In 21st Century Premier Insurance Company v. Zufelt, et al. No. 325657, the Court of Appeals held that an insurer may rescind an insured party’s policy if there are material misrepresentations made by the insured without consideration of the intent of the insured, if the insurance policy calls for such recession and the insurer relied on the misrepresentations in granting the policy. Furthermore, a renewal of a policy, which was originally granted due to misrepresentations in the initial policy, will have no effect on ability of the insurer to rescind the policy even if the misrepresentations were cured in the renewal policy and accident occurred after the renewal policy.
On June 17, 2012, plaintiff 21st Century Insurance Company issued a policy to Barry Zufelt (Barry), which required less than 6 points on his driver's license for eligibility. At the time, Barry had 7 points; however, in the application for insurance, Barry failed to disclose 3 of those points arising from an April 18, 2012 accident. Although plaintiff’s underwriting department investigated Barry’s record, the recent accident did not appear in the record. Plaintiff issued the policy. By the end of September 2012, 4 points accumulated in September 2009 from other violations “dropped off” Barry’s record and in December 2012, plaintiff automatically renewed Barry’s policy for six months. At the time of that renewal, Barry had 5 eligibility points. Shortly thereafter, in March 2013, Barry was involved in an automobile accident. Both Barry and the driver of the other vehicle, Daniel Novak (Novak), were injured. University of Michigan Regents (Regents) provided medical care for Barry’s injuries.
Novak sued Barry and Nancy Zufelt for damages arising from the auto accident. Plaintiff then filed a lawsuit against the Zufelts, Regents and others, alleging that Barry was ineligible to be insured at the time the policy was issued because he made material misrepresentations on his application. Plaintiff moved for summary disposition arguing there was no genuine issue of material fact because Barry made false statements in obtaining the insurance policy at issue, and therefore rescission of the policy was proper. The trial court agreed with the plaintiff that under the policy recession were proper and granted plaintiff’s motion for summary judgment. Regents appealed, claiming that Barry was properly covered by the policy at the time of the accident. The COA affirmed the trial courts judgment.
On appeal, Regents contended that plaintiff failed to assert and prove that Barry committed fraud when applying for the insurance policy, in rejecting that argument the Court stated that the crux of plaintiff’s argument was that Barry made material misrepresentations, which the plaintiffs relied on in granting the policy. To that end, plaintiff cited the language of the policy itself and case law to show that a misrepresentation or failure to disclose was sufficient to rescind the contract, regardless of intent. Regents further contended that policy renewal was a new and distinct contract untainted by the initial misrepresentations. The Court of Appeals found that “[a] renewal contract has been stated by many jurisdictions to be a new, and separate and distinct contract, unless the intention of the parties is shown clearly that the original and renewal agreements shall constitute one continuous contract.” The court went on to say in this case there was no evidence that the renewal agreement indicated that the parties intended to change the governing eligibility rules and the right of the plaintiff to rescind as set forth in the original agreement. Therefore because the original agreement provides that the plaintiff may void the policy, even after an accident for material misrepresentations, the plaintiff's rescission was proper. Regents also argued on the principle of equitable estoppel that plaintiff could not deny Barry coverage because they sent him a confirmation and renewal declaration. However, the court stated that there was no evidence to support that plaintiff knew of the misrepresentations at the time they were made, and because Barry made the misrepresentations in gaining the policy he could not show justifiable reliance. Thus the Court affirmed the trial court's decision.
