Pioneer State Mut. Ins. Co. v. McCallister

PIONEER STATE MUTUAL INSURANCE COMPANY, Plaintiff-Appellee, v. TYLER G. MCCALLISTER, Defendant-Appellant, NATIONWIDE MUTUAL FIRE & INSURANCE COMPANY, Defendant-Appellee, and LAWRENCE J. BENTON, Personal Representative of the ESTATE OF DONALD RICHARD MATTHIAS, WANDA MATTHIAS, ROBERT S. HOLLANDER, Personal Representative of the ESTATE OF TYLER MICHAEL CARON, and MICKENZIE WILSON, Defendants.

No. 359077

Court of Appeals of Michigan

September 29, 2022

UNPUBLISHED

Lapeer Circuit Court LC No. 20-053540-CK

BEFORE: CAVANAGH, P.J., AND GARRETT AND YATES, JJ.

PER CURIAM.

Defendant Tyler McCallister appeals as of right the trial court's order granting summary disposition in favor of plaintiff Pioneer State Mutual Insurance Company. This case involves a declaratory-judgment action, in which Pioneer seeks to rescind a no-fault insurance policy issued to Donald Matthias^[1] and defendant Wanda Matthias (collectively, "the insureds"), to avoid the payment of benefits to McCallister, an innocent third party. On appeal, McCallister argues that the trial court erred by granting Pioneer's motion for summary disposition and rescinding the insurance policy with respect to his claims. For the reasons discussed in this opinion, we reverse and remand for further proceedings.

I. BACKGROUND

This case arises from a motor vehicle accident in which Tyler Caron was driving a vehicle owned by the insureds (his grandparents) and covered under a no-fault policy issued by Pioneer. McCallister and defendant Mickenzie Wilson were passengers in the vehicle. Caron, McCallister, and Wilson had consumed alcohol, cocaine, and marijuana throughout the night of the accident. Caron was driving the group to their next location when police officers tried to pull Caron's vehicle over. Caron fled at a high rate of speed and crashed into several trees; Caron died in the accident, and McCallister and Wilson were severely injured.

After Pioneer investigated the matter, the company informed Wanda that it was rescinding the insurance policy on the vehicle. The rescission letter cited three reasons: (1) an ineligible person (Wanda's daughter) lived in the home of the insureds when they first applied for a policy and for several years afterward, (2) Caron was not disclosed as a driver of the vehicle in the accident, and (3) this vehicle was not being garaged at the insured address. Wanda and Donald's estate accepted and deposited a check from Pioneer refunding their premiums.

Later, McCallister filed for no-fault personal protection insurance (PIP) benefits with the Michigan Assigned Claims Plan (MACP), which assigned defendant Nationwide Mutual Fire &Insurance Company as the carrier. After both Nationwide and McCallister filed lawsuits, Pioneer filed this declaratory-judgment action seeking a declaration that its policy was rescinded. Pioneer moved for summary disposition against all defendants and the trial court granted its motions. The trial court rescinded Pioneer's policy as to McCallister after a balancing of the equities. This appeal followed.

II. ANALYSIS

McCallister argues that the trial court erred by granting summary disposition in favor of Pioneer and rescinding the policy.

A. STANDARDS OF REVIEW

We review de novo a trial court's decision to grant summary disposition. Pioneer State Mut Ins Co v Wright, 331 Mich.App. 396, 404; 952 N.W.2d 586 (2020).

When considering a motion brought pursuant to MCR 2.116(C)(10), the trial court must review the evidence in the light most favorable to the nonmoving party. Summary disposition is only appropriate when there is no genuine issue of material fact. A genuine issue of material fact exists when the record presents an issue upon which reasonable minds might differ. [Id. at 405 (citations omitted).]

"Rescission is equitable in nature, and therefore, the remedy is granted only within the trial court's discretion." Id. at 410. A trial court abuses its discretion when its decision falls outside the range of reasonable and principled outcomes. "The trial court's factual findings are reviewed for clear error, and a finding is clearly erroneous if the reviewing court is left with a definite and firm conviction that a mistake has been made." Id. at 406.

B. WAIVER

McCallister first argues that Pioneer has waived any claim of rescission because it announced a cancellation of the insurance policy before attempting to rescind the policy. McCallister's claim of waiver was not raised in the trial court and is therefore itself waived. See Walters v Nadell, 481 Mich. 377, 387; 751 N.W.2d 431 (2008) (explaining that Michigan courts generally follow the "raise or waive" rule of appellate preservation in civil cases).

Even if we exercised our inherent authority to review the issue, we would conclude that the claim of waiver lacks merit. McCallister relies on Burton v Wolverine Mut Ins Co, 213 Mich.App. 514, 517; 540 N.W.2d 480 (1995), in which this Court concluded that the insurer waived its right of rescission when, after discovering a material misrepresentation in the application, it chose to issue a notice of cancellation, which was effective on a future date. This Court concluded that the insurer's actions induced the insureds to believe that they would have insurance coverage until the effective date of the cancellation. Id. at 518. McCallister failed to establish that a cancellation occurred in this case. Unlike in Burton, there is no evidence that a notice of cancellation was sent to the insureds. Rather, McCallister relies on Wanda's testimony that the insurance agent told her that her policy had been cancelled. But there is no evidence that either Wanda, or the agent, was using the term "cancel" in the legal sense of the term. Bill Comstock, a claims manager for Pioneer, also denied that a cancellation had occurred and testified that the policy was rescinded. Pioneer submitted as evidence the check refunding the insureds' premiums, which the insureds cashed. Accordingly, McCallister's claim of waiver lacks merit because there is no genuine issue of material fact that the policy was rescinded and not cancelled.

C. FRAUD

Next, McCallister argues that Pioneer failed to establish by clear and convincing evidence that the policy was procured by fraud.

"Michigan's contract law recognizes several interrelated but distinct common-law doctrines-loosely aggregated under the rubric of 'fraud'-that may entitle a party to a legal or equitable remedy if a contract is obtained as a result of fraud or misrepresentation." Titan Ins Co v Hyten, 491 Mich. 547, 555; 817 N.W.2d 562 (2012). An insurer may seek rescission of the contract for "fraud related to the inducement to or inception of the contract." Meemic Ins Co v Fortson, 506 Mich. 287, 305; 954 N.W.2d 115 (2020). "Rescission abrogates a contract and restores the parties to the relative positions that they would have occupied if the contract had never been made." Bazzi v Sentinel Ins Co, 502 Mich. 390, 409; 919 N.W.2d 20 (2018).

In Univ of Mich. Regents v Mich. Auto Ins Placement Facility,____ Mich. App,____;___ N.W.2d (2022) (Docket No. 354808); slip op at 5, this Court held that "trial courts are required to balance the equities between a defrauded insurer and an innocent third party before extending the mutual rescission of a no-fault insurance policy to an innocent third party." Mutual rescission between the insurer and the insured, unlike the equitable remedy of rescission granted in the sound discretion of a trial court, may be accomplished "by return and acceptance of the premium." Id. at 4. See also Meemic, 506 Mich. at 310 n 19 (explaining the limited distinctions between the equitable and legal remedy of rescission).

In this case, Pioneer refunded the insureds' premiums and the insureds accepted and cashed the check from Pioneer. Thus, a mutual rescission occurred that restored Pioneer and the insureds to the status quo that existed before the insurance contract was formed. See Puffer v State Mut Rodded Fire Ins Co, 259 Mich. 698, 702; 244 N.W. 206 (1932) ("The failure of the parties to make a verbal agreement of settlement, separate from the indorsement on the check, is not of consequence."). After finding a mutual rescission, the trial court did not address or decide whether fraud occurred, nor was it required to do so to rescind the policy as to McCallister. Therefore, we need not consider whether the policy was properly rescinded as to the insureds because of fraud.

D. BALANCING OF THE EQUITIES

Finally, McCallister argues that rescission of the no-fault policy was improper as to him because he is an innocent third party and, when balancing the equities, the relevant factors weigh against rescission. Although McCallister did not specifically address each of the balancing-of-the-equities factors before the trial court, he generally argued that a balancing of the equities did not support rescission. Because a party may make a more developed argument on appeal, this issue is preserved for our review. Glasker-Davis v Auvenshine, 333 Mich.App. 222, 228; 964 N.W.2d 809 (2020).

Our Supreme Court has set forth these principles underlying the equitable remedy of rescission:

When a plaintiff is seeking rescission, the trial court must balance the equities to determine whether the plaintiff is entitled to the relief he or she seeks. Accordingly, courts are not required to grant rescission in all cases. For example, rescission should not be granted in cases where the result thus obtained would be unjust or inequitable, or where the circumstances of the challenged transaction make rescission infeasible. Moreover, when two equally innocent parties are affected, the court is required, in the exercise of [its] equitable powers, to determine which blameless party should

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