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Michigan Supreme Court Lansing, Michigan

Opinion
TITAN INSURANCE COMPANY, Plaintiff-Appellant, v McKINLEY HYTEN, HOWARD HOLMES, and MARTHA HOLMES, Defendants-Appellees, and FARM BUREAU INSURANCE COMPANY, Intervening DefendantAppellee.

Chief Justice:

Justices:

Robert P. Young, Jr. Michael F. Cavanagh Marilyn Kelly Stephen J. Markman Diane M. Hathaway Mary Beth Kelly Brian K. Zahra

FILED JUNE 15, 2012 STATE OF MICHIGAN SUPREME COURT

No. 142774

BEFORE THE ENTIRE BENCH MARKMAN, J. We granted leave to appeal to address whether an insurance carrier may avail itself of traditional legal and equitable remedies to avoid liability under an insurance policy on the ground of fraud in the application for insurance, when the fraud was easily

ascertainable and the claimant is a third party. In accordance with this Court's precedent in Keys v Pace, 358 Mich 74; 99 NW2d 547 (1959), we answer this question in the affirmative. There being nothing in the law to warrant the establishment of an "easily ascertainable" rule, we overrule State Farm Mut Auto Ins Co v Kurylowicz, 67 Mich App 568; 242 NW2d 530 (1976), and its progeny1 and reverse the judgment of the Court of Appeals. I. FACTS McKinley Hyten obtained a provisional driver's license in April 2004. In January 2007, Hyten's driver's license was suspended by the Secretary of State because of multiple moving violations and two minor traffic accidents. In light of what she

perceived as assurances from her probation officer, Hyten anticipated that her license would be restored at a district court hearing scheduled for August 24, 2007. That same year, Hyten's mother, Anne Johnson, inherited a motor vehicle that she "earmarked" for Hyten. Given the anticipated restoration of Hyten's driver's license, Johnson sought to obtain automobile insurance for Hyten. Johnson telephoned an

independent insurance agent who, after being told that Hyten's license had been suspended, informed Johnson that Hyten could not be insured until her license had been restored. Nonetheless, an application for insurance from Titan Insurance Company was
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To the extent that Ohio Farmers Ins Co v Mich Mut Ins Co, 179 Mich App 355, 357358, 362-363; 445 NW2d 228 (1989), Farmers Ins Exch v Anderson, 206 Mich App 214, 219; 520 NW2d 686 (1994), and Manier v MIC Gen Ins Corp, 281 Mich App 485, 489490; 760 NW2d 293 (2008), held or stated that an insurer is estopped from denying coverage on the basis of fraud when it could have easily ascertained the fraud, these decisions are overruled.

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filled out on Hyten's behalf and postdated to August 24, 2007, and on August 22, 2007, Hyten signed the application for insurance. The application form asked, "Does the applicant's household have any unlicensed drivers or any drivers with a suspended or revoked driver's license?" In response to this question, the "No" box was checked. The form stated that Titan could review Hyten's driving record, but also stated that Titan could rely on the applicant's representations. On August 24, 2007, the policy became effective and provided personal protection insurance coverage for bodily injury of $100,000 per person/$300,000 per occurrence. At the August 24, 2007, hearing, Hyten's driver's license was not restored, and it was not restored until September 20, 2007. Titan was not informed of this fact.

Subsequently, in February 2008, Hyten was driving the insured vehicle and collided with the vehicle of Howard and Martha Holmes, causing injuries to them. In the process of investigating the accident, Titan learned that Hyten did not have a valid driver's license when the policy was issued. In anticipation that the Holmeses would be filing claims against Hyten for their injuries, Titan filed the instant action seeking a declaratory judgment. Titan averred that had it been informed that Hyten's license had been suspended, it would never have accepted the risk and would not have issued the insurance policy. Given Hyten's fraudulent conduct in her application for insurance, Titan sought a declaration that, should the Holmeses prevail in their action, Titan was not obligated to indemnify Hyten.2
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Titan did not seek to completely avoid liability under the insurance policy. Rather, Titan sought a declaration that it was not obligated to indemnify Hyten for any amounts above the minimum liability coverage limits required by the financial responsibility act

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Farm Bureau Insurance Company, the Holmeses' insurer, intervened as a defendant, and Titan, Farm Bureau, and Hyten each filed cross-motions for summary disposition. Relying on Court of Appeals decisions holding that an insurer may not avoid liability under an insurance policy for fraud that was easily ascertainable, and concluding that whether a person possesses a valid driver's license is easily ascertainable, the trial court granted Farm Bureau's and Hyten's motions for summary disposition. The Court of Appeals affirmed on the basis of Kurylowicz, asserting that once an insurable event has occurred and a third party (the Holmeses here) possesses a claim against an insured arising out of that event, an insurer is not entitled to reform the policy to the third-party's detriment when the fraud by the insured was easily ascertainable. Titan Ins Co v Hyten, 291 Mich App 445; 805 NW2d 503 (2011) (Hyten I). Titan filed an application for leave to appeal in this Court, which we granted. Titan Ins Co v Hyten, 490 Mich 868 (2011) (Hyten II).3 II. STANDARD OF REVIEW This Court reviews de novo a trial court's decision on a motion for summary disposition. Shepherd Montessori Ctr Milan v Ann Arbor Charter Twp, 486 Mich 311, 317; 783 NW2d 695 (2010). In addition, the proper interpretation of a statute is a question of law that this Court reviews de novo. Eggleston v Bio-Med Applications of ($20,000 per person/$40,000 per occurrence), MCL 257.501 et seq., for which Titan acknowledged responsibility. The Court's order directed the parties to address "whether an insurance carrier may reform an insurance policy on the ground of misrepresentation in the application for insurance where the misrepresentation is `easily ascertainable' and the claimant is an injured third party." Hyten II, 490 Mich at 868-869
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Detroit, Inc, 468 Mich 29, 32; 658 NW2d 139 (2003). The proper interpretation of a contract is also a question of law that this Court reviews de novo. Rory v Continental Ins Co, 473 Mich 457, 464; 703 NW 2d 23 (2005). III. ANALYSIS A. POLICIES AS CONTRACTS Insurance policies are contracts and, in the absence of an applicable statute, are "subject to the same contract construction principles that apply to any other species of contract." Id. at 461. As this Court noted in Rohlman v Hawkeye-Security Ins Co, 442 Mich 520, 525 n 3; 502 NW2d 310 (1993), quoting 12A Couch, Insurance, 2d (rev ed),

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Michigan Law