Cunningham v. Citizens Insurance Co. of America

350 N.W.2d 283, 133 Mich. App. 471

• Court: Michigan Court of Appeals
• Decided: April 2, 1984
• Docket: Docket 70392, 70573
• Status: Published

Opinions

J. T. Kallman, J.

Plaintiff filed his action in Docket No. 70392 in the Kalamazoo County Circuit Court, seeking no-fault insurance benefits. Citizens Insurance Company of America resisted the claim, contending that plaintiff was not covered by a policy of no-fault insurance. Plaintiff moved for summary judgment pursuant to GCR 1963, 117.2, subds (1), (2), and (3). After a hearing, the trial court granted plaintiffs motion under GCR 1963, 117.2(3). Citizens now appeals as of right.

The plaintiff in this case, in September of 1981, deliberately and intentionally falsified his application for insurance through Jim Madden Associates, Inc., with Citizens.¹ When asked whether he had been convicted of drunk driving within the last five years, plaintiff answered "no”, although he had, in fact, been so convicted in March, 1980. The independent insurance agent issued a binder based on this fraudulent application. The insurance company began its routine investigation into plaintiffs driving record. On October 5, 1981, Citizens discovered plaintiff had lied and had falsely sworn to the truth of his driving record in the application.

Plaintiff was injured in an accident which occurred on October 4, 1981, one day before Citizens had knowledge of plaintiffs wrongdoing. It was too late to undo the accident. The binder was effective on September 11, 1981, or 24 days before the accident. On October 22, 1981, Citizens notified plaintiff that it was rescinding his policy, returned his premiums, and stated that it would not pay him no-fault benefits.

Had innocent third parties been seriously injured in a collision with plaintiff’s vehicle, we believe that public policy would compel us to hold that coverage for the accident existed, at least for these third parties. See State Farm Mutual Automobile Ins Co v Kurylowicz, 67 Mich App 568; 242 NW2d 530 (1976), lv den 397 Mich 827 (1976). In fact, however, in this case we are not concerned with the rights of third parties but, rather, with whether a person should be entitled to collect no-fault benefits when his policy of insurance has been procured through his personal fraud.

We see no distinction between this case and State Farm Mutual Automobile Ins Co v Allen, 50 Mich App 71; 212 NW2d 821 (1973). Here, plaintiff signed an affidavit that was false, untrue and fraudulent. There was no mistake or ministerial error but, rather, an outright lie. The plaintiff’s actions were dishonest. In Allen, there was forgery of the insured’s name on the insurance policy. In this case, plaintiff committed perjury. Perjury is a felony. Forgery is a felony. If one cannot profit or benefit from a forgery, should one profit or benefit from perjury? We see no distinction of merit between the two. Public policy should not protect a wrongdoer from his own actions at the expense of an innocent third party.²

To permit a false and fraudulent application to bind an insurance company will result in protective measures being taken by the insurance industry. If plaintiffs argument is accepted, one can readily foresee the day when agents will no longer be allowed to issue binders by the companies they represent. One who applies for insurance will have to wait until final acceptance and approval is received from the home office. This may take weeks. We do not believe that those who obey the law and are honest in their dealings should be forced to suffer adverse consequences because of a few wrongdoers’ fraudulent acts. Public policy protects those who do right; the courts need not be overly solicitous of those persons who attempt to perpetrate fraud in their contractual relationships.

We do not agree that any provision in the no-fault act, MCL 500.3101 et seq.; MSA 24.13101 et seq., precludes Citizens from rescinding plaintiff’s policy so that it is void ab initio. MCL 500.3220; MSA 24.13220 and MCL 500.3224; MSA 24.13224 which plaintiff argues act to bar Citizens’ right to rescind the policy ab initio, address only the cancellation of automobile liability insurance, not its rescission. There is an important difference between rescission and cancellation which was noted by the Michigan Supreme Court in Wall v Zynda, 283 Mich 260, 264; 278 NW 66 (1938):

" 'To rescind a contract is not merely to terminate it, but to abrogate and undo it from the beginning; that is, not merely to release the parties from further obligation to each other in respect to the subject of the contract, but to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made. Rescission necessarily involves a repudiation of the contract and a refusal of the moving party to be further bound by it. But this by itself would constitute no more than a breach of the contract or a refusal of performance, while the idea of rescission involves the additional and distinguishing element of a restoration of the status quo.’ 1 Black on Rescission and Cancellation (2d ed), § 1.”

In our opinion MCL 500.3220; MSA 24.13220 and MCL 500.3224; MSA 24.13224 serve only as a limitation on the cancellation of insurance policies issued to honest applicants. In Allen, supra, p 80, this Court accepted this proposition, when it held:

"Dodds and Kendall contend that the trial judge erred in denying their motions asserting that under MCL 500.3220; MSA 24.13220 State Farm could not cancel its insurance policy with Allen. This statute, restricting an insurer’s power to cancel a policy of insurance, does not limit the court’s power to declare a policy inoperative because of fraud or forgery.”³

Moreover, we believe that MCL 500.3224; MSA 24.13224 impliedly recognizes the continuing vitality of common-law rescission. Subsection 1 of § 3224 states that "[failure to disclose the cancellation by any insured upon any application for insurance shall not be grounds to deny coverage on the basis of fraud by an insurer who may have accepted the risk thereafter”. The very fact that the Legislature specifically provided that this type of misrepresentation does not permit the insurer to deny coverage impliedly recognizes that other fraudulent statements or misrepresentations do permit the insurer to rescind the coverage, that is, "to deny coverage”.

This is not a case in which the insurer unjustifiably delayed notifying plaintiff of its decision to rescind his policy. Here, the accident had already occurred before Citizens learned of plaintiffs fraud, and this fraud was discovered in a reasonably timely fashion. Under these circumstances, the wrongdoer, plaintiff, must suffer the consequences of his actions.

Because we hold that Citizens permissibly rescinded plaintiffs insurance policy ab initio, we turn to the issue raised in Docket No. 70573. There, plaintiff argues that if rescission ab initio is allowed, then he is entitled to benefits from Auto-Owners Insurance Company, as the servicing carrier for the assigned claims facility. Pursuant to MCL 500.3113(b); MSA 24.13113(b), a person is not entitled to collect personal protection insurance benefits through the assigned claims facility if he is the owner or registrant of a motor vehicle which is involved in an accident and if he does not possess the required no-fault automobile insurance coverage. Since we conclude that plaintiffs deception permitted Citizens to rescind the policy ab initio as to his personal right to collect no-fault benefits, we believe that plaintiffs claim against the assigned claims facility must fail under MCL 500.3113(b); MSA 24.13113(b).

The judment in Docket No. 70392 is reversed and the judgment in Docket No. 70573 is affirmed.

R. B. Burns, P.J., concurred.

1 The dissent claims it is very conceivable that in many cases a person might make an innocent misrepresentation on an insurance application which could deny him coverage in the event of an accident. The issue of innocent misrepresentation is not before the Court at this time. We decline to address the hypothetical issue raised by the dissent.

2 Although this issue has not been extensively addressed, we acknowledge that some authority exists for the proposition that a policy of automobile insurance, issued in a state which mandates that insurance coverage, cannot be rescinded as void ab initio even as to the insured who fraudulently obtained that policy. At the same time, at this juncture, there appears to be no clear majority of decisions going either way and some cases have allowed rescission ab initio as to the insured who has fraudulently obtained the coverage, but not as to innocent third parties. See, e.g., State Farm Mutual Automobile Ins Co v Wall, 92 NJ Super 92; 222 A2d 282 (1966). The ALR annotation cited by the dissent is limited in its scope to whether an insurer who issues a policy in a state mandating compulsory insurance can avoid coverage to third parties by rescinding the policy. It does not collect cases discussing the insurer’s right vis-á-vis the insured.

To the extent that Kurylowicz, supra, p 574, can be read as standing for the premise that after injury or damage an automobile insurance policy becomes absolute, we specifically disagree with it. Both pre-no-fault decisions from this state and decisions from jurisdictions which do not mandate compulsory insurance coverage allow an insurer to rescind ab initio an automobile insurance liability policy even where this affects the rights of third parties. See Keys v Pace, 358 Mich 74; 99 NW2d 547 (1959). See, also, inter alia, Fireman’s Fund Ins Co v Knutsen, 132 Vt 383; 324 A2d 223 (1974); Utica Mutual Ins Co v National Indemnity Co, 210 Va 769; 173 SE2d 855 (1970); Governmental Employees Ins Co v Chavis, 254 SC 507; 176 SE2d 131 (1970).

3 Although phrased as not restricting "the court’s power to declare a policy” void ab initio, the Allen Court’s decision had the effect of upholding plaintiffs rescission of the insurance policy.