been reinstated. Johnson advised Patrick that Hyten's license would likely be reinstated on August 24, 2007. Patrick postdated the application to August 24, 2007. The application did not identify that any of the drivers in Hyten's household were unlicensed or had their licenses suspended or revoked as of that date. Johnson paid $719 for the Titan insurance premium by credit card over the telephone. The same day or the next day, Hyten signed the application at Patrick's office, after “skim[ming] over” its contents to confirm the accuracy of the make and model of her car. ² The Titan policy took effect on August 24, 2007, with coverage limits of $100,000 per person and $300,000 per occurrence.

Hyten and Johnson appeared in court on August 24, 2007, where they learned that Hyten would not regain her driving privileges until she completed a driver's assessment. The Stratus stayed in storage until September 20, 2007, when the court restored Hyten's license. Neither Hyten nor Johnson notified Patrick that Hyten's license remained suspended on August 24, 2007. Johnson averred in an affidavit, “I fully expected the car to remain insured while it was stored and that, upon my daughter receiving her license to drive, the insurance policy would be in effect.” On February 10, 2008, approximately five months after the reinstatement of Hyten's license, Hyten had a motor vehicle accident involving the Holmeses. The Holmeses both sustained injuries in the accident.

Titan filed a complaint in the Oakland Circuit Court seeking a declaration reforming Hyten's insurance policy by reducing the liability coverage limits to the statutory minimum of $20,000 per person and $40,000 per event.³ Titan's complaint asserted that had Titan “been informed of the fact that Defendant Hyten's Michigan driver's license had been suspended, it never would have accepted the risk and would not have issued the subject insurance policy, unless Defendant Hyten had named himself [sic] as an excluded driver under MCL 500.3009.” Farm Bureau, the insurance company for the Holmeses, intervened as a defendant in the action. Farm Bureau, Titan, and Hyten filed cross-motions for summary disposition under MCR 2.116(C)(10). In a written opinion and order, the circuit court denied Titan's motion and granted Farm Bureau's and Hyten's motions. The circuit court's opinion set forth the following pertinent factual findings:

In this case, it is not clear that defendant McKinley Hyten knowingly committed any fraud. Indeed, the evidence does not even show that McKinley's mother [Johnson] committed any fraud. The evidence does not show what information the insurance agent received. However, whether a person has a driver's license is easily ascertained. There is no evidence before the Court as to whether the insurance agent asked to see McKinley's license or whether he may have taken her premium knowing that she did not have a license. For all of these reasons, the Court cannot conclude that the plaintiff has a right to reduce the coverage to the statutory minimums.

II. GOVERNING CASE LAW

Titan challenges the circuit court's summary disposition ruling, which we review de novo. Robertson v. Blue Water Oil Co., 268 Mich.App. 588, 592, 708 N.W.2d 749 (2005). “Summary disposition is appropriate under MCR 2.116(C)(10) if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law.” West v. Gen. Motors Corp., 469 Mich. 177, 183, 665 N.W.2d 468 (2003). “In reviewing a motion under MCR 2.116(C)(10), this Court considers the pleadings, admissions, affidavits, and other relevant documentary evidence of record in the light most favorable to the nonmoving party to determine whether any genuine issue of material fact exists to warrant a trial.” Walsh v. Taylor, 263 Mich.App. 618, 621, 689 N.W.2d 506 (2004). “A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ.” West, 469 Mich. at 183, 665 N.W.2d 468.

The parties' dispute centers on whether Titan may reform Hyten's no-fault insurance policy by reducing the tort liability coverage available to the Holmeses from the stated policy limits of $100,000 per person and $300,000 per occurrence to the statutory minimums of $20,000 per person and $40,000 per occurrence. Titan argues that reformation is appropriate because Hyten fraudulently misrepresented that she possessed a driver's license on August 24, 2007.

The issue presented here lies within the intersection of three insurance concepts: policy cancellation, rescission, and reformation. Cancellation and rescission signify different methods for terminating insurance coverage.

Rescission is a remedy distinct from cancellation. See 8B Appleman, Insurance Law and Practice, § 5011, p 403:

“When a policy is cancelled, it is terminated as of the cancellation date and is effective up to such date; however, when a policy is rescinded, it is considered void ab initio and is considered never to have existed.” [ United Security Ins. Co. v. Ins. Comm'r, 133 Mich.App. 38, 42, 348 N.W.2d 34 (1984).]

In contrast, a policy in full effect may be reformed. “Reformation of an insurance policy is an equitable remedy.”

Auto–Owners Ins. Co. v. Elchuk, 103 Mich.App. 542, 545, 303 N.W.2d 35 (1981). In Najor v. Wayne Nat'l Life Ins. Co., 23 Mich.App. 260, 272, 178 N.W.2d 504 (1970), this Court adopted the following description of reformation:

“A written instrument may be reformed where it fails to express the intentions of the parties thereto as the result of accident, inadvertence, mistake, fraud, or inequitable conduct, or both fraud and mistake, fraud or inequitable conduct being on one side and mistake on the other. Conversely, in the absence of satisfactory proof of accident, fraud, or mistake, there is no basis for a court of equity to reform an instrument.” 45 Am Jur, Reformation of Instruments, § 45, p 609.

Bearing in mind these basic concepts, we turn to the law governing Titan's ability to cancel, rescind, or reform Hyten's insurance policy under the circumstances presented.

Where a policy of insurance is procured through the insured's intentional misrepresentation of a material fact in the application for insurance, and the person seeking to collect the no-fault benefits is the same person who procured the policy of insurance through fraud, an insurer may rescind an insurance policy and declare it void ab initio. [ Darnell v. Auto–Owners Ins. Co., 142 Mich.App. 1, 9, 369 N.W.2d 243 (1985).]

However, the right to completely rescind a policy of no-fault insurance “ceases to exist once there is a claim involving an innocent third party.” Farmers Ins. Exch. v. Anderson, 206 Mich.App. 214, 218, 520 N.W.2d 686 (1994).⁴ Once an insurable event occurs, “the liability of the insurer with respect to insurance required by the no-fault act becomes absolute.” Ohio Farmers Ins. Co. v. Michigan Mut. Ins. Co., 179 Mich.App. 355, 363, 445 N.W.2d 228 (1989).

In Ohio Farmers, 179 Mich.App. at 358, 445 N.W.2d 228, this Court addressed whether an insured's misrepresentation authorized an insurance company to reform the policy by limiting its liability to the statutory minimum excess coverage. Ohio Farmers arose from a claim made by an innocent third party injured in an accident with a vehicle insured by the plaintiff, Ohio Farmers Insurance Company. Id. at 357–358, 445 N.W.2d...