Preview:

STATE OF MICHIGAN
COURT OF APPEALS


AMERICAN FELLOWSHIP MUTUAL INSURANCE COMPANY, Plaintiff-Appellant, v DIANA L. FERENCE as Guardian-Conservator of the Estate of JASON FERENCE, Defendant, Counterplaintiff, Third-Party Plaintiff, and AUTO CLUB INSURANCE ASSOCIATION, Third-Party Defendant-Appellee.

UNPUBLISHED February 3, 1998

No. 190910 Livingston Circuit LC No. 95-014066 CK

Before: White, P.J, and Bandstra and Smolenski, JJ. PER CURIAM. Plaintiff appeals as of right the circuit court's order granting Auto Club Insurance Association's (Auto Club) motion for summary disposition pursuant to MCR 2.116(C)(8). We affirm. Plaintiff issued a no-fault automobile insurance policy to Diana L. Ference. After the policy was issued, Diana's son, Jason Ference, was injured as a passenger in an automobile accident. The driver of the automobile in which Jason was riding was insured by Auto Club. Diana informed plaintiff of the accident. Subsequently, plaintiff filed a complaint for rescission of the insurance policy it had issued to Diana on the basis that Diana had made material misrepresentations in her application for insurance. The application for insurance did not reveal that Jason was a resident of Diana's home, was over fourteen-years-old, and had a suspended drivers' license. Diana then filed a complaint, naming plaintiff and Auto Club as defendants, demanding payment of no-fault insurance benefits under the Michigan no

-1

fault insurance act, MCL 500.3101 et seq.; MSA 24.13101 et seq, for expenses resulting from Jason's injuries. Auto Club moved for summary disposition pursuant to MCR 2.116(C)(8), asserting that plaintiff is estopped from rescinding its insurance contract with Diana because Jason is an "innocent third party" and has made a claim under the policy. Because plaintiff is first in line of priority for paying Jason's no-fault benefits, MCL 500.3114(1)(4)(a); MSA 24.13114(1)(4)(a), Auto Club is entitled to summary disposition if plaintiff is estopped from rescinding its insurance contract.1 The trial court granted Auto Club's motion for summary disposition on the grounds that the innocent-party rule applies. I Plaintiff first argues that the innocent-third-party rule is not applicable. We disagree. Generally, a material misrepresentation made in an application for no-fault insurance entitles the insurer to void or to cancel retroactively the policy. Katinsky v Auto Club Ins Ass'n, 201 Mich App 167, 170; 505 NW2d 895 (1993). However, this right to rescind a policy ceases once there is a claim involving an innocent third party. Id. This Court has stated that public policy considerations require that an insurer be estopped from asserting rescission when an innocent third party has been injured. Katinsky, supra, at 171; Ohio Farmers v Michigan Mutual, 179 Mich App 355, 364-365; 445 NW2d 228 (1989).2 In Darnell v Auto-Owners Ins Co, 142 Mich App 1; 369 NW2d 243 (1985), this Court addressed the issue of an insurance company's right to rescind an insurance policy where an insured, other than the claimant, is alleged to have misrepresented facts on the application for insurance. In Darnell, the defendant insurance company sought to rescind a no-fault insurance policy on the basis of misrepresentations made by the claimant's wife in applying for insurance coverage. Id. at 10. This Court held that an insurance policy may not be rescinded, denying coverage to an insured claiming no fault benefits under the policy, on the basis of misrepresentations made by the claimant's spouse, who is also insured under the policy. Id. Paraphrasing Morgan v Cincinnati Ins, 411 Mich 267, 277; 307 NW2d 53 (1981), this Court stated that "only the claim of an insured who has committed the fraud will be barred, leaving unaffected the claim of any insured under the policy who is innocent of fraud." Id. Because Mr. Darnell made no misrepresentation, the Darnell Court held that coverage could not be denied him on the basis of Mrs. Darnell's improper actions. Id. at 10-11. In the present case, it was Jason's mother, not Jason, who is alleged to have misrepresented facts on the application for insurance. Like the insurance provider in Darnell, plaintiff argues that but for Diana's misrepresentations, Jason would have been denied coverage. However, since the record reveals that Jason made no misrepresentation to plaintiff, he is an innocent third party and coverage may not be denied him on the basis of his mother's misrepresentations.3 Lastly, we observe that Jason will have PIP coverage under either decision. The No Fault Act treats Jason as an innocent person not disqualified from benefits. See MCL 500.3113; MSA 24.13113. The question is whether the coverage will be provided by his mother's insurer, or the driver's insurer.4 Thus, our decision to follow, rather than reject, Darnell is consistent with the statutory -2

no-fault scheme, which, in the context of a failure to obtain insurance, disqualifies only the person charged with obtaining the insurance and not innocent family members. Id. II Next, plaintiff argues that Jason is a third-party beneficiary of the insurance contract between plaintiff and Diana and therefore Jason was bound by the condition in Diana's insurance policy that states that no coverage would be afforded in the event of false or inaccurate representations. Plaintiff cites no authority except the third-party beneficiary statute, MCL 600.1405; MSA 27A.1405, in support of this proposition. We conclude, however, that the public policy considerations that have lead this Court to consistently apply the innocent third party doctrine are unaffected by this argument. Affirmed.

/s/ Helene N. White /s/ Michael R. Smolenski

1

MCL 500.3114(1); MSA 24.13114(1) establishes the general rule that accident victims must look first to their own insurance coverage or that of a spouse or resident relative. Logeman, Michigan NoFault Automobile Cases,

Download AMERICAN FELLOWSHIP MUTUAL V DIANE FERENCE.pdf

Michigan Law