Allstate Ins. Co. v. Fremont Ins. Co.

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ALLSTATE INSURANCE COMPANY, Plaintiff-Appellee, v. FREMONT INSURANCE COMPANY, Defendant-Appellant.

No. 365617

Court of Appeals of Michigan

June 6, 2024

UNPUBLISHED

Wayne Circuit Court LC No. 21-008294-NF

Before: BORRELLO, P.J., and SWARTZLE and YOUNG, JJ.

PER CURIAM.

In this insurance company priority dispute arising from a fatal motor vehicle accident, defendant Fremont Insurance Company appeals as of right the trial court's order granting summary disposition in favor of plaintiff Allstate Insurance Company. For the reasons set forth in this opinion, we affirm.

I. BACKGROUND

This case arises out of a June 5, 2020 fatal motor vehicle accident. On that date, 30-year-old Jeremy Cundiff was driving his moped when he was hit by an unknown vehicle. The driver of the other vehicle fled the scene. Cundiff was seriously injured and taken to the hospital by ambulance. The traffic crash report indicates that Cundiff was not wearing a helmet and was suspected of having consumed alcohol, although alcohol was not believed to be a contributing factor to the accident. Cundiff passed away as a result of his injuries on June 15, 2020.

At the time of the accident, Cundiff lived with his mother, Sharon Pabst. Cundiff had lived with Pabst for several years. Pabst testified that her home was Cundiff's main residence although he would also stay with his sister, Jennifer Medrano, at times after having had an argument with Pabst. Cundiff received mail at Pabst's residence and had a key to the home. At the time of the accident, Medrano lived two houses away from Pabst. Medrano had moved in early 2020 to be closer to Pabst. Pabst owned a 2005 Jeep Cherokee and a 1998 Chevy Lumina that were insured with Fremont, and both vehicles were titled and registered in Pabst's name. Pabst testified that she made all of the payments on these vehicles and that Cundiff did not contribute any money toward these vehicles. She further testified that Cundiff never drove either of those vehicles and that Cundiff only drove his moped. There was conflicting evidence whether Cundiff had a valid driver's license on the date of the accident.

Pabst had obtained a policy of insurance from Fremont in 2013. She testified that although she was not sure, she did not believe Cundiff was living with her in 2013. Pabst thought Cundiff was living with his sister at that time. Pabst explained that Cundiff's primary residence was with his sister for a period of approximately three or four years and that at some point, Pabst's home became Cundiff's main residence. Pabst testified that she first purchased the insurance policy by visiting a branch office in person and that she either went alone or with one of her daughters; the daughter who may have accompanied Pabst was not the daughter with whom Cundiff sometimes lived. Pabst also testified that Cundiff did not have any involvement in obtaining or renewing the insurance policy and that Cundiff did not accompany her to the branch office when she purchased the insurance. Pabst paid her insurance premiums via automatic payment from her bank account. As relevant to the events at issue in this case Pabst renewed her policy with Fremont on March 15, 2020 for a term that ended on September 15, 2020. Pabst admitted that Cundiff was living with her at that time. However, she never informed Fremont that Cundiff resided with her.

Pabst explained:

Q. Did you ever report your son to Fremont living with you at all?

A. No, I did not. I didn't feel that it was a need to because he was driving a moped and it was only 50CC, and I was informed that you didn't need to have insurance on 50CC moped.

Q. Who informed you of that?

A. I just heard it somewhere.

Q. But you don't know where?

A. I don't know where.

Q. But as we sit here today, to your knowledge, and your testimony, you never reported that Jeremy [Cundiff] was living with you to Fremont whatsoever?

A. No, I did not because I didn't know how long he would be staying here because, like I said, he came and went. He was a free spirit. So he would come and stay, and then he would go to my daughter's and . . . [Ellipsis in original.]

On the 2013 insurance application, Pabst was asked if there were "any other drivers not listed." She indicated, "No." Pabst was the only listed driver on the application. The application also asked, "Any driver's license suspended or revoked?" Pabst answered, "No." On the declaration page for the policy period March 15, 2020 to September 15, 2020, Pabst was the only listed driver. There does not appear to be a list of household members on the declaration page. Pabst was aware that Cundiff's license had been suspended in 2018 for operating a vehicle while intoxicated and that he had a restricted license for a period of time before his license was reinstated in 2019. However, Pabst testified that she never let Cundiff drive her vehicles and that he only drove his moped.

After the accident, Pabst filed a claim with Fremont on behalf of Cundiff as a resident relative living in her household. Fremont investigated the claim. Kathryn Dauser, a senior claims specialist for Fremont, testified at her deposition about her involvement in investigating Cundiff's claim. According to Dauser, Cundiff's operating-while-intoxicated conviction was discovered during the course of the investigation and that information was forwarded to the underwriting department. It was determined by underwriting that Cundiff was not an eligible driver as of June 25, 2018, when he was convicted of operating while intoxicated, and that he would not become eligible until June 25, 2021. Holly Robinson, a manager in Fremont's underwriting department, testified that Fremont was unable to write an insurance policy for an individual who was convicted of a "major violation," such as operating while intoxicated, for three years after the violation occurred.

Dauser explained that had Fremont known that Cundiff was in Pabst's household after that conviction, Fremont would not have renewed Pabst's policy and would not have insured her. As a result, Fremont rescinded Pabst's insurance policy because Pabst failed to disclose that Cundiff was a resident and driver in her household and Cundiff's driving record made him ineligible for insurance coverage through Fremont. Fremont sent a letter to Pabst informing her that this failure constituted a material misrepresentation of fact that entitled Fremont to rescind the policy and declare it "void at inception."

Fremont issued a check to Pabst for $3,167.77, which apparently constituted the return of all premiums paid on the policy since the period during which Pabst became ineligible for insurance as a result of Cundiff's operating-while-intoxicated conviction. Pabst testified that she received and cashed this check. Pabst applied for benefits on Cundiff's behalf through the Michigan Assigned Claims Plan, which assigned the claim to Allstate.

Allstate initiated this action against Fremont, seeking reimbursement for the personal protection insurance (PIP) benefits paid, or due to be paid, on Cundiff's behalf. Allstate also sought a declaratory judgment that Fremont was the higher priority no-fault insurer responsible for paying benefits on Cundiff's behalf.

Fremont moved for summary disposition under MCR 2.116(C)(10), arguing that Pabst admitted Cundiff lived with her, yet she failed to disclose Cundiff as another driver in her home. Furthermore, Fremont would not have issued the policy had it known about Cundiff and his operating-while-intoxicated conviction. Because Cundiff had a driver's license, he qualified as another driver in the household that Pabst was required to disclose, and her failure to do so constituted a material misrepresentation that justified rescinding the policy and declaring it void ab initio. Fremont additionally argued that equity weighed in favor of permitting Fremont to also rescind the policy as to Cundiff.

Allstate also moved for summary disposition under MCR 2.116(C)(10). Allstate argued that Fremont's post-loss cancellation of Pabst's policy was unenforceable. In the alternative, Allstate argued that if Fremont's post-loss actions were considered a rescission of the policy, then the equities weighed strongly against enforcing the rescission against Cundiff as an innocent third party. Allstate alleged that it had paid $521,872.82 in benefits on Cundiff's claim, plus loss adjustment costs and expenses, for which Allstate sought reimbursement from Fremont.

After initially granting summary disposition in favor of Allstate and then vacating that ruling on reconsideration for reasons not relevant to resolution of this appeal, the trial court scheduled an evidentiary hearing to address the issues whether Fremont properly rescinded Pabst's insurance policy and, if so, whether the balancing of the equities weighed in favor of enforcing that rescission against Cundiff as an innocent third party. At the hearing, the parties' respective counsel presented oral arguments on the issue of balancing the equities to determine whether rescission of the insurance policy could be enforced against Cundiff as an innocent third party. The parties also incorporated their respective motions for summary disposition and attached exhibits.

The trial court issued a written opinion and order granting summary disposition in favor of Allstate pursuant to MCR 2.116(C)(10). The court applied the five factors set forth by then Chief Justice Markman in his concurrence in Farm Bureau Gen Ins Co of Mich. v ACE American Ins Co, 503 Mich. 903; 919 N.W.2d 394 (2018) (Farm Bureau I) and adopted by this Court in Pioneer State Mut Ins Co v Wright, 331 Mich.App. 396; 952 N.W.2d 586 (2020). Applying those factors, the trial court concluded that the equities...