Maurer v. Fremont Ins. Co.

325 Mich.App. 685

926 N.W.2d 848

Dale MAURER, as conservator for Rachel Amy Maurer, a legally incapacitated person, Plaintiff/Counterdefendant-Appellee,

v.FREMONT INSURANCE COMPANY, Defendant/Counterplaintiff-Appellant.

No. 336514

Court of Appeals of Michigan.

Submitted February 9, 2018, at Detroit.

Decided September 18, 2018, 9:00 a.m.

Opinion of the Court

Shapiro, J.

In December 2012, plaintiff Rachel Amy Maurer¹ was catastrophically injured in an automobile accident. Her car, along with all the family cars, had been insured with defendant Fremont Insurance Company since 2006. In October 2014, almost two years after the accident, Fremont advised plaintiff’s husband, Dale Maurer, who was the policyholder, that the policy was being rescinded by the company retroactive to 2006 and that it therefore had no obligation to pay for any of plaintiff’s medical treatment, replacement services, or wage loss related to the 2012 accident.

Plaintiff sought a declaratory judgment stating that she was entitled to personal protection insurance (PIP) benefits from Fremont under the no-fault act, MCL 500.3101 et seq . Fremont filed a counterclaim for rescission. The parties filed competing motions for summary disposition.

The trial court ruled in plaintiff's favor, determining that Fremont's rescission claim was not filed within the statutory period of limitations. Fremont appealed, and for the reasons set forth below, we affirm.

I. FACTS

A. PREACCIDENT EVENTS

In 2006, Mr. Maurer contacted an insurance agent to purchase no-fault insurance for the three family vehicles. Shortly after, Mr. Maurer received a copy of the Fremont application that had been prepared by the agent, and the agent told him to sign and send it to Fremont. The vehicle in question was a 1992 Buick Regal that was used primarily by plaintiff. She was employed part-time by the United States Postal Service (USPS) as a clerk and delivered mail for half a day on some Saturdays as a relief driver when other drivers took time off. The application listed several questions about the use of the vehicles. One of these questions asked: "Any vehicles used in any business? This includes but is not limited to snowplowing, sales, artisan use, delivery of newspapers, food, mail or any other items." Next to that question, the agent had entered "No." Mr. Maurer testified that he noticed this answer and advised the agent that plaintiff sometimes used the car for mail deliveries on Saturdays. The agent told him not to worry about it and that it was not necessary to change the answer. The agent was independent but had authority from Fremont to bind it to policies.

No evidence was presented that plaintiff participated in completing the application or was aware of what answers were provided to the questions on the application.

Throughout the next several years, Mr. Maurer accepted automatic renewal of the policy by continuing to pay the premiums for all the vehicles when renewal notices were sent to him. In early 2012, Mr. Maurer contacted the insurance agent to advise him that the 1992 Buick Regal was being replaced with a 2004 Buick Century. Mr. Maurer provided uncontradicted testimony that when he did so, he again informed the agent that the vehicle used primarily by his wife, now the Buick Century, was being used, in part, to deliver mail.

B. POSTACCIDENT EVENTS

The auto accident in which plaintiff was injured² occurred on December 3, 2012. Fremont promptly learned of the accident, including the fact that plaintiff had been delivering mail at the time. On December 14, 2012, an application for no-fault benefits was submitted to Fremont. The application indicated that plaintiff was employed with the USPS as a mail carrier and that the accident occurred when she was working. The police report also indicated that plaintiff was delivering mail when the accident happened.

A suit was filed on plaintiff’s behalf against the at-fault driver in 2013. Fremont was informed of this third-party tort case and monitored its progress. Because plaintiff was delivering mail when she was injured, her medical expenses were paid pursuant to the Federal Employees’ Compensation Act, 5 USC 8101 et seq. However, under 5 USC 8132, USPS was entitled to reimbursement from any judgment obtained in plaintiff’s third-party action, and USPS asserted a lien in anticipation of that event. After the third-party action was resolved, USPS’s lien was satisfied from the tort recovery, and Fremont, as plaintiff’s no-fault carrier, became liable to reimburse her for that amount. See Sibley v. Detroit Auto Inter-Ins. Exch. , 431 Mich. 164, 170-171, 427 N.W.2d 528 (1988). Fremont did not agree to reimburse plaintiff the sum she paid to the federal government to reimburse it for the cost of her medical care. In January 2014, plaintiff filed suit seeking a judgment declaring that Fremont had to do so.

Although the accident occurred on December 3, 2012, Fremont did not seek to rescind the no-fault policy until after the tort suit concluded, nearly two years later. On October 27, 2014, Fremont sent a letter captioned as "Rescission of Policy" to Mr. Maurer. It stated that Fremont was rescinding the policy on the ground that in the 2006 application Mr. Maurer inaccurately answered the question regarding the business use of the vehicle. Fremont’s letter described this as "material misrepresentations regarding driver information, usage of an insured vehicle and miles driven ...." According to the letter, "[u]pon rescission, the policy is void as of inception such that there is no coverage applicable for the claim filed by you ...." Consistent with Fremont’s assertion of rescission, the letter included a check to Mr. Maurer for a refund of all premiums paid since 2006. Mr. Maurer returned the check to Fremont. In January 2015, Fremont filed a counterclaim for rescission in which it asked the trial court to declare that the policy issued to the Maurers was rescinded and void ab initio and to award "other equitable relief as is proper under the facts and circumstances ...."

The rescission letter did not assert that Fremont would have declined to insure the vehicle had it known that it was being used for occasional mail delivery. The letter stated that the policy was being rescinded because "[h]ad we been informed of the [business] use of the vehicles on the policy we would have adjusted the rate accordingly resulting in an increase of premium, and issued a different insurance contract to you with applicable endorsements under the circumstances."³

And, although Fremont repeatedly refers to a contractual right to rescind in the case of fraud, the policy contained no rescission provision. The policy did, however, contain two relevant provisions.

First, the policy provided how the insurer could address errors or misrepresentations in the application for insurance coverage. It provided that Fremont could adjust its premiums retroactively if it discovered that the use category of the car was in error or had been changed. It stated that the change in premium would be made "at the time of such changes or when we become aware of the changes, if later." There is nothing in the record, however, to indicate that during the 22 months between the accident and the rescission letter Fremont sought any backpayment or increased its premiums.

Second, the contract contained a provision that specifically addressed intentional misrepresentation, i.e., fraud. That provision narrowly referred to an exclusion to be applied only to the person who committed the fraud. It read: "We will not cover any person seeking coverage under this policy who has intentionally concealed or misrepresented any material fact, made fraudulent statements, or engaged in fraudulent conduct with respect to the procurement of this policy...."⁴

The parties filed cross-motions for summary disposition, and the trial court ruled that Fremont's rescission claim was barred by both the statute of limitations and the innocent-third-party doctrine. The innocent-third-party doctrine provided a bright-line rule that if the policyholder fraudulently provided false information on the application, any rescission based on that fraud would not apply to other persons covered by the policy who did not participate in the fraud. After the trial court's ruling, this Court held that the innocent-third-party doctrine had been abrogated. Bazzi v. Sentinel Ins. Co. , 315 Mich. App. 763, 781, 891 N.W.2d 13 (2016) (Bazzi I ), rev’d in part by Bazzi v. Sentinel Ins. Co. , 502 Mich 390, 919 N.W.2d 20 (2018) (Bazzi II ).⁵ In light of that decision, the trial court allowed Fremont to file a delayed motion for reconsideration. With that motion, Fremont also filed an untimely motion to amend its affirmative defenses to add a claim alleging that plaintiff was not entitled to coverage under MCL 500.3113(b) because Mr. Maurer purchased the policy and plaintiff was the titleholder to and registrant of the vehicle. The parties again filed competing motions for summary disposition, and the trial court again granted summary disposition to plaintiff based on the statute of limitations. Fremont’s motion to amend affirmative defenses was denied for lack of merit.

II. ANALYSIS

Fremont raises two issues on appeal: (1) whether the trial court erred by concluding that its rescission claim was untimely, and (2) whether MCL 500.3113(b) precluded plaintiff from recovering no-fault benefits. We review de novo a trial court’s grant or denial of summary disposition. Batts v. Titan Ins. Co. , 322 Mich. App. 278, 284, 911 N.W.2d 486 (2017).

III. STATUTE OF LIMITATIONS

Actionable fraud, also known as fraudulent misrepresentation, Titan Ins. Co. v. Hyten , 491 Mich. 547, 555, 817 N.W.2d 562 (2012), requires that

(1) the [party] made a material representation; (2) the representation was false; (3) when the [party] made the representation, the [party] knew that it was false, or made it recklessly, without knowledge of its truth as a positive assertion; (4)

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