Peatross v. Liberty Mut. Pers. Ins. Co.

575 F.Supp.3d 887

Yolanda PEATROSS, Plaintiff,

v.LIBERTY MUTUAL PERSONAL INSURANCE COMPANY, Defendant.

Case No. 20-10919

United States District Court, E.D. Michigan, Southern Division.

Signed December 14, 2021

Douglas G. McCray, McCray Law Office PLLC, Howell, MI, for Plaintiff.

Stephen P. Brown, Plunkett & Cooney, Bloomfield Hills, MI, for Defendant.

OPINION AND ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT [24] AND DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT [26]

LAURIE J. MICHELSON, UNITED STATES DISTRICT JUDGE

This is an insurance coverage dispute. Yolanda Peatross purchased a home in 2019 and immediately applied for homeowner's insurance with Liberty Mutual Personal Insurance Company. While applying over the phone, she told Liberty's sales representative that "to [her] knowledge," the property taxes were current. However, unbeknownst to Peatross, the seller had not paid the property taxes for the last three years. Relying on Peatross’ statement about the property taxes, Liberty issued a policy to her.

Tragically, Peatross’ home caught fire a few months later. During its subsequent investigation, Liberty discovered the delinquent taxes, refunded Peatross’ premium, and rescinded the policy from its inception, all while refusing to pay for the fire damage.

Peatross then brought suit for breach of contract and an accounting. The parties have since filed cross-motions for summary judgment.

Liberty relies on well-established Michigan law that a material misrepresentation in an insurance application, if relied on by an insurer, allows the insurer to rescind the policy. Peatross, on the other hand, relies on a somewhat novel interpretation of the Essential Insurance Act. She claims that she was an "eligible person for insurance," and so Liberty was required to insure her regardless of the status of the property taxes. Therefore, she says Liberty was forbidden from relying on the alleged misrepresentation and from rescinding the policy. The Court rejects her strained construction of the Act and DENIES her motion for summary judgment. And, for the reasons given below, it GRANTS Liberty's motion for summary judgment.

I. Background

Peatross and Liberty largely agree on the factual record and the applicable law, except where otherwise noted.

A. Factual Summary

In May 2019, Peatross purchased a home on Santa Rosa Drive in Detroit, Michigan by quitclaim deed, meaning the seller made no warranties about the title. (ECF No. 26, PageID.861; ECF No. 26-2); see also 7 Mich. Civ. Jur. Deeds of Conveyance § 6.

About a week prior to the purchase, Peatross had met with the seller, who told her that "everything [with the property] was up to date and everything was up to code." (ECF No. 24-8, PageID.353–354.) Though Peatross took this to mean that the property taxes were current, she did nothing to verify that assumption. (Id. at PageID.354–355.) In truth, the seller had not paid property taxes in 2016, 2017, or 2018. (ECF No. 24, PageID.234.)

On the same day that she purchased the property, Peatross applied for homeowner's insurance over the phone with Liberty. (ECF No. 26, PageID.861.) The sales representative asked Peatross a series of questions, including whether the property taxes were current. (ECF No. 24, PageID.228.) Peatross replied, "to my knowledge, they are."¹ (ECF No. 26, PageID.861.)

The sales representative then checked the box indicating that the taxes were current. (ECF No. 26-6, PageID.929.) Had she said the taxes were delinquent, the representative would have then asked: "have the real property taxes on this dwelling been delinquent for two or more years?" (See id. ) And had she told the representative that the property taxes for 2016, 2017, and 2018 were delinquent, Liberty would have rejected her application. (ECF No. 24, PageID.229.)

Following her telephonic application for insurance, Liberty emailed Peatross two documents: "Your Home Insurance Application" and the "Michigan Property Supplemental Application." (Id. ) Your Home Insurance Application included a fraud statement that read: "In the event that any material misrepresentations ... are made by ... the insured during the application process, we may exercise whatever legal remedies ... [are] available to us under the laws and regulations of this state." (ECF No. 24-5, PageID.324.) It also had a term above the signature line that read: "I have ... validated information on all pages of the application." (Id. ) Peatross electronically signed the document. (ECF No. 33, PageID.138.)

The parties dispute what documents Peatross received regarding the Michigan Property Supplemental Application, which included the property tax questions. Liberty says it sent Peatross the entire form, including the property tax questions and answers. (ECF No. 30, PageID.1135; ECF No. 24-11 (deposition of Jason Shattuck of OneSpan Sign, Liberty's electronic signature vendor).) Peatross, however, claims that "she did not receive the page with the question about taxes and [the sales representative's] answer," and instead received only the signature page. (ECF No. 31, PageID.1173.) Regardless, it is not disputed that Peatross received, signed, and returned the Michigan Property Supplemental Application signature page, and that it included the following term: "I can confirm that the facts stated in my application are true ... [and] I understand that misrepresentation of information in my application could void some or all of my coverage." (ECF No. 26, PageID.862 ("She electronically signed both [documents] and emailed them to the agent."); ECF No. 26-6, PageID.930.) Liberty then issued her a policy. (ECF No. 24, PageID.232.)

Tragically, on December 27, 2019, Peatross’ home caught fire. (ECF No. 26, PageID.862.) There are no allegations that she was in any way responsible. (See ECF No. 24-8, PageID.394.)

Liberty investigated the loss and soon discovered the delinquent property taxes. (ECF No. 24, PageID.233.) So in February 2020, they sent Peatross a letter refunding her premium and rescinding the policy back to its inception date. (Id. at PageID.235.) Liberty explained that it did so "because of what is believed to be material misrepresentations on your application ... Specifically, ... You indicated that the real property taxes on the insured property were not delinquent. Our investigation has revealed that [they were] ... Had we known ... we would not have issued this policy." (ECF No. 24-7, PageID.331.)

B. Procedural History

In April 2020, Peatross filed this diversity action against Liberty Mutual Insurance Company (a different entity), claiming that it breached the insurance contract (Count I) and seeking an appraisal for the cash value of the fire loss per Michigan law (Count II). (ECF No. 1.) Shortly thereafter, she filed an amended complaint asserting the same claims against Liberty, the proper defendant. (ECF No. 4.)

Following discovery, the parties filed cross-motions for summary judgment. (ECF Nos. 24, 26.) The parties have provided substantial briefing that enables resolution of the motion without the need for further argument. See E.D. Mich. LR 7.1(f).

II. Legal Standard

"The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56. "A fact is material only if its resolution will affect the outcome of the lawsuit." Hedrick v. Western Reserve Care Sys. , 355 F.3d 444, 451–52 (6th Cir. 2004) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). And "a dispute about a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Scott v. First S. Nat'l Bank , 936 F.3d 509, 516 (6th Cir. 2019) (internal citations omitted).

When, as here, there are cross-motions for summary judgment, the Court considers them separately, and it is not necessary that either party is entitled to summary judgment; it is possible that neither party meets its burden. See Ohio State Univ. v. Redbubble, Inc. , 989 F.3d 435, 442 (6th Cir. 2021). When considering Peatross’ motion, the evidence is viewed in the light most favorable to Liberty and the initial (and ultimate) burden is on Peatross to show that she is entitled to judgment as a matter of law. See id. The opposite is true when considering Liberty's motion. See id.

III. Discussion

As jurisdiction is premised on diversity of citizenship, the Court applies the law of the forum state. See Auburn Sales, Inc. v. Cypros Trading & Shipping, Inc. , 898 F.3d 710, 715 (6th Cir. 2018). So Michigan law governs here, as both parties acknowledge. (See, e.g., ECF Nos. 24, 26.)

Peatross’ policy with Liberty required her to "confirm that the facts stated in [her] application are true ... [and that she] understand[s] that misrepresentation of information in [her] application could void some or all of [her] coverage." (ECF No. 26-6, PageID.930.) This is consistent with the "well-settled law of [Michigan] that where an insured makes a material misrepresentation in the application for insurance[,] ... the insurer is entitled to rescind the policy and declare it void ab initio." Lake States Ins. Co. v. Wilson , 231 Mich.App. 327, 586 N.W.2d 113, 115 (1998) (citing Lash v. Allstate Ins. Co. , 210 Mich.App. 98, 532 N.W.2d 869, 872 (1995) (collecting cases)). A fact or representation in an application for insurance is material when communication of it would have resulted in an insurer rejecting the risk or charging an increased premium. See Brooks v. U.S. Liberty Mut. Fire Ins. Co. , No. 09-CV-10352, 2009 WL 5171728, at *5 (E.D. Mich. Dec. 30, 2009) (citing Oade v. Jackson Nat'l Life Ins. Co. of Michigan , 465 Mich. 244, 632 N.W.2d 126 (2001) ). And recission is justified even when the misrepresentation is innocent, so long as the insurer relied on it. Lash , 532 N.W.2d at 872 ; see also Stevens v. Liberty Ins. Corp. , No. 11-14695, ...